As Filed With The U.S. Securities and Exchange Commission on August 8, 2002
Registration No. 333-_____
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
Registration Statement Under the Securities Act of 1933
MATERIAL TECHNOLOGIES, INC.
(Name of Small Business Issuer)
Delaware 1057 95-4622822
---------------------------- ----------------------------- ------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code) Identification No.)
11661 San Vicente Boulevard
Suite 707
Los Angeles, California 90049
310-208-5589
(Address and telephone number of principal office)
_____________________________________________
Robert M. Bernstein, Chief Executive Officer
11661 San Vicente Boulevard
Suite 707
Los Angeles, California 90049
310-208-5589
(Name, address and telephone number of agent for service)
____________________________________________
COPIES TO:
Law Office of Gregory Bartko, P.C.
Gregory Bartko, Esq.
3475 Lenox Road
Suite 400
Atlanta, Georgia 30326
404-238-0550 (telephone)
404-238-0551 (facsimile)
______________________________________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), please check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434
check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
CALCULATION OF REGISTRATION FEE
PROPOSED
PROPOSED MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(1) PRICE(1) FEE
------------------------------ ------------- -------------- ----------- ---------
Common stock, par
value $.001 per share 8,632,301 $0.0475 $410,034 $37.75
offered by selling shareholders =========== =========
Total $410,034 $37.75
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 of the Securities Act. Offering price is calculated
using the best bid and asked prices of the registrant's common stock as quoted
on the Electronic Bulletin Board maintained by the NASD on July 30, 2002.
TABLE OF CONTENTS
Page No.
--------
Prospectus summary 2
Risk factors 4
Cautionary note regarding forward-looking statements 5
Use of proceeds 6
Dividend policy 6
Dilution 6
Selected financial data 6
Management's discussion and analysis of financial condition
and results of operations 7
Business 9
Management 13
Certain transactions 17
Principal stockholders 18
Selling shareholders 19
Description of securities 24
Plan of distribution for selling shareholders 24
Legal matters 26
Experts 26
Index to financial statements F-1
PROSPECTUS
SUBJECT TO COMPLETION, DATED AUGUST 8, 2002
MATERIAL TECHNOLOGIES, INC.
Shares of Common Stock
(par value $.001)
We are registering 8,632,301 shares of our common stock, par value, $.001
per share, for resale by certain selling shareholders, under this prospectus.
We will not receive any of the proceeds from the resale of the shares of common
stock by the selling shareholders. Our common stock is quoted on the Electronic
Bulletin Board maintained by the National Association of Securities Dealers,
Inc. under the symbol "MTEY."
The expenses of this registration statement, estimated to be approximately
$10,537.50, will be paid by us. Expenses of resale of the common stock, such
as commissions or discounts, are being paid by the selling shareholders on a
pro rata basis.
Bid and asked prices for our common stock as quoted on the Electronic
Bulletin Board at the date of this prospectus were $.035 and $.06, respectively.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This investment involves a high degree of risk. Please see the risk factors
beginning on page 7 of this prospectus to read about factors you should
consider before purchasing any of our shares of common stock. You should
purchase our common stock only if you can afford a complete loss of your
investment.
Information contained in this prospectus is subject to completion or
amendment. A registration statement relating to these securities has been filed
with the United States Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer to
sell or the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such state.
The date of this prospectus is August 8, 2002
-1-
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
INVESTORS SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE FINANCIAL
STATEMENTS, WHICH ARE AN INTEGRAL PART OF THIS PROSPECTUS.
OUR BUSINESS
We are engaged in research and development of metal fatigue detection,
measurement, and monitoring technologies. We are a development stage company
doing business as Tensiodyne Scientific Corporation.
Our efforts are dedicated to developing devices and systems that indicate
the presence of very small cracks and the true fatigue status of a metal
component. To date, we have developed two products. The first is a small,
extremely simple device that continuously monitors fatigue life in a structural
member. It is called a "Fatigue Fuse." The second is an instrument that is
expected to detect very small cracks and is intended to determine crack growth
rates and measure the amount of fatigue life remaining in an existing structural
member. Both devices are pioneering technology in the metal fatigue field that
stand as cutting-edge solutions. Both of these products are patented.
CORPORATE BACKGROUND
We were formed as a Delaware corporation on March 4, 1997. We are the
successor to the business of Material Technology, Inc., a Delaware corporation,
also doing business as Tensiodyne Scientific, Inc., which was the successor to
the business of Tensiodyne Corporation that began developing the Fatigue Fuse in
1985. Our two corporate predecessors, Tensiodyne Corporation andMaterial
Technonogy, Inc, were engaged in developing and testing the Fatigue Fuse and,
beginning in 1993, developing the EFS.
This prospectus registers 8,632,301 shares of our common stock for resale
by the selling shareholders.
Our principal executive office is located at 11661 San Vicente Boulevard,
Suite 707, Los Angeles, California 90049. Our telephone number is (310)
208-5589 and our fax number is (310) 473-3177. Our website can be accessed at
www.matechcorp.com.
-2-
SUMMARY FINANCIAL DATA
The following table summarizes the financial data of our business. This
information is qualified by reference to, and should be read together with, the
historical financial data for the periods ended December 31, 2001 and 2000, and
for the period ended March 31, 2002, and should be read in conjunction with our
audited financial statements included elsewhere in this prospectus. The
historical financial data as of December 31, 2001 and 2000 is derived from and
should be read in conjunction with our audited financial statements included
elsewhere in this prospectus. The data presented below should also be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and accompanying notes
appearing elsewhere in this prospectus.
(UNAUDITED) YEARS
THREE MONTHS ENDED ENDED
MARCH 31, DECEMBER 31,
----------- ------------
2001 2002 2000 2001
------------ -------------- -------------- ------------
Operating Data:
Income from Contracts. . . . . . . $ 264,760 $ 330,809 $ 635,868 $ 1,579,823
Net Income (Loss). . . . . . . . . $ (463,984) $ (260,856) $ (459,129) $(2,432,638)
Net Income (Loss) Per Share:
Basic. . . . . . . . . . . . . . . $ (0.02) $ (0.01) $ (0.02) $ (0.07)
Weighted Average Shares
Outstanding:
Basic. . . . . . . . . . . . . . . 27,685,389 44,819,027 18,900,019 33,640,393
March 31, March 31, December 31, December 31,
2001 2002 2000 2001
Balance Sheet Data:
Working Capital (Deficit). . . . . $ (448,226) $ (45,030) $ (403,117) $ (178,611)
Total Assets . . . . . . . . . . . $ 237,221 $ 719,470 $ 108,776 $ 516,745
Net Stockholder's Equity (Deficit) $ (772,424) $ (376,983) $ (735,078) $ (680,384)
-3-
RISK FACTORS
The purchase of our securities involves a high degree of risk.
Accordingly, each prospective purchaser, before investing in the shares, should
carefully read this prospectus in its entirety and should consider the following
risks and speculative features inherent in and affecting this offering and our
business, as well as general investment risks. An investment in our securities
should be made only by persons who can afford an investment involving such risks
and is suitable only for persons able to sustain the loss of their entire
investment.
HISTORY OF LOSSES; ACCUMULATED DEFICIT; WORKING CAPITAL DEFICIENCY
We have incurred losses of $459,129 and $2,432,638 for the years ended
December 31, 2000 and 2001, respectively. We also expect losses from our
operations to continue in the future. The likelihood of our success must be
considered in the light of the problems, expenses, difficulties, complications,
and delays frequently encountered in connection with the development of a
business and the competitive environment in which we operate. Unanticipated
delays, expenses and other problems such as setbacks in research and development
or product development and market acceptance are frequently encountered in
connection with the expansion of a business. As a result of the fixed nature
of many of our expenses, we may be unable to adjust spending in a timely manner
to compensate for any unexpected delays in the development and marketing of our
products or any capital raising or revenue shortfall. Any such delays or
shortfalls will have an immediate adverse impact on our business, operations and
financial condition. See "Need for Additional Financing; Likely Negative Cash
Flow."
OUR AUDITORS HAVE ISSUED THEIR AUDIT REPORT WITH AN EMPHASIS OF MATTER IN THEIR
OPINION THAT INDICATES THAT OUR FINANCIAL STATEMENTS HAVE BEEN PREPARED WITH
THE ASSUMPTION THAT WE WILL CONTINUE AS A GOING CONCERN.
Our auditors have issued a report that accompanies our financial statements
for the period ended December 31, 2001. A paragraph in their report discloses
that our financial statements have been prepared assuming we would continue in
business as a going concern, and that due to our limited capital resources, our
auditors have raised a substantial doubt about our ability to continue as a
going concern.
NO ASSURANCE OF PRODUCT DEVELOPMENT; NEED FOR ADDITIONAL RESEARCH AND
DEVELOPMENT; MARKET UNCERTAINTY
Our products are in the research, development, and testing stage.
Unexpected problems, technological or specifications changes: (i) may make our
technologies obsolete; (ii) may affect our products' overall feasibility; or
(iii) may delay completion and increase costs of research, development, and
testing. The time required to bring one or both of our products to market is
uncertain. Market acceptance of our products cannot be determined until product
development is complete.
LIMITED CURRENT ABILITY TO MARKET OUR PRODUCTS
Our operating results will depend on our ability to market our products.
We have not yet established a direct sales force or distribution network.
Failure to put into place an experienced and skillful marketing infra-structure,
in a timely manner, could have a materially adverse impact upon our ability to
bring our products to market and continue operating.
LACK OF EMPLOYEES
We currently only have four employees, Robert M. Bernstein, President, a
part-time engineer, a part-time vice president and a secretary. There is a
substantial risk that we may not have funds to hire additional employees that
may be needed to complete the development and marketing of our products. Without
the ability to market products we have developed, our business and financial
condition will be materially adversely affected.
-4-
DEPENDENCE ON MANAGEMENT CONSULTANTS AND ADVISORS
Our success largely depends on the performance of our president and chief
executive officer, Robert M. Bernstein, and our independent consultants, and
advisors. Failure to attract and retain key consultants, advisors, and
employees with necessary skills could have a materially adverse impact on our
ability to bring our products to market and continue operating. We have no
written contracts with our advisors or any consultants. Our advisors serve
without compensation other than our common stock that they have received. To
date, these advisors have been willing to provide advice based on their
expertise when needed, generally consisting of telephone conferences ranging
from once a month to several times in a week. There is a risk that any one of
our advisors will no longer be willing to advise us without compensation and
that we will not have the funds to retain them. Loss of these advisors could
seriously impair our ability to develop and market our products.
COMPETITION FROM OTHER TECHNOLOGIES
The metal fatigue measuring industry has significant competition. Other
technologies exist which indicate the presence of metal fatigue damage. Single
cracks larger than a certain minimum size can be found by non-destructive
inspection methods such as dye penetrant, radiography, eddy current, acoustic
emission, and ultrasonics. Tracking of load and strain history, for subsequent
estimation of fatigue damage by computer processing, is possible with recording
instruments such as strain gauges and counting accelerometers. These methods
have been in use for up to 40 years and offer the advantage that they have been
accepted in the marketplace, whereas our products will remain largely unproven
for some currently indeterminable time. Other companies with greater financial
and technical resources and larger marketing organizations than ours pose a
potential threat if they commence competing in our market segment. We are
unaware of any other companies developing technology similar to our technology
and our patents protect our unique technologies. On the other hand, companies
marketing alternative technologies addressing the same market needs as our
products, include Magnaflux Corporation, Kraut-Kremer-Branson, Dunegan-Endevco,
and MicroMeasurements. These companies have more substantial assets, greater
experience, more human and other resources than ours, including but not limited
to established distribution channels and an established customer base.
POSSIBLE LOSS OF OUR PATENTS AND PATENT PROTECTION COVERING OUR PRODUCTS, TO OUR
SECURED LENDERS
Our patents are encumbered by certain liabilities as described under the
heading, "Business." If we fail to pay those obligations to our lenders when
they become due, including obligations to Robert M. Bernstein, a principal
shareholder, director and chief executive officer, we may lose the interests in
our patents, resulting in a loss of patent protection covering our technologies
and products, or certain rights to exploit the technology. Presently, we are
not in default on any of our indebtedness secured by patents or out of
compliance with any covenants of such indebtedness, but no assurances can be
given that we will not be in default on some or all of our debt obligations in
the future, which could then result in loss of our patents and our patent
protection.
WE FACE RISKS THAT OUR PROPRIETARY RIGHTS ARE NOT ADEQUATELY PROTECTED OR ARE
NOT SUPERIOR TO THOSE OF OUR COMPETITORS
We rely on a combination of patent and trade secret protection,
non-disclosure agreements, licensing arrangements and new patent filings to
establish and protect our proprietary rights. We have in the past and intend in
the future to file applications as appropriate for patents covering our
products. Due to the increasing number of patent applications filed with the
United States Patent and Trademark Office, we are uncertain as to if or when
patents will issue from any of our pending applications or, if patents do issue,
that claims allowed will be sufficiently broad to protect our technology and
products. In addition, there is a possibility that any patents that may be
issued could be challenged, invalidated or circumvented, or that the rights
granted to us as owners of the patents will not provide proprietary protection
to us. Since U.S. patent applications are maintained in secrecy until patents
issue, and since publication of inventions in the technical or patent literature
tend to lag behind such inventions by several months, there is a possibility
that we may not be the first creator of inventions covered by such patents or
pending patent applications or that we may not be the first to file patent
applications for such inventions. Despite our efforts to safeguard and maintain
our proprietary rights, we are uncertain as to whether we will be successful in
doing so or that our competitors will not independently develop or patent
technologies that are substantially equivalent or superior to our technologies.
NEED FOR ADDITIONAL FINANCING; LIKELY NEGATIVE CASH FLOW OF OUR BUSINESS
If we fail to raise additional funds necessary for research, development,
and testing from either government grants, sale of securities, borrowings, or
other sources, we will not have a product for a potential market and
shareholders will have no possibility of any financial return or economic
benefit from their ownership of our shares. Even if the necessary $5,000,000 is
raised and research, development, and testing is completed, no assurance can be
given that the results will establish that our products will be marketable.
Moreover, no assurance can be given that our products can be produced at a cost
that will make it possible to market them at a commercially feasible price. We
are likely to have negative cash flow through at least December 31, 2002. Over
the next 24 months, we anticipate that approximately $5,000,000 will be required
to complete research and development of both products and market them. If we do
not successfully raise these funds, we may be compelled to alter our business
plan including a delay in the development and delivery of our products to the
marketplace.
SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET, INCLUDING SHARES OFFERED BY THIS
PROSPECTUS, COULD REDUCE THE VALUE OF YOUR INVESTMENT DUE TO THE INCREASE NUMBER
OF SHARE IN THE MARKET.
The sale of shares of our common stock in the public market could cause a
reduction in the market price of our common stock. This prospectus covers the
resale of 8,632,301 shares or approximately .056% of our issued and outstanding
common stock at June 15, 2002. As of that date, we had 153,677,123 shares of
common stock issued and outstanding. Any substantial resales of our common
stock may result in the reduction of its market price, and as a result, a
reduction in the value of your investment. Moreover, the perceived risk of
dilution may cause other existing shareholders to sell their shares in the
public market, which could contribute to the downward movement in the price of
our common stock.
OUR STOCK PRICE MAY BE HIGHLY VOLATILE AND SUBJECT TO WIDE FLUCTUATIONS DUE TO
MANY FACTORS, INCLUDING A SUBSTANTIAL MARKET OVERHANG
The market price of our common stock may be highly volatile and subject to
wide fluctuations in response to quarterly variations in operating results,
announcements of technological innovations, services, or affiliations or new
products by us or our competitors, changes in financial estimates by securities
analysts, lack of market acceptance of our products and services, or other
events or factors, including the risk factors described herein. In addition,
the stock market in general, and the technology stocks in particular, experience
significant price and volume fluctuations that are often unrelated to a
company's operating performance. Additionally, the sale of a substantial
number of shares of common stock, or even the potential of sales in the public
market following this offering, could cause a decrease in the market price for
the common stock and make it more difficult for us to raise additional capital
through the offer and sale of our common stock.
YOUR INVESTMENT MAY HAVE LIMITED LIQUIDITY IF AN ACTIVE TRADING MARKET DOES NOT
DEVELOP, OR IF DEVELOPED, THAT IT CONTINUE
Your purchase of our common stock may not be a liquid investment because
our common stock is only quoted on the Over-the-Counter Electronic Bulletin
Board maintained by the National Association of Securities Dealers, Inc. We
are not eligible to seek a listing of our common stock on a national securities
exchange, and our ineligibility to do so may impair our ability to develop a
liquid and orderly market in our common stock. You should consider carefully the
limited liquidity of your investment before purchasing any shares of our common
stock. We have no obligation to apply for quotation of our common stock on any
national securities exchange. Factors such as our lack of earnings history, the
absence of expectation of dividends in the near future, mean that there can be
no assurance that an active and liquid market for our common stock will exist at
any time, that a market can be sustained, or that investors in the common stock
will be able to resell their shares. In addition, the free transferability of
the common stock will depend on the securities laws of the various states in
which it is proposed that a sale of the common stock be made.
WE HAVE IMPEDIMENTS TO RAISING ADDITIONAL FINANCING IN THE FUTURE
Under agreements with the University of Pennsylvania to satisfy the debt
due them in the amount of approximately $450,000, we must pay a percentage of
amounts raised from financings, other than from government contracts. We must
pay the University 30% of any such financing over $200,000. In addition, we are
obligated to pay royalties totaling 12% on revenues received from the sale of
the Fatigue Fuse and 10% of revenues received from sale of the EFS. These
commitments are likely to increase the difficulty in finding third-party
financing and decreases the net amount of any financing that we do obtain that
can benefit our company. Underwriters and other financing sources are less
likely to agree to finance our research and development if these amounts must be
paid out rather than used for additional research and development.
OUR ROYALTY OBLIGATIONS
In order to finance development of the Fatigue Fuse and Electrochemical
Sensor, our corporate predecessors sold substantial royalty rights to other
third-parties. As of the date of this Prospectus, we are obligated to pay
royalties to these third-parties totaling 12% of revenues from sales of our
Fatigue Fuse and 10% of revenues from sales of EFS. If these products are
manufactured and sold, these royalty obligations will reduce our revenue from
the sale of these products.
WE DO NOT PLAN TO PAY DIVIDENDS ON OUR COMMON STOCK IN THE FUTURE
We do not expect to be able to pay dividends until we recover any losses
that we may have incurred and we become profitable. We intend to retain our
earnings to finance growth and expansion and for general corporate purposes.
Any future declaration and payment of dividends on our common stock will depend
upon our earnings and financial condition, liquidity and capital requirements,
the general economic and regulatory climate, our ability to service any equity
or debt obligations senior to the common stock, and other factors deemed
relevant by our board of directors. Holders of our preferred stock have the
right to dividends declared with respect to the common stock on an as-converted
basis.
THE TECHNOLOGIES WE USE AND HAVE DEVELOPED FOR OUR PRODUCTS ARE SUBJECT TO RAPID
TECHNOLOGICAL CHANGE AND COULD CAUSE US TO MAKE SIGNIFICANT CAPITAL INVESTMENT
IN NEW TECHNOLOGIES AND EQUIPMENT
The technologies we expect to use in our manufacturing and marketing of our
products are subject to rapid technological change and could cause us to make
significant capital investment in new technologies and equipment. Our market is
characterized by rapid technological changes. Newer technologies, techniques or
products for determining metal fatigue could be developed with better
performance and results than our products. Developing new technologies for
manufacture is frequently subject to unforeseen expenses, difficulties, and
complications and, in some cases, such development cannot be accomplished. The
availability of new and better metal fatigue testing technologies or other
products could require us to make significant investments in technology, render
our current technology obsolete and have a significant negative impact on our
business and results of operations.
ROBERT M. BERNSTEIN, A PRINCIPAL SHAREHOLDER, A DIRECTOR AND OUR CHIEF EXECUTIVE
OFFICER, CONTINUES TO CONTROL OUR AFFAIRS
Our president and chief executive officer, Robert M. Bernstein, owns
100,000 shares of Class B stock, each of which has 1,000 votes per share, which
represents 100,000,000 votes, and also owns 11,978,291 shares of our Class A
common stock representing approximately 13% of the total outstanding shares of
common stock. Thus, on any matter that is subject to a vote of our
shareholders, Mr. Bernstein has votes equal to approximately 72.9% voting
control of our outstanding voting stock. Mr. Bernstein overwhelmingly controls
our direction and management. Our bylaws do provide for cumulative voting.
Nevertheless, a minority shareholder will have no control over management and
probably will be unable to elect any directors.
MR. BERNSTEIN, ALSO IS SUBJECT TO A VARIETY OF CONFLICTS OF INTEREST
Mr. Bernstein controls our operations as the majority shareholder,
president, chief executive officer, and chairman of our board of directors.
Mr. Bernstein may have a conflict of interest as a result of his position as a
secured party on debt obligations we owe to him where we have pledged our patent
rights as security for the repayment of loans Mr. Bernstein has made to us from
time to time, which patent rights could be foreclosed upon in the event that we
become in default on any debt obligations to Mr. Bernstein. Mr. Bernstein's
right to foreclose means that, if our business fails, he could potentially
profit by gaining personal control our technology. On the other hand, as a
director, officer, and controlling shareholder, Mr. Bernstein owes a fiduciary
duty to us and our shareholders to act in our best interests.
WE MAY BE TREATED AS A PSEUDO CALIFORNIA CORPORATION UNDER CERTAIN CIRCUMSTANCES
Section 2115 of the California General Corporation Law subjects certain
foreign corporations doing business in California to various substantive
provisions of the California General Corporation Law in the event that the
average of its property, payroll and sales is more than 50% in California and
more than one-half of its outstanding voting securities are held of record by
persons residing in the State of California. Some of the substantive provisions
include laws relating to annual election of directors, removal of directors
without cause, removal of directors by court proceedings, indemnification of
officers and directors, directors' standard of care and liability of directors
for unlawful distributions. The law does not apply to any corporation which,
among other things, has outstanding securities designated as qualified for
trading as a national market security on the Nasdaq Stock Market if such
corporation has at least 800 holders of its equity securities as of the record
date of its most recent annual meeting of shareholders. It is currently
anticipated that we may be subject to Section 2115 of the California General
Corporation Law which, in addition to other areas of the law, will subject us to
Section 708 of the California General Corporation Law, which mandates that
shareholders have the right of cumulative voting at the election of directors.
CAUTIONARY STATEMENTS ABOUT FORWARD-LOOKING STATEMENTS
Cautionary statement about some of the statements in this prospectus
contain "forward looking statements", including statements regarding, among
other items, our business strategies, projections, and anticipated trends in our
business and the industry in which it operates. The words "believe," "expect,"
"anticipate," "intends," "forecast," "project," and similar expressions identify
forward-looking statements. These forward-looking statements are based largely
on our expectations and are subject to a number of risks and uncertainties,
certain of which are beyond our control. We caution that these statements are
further qualified by important factors that could cause actual results to differ
materially from those in the forward looking statements, including those factors
described under "Risk Factors" and elsewhere herein. In light of these risks and
uncertainties, there can be no assurance that any forward-looking information
contained herein will in fact transpire or prove to be accurate. All subsequent
written forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by this section.
-5-
IMPEDIMENTS TO RESALE OF OUR COMMON STOCK DUE TO CERTAIN PENNY STOCK REGULTIONS
The U.S. Securities and Exchange Commission regulations generally define
"penny stock" to be any equity security that has a market price (as defined)
less than $5.00 per share or an exercise price of less than $5.00 per share,
subject to certain exceptions. For transactions covered by these rules, a
broker-dealer must make a delivery, prior to any brokerage transaction, of a
disclosure schedule relating to the penny stock market. A broker-dealer also
must disclose the commissions payable to both the broker dealer and registered
representative, current quotations for the securities, and, if the broker-dealer
is the sole market maker in that security, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market. Finally, monthly
statements must be sent disclosing recent price information for the penny stock
held in the customer's account and information on a limited market in penny
stocks. Consequently, the "penny stock" rules may restrict the ability of
broker-dealers to sell our securities and may affect the ability of stockholders
to sell our securities in the secondary market.
USE OF PROCEEDS
All shares of common stock being offered by this prospectus are being
offered for resale by the selling shareholders. No proceeds of the sale of the
shares will be received by us.
DIVIDEND POLICY
We have not paid dividends and do not plan on paying dividends in the near
future. Instead, we currently intend to retain any earnings for use in
expanding our business and, therefore, we do not anticipate paying cash
dividends in the foreseeable future.
MARKET PRICE OF OUR COMMON STOCK
Our common stock is traded on the Over-the-Counter Electronic Bulletin
Board maintained by the National Association of Securities Dealers, Inc., under
the symbol "MTEY." Such over-the-counter quotations reflect inter-dealer prices,
without retail markup, markdown, or commission and may not necessarily represent
actual transactions. The following chart shows the high and low bid prices per
share per calendar quarter from January 2000, when we became eligible for price
quotations on the Electronic Bulletin Board, to the end of our most recent
calendar quarter:
HIGH BID PRICE LOW BID PRICE
------------------- ------------------
First Quarter 2000 $ 2.875 $ .343
------------------- ------------------- ------------------
Second Quarter 2000 $ 1.437 $ .42
------------------- ------------------- ------------------
Third Quarter 2000 $ .54 $ .22
------------------- ------------------- ------------------
Fourth Quarter 2000 $ .312 $ .13
------------------- ------------------- ------------------
First Quarter 2001 $ .23 $ .09
------------------- ------------------- ------------------
Second Quarter 2001 $ .12 $ .08
------------------- ------------------- ------------------
Third Quarter 2001 $ .22 $ .084
------------------- ------------------- ------------------
Fourth Quarter 2001 $ .25 $ .10
------------------- ------------------- ------------------
First Quarter 2002 $ .27 $ .10
------------------ ------------------- -----------------
Second Quarter 2002 $ .10 $ .07
------------------- ------------------- ------------------
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000.
In 2001, we received $1,579,823 under two subcontracts on programs with the
U.S. Air Force for application engineering and enhancement of the EFS. Also in
2001, we accrued interest income relating to the non-recourse notes to from our
president and a director amounting to $98,297. In 2000, we received $635,868
under two subcontracts on programs with the U.S. Air Force for application
engineering and enhancement of the EFS. Also in 2000, we accrued interest income
relating to the non-recourse notes from our president and a director
amounting to $96,197.
Costs and expenses
Research and development costs were $1,284,928 for 2001 and $496,501 for
2000. Of the $1,284,928 and $496,501 incurred in 2001 and 2000, $1,069,671 and
$406,823 related to subcontractor costs, respectively. General and
administrative costs were $2,725,548 for 2001 and $640,481 for 2000.
In 2001, actual cash compensation paid to our president totaled $90,000. We
also accrued $30,000 in additional compensation due him. We charged to
operations $1,500,000 due to a reduction in the balance of the non-recourse
promissory notes due in connection with the purchase of our common stock by the
our president who is also a director. We issued 6,000,000 shares to our
president during 2001, valued at $420,000, for past compensation due to him.
Other expenses in 2001 included consulting fees of $225,363, legal fees of
$209,486, accounting fees of $51,120, travel expenses of $42,092, office
salaries of $36,225, office expense of $34,880, rent of $29,468, telephone
expense of $13,838, and a write off of our $33,000 investment in Antaeus
Research, LLC.
The major costs in 2000 were officer's salary of $127,183, consulting fees
of $127,512, legal fees of $197,322, accounting and auditing fees of $23,063,
interest expense of $60,634, and travel expenses of $26,443.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2002 AND 2001
During the three-month period ended March 31, 2002, we generated
approximately $330,809 under its research and development contracts as
compared to $264,760 generated during the three-month period ended March 31,
2001.
During the three-month periods ended March 31, 2002 and 2001, we incurred
approximately $252,346 and $210,616, respectively, in development costs, all of
which related to the above-indicated contracts.
-7-
General and administration costs were $330,779 and $540,664, respectively,
for the three-month periods ended March 31, 2002 and 2001. The major expenses
incurred during the first quarter of 2002 consisted of consulting in the amount
of $198,285, officer's salaries of $30,000, secretarial salary of $10,315,
professional fees of $42,343, travel expenses of $8,622, and telephone expense
of $8,671. Of the $198,285 incurred for consulting expenses, $168,900 was
through the issuance of 1,689,000 shares of our common stock. Of the $42,343
incurred in professional fees, $17,500 was through the issuance of 175,000
shares of our common stock.
The major expenses incurred during the three-month period ended March 31,
2001 consisted of officer's salary of $450,000, office salaries of $9,903,
consulting fees of $5,998, professional fees of $43,636, telephone expense of
$2,060, and travel expenses of $5,009. Officer's salary consists of $30,000 of
accrued wages and the issuance of 6,000,000 shares of our common stock valued at
$420,000 for the amount of accrued compensation for the years 1991 through 1995
payable to our president and chief executive officer, Mr. Bernstein. Interest
credited to operations for 2002 and 2001 were $41,150 and $12,616, respectively.
All interest income credited to operations has been accrued on non-recourse
notes from our president and chief executive officer totaling $495,000.
-8-
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents as of March 31, 2002 and 2001 were $302,716 and
$781, respectively.
During the first quarter of 2002, we received a total of $793,800, which
consisted of $358,744 from our research and development contracts,
$434,700 through the sale of 5,003,011 shares of our common stock and $356
in interest income. Of the $793,800 received, $554,219 was used in
operations, $88,334 was incurred in the offering of the shares of common stock,
and $23,000
was advanced to our president and chief executive officer, Mr. Bernstein.
During the first quarter of 2001, we received a total of $141,669,
which consisted of $140,069 from our research and development contracts, and
advances from our president an chief executive officer totaling $1,600. Of the
$141,669 received, $137,142 was used in operations and $7,300 was advanced
to our president and chief executive officer.
BUSINESS
THE FATIGUE FUSE2THE FATIGUE FUSE
The Fatigue Fuse is designed to be affixed to a structure to give warnings
as pre-selected portions of the fatigue life have been used up (i.e., how far to
failure the structure has progressed). It warns against a condition of
widespread generalized cracking due to fatigue.
The Fatigue Fuse is a thin piece of metal similar to the material being
monitored. It consists of a series of parallel metal strips connected to a
common base, much as fingers are attached to a hand. Each "finger" has a
different geometric pattern called "notches" defining its boundaries. Each
finger incorporates a design specific notch near the base. By applying the laws
of physics to determine the geometric contour of each notch, the fatigue life of
each finger is finite and predictable. When the fatigue life of a finger (Fuse)
is reached, the Fuse breaks.
By implementing different geometry for each finger in the array, different
increments of fatigue life are observable. Typically, notches will be designed
to facilitate observing increments of fatigue life of 10% to 20%. By
mechanically attaching or bonding these devices to different areas of the
structural member of concern, the Fuse undergoes the same fatigue history
(strain cycles) as the structural member. Therefore, breakage of a Fuse
indicates that an increment of fatigue life has been reached for the structural
member. The notch and the size and shape of the notch concentrate energy on
each finger. The Fuse is intimately attached to the structural member of
interest. Therefore, the Fuse experiences the same load and wear history as the
member.
We believe that the Fatigue Fuse will be of value in monitoring aircraft,
ships, bridges, conveyor systems, mining equipment, cranes, etc. No special
training will be needed to qualify individuals to report any broken segments of
the Fatigue Fuse to the appropriate engineering authority for necessary action.
The success of the device is contingent upon our successful development and
marketing of the Fatigue Fuse, and no assurance can be given that we will be
able to overcome the obstacles relating to introducing a new product to the
market. To determine its ability to produce and market the Fatigue Fuse, we
need substantial additional capital and no assurance can be given that needed
capital will be available.
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In a new structure, we generally assume there is no fatigue and can thus
design the Fatigue Fuse for 100% of its life potential. But in an existing
structure, one that experienced loading and wear, we must determine the fatigue
status of that structural member so we can design the Fatigue Fuse to monitor
the remaining fatigue life potential. The EFS is dedicated to that purpose.
THE ELECTROCHEMICAL FATIGUE SENSOR ("EFS")
The EFS is a device that employs the principle of
electrochemical/mechanical interaction to measure the state of fatigue damage in
a metal structural member. It is expected to provide a means for determining
the fatigue age of that member so that appropriate action (monitor, replacement,
or repair) can be taken before structural failure occurs.
The EFS functions by treating the location of interest (the target)
associated with the structural member as an electrode of an electrochemical
cell. To complete the electro-cellular reaction an electrolyte, in the form of
a low corrosion gel, is placed in contact with the target. By imposing a
constant voltage-equivalent circuit as the control mechanism for the
electrochemical reaction at the target surface - current flows as a function of
stress action. The EFS is always a dynamic process; therefore stress action is
required, e.g. to measure a bridge structural member it is necessary that cyclic
loads be imposed, as normal traffic on the bridge would do. The results are a
specific set of current waveforms and amplitudes that is expected to
characterize and report fatigue damage (age).
Stress points are very often located in difficult-to-get-at places for
humans. Therefore, it has become desirable to miniaturize the process and
develop a means for delivery to inaccessible areas. The answer is borescope
technology, that is currently unproven and being developed. We are highly
dependent on this technology for much of its potential market.
DEVELOPMENT OF OUR TECHNOLOGIES
Status of the fatigue fuse
The development and application sequence for the Fatigue Fuse and EFS is
(a) basic research, (b) exploratory development, (c) advanced development, (d)
prototype evaluation, (e) application demonstration, and (f) commercial sales
and service. The Fatigue Fuse came first. The inventor, Professor Maurice
Brull, conducted the basic research at the University of Pennsylvania. We
conducted the advanced development, including variations of the adhesive bonding
process, and fabricating a laboratory-grade remote recorder for finger
separation events that constitute proper functioning of the Fatigue Fuse. The
next step, prototype evaluation which encompasses empirical tailoring of Fuse
parameters to fit the actual spectrum loading expected in specific applications,
needs to be done. The associated tests include both coupon specimens and
full-scale structural tests with attached Fuses. A prototype of a flight
qualifiable operational separation event recorder was designed, fabricated, and
successfully demonstrated. The next tasks will be to prepare a mathematical
analysis for more efficient selection of Fuse parameters and to conduct a
comprehensive test program to prove the ability of the Fatigue Fuse to
accurately indicate fatigue damage when subjected to realistically large
variations in spectrum loading. The final tasks prior to marketing will be an
even larger group of demonstration tests.
The Fatigue Fuse is at its final stages of testing and development. To
begin marketing, the Fuse will take from 6 to 12 months and cost approximately
$600,000, including technical and beta testing and final development. If
testing, development, and marketing are successful, we estimate we should begin
receiving revenue from the sale of the Fatigue Fuse within a year of receiving
the $600,000. However, we cannot estimate the amount of revenue that may be
realized from sales of the Fuse, if any.
To date, certain organizations have included our Fatigue Fuse in test
programs. We have already completed the tests for welded steel civil bridge
members conducted at the University of Rhode Island. In 1996, Westland
Helicopter, a British firm, tested the Fatigue Fuse on Helicopters. That test
was successful with the legs of the Fuses failing in sequence as predicted.
-10-
Status of the EFS
The existence and size of very small cracks can be determined by EFS, and
in this regard it appears superior in resolution to other current
non-destructive testing techniques. It has succeeded in regularly detecting
cracks as small as 40 microns in a titanium alloy, in a laboratory environment,
as verified by a scanning electronic microscope, and is probably capable of
detecting cracks down to 10 microns. This is much smaller than the capability of
any other practical non-destructive testing method for structural components.
There is also a vast body of testing supporting successful use of this
technology with selected aluminum alloys.
However, additional testing is required to verify EFS' crack detection
capabilities under variable amplitude environments which are more representative
of actual structures in the field, like a highway bridge or aircraft fuselage.
It is also believed that for the first time it is possible to conduct the
fatigue appraisal of steel structural members without requiring any knowledge of
past loading history. Until additional tests are completed and these
capabilities verified, we cannot assure that this technology will be successful.
GOVERNMENT CONTRACT FUNDING
In August 1996, we executed an agreement entitled, "Teaming Agreement,"
with Southwest Research Institute (SWRI) and the University of Pennsylvania (the
"Team") for research and development efforts. On February 25, 1997, SWRI was
awarded from the United States Air Force a $2.5 million Phase I contract to
determine the feasibility of the EFS to improve the U.S. Air Force capability to
perform durability assessments of military aircraft, including air frames and
engines through the application of the EFS to specific military aircraft alloys.
Our share of this award was approximately $550,000. On June 18, 1998 Universal
Technology Corporation (UTC) a new Matech associate was awarded a second
contract in the amount of $2,061,642 to "determine the applicability of the EFS
to improve the U. S. Air Force capability to perform durability assessments of
military aircraft, including both air frames and engines through the application
of the EFS to specific military aircraft alloys." Matech's share of this award
was approximately $538,000. On February 5, 1999, a third contract in the amount
of $2,000,000 was awarded to UTC to continue and expand the efforts for turbine
engines. Matech's directly subcontracted share was approximately $382,000. A
fourth contract was awarded to UTC on November 3rd, 2000 in the amount of ____
to continue the borescope and EFS technologies, as well as alternate means of
fatigue sensing. Matech's directly subcontracted share is approximately
$700,000. Accordingly, over the last 4 years approximately $8.5 million was
awarded to research and develop the EFS. The results of this research are
encouraging and provide a basis for us and our research partners to obtain
additional funding. No assurance can be given, however, that such funding will
be received.
COMMERCIAL MARKETS FOR OUR PRODUCTS AND TECHNOLOGIES
No commercial application of our products has been arranged to date, but
the technology has matured to a point where we believe it can be applied to
certain markets. Our technology is applicable to many market sectors such as
bridges and aerospace as well as ships, cranes, power plants, nuclear
facilities, chemical plants, mining equipment, piping systems, and "heavy iron."
APPLICATION OF OUR TECHNOLOGIES FOR BRIDGES
In the U.S. alone there are more than 610,000 bridges of which over 260,000
are rated by the Federal Highway Administration as requiring major repair,
rehabilitation, or replacement. Although there are normal business imperatives,
the market is essentially macro-economically and government policy driven. In
our opinion, "only technology can provide the solution." The need for increased
spending accelerates significantly each year as infrastructure ages. Analysis
by infrastructure economic experts, including the Federal Highway
Administration, confirms that $9 billion per year, for bridges alone, is the
minimum amount required to maintain the status quo. Since that amount has not
been available, and a backlogged repair bill of more than $358 billion has
already accrued. In the 1991 ISTEA initiative (Intermodal Surface
Transportation and Efficiency Act) and recently in the $200 billion 1998 TEA-21
initiative (Transportation Equity Act) Bridge Management Systems have been
mandated as a matter of policy.
OUR PATENT PROTECTIONS
We are the assignee of four patents originally issued to Tensiodyne
Corporation. The first was issued on May 27, 1986, and expires on May 27, 2003.
It is titled "Device for Monitoring Fatigue Life" and bears United States Patent
Office Numbers 4,590,804. The second patent, titled "Method of Making a Device
for Monitoring Fatigue Life" was issued on February 3, 1987 and expires February
3, 2004, United States Patent Office Number 4,639,997. The third patent, titled
"Metal Fatigue Detector" was issued on August 24, 1993 and expires on August 24,
2010, United States Patent Number 5,237,875. The fourth patent, titled "Device
for Monitoring the Fatigue Life of a Structural Member and a Method of Making
Same," was issued on June 14, 1994 and expires on June 14, 2011, United States
Patent Number 5,319,982. In addition, we own a fifth patent, titled "Device for
Monitoring the Fatigue Life of a Structural Member and a Method of Making Same,"
which was issued June 20, 1995, United States Patent Number 5,425,274, and
expires June 20, 2012.
DISTRIBUTION OF OUR PRODUCTS
Subject to available financing, we intend to exhibit the Fatigue Fuse and
the Electrochemical Fatigue Sensor at various aerospace trade shows and intend
to also market our products directly to end users, including aircraft
manufacturing and aircraft maintenance companies, crane manufactures and
operators, certain state regulatory agencies charged with overseeing bridge
maintenance, companies engaged in manufacturing and maintaining large ships and
tankers, and the military. Although we intend to undertake marketing, dependent
on the availability of funds, within and without the United States, no assurance
can be given that any such marketing activities will be implemented.
COMPETITION
Other technologies exist which measure and indicate fatigue damage. Single
cracks larger than a minimum size can be found by nondestructive inspection
methods such as dye penetrant, radiography, eddy current, acoustic emission, and
ultrasonics. Tracking of load and strain history, to subsequently estimate
fatigue damage by computer processing, is possible with recording instruments
such as strain gauges and counting accelerometers. These methods have been
used for 40 years and also offer the advantage of having been accepted in the
market, whereas our products remain largely unproven. Companies marketing these
alternate technologies include Magnaflux Corporation, Kraut-Kermer-Branson,
Dunegan-Endevco, and Micro Measurements. These companies have more substantial
assets, greater experience, and more resources than ours, including, but not
limited to, established distribution channels and an established customer base.
The familiarity and loyalty to these technologies may be difficult to dislodge.
Because we are still in the development stage, we are unable to predict whether
our technologies will be successfully developed and commercially attractive in
potential markets.
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EMPLOYEES
We have four employees, Robert M. Bernstein, our president and chief
executive officer, a secretary, one part-time engineer and one part-time
government contract advisor. In addition, we retain consultants for specialized
work such as an accountant who oversees our government contracts.
OUR FACILITIES
We lease an office at 11661 San Vicente Blvd., Suite 707, Los Angeles,
California, 90049. The space consists of 830 square feet and will be adequate
for our current and foreseeable needs. The total rent is $2,348 per month and
expires on June 1, 2002. Effective as of June 1, 2002, we entered into a short
extension of this facilities lease, which permits us to remain in our facility
at the same cost until December 31, 2002. In addition, we have obtained an
addendum to our facilities lease that gives us the right to extend the lease
through June 30, 2003 without additional increases in cost.
LEGAL PROCEEDINGS
We are not presently involved in any legal proceedings that, in our
opinion, might have a material effect on our operations.
TRANSFER AGENT
The transfer agent for our securities is Interwest Transfer Company, Inc.,
1981 E. 4800 South, Ste. 100, Salt Lake City, Utah 84117, and its telephone
number is (801) 272-9294.
WHERE YOU CAN FIND ADDITIONAL INFORMATION ABOUT US
We have filed with the U.S. Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act with respect to the
securities offered by this prospectus. This prospectus, which forms a part of
the registration statement, does not contain all of the information set forth in
the registration statement and the accompanying exhibits and schedules. For
further information with respect to us and the securities offered by this
prospectus, reference is made to the registration statement and the accompanying
exhibits and schedules. Statements contained in this prospectus as to the
contents of any contract or other document filed as an exhibit to the
registration statement are not necessarily complete and are qualified in their
entirety by reference to the exhibits for a complete statement of their terms
and conditions.
The registration statement, including all amendments, exhibits and
schedules, may be inspected without charge at the offices of the Securities and
Exchange Commission at Judiciary Plaza, 450 Fifth Street NW, Washington, D.C.
20549. Copies of this material may be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street NW, Washington,
DC. 20549. The public may obtain information on the operations of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. The U.S Securities
and Exchange Commission also maintains a Web site (http://www.sec.gov) through
which the registration statement and other information can be retrieved.
We are subject to the reporting and other requirements of the
Securities Exchange Act and intend to furnish our stockholders annual reports
containing financial statements audited by our independent accountants and to
make available quarterly reports containing unaudited financial statements for
each of the first three quarters of each fiscal year.
-12-
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The name, age, office, and principal occupation of our executive officers
and directors and certain information relating to their business experience as
of August 8, 2002, is set forth below:
NAME AGE POSITION
---- --- --------
Robert M. Bernstein 67 President, Chief Executive Officer, Chairman of
the Board
Joel R. Freedman 42 Secretary, Treasurer, Director
Dr. John Goodman 68 Chief Engineer, Director
William Berks 71 Vice President of Government Projects
ROBERT M. BERNSTEIN---is our president, chief executive officer, and the
chairman of the board of directors, and has served in each of those capacities
since October 1988. Mr. Bernstein received a Bachelor of Science
degree from the Wharton School of the University of Pennsylvania in 1956. From
August 1959 until his certification expired in August 1972, he was a certified
public accountant licensed in Pennsylvania. From 1961 to 1981, he was a
consultant specializing in mergers, acquisitions, and financing. From 1981 to
1986, Mr. Bernstein was chairman and chief executive officer of Blue Jay
Enterprises, Inc. of Philadelphia, PA., an oil and gas exploration company. In
December 1985, Mr. Bernstein formed a research and development partnership for
Tensiodyne, and assisted in locating funding of approximately $750,000 for
research on the Fatigue Fuse.
JOEL R. FREEDMAN---is our secretary/treasurer and a director Mr. Freedman
has acted as our secretary and treasurer since 1989. From 1983, he was president
of Genesis Advisors, Inc., an investment advisory firm in Bala Cynwyd,
Pennsylvania and since January 1, 2000, he has been a senior vice president of
PMG Capital Corp., a securities brokerage and investment advisory firm in West
Conshohocken, Pennsylvania. His duties with PMG Capital require a full time
commitment from him, so he acts as our secretary and treasurer only on a part
time, as needed basis. Accordingly, he does not take part in our daily
activities.
DR. JOHN W. GOODMAN---is our chief engineer and a director. Dr. Goodman is
retired from TRW Space and Electronics and was formerly chairman of the
Aerospace Division of the American Society of Mechanical Engineers. Dr. Goodman
holds a Doctorate of Philosophy degree in Materials Science that was awarded
with distinction by the University of California at Los Angeles in 1970. In
1957, he received a Masters of Science degree in Engineering Mechanics from Penn
State University and in 1955 he received a Bachelor of Science degree in
Mechanical Engineering from Rutgers University. From 1972 to 1987, Dr. Goodman
was with the U. S. Air Force as lead Structural Engineer for the B-1 aircraft,
Chief of the Fracture and Durability Branch, and Materials Group Leader,
Structures Department, Aeronautical Systems Center, Wright-Patterson Air Force
Base. From 1987 to December 1993, he was on the Senior Staff, Materials
Engineering Department of TRW Space and Electronics. Dr. Goodman has been Chief
Engineer for Development of our products since May 1993. Since June, 1998, Dr.
Goodman has consulted for us on a part time basis.
WILLIAM BERKS---is our vice-president of government projects. Mr. Berks
retired from TRW, Inc. in November 1992 where he was employed for 26 years. Mr.
Berks has served in the capacity of our vice-president of operations since
leaving TRW in November 1992. His last assignment was as a project manager in
the Advanced Systems Division of TRW's Space and Technology Group. He managed
the Structures and Mechanism Subsystem of the Universal Test Bed Project, which
is a three axis stabilized advanced bus for large geostationary satellites. In a
collateral assignment, he was responsible for planning a building and its
-13-
equipment for the National Space Program Office of Taiwan, Republic of China,
for the design, assembly, integration and test of small three axis spacecraft
and each of their subsystems, and manpower planning for a spacecraft program.
Recently he was the Chief Mechanical Engineer for the Space and Technology
Group's commercial satellite operations. He served six years as Manager of the
Mechanical Design Laboratory, the engineering design skill center for the design
and development of spacecraft mechanical systems, which had as many as 350
individuals. For ten years he was Manager of the Advanced Systems Design
Department, which was responsible for mechanical systems design for all
spacecraft project. Mr. Berks was Assistant Project Manager for Mechanical
Subsystems for a major spacecraft program, which included preparation of plans,
specifications and drawings, supervision of two major subcontracts, and
responsibility for flight hardware fabrication and testing. Mr. Berks has also
managed independent research and development projects (antennas, materials,
solar arrays) and holds six patents. He has over 30 years of experience in
spacecraft mechanical systems engineering.
OUR ADVISORY BOARD
Since 1987, we and our corporate predecessors, have had an advisory board
consisting of senior experienced businessmen and technologists, most of whom are
nationally prominent. These individuals consult with us on an as needed basis.
Members of the advisory board serve at will, but have not received any
compensation for their services on the advisory board and there is no current
plan to compensate advisory board members. The advisory board advises us on
technical, financial, and business matters and may in the future be compensated
for these services. A biographical description of the members of the advisory
board is as follows:
ADM. ROBERT P. COOGAN, USN (RET.) --- Robert P. Coogan retired from a
distinguished naval career spanning 40 years during which he held numerous posts
including: Commander U.S. Third Fleet, Commander Naval Air Force - U.S. Pacific
Fleet, Commandant of Midshipmen - U.S. Naval Academy, and Chief of Staff -
Commander Naval Air Force - U.S. Atlantic Fleet. From 1980 to 1991, he was with
Aerojet General Company and served as Executive Vice President of Aerojet
Electrosystems Co. from 1982-1991. He has his B.S. in Engineering from the U.S.
Naval Academy and M.A. in International Affairs from George Washington
University.
ROBERT F. CUSHMAN, ESQ. Mr. Cushman is a partner in the Philadelphia office
of Pepper Hamilton LLP, and is also the permanent chairman of the Andrews
Conference Group Construction Super Conference, and is the organizing chairman
of the Forbes Magazine Conferences on Worldwide Infrastructure Partnerships,
Rebuilding America's Infrastructure Conference, Alternative Dispute Resolution,
the Forbes/ Council of the Americas Latin American Marketing Conference and the
Forbes Environmental Super Conference.
CAMPBELL LAIRD Mr. Laird received his Ph.D. degree in 1963 from the
University of Cambridge. His Ph.D. thesis title was "Studies of High Strain
Fatigue." He is presently professor and graduate group chairman in the
Department of Materials, Science & Engineering at the University of
Pennsylvania. Dr. Laird's research has focused on the strength, structure, and
fatigue of materials, in which areas he published in excess of 250 papers. He is
a co-inventor of the EFS.
T. Y. LIN Mr. Lin graduated from Tangshan College, Jiaotong University, and
received a M.S. degree in Civil Engineering from the University of California at
Berkeley. Since 1934, he has taught and practiced civil engineering in China and
the United States and planned and designed highways, railways, and over 1,000
bridges and buildings in Asia and the Americas. He is known as Mr. Prestressed
Concrete in the United States, having pioneered both the technology and industry
in the 1950s. Mr. Lin has authored and co-authored three textbooks in structural
engineering and more than 100 technical papers. Mr. was the founder of T.Y. Lin
International that provides design and analysis for all types of concrete and
steel structures and pioneered the design of long-span structures, prestressing
technology, and new design and construction methods over the past 40 years.
-14-
Y. C. YANG Mr. Yang is a pioneer in "value engineering" which optimized
many projects with economic te-designs. He is a recipient of the 1988 Jiaotong
University Outstanding Alumnus Award, a citation from Engineering News Record,
and the ACI Mason Award. With their partnership dating back to wartime China in
the early 1940s, Mr. Lin and Mr. Yang established their international stature in
the United States over the five decades that followed. In 1992, they formed the
San Francisco, CA headquartered firm, Lin Tung-Yen China, Inc., to continue
their tradition of excellence and innovation in structural and civil engineering
and to serve as a bridge between East and West. The firm serves its clients
through various tasks, ranging from planning and designs to construction
management and the introduction of financing.
THOMAS V. ROOT Mr. Root is president and chief executive officer of Optim
Incorporated, a company that develops, manufactures, markets, sells and services
flexible endoscopic products and solutions to medical and industrial markets.
Optim Incorporated is ISO 2001certified and also manufactures and markets a
complete line of industrial fiberscopes to serve the remote inspection needs of
aerospace, transportation, energy generation, law enforcement, and school
security markets. Mr. Root has had 25 years of experience in all methods of
nondestructive testing and was an NDT, Level III, member of the American Society
for Nondestructive Testing Educational Council and Level III question committee.
Mr. Root's career began at General Dynamics in 1972 and after serving in the
nondestructive test engineering and education departments he joined technical
operations as manager of Technical Services in 1976. In 1978, Mr. Root
co-founded Northeast NDE Company, a private distribution and service company
committed to providing products and services for the development of
nondestructive testing applications. After completing a sale transaction to
Northeast NDE's treasurer in 1990, Mr. Root founded Valtec Systems, a private
firm, for the development and distribution of specialty nondestructive testing
systems. In early 1996, he sold Valtec and became vice-president of operations
and general manager of the industrial products company of Applied Fiberoptics,
Inc., the predecessor of Optim Inc. In 1997, he became the chief executive
officer of Optim, Inc.
SAMUEL I. SCHWARTZ Mr. Schwartz is presently president of Sam Schwartz Co.,
consulting engineers, primarily in the bridge industry. Mr. Schwartz received
his B. S. degree in Physics from Brooklyn College in 1969, and his Masters
degree in Civil Engineering from the University of Pennsylvania in 1970. From
February 1986 to March 1990, he was the chief -- engineer/first deputy
commissioner, New York City Department of Transportation and from April, 1990,
to the present, acted as a director of the Infrastructure Institute at the
Cooper Union College, New York City, New York. From April, 1990 to 1994, Mr.
Schwartz was a senior vice-president of Hayden Wegman Consulting Engineers, and
is a columnist for the New York Daily News.
NICK SIMIONESCU. Mr. Simionescu joined HNTB in 1974, one of the largest
consulting engineering companies in the world, and is currently vice-president,
director of business development in the New York City Office. He has over 37
years of management, construction, design, inspection and detailing experience.
Mr. Simionescu is very familiar with the New York City infrastructure. For
nearly 28 years he has been working in New York City, primarily on projects with
the New York City Department of Transportation and New York State Department of
Transportation Regions 10 and 11. His projects have included management of the
inspections of the Williamsburg, Brooklyn, Triborough, Manhattan, and Queensboro
bridges. Additionally, he has been the project manager of bridge inspection for
many other arterial and local bridges throughout New York. Mr. Simionescu's
responsibilities with HNTB have involved a variety of national and international
projects. He has been the senior structural designer and manager of bridges in
South Carolina, Rhode Island, Malaysia and Florida.
LIEUTENANT GENERAL JOE N. BALLARD. General Ballard is retired from the
United States Army and has served as president and chief executive officer of
The Ravens Group, Inc., a business development, consulting, and executive level
leadership service company, since March 2001. He received his MS in Engineering
Management from the University of Missouri, BS in Electrical Engineering from
Southern University, and he is a registered professional engineer. He served as
Commanding General, US Army Corps of Engineers from 1996 until 2000, Chief of
Staff, US Army Training and Doctrine Command, from 1995 until 1996, Commander of
the US Army Engineer Center in Missouri from 1993 until 1995, Director of the
Total Army Basing Study at the Pentagon from 1991 until 1993, and he was
Commander of the 18th Engineering Brigade in Germany from 1988 until 1990.
General Ballard has received many honors including the Deans of Historical Black
Colleges and Minority Institutions Black Engineer of the Year in 1998, Honorary
Doctorate of Engineering from the University of Missouri in 1999, Honorary
Doctorate of Law L.L.D. from Lincoln University in 1998, Honorary Doctorate of
Engineering from Southern University in 1999, and Fellow of the Society of
American Military Engineers in 1999.
HENRYKA HANES. Ms Hanes is the founder and president of H. MANES &
ASSOCIATES, the first consulting firm to specialize in enabling
environmental technology Companies reach their next level of growth through
exporting. Established in 1999, HMA is a boutique-consulting firm that
works closely with clients through the entire process of exporting from
assessing their technologies in relationship to the international
markets; to developing a suitable export strategy; identifying viable
potential partners; assisting in raising capital; interfacing in partnership
negotiations; introducing clients to political decision-makers and business
peers; and providing guidance until complete implementation of the export
plan.
DIRECTORS' COMPENSATION
Our president and chief executive officer, Robert Bernstein, received
shares of our common stock in conjunction with certain activities associated
with his services as chief executive officer and our operations. Mr. Bernstein
did not receive such compensation for his activities as a director, rather as
employee compensation. Our non-employee directors may receive reimbursement for
their out-of-pocket expenses for attendance at each meeting of the board of
directors or any committee of the board of directors. We anticipate that our
directors will meet at least once each year. No directors' fees or compensation
is paid to our non-employee directors.
BOARD COMPOSITION
Our board of directors consists of at least three members who each serve as
directors for one-year terms. Terms for each of our directors expire at the
annual meeting next ensuing. There are no family relationships among any of our
directors, officers or key employees. Each director holds office until their
successor is duly elected and qualified. Vacancies in the office of any director
may be filled by a majority vote of the directors then in office. One or more of
our outside directors will serve as members of both committees.
Our president and chief executive officer is appointed by our board of
directors, and all of our other executive officers are appointed by the
president and chief executive officer.
Holders of our class B preferred stock shall have one vote per share and
shall be entitled by class vote to elect one director and to vote, as a class,
on removal of any director so elected. Otherwise, holders of our class B
preferred stock shall not have the right to vote as a class on any matter.
-15-
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid to our chief
executive officer, Robert M. Bernstein for each of the last three fiscal years.
We have no employment agreements with any executive officer.
EXECUTIVE COMPENSATION
Other
Annual All Other All other
Name and Compen- Restricted LTIP compen-
Principal Salary Bonus sation Stock Options Payout sation
Position Year ($) ($) ($) Awards ($) (SARs (#) ($) ($)
--------------- -------- ------------ ----------- ------- ----------- ---------- ----------- ---------------------
Robert M. 1999 $150,000 $-- $-- $-- $-- $-- $ --
Bernstein CEO 2000 $120,000 $-- $-- $ 4,183(1) -- $-- $ --
2001 $120,000 $-- $-- $420,000(2) -- $-- $1,395,000(3)
--------------- -------- ------------ ----------- ------- ----------- ---------- ----------- ---------------------
John W. Goodman 1999 $23,384 $-- $-- $ 11,700(4) -- $-- $ --
Director and 2000 $26,614 $-- -- $ -- -- $-- $ --
Engineer 2001 $23,076 $-- -- $ 50,500(5) -- $-- $ --
==========================================================================================================================
(1) In 2000, the Corporation issued to Mr. Bernstein, as escrow holder, 4,183,675
shares of its common stock, in part, for future compensation and subject to
restrictions. We have included the par value of the shares issued in Mr.
Bernstein's 2000 compensation amounting to $4,183.
(2) In 2001, we issued Mr. Bernstein 6,000,000 shares for past compensation.
We valued these shares at $420,000.
(3) In 2001, we reduced the obligation from Mr. Bernstein to us on a non-recourse
promissory note relating to the issuance of 4,650,000 shares of common stock
from $1,855,350 to $460,350.
(4) In 1999, we issued Mr. Goodman 142,000 shares of restricted common stock.
These shares were valued at $11,700.
(5) In 2001, we issued Mr. Goodman 800,000 shares of restricted common stock.
These shares were valued at $50,500.
The aggregate compensation paid or delivered to all persons who served in
the capacity of a director or executive officer during the most recent fiscal
year ended December 31, 2001, was $1,865,500 ( 2 persons), respectively. As a
part the aggregate compensation paid as shown in the table, during fiscal year
2001, we issued to Mr. Bernstein as past compensation that accrued from 1991 to
1995, 6,000,000 shares of our common stock valued at the bid price ($.08) of our
common stock at the date of issuance.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation provides that our directors will not be
personally liable for monetary damages for breach of their fiduciary duties as
directors, except liability for:
- any breach of their duty of loyalty to us or our stockholders;
- acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or redemptions
as provided by Section 174 of the Delaware General Corporation Law; or
- any transaction from which the director derives an improper personal
benefit.
Such limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission. Our certificate of
incorporation and bylaws provide that we shall indemnify our directors and
executive officers and may indemnify our other officers and employees and other
agents to the fullest extent permitted by Delaware law. Our bylaws also permit
us to secure insurance on behalf of any officer, director, employee or other
agent for any liability arising out of his or her actions in such capacity,
regardless of whether the bylaws would permit indemnification.
At present, we are not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent in which
indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.
-16-
CERTAIN TRANSACTIONS
From time to time, Robert M. Bernstein, our president chief executive
officer, has agreed to advance us funds. At December 31, 2000, all advances had
been repaid. Our board of directors approved paying Mr. Bernstein interest at
the rate of 10% per year on his advances. Mr. Bernstein is under no obligation
to make further advances to us but may continue to so do at his sole discretion.
In August, 1997, our board of directors approved a resolution recognizing
our extreme dependence on the experience, contacts, and efforts of Mr. Bernstein
and authorized to pay Mr. Bernstein a salary of $150,000 a year since 1991. In
February 2001, we authorized the issuance of 6,000,000 shares of our common
stock to Mr. Bernstein in lieu of $600,000 of accrued and unpaid salary due to
him. This amount represents the difference between the $150,000 a year and the
compensation actually accrued during the years 1991 through 2000.
On May 25, 2000, we issued 4,650,000 shares of common stock to Mr.
Bernstein in exchange for $4,650 and a $1,855,350 non-recourse promissory note
bearing interest at an annual rate of 8%. Approximately 1,500,000 of these
shares are subject to an option to purchase by a third party. At the same date,
we issued 350,000 shares of our common stock to a director Joel Freedman in
exchange for $350 and a $139,650 non-recourse promissory note bearing interest
at an annual rate of 8%. Both of these promissory notes mature on May 25, 2005,
when the principal and accrued interest becomes fully due and payable.
On October 27, 2000,we issued 4,183,675 shares to Mr. Bernstein for future
compensation pursuant to a stock escrow/grant agreement. Under the terms of the
agreement, Mr. Bernstein is required to hold these shares in escrow. While in
escrow, Mr. Bernstein cannot vote the shares but has full rights as to cash and
non-cash dividends, stock splits or other reclassification of the shares. Any
additional shares issued to Mr. Bernstein by reason of the ownership of the
4,183,675 shares will also be escrowed under the same terms of the agreement.
Upon the exercise by certain holders of options or warrants or upon the need by
us, in the sole discretion of the board of directors, to issue common stock to
certain individuals or entities, the number of shares required for issuance to
these holders will be returned from escrow by Mr. Bernstein thereby reducing the
number of shares he holds. The shares held in escrow are non-transferable and
will be granted to Mr. Bernstein only upon the exercise or expiration of all of
the options and warrants, the direction of the board of directors, in its sole
discretion, or the mutual agreement by Mr. Bernstein and the board of directors
to terminate the agreement. We valued these shares at par value. Upon the
actual grant of the remaining shares to Mr. Bernstein, the shares issued will be
valued at market value when issued and charged to operations as compensation.
On January 9, 2001,we authorized the issuance of 100,000 shares of our
common stock to William Berks, a part-time employee, for engineering and other
services rendered to us.
On January 8, 2001, we authorized the issuance of 100,000 shares of our
common stock to Dr. Campbell Laird, an advisory board member, for services
rendered.
On January 9, 2001,we authorized the issuance of 100,000 shares of our
common stock to John Goodman, a director and part-time employee, for engineering
and other services rendered.
On January 9, 2001, we authorize the issuance of 100,000 shares of our
common stock to William Berks, vice-president of government contracts, for
engineering and other services rendered.
On February 19, 2001, we authorized the issuance of 6,000,000 shares of our
common stock to Robert M. Bernstein, our chief executive officer, for
compensation due. Approximately 1,500,000 of these shares are subject to an
option that Mr. Bernstein granted to a group of investors in July, 1998, in
connection with the settlement of a lawsuit between these investors, us and Mr.
Bernstein.
On October 4, 2001, we authorized the issuance of 300,000 shares of our
common stock each to William Berks and to John Goodman for services rendered.
On November 20, 2001, we authorized the issuance of 400,000 shares of our
common stock to William Berks for services rendered.
-17-
OUR PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of August 8, 2002, and the following
table provides the beneficial ownership for:
o each person known by us to be the beneficial owner of more than 5% of
the outstanding shares of our common stock;
o each of our directors and executive officers;
o our executive officers and directors as a group; and
o the selling shareholder.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated, we believe each person
possesses sole voting and investment power with respect to all of the shares of
common stock owned by such person, subject to community property laws where
applicable.
In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares of common stock subject to
options or warrants held by that person that are currently exercisable or
exercisable within 60 days are deemed outstanding. Such shares, however, are not
deemed outstanding for the purposes of computing the percentage ownership of any
other person.
The number of shares beneficially owned by a person and the percentage
ownership of that person includes shares of our common stock issuable upon
exercise of warrants held by that person, but not those held by any other
persons, that are currently exercisable or exercisable within 60 days from the
date of this prospectus. Shares of our common stock registered for resale under
this prospectus will constitute approximately .056% of our issued and
outstanding common stock.
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT OF CLASS
CLASS OF STOCK BENEFICIAL OWNER OWNERSHIP
----------------------------------- --------------------- -------------- ----------------
Robert M. Bernstein
Suite 707
11661 San Vicente Blvd.
Common Stock Loa Angeles, CA 90049 15,289,996 9.95%
----------------------------------- --------------------- -------------- ----------------
Joel R. Freedman
1 Bala Plaza
Bala Cynwyd, PA 19004 826,471 1.9%
----------------------------------- --------------------- -------------- ----------------
John Goodman
Suite 707
11661 San Vicente Blvd.
Los Angeles, CA 90049 1,000,000 2.3%
----------------------------------- --------------------- -------------- ----------------
William Berks
532 14th Street
Manhattan Beach, CA
90266 1,000,000 2.3%
----------------------------------- --------------------- -------------- ----------------
Directors and executive officers
as a group (4 persons) 18,116,467 11.8%
----------------------------------- --------------------- --------------- ---------------
-18-
Class B
Common Stock Robert M. Bernstein 100,000 100.0%
Suite 707
11661 San Vicente Blvd.
Los Angeles, CA 90049
----------------------------------- --------------------- --------------- ---------------
(1) Of these shares, Mr. Bernstein has full rights to approximately 12,078,291
shares. The remaining shares are subject to options to purchase by third
parties or are held in escrow. See "Certain Transactions."
(2) Each of Mr. Bernstein's Class B Common Shares has 1,000 votes on any matter
on which the common stockholders vote. Accordingly, these shares give Mr.
Bernstein 100,000,000 votes. Those votes give Mr. Bernstein voting control
of our outstanding voting securities.
SELLING SHAREHOLDERS
An aggregate of shares of our issued and outstanding common stock are being
registered for resale in this offering for the account of the selling
shareholders. Subject to certain restrictions discussed below, the shares of
common stock being registered for the account of the selling shareholders may be
sold by the selling shareholders, or their transferees, commencing on the third
business day after this registration statement is declared effective by the
United States Securities and Exchange Commission. Sales of shares of our common
stock by the selling shareholders, or their transferees, may depress the price
of the common stock in any market that may develop for the common stock. We
will receive no sales proceeds from the resale of any of the shares of common
stock registered for resale under this prospectus.
The following table sets forth certain information with respect to persons
for whom we are registering such shares of common stock for resale to the
public. None of the selling shareholders has had any position, office or
material relationship with us prior to the date of this prospectus and none of
the selling shareholders are deemed to be our affiliates or control persons.
None of the selling shareholders has any plan, arrangement, understanding,
agreement, commitment or intention with us to sell their securities.
Number Of Shares Owned
And
Maximum No. Of Shares
Name Of Shareholder Address Of Shareholder Offered(1)
-------------------------------------------- ------------------------------------------ ----------
Carol Drugan 3031 Millboro Road Silver Lake, OH 44224 16,000
-------------------------------------------- ------------------------------------------ ---------
Charles Hannan 7808 Kentley Road Balto, MD 21222 32,000
-------------------------------------------- ------------------------------------------ ---------
Roderick L. Carter 508 Wildwood Lane Graham, NC 27253 10,000
-------------------------------------------- ------------------------------------------ ---------
Howard Wilson 2/18 Rangers Road Cremore NSW 2090 50,000
-------------------------------------------- ------------------------------------------ ---------
Frank Alexander 2408 Berkley Road Burlington, NC 27217 10,000
-------------------------------------------- ------------------------------------------ ---------
231 S. Bayview Ave #2 Sunnyvale, CA
Ali Siddiqui 94086 18,000
-------------------------------------------- ------------------------------------------ ---------
James Willman 4431 Gordon Ave St. Louis, MO 63134 50,000
-------------------------------------------- ------------------------------------------ ---------
Warren Heuston 26 Bray Street St. Coffs Harbor NSW 2450 32,000
-------------------------------------------- ------------------------------------------ ---------
Christopher Collins 16 Robertson Crescent Laverton VIC 3028 10,000
-------------------------------------------- ------------------------------------------ ---------
-19-
5833 E. Imperial Hwy #B South Gate, CA
Luz Pelayo 90280 8,400
-------------------------------------------- ------------------------------------------ ---------
16707 S. Garfield Ave #1110 Paramount,
Eva Pelayo CA 90723 63,000
-------------------------------------------- ------------------------------------------ ---------
Brian Taylor 18 Fitzwilliam St Carrara QLD 4211 71,500
-------------------------------------------- ------------------------------------------ ---------
Willard Clapp 6230 Tallant Road McDonald, TN 73753 14,300
-------------------------------------------- ------------------------------------------ ---------
James Marshall 4 St. Michaels Rd %A Mitcham 5062 13,000
-------------------------------------------- ------------------------------------------ ---------
James Auld 29 Orlando St Coffs Harbour NSW 2450 33,000
-------------------------------------------- ------------------------------------------ ---------
10 Katoomba Cresent Toowoomba QLD
Philip Guilfoyle 4350 120,000
-------------------------------------------- ------------------------------------------ ---------
11947 Arminta St North Hollywood, CA
Maria DelaRosario Leon 91605 47,500
-------------------------------------------- ------------------------------------------ ---------
John Law 11 Buyuma Place Avalon NSW 2107 25,000
-------------------------------------------- ------------------------------------------ ---------
John Brandenburg PO Box 94 Newdegate 6355 200,000
-------------------------------------------- ------------------------------------------ ---------
Steven Moffatt 30 Clematis Crt Marcoola QLD 4552 102,000
-------------------------------------------- ------------------------------------------ ---------
Fitzpatrick Brothers
Pastoral Co Lochgary Edith Via Oberon NSW 2787 250,000
-------------------------------------------- ------------------------------------------ ---------
Bill Peatt 43 Churchill Ave Ararat VIC 3377 28,000
-------------------------------------------- ------------------------------------------ ---------
Graham Howe 19 Templar St. Forbes NSW 2871 36,000
-------------------------------------------- ------------------------------------------ ---------
11947 Arminta St North Hollywood, CA
Maria DelaRosario Leon 91605 142,857
-------------------------------------------- ------------------------------------------ ---------
Sabina & Lee Braun Duncan Rd PMB2 Meringave VIC 3496 300,000
-------------------------------------------- ------------------------------------------ ---------
11947 Arminta St., No., Hollywood, Ca.,
Gerardo Leon 91608 47,619
-------------------------------------------- ------------------------------------------ ---------
George Goodare 8/331 High St Chatswood NSW 2076 20,000
-------------------------------------------- ------------------------------------------ ---------
David Campbell 1/21 Danks St Waterloo NSW 2017 70,000
-------------------------------------------- ------------------------------------------ ---------
Arthur Kyriakos 395 Belmore Rd Bawyn VIC 3103 40,000
-------------------------------------------- ------------------------------------------ ---------
Richard Outhred 3 Ashton Ave Forbstvulle NSW 2037 10,300
-------------------------------------------- ------------------------------------------ ---------
Ben Bailey 5 Main Road Cardif Hts NSW 2285 43,000
-------------------------------------------- ------------------------------------------ ---------
Doug Caswell Reality Pty
Ltd 175 Hume St Todwoomba QLD 4350 150,000
-------------------------------------------- ------------------------------------------ ---------
1200 Los Angeles Ave #206 Simi Valley,
Peggy Letney CA 93065 45,000
-------------------------------------------- ------------------------------------------ ---------
Charles Hannan 7808 Kentley Road Balto, MD 21222 68,000
-------------------------------------------- ------------------------------------------ ---------
-20-
1200 Los Angeles Ave #206 Simi Valley, CA
Leonard Kline 93065 45,000
-------------------------------------------- ------------------------------------------ ---------
John Marlowe 10551 E. Orchard Pl Englewood, CO 80111 100,000
-------------------------------------------- ------------------------------------------ ---------
George Goodare 8/331 High St Chatswood NSW 2076 12,500
-------------------------------------------- ------------------------------------------ ---------
Christopher Collins 16 Robertson Crescent Laverton VIC 3028 15,000
-------------------------------------------- ------------------------------------------ ---------
Frank Jenkins 1812 Cadwell Ave Clev. Hts., OH 44111 85,714
-------------------------------------------- ------------------------------------------ ---------
Carol Drugan 3031 Milboro Rd Silver Lake, OH 44224 20,000
-------------------------------------------- ------------------------------------------ ---------
Wesley Moser 2604 Sumac Lane Burlington, NC 27215 27,937
-------------------------------------------- ------------------------------------------ ---------
Joseph Faggion 38 Malay Rd Wagaman NT 0810 10,000
-------------------------------------------- ------------------------------------------ ---------
John Green 93 Smailes Rd North Maclean QLD 4280 18,000
-------------------------------------------- ------------------------------------------ ---------
Bill Peatt 43 Churchill Ave Ararat VIC 3377 40,000
-------------------------------------------- ------------------------------------------ ---------
137 Charters Towers Rd Hermit Park QLD
David Gusmeroli 4812 80,000
-------------------------------------------- ------------------------------------------ ---------
Bernard Coble 5557 Sweps Sax Rd Graham, NC 27253 19,841
-------------------------------------------- ------------------------------------------ ---------
3763 S. Jim Minor Rd Haw River, NC
Coslow Holt 27258 15,873
-------------------------------------------- ------------------------------------------ ---------
Genice Akins 5041 Mrs. White Lane Mebane, NC 27302 15,873
-------------------------------------------- ------------------------------------------ ---------
Glen Harris 34 High Range Dr. Condon QLD 4815 40,000
-------------------------------------------- ------------------------------------------ ---------
Graeme McLean 70 Edward St. Riverstone NSW 2765 45,000
-------------------------------------------- ------------------------------------------ ---------
3355 Wilshire Blvd #308 Los Angeles, CA
Maria Sarabia 90010 64,818
-------------------------------------------- ------------------------------------------ ---------
Euan Macfarlane Po Box 313 Maleny QLD 4552 90,000
-------------------------------------------- ------------------------------------------ ---------
Tony McCullough 25 Dickson Ave Ararmon NSW 2064 200,000
-------------------------------------------- ------------------------------------------ ---------
Howard Chew PO Box 41317 Casuraria NT 0811 50,000
-------------------------------------------- ------------------------------------------ ---------
1/7 Crystal Waterd Dr. Tweed Heads NSW
Anne Whittingham 2485 16,300
-------------------------------------------- ------------------------------------------ ---------
Jerry Yeatts 3508-C-54 Hwy E. Graham, NC 27253 3,968
-------------------------------------------- ------------------------------------------ ---------
Mountain Inventment
Family Limited
Partnership 101 S. Main St Clinton, TN 37716 50,000
-------------------------------------------- ------------------------------------------ ---------
16707 S. Garfield Ave #1110 Paramount,
Eva Pelayo CA 90723 16,000
-------------------------------------------- ------------------------------------------ ---------
-21-
Mountain Inventment
Family Limited
Partnership 101 S. Main St Clinton, TN 37716 62,069
-------------------------------------------- ------------------------------------------ ---------
Tony McCullough 25 Dickson Ave Artarmon NSW 2064 100,000
-------------------------------------------- ------------------------------------------ ---------
Cedar House Alpaca P/L 8 Filfield Lane Yass NSW 0582 496,550
-------------------------------------------- ------------------------------------------ ---------
Bruce Burton 5664 Co Real 35 Ada, Oh 48840 24,000
-------------------------------------------- ------------------------------------------ ---------
Michael Bornstein 2/789 Burwood Rd Hawthorn 3123 48,551
-------------------------------------------- ------------------------------------------ ---------
Gary Jones 2022 Cedar Lake Rd. Sanford, NC 27330 19,705
-------------------------------------------- ------------------------------------------ ---------
3355 Wilshire Blvd #308 Los Angeles, CA
Maria Sarabia 90010 93,596
-------------------------------------------- ------------------------------------------ ---------
Frank Jenkins 1812 Cadwell Ave Clev. Hts. OH, 44111 15,026
-------------------------------------------- ------------------------------------------ ---------
5833 E. Imperial Hwy. #D South Gate, Ca
Luz Pelayo 90280 100,000
-------------------------------------------- ------------------------------------------ ---------
Eric Dyer 2/50 Madden St. Kaniva VIC 3419 50,000
-------------------------------------------- ------------------------------------------ ---------
Deborah Taylor 18 Fitzwilliam St. Carrona 4211 100,000
-------------------------------------------- ------------------------------------------ ---------
James Willman 4431 Gordon Ave St. Louis, MO 63134 30,000
-------------------------------------------- ------------------------------------------ ---------
David Barrett 22 Second Ave Arrawarma NSW 2456 50,000
-------------------------------------------- ------------------------------------------ ---------
17 Thonna Close Karana Downes Brisbane
Murry Timms 4306 54,100
-------------------------------------------- ------------------------------------------ ---------
1200 Los Angeles Ave #206 Simi Valley, CA
Leonard Kline 93065 30,000
-------------------------------------------- ------------------------------------------ ---------
Tim McCaig PO Box 8040 Coffs harbour NSW 64,935
-------------------------------------------- ------------------------------------------ ---------
Four Square Vending P/L
McCaig Supernational
Fund 213 Pollock Ave Wyong North NSW 2259 64,935
-------------------------------------------- ------------------------------------------ ---------
Bahaderalli Keshani 2389 Dawes Hill Rd Coquiltam BC V3K6T2 30,000
-------------------------------------------- ------------------------------------------ ---------
Bill Peat 43 Churchill Ave Ararat VIC 3377 50,000
-------------------------------------------- ------------------------------------------ ---------
Louis Tziavaras 23 Second Ave Murrumbeena VI|C 3163 100,000
-------------------------------------------- ------------------------------------------ ---------
1st Fl. 136 Longueville Rd. Lane Cove
Charles DeCarlo NSW 2086 50,000
-------------------------------------------- ------------------------------------------ ---------
Brian Robinson 2 Alfred Close Narre Warren N. VIC 3804 50,000
-------------------------------------------- ------------------------------------------ ---------
David Cox 251 New Kamer Rd Albany, NY 12205 100,000
-------------------------------------------- ------------------------------------------ ---------
Damier Biki 8 Alexander Ave Berringan NSW 2712 35,000
-------------------------------------------- ------------------------------------------ ---------
-22-
Pay Source, Inc. 251 New Karner Rd. Albany, NY 12205 100,000
-------------------------------------------- ------------------------------------------ ---------
Ben Bailey 5 Main Road Cardiff Hts. NSW 2285 92,519
-------------------------------------------- ------------------------------------------ ---------
1801 N. Green Valley Pkwy Henderson, NV
Cell Synergy Inc. 89074 30,000
-------------------------------------------- ------------------------------------------ ---------
Bahaderalli Keshani 2389 Dawes Hill Rd Coquiltam BC V3K6T2 75,000
-------------------------------------------- ------------------------------------------ ---------
24 Dammerel Cris Emerald Beach NSW
Charlotte Wickham 2456 60,615
-------------------------------------------- ------------------------------------------ ---------
Leslie Schwebel 902 Old Northern Rd Gelenorie NSW 2157 24,000
-------------------------------------------- ------------------------------------------ ---------
High Family Trust 4722 White Oak Ave Encino, CA 91316 150,400
-------------------------------------------- ------------------------------------------ ---------
Jim Willman 4431 Gordon Ave St. Louis, MO 63134 23,000
-------------------------------------------- ------------------------------------------ ---------
Giovanni Martinazzo 437 Victoria rd., Malaqua, WA, 6090 50,000
-------------------------------------------- ------------------------------------------ ---------
Tony McCullough 25 Dickson Ave Artarmon NSW 2064 1,100,000
-------------------------------------------- ------------------------------------------ ---------
Sabina & Lee Braun Duncan Rd PMB2 Meringave VIC 3496 440,000
-------------------------------------------- ------------------------------------------ ---------
Bill Peat 43 Churchill Ave Ararat VIC 3377 220,000
-------------------------------------------- ------------------------------------------ ---------
David McNabb PO Box 2489 Martinez, CA 94553 165,000
-------------------------------------------- ------------------------------------------ ---------
Douglas Caswell 175 Hume St., Todwoomba, QLD, 4350 220,000
-------------------------------------------- ------------------------------------------ ---------
Euan Macfarlane Po Box 313 Maleny QLD 4552 275,000
-------------------------------------------- ------------------------------------------ ---------
Wallace Sew-Hoy 35 Argyl St East Malbern VIC 3148 110,000
-------------------------------------------- ------------------------------------------ ---------
28857 Oak Path Dr.
Bob Grundstrom Agoura Hills, CA 91301 150,000
-------------------------------------------- ------------------------------------------ ---------
32107 Lindero Canyon Rd., suite 124
AA Capital Ventures Westlake Village, Ca., 91361 230,938
-------------------------------------------- ------------------------------------------ ---------
32107 Lindero Canyon Rd., suite 124
Barry E. Mitchell Westlake Village, Ca., 91361 17,498
-------------------------------------------- ------------------------------------------ ---------
Reynolds Technologies, 5520 Owensmouth Ave, Apt 110
Inc. Woodland Hills, ca., 91367 33,515
-------------------------------------------- ------------------------------------------ ---------
5520 Owensmouth Ave, Apt 110
Steven A. Reynolds Woodland Hills, ca., 91367 5,000
-------------------------------------------- ------------------------------------------ ---------
Tyrone Moore C/O A.A. Capital Ventures 36,054
-------------------------------------------- ------------------------------------------ ---------
3355 Wilshire Blvd., Apt 308
John R. Sarabia Los Angeles, Ca., 90010 41,718
-------------------------------------------- ------------------------------------------ ---------
1930 Wilshire Blvd., suite 210 D
J.R.S. Consulting, Inc. Los Angeles, Ca., 90057 118,000
-------------------------------------------- ------------------------------------------ ---------
Don L. Calhoun C/O A.A. Capital Ventures 21,624
-------------------------------------------- ------------------------------------------ ---------
Bernard D. & Laura Coble 5557 Sweps Sax Rd., Graham, NC, 27253 6,920
-------------------------------------------- ------------------------------------------ ---------
Alex Greene 111 C/O A.A. Capital Ventures 6,240
-------------------------------------------- ------------------------------------------ ---------
-23-
Deborah Taylor 18 Fitzwilliam St., Carrona, QLD, 4211 220,000
-------------------------------------------- ------------------------------------------ ---------
Clayton Gilbert 2/5 Henry St., Tarramatta, NSW, 2150 92,800
-------------------------------------------- ------------------------------------------ ---------
EXE Technologies Inc.,
Level 3, 499 St. Kilda Rd.,
Gary McDonald Melbourne, VIC, 3004 147,500
-------------------------------------------- ------------------------------------------ ---------
Jim Willman 4431 Gordon Ave., St. Louis, Mo., 63134 100,000
-------------------------------------------- ------------------------------------------ ---------
TOTAL SHARES 8,632,301
PLAN OF DISTRIBUTION
FOR SELLING SHAREHOLDERS
We will not receive any proceeds from the resale of the common stock
offered for resale by the selling shareholders. The selling shareholders will be
offering for resale up to 8,632,301 shares. The selling shareholders have,
prior to any sales, agreed not to effect any offers or sales of our securities
in any manner other than as specified in this prospectus and have agreed not to
purchase or induce others to purchase any of our securities in violation of any
applicable state and federal securities laws, rules, and regulations and the
rules and regulations governing the Over-the-Counter Electronic Bulletin Board
maintained by the NASD.
We have agreed with the selling shareholders that we will prepare and file
this registration statement and such amendments and supplements to the
registration statement and the prospectus as may be necessary in accordance with
the Securities Act of 1933 and the rules and regulations promulgated there under
to keep it effective until the date as of which the selling shareholders have
sold all of the 8,632,301 shares offered by this prospectus. The selling
shareholders are bearing no expenses associated with our registration of the
shares offered by this prospectus.
The selling shareholders are subject to the applicable provisions of the
Exchange Act of 1934, including without limitations, Rule 10b-5 there under.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of our securities may not simultaneously engage in
market making activities with respect to such securities for a period beginning
when such person becomes a distribution participant and ending upon such
person's completion of participation in a distribution, including stabilization
activities in our securities to effect covering transactions, to impose penalty
bids, or to effect passive market making bids. In connection with the
transactions in our common stock, we also will be subject to applicable
provisions of the Exchange Act and the rules and regulations promulgated
There under, including, without limitations, the rule set forth above. These
restrictions may affect the marketability of the shares of our common stock
owned by the selling shareholders.
The shares of common stock have not been registered for resale by the
selling shareholders under the securities laws of any state as of the date of
this prospectus. Brokers or dealers effecting transactions in these securities
should confirm the registration thereof under the securities laws of the states
in which transactions occur or the existence of any exemption from registration.
The selling shareholders and any broker-dealers that participate with the
selling shareholders in the distribution of the common stock may be deemed to be
underwriters and commissions received by them and any profit on the resale of
securities positioned by them might be deemed to be underwriting discounts and
commissions under the Securities Act. There can be no assurance that the selling
shareholders will sell any or all of the shares being registered for resale
under this prospectus.
Commissions and discounts paid in connection with the sale of shares by the
selling shareholders will be determined through negotiations between them and
the broker-dealers through or to which the securities are to be sold and may
vary, depending on the broker-dealers' fee schedule, the size of the transaction
and other factors. The separate costs of the selling shareholders will be borne
by them.
DESCRIPTION OF SECURITIES
We are authorized to issue 250,000,000 shares of capital stock, $.001 par
value, in classes as follows:
- 200,000,000 shares of stock designated as "common stock", of which 100,000
shares shall be designated as "Class B Common Stock", $.001 par value per
share. We have designated all common stock that is not class B common
stock, as class A common stock. The holders of common stock shall be
entitled to receive such dividends out of funds or assets legally available
there from as, from time to time, the board of directors may declare. The
-24-
holders of class B common stock shall not be entitled to receive dividends.
The holders of common stock and the holders of class B common stock shall
vote as a single class on all matters submitted to a vote of stockholders,
with each share of common stock entitled to one vote and each share of
class B common stock entitled to 1,000 votes. In all other aspects, the
common stock and class B common stock shall be identical.
- 50,000,000 shares of stock designated as "Preferred Stock", $.001 par value
per share. The board of directors is granted the authority by resolution to
authorize us to issue one or more series of the preferred stock and to
determine the voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional or other
special rights of each and every series of preferred stock and the
qualifications, limitations or restrictions on such preferences and/or
rights. Our preferred stock is commonly referred to as "blank check"
preferred stock.
Class A common stock holders are entitled to receive such dividends out of
funds or assets legally available there from as, from time to time, the board of
directors may declare. Upon liquidation, holders of our class A common stock
are entitled to distribution of any remaining assets after payment of all
creditors and payment of the liquidation preferences of any outstanding shares
of preferred stock. Class A common stock holders have no preemptive rights.
The Baker Group, by agreement, has a right to purchase or receive from Mr.
Bernstein, our president and chief executive officer, or any affiliate of Mr.
Bernstein, 35% of all class A common stock that Mr. Bernstein, or any affiliate,
purchases or receives from us at the same price Mr. Bernstein, or such
affiliate, pays for stock he receives.
In electing directors, if one or more stockholders, or their proxy,
delivers a written notice to our secretary prior to a stockholders' meeting, or
to the chairman of the board of directors prior to the vote for directors, all
stockholders may cumulate their votes in electing one or more directors. If and
only if such notice is given, every stock holder entitled to vote for directors
shall have the number of votes determined by multiplying the number of directors
to be elected by the number of shares the stockholder is entitled to vote and
each stockholder may then give one nominated candidate all such votes or
distribute such votes in any proportion among the nominated candidates.
Our certificate of incorporation provides that the designation of powers,
preferences and rights, including voting rights, if any, qualifications,
limitations or restrictions on our preferred stock may be fixed by resolution or
resolutions of the board of directors.
On April 28, 1997, we filed with the Secretary of State of the State of
Delaware, a Certificate of Designation designating 350,000 shares of preferred
stock as class A convertible preferred stock. The class A preferred stock has
a liquidation preference superior to any other class of our common stock. In
the event of liquidation, holders of our class A preferred stock have the right
to receive $.72 for each share held, before any liquidation payment is made or
any assets are distributed to holders of our common stock, or any other stock of
any other series or class ranking junior to these shares. In the event of
liquidation, holders of our class A preferred stock are not entitled to payment
beyond $.72 per share. These provisions may have the effect of delaying,
deferring or preventing a change in control. Each share of our class A
preferred stock is convertible into class A common stock at the discretion of
the holder, at the rate of one share of class A common stock for each .72 share
of class A preferred stock. Accordingly, the 350,000 outstanding shares of
class A preferred stock are convertible into 486,111 shares of class A common
stock. Under our Certificate of Designation, we are not permitted to issue
stock which is senior to or pari passu with our class A preferred stock without
prior consent of a majority of the outstanding class A preferred shares.
Adjustment of the number of class A preferred shares outstanding is provided for
in the event of any reclassification of outstanding securities or of the class
of securities which are issuable upon conversion of shares and in the event of
any reorganization which results in any reclassification or change in the number
of shares outstanding. Similarly, in the event of any such change, the
conversion price is subject to adjustment to reflect such change. If at any
time while shares of class A preferred stock outstanding, a stock dividend on
the common stock is declared, the conversion price will be adjusted to prevent
any dilution of the holders of class A preferred stock right of conversion. If
there is a reclassification or change in our common stock to which the class A
preferred stock is convertible other than stock splits or other decreases or
increases in the number of shares outstanding, or we consolidates or merge with
another corporation, or we sell or transfer substantially all of our assets,
then the class A preferred stockholders are entitled to the same consideration
as they would have been entitled to if their shares had been converted prior to
the reclassification, change, consolidation, merger, sale, or transfer. This
provision may have the effect of delaying, deferring or preventing a change in
control. Voting rights and the right to receive dividends inherent in the class
A preferred stock is similar to those rights of our common stock.
-25-
On April 28, 1997, we filed a Certificate of Designation bringing into
existence a second class of preferred stock designated as class B preferred
stock. Class B preferred stock is junior and subordinate to our class A
preferred stock. 100 shares of class B preferred stock were authorized from the
550,000 undesignated shares of preferred stock. Of the 100 shares authorized,
15 shares have been issued to Tensiodyne in exchange for canceling its 15 class
B preferred shares in Tensiodyne Scientific, Inc. In the event of our
liquidation, dissolution or winding up, whether voluntary or involuntary,
holders of our class B preferred stock are entitled to receive $10,000 per share
as a liquidation preference. This liquidation preference is senior to
liquidation rights of all other classes of stock except the class A preferred
stock's liquidation rights. This provision may have the effect of delaying,
deferring or preventing a change in control. At any time, we have the option to
redeem the class B preferred stock for $10,000 per share, plus any declared but
unpaid dividends. At any time after January 31, 2002, holders of our class B
preferred stock have the right to compel us to redeem their shares for $10,000
per share plus any declared but unpaid dividends. Holders have the right to
receive cash dividends as determined by a formula in the Certificate of
Designation which provides that each time a cash dividend is paid on the common
stock there shall also be paid with respect to each outstanding share of class B
preferred stock an amount determined by multiplying the aggregate amount of the
dividend paid with respect to the common stock by a fraction, the numerator of
which is 3,214,480 and the denominator of which is the number of shares of
common stock on which the dividend was paid, and then multiplying the resulting
product by 30% and then dividing the resulting product by 510. Holders of our
class B preferred stock shall have one vote per share and shall be entitled by
class vote to elect one director and to vote, as a class, on removal of any
director so elected. Otherwise, holders of our class B preferred stock shall
not have the right to vote as a class on any matter.
LEGAL MATTERS
The legality of the shares offered hereby will be passed upon for us by
Gregory Bartko, Esq., of the Law Office of Gregory Bartko, P.C., 3475 Lenox
Road, Suite 400, Atlanta, Georgia 30326.
EXPERTS
The audited financial statements included in this registration statement,
and the prospectus which forms a part of the registration statement, have been
audited by Jonathan P. Reuben, independent certified public accountant, to the
extent and for the periods set forth in his report thereon and are included in
reliance upon such report given upon the authority of such firm as an expert in
accounting and auditing.
-26-
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
Contents
--------
Page
-------
Independent Auditors' Report F-1
Balance Sheets F-2
Statements of Operations F-4
Statement of Stockholders' Equity (Deficit) F-5
Statements of Cash Flows F-12
Notes to Financial Statements F-14
Independent Auditors' Report
Board of Directors
Material Technologies, Inc.
Los Angeles, California
We have audited the accompanying balance sheets of Material Technologies, Inc.,
(A Development Stage Company) as of December 31, 2001, and the related
statements of operations, stockholders' equity (deficit), and cash flows, for
the years ended December 31, 2000, and 2001. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Material Technologies, Inc. as
of December 31, 2001, and the results of its operations, and its cash flows for
the years ended December 31, 2000, and 2001, and for the period from Company's
inception (October 21, 1983) through December 31, 2001, in conformity with
generally accepted accounting principles.
s/s Jonathon P. Reuben CPA
Jonathon P. Reuben,
Certified Public Accountant
Torrance, California
February 8, 2002
F-1
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
--------------------------------------------------------------------------------
December 31, March 31.
2001 2002
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 174,469 $ 302,716
Receivable due on research contract 285,677 257,743
Receivable from officer 35,880 60,185
Prepaid expenses - 79,166
------------ ------------
TOTAL CURRENT ASSETS 496,026 699,810
------------ ------------
FIXED ASSETS
Property and equipment, net
of accumulated depreciation 2,708 2,405
------------ ------------
OTHER ASSETS
Intangible assets, net of
accumulated amortization 15,663 14,907
Refundable deposit 2,348 2,348
------------ ------------
TOTAL OTHER ASSETS 18,011 17,255
------------ ------------
TOTAL ASSETS $ 516,745 $ 719,470
============= ============
See Accompanying notes
F-2
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
-------------------------------------------------------------------------------
December 31, March 31.
2001 2,002
------------ ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Legal fees payable $ 282,950 $ 281,114
Fees payable to R&D subcontractor 196,043 135,117
Consulting fees payable 5,525 -
Accounting fees payable 42,417 34,278
Other accounts payable 8,801 5,892
Accrued expenses 43,213 34,636
Accrued officer wages 70,000 80,000
Notes payable - current portion 25,688 25,688
Loans payable - others - 58,055
------------ ------------
TOTAL CURRENT LIABILITIES 674,637 654,780
Payable on research and
development sponsorship 422,653 441,673
Loans payable - others 57,406 -
------------ ------------
TOTAL LIABILITIES 1,154,696 1,096,453
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Class A Common Stock, $.001 par value, authorized 200,000,000
shares, 102,433,378 shares issued , 42,433,378 shares outstanding
and 60,000,000 Shares Held in Reserve at December 31, 2001,
and 149,125,389 shares issued, 49,125,389 shares outstanding
and 100,000,000 shares held in reserve at March 31, 2002 42,433 49,125
Class B Common Stock, $.001 par value, authorized 100,000
Shares, outstanding 100, 000 shares at December 31, 2001, and
March 31, 2002 100 100
Class A Preferred, $.001 par value, authorized 50,000,000 Shares
outstanding 337,471 shares at December 31, 2001 and March
31, 2002 337 337
Additional paid in capital 6,995,412 7,521,486
Less notes receivable - common stock (731,549) (742,491)
Deficit accumulated during the development stage (6,944,684) (7,205,540)
------------ ------------
TOTAL STOCKHOLDERS' (DEFICIT) (637,951) (376,983)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIT) $ 516,745 $ 719,470
============ ============
See Accompanying notes
F-2
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
-------------------------------------------------------------------------------
From Inception
For the Year Ended For the Three Months Ended (October 21, 1983)
REVENUES
Sale of fatigue fuses $ - $ - $ - $ - $ 64,505
Sale of royalty interests - - - - 198,750
Research and development revenue 635,868 1,579,823 264,760 330,809 4,894,298
Test services - - - - 10,870
---------- ---------- ---------- ---------- ----------
TOTAL REVENUES 635,868 1,579,823 264,760 330,809 5,168,423
---------- ---------- ---------- ---------- ----------
COSTS AND EXPENSES
Research and development 496,501 1,284,928 210,616 252,346 4,408,974
General and administrative 640,481 2,725,548 540,664 330,709 7,865,972
---------- ---------- ---------- ---------- ----------
TOTAL COSTS AND EXPENSES 1,136,982 4,010,476 751,280 583,125 12,274,496
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS (501,114) (2,430,653) (486,520) (252,316) (7,106,523)
---------- ---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE)
Expense reimbursed - - - - 4,510
Interest income 103,419 102,283 41,150 12,616 260,434
Interest expense (60,634) (70,468) (17,814) (20,356) (336,343)
Gain on sale of stock - - - - 207,497
Loss on abandonment of interest
in joint venture - (33,000) - - (33,000)
Miscellaneous income - - - - 25,145
Loss on sale of equipment - - - - (12,780)
Gain on foreclosure - - - - 18,697
Modification of royalty agreement - - - - (7,332)
Settlement of teaming agreement - - - - 50,000
Litigation settlement - - - - 18,095
---------- ---------- ---------- ---------- ------------
TOTAL OTHER INCOME 42,785 (1,185) 23,336 (7,740) 194,923
---------- ---------- ---------- ---------- ------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS AND PROVISION FOR INCOME TAXES (458,329) (2,431,838) (463,184) (260,056) (6,911,600)
PROVISION FOR INCOME TAXES (800) (800) (800) (800) (11,000)
---------- ---------- ---------- ---------- ------------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS (459,129) (2,432,638) (463,984) (260,856) (6,922,600)
EXTRAORDINARY ITEMS
Forgiveness of indebtedness - - - - (289,940)
Utilization of operating loss carryforward - - - - 7,000
----------- ---------- ---------- ---------- ------------
NET INCOME (LOSS) $ (459,129) $ (2,432,638) $ (463,984) $ (260,856) (7,205,540)
=========== ============= =========== ========== ============
PER SHARE DATA
Basic income (loss) before extraordinary item $ (0.02) $ (0.07) $ (0.02) (0.01)
Basic extraordinary items - - - -
---------- ---------- ---------- ----------
BASIC NET INCOME (LOSS) PER SHARE $ (0.02) (0.07) $ (0.02) (0.01)
=========== ============= =========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 18,900,019 33,640,393 27,685,389 44,819,027
=========== ============= =========== ==========
See accompanying Notes
F-3
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------------------------------------------------
From Inception
For the Year Ended For the Three Months Ended (October 21, 1983)
December 31, March 31, Through
2000 2001 2001 2002 March 31, 2002
---------- ---------- ---------- ---------- ----------
(Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (459,129) $ (2,432,638) $ (463,984) $ (260,856) $ (7,205,540)
Adjustments to reconcile net income
(loss) to net cash provided
(used) in operating activities
Depreciation and amortization 2,948 3,292 737 1,059 178,924
Accrued interest income (98,557) (98,298) (41,150) (12,247) (210,534)
Gain on sale of securities - - - - (196,596)
Charge off of investment in joint venture - 33,000 - - 33,000
Officers' and directors compensation - 1,500,000 - - 1,500,000
on stock subscription modification
Charge off of deferred offering costs - - - - 36,480
Charge off of long-lived assets due to impairment - - - - 92,919
Modification of royalty agreement - - - - 7,332
Gain on foreclosure - - - - (18,697)
(Increase) decrease in accounts receivable 112,364 (255,073) (123,985) 27,934 (308,071)
(Increase) decrease in prepaid expense - (212) - (79,166) (79,325)
Loss on sale of equipment - - - - 12,780
Issuance of common stock for services 88,133 816,878 442,500 186,400 1,624,675
Issuance of stock for agreement modification - - - - 152
Forgiveness of Indebtedness - - - - 215,000
Increase (decrease) in accounts
payable and accrued expenses 8,441 267,742 173,282 (77,912) 1,109,702
Interest accrued on note payables 57,062 67,718 17,127 19,669 292,424
Increase in research and development
sponsorship payable - - - - 218,000
(Increase) in note for litigation settlement - - - - (25,753)
(Increase) in Deposits - - - - (2,189)
TOTAL ADJUSTMENTS 170,391 2,335,047 468,511 65,737 4,480,223
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (288,738) (97,591) 4,527 (195,119) (2,725,317)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From sale of equipment - - - - 10,250
Purchase of property and equipment - (5,961) - - (236,864)
Proceeds from sale of securities - - - - 283,596
Purchase of securities - - - - (90,000)
Proceeds from foreclosure - - - - 44,450
Investment in joint ventures (15,000) - - - (102,069)
Payment for license agreement - - - - (6,250)
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (15,000) (5,961) - - (96,887)
See accompanying Notes
F-4
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
From Inception
For the Three Months Ended (October 21, 1983)
March 31, Through
For the Year Ended 2001 2002 March 31, 2002
December 31, ----------- ----------- -------------------
2000 2001 (Unaudited) (Unaudited) (Unaudited)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock net of offering costs $274,288 $366,126 $ - $ 434,700 $ 2,182,433
Costs incurred in offerings - (79,559) - (88,334) (199,373)
Sale of common stock warrants - - - 18,250
Sale of preferred stock - - - 258,500
Sale of redeemable preferred stock - - - 150,000
Capital contributions - - - 301,068
Payment on proposed reorganization - - - (5,000)
Loans From officer 8,000 42,800 1,600 - 778,805
Repayments to officer (39,500) (53,300) (7,300) (23,000) (531,832)
Increase in loan payable-others - - - - 172,069
---------- ---------- ---------- ---------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES: 242,788 276,067 (5,700) 323,366 3,124,920
---------- ---------- ---------- ---------- -------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (60,950) 172,515 (1,173) 128,247 302,716
BEGINNING BALANCE CASH AND
CASH EQUIVALENTS 62,904 1,954 1,954 174,469 -
ENDING BALANCE CASH AND CASH ---------- ---------- ---------- ---------- -------------------
EQUIVALENTS $ 1,954 $174,469 $ 781 $ 302,716 $ 302,716
========== ========== ========== ========== ===================
See accompanying Notes
F-5
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
DEFICIT
ACCUMULATED
CLASS A COMMON CLASS B COMMON CLASS A PREFERRED STOCK
-------------------------- --------------------------- ----------------------------
SHARES SHARES SHARES
OUTSTANDING AMOUNT OUTSTANDING AMOUNT OUTSTANDING AMOUNT
------------ ------------ ------------ -------------- ------------ --------------
Initial Issuance of Common Stock
October 21, 1983 2,408 $ 2 - $ - - $ -
Adjustment to Give Effect
to Recapitalization on
December 15, 1986
Cancellation of Shares (2,202) (2) - - - -
------------ ------------ ------------ -------------- ------------ --------------
206 - - - - -
Balance - October 21, 1983
Shares Issued By Tensiodyne
Corporation in Connection
with Pooling of Interests 42,334 14 - - - -
Net (Loss), Year Ended
December 31, 1983 - - - - - -
------------ ------------ ------------ -------------- ------------ --------------
Balance, January 1, 1984 42,540 14 - - - -
Capital Contribution - 28 - - - -
Issuance of Common Stock 4,815 5 - - - -
Costs Incurred in Connection
with Issuance of Stock - - - - - -
Net (Loss), Year Ended
December 31, 1984 - - - - - -
------------ ------------ ------------ -------------- ------------ --------------
Balance, January 1, 1985 47,355 47 - - - -
Shares Contributed Back
to Company (315) (0) - - - -
Capital Contribution - - - - - -
Sale of 12,166 Warrants at
$1.50 Per Warrant - - - - - -
Shares Cancelled (8,758) (9) - - - -
Net (Loss), Year Ended
December 31, 1985 - - - - - -
------------ ------------ ------------ -------------- ------------ --------------
Balance, January 1, 1986 38,282 38 - - - -
Net (Loss), Year Ended
December 31, 1986 - - - - - -
------------ ------------ ------------ -------------- ------------ --------------
Balance, January 1, 1987 38,282 38 - - - -
Issuance of Common Stock upon
Exercise of Warrants 216 - - - - -
Net (Loss), Year Ended
December 31, 1987 - - - - - -
------------ ------------ ------------ -------------- ------------ --------------
F-6
Balance, January 1, 1988 38,498 38 - - - -
Issuance of Common Stock
Sale of Stock (Unaudited) 2,544 3 - - - -
Services Rendered (Unaudited) 3,179 3 - - - -
Net (Loss), Year Ended
December 31, 1988 (Unaudited) - - - - - -
------------ ------------ ------------ -------------- ------------ --------------
Balance, January 1, 1989 (Unaudited) 44,221 44 - - - -
Issuance of Common Stock
Sale of Stock 4,000 4 - - - -
Services Rendered 36,000 36 - - - -
Net (Loss), Year Ended
December 31, 1989 - - - - - -
------------ ------------ ------------ -------------- ------------ --------------
Balance, January 1, 1990 84,221 84 - - - -
Issuance of Common Stock
Sale of Stock 2,370 2 - - - -
Services Rendered 6,480 7 - - - -
Net Income, Year Ended
December 31, 1990 - - - - - -
------------ ------------ ------------ -------------- ------------ --------------
Balance January 1, 1991 93,071 93 - - - -
Issuance of Common Stock
Sale of Stock 647 1 - - 350,000 350
Services Rendered 4,371 4 - - - -
Conversion of Warrants 30 - -
Conversion of Stock (6,000) (6) 60,000 60 - -
Net (Loss), Year Ended
December 31, 1991 - - - - - -
------------ ------------ ------------ -------------- ------------ --------------
Balance January 1, 1992 92,119 92 60,000 60 350,000 350
Issuance of Common Stock
Sale of Stock 20,000 20 - - - -
Services Rendered 5,400 5 - - - -
Conversion of Warrants 6,000 6 - - - -
Sale of Class B Stock - - 60,000 60 - -
Issuance of Stock to
Unconsolidated Subsidiary 4,751 5 - - - -
Conversion of Stock 6,000 6 (60,000) (60) - -
Cancellation of Shares (6,650) (7) - - - -
Net (Loss), Year Ended
December 31, 1992 - - - - - -
------------ ------------ ------------ -------------- ------------ --------------
F-7
Balance January 1, 1993 127,620 127 60,000 60 350,000 350
Issuance of Common Stock
Licensing Agreement 12,500 13 - - - -
Services Rendered 67,030 67 - - - -
Warrant Conversion 56,000 56 - - - -
Cancellation of Shares (31,700) (32) - - - -
Net (Loss) for Year Ended
December 31, 1993 - - - - - -
------------ ------------ ------------ -------------- ------------ --------------
Balance January 1, 1994 231,449 231 60,000 60 350,000 350
Adjustment to Give Effect
to Recapitalization on
February 1, 1994 30,818 31 - - - -
Issuance of Shares for
Services Rendered 223,000 223 - - - -
Sale of Stock 1,486,112 1,486 - - - -
Issuance of Shares for
the Modification of Agreements 34,000 34 - - - -
Net (Loss) for the Year
Ended December 31, 1994 - - - - - -
------------ ------------ ------------ -------------- ------------ --------------
Balance January 1, 1995 2,005,380 2,005 60,000 60 350,000 350
Issuance of Common Stock
in Consideration for
Modification of Agreement 152,500 153 - - - -
Net (Loss) for the Year
Ended December 31, 1995 - - - - - - -
------------ ------------ ------------ -------------- ------------ --------------
Balance January 1, 1996 2,157,880 2,157 60,000 60 350,000 350
Issuance of Shares for
Services Rendered 164,666 165 - - - -
Sale of Stock 70,000 70 - - - -
Issuance of Shares for
the Modification of Agreements 250,000 250 - - - -
Cancellation of Shares Held
in Treasury (62,000) (62) - - - -
Net (Loss) for the Year
Ended December 31, 1996 - - - - - -
------------ ------------ ------------ -------------- ------------ --------------
F-8
Balance January 1, 1997 2,580,546 2,580 60,000 60 350,000 350
Sale of Stock 100,000 100 - - - -
Conversion of Indebtedness 800,000 800 - - - -
Class A Common Stock Issued
in Cancellation of $372,000
Accrued Wages Due Officer 1,499,454 1,500 - - - -
Issuance of Shares for
Services Rendered 247,000 247 - - - -
Adjustment to Give Effect
to Recapitalization on
9-Mar-97 560,000 560 - - - -
Net (Loss) for the Year
Ended December 31, 1997 - - - - - -
5,787,000 5,787 60,000 60 350,000 350
Shares Issued in Cancellation
of Indebtedness 2,430,000 2,430 - - - -
Conversion of Options 500,000 500 - - - -
Issuance of Shares for
Services Rendered 1,121,617 1,122 - - - -
Shares Issued in Cancellation
of Redeemable Preferred Stock 50,000 50 - - - -
Shares Returned to Treasury
and Cancelled (560,000) (560) - - - -
Modification of Royalty Agreement 733,280 733 - - - -
Issuance of Warrants to Officer - - - - - -
Net (Loss) for the Year
Ended December 31, 1998 - - - - - -
10,061,897 $ 10,062 60,000 $ 60 350,000 $ 350
Shares Issued in Cancellation
of Indebtedness 2,175,000 2,175 - - - -
Issuance of Shares for
Services Rendered 1,255,000 1,255 - - - -
Shares Issued in Modification
of Licensing Agreement 672,205 672 - - - -
Sale of Stock 433,333 433 - - - -
Net (Loss) for the Year
Ended December 31, 1999 - - - - - -
------------ ------------ ------------ -------------- ------------ --------------
14,597,435 $ 14,597 60,000 $ 60 350,000 $ 350
F-9
Issuance of Shares for
Services Rendered 699,500 699 - - - -
Shares Issued to Investors
Pursuant to Settlement Agreement 65,028 65 - - - -
Shares Issued for Cash
and Non-Recourse Promissory Notes 5,000,000 5,000 - - - -
Shares Issued for Cash 400,000 400 - - - -
Shares Issued in Cancellation
of Indebtedness 100,000 100 - - - -
Shares Issued as Compensation
Pursuant to Escrow Agreement 4,183,675 4,184 - - - -
Shares Returned from Escrow (400,000) (400) - - - -
Common Shares Converted
into Class B Common (40,000) (40) 40,000 40 - -
Preferred Shares Converted
into Common 12,529 13 - - (12,529) (13)
Net (Loss) for the Year - -
Ended December 31, 2000 - - - - - -
------------ ------------ ------------ -------------- ------------ --------------
Balance December 31, 2000 24,618,167 $ 24,618 100,000 $ 100 337,471 $ 337
Issuance of Shares for
Services Rendered 6,185,000 6,185 - - - -
Shares Issued for Cash 4,932,358 4,932 - - - -
Shares Issued in Connection
with Private Offering 697,853 698 - - - -
Shares Issued to Officer 6,000,000 6,000 - - - -
Net (Loss) for the Year
Ended December 31, 2001 - - - - - -
------------ ------------ ------------ -------------- ------------ --------------
42,433,378 $ 42,433 100,000 $ 100 337,471 $ 337
Issuance of Shares for
Services Rendered 1,864,000 1,864 - - - -
Shares Issued for Cash 4,453,011 4,453 - - - -
Shares Issued in Connection
with Private Offering 375,000 375 - - - -
Net (Loss) for the Three
Months Ended March 31, 2002 - - - - - -
------------ ------------ ------------ -------------- ------------ --------------
Balance - March 31, 2002
(Unaudited) 49,125,389 $ 49,125 100,000 $ 100 337,471 $ 337
============ ============ ============ ============== ============ ==============
F-10
Deficit Accumulated
Capital In During
Excess Of Development
Par Value Stage
---------------- ------------------
Initial Issuance of Common Stock
October 21, 1983 $ 2,498 $ -
Adjustment to Give Effect
to Recapitalization on
December 15, 1986
Cancellation of Shares (2) -
---------------- ------------------
2,496 -
Balance - October 21, 1983
Shares Issued By Tensiodyne
Corporation in Connection
with Pooling of Interests 4,328 -
Net (Loss), Year Ended
December 31, 1983 - (4,317)
---------------- ------------------
Balance, January 1, 1984 6,824 (4,317)
Capital Contribution 21,727 -
Issuance of Common Stock 10,695 -
Costs Incurred in Connection
with Issuance of Stock (2,849) -
Net (Loss), Year Ended
December 31, 1984 - (21,797)
---------------- ------------------
Balance, January 1, 1985 36,397 (26,114)
Shares Contributed Back
to Company - -
Capital Contribution 200,555 -
Sale of 12,166 Warrants at
$1.50 Per Warrant 18,250 -
Shares Cancelled 9 -
Net (Loss), Year Ended
December 31, 1985 - (252,070)
---------------- ------------------
Balance, January 1, 1986 255,211 (278,184)
Net (Loss), Year Ended
December 31, 1986 - (10,365)
---------------- ------------------
Balance, January 1, 1987 255,211 (288,549)
Issuance of Common Stock upon
Exercise of Warrants 27,082 -
Net (Loss), Year Ended
December 31, 1987 - (45,389)
---------------- ------------------
Balance, January 1, 1988 282,293 (333,938)
Issuance of Common Stock
Sale of Stock (Unaudited) 101,749 -
Services Rendered (Unaudited) 70,597 -
Net (Loss), Year Ended
December 31, 1988 (Unaudited) - (142,335)
---------------- ------------------
Balance, January 1, 1989 (Unaudited) 454,639 (476,273)
Issuance of Common Stock
Sale of Stock 1,996 -
Services Rendered 17,964 -
Net (Loss), Year Ended
December 31, 1989 - (31,945)
---------------- ------------------
Balance, January 1, 1990 474,599 (508,218)
Issuance of Common Stock
Sale of Stock 59,248 -
Services Rendered 32,393 -
Net Income, Year Ended
December 31, 1990 - 133,894
---------------- ------------------
Balance January 1, 1991 566,240 (374,324)
Issuance of Common Stock
Sale of Stock 273,335 -
Services Rendered 64,880 -
Conversion of Warrants
Conversion of Stock - -
Net (Loss), Year Ended
December 31, 1991 - (346,316)
---------------- ------------------
Balance January 1, 1992 904,455 (720,640)
Issuance of Common Stock
Sale of Stock 15,980 -
Services Rendered 15,515 -
Conversion of Warrants 14,994 -
Sale of Class B Stock 14,940 -
Issuance of Stock to
Unconsolidated Subsidiary 71,659 -
Conversion of Stock - -
Cancellation of Shares 7 -
Net (Loss), Year Ended
December 31, 1992 - (154,986)
---------------- ------------------
F-11
Balance January 1, 1993 1,037,550 (875,626)
Issuance of Common Stock
Licensing Agreement 6,237 -
Services Rendered 13,846 -
Warrant Conversion 304,943 -
Cancellation of Shares (7,537) -
Net (Loss) for Year Ended
December 31, 1993 - (929,900)
---------------- ------------------
Balance January 1, 1994 1,355,039 (1,805,526)
Adjustment to Give Effect
to Recapitalization on
February 1, 1994 385,393 -
Issuance of Shares for
Services Rendered - -
Sale of Stock 23,300 -
Issuance of Shares for
the Modification of Agreements (34) -
Net (Loss) for the Year
Ended December 31, 1994 - (377,063)
---------------- ------------------
Balance January 1, 1995 1,763,698 (2,182,589)
Issuance of Common Stock
in Consideration for
Modification of Agreement - -
Net (Loss) for the Year
Ended December 31, 1995 - - (197,546)
---------------- ------------------
Balance January 1, 1996 1,763,698 (2,380,135)
Issuance of Shares for
Services Rendered 16,301 -
Sale of Stock 173,970 -
Issuance of Shares for
the Modification of Agreements (250) -
Cancellation of Shares Held
in Treasury (154,538) -
Net (Loss) for the Year
Ended December 31, 1996 - (450,734)
---------------- ------------------
Balance January 1, 1997 1,799,181 (2,830,869)
F-12
Sale of Stock 99,900 -
Conversion of Indebtedness 165,200 -
Class A Common Stock Issued
in Cancellation of $372,000
Accrued Wages Due Officer 370,500 -
Issuance of Shares for
Services Rendered 2,224 -
Adjustment to Give Effect
to Recapitalization on
9-Mar-97 (560) -
Net (Loss) for the Year
Ended December 31, 1997 - (133,578)
2,436,445 (2,964,447)
Shares Issued in Cancellation
of Indebtedness 167,570 -
Conversion of Options 124,500 -
Issuance of Shares for
Services Rendered 111,040 -
Shares Issued in Cancellation
of Redeemable Preferred Stock 149,950 -
Shares Returned to Treasury
and Cancelled 560 -
Modification of Royalty Agreement 6,599 -
Issuance of Warrants to Officer 27,567 -
Net (Loss) for the Year
Ended December 31, 1998 - (549,187)
$ 3,024,231 $ (3,513,634)
Shares Issued in Cancellation
of Indebtedness 164,492 -
Issuance of Shares for
Services Rendered 93,844 -
Shares Issued in Modification
of Licensing Agreement (672) -
Sale of Stock 173,107 -
Net (Loss) for the Year
Ended December 31, 1999 - (539,283)
---------------- ------------------
$ 3,455,002 $ (4,052,917)
Issuance of Shares for
Services Rendered 83,251 -
Shares Issued to Investors
Pursuant to Settlement Agreement (65) -
Shares Issued for Cash
and Non-Recourse Promissory Notes 1,990,000 -
Shares Issued for Cash 281,294 -
Shares Issued in Cancellation
of Indebtedness 99,900 -
Shares Issued as Compensation
Pursuant to Escrow Agreement - -
Shares Returned from Escrow 400 -
Common Shares Converted
into Class B Common - -
Preferred Shares Converted
into Common
Net (Loss) for the Year
Ended December 31, 2000 - (459,129)
---------------- ------------------
Balance December 31, 2000 $ 5,909,782 $ (4,512,046)
Issuance of Shares for
Services Rendered 390,693 -
Shares Issued for Cash 281,635 -
Shares Issued in Connection
with Private Offering (698) -
Shares Issued to Officer 414,000 -
Net (Loss) for the Year
Ended December 31, 2001 - (2,432,638)
---------------- ------------------
$ 6,995,412 $ (6,944,684)
Issuance of Shares for
Services Rendered 184,536 -
Shares Issued for Cash 341,913 -
Shares Issued in Connection
with Private Offering (375) -
Net (Loss) for the Three
Months Ended March 31, 2002 - (260,856)
---------------- ------------------
Balance - March 31, 2002
(Unaudited) $ 7,521,486 $ (7,205,540)
================ ------------------
F-13
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization
Material Technologies, Inc. (the "Company") was organized on March 4, 1997,
under the laws of the state of Delaware.
The Company is in the development stage, as defined in FASB Statement 7,
with its principal activity being research and development in the area of
metal fatigue technology with the intent of future commercial application.
The Company has not paid any dividends and dividends that may be paid in
the future will depend on the financial requirements of the Company and
other relevant factors.
Note 2 - Summary of Significant Accounting Policies
a. Property and Equipment
The cost of property and equipment is depreciated over the estimated
useful lives of the related assets. Depreciation is computed on the
straight-line method for financial reporting purposes and for income
tax reporting purposes.
b. Intangible Assets
Intangibles are amortized on the straight-line method over periods
ranging from 5 to 20 years (see Note 3).
c. Net Loss Per Share
The Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" ("EPS")
that established standards for the computation, presentation and
disclosure of earnings per share, replacing the presentation of
Primary EPS with a presentation of Basic EPS.
d. Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
e) Fair Value of Financial Instruments
The Company estimates the fair value of its financial instruments at
their current carrying amounts.
F-14
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
f) Concentration of Credit Risk
Currently, the Company's only source of income comes from its
sub-contracts for Electrochemical Fatigue Sensor ("EFS") research with
the United States Air Force contractors. The Company believes these
contracts will continue through 2002.
g) Stock Based Compensation
For 1998 and subsequent years, the Company has adopted FASB Statement
123 which establishes a fair value method of accounting for its
stock-based compensation plans. Prior to 1998, the Company used APB
Opinion 25.
h) Investment in Unconsolidated Subsidiaries
Investments in companies in which the Company has less than a 20%
interest are carried at cost. The Company includes dividends received
from those companies in other income. The Company applies dividends
received in excess of the Company's proportionate share of accumulated
earnings as a reduction of the cost of the investment.
i) Revenue Recognition
The Company recognizes revenue at the time services are rendered.
j) Interim Financial Statements
The financial statements as of March 31, 2002, and for the
three-months periods ended March 31, 2001 and 2002 are unaudited. In
the opinion of management, the financial statements include all
adjustments consisting of normal recurring accruals necessary for a
fair presentation of the Company's financial position and results of
operations. Results of operations for the interim periods are not
necessarily indicative of those to be achieved for full fiscal years.
F-15
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Note 3 - Intangibles
Intangible assets consist of the following:
Period of December 31,
Amortization 2000 2001
------ ------
Patent Costs 17 Years $ 28,494 $ 28,494
License Agreement 20 Years 6,250 6,250
(See Note 4)
Website 5 Years -- 5,200
--------- ---------
34,744 39,944
Less Accumulated Amortization (22,032) (24,281)
--------- ---------
$ 12,712 $ 15,663
========= =========
Amortization charged to operations for 1999, 2000, and 2001, were $1,989,
$1,989, and $2,249, respectively.
Note 4 - License Agreement
The Company has entered into a license agreement with the University of
Pennsylvania regarding the development and marketing of the EFS. The EFS is
designed to measure electrochemically the status of a structure without
knowing the structure's past loading history. The Company is in the initial
stage of developing the EFS.
Under the terms of the agreement the Company issued to the University
12,500 shares of its common stock, and a 5% royalty on sales of the
product. The Company valued the licensing agreement at $6,250. The license
terminates upon the expiration of the underlying patents, unless sooner
terminated as provided in the agreement. The Company is amortizing the
license over 20 years.
In addition to entering into the licensing agreement, the Company also
agreed to sponsor the development of the EFS. Under the Sponsorship
agreement, the Company agreed to reimburse the University development costs
totaling approximately $200,000 that was to be paid in 18 monthly
installments of $11,112.
Under the agreement, the Company reimbursed the University $10,000 in 1996
for the cost it incurred in the prosecution and maintenance of its patents
relating to the EFS.
F-16
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
The Company and the University agreed to modify the terms of the licensing
agreement and related obligation. The modified agreements increase the
University's royalty to 7% of the sale of related products, the issuance of
additional shares of the Company's Common Stock to equal 5% of the
outstanding stock of the Company as of the effective date of the modified
agreements, and to pay to the University 30% of any amounts raised by the
Company in excess of $150,000 (excluding amounts received on government
grants or contracts) up to the amount owing to the University.
The parties agreed that the balance owed on the Sponsorship Agreement was
$200,000 and commencing June 30, 1997, the balance due will accrue interest
at a rate of 1.5% per month until the loan matures on December 16, 2001,
when the loan balance and accrued interest become fully due and payable. In
addition, under the agreement, Mr. Bernstein agreed to limit his
compensation from the Company to $150,000 per year until the loan and
accrued interest is fully paid. Interest charged to operations for 1999,
2000, and 2001, relating to this obligation was $43,303, $54,638, and
$64,472, respectively. The balance of the note at December 31, 2000, and
2001, was $358,181 and $422.653, respectively,
As of December 31, 2001, the Company was required to issue additional
1,404,464 shares to the University pursuant to the revised agreement. The
Company is currently in discussions with the University regarding the
issuance of the shares and other related matters.
Note 5 - Property and Equipment
The following is a summary of property and equipment:
December 31,
2000 2001
----- ------
Office Equipment $ 23,380 $ 24,142
Remote Monitoring System -- --
Manufacturing Equipment 100,067 100,067
----------- -----------
123,447 124,209
Less: Accumulated
Depreciation (120,457) (121,501)
----------- -----------
2,990 2,708
=========== ===========
Depreciation charged to operations was $253, $959, and $1,044, in 1999,
2000, and 2001, respectively. The useful lives of office equipment for the
purpose of computing depreciation are five years. Management will commence
depreciating its
F-17
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
manufacturing equipment upon the commencement of the manufacturing of its
products.
The Company's equipment has been pledged as collateral on the agreement
with Advanced Technology Center (See Note 8(b)).
Note 6 - Notes Payable
On May 27, 1994, the Company borrowed $25,000 from Mr. Sherman Baker, a
current shareholder. The loan is evidenced by a promissory note that is
assessed interest at major bank prime rate. The note matures on May 31,
2002, when principal and accrued interest become fully due and payable. The
Company has pledged its patents as collateral against this loan.
As additional consideration for the loan, the Company granted to Mr. Baker,
a 1% royalty interest in the Fatigue Fuse and a 0.5% royalty interest in
the Electrochemical Fatigue Sensor. The Company has not placed a value on
the royalty interest granted. The balance due on this loan as of December
31, 2000, and 2001, was $53,991, and $57,237, respectively. Interest
charged to operations for 1999, 2000 and 200 was $4,640, $3,245, and
$3,246, respectively.
In October 1996, the Company borrowed $25,000 from an unrelated third
party. The loan was assessed interest at an annual rate of 11% and matured
on October 15, 2000. In addition the Company issued warrants to the lender
for the purchase of 2,500 shares of the Company's common stock at a price
of $1.00 per share. The loan balance as of December 31, 2000 and 2001 was
$25,527 and $25,527, respectively. Interest charged to operations on this
loan in 1999, 2000, and 2001, were $2,750, $2,750, and $2,750,
respectively.
The Company did not pay any amounts due on this note when it matured on
October 15, 2000, and the note is in default.
Note 7 - Income Taxes
Income taxes are provided based on earnings reported for financial
statement purposes pursuant to the provisions of Statement of Financial
Accounting Standards No. 109 ("FASB 109").
FASB 109 uses the asset and liability method to account for income taxes.
That requires recognizing deferred tax liabilities and assets for the
expected future tax consequences of temporary differences between tax basis
and financial reporting basis of assets and liabilities.
F-18
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
An allowance has been provided for by the Company which reduced the tax
benefits accrued by the Company for its net operating losses to zero, as it
cannot be determined when, or if, the tax benefits derived from these
operating losses will materialize. As of December 31, 2001, the Company has
unused operating loss carryforwards, which may provide future tax benefits
in the amount of approximately $4,825,000 which expire in various years
through 2021.
The Company's use of its net operating losses may be restricted in future
years due to the limitations pursuant to IRC Section 382 on changes in
ownership.
Note 8 - Commitments and Contingencies
The Company's commitments and contingencies are as follows:
a. On December 24, 1985, to provide funding for research and development
related to the Fatigue Fuse, the Company entered into various agreements
with the Tensiodyne 1985-I R & D Partnership. These agreements were amended
on October 9, 1989, and under the revised terms, obligated the Company to
pay the Partnership a royalty of 10% of future gross sales. The Company's
obligation to the Partnership is limited to the capital contributed to it
by its partners in the amount of approximately $912,500 and accrued
interest.
b. On August 30, 1986, the Company entered into a funding agreement with the
Advanced Technology Center ("ATC"), whereby ATC paid $45,000 to the Company
for the purchase of a royalty of 3% of future gross sales and 6% of
sublicensing revenue. The royalty is limited to the $45,000 plus an 11%
annual rate of return. At December 31, 2000, and 2001, the future royalty
commitment was limited to $204,639 and $227,149, respectively.
The payment of future royalties is secured by equipment used by the Company
in the development of technology as specified in the funding agreement.
c. On May 4, 1987, the Company entered into a funding agreement with ATC,
whereby ATC provided $63,775 to the Company for the purchase of a royalty
of 3% of future gross sales and 6% of sublicensing revenues. The agreement
was amended August 28, 1987, and as amended, the royalty cannot exceed the
lesser of (1) the amount of the advance plus a 26% annual rate of return
or, (2) total royalties earned for a term of 17 years.
At December 31, 2000, and 2001, the total future royalty commitments,
including the accumulated 26% annual rate of return, were limited to
approximately $1,369,233, and $1,725,234, respectively. If the Company
F-19
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
defaults on the agreement, then the obligation relating to this agreement
becomes secured by the Company's patents, products, and accounts
receivable, which may be related to technology developed with the funding.
d. In 1994, the Company issued to Variety Investments, Ltd. of Vancouver,
Canada ("Variety"), and a 22.5% royalty interest on the Fatigue Fuse in
consideration for the cash advances made to the Company by Variety.
In December 1996, in exchange for the Company issuing 250,000 shares of its
Common Stock to Variety, Variety reduced its royalty interest to 20%. In
1998, in exchange for the Company issuing 733,280 shares of its Common
Stock to Variety, Variety reduced its royalty interest to 5%.
e. In 1995, the Company entered into an agreement with an unrelated third
party for providing the idea of pursuing government contracts for the
funding of the development of the Company's technologies, under which he
would receive a number of the Company's Common Stock equal to 2.5% of the
number of shares outstanding as of the date a government contract is
signed, 15% of the amount of the respective government contract, and an
appointment to the Company's Board of Directors. Funds due him are to be
paid only when such funds become available to the Company. The Company and
the third part disagree as to the amount owed and the timing of payment
under the Agreement and are attempting to settle the disagreements
amicably.
Under the agreement, the Company's obligation is created on the date the
government contract is signed. Under the agreement with this individual,
the amounts due are to be evidenced by a promissory note bearing interest
at major bank prime.
The Agreement contains anti-dilution provisions relating to the shares to
be issued that expire once $50,000 is paid. The Company's obligation to
have this person as a Director expires once all amounts due are paid. The
contingent amount due has been personally guaranteed by the Company's
President and is secured by the Company's patents, subject to a prior lien
in favor of the Company's President. The personal guarantee expires upon
the individual receiving $100,000.
f. In 1999, the Company was notified that a former consultant used company
materials to sell shares of the Company's stock to the public. The
Consultant defrauded 25 investors out of $112,000. The Company had no
knowledge of his actions. But in order to avoid potential litigation and
have the ability to pursue the claims of these investors, the Company
authorized issuance of up to 110,000 shares of its restricted Common Stock
to these investors in exchange for the assignment of their respective
claims to the Company and a release of any claims against the Company.
During 2000, 65,028 shares of the Company's common stock were issued to
these defrauded investors.
F-20
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
g. As discussed in Note 6, the Company granted a 1% royalty interest in the
Company's Fatigue Fuse and a .5% royalty interest in its Electrochemical
Fatigue Sensor to Mr. Sherman Baker as part consideration on a $25,000 loan
made by Mr. Baker to the Company.
A summary of royalty interests that the Company has granted and are
outstanding as of December 31, 2001, follows:
Fatigue Fatigue
Fuse Sensor
------ -------
Tensiodyne 1985-1 R&D Partnership -- * --
Advanced Technology Center
Future Gross Sales 6.00%* --
Sublicensing Fees -- ** --
Variety Investments, Ltd 5.00% --
University of Pennsylvania
Net Sales of Licensed Products -- 7.00%
Net Sales of Services -- 2.50%
Sherman Baker 1.00% 0.50%
------ ------
12.00% 10.00%
====== ======
* Royalties limited to specific rates of return as discussed in Notes
8(a) and (b) above.
** The Company granted 12% royalties on sales from sublicensing. These
royalties are also limited to specific rates of return as discussed in
Note 8(b) and (c) above.
h. Operating Leases
The Company leases its existing office under a non-cancelable lease, which
expires on May 31, 2002.
Rental expense charged to operations for the years ended December 31, 1999,
2000, and 2001 was approximately $25,375, $23,129, and $29,468, which
consisted solely of minimum rental payments.
In addition to rent, the Company is obligated to pay property taxes,
insurance, and other related costs associated with the leased office.
F-21
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Minimum rental commitments under the noncancelable leases expire as
follows:
Year Ended 2002 $ 11,740
i. Straight Documentary Credit
On October 10, 2001, the Company entered into an arrangement whereby Allied
Boston Group will provide the Company with a Straight Documentary Credit
for $12,500,000. Under the terms of the commitment, the Company will pledge
sufficient shares of its common stock to equal 125% of the Straight
Documentary Credit. Under the initial terms, the shares were valued at $.27
per share. If the Company's stock price goes lower, then additional shares
will be pledged. If the stock price goes to a $1.00 per share, then Allied
Boston is required to liquidate a sufficient number of shares to pay off
the amount funded through this Straight Documentary Credit. After the
amount is paid off, Allied Boston will retain 25 million shares of the
Company's common stock. Any remaining shares will be returned to the
Company;
Upon funding through the Straight Documentary Credit, the Company is
required to pay a Success Fee to Allied Boston in the amount of 8% of the
amount funded of which 50% will be paid in cash and the remainder of the
fee will be paid through the issuance of the Company's common stock to be
valued at market value at the time of issuance. As long as the Documentary
Credit is in force, Allied Boston will have 2 voting seats on the Company's
Board. All out-of-pocket expenses pertaining to the issuance of the
instrument will be borne by the Company.
In October 2001, the Company issued 60,000,000 shares of its common stock
as collateral to Allied Boston pursuant to the terms of the agreement, and
in January 2002, the Company issued 40,000,000 shares as additional
collateral. As indicated the selling of these shares are contingent upon
the occurrence of future events. Therefore the Company treats these shares
as issued but not outstanding.
j) Litigation
1) On April 30, 2001, Stephen Beck, a former consultant filed a complaint
against the Company and its President (Stephen Forest Beck vs. Robert M.
Bernstein, Material Technologies, Inc. etal. Los Angeles Superior Court No.
BC249547, filed April 30, 2001) alleging breach of contract a declaration
of his contract rights, and fraud. The complaint all relates to a February
8, 1995, consulting agreement under which Mr. Beck was to provide
assistance in the Company obtaining a government contract private funding.
Mr. Beck claims that over $1.5 million in contingent consulting fees are
immediately due, as Matech has obtained funding through four since 1995. In
addition, he is seeking punitive damages in an unspecified amount.
F-22
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Counsel, who is representing the Company in this lawsuit, believes that the
likelihood of Mr. Beck winning any compensation is poor based upon the
merits of his case. Trial is set to begin on May 20, 2002.
2) On April 30, 2001, the Company filed a complaint against Mr. Beck (Material
Technologies, Inc. v Stephen Forrest Beck, L.A. Superior Court No BC249495)
for the recission of the consulting agreement the return of 195,542 shares
of common stock issued to him pursuant to the above indicated consulting
contract, and attorney's fees, interest, and the cost of the lawsuit. The
case has been consolidated with the above-reference suit and also goes to
trial on May 20, 2002.
Note 9 - Investments
a) The Company owns 65,750 shares of Class A Common Stock of Tensiodyne
Corporation. At December 31, 2001, there was no market for these shares and
the Company valued its interest at $0.
d) During 2001, the Company abandoned its 5% interest in Antaeus Research,
LLC. and charged its total investment of $33,000 to operations. Prior to
its abandonment, the Company accounts for this investment under the Cost
Method.
Note 10 - Stockholders' Equity
a. Common Stock
The holders of the Company's Common Stock are entitled to one vote per
share of common stock held.
b. Class B Common Stock
The holders of the Company's Class B Common Stock are not entitled to
dividends, nor are they entitled to participate in any proceeds in the
event of a liquidation of the Company. However the holders are entitled to
1,000 votes for each share of Class B Common held.
c. Class A Preferred Stock
During 1991, the Company sold to a group of 15 individuals, 2,585 shares of
$100 par value preferred stock and warrants to purchase 2,000 shares of
common stock for a total consideration of $258,500.
F-23
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
In the Company's 1994 spin off, these shares were exchanged for 350,000
shares of the Company's Class A Convertible Preferred Stock and 300,000
shares of its Common Stock. The holders of these shares have a liquidation
preference to receive out of assets of the Company, an amount equal to $.72
per one share of Class A Preferred Stock. Such amounts shall be paid upon
all outstanding shares before any payment shall be made or any assets
distributed to the holders
of the common stock or any other stock of any other series or class ranking
junior to the Shares as to dividends or assets.
These shares are convertible to shares of the Company's common stock at a
conversion price of $.72 ("initial conversion price") per share of Class A
Preferred Stock that will be adjusted depending upon the occurrence of
certain events. The holders of these preferred shares shall have the right
to vote and cast that number of votes which the holder would have been
entitled to cast had such holder converted the shares immediately prior to
the record date for such vote.
The holders of these shares shall participate in all dividends declared and
paid with respect to the Common Stock to the same extent had such holder
converted the shares immediately prior to the record date for such
dividend.
In 2000, a holder of 12,259 shares of preferred stock exchanged these
shares for 12,259 shares of the Company's common. The 12,259 shares of
preferred were subsequently cancelled.
d. Issuances Involving Non-cash Consideration
All issuances of the Company's stock for non-cash consideration have been
assigned a dollar amount equaling either the market value of the shares
issued or the value of consideration received whichever is more readily
determinable. The majority of the non-cash consideration received pertains
to services rendered by consultants and others.
On February 4, 1999, the Company issued 175,000 shares in exchange for the
cancellation of $66,667 of indebtedness due to a consultant. On March 5,
1999, the Company issued 50,000 shares to Mr. John Goodman for services
rendered relating to the research and development projects. These shares
were valued at $2,500. Also on March 5, 1999, the Company issued 50,000
shares to a consultant. These shares were valued at $2,500. On April 15,
1999, the Company issued 50,000 shares to a consultant. These shares were
valued at $2,500. On June 9, 1999, the Company issued 2,000,000 shares to
its President in exchange for canceling $100,000 of indebtedness due him.
On May 27, 1999, the Company issued its director, Joel Freedman, 200,000
shares of stock from services. These shares were valued at $10,000. On June
21, 1999, the Company issued 100,000 shares to a consultant for $.35 a
share payable by a non-
F-24
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
recourse, non-interest bearing promissory note payable on or before June
15, 2003 and is secured by the 100,000 shares. The shares were valued at
the present value of the note of $23,541. On June 12, 1999, the Company
issued 200,000 shares to an attorney for services. These shares were valued
at $10,000. On July 7, 1999, the Company issued 672,205 shares to the
University of Pennsylvania pursuant to the terms of the modified licensing
agreement as discussed in Note 4. These shares were valued at par. On
August 23, 1999, the Company issued 50,000 shares to a consultant. These
shares were valued at $2,500. On September 29, 1999, the Company issued
8,000 shares for public relations services. These shares were valued at
$400. On October 27, 1999, the Company issued 300,000 to its board of
advisors. These shares were valued at $30,000. On November 12, 1999, the
Company issued 25,000 shares to a consultant. These shares were valued at
$2,500. On November 14, 1999, the Company issued 92,000 shares to Mr. John
Goodman for services rendered in connection with the development of the
fatigue fuse. These shares were valued at $9,200. On December 14, 1999, the
Company issued 50,000 shares to a consultant. These shares were valued at
$5,000. On December 21, 1999, the Company issued 20,000 shares to a
consultant for public relations services. These shares were valued at
$1,500. On December 21, 1999, the Company issued 10,000 shares to an
individual who is on the Company's advisory board. These shares were valued
at $1,000. On December 30, 1999, the Company issued 150,000 shares to a
consultant. These shares were valued at $15,000.
On January 31, 2000, the Company issued 50,000 shares of common stock to a
member of its advisory board. These shares were valued at $5,000. On
February 8, 2000, the Company issued 10,000 shares of common stock to a
consultant who assisted in developing the Company's web site. The Company
valued these shares at $1,000. On February 28, 2000, the Company issued
200,000 of common stock to a consultant for financial services. These
shares were valued at $20,000. Also on February 28, 2000, the Company
issued 4,500 of common stock to a public relations consultant. These shares
were valued at $4,500. On March 9, 2000, the Company issued 100,000 of
common stock to a consultant in cancellation of $100,000 due. On March 13,
2000, the Company issued two consultants a total of 75,000 shares of common
stock for services relating to the development of the fatigue fuseThese
shares were valued at $7,500. On March 21, 2000, the Company's President
returned to the Company 40,000 shares of Common stock in exchange for
receiving 40,000 shares of Class B common stock. On March 29, 2000, the
Company issued 50,000 shares of common stock to a consultant for financial
services. These shares were valued at $10,000. On April 11, 2000, the
Company issued 15,000 shares of common stock to consultant relating to the
operations of the Company joint venture. These shares were valued at
$3,000. On April 11, 2000, the Company issued 25,000 shares of common stock
for advisory services. These shares were valued at $5,000. On April 28,
2000, the Company issued 30,000 shares of common stock for advisory
services. These shares were valued at $12,000. On May 4, 2000, the Company
issued 12,529 shares of its common stock in
F-25
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
exchange for 12,529 shares of its preferred stock. The preferred shares
were subsequently cancelled. On May 25, 2000, the Company issued its
President 4,650,000 shares its common stock in exchange for $4,650 and a
$1,855,350 non-recourse promissory note bearing interest at an annual rate
of 8%. On the same day, the Company issued 350,000 shares its common stock
to a Director in exchange for $350 and a $139,650 non-recourse promissory
note bearing interest at an annual rate of 8%. Both notes mature on May 25,
2005, when the principal and accrued interest becomes fully due and
payable. On July 13, 2000, the Company issued 40,000 shares of its common
stock for legal services. These shares were valued at $10,000. On October
27, 2000, the Company issued 4,183,675 to its President for futures
services to be rendered pursuant to a stock grant and escrow agreement. As
discussed further in Note 11, these shares are held in escrow, subject to
substantial restrictions and the actual shares that may vest to the
President could be substantially less then the number of shares placed in
escrow. These shares were valued at par. On November 14, 2000, pursuant to
the stock grant and escrow agreement, the President returned 400,000 shares
of common stock to the Company that were subsequently cancelled. On the
same day, 400,000 shares were issued in exchange for $22,490. On December
19, 2000, the Company issued 200,000 shares of its common stock to a
consultant. These shares were valued at $10,000. During January and
February 2000, the Company issued 65,028 shares of its common stock to
investors who were defrauded by a former consultant of the Company. These
shares were valued at par. In February 2000, the Company received $251,798
from the proceeds from the sale of shares of DCH Technologies, Inc. These
shares were placed in a brokerage account in 1998 by a shareholder of the
Company on the Company's behalf. The Company had no access to the account.
Due to the restrictive covenants of the brokerage account, the Company did
not reflect the transaction on its financial statements prior to 2000, when
the shares were sold. The Company credited the proceeds to additional
paid-in capital.
On January 9, 2001, the Company issued 100,000 shares of its common stock
to a member of the Company's advisory board for consulting services. These
shares were valued at $5,000. Also on January 9, 2001, the Company issued
50,000 shares of its common stock to a consultant for services rendered.
These shares were valued at $2,500. On January 10, 2001, the Company issued
100,000 shares each to two employees pertaining to services rendered on the
Company's research project. These shares were valued at $10,000. On January
11, 2001, the Company issued 100,000 shares of its common stock to an
attorney for legal services. These shares were valued at $10,000. On March
6, 2001, the Company issued its President 6,000,000 shares of common stock
for services rendered. These shares were valued at $420,000. On April 6,
2001, the Company issued a consultant 200,000 shares of its common stock
for services rendered. These shares were valued at $10,000. On April 17,
2001, the Company issued a consultant 250,000 shares of its common stock
for services rendered. These shares were valued at $12,500. On April 20,
2001, the Company issued to two consultant 50,000 shares each of its common
stock for marketing
F-26
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
services rendered. These shares were valued at $5,000. On May 3, 2001, the
Company issued to one of employees 100,000 shares of its common stock for
services rendered on the Company's research project. These shares were
valued at $5,000. Also May 3, 2001, the Company issued a consultant 100,000
shares of its common stock for services rendered. These shares were valued
at $5,000. On June 8, 2001, the Company issued a consultant 1,000,000
shares of its common stock for past marketing services rendered. These
shares were valued at $50,000. On June 12, 2001, the Company issued its
Executive assistant 25,000 shares of its common stock for services
rendered. These shares were valued at $1,250. On July 5, 2001, the Company
issued an attorney 50,000 shares of its common stock for legal services
rendered. These shares were valued at $10,000. On July 26, 2001, the
Company issued a consultant 200,000 shares of its common stock for services
rendered. These shares were valued at $9,100. On August 6, 2001, the
Company issued a consultant 125,000 shares of its common stock for services
rendered. These shares were valued at $8,125. On August 9, 2001, the
Company issued an attorney 265,000 shares of its common stock for services
rendered. These shares were valued at $26,500. On August 29, 2001, the
Company issued 50,000 shares of its common stock to one consultant and
300,000 shares of its common stock to another consultant for services
rendered. These shares were valued at $22,750. On September 6, 2001, the
Company issued a consultant 37,500 shares of its common stock for services
rendered. These shares were valued at $2,438. On September 14, 2001, the
Company issued a consultant 50,000 shares of its common stock for services
rendered. These shares were valued at $3,250. On September 19, 2001, the
Company issued a consultant 125,000 shares of its common stock for services
rendered. These shares were valued at $8,125. On October 8, 2001, the
Company issued to two of its employees 300,000 shares of its common stock
each for services rendered in connection with the Company research project.
These shares were valued at $39,000. On October 16, 2001, the Company
issued a consultant 50,000 shares of its common stock for services
rendered. These shares were valued at $1,853. On October 18,, 2001, the
Company issued its Executive assistant 20,000 shares of its common stock
for services rendered. These shares were valued at $1,300. On October 23,
2001, the Company issued an attorney 150,000 shares of its common stock for
services rendered. These shares were valued at $15,000. On October 25,
2001, the Company issued 697,853 as additional fees pertaining to its
Regulation S offering. These shares were valued at $48,850. On November 6,
2001, the Company issued an attorney 350,000 shares of its common stock for
legal services rendered. These shares were valued at $35,000. On November
14, 2001, the Company issued a consultant 150,000 shares of its common
stock for services rendered. These shares were valued at $9,750. On
November 17, 2001, the Company issued to the same consultant 107,500 shares
of its common stock for services rendered. These shares were valued at
$6,988. On December 20, 2001, the Company issued to three consultants a
total of 530,000 shares of its common stock for services rendered. These
shares were valued at $34,450.
F-27
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Note 11 - Transactions with Management
a. During 1993, Mr. Bernstein exercised warrants to purchase 6,000 shares of
the Company's common stock. Pursuant to the resolution on April 12, 1993,
adjusting the per share amount from $10.00 to $2.50, Mr. Bernstein paid $60
and executed a five year non-interest bearing note to the Company for
$14,940. The Note is non-recourse and the only security pledged for the
obligation is the stock purchased. The promissory note was extended to the
year 2003.
b. In 1999, the Company issued 2,000,000 shares of its Common Stock in
exchange for the cancellation of $100,000 of indebtedness owed its
President.
c. During 2000, the President advanced the Company $8,000 and received $39,500
from the Company. The outstanding amount due from the President as of
December 31, 2000 is $22,052. The amount of interest credited to operations
for 2000 totaled $822.
As of December 31, 2000, the Company accrued $40,000 of unpaid compensation
owed its President.
d. On May 25, 2000, the Company issued its President 4,650,000 shares its
common stock in exchange for $4,650 and a $1,855,350 non-recourse
promissory note bearing interest at an annual rate of 8%. On the same day,
the Company issued 350,000 shares its common stock to a Director in
exchange for $350 and a $139,650 non-recourse promissory note bearing
interest at an annual rate of 8%. Both notes mature on May 25, 2005, when
the principal and accrued interest becomes fully due and payable. At the
date of issuance, the shares were valued by the Company at $.40 per share.
e. On October 27, 2000, the Company issued 4,183,675 shares to its President
for future compensation pursuant to a Stock Escrow/Grant Agreement. Under
the terms of the agreement, the President is required to hold these shares
in escrow. While in escrow, the President cannot vote the shares but has
full rights as to cash and non-cash dividends, stock splits or other change
in shares. Any additional shares issued to the President by reason of the
ownership of the 4,183,675 shares will also be escrowed under the same
terms of the agreement.
Upon the exercise by certain holders of Company options or warrants or upon
the need by the Company, in the sole discretion of the Board, to issue
common stock to certain individuals or entities, the number of shares
required for issuance to these holders will be returned from escrow by the
President thereby reducing the number of shares he holds. The shares held
in escrow are non-transferable and will be granted to the Company's
President only upon the exercise or expiration of all of the options and
warrants, the direction of the Board, in its sole discretion, or the mutual
agreement by
F-28
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
the President and the Board of Directors to terminate the agreement. The
Company valued these shares at par. Upon the actual grant of the remaining
shares to the President, the shares issued will be valued its market value
when issued and charged to operations as compensation. As of December 31,
2001, 400,000 of these shares were issued to a unrelated third part
f. On February 19, 2001, the Company issued its President 6,000,000 shares of
common stock for services rendered. These shares were valued at $420,000.
g. In June 2001, the Company's Board of Directors authorized the reduction in
the amount owed by the President and a Director on non-recourse promissory
notes referred to in footnote (d) above to $460,350 and $34,650,
respectively. The reduction was due to the substantial reduction in the
market value of the Company's stock. The $1,500,000 reduction was charged
to general and administrative expenses.
h. During 2001, the President advanced the Company $42,000 and received
$53,300 from the Company. The outstanding amount due from the President as
of December 31, 2001 is $35,880. The amount of interest credited to
operations for 2001 totaled $3,327.
For 2001, the Company accrued $30,000 of unpaid compensation owed its
President.
Note 12 - Stock-Based Compensation Plans
a In 1996, the Company adopted the 1996 Stock Option Plan and reserved
1,700,000 shares of Common Stock for distribution under the Plan. Eligible
Plan participants include employees, advisors, consultants, and officers
who provide services to the Company. A Committee appointed by the Company's
Board of Directors determines the option price and the number of shares
subject to each option granted. In the case of Incentive Stock Options
granted to an optionee who owns more than 10% of the Company's outstanding
stock, the option price shall be at least 110% of the fair market value of
a share of common stock at date of grant. In 2000, the Company increased
the number of reserved shares to 6,800,000.
In 1998, the Company granted options to acquire 900,000 shares of which
500,000 shares were exercised for $125,000. In addition, under the Plan,
the Company issued additional 50,000 shares for consulting services. The
Company charged the fair value of the 50,000 shares of $5,000 to
operations.
In 1999, the Company granted options to acquire 775,000 shares of Common
Stock through the Plan. The Company did not issue any shares in 1999 under
the Plan.
b. In 1998, the Company adopted the 1998 Stock Plan and reserved 800,000
F-29
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
shares of Common Stock for distribution under the plan. The Plan was
adopted to provide a means by which the Company could compensate key
employees, advisors, and consultants by issuing them stock in exchange for
services and thereby conserve the Company's cash resources. A Committee of
the Board of Directors determines the value of the services rendered and
the related number of shares to be issued through the Plan for these
services. In 2000, the Company increased the number of reserved shares to
6,800,000.
In 1998, the Company issued 310,000 shares of Common Stock through the plan
in exchange for consulting services. The Company valued these shares at
$31,000, the fair value of the services rendered.
In February 2002, the Company adopted the 2002 Stock Issuance/Stock Plan,
and reserved 20,000,000 shares of its common stock for distribution under
the Plan. Eligible Plan participants include employees, advisors,
consultants, and officers who provide services to the Company. The option
price shall be 100% of the fair market value of a share of common stock at
either, a) date of grant or such other day as the as the Board may
determine. Options issued under this plan expire 5 years from date of
grant.
The following is summary of the 1996 and 1998 Stock option plans:
F-30
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
1996 Stock Option Plan 1998 Stock Option Plan 1998 Stock Plan
------------------------- -------------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
Outstanding Dec 31, 1998 - $ - 350,000.00 $ - - $ -
=========== ============ ============== ========= =========== =========
Granted - $ - 750,000.00 $ 0.25 - $ -
Exercised - $ - 100,000.00 $ 0.35 - $ -
Forfeited - $ - - $ - $ -
----------- ------------ -------------- --------- ---------- ---------
Outstanding Dec 31, 1999 - S - 1,000,000.00 $ - $ - $ -
=========== ============ ============== ========= ========== =========
Granted - S - - $ - 6,800,000 $ -
Exercised - $ - 50,000,00 $ 0.25 5,894,500 $ 0.41
Forfeited - $ - - $ - $ -
----------- ------------ -------------- --------- ---------- ---------
Outstanding Dec 31, 2000 - $ - 950,000.00 $ - $905,500.00 $ -
=========== ============ ============== ========= ========== =========
Granted - $ - - $ $
Exercised - $ - 950,000.00 $ 0.10 905,500 $ 0.10
Forfeited - $ - - S - $
----------- ------------ -------------- --------- ---------- ---------
Outstanding Dec 31, 2000 - $ - - $ - $ - $ -
=========== ============ ============== ========= ========== =========
Weighted Average Fair Value of Options Granted
During 1999 $ 0.00
=========
Weighted Average Fair Value of Options Granted
During 2000 $ 0.00
=========
Weighted Average Fair Value of Options Granted
During 2001 $ 0.00
=========
F-31
================================================================================
TABLE OF CONTENTS
Page MATERIAL TECHNOLOGIES, INC.
--------
Prospectus Summary 2
Risk Factors 4 8,632,301 Shares of Common Stock
Cautionary Note Regarding Forward-
Looking Statements 5
Use Of Proceeds 6
Dividend Policy 6 PROSPECTUS
Dilution 6
Selected Financial Data 6
Management's Discussion And Analysis
Of Financial Condition And Results
Of Operations 6 Dated August ___, 2002
Business 9
Management 13
Certain Transactions 17
Principal Shareholders 18
Selling Shareholders 19
Description Of Securities 24
Plan of Distribution for Selling
Shareholder 24
Legal Matters 26
Experts 26
Index To Financial Statements F-1
UNTIL AUGUST ___, 2002, 25 DAYS AFTER THE
DATE OF THIS PROSPECTUS, ALL DEALERS THAT
BUY, SELL OR TRADE THE SHARES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAYBE
REQUIRED TO DELIVER A PROSPECTUS. THIS
DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATIONS OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS.
================================================================================
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with Delaware General Corporation Law, we have
included a provision in our Certificate of Incorporation to limit the personal
liability of our directors for violations of fiduciary duties. The provision
serves to eliminate such directors' liability to us or our stockholders for
monetary damages, except for (i) any breach of the director's duty of
loyalty to us or our stockholders, (ii) acts of omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
unlawful payment of dividends or unlawful stock purchases or redemptions, or
(iv) any transaction from which a director derived an improper personal
benefit.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 being permitted to directors, officers, or persons controlling us
pursuant to the foregoing provisions, we have been informed that, in the
opinion of the United Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Filing fee under the Securities Act of 1933 $ 37.75
Printing and Engraving (1) $ 500.00
Blue Sky Fees (1) $ 1,000.00
Auditing Fees (1) $ 2,500.00
Legal Fees (1) $ 5,000.00
Miscellaneous (1) $ 2,000.00
-----------
TOTAL $ 10,537.50
(1) Estimates
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
At various times during the previous three fiscal years, we issued common
stock to various persons that were exempt from registration relying on Section
4(2) of the Securities Act of 1933. Each and every such person has been
associated with us in some way, is sophisticated, and is familiar with
our business and our financial position.
On January 14, 1999, we authorized the issuance of a warrant to purchase
2,500 shares of our common stock for $1.00 per share to one of our long time
investors in exchange for exchanging a promissory note due to be paid for a new
note.
On February 4, 1999, we authorized the issuance to a consultant whom we
owed $66,666, 175,000 shares of common stock and a common stock purchase warrant
to purchase an additional 175,000 shares of common stock at $2.50 per share with
an expiration date of February 1, 2002 in exchange for canceling the debt.
On March 5, 1999, we authorized the issuance of 50,000 shares of common
stock to John Goodman, a director, for services rendered to us.
On March 5, 1999, we authorized the issuance of 50,000 shares of common
stock to a consultant for services rendered to the us.
On May 27, 1999, we authorized the issuance of 200,000 shares of common
stock to Joel Freedman, a director, for services rendered to us.
On June 9, 1999, we authorized the issuance of 2,000,000 shares of common
Stock to Robert M. Bernstein, our chief executive officer and president, and
controlling shareholder, priced at $.05 per share in exchange for cancellation
of $100,000 of cash advances he made to us.
On June 12, 1999, we authorized the issuance of 200,000 shares of common
stock to C. Timothy Smoot, our legal counsel, for services rendered.
On June 21, 1999, we authorized the issuance of 100,000 shares of common
stock to a consultant valued at $.35 per share, payable by a non-recourse,
non-interest bearing promissory note payable on or before June 15, 2003 and
secured by the 100,000 shares of common stock.
On July 2, 1999, we authorized the issuance of 25,000 shares of common
stock to Alex Adelson, a consultant and advisory board member, or his designees,
and stock options for 675,000 additional shares of common stock with an exercise
price of $.25 per share.
On July 7, 1999, we authorized the issuance of 672,205 shares of common
stock to the University of Pennsylvania in accordance with our agreement with
the University, licensing rights to the EFS.
On August 23, 1999, we authorized the issuance of 50,000 shares of common
stock to a consultant for services rendered us.
On September 29, 1999, we authorized the issuance of 8,000 shares of common
stock to a consultant for public relations services.
On September 30, 1999, we authorized the grant of options to purchase
200,000 shares of common stock, at $.60 per share, to a consultant for services
rendered to us.
On October 11, 1999, we authorized the issuance of 333,333 shares of
common stock to a private investor for $.45 per share.
On October 27, 1999, we authorized the issuance of a total 300,000 shares
of common stock to seven members of our advisory board. No one member received
more than 50,000 shares.
On November 10, 1999, we authorized the issuance of 10,000 shares of
common stock to another member of our advisory board.
On November 15, 1999, we authorized the issuance of 4,500 shares of
common stock to a consultant for services rendered to us.
On November 22, 1999, we canceled two warrants to purchase a total of
2,000,000 shares of common stock at $.10 per share with an expiration date of
June 30, 2002, that were originally authorized on June 25, 1998 at $.50 per
share. Robert M. Bernstein, our chief executive officer and president held one
warrant to purchase 1,800,000 shares and Joel Freedman, a director, held
the other warrant to purchase 200,000 shares.
On November 22, 1999, we authorized the issuance of 92,000 shares of common
stock to John Goodman, one of our directors and an engineer, and 50,000 shares
to a consultant, both for services rendered to us.
On December 17, 1999, we authorized the issuance of 15,500 shares of common
stock to a consultant for services rendered to us.
On December 31, 1999, we authorized the issuance of 150,000 shares of
common stock to a consultant for services rendered to the Corporation.
On January 12, 2000, the Board authorized the issuance of up to 110,000
shares of common stock to a group of approximately 22 investors who were
defrauded by a former consultant to us in exchange for an assignment of their
claims to us and a release of all claims against us. During January, February,
and August 2000, we issued 65,028 shares of our common stock to these investors
in exchange for an assignment and release of claims.
On January 27, 2000, we issued 40,000 shares of our Class B common stock to
Robert M. Bernstein in exchange for 40,000 shares of common stock. Mr.
Bernstein, therefore, owns 100,000 shares of Class B common stock that has 1,000
votes per share. Therefore, Mr. Bernstein's Class B common stock has
100,000,000 votes and gives him effective control of the Company.
On January 31, 2000, we issued 50,000 shares of common stock to David
Haberman, a new member of the advisory board.
On February 8, 2000, we issued 10,000 shares of common stock to a
consultant for services.
On February 28, 2000, we issued 200,000 of common stock to a consultant for
financial services. Also on February 28, 2000, we issued 4,500 of common stock
to a public relations consultant.
On March 9, 2000, we issued 100,000 of common stock to a consultant in
cancellation of $100,000 due.
On March 13, 2000, we issued two consultants a total of 75,000 shares of
common stock for services relating to the development of our Fatigue Fuse.
On March 29, 2000, we issued 50,000 shares of common stock to a consultant
for services.
On April 11, 2000, we issued 15,000 shares of common stock to a consultant
relating to the operations of a joint venture.
On April 11, 2000, we issued 25,000 shares of common stock for advisory
services.
On April 12, 2000, we filed a registration statement to increase the number
of shares of common stock that may be issued under our 1998 Stock Plan from
1,800,000 to 6,800,000 shares of common stock.
On April 28, 2000, we issued 30,000 shares of common stock for advisory
services.
On May 25, 2000, we issued to our President, Robert M. Bernstein, 4,650,000
shares of common stock in exchange for $4,650 and a $1,855,350 non-recourse
promissory note bearing interest at an annual rate of 8%. On the same day, we
issued 350,000 shares of our common stock to a Director in exchange for $350 and
a $139,650 non-recourse promissory note bearing interest at an annual rate of
8%. Both notes mature on May 25, 2005, when the principal and accrued interest
are due and payable.
On July 13, 2000, we issued 40,000 shares of common stock for legal
services.
On October 27, 2000, we issued 4,183,675 shares to our President, Robert M.
Bernstein, for future compensation pursuant to a Stock Escrow/Grant Agreement.
Under the terms of the agreement, Mr. Bernstein is required to hold these shares
in escrow. While in escrow, he cannot vote the shares but has full rights as to
cash and non-cash dividends, stock splits or other change in shares. Any
additional shares issued to Mr. Bernstein by reason of the ownership of the
4,183,675 shares will also be escrowed under the same terms of the agreement.
On November 14, 2000, we issued 400,000 shares of common stock to one of
our stockholders in exchange for $22,490.
On December 13, 2000, we issued 250,000 shares of our common stock to an
individual to settle a lawsuit brought against us.
On December 19, 2000, we issued 200,000 shares of our common stock to a
consultant.
On January 8, 2001, we issued 50,000 shares of our common stock to a
consultant for technical services rendered.
On January 8, 2001, we issued 100,000 shares of our common stock to Dr.
Campbell Laird, an advisory board member, for services rendered.
On January 9, 2001, we issued 100,000 shares of our common stock to William
Berks, an officer and part-time employee, for engineering and other services
rendered.
On January 9, 2001,we issued 100,000 shares of our common stock to John
Goodman, a director and part-time employee, for engineering and other services
rendered.
On February 19, 2001, we issued 6,000,000 shares of our common stock to Mr.
Bernstein for past compensation due. Approximately 1,500,000 of these shares
are subject to an option that Mr. Bernstein granted to a group of investors in
July 1998 in connection with the settlement of a lawsuit between these
investors, the Company, and Mr. Bernstein. See, Notes 10e, 11, 12, and 13 of
the Financial Statements
ITEM 27. EXHIBITS
a. Index of Exhibits
Exhibit No. Description of Document
------------ -------------------------
3(i) Certificate of Incorporation of Material Technologies, Inc.
Certificate of Amendment, February 16, 2000(1)
Certificate of Amendment, July 12, 2000(2)
Certificate of Amendment, July 19, 2000(4)
Certificate of Amendment, July 31, 2000(2)
Certificate of Amendment, October 16, 2001(4)
3(ii) Bylaws of Material Technologies, Inc.(1)
4.1 Class A Convertible Preferred Stock
Certificate of Designations(1)
4.2 Class B Convertible Preferred Stock
Certificate of Designations(1)
4.3 Material Technologies, Inc. Stock Escrow/Grant(2)
5.0 Opinion of Legal Counsel (Exhibit 23.0 Included)(4)
10.1 License Agreement Between Tensiodyne Corporation and
the Trustees of the University of Pennsylvania(1)
10.2 Sponsored Research Agreement between Tensiodyne Corporation and
the Trustees of the University of Pennsylvania(1)
10.3 Amendment 1 to License Agreement Between Tensiodyne Scientific
Corporation and the Trustees of the University of Pennsylvania(1)
10.4 Repayment Agreement Between Tensiodyne Scientific Corporation and
the Trustees of the University of Pennsylvania(1)
10.5 Teaming Agreement Between Tensiodyne Scientific Corporation and
Southwest Research Institute(1)
10.6 Letter Agreement between Tensiodyne Scientific Corporation,
Robert M. Bernstein, and Stephen Forrest Beck and Handwritten
modification(1)
10.7 Agreement Between Tensiodyne Corporation and Tensiodyne 1985-1 R&D
Partnership(3)
10.8 Amendment to Agreement Between Material Technologies, Inc. and
Tensiodyne 1985-1 R&D Partnership(3)
10.9 Agreement Between Advanced Technology Center of Southeastern
Pennsylvania and Material Technology, Inc.(3)
10.10 Addendum to Agreement Between Advanced Technology Center of
Southeastern Pennsylvania and Material Technologies, Inc.(3)
10.11 Agreement Between Allied Boston International, Inc. and Material
Technologies, Inc.(4)
Securities Subscription Agreement dated June 27, 2002 between the
Registrant and Gregory Bartko, Esq.(2)
23.0 Consent of Gregory Bartko, Esq. (Incorporated into Exhibit 5.0)(4)
23.1 Consent of Jonathan P. Reuben, Certified Public
Accountant(4)
______________________________________
1. Previously filed in connection with S-1 Registration Statement which
became effective on July 31, 1997.
2. Previously filed.
3. Previously filed in connection with S-1 Registration Statement which
became effective on January 19, 1996.
4. Filed herein.
ITEM 28. UNDERTAKINGS.
(a) The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this Registration Statement to: (i)
include any prospectus required by Section 10(a)(3) of the Securities Act; (ii)
reflect in the Prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the Registration Statement;
and (iii) include any material or changed information in the plan of
distribution.
(2) For determining liability under the Securities Act of
1933, as amended (the "Act"), treat each post-effective amendment as a new
registration statement of the securities offered, and the offering of the
securities as at that time to be the initial bona fide offering thereof.
(3) File a post effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
(b) To provide to the underwriter at the Closing specified in
the underwriting agreement certificates in such denominations and registered in
such names as may be required by the underwriter to permit prompt delivery to
each purchaser.
(c) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the small
business issuer in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the small business issuer will, unless in the
opinion of its counsel that matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(d) The undersigned small business issuer hereby undertakes that it
will:
(1) For purposes of determining any liability under the Act
that the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be a part of this Registration Statement as of
the time the Commission declared it effective.
(2) For the purpose of determining any liability under the
Act, that each post-effective amendment that contains a form of prospectus as a
new registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial bona
fide offering of those securities.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the city of Los
Angeles, State of California, on the 8th day of August, 2002.
MATERIAL TECHNOLOGIES, INC.
-------------------------------
Robert M. Bernstein, Chairman of
the Board of Directors, Chief
Executive Officer and President
Each person whose signature appears below hereby constitutes and appoints,
Robert M. Bernstein, his or her true and lawful attorneys-in-fact with full
power of substitution, for him or her and in his or her name, place and stead,
in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement, and to sign a new
registration statement filed to register additional securities pursuant to Rule
462(b) under the Securities Act of 1933, as amended, and to cause the same to be
filed, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to said
attorneys-in-fact and agent, full power and authority to do and perform each and
every act and thing whatsoever requisite or desirable to be done in and about
the premises, as fully to all intents and purposes as the undersigned might or
could do in person, hereby ratifying and confirming all acts and things that
said attorneys-in-fact and agents, or their substitutes or substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on the 8th
day of August, 2002, in the capacities indicated.
__________________________________
By: Robert M. Bernstein, President,
Director, Chief Executive Officer,
Chief Financial Officer, and
Principal Accounting Officer
__________________________________
By: Joel Freedman, Secretary
and Director
__________________________________
By: John Goodman, Director
LIST OF EXHIBITS
----------------
ExhiBIT NO. DESCRIPTION OF DOCUMENT
------------ -------------------------
3(i) Certificate of Incorporation of Material Technologies, Inc.
Certificate of Amendment, February 16, 2000(1)
Certificate of Amendment, July 12, 2000(2)
Certificate of Amendment, July 19, 2000(4)
Certificate of Amendment, July 31, 2000(2)
Certificate of Amendment, October 16, 2001(4)
3(ii) Bylaws of Material Technologies, Inc.(1)
4.1 Class A Convertible Preferred Stock
Certificate of Designations(1)
4.2 Class B Convertible Preferred Stock
Certificate of Designations(1)
4.3 Material Technologies, Inc. Stock Escrow/Grant(2)
5.0 Opinion of Legal Counsel (Exhibit 23.0 Included)(4)
10.1 License Agreement Between Tensiodyne Corporation and
the Trustees of the University of Pennsylvania(1)
10.2 Sponsored Research Agreement between Tensiodyne Corporation and
the Trustees of the University of Pennsylvania(1)
10.3 Amendment 1 to License Agreement Between Tensiodyne Scientific
Corporation and the Trustees of the University of Pennsylvania(1)
10.4 Repayment Agreement Between Tensiodyne Scientific Corporation and
the Trustees of the University of Pennsylvania(1)
10.5 Teaming Agreement Between Tensiodyne Scientific Corporation and
Southwest Research Institute(1)
10.6 Letter Agreement between Tensiodyne Scientific Corporation,
Robert M. Bernstein, and Stephen Forrest Beck and Handwritten
modification(1)
10.7 Agreement Between Tensiodyne Corporation and Tensiodyne 1985-1 R&D
Partnership(3)
10.8 Amendment to Agreement Between Material Technologies, Inc. and
Tensiodyne 1985-1 R&D Partnership(3)
10.9 Agreement Between Advanced Technology Center of Southeastern
Pennsylvania and Material Technology, Inc.(3)
10.10 Addendum to Agreement Between Advanced Technology Center of
Southeastern Pennsylvania and Material Technologies, Inc.(3)
10.11 Agreement Between Allied Boston International, Inc. and Material
Technologies, Inc.(4)
Securities Subscription Agreement dated June 27, 2002 between the
Registrant and Gregory Bartko, Esq.(2)
Consent of Gregory Bartko, Esq. (Incorporated into Exhibit 5.0)(4)
23.1 Consent of Jonathan P. Reuben, Certified Public
Accountant(4)
______________________________________
1. Previously filed in connection with S-1 Registration Statement which
became effective on July 31, 1997.
2. Previously filed.
3. Previously filed in connection with S-1 Registration Statement which
became effective on January 19, 1996.
4. Filed herein.