As Filed With The U.S. Securities and Exchange Commission on November 4, 2002
Registration No. 333-97833
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT 1
TO
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. [XX]
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 18,247,626 $0.031 $565,676 $52.05
offered by selling shareholders
Total $565,676 $52.05
=======================================================================================
(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 October
22, 2002.
TABLE OF CONTENTS
Page No.
--------
Prospectus summary 2
Summary financial data 3
Risk factors 4
Use of proceeds 10
Dividend policy 10
Management's discussion and analysis of financial condition
and results of operations 10
Business 13
Management 19
Certain transactions 24
Principal stockholders 26
Selling shareholders 27
Description of securities 32
Plan of distribution for selling shareholders 32
Legal matters 34
Experts 34
Index to financial statements 36
PROSPECTUS
SUBJECT TO COMPLETION, DATED NOVEMBER 4, 2002
MATERIAL TECHNOLOGIES, INC.
SHARES OF COMMON STOCK
(PAR VALUE $.001)
We are registering 18,247,626 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
$23,552.05, 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 $.028 and $.033,
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 November 4, 2002
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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. The electrochemical magnetic fatigue sensor has demonstrated that it can
detect cracks as small as 10 microns (0.0004 inches), which is smaller than any
other technologies, as acknowledged by the United States Air Force.
The fatigue fuse is a real-time cycle counter, and to our knowledge, there
is no other device that can perform this service. Both devices are pioneering
technology in the metal fatigue field that stand as cutting-edge solutions.
Both of these products are patented. We license the patented technology for
the electro chemical fatigue sensor from the University of Pennsylvania and we
have our own patents that relate to the fatigue fuse.
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 and Material
Technonogy, Inc, were engaged in developing and testing the Fatigue Fuse and,
beginning in 1993, developing an electro chemical fatigue sensor called an
EFS.
This prospectus registers 18,247,626 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 six months ended June 30, 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
SIX MONTHS ENDED ENDED
JUNE 30, DECEMBER 31,
2001 2002 2000 2001
------------ -------------- -------------- ------------
Operating Data:
Income from Contracts $ 611,055 $ 461,323 $ 635,868 $ 1,579,823
Net Income (Loss) $(1,961,588) $(548,624) $(459,129) $(2,432,638)
Net Income (Loss) Per Share:
Basic $ ( 0.07) $ (0.01) $ (0.02) $ (0.07)
Weighted Average Shares
Outstanding:
Basic 29,412,366 48,895,806 18,900,019 33,640,393
June 30, June 30, December 31, December 31,
2001 2002 2000 2001
------------ ----------- ------------ ------------
Balance Sheet Data:
Working Capital (Deficit) $(368,094) $ 55,955 $(403,117) $(178,611)
Total Assets $ 350,340 $ 609,059 $ 108,776 $ 516,745
Net Stockholder's Equity
(Deficit) $(709,146) $(356,528) $(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.
WE HAVE A HISTORY OF OPERATING LOSSES AND WE EXPECT OUR LOSSES TO CONTINUE IN
THE FUTURE.
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. We expect our losses to continue during
the time that we are finalizing research and development of our products and
technologies. Expenses associated with product development are not currently
offset by sales revenue since we have not yet brought our products to the market
place. We may experience delays, expenses and other problems such as setbacks in
our research and development efforts. These delays or setbacks would delay our
ability to begin marketing our products, which in turn will result in the
continuation of the operating losses we have experienced in the past. Any such
delays or shortfalls will have an immediate adverse impact on our business,
operations and financial condition.
OUR PRODUCTS ARE STILL IN THE RESEARCH AND DEVELOPMENT STAGE AND THERE CAN BE NO
ASSURANCE GIVEN THAT WE WILL EVER BRING ANY OF OUR PRODUCTS INTO THE COMMERCIAL
MARKETPLACE.
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.
SINCE OUR PRODUCTS ARE NOT YET DISTRIBUTED TO A COMMERCIAL MARKET, WE DO NOT
HAVE A SALES FORCE OR DISTRIBUTION NETWORK TO BRING OUR PRODUCTS TO MARKET AND
IT MAY BE DIFFICULT FOR US TO ESTABLISH A SALES AND DISTRIBUTION NETWORK IN THE
FUTURE.
Since our products are in the research, development and testing state, our
future 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.
WE DO NOT SELL OUR PRODUCTS TO MULTIPLE CUSTOMERS, RATHER UP UNTIL MOST
RECENTLY, WE RELIED ON GENERATING OUR REVENUE FROM RESEARCH AND DEVELOPMENT
CONTRACTS SOLELY WITH THE UNITED STATES AIR FORCE.
We have not yet developed our products for widespread distribution or sale
to multiple customers, and as a result, our revenues and financial condition are
limited by our ability to generate contract revenue. Our contract revenue from
the United States Air Force has recently ceased. Our operating results will
depend on our ability to increase and replace our sources of contract revenue
through product sales and to market our products to a variety of potential
customers rather than relying in large measure on contract revenues. We cannot
give any assurances that we will be able to increase the number of potential
customers that may utilize our products once they become commercialized, nor can
we provide assurances that our contract revenue will continue to any extent.
WE HAVE A LIMITED NUMBER OF EMPLOYEES TO DEVELOP AND MARKET OUR PRODUCTS.
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.
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WE RELY HEAVILY ON MANAGEMENT CONSULTANTS AND OUTSIDE ADVISORS. OUR BUSINESS AND
PROSPECTS MAY BE ADVERSELY EFFECTED IF WE ARE UNABLE TO KEEP OUR CONSULTANTS AND
ADVISORS.
Our success largely depends on the performance of our president and chief
executive officer, Robert M. Bernstein, and the 10 independent consultants, and
advisors we rely on for consulting services. Our consultants provide us with
technological advice and guidance, product development expertise and financial
advice and services. During our last fiscal year, we issued 3,525,000 shares of
our common stock, valued at $201,829 to compensate these consultants for their
services since we are unable to compensate them in any other manner. Loss of
these consultants or our inability to continue compensating these consultants by
issuing shares of our common stock to them, could seriously impair our ability
to develop and market our products. Moreover, 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 PRODUCTS AND TECHNOLOGIES MAY NOT BE AS COMPETITIVE AS OTHER FATIGUE
MEASURING PROCESSES THAT HAVE BEEN IN USE FOR UP TO 40 YEARS AND OFFER
ADVANTAGES OF BEING ACCEPTED IN THE MARKETPLACE.
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.
OUR PATENTS COVERING OUR FATIGUE FUSE PRODUCTS AND TECHNOLOGIES HAVE BEEN
ENCUMBERED AS SECURITY TO OUR LENDERS. WE MAY LOOSE OUR PATENT PROTECTION IF WE
WERE TO DEFAULT ON OUR LENDING COMMITMENTS.
We hold patents on our fatigue fuse technology. 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 in default on one of our promissory notes
given to an existing shareholder at the time he agreed to loan us capital.
No assurances can be given that we will not be in default on some or all of
our other debt obligations in the future, which could then result in loss of our
patents and our patent protection. No assurances can be given that the
shareholder that is holding the note that we are in default on, will not seek to
foreclose on his interest held in our patents as collateral for his loan.
WE CAN NOT BE CERTAIN THAT OUR PROPRIETARY RIGHTS IN OUR PRODUCTS AND
TECHNOLOGIES ARE ADEQUATELY PROTECTED FROM INFRINGEMENT BY COMPETITORS OR OTHER
THIRD PARTIES.
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
5
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.
TWO OF OUR PATENTS WILL EXPIRE FROM PATENT PROTECTION WITHIN THE NEXT 18 MONTHS,
AND AS A RESULT, THE PROTECTION FOR OUR INTELLECTUAL PROPERTY WE NOW HAVE MAY
BE ADVERSELY AFFECTED.
Two of our four patents expire within 18 months from the date of this
prospectus. Our first patent issued on May 27, 1986, expires on May 27, 2003. It
is titled "Device for Monitoring Fatigue Life" and bears United States Patent
Office Numbers 4,590,804. Our 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. No assurances can be
given that we will be able to continue protection of the intellectual property
rights protected by these two patents after they expire, nor can we give any
assurances that the loss of protection will not have a materially adverse affect
on our operations and financial condition.
IF WE DO NOT OBTAIN ADDITIONAL INVESTMENT CAPITAL TO CONTINUE OUR RESEARCH AND
DEVELOPMENT ACTIVITIES, WE WILL NOT BE ABLE TO COMPLETE OUR PRODUCT DEVELOPMENT.
If we fail to raise additional funds necessary for research, development,
and testing from either government grants, sales 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. We are likely to have negative cash
flow through at least December 31, 2002, although we have sufficient cash to
continue our research and development efforts for the next six months. Over the
next 14 months, we anticipate that approximately $5,000,000 will be required to
complete research and development of both products and market them. 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.
REGISTERING ADDITIONAL SHARES OF OUR COMMON STOCK FOR RESALE IN THE PUBLIC
MARKET COULD REDUCE THE VALUE OF ANY INVESTMENT IN OUR COMMON STOCK DUE TO AN
INCREASE IN THE NUMBER OF SHARES AVAILABLE FOR PUBLIC RESALE.
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 18,247,626 shares or approximately 24% of our issued and outstanding
common stock at September 30, 2002. As of that date, we had 176,194,623 shares
of common stock issued, although we do not treat 100,000,000 of our shares of
common stock held in a pledge arrangement as 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.
WE HAVE RELIED ON THE ISSUANCE OF SHARES OF OUR COMMON STOCK TO COMPENSATE OUR
CHIEF EXECUTIVE OFFICER AND MANY OF OUR CONSULTANTS AND ADVISORS.
To compensate our chief executive officer and our consultants and advisors,
we have had to rely on the issuance of shares of our common stock as
6
compensation for their services. In our most recent fiscal year, we issued a
total of 9,525,000 shares of common stock, valued at $621,829 for these
services. Since we are reliant on the issuance of common stock as compensation,
additional dilution has occurred to existing shareholders that may have paid
cash for their shares. We believe that additional dilution to existing
shareholders will occur in the future since we plan to continue to issue our
common stock as compensation for services.
OUR STOCK PRICE IS HIGHLY VOLATILE AND SUBJECT TO FLUCTUATIONS DUE TO A VARIETY
OF MARKET FACTORS, INCLUDING PUBLIC ANNOUNCEMENTS REFLECTING AN INCREASE IN THE
SHARES WE HAVE OUTSTANDING OR COMMITTED FOR ISSUANCE.
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, issuing options, warrants or
other commitments to issue common stock may result in the perception in the
market that we will issue additional shares in the public market. The potential
of sales of our common stock 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.
SINCE OUR SHARES OF COMMON STOCK ARE QUOTED ON THE OVER-THE-COUNTER ELECTRONIC
BULLETIN BOARD, AND NOT ON ANY NATIONAL SECURITIES EXCHANGE, INVESTING IN OUR
COMMON STOCK MAY RESULT IN LIMITED LIQUIDITY OF YOUR SHARES SINCE AN ACTIVE
TRADING MARKET HAS NOT DEVELOPED.
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.
OUR ROYALTY AND LICENSE AGREEMENTS MAY IMPAIR OUR ABILITY TO RAISE ADDITIONAL
EQUITY CAPITAL 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 $150,000. 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.
WE HAVE DEFAULTED ON OUR AGREEMENTS WITH THE UNIVERSITY OF PENNSYLVANIA AND IF
WE ARE UNABLE TO RESOLVE OR CURE OUR DEFAULTS, OUR LICENSING ARRANGEMENTS WITH
THE UNIVERSITY CAN BE TERMINATED.
With respect to our agreement to pay the University of Pennsylvania
approximately $450,000, we are in default on our agreements with the University.
The balance we owed on the agreement was $200,000 and commencing June 30, 1997,
the balance due accrued interest at 1.5% per month until the loan matured on
December 16, 2001, at which time balance became fully due and payable. In
addition, under the agreement, Mr. Bernstein agreed to limit his compensation
from us to $150,000 per year until the loan and accrued interest was fully paid.
The balance of our note to the University at December 31, 2001, was $422.653.
7
As of December 31, 2001, we also agreed to issue an additional 1,404,464
shares of our common stock to the University pursuant to the revised agreement.
We're currently in discussions with the University regarding the issuance of the
shares and other related matters. Since we are in default on our agreements to
the University, it is possible that we could loose our licensing rights to the
EFS in the future if our discussions with the University do not result in our
ability to cure any defaults.
OUR ROYALTY AND LICENSE AGREEMENTS WILL ALSO REDUCE OUR REVENUE GENERATED FROM
FUTURE PRODUCTS SALES.
In order to finance development of the Fatigue Fuse and Electrochemical
Sensor, our corporate predecessors sold substantial royalty rights to the
Advanced Technology Center, which is affiliated with the University of
Pennsylvania. As of the date of this prospectus, we are obligated to pay
royalties to the University of Pennsylvania 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 INTEND 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.
SINCE THE TECHNOLOGIES WE HAVE DEVELOPED FOR OUR PRODUCTS ARE SUBJECT TO RAPID
TECHNOLOGICAL CHANGES, WE MAY NEED TO MAKE SIGNIFICANT CAPITAL INVESTMENTS IN
NEWER 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.
WE HAVE ENTERED INTO TRANSACTIONS WITH OUR CHIEF EXECUTIVE OFFICER, ROBERT M.
BERNSTEIN, THAT WERE FAVORABLE TO HIM, THAT RELATE TO THE ISSUANCE OF SHARES OF
OUR CAPITAL STOCK.
During the time that our chief executive officer, Mr. Bernstein, has
controlled our affairs, we have entered into several transactions that were
favorable to him and that involve the forgiveness of loans we made to Mr.
Bernstein, compensation paid to Mr. Bernstein in the form of our capital stock,
and adjustments made to the balances of indebtedness owed to us by Mr.
Bernstein. These transactions were approved by the other members of our board of
directors, but we can not assure investors that all such transactions were fair
to us or our shareholders, nor can we assure investors that similar transactions
beneficial to Mr. Bernstein will not occur in the future. See "Certain
Transactions."
SINCE ROBERT M. BERNSTEIN, OUR CHIEF EXECUTIVE OFFICER, CONTINUES TO CONTROL OUR
AFFAIRS, OTHER SHAREHOLDERS MAY HAVE NO CONTROL OVER MANAGEMENT AND MANAGEMENT'S
DECISIONS.
8
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 beneficially owns 12,169,291 shares of
our Class A common stock representing approximately 16% of the total outstanding
shares of common stock, excluding the 100,000,000 shares of our common stock
held in a pledge. Including his voting rights associated with his Class B stock,
Mr. Bernstein has votes that overwhelmingly control 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.
OUR CHIEF EXECUTIVE OFFICER AND CONTROLLING SHAREHOLDER, MR. BERNSTEIN, HAS
CONFLICTS OF INTEREST WHICH MAY RESULT IN OUR BEST INTERESTS AND THOSE OF OTHER
SHAREHOLDERS BEING SUBORDINATED TO HIS OWN INTERESTS.
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. Our debt obligations
to Mr. Bernstein, which are due on demand, include accrued and unpaid salary,
plus the net amount of cash advances Mr. Bernstein has made to us in the past,
which total approximately $436,000. 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.
IF WE WERE TO BE DEEMED TO BE A PSEUDO CALIFORNIA CORPORATION, THEN THE
CALIFORNIA GENERAL CORPORATION LAW WOULD MANDATE THAT SHAREHOLDERS WOULD HAVE
THE RIGHT TO CUMULATIVE VOTING AT THE ELECTION OF DIRECTORS.
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.
OUR COMMON STOCK MAY BE MORE DIFFICULT TO TRADE DUE TO CERTAIN PENNY STOCK
REGULATIONS THAT MUST BE COMPLIED WITH BY BROKER-DEALERS.
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.
9
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
------------------- ------------------- ------------------
Third Quarter 2002 $ .02 $ .02
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
10
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.
For the six months ended June 30, 2002 and 2001
We had no sales during the six-month period ended June 30, 2002 or during the
six month period ended June 30, 2001. We generated $461,323 under our research
and development contracts during the first two quarters of 2002, as compared to
$611,055 that was generated during the same period in 2001.
Interest earned during the first two quarters in 2002 totaled $24,100, which
mostly consisted of accrued interest earned on promissory notes due from our
president and a director on stock purchased during the second quarter of 2000.
interest earned in 2001 amounted to $78,445.
During the six month period ended June 30, 2002, we incurred $384,263 in
development costs of which $345,,621 relates to subcontract costs. During the
same six month period ended June 30, 2001, we incurred $471,619 in development
costs of which $416,476 relates to subcontract costs.
General and administrative costs were $608,282 and $2,143,435, respectively, for
the six-month periods ended June 30, 2002 and 2001. The major costs incurred
during 2002, included officer's salary of $60,000 of which $30,000 was accrued,
office salaries of $18,979, professional fees of $176,197, consulting fees of
$260,940, travel of $16,309, telephone expense of $14,344, rent of $14,088, and
office expense of $17,659. Of the $176,197 in professional fees, $43,237 was
paid in cash and the remaining $132,960 was paid through the issuance of
2,067,100 shares of the Company's common stock. Of the $260,940 incurred in
consulting fees, $53,493 was paid in cash and $207,447 was paid through the
issuance of 2,808,918 shares of the Company's common stock.
Liquidity and Capital Resources.
Cash and cash equivalents as if June 30, 2002 and 2001 were $386,079 and $5,719,
respectively. During the first two quarters of 2002, we received a total of
$1,312,516, which consisted of $681,382 from its research and development
contracts, $581,830 through the sale of 8,100,484 shares of our common stock,
$48,750 through the issuance of 100,000 shares of convertible preferred stock,
and $854 in interest income. Of the $1,312,816 received, $920,849 was used in
operations, $120,196 was paid for costs in the offering of the shares of common
stock, $29,608 was paid as partial payment towards the purchase of equipment
used in our development of the Electrochemical Fatigue Sensor, and $29,700 was
advanced to our president, Mr. Bernstein. As of June 30, 2002, total amounts
owed by us to our president for accrued wages of $100,000 were charged against
the loans due from him amounting to $66,985, leaving a balance due him in the
amount of $33,115.
11
We are in discussions with various investor groups that we believe will
provide us with additional investment capital sufficient to continue our
research and development for no less than 12 additional months following the
date of this prospectus, which includes the potential of receiving funding from
Allied Boston International, Inc. under its straight documentary credit
facility.
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.
On October 10, 2001, we entered into an arrangement whereby Allied Boston
Group agreed to provide us with a straight documentary credit, or letter of
credit for $12,500,000. Under the terms of the commitment, we agreed to pledge
sufficient shares of our common stock to equal 125% of the letter of credit
funded. Under the initial terms, our shares were valued at $.27 per share. If
our stock price goes lower, we agreed to pledge additional shares. 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 letter of
credit. After the amount is paid off, Allied Boston will retain 25,000,000
shares of our common stock. Any remaining shares Are to be returned to our
treasury.
Upon funding of the letter of credit, we are required to pay a 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 our
common stock to be valued at market value at the time of issuance. As long as
the letter of credit is in force, Allied Boston will have two voting seats on
our board of directors. All out-of-pocket expenses pertaining to the issuance of
the instrument will be borne by us.
The letter of credit is not funded as of the date of this prospectus. In
October 2001, we issued 60,000,000 shares of common stock as collateral to
Allied Boston pursuant to the terms of our agreement, and in January 2002, we
issued 40,000,000 shares as additional collateral. The selling or transfer of
these shares is contingent upon the occurrence of future events that are
uncertain. Therefore, we treat these 100,000,000 pledged shares as issued but
not outstanding.
As indicated, as of June 30, 2002, we had available funds of $386,078. At
our current rate of overhead, we have sufficient cash resources to fund
approximately seven months of current operating expenses. Without an infusion of
capital through the sale of additional shares of our stock or the receipt of new
contract revenue or sales revenue, we may not be able to continue operating
after our cash on hand is depleted.
12
BUSINESS
OVERVIEW OF OUR BUSINESS
We are engaged in research and development of metal fatigue detection,
measurement, and monitoring technologies. As such, we are developing a
comprehensive system of monitoring devices for metal fatigue measurement. We are
a development stage company doing business as Tensiodyne Scientific Corporation.
Our efforts are dedicated to developing devices and systems that indicate
the true fatigue status of a metal component. We have developed two products,
with a third product now under development. The first is a small, extremely
simple device that continuously integrates the effect of fatigue loading in a
structural member. It is called a fatigue fuse. The second, is an instrument
that detects very small cracks and is intended to determine crack growth rates.
The electrochemical magnetic fatigue sensor has demonstrated that it can detect
cracks as small as 10 microns (0.0004 inches), which is smaller than any other
technologies, as acknowledged by the United States Air Force. We believe that
nothing comparable to this instrument currently exists in materials technology.
Both devices are pioneering technology in the fatigue field that we believe
provide cutting-edge solutions in materials technology. Both products are
protected by patents, although we hold patents ourselves only on the fatigue
fuse and license the technology on the electrochemical fatigue sensor.
Another product we currently under development is a borescope equipped with
an electrochemical fatigue sensor. The borescope comprises a fiber optic bundle
and light source together with a working channel through which certain
non-destructive test sensors such as ultrasound and/or eddy current devices can
be passed, to inspect visually or manually inaccessible regions of structures.
The device is unique in its capabilities by having a maximum diameter of 6
mm (0.236 inches). Contained within this diameter is a working channel of 2.8 mm
(0.11 inches) diameter, through which proprietary eddy current or ultrasonic
sensors may be passed and used to examine areas of interest. The fiber optic
bundle provides very clear video resolution, utilizing a video camera integrated
in the borescope handle. Images are then displayed on a monitor and can be
recorded. The borescope is derived from similar devices in wide use in medicine.
Its uniqueness is its small diameter and its capability for applying
multiple sensors, such as ultrasound and/or eddy current. Developed under United
States Air Force auspices to inspect internal components of fully assembled jet
turbine engines using the existing inspection holes in assembled engine outer
surfaces, it can be used to access remote areas of bridges and other structures
to monitor fatigue and other cracks, permitting good visual access to otherwise
inaccessible areas.
We were formed as a Delaware corporation on March 4, 1997. It is the
successor to the business of Material Technology, Inc., a Delaware corporation,
also doing business as Tensiodyne Scientific, Inc. Material Technology, Inc. was
the successor to the business of Tensiodyne Corporation that began developing
the fatigue fuse in 1983. Our two predecessors, Tensiodyne Corporation and
Material Technology, Inc. were engaged in developing and testing the fatigue
fuse and, beginning in 1993, developing the electrochemical fatigue sensor.
THE 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
13
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.
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 ELECTROCHEMICAL FATIGUE SENSOR ("EFS")
The EFS is a device that employs the principle of
electrochemical/mechanical interaction to find cracks and crack growth rate. It
is an instrument that detects very small cracks and is intended to determine
crack growth rates. The electrochemical magnetic fatigue sensor has demonstrated
that it can detect cracks as small as 10 microns (0.0004 inches), which is
smaller than any other technologies, as acknowledged by the United States Air
Force. We believe that nothing comparable to this instrument currently exists in
materials technology.
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).
THE BORESCOPE
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 borescope comprises a
fiber optic bundle and light source together with a working channel through
which certain non-destructive test sensors such as ultrasound and/or eddy
current devices can be passed, to inspect visually or manually inaccessible
regions of structures. The device is unique in its capabilities by having a
maximum diameter of 6 mm (0.236 inches). Contained within this diameter is a
working channel of 2.8 mm (0.11 inches) diameter, through which proprietary eddy
current or ultrasonic sensors may be passed and used to examine areas of
interest.
14
The borescope's uniqueness is its small diameter and its capability for
applying multiple sensors, such as ultrasound and/or eddy current. Developed
under United States Air Force auspices to inspect internal components of fully
assembled jet turbine engines using the existing inspection holes in assembled
engine outer surfaces, it can be used to access remote areas of bridges and
other structures to monitor fatigue and other cracks, permitting good visual
access to otherwise inaccessible areas.
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.
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 has proven to be capable of
detecting cracks down to 10 microns as acknowledged by the materials laboratory
at Wright Patterson Air Force Based upon delivery of a lab testing device. 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.
GOVERNMENT CONTRACT FUNDING
We have generated contract revenue by seeking research and development
contracts awarded by agencies of the United States government, such as the U.S.
Air Force. In developing our contract revenue, we have enlisted the assistance
of research and development partners that have used us as subcontractors in the
research and development effort. In August 1996, we executed an agreement
entitled, "Teaming Agreement," with the Southwest Research Institute and the
University of Pennsylvania for coordinated research and development efforts.
15
We have also entered into similar relationships with Universal Technology
Corporation, which is a government contractor that acts as a pass through or
monitor of our contract. Universal Technology Corporation has acted as the prime
contractor with the Air Force, and we function as a first tier subcontractor.
Other than our association with these groups as research and development
partners, we have no other affiliation.
On February 25, 1997, the Southwest Research Institute was awarded from the
United States Air Force, a $2,500,000 phase one 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, one of our contracting partners 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. Our 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 Universal Technology Corporation to continue and
expand the efforts for turbine engines. Our directly subcontracted share was
approximately $382,000. A fourth contract was awarded to Universal Technology
Corporation on November 3, 2000 in the amount of approximately $2,000,000 to
continue the borescope and EFS technologies, as well as alternate means of
fatigue sensing. This fourth contract has been fully performed. Our directly
subcontracted share is approximately $700,000. Accordingly, over the last four
years we have been awarded approximately $8,500,000 in research and develop
services covering the EFS. The results of this research are encouraging and
provide a basis for us and our contract partners to obtain additional funding.
However, we can not provide any assurance that additional contract revenue will
be generated by us or received in the future.
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 United States 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. Our EFS and fatigue fuse products
address not only the maintenance problems associated with bridge structures, but
we believe compete effectively in the detection of fatigue in such structures.
Although there are normal business imperatives, the bridge 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 allocated by
states or the Federal government, a backlogged repair bill of more than $358
billion has already accrued. The Federal government has recently mandated bridge
repair and detection through the passage of the Intermodal Surface
Transportation and Efficiency Act in 1991 and again recently in the $200
billion, 1998 Transportation Equity Act.
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
16
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.
Our patents are encumbered
The patents described in the preceding section are pledged as collateral to
secure the repayment of loans extended to us or indebtedness that we currently
owe. On August 30, 1986, we entered into a funding agreement with the Advanced
Technology Center, whereby ATC paid $45,000 to us 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 we use in
the development of technology as specified in the funding agreement.
On May 4, 1987, we entered into a funding agreement with ATC whereby ATC
provided $63,775 to us for the purchase of a royalty of 3% of future gross sales
and 6% of sublicensing revenue. 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. If we were to default on these payments, our obligations
relating to these agreements then become secured by our patents, products and
accounts receivable.
On May 27, 1994, we borrowed $25,000 from Sherman Baker, one of our share-
holders. We gave Mr. Sherman a promissory note due May 31, 2002 and we pledged
our patents as collateral to secure the repayment of this note. As additional
consideration for this loan, we granted to Mr. Baker, a 1% royalty interest in
the fatigue fuse and a 0.5% royalty interest in the electrochemical fatigue
sensor. We are in default of the repayment terms of the note held by Mr. Baker,
and at the date of this prospectus, we owe Mr. Baker approximately $57,237 in
principal and accrued interest. Mr. Baker has not taken any action to foreclose
his interest in the collateral.
Our patents and rights to patents are also encumbered to secure payment to
Mr. Bernstein of all of his accrued but unpaid salary and the net amount we owe
him for current salary plus his advances to us which total approximately
$436,000.
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.
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
17
work we require on a periodic basis. As of the date of this prospectus, we have
10 consultants, all of whom provide their services on a part-time, as needed
bases. Our consultants are providing us with consulting and advice in the areas
of marketing, technology and research and development.
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
the initial lease expired on June 1, 2002. Effective as of June 1, 2002, we then
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. We have also
obtained an addendum to our facilities lease that gives us the right to further
extend the lease through June 30, 2003 without additional increases in cost,
which we intend to do
LEGAL PROCEEDINGS
We are not presently involved in any legal proceedings that, in our
opinion, might have a material effect on our operations.
On April 30, 2001, Stephen Beck, a former consultant filed a complaint
against us and our chief executive officer in Stephen Forest Beck vs. Robert M.
Bernstein, Material Technologies, Inc. et al., Los Angeles Superior Court No.
BC249547, alleging breach of contract a declaration of his contract rights, and
fraud. The complaint related to a February 8, 1995, consulting agreement under
which Mr. Beck was to provide assistance in obtaining government contract
private funding. Mr. Beck claimed that over $1.5 million in contingent
consulting fees are immediately due, as we obtained funding through four
government contracts since 1995. This suit also sought punitive damages in an
unspecified amount.
On April 30, 2001, we filed a complaint against Mr. Beck in Material
Technologies, Inc. v Stephen Forrest Beck, L.A. Superior Court No. BC249495 for
the rescission of the consulting agreement, the return of 195,542 shares of
common stock issued to Mr. Beck pursuant to the consulting contract, and
attorney's fees, interest, and the cost of the lawsuit.
We settled the lawsuits involving Mr. Beck by agreement dated July 15,
2002. Pursuant to our settlement agreement, which fully and completely resolved
all claims and counter-claims involving Mr. Beck, we agreed to issue to Mr. Beck
1,000,000 shares of our restricted common stock with anti-dilution protection
for 18 months after the date of the settlement agreement. The anti-dilution
provision requires us to issue additional shares of common stock, options or
warrants to Mr. Beck in order to maintain his relative ownership of our
outstanding common stock, during the 18 month period after the date of the
agreement. As of the date of this prospectus, we have issued 1,000,000 shares of
our restricted common stock to Mr. Beck, with a market value of approximately
$45,000 as of the date of settlement.
In addition to the settlement with Mr. Beck, we agreed to compensate our
attorneys by issuing them 1,000,000 shares of our restricted common stock and up
to $1,500,000 in cash fees payable only by the delivery to our counsel of 25% of
our earnings before interest, depreciation, taxes and administrative expenses.
When we issued these shares to our counsel, they had a market value of
approximately $45,000.
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.
18
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 October 28, 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
19
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,
and in the past, we have compensated our consulting advisory board members
through the issuance of our common stock. During fiscal years 2000 and 2001, we
issued a total of 500,000 shares of our common stock to advisory board members
in exchange for their advisory services to us.
Members of the advisory board serve at will, but have not received any
separate 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.
20
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
21
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.
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.
Our board of directors reviews and approves transactions that are
beneficial to other members of our board of directors by a majority vote, with
the director benefiting from the transaction abstaining from consideration of
the transaction. In the case of transactions beneficial to our chief executive
officer and director, Robert M. Bernstein, they have been approved by majority
vote of the remaining two directors. Directors' meetings are typically conducted
by telephone and many actions taken by our directors are approved by written
consents approved by our directors. During our last fiscal year that ended
December 31, 2001, our board of directors acted by written consent and by
telephonic board meetings, a total of 60 times.
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.
22
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 $-- $-- $753,062(1) -- $-- $ --
2001 $120,000 $-- $-- $750,000(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 accrued compensation and
subject to restrictions. For purposes of this table, we have included the market
value of these shares in Mr. Bernstein's 2000 compensation, which equals
$753,062.
(2) In 2001, we issued Mr. Bernstein 6,000,000 shares for past
compensation. We valued these shares at $420,000. The fair market value of these
shares when issued to Mr. Bernstein was $750,000.
(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. The fair market value of these shares when
issued to Mr. Goodman was $89,760.
(5) In 2001, we issued Mr. Goodman 800,000 shares of restricted common stock.
These shares were valued at $50,500. The fair market value of these shares when
issued to Mr. Goodman was $132,000.
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.
STOCK ISSUANCE AND OPTION PLANS
In 1996, we 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 us. A committee appointed by our 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
our outstanding stock, the option price is at least 110% of the fair market
value of a share of common stock at date of grant. In 2000, we increased the
number of reserved shares that could issue under the plan to 6,800,000.
In 1998, we granted options to acquire 900,000 shares of which 500,000
shares were exercised for $125,000. In addition, under the 1996 plan, we issued
an additional 50,000 shares for consulting services, valued at $5,000.
In 1999, we granted options to acquire 775,000 shares of common stock
through
the 1996 plan. We did not issue any shares in 1999 under the 1996 plan.
In 1998, we adopted the 1998 stock plan and reserved 800,000 shares of
Common Stock for distribution under the plan. The 1998 plan was adopted to
provide a means by which we could compensate key employees, advisors, and
consultants by issuing them stock in exchange for services and thereby conserve
our 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, we increased the number of reserved shares
to 6,800,000. In 1998, we issued 310,000 shares of common stock through the 1998
plan in exchange for consulting services. We valued these shares at $31,000, the
fair value of the services rendered.
On February 1, 2002, we approved the adoption of our 2002 Stock
Issuance/Stock Option Plan, which is intended to assist us in attracting,
23
retaining and motivating our officers, directors and employees, which includes
non-employed consultants. This plan is administered by our board of directors
and permits the directors to issue up to 20,000,000 shares of our common stock
and options to purchase shares of common stock, as granted within the discretion
of the board of directors, as a means of compensating and providing incentives
to the recipients of the grants. As of the date of this prospectus, we have
issued shares under the plan to several of our officers, directors and
consultants, but have not issued options under the plan. Options that can issue
under this plan allow recipients of the options to purchase our common stock at
100% of the fair market value of our common stock at either the date of grant of
the option or such other date as the board of directors may determine. Options
issued under the 2002 plan have a term of five years.
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.
CERTAIN TRANSACTIONS
From time to time, Robert M. Bernstein, our president and chief executive
officer, has agreed to advance us funds. Our board of directors has approved
paying Mr. Bernstein interest at the rate of 10% per year on his advances. In
addition, we have accrued some of the unpaid compensation we agreed to pay Mr.
Bernstein. Mr. Bernstein is under no obligation to make further advances to us
but may continue to so do at his sole discretion.
The amounts we owe Mr. Bernstein in accrued and unpaid compensation, as
well as the total of his advances made to us that remain unpaid from time to
time, are secured by a lien in favor of Mr. Bernstein on our patents covering
our technologies and products. As of September 30, 2002, the balance due to Mr.
Bernstein on his advances to us and accrued but unpaid compensation for the
current year was $36,115. We also owe Mr. Bernstein approximately $400,000 of
accrued compensation for previous fiscal years. These amounts we owe to Mr.
Bernstein are secured by our pledge to Mr. Bernstein of a security interest in
our technologies and products.
24
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. On
February 19, 2001, we issued to Mr. Bernstein 6,000,000 shares of restricted
common stock for a portion of the accrued salary in past years we agreed to pay
him. We valued these shares at $420,000. In June 2002, our board of directors
authorized the reduction in the amount we then owed Mr. Bernstein and another
director, Joel Freedman on their respective non-recourse promissory notes
described below, down to $460,350 and $34,650, respectively. This reduction was
due to the fact that our common stock had declined substantially in the public
market. Approximately 1,500,000 of these shares issued to Mr. Bernstein 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 May 25, 2000, we issued to Mr. Bernstein, 4,650,000 shares of restricted
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 our restricted common stock to another of our directors, Joel
Freedman, 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, these shares were valued at $.40 per share, for a total share
value of $2,000,000.
On October 27, 2000,we issued 4,183,675 shares to Mr. Bernstein for past
but unpaid compensation pursuant to a stock escrow/grant agreement. We created
the stock escrow arrangement to satisfy a potential source of debt capital we
were negotiating with at the time, Allied Boston International. Allied Boston
required us to maintain a certain number of fully diluted shares of our common
stock even if we were required to issue more shares if holders of our options
and warrants chose to exercise their options or warrants. The shares issued to
Mr. Bernstein under the stock escrow agreement were to be released back to us
for use in issuing shares of common stock to the holders of the options and
warrants if exercised. 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.
Under the terms of this stock escrow/grant agreement, Mr. Bernstein has
agreed to release to us shares he holds in escrow in the event that we are
called upon to issue shares of our common stock to holders of options and
warrants we have issued and outstanding to the persons listed on a schedule
attached to the agreement. The schedule lists all of the holders of outstanding
options and warrants granted by us up to that date. As of the date of this
prospectus the initial number of shares granted to Mr. Bernstein has been
reduced down to 2,461,675 shares due to the fact that 1,722,000 of the escrowed
shares were released to us for issuance to holders of options or warrants
entitled to receive such shares.
The shares held in escrow by Mr. Bernstein are non-transferable and will be
owned beneficially by Mr. Bernstein only after the options and warrants
outstanding either are fully exercised or expire without being exercised, or
upon 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. At the date we established these 4,183,675 shares into escrow, we
valued these shares at par value. Upon the unconditional release of the
remaining shares to Mr. Bernstein from the escrow, the shares issued will be
valued at market value and charged to operations as compensation.
During our fiscal year that ended December 31, 2001, we issued shares of
our common stock to a number of other officers, directors and an advisory board
member, in exchange for services they rendered to us. On January 9, 2001,we
authorized the issuance of 100,000 shares of our common stock to William Berks,
our vice-president of government contracts and a director, for engineering and
other services rendered to us. We subsequently issued 300,000 shares of our
common stock to Mr. Berks on October 4, 2002 and 400,000 shares on November 20,
2001 as compensation for like services.
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.
25
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. We subsequently issued 300,000 shares of our common
stock to Mr. Goodman on October 4, 2002 as compensation for like services.
In total, the market value of the restricted shares of common stock we have
issued to our officers and directors during the previous two fiscal years was
$1,635,062. We valued these shares at $479,683 to account for the discounted
value normally associated with the issuance of shares that can not be
transferred or traded into the public market, and expenses those shares to
general and administrative expenses.
OUR PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of October 28, 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(3)
CLASS OF STOCK BENEFICIAL OWNER OWNERSHIP
----------------------------------- --------------------- -------------- ----------------
Robert M. Bernstein
Suite 707
11661 San Vicente Blvd.
Common Stock Loa Angeles, CA 90049 12,169,291(1) 16%
----------------------------------- --------------------- -------------- ----------------
Joel R. Freedman
1 Bala Plaza
Bala Cynwyd, PA 19004 626,471 *
----------------------------------- --------------------- -------------- ----------------
John Goodman
Suite 707
11661 San Vicente Blvd.
Los Angeles, CA 90049 1,000,000 1.3%
----------------------------------- --------------------- -------------- ----------------
William Berks
532 14th Street
Manhattan Beach, CA
90266 1,050,000 1.4%
----------------------------------- --------------------- -------------- ----------------
26
Directors and executive officers
as a group (4 persons) 14,845,762 19.5%
----------------------------------- --------------------- --------------- ---------------
Class B
Common Stock Robert M. Bernstein 100,000(2) 100.0%
Suite 707
11661 San Vicente Blvd.
Los Angeles, CA 90049
----------------------------------- --------------------- --------------- ---------------
* Less than 1%
(1) Mr. Bernstein holds beneficial ownership of these shares. He also holds
additional shares of our common stock that are held by him subject to
rights in favor of certain optionees and some shares held in escrow. Such
shares are not considered to be subject to Mr. Bernstein's beneficial
ownership.
(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.
(3) Based on a total of 76,184,623 shares of common stock outstanding at
September 30, 2002. Does not include 100,000,000 shares of common stock
held in escrow for Allied Boston International, Inc.
SELLING SHAREHOLDERS
An aggregate of 18,247,626 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 NUMBER OF
SHARES BEFORE SHARES OFFERED
NAME OF SHAREHOLDERS ADDRESS OF SHAREHOLDERS OFFERING(1) FOR SALE
--------------------------------- ----------------------------------------------------------- ---------------- ---------------
AA Capital Ventures, Barry E.
Mitchell, President 32107 Lindero Cyn Rd #124 Westlake Village, CA 91361 1,387,498 1,387,498
Akins, Genice 5041 Mrs. White Lane Mebane, NC 27302 15,873 15,873
Ambrus, Aron 25 North Gate Rd Walnut Creek, CA 94598 50,000 50,000
Ambrus, Tibor 25 North Gate Rd Walnut Creek, CA 94598 450,000 450,000
Auld, James 29 Orlando St. Coffs Harbour NSW 2450 33,000 33,000
Bailey, Ben 5 Main Road Cardif Hts NSW 2285 243,879 243,879
Barrett, David 22 Second Ave Arrawarma NSW 2456 200,000 200,000
Biki, Damier 8 Alexander Ave Berringan NSW 2712 35,000 35,000
Bornstein, Michael 2/789 Burwood Rd Hawthorn 3123 148,551 148,551
Braden, Larry Warden 16 Flynn St Mt. Isa QLD 4825 25,000 25,000
27
Brandenburg, John PO Box 94 Newdegate 6355 500,000 500,000
Braun, Sabina & Lee Duncan Rd PMB2 Meringave VIC 3496 1,940,000 1,940,000
Kim Braun & Paul Braun Duncan Rd PMB2 Meringave VIC 3496 73,000 73,000
Burton, Bruce 5664 Co Real 35 Ada. OH 48840 24,000 24,000
Calhoun, Don L. 32107 Lindero Cyn Rd #124 Westlake Village, CA 91361 25,369 25,369
Campbell, David 1/21 Danks St Waterloo NSW 2017 70,000 70,000
Campbell, Jeff 23 Mermaid Quay, Noosaville, QLD. 4566, Aust 300,000 300,000
The Doug Caswell Realty Pty. Ltd.
Superannuation Fund, Doug
Caswell, President 119 Herries St., Toowoomba, QLD, 4350, Aust 250,000 250,000
Caswell, Douglas 175 Hume St Todwoomba QLD 4350 470,000 470,000
Caswell, Doris Maud 119 Herries St., Toowoomba, QLD, 4350, Aust 375,000 375,000
Cedar House Alpaca P/L, Wendy
Billington, President 8 Filfield Lane Yass NSW 0582 625,500 625,500
Cell Synergy Inc., Adam Gilbert,
President 1801 N. Green Valley Pkwy Henderson, NV 89074 30,000 30,000
Hun Teong Chew PO Box 41317 Casuraria NT 0811 50,000 50,000
Clapp, Willard 6230 Tallant Road McDonald, TN 73753 164,300 164,300
Coble, Bernard 5557 Sweps Sax Rd Graham, NC 27253 19,841 19,841
Coble, Bernard D. & Laura 5557 Sweps Sax Rd Graham, NC 27253 6,920 6,920
Collins, Christopher 16 Robertson Crescent Laverton VIC 3028 90,000 90,000
Cox, David 251 New Kamer Rd Albany, NY 12205 355,000 355,000
DeCarlo, Charles 1st Fl. 136 Longueville Rd Lane Cove NSW 2086 300,000 300,000
DelaRosario Leon, Maria 11947 Arminta St North Hollywood CA 91608 190,357 190,357
Doug Caswell Reality Pty Ltd 175 Hume St Todwoomba QLD 4350 150,000 150,000
Drugan, Carol 3031 Milboro Road Silver Lake, OH 44224 20,000 20,000
Dyer, Eric 2/50 Madden St. Kaniva VIC 3419 50,000 50,000
Faggion, Joseph 38 Malay Rd Wagman NT 0810 10,000 10,000
Fitzpatrick Brothers Pastoral Co.,
Peter Fitzpatick, President Lochgary Edith Via Oberon NSW 2787 250,000 250,000
Fitzpatrick, Peter Lochgary Edith, Via Oberon, NSW, 2787, Aust 500,000 500,000
28
Four Square Vending P/L McCaig
Supernational Fund, George
McGain, Trustee 213 Pollock Ave Wyong North NSW 2259 126,247 126,247
Gilbert, Clayton 2/5 Henry St Tarramatta NSW 2150 92,800 92,800
Goodare, George 8/331 High St Chatswood NSW 2076 32,500 32,500
Green, John 93 Smailes Rd North Maclean QLD 4280 18,000 18,000
Greene, Alex III 32107 Lindero Cyn Rd #124 Westlake Village, CA 91361 6,240 6,240
Gregan, Colin 18 Aitken Ave Queenscliff 2096 60,000 60,000
Guilfoyle, Philip 10 Katoomba Cresent Toowoomba QLD 4350 120,000 120,000
Guille, Max 14 Old Cliham Rd Lower Plenty VIC 3093 200,000 200,000
Gundstrom, Bob 28857 Oak Path Dr Agoura Hills, CA 91301 150,000 150,000
Gusmeroli, David 137 Charters Rowers Rd Hermit Park QLD 4812 480,000 480,000
Guthrie, Bob 5A Karloo PDE, Newport, NSW, 2106, AUST 200,000 200,000
Hannan, Charles 7808 Kentley Road Balto, MD 21222 268,000 268,000
Harris, Glen 34 High Range Dr. Condon QLD 4815 360,000 360,000
Heuston, Warren 26 Bray Street St. Coffs Harbor NSW 2450 32,000 32,000
High Family Trust, Tony High,
Trustee 4722 White Oak Ave Encino, CA 91316 150,400 150,400
Holt, Coslow 3763 S. Jim Minor Rd Haw River, NC 27258 15,873 15,873
Howe, Graham 19 Templar St. Forbes NSW 2871 36,000 36,000
Increase Inc. 143 Carr St Grafton NSW 2460 50,000 50,000
Ingram, Jack Jr. 2700 Beechwood, Midland, TX., 79765 50,000 50,000
J.R.S. Consulting, Inc., John
Sarabia, President 1930 Wilshire Blvd #210D Los Angeles, CA 90057 242,275 242,275
Jenkins, Frank 1812 Cadwell Ave Clev. Hts., OH 44111 550,000 550,000
Jones, Gary 2022 Cedar Lake Rd. Sanford, NC 27330 19,705 19,705
Shafik Keashani & Karim Keshani 2389 Dawes Hill Rd Coquiltam BC V3K6T2 30,000 30,000
Keshani, Bahaderalli 2389 Dawes Hill Rd Coquiltam BC V3K6T2 75,000 75,000
Kline, Leonard 1200 Los Angles Ave #206 Simi Valley, CA 93065 75,000 75,000
Kyriakos, Arthur 395 Belmore Rd Bawyn VIC 3103 40,000 40,000
29
Law, John 11 Buyuma Place Avalon NSW 2107 25,000 25,000
Leon, Gerardo 11947 Arminta St North Hollywood CA 91608 47,619 47,619
Letney, Peggy 1200 Los Angles Ave #206 Simi Valley, CA 93065 45,000 45,000
Macfarlane, Euan PO Box 313 Maleny QLD 4552 365,000 365,000
Madden, Dave 3 Yatama Place, Tewantin, QLD, 4565, Aust 100,000 100,000
Marlowe, John 10551 E. Orchard Pl Englewood, CO 80111 100,000 100,000
Marshall, James 4 St. Michaels Road #A Mitcham 5062 13,000 13,000
Martinazzo, Giovanni 437 Victoria Rd Malaqua, WA 6090 450,000 450,000
Martinazzo, Laura 437 Victoria Rd Malaqua, WA 6090 50,000 50,000
McCaig, Tim PO Box 8040 Coffs Harbour NSW 64,935 64,935
McLean, Graeme 70 Edward St., Riverstone, NSW, 2765, Aust 125,000 125,000
McCullough, Tony 25 Dickson Ave Aramon NSW 2064 1,300,000 1,300,000
McDonald, Gary Level 3, 499 st Kilda rd, Melbourne VIC 3004 147,500 147,500
McLean, Graeme 70 Edward St., Riverstone, NSW, 2765, Aust 145,000 145,000
Megli, Dale Kelso Imoree NSW 2400 200,000 200,000
Mitchell, Barry E. 32107 Lindero Cyn Rd #124 Westlake Village, CA 91361 597,998 597,998
Moffatt, Steven 30 Clematis Crt Marcoola QLD 4552 202,000 202,000
Moore, Tyrone 32107 Lindero Cyn Rd #124 Westlake Village, CA 91361 112,719 112,719
Moser, Wesley 2604 Sumac Lane Burlington, NC 27215 27,937 27,937
Mountain Investment Family
Limited Partnership, Don Foster,
Managing Partner 101 S. Main St Clinton, TN 37716 112,069 112,069
McNabb, Dave PO Box 2489 Martinez, CA 94553 165,000 165,000
Outhred, Richard 3 Ashton Ave Forbstvulle NSW 2285 10,300 10,300
Pay Source, Inc., Charles Newton,
President 251 New Kamer Rd Albany, NY 12205 100,000 100,000
Peatt, Bill 43 Churchill Ave Ararat VIC 3377 588,000 588,000
Pelayo, Eva 16707 S. Garfield Ave #1110 Paramount, CA 90723 16,000 16,000
Pelayo, Luz 5833 E. Imperial Hwy #B South Gate, CA 90280 147,783 147,783
30
Preferential Publications, (John
Moran) 35 Trout St., Ashgrove, QLD, 4060, Aust 200,000 200,000
Reynolds Technologies, Inc.,
Steven A. Reynolds, President 5520 Owensmouth Ave #110 Woodland Hills, CA 91367 167,600 167,600
Reynolds, Steven A. 5520 Owensmouth Ave #110 Woodland Hills, CA 91367 5,000 5,000
Robinson, Brian 2 Alfred Close Narre Warren N. VIC 3804 75,000 75,000
Robinson, Jill 1 Eualong Rd., Cremorne, NSW, 2090, Aust 20,000 20,000
Rynne, Geoffrey PO Box 67 Bungalow Caires 4870 400,000 400,000
Sarabia, John 3355 Wilshire Blvd #308 Los Angeles, CA 90010 41,718 41,718
Sarabia, Maria 3355 Wilshire Blvd #308 Los Angeles, CA 90010 158,414 158,414
Saxton, Richard 21 Glen Ferris Dr QLD 4226 300,000 300,000
Schultz, Trevor 8 Calluna Place, Mountain Creek, QLD, 4557, Aust 200,000 200,000
Schweble, Leslie 902 Old Northern Rd Gelenorie NSW 2157 24,000 24,000
Sew-Hoy, Wallace 35 Argyl St East Malbern VIC 3148 110,000 110,000
Simpson, Bruce Killara, Arramagone Rd., Greenfell, NSW, 2810, Aust 250,000 250,000
Taylor, Brian 18 Fitzwilliam St. Carrara QLD 4211 71,500 71,500
Taylor, Deborah 18 Fitzwilliam St. Carrara QLD 4211 320,000 320,000
Thomsen Family 6 Main St Palmwood QLD 4555 170,000 170,000
Timms, Murry 17 Thonna Close Karana Downes Brisbane 4306 54,100 54,100
Tziavaras, Louis 23 Second Ave Murrumbeena VIC 3163 100,000 100,000
Whittingham, Anne 1/7 Crystal Waterd Dr. Tweed Heads NSW 2485 16,300 16,300
Wickham, Charlotte 24 Dammerel Cris Emerald Beach NSW 2456 60,615 60,615
Willman, James 4431 Gordon Ave St. Louis, MO 63134 253,000 253,000
Yeatts, Jerry & Gaynelle
Williamson 3508-C-54 Hwy E. Graham, NC 27253 3,968 3,968
Total Shares Registered 18,247,626 18,247,626
============== ===============
(1) No selling shareholder beneficially owns 1% or more of our outstanding
shares of common stock.
31
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 18,247,626 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 18,247,626 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
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
32
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
33
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
consolidate 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.
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,
15shares previously were issued to Tensiodyne in exchange for canceling its 15
class B preferred shares in Tensiodyne Scientific, Inc. We currently have no
relationship with Tensiodyne, and since the financial viability of Tensiodyne
has been in serious doubt over the last several years, we no longer treat the
shares of class B preferred stock issued and outstanding. We are treating the
shares of class B preferred stock as a part of the 550,000 undesignated shares
of preferred stock available for future designation by our directors.
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.
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
34
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.
35
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
Contents
Page
Independent Auditors' Report 37
Balance Sheets 38
Statements of Operations 41
Statement of Stockholders' Equity (Deficit) 42
Statements of Cash Flows
Notes to Financial Statements 54
36
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 auditing standards generally
accepted in the United States. 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 the
Company's inception (October 21, 1983) through December 31, 2001, in
conformity with accounting principles generally accepted in the United States.
s/s Jonathon P. Reuben CPA
Jonathon P. Reuben,
Certified Public Accountant
Torrance, California
February 8, 2002
37
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
--------------------------------------------------------------------------------
December 31, June 30,
2001 2002
----------- ----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $174,469 $386,078
Receivable due on research contract 285,677 65,606
Receivable from officer 35,880 -
Prepaid expenses - 109,166
----------- ----------
TOTAL CURRENT ASSETS 496,026 560,850
----------- ----------
FIXED ASSETS
Property and equipment, net
of accumulated depreciation 2,708 31,710
----------- ----------
OTHER ASSETS
Intangible assets, net of
accumulated amortization 15,663 14,151
Refundable deposit 2,348 2,348
----------- ----------
TOTAL OTHER ASSETS 18,011 16,499
----------- ----------
TOTAL ASSETS $516,745 $609,059
=========== ==========
38
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
--------------------------------------------------------------------------------
December 31, June 30,
2001 2002
------------- -------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Legal fees payable $ 282,950 $ 281,257
Fees payable to R&D subcontractor 196,043 35,100
Consulting fees payable 5,525 -
Accounting fees payable 42,417 28,984
Other accounts payable 8,801 11,162
Accrued expenses 43,213 30,885
Accrued officer wages 70,000 33,115
Notes payable - current portion 25,688 25,688
Payable on research and
development sponsorship 422,653 460,692
Loans payable - others 57,406 58,704
------------- -------------
TOTAL CURRENT LIABILITIES 674,637 504,895
------------- -------------
TOTAL LIABILITIES 1,154,696 965,587
39
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 157,012,623 shares issued, 57,012,623 shares outstanding
and 100,000,000 shares held in reserve at June 30, 2002 42,433 57,012
Class B Common Stock, $.001 par value, authorized 100,000
Shares, outstanding 100,000 shares at December 31, 2001, and
June 30, 2002 100 100
Class A Preferred, $.001 par value, authorized 50,000,000 Shares
outstanding 337,471 shares at December 31, 2001 and
437,471 shares at June 30, 2002 337 437
Additional paid in capital 6,995,412 7,832,734
Less notes receivable - common stock (731,549) (753,453)
Deficit accumulated during the development stage (6,944,684) (7,493,308)
------------- -------------
TOTAL STOCKHOLDERS' (DEFICIT) (637,951) (356,528)
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIT) $ 516,745 $ 609,059
============= =============
40
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
For the Six From Inception
For the Year Ended Months Ended (October 21, 1983)
December 31, June 30, Through
2000 2001 2001 2002 June 30, 2002
------------ ------------ ------------ ---------- ---------------
(Unaudited) (Unaudited) (Unaudited)
REVENUES
Sale of fatigue fuses $ - $ - $ - $ - $ 64,505
Sale of royalty interests - - - - 198,750
Research and development revenue 635,868 1,579,823 611,055 461,323 5,024,812
Test services - - - - 10,870
------------ ------------ ------------ ---------- ---------------
TOTAL REVENUES 635,868 1,579,823 611,055 461,323 5,298,937
------------ ------------ ------------ ---------- ---------------
COSTS AND EXPENSES
Research and development 496,501 1,284,928 471,619 384,263 4,540,891
General and administrative 640,481 2,726,011 2,143,435 608,282 8,143,475
------------ ------------ ------------ ---------- ---------------
TOTAL COSTS AND EXPENSES 1,136,982 4,010,939 2,615,054 992,545 12,684,366
------------ ------------ ------------ ---------- ---------------
INCOME (LOSS) FROM OPERATIONS (501,114) (2,431,116) (2,003,999) (531,222) (7,385,429)
------------ ------------ ------------ ---------- ---------------
OTHER INCOME (EXPENSE)
Expense reimbursed - - - - 4,510
Interest income 103,419 102,283 78,445 24,110 271,928
Interest expense (60,634) (70,468) (35,234) (40,712) (356,699)
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
Utilization of operating loss carryforward - - - - 7,000
------------ ------------ ------------ ---------- ---------------
TOTAL OTHER INCOME 42,785 (1,185) 43,211 (16,602) 193,061
------------ ------------ ------------ ---------- ---------------
41
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For the Six
For the Year Ended Months Ended
December 31, June 30,
2000 2001 2001
------------ ----------------------- -------------------
(Unaudited)
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS AND PROVISION FOR INCOME TAXES (458,329) (2,432,301) (1,960,788)
PROVISION FOR INCOME TAXES (800) (800) (800)
------------------ ---------------------- -------------------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS (459,129) (2,433,101) (1,961,588)
EXTRAORDINARY ITEMS
Forgiveness of indebtedness - - -
------------------ ---------------------- -------------------
NET INCOME (LOSS) $ (459,129) $ (2,433,101) $ (1,961,588)
================== ====================== ===================
PER SHARE DATA
Basic income (loss) before extraordinary item $ (0.02) $ (0.07) $ (0.07)
Basic extraordinary items - - -
------------------ ---------------------- -------------------
BASIC NET INCOME (LOSS) PER SHARE $ (0.02) (0.07) $ (0.07)
================== ====================== ===================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 18,900,019 33,640,393 29,412,366
================== ====================== ===================
For the Six From Inception
Months Ended (October 31, 1983)
June 30, Through
2002 June 30, 2002
------------------- -----------------
(Unaudited) (Unaudited)
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS AND PROVISION FOR INCOME TAXES (547,824) (7,192,368)
PROVISION FOR INCOME TAXES (800) (11,000)
---------------------- --------------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS (548,624) (7,203,368)
EXTRAORDINARY ITEMS
Forgiveness of indebtedness - (289,940)
---------------------- --------------
NET INCOME (LOSS) $ (548,624) (7,493,308)
====================== ==============
PER SHARE DATA
Basic income (loss) before extraordinary item $ (0.01)
Basic extraordinary items -
----------------------
BASIC NET INCOME (LOSS) PER SHARE (0.01)
======================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 48,895,806
======================
42
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
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 - - - - - -
------------ -------------- ------------ -------------- ------------ --------------
43
CLASS A COMMON CLASS B COMMON CLASS A PREFERRED STOCK
---------------------------- ---------------------------- ----------------------------
SHARES SHARES SHARES
OUTSTANDING AMOUNT OUTSTANDING AMOUNT OUTSTANDING AMOUNT
------------ -------------- ------------ -------------- ------------ --------------
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 - - - - - -
------------ -------------- ------------ -------------- ------------ --------------
Balance, January 1, 1988 38,498 38 - - - -
Issuance of Common Stock
Sale of Stock 2,544 3 - - - -
Services Rendered 3,179 3 - - - -
Net (Loss), Year Ended
December 31, 1988 - - - - - -
------------ -------------- ------------ -------------- ------------ --------------
Balance, January 1, 1989 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 - - - - - -
------------ -------------- ------------ -------------- ------------ --------------
44
CLASS A COMMON CLASS B COMMON CLASS A PREFERRED STOCK
---------------------------- ---------------------------- ----------------------------
SHARES SHARES SHARES
OUTSTANDING AMOUNT OUTSTANDING AMOUNT OUTSTANDING AMOUNT
------------ -------------- ------------ -------------- ------------ --------------
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 - - - - - -
------------ -------------- ------------ -------------- ------------ --------------
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 - - - - - -
------------ -------------- ------------ -------------- ------------ --------------
45
CLASS A COMMON CLASS B COMMON CLASS A PREFERRED STOCK
---------------------------- ---------------------------- ----------------------------
SHARES SHARES SHARES
OUTSTANDING AMOUNT OUTSTANDING AMOUNT OUTSTANDING AMOUNT
------------ -------------- ------------ -------------- ------------ --------------
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 - - - -
46
CLASS A COMMON CLASS B COMMON CLASS A PREFERRED STOCK
---------------------------- ---------------------------- ----------------------------
SHARES SHARES SHARES
OUTSTANDING AMOUNT OUTSTANDING AMOUNT OUTSTANDING AMOUNT
------------ -------------- ------------ -------------- ------------ --------------
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 - - - - - -
------------ -------------- ------------ -------------- ------------ --------------
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 - - - -
47
CLASS A COMMON CLASS B COMMON CLASS A PREFERRED STOCK
---------------------------- ---------------------------- ----------------------------
SHARES SHARES SHARES
OUTSTANDING AMOUNT OUTSTANDING AMOUNT OUTSTANDING AMOUNT
------------ -------------- ------------ -------------- ------------ --------------
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
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
48
CLASS A COMMON CLASS B COMMON CLASS A PREFERRED STOCK
---------------------------- ---------------------------- ----------------------------
SHARES SHARES SHARES
OUTSTANDING AMOUNT OUTSTANDING AMOUNT OUTSTANDING AMOUNT
------------ -------------- ------------ -------------- ------------ --------------
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 4,905,018 4,905 - - - -
Issuance of Shares to
University of Pennsylvania 524,476 524 (524)
Shares Issued for Cash 8,068,484 8,069 - - 100,000 100
Offering costs (120,195)
Shares Issued in Connection
with Private Offering 1,081,267 1,081 - - - -
Net (Loss) for the Six
Months Ended June 30, 2002 - - - - - -
------------ -------------- ------------ -------------- ------------ --------------
Balance - June 30, 2002
(Unaudited) 57,012,623 $ 57,012 100,000 $ 100 437,471 $ 437
============ ============== ============ ============== ============ ==============
49
DEFICIT
ACCUMULATED
CAPITAL DURING THE
IN 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)
---------------- ------------------
50
DEFICIT
ACCUMULATED
CAPITAL DURING THE
IN EXCESS OF DEVELOPMENT
PAR VALUE STAGE
---------------- ------------------
Balance, January 1, 1988 282,293 (333,938)
Issuance of Common Stock
Sale of Stock 101,749 -
Services Rendered 70,597 -
Net (Loss), Year Ended
December 31, 1988 - (142,335)
---------------- ------------------
Balance, January 1, 1989 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)
---------------- ------------------
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)
---------------- ------------------
51
DEFICIT
ACCUMULATED
CAPITAL DURING THE
IN EXCESS OF DEVELOPMENT
PAR VALUE STAGE
---------------- ------------------
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)
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 -
52
DEFICIT
ACCUMULATED
CAPITAL DURING THE
IN EXCESS OF DEVELOPMENT
PAR VALUE STAGE
---------------- ------------------
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 336,662 -
Issuance of Shares to
University of Pennsylvania
Shares Issued for Cash 622,410 -
Offering costs
Shares Issued in Connection
with Private Offering (1,081) -
Net (Loss) for the Six
Months Ended June 30, 2002 - (548,624)
---------------- ------------------
Balance - June 30, 2002
(Unaudited) $ 7,832,684 $ (7,493,308)
================ ==================
53
MATERIAL TECHNOLOGIES, INC.
---------------------------
(A Development Stage Company)
-----------------------------
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
For the Six From Inception
For the Year Ended Months Ended (October 21, 1983)
December 31, June 30, Through
2000 2001 2001 2002 June 30, 2002
------------ ------------ ------------ ---------- ---------------
(Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(459,129) $(2,433,101) $(1,961,588) $(548,624) $(7,493,308)
------------ ------------ ------------ ---------- ---------------
Adjustments to reconcile net income
(loss) to net cash provided
(used) in operating activities
Depreciation and amortization 2,948 3,755 1,475 2,118 179,983
Accrued interest income (98,557) (98,298) (78,444) (23,209) (221,496)
Gain on sale of securities - - - - (196,596)
Charge off of investment in joint venture - 33,000 - - 33,000
Officers' and directors compensation on stock
subscription modification - 1,500,000 - - 1,500,000
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) (233,359) 220,071 (115,934)
(Increase) decrease in prepaid expense - (212) - (109,166) (109,325)
Loss on sale of equipment - - - - 12,780
Issuance of common stock for services 88,133 816,878 1,976,250 341,567 1,779,842
Issuance of stock for agreement modification - - - - 152
Forgiveness of Indebtedness - - - - 215,000
Increase (decrease) in accounts
payable and accrued expenses 8,441 67,742 270,072 (161,561) 1,026,053
Interest accrued on note payables 57,062 67,718 33,859 39,337 312,092
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 2,335,510 1,969,853 309,157 4,723,643
------------ ------------ ------------ ---------- ---------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (288,738) (97,591) 8,265 (239,467) (2,769,665)
------------ ------------ ------------ ---------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From sale of equipment - - - - 10,250
Purchase of property and equipment - (5,961) - (29,608) (266,472)
Proceeds from sale of securities - - - - 283,596
Purchase of securirties - - - - (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) - - (126,495)
------------ ------------ ------------ ---------- ---------------
54
MATERIAL TECHNOLOGIES, INC.
---------------------------
(A Development Stage Company)
-----------------------------
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
For the Six From Inception
For the Year Ended Months Ended (October 21, 1983)
December 31, June 30, Through
2000 2001 2001 2002 June 30, 2002
------------ ------------ ------------ ----------- ---------------
(Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock net of offering
costs $ 274,288 $ 366,126 $ - $ 581,830 $ 2,329,563
Costs incurred in offerings - (79,559) - (120,196) (231,235)
Sale of common stock warrants - - 18,350 18,350
Sale of preferred stock - - 48,750 48,750 307,250
Sale of redeemable preferred stock - - - - 150,000
Capital contributions - - - - 301,068
Payment on proposed reorganization - - - - (5,000)
Loans From officer 8,000 42,800 14,300 - 778,805
Repayments to officer (39,500) (53,300) (18,800) (29,700) (538,532)
Increase in loan payable-others - - - - 172,069
------------ ------------ ------------ ----------- ---------------
CASH FLOWS FROM FINANCING
ACTIVITIES: 242,788 276,067 (4,500) 480,684 3,282,338
------------ ------------ ------------ ----------- ---------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (60,950) 172,515 3,765 241,217 386,178
BEGINNING BALANCE CASH AND
CASH EQUIVALENTS 62,904 1,954 1,954 174,469 -
------------ ------------ ------------ ----------- ---------------
ENDING BALANCE CASH AND CASH
EQUIVALENTS $ 1,954 $ 174,469 $5,719 $ 415,686 $ 386,178
============ ============ ============ =========== ===============
55
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) 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.
56
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
Significantly all of the Company's revenue is derived from the Company's
sub-contract with the United States Air Force relating to the further
development of the Electrochemical Fatigue Fuse. Revenue on the sub-contract is
recognized at the time services are billed for. The Company bills monthly for
services rendered pursuant to this sub-contract. The objective of the contract
with the U.S. Air Force is to further develop and validate a prototype
Electrochemical Fatigue Sensor (EFS) to inspect turbine engine blades and
components in the disassembled condition as well as without the need to
disassemble the engine. The project builds on work performed through previous
contracts with the Air Force. As required under the contract and previous
contracts with the Air Force, the technical data and /or commercial computer
software developed under the contracts will be delivered to the Government with
"Other Than Unlimited Rights". Under the contracts, Material Technologies, Inc.
has always maintained a proprietary interest in the development of the data and
software for commercial use.
All other income is reported in the period that the income was earned.
j) Interim Financial Statements
The financial statements as of June 30, 2002, and for the six months
period ended June 30, 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.
NOTE 3 - INTANGIBLES
57
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 17 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.
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.
58
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 an 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. As indicated, the Note matured on
December 16, 2001 and the Company has not made any payments and under the terms
of the agreement is in default
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
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.
59
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.
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 carry forwards, 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.
60
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 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.
61
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.
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.
62
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.
Minimum rental commitments under the non-cancelable 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 (a
letter of 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.
63
As of the balance sheet date, the Credit has not been funded, however the
Company is in discussions with funding sources.
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. 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.
In July 2002, the Company settled its pending lawsuit with Mr. Beck. Under the
terms of the settlement, Mr. Beck will receive 1,000,000 shares of the Company
common stock. The shares to be issued are non-dilutive.
In addition, pursuant to the agreement that the Company had with the attorneys
who represented it in this matter, a contingent fee of $1,481,895 became due
them upon the settlement of the case. This fee, however, is payable out of the
Company's earnings derived before interest, taxes, depreciation and amortization
(EBIDA), limited each year to 25% of EBIDA. Unpaid amounts owed towards the fee
accrue interest at a rate of 6% per annum until paid in full.
As the amounts due the attorneys are paid out of profits and amounts paid
annually are limited as indicated, management does not believe that the
liability to the attorneys will have any impact on the Company's ability to
continue operating. However, payments made to the attorneys will obviously have
a impact on the Company's future cash flow which could limit the amounts spent
on future projects or expansion.
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.
64
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.
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.
65
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, the estimated value of the stock issued, discounted for blockage. Also
on March 5, 1999, the Company issued 50,000 shares to a consultant. These shares
were valued at $2,500, the estimated value of the stock issued, discounted for
blockage. On April 15, 1999, the Company issued 50,000 shares to a consultant.
These shares were valued at $2,500, the estimated value of the stock issued,
discounted for blockage. On June 9, 1999, the Company issued 2,000,000 shares to
its President in exchange for canceling $100,000 of indebtedness due him. These
shares were valued at market, discounted for blockage. 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. These shares were valued at
market, discounted for blockage On June 21, 1999, the Company issued 100,000
shares to a consultant for $.35 a share payable by a non-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, the estimated value of the stock
issued, discounted for blockage. 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 and
charged against paid-in capital. On August 23, 1999, the Company issued 50,000
shares to a consultant. These shares were valued at $2,500, the estimated value
of the stock issued, discounted for blockage. On September 29, 1999, the Company
issued 8,000 shares for public relations services. These shares were valued at
$400, the estimated value of the stock issued, discounted for blockage. On
October 27, 1999, the Company issued 300,000 to its board of advisors. These
shares were valued at $30,000, the estimated value of the stock issued,
discounted for blockage. On November 12, 1999, the Company issued 25,000 shares
to a consultant. These shares were valued at $2,500, the estimated value of the
stock issued, discounted for blockage. 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, the
estimated value of the stock issued, discounted for blockage. On December 14,
1999, the Company issued 50,000 shares to a consultant. These shares were valued
at $5,000, the estimated value of the stock issued, discounted for blockage. On
December 21, 1999, the Company issued 20,000 shares to a consultant for public
relations services. These shares were valued at $1,500, the estimated value of
the stock issued, discounted for blockage. On December 21, 1999, the Company
issued 10,000 shares to an individual who is on the Company's advisory board.
66
These shares were valued at $1,000, the estimated value of the services
rendered. On December 30, 1999, the Company issued 150,000 shares to a
consultant. These shares were valued at $15,000, the estimated value of the
stock issued, discounted for blockage.
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, the estimated
value of the services rendered. 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, the estimated value of the
services rendered. 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, the estimated value of the stock issued, discounted for blockage. 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, the estimated value of
the services rendered. 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 fuse. These shares were
valued at $7,500, the estimated value of the stock issued, discounted for
blockage. 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, the estimated value of the stock issued, discounted for blockage. 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, the estimated value of the stock issued, discounted for
blockage. On April 11, 2000, the Company issued 25,000 shares of common stock
for advisory services. These shares were valued at $5,000, the estimated value
of the stock issued, discounted for blockage. On April 28, 2000, the Company
issued 30,000 shares of common stock for advisory services. These shares were
valued at $12,000, the estimated value of the services rendered. On May 4, 2000,
the Company issued 12,529 shares of its common stock in 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, the estimated value of the services rendered. 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
67
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, the estimated
value of the stock issued, discounted for blockage. 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, the estimated value of the stock issued, discounted for
blockage. 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, the estimated value of the stock issued, discounted for blockage. 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, the estimated value of the stock issued, discounted for
blockage. 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,
the estimated value of the services rendered. 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, the amount of accrued compensation due
Him. 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, the
estimated value of the stock issued, discounted for blockage. 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, the estimated value of the stock
issued, discounted for blockage. On April 20, 2001, the Company issued to two
consultant 50,000 shares each of its common stock for marketing services
rendered. These shares were valued at $5,000, the estimated value of the
services rendered. 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, the estimated value of the
stock issued, discounted for blockage. 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, the estimated value of the stock issued,
discounted for blockage. 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, the estimated market value of the service
rendered,. 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, the estimated value of the services rendered. 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, the estimated value of the
68
services rendered. 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, the estimated value of the stock issued, discounted for blockage. 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, the estimated
value of the stock issued, discounted for blockage. 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, the estimated value of the
services rendered. 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, the
estimated value of the stock issued, discounted for blockage. 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, the estimated value of
the stock issued, discounted for blockage. 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, the estimated value of the stock issued,
discounted for blockage. 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, the estimated value of the stock issued, discounted for
blockage. 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, the estimated
value of the services rendered. 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, the estimated value of the stock issued, discounted for
blockage. 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, the estimated value of the services rendered . 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, the estimated value of the
services rendered. 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, the value of the services rendered. 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, the value of the services
rendered. 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,
the estimated value of the stock issued, discounted for blockage 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, the estimated
value of the stock issued, discounted for blockage. 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, the estimated
value of the stock issued, discounted for blockage.
The value assigned to shares issued for services were charged to operations.
Additional shares issued to the University of Pennsylvania were issued pursuant
to a non-dilution provision of the agreement between the Company and the
University and were valued at par and charged against paid-in capital. Shares
issued in cancellation of indebtedness were charged of against the balance of
the debt owed, and shares issued relating to the Regulation S offering were
charged against the related proceeds received.
69
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 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 their 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 party.
70
The original issuance of these shares had no impact on the financial condition
of the Company. As shares are issued out of escrow, the Company will value the
shares at their fair market value or the value of the consideration received for
the shares, whichever is more readably determinable. Currently, any shares
issued to the President are contingent as discussed above.
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 as compensation to the President.
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.
71
b. In 1998, the Company adopted the 1998 Stock Plan and reserved 800,000
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.
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
=========
72
================================================================================
TABLE OF CONTENTS
Page MATERIAL TECHNOLOGIES, INC.
--------
Prospectus summary 2
Summary financial data 3
Risk factors 4
Use of proceeds 10 18,247,626 Shares of Common Stock
Dividend policy 10
Management's discussion and
analysis of financial condition
and results of operations 10
Business 13 PROSPECTUS
Management 19
Certain transactions 24
Principal stockholders 26
Selling shareholders 27 Dated November 4, 2002
Description of securities 32
Plan of distribution for
selling shareholders 32
Legal matters 34
Experts 34
Index to financial statements 36
UNTIL DECEMBER ___, 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.
================================================================================
73
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 $ 52.05
Printing and Engraving (1) $ 500.00
Blue Sky Fees (1) $ 1,000.00
Auditing Fees (1) $ 5,000.00
Legal Fees (1) $ 15,000.00
Miscellaneous (1) $ 2,000.00
------------
TOTAL $ 23,552.05
(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 in reliance 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.
With only minor exception, these shares were issued in exchange for services
rendered to us by the recipient of the shares. None of the shares of common
stock described below were registered under the Securities Act of 1933, rather
all issuances are exempt from registration under the Act.
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 Adele Rosenberg, one of
our long time investors in exchange for exchanging a promissory note due to be
paid for a new note. Mrs. Rosenberg, being an existing shareholder, had an
existing relationship with us and all material information concerning our
business, our operations and our financial condition was available to her at the
time she received her warrant to purchase additional shares of our common stock.
On February 4, 1999, we authorized the issuance to one of our consultants,
Miles Wilson, 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. Mr. Wilson, being one of our consultants, had an existing
relationship with us and all material information concerning our business, our
operations and our financial condition was available to him at the time he
received his shares and warrant to purchase additional shares of our common
stock.
On March 5, 1999, we authorized the issuance of 50,000 shares of common
stock, and on November 20, 1999 we authorized the issuance of 92,000 shares of
common stock to John Goodman, one of our directors, for services rendered to us.
On that same date, we authorized the issuance of 50,000 shares of common stock
to another of our consultants, William Berks, in exchange for services rendered
to the us. On January 9, 2001, we issued 100,000 shares of our common stock to
William Berks, in exchange for engineering and other services rendered to us,
and 100,000 shares of common stock to Mr. Goodman, in exchange for his services.
In each case involving Mr. Goodman and Mr. Berks, we had a pre-existing
relationship and all material information concerning our business, our
operations and our financial condition was available to them at the time they
received their respective shares of common stock.
On May 27, 1999, we authorized the issuance of 200,000 shares of common
stock to Joel Freedman, another of our directors, for services rendered to us.
In the case of Mr. Freedman, he had a pre-existing relationship with us as a
director, and all material information concerning our business, our operations
and our financial condition was available to him at the time he received his
shares of common stock.
74
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 November 22, 1999, we issued 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. We have since extended the term of these
warrants so they are fully exercisable through June 30, 2004. 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 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 voting control. On May 25, 2000, we issued to
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 one of our
directors, Joel Freedman 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 October 27, 2000, we issued 4,183,675 shares to Robert M. Bernstein, In
exchange for services previously rendered and 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. As of the date of this prospectus, Mr. Bernstein has released
1,722,000 shares from escrow, resulting in 2,461,675 shares remaining in Mr.
Bernstein's escrow.
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 among us, the
investors, and Mr. Bernstein.
On June 12, 1999, we issued 200,000 shares of our common stock to our legal
counsel, C. Timothy Smoot, as compensation for his legal services to us. With
regard to Mr. Smoot, we had a pre-existing relationship and all material
information concerning our business, our operations and our financial condition
was available to him as our legal counsel at the time he received his shares of
common stock.
On June 21, 1999, we authorized the issuance of 100,000 shares of common
stock to Robert Cushman, one of our consultants, 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. As one
of our consultants, we had a pre-existing relationship with Mr. Cushman and all
material information concerning our business, our operations and our financial
condition was available to him at the time he received his shares of common
stock. In addition, on September 30, 1999, we authorized the grant of options to
purchase 200,000 shares of common stock, at $.60 per share, to Mr. Cushman for
services rendered to us.
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. We had a pre-existing relationship with Mr. Adelson and
all material information concerning our business, our operations and our
financial condition was available to him at the time he received his shares of
common stock. On April 11, 2000, we issued another 15,000 shares of common stock
to Mr. Adelson relating to the operations of a joint venture. However, due to a
dispute that developed between us and Mr. Adelson, we subsequently canceled all
outstanding stock options issued in his name, and no options are outstanding at
this time.
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. Issuing these shares was a part of
the modification of our licensing agreement with the University and at the time
we issued the shares, the University had a pre-existing relationship with us as
licensor and a strategic partner in assisting us in research and development of
our technologies and products. All material information concerning our business,
our operations and our financial condition was available to the University at
the time it received shares of our common stock.
75
On August 23, 1999, we authorized the issuance of 50,000 shares of common
stock to another of our consultants, John J. DeLuccia, in exchange for services
rendered us. As one of our consultants, we had a pre-existing relationship with
Mr. DeLuccia and all material information concerning our business, our
operations and our financial condition was available to him at the time he
received his shares of common stock.
On September 29, 1999, we authorized the issuance of 8,000 shares of common
stock to The Blaine Group, in exchange for public relations services rendered to
us. On November 15, 1999, December 17, 1999, and February 28,2000, we issued
4,500 shares, 15,500 shares and 4,500 shares, respectively, of common stock to
The Blaine Group. As one of our consultants, we had a pre-existing relationship
with The Blaine Group and all material information concerning our business, our
operations and our financial condition was available to them at the time they
received shares of our common stock.
On October 11, 1999, we authorized the issuance of 333,333 shares of common
stock to a private investor, Nathan J. Esformes, for $.45 per share, which
totaled an investment of $150,000. We believe that Mr. Esformes had all material
information concerning our business, our operations and our financial condition
at the time he purchased shares of our common stock. We also believe Mr.
Esformes qualified as an accredited investor as defined in Rule 501 Of
Regulation D promulgated under the Securities Act of 1933.
On October 27, 1999, we authorized the issuance of a total 300,000 shares
of common stock to seven members of our advisory board in exchange for their
consulting services and advice given to us. No one member received more than
50,000 shares. These seven advisory board members included T.Y. Lin, Y.C. Yang,
Larry Chimerine, Thomas Root, Robert Cushman, Robert Coogan and Sam Schwartz. On
November 10, 1999, we authorized the issuance of 10,000 shares of common stock
to another member of our advisory board, Robert Maddin.
On December 31, 1999, we authorized the issuance of 150,000 shares of
common stock to one of our consultants, Irwin Renneisen, for services
rendered to us. As one of our consultants, we had a pre-existing
relationship with Mr. Renneisen and all material information concerning our
business, our operations and our financial condition was available to him at
the time he received his shares of common stock.
On January 12, 2000, the Board authorized the issuance of up to 110,000
shares of common stock to a group of approximately 22 existing shareholders who
claimed they were defrauded by one of our former consultants, Robert Adams, 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 31, 2000, we issued 50,000 shares of common stock to David
Haberman, a new member of the advisory board, in exchange for his advice and
services. As an advisory board member, we had a pre-existing relationship and
all material information concerning our business, our operations and our
financial condition was available to Mr. Haberman at the time he received his
shares of common stock.
On February 8, 2000, we issued 10,000 shares of common stock to Barry
Peril, one of our consultants, in exchange for his services. As one of our
consultants, we had a pre-existing relationship with Mr. Peril and all material
information concerning our business, our operations and our financial condition
was available to him at the time he received his shares of common stock.
On February 28, 2000, we issued 200,000 of common stock to Quarum Capital
Funding, a consultant that rendered financial services advice to us. As one of
our consultants, we had a pre-existing relationship with them, and all material
information concerning our business, our operations and our financial condition
was available to Quarum Capital Funding at the time he received his shares of
common stock. We have since canceled the common stock certificate issued to this
consultant due to a dispute we have with their performance as a consultant. We
have also notified the consultant of our cancellation of these shares of common
stock.
On March 9, 2000, we issued 100,000 of common stock to Craig Snyder, one of
our consultants in exchange for his agreement to cancel a $100,000 promissory
note we issued to him. As one of our consultants, we had a pre-existing
relationship with Mr. Snyder, and all material information concerning our
business, our operations and our financial condition was available to him at the
time he received his shares of common stock.
On March 13, 2000, we issued Thomas Root, one of our consultants and Miles
Larson, another consultant, 50,000 and 25,000 shares, respectively, of our
Common stock, in exchange for their services to us. As one of our consultants,
we had a pre-existing relationship with Mr. Root and Mr. Larson and all material
information concerning our business, our operations and our financial condition
was available to them at the time they received shares of common stock.
76
On March 29, 2000, we issued 50,000 shares of common stock to another
consultant, First American Ventures, in exchange for their services. As one of
our consultants, we had a pre-existing relationship with this group, and all
material information concerning our business, our operations
and our financial condition was available to them at the time they received
shares of common stock.
On April 11, 2000, we issued 25,000 shares of common stock for advisory
services to a consultant, Alex Radin. As one of our consultants, we had a
pre-existing relationship with Mr. Radin, and all material information
concerning our business, our operations and our financial condition was
available to him at the time he received shares of common stock.
On April 28, 2000, we issued 30,000 shares of common stock for advisory
services to a consultant, Steven Requlinski. As one of our consultants, we had a
pre-existing relationship with Mr. Requlinski, and all material information
concerning our business, our operations and our financial condition was
available to him at the time he received shares of common stock.
On July 13, 2000, we issued 40,000 shares of common stock to Robert
Brunette in exchange for legal services he rendered to us as our counsel.
On November 14, 2000, we issued 400,000 shares of common stock to one of
our existing stockholders, Consulting Commerce Distribution, Inc. in exchange
for our receipt of $22,490.
On December 13, 2000, we issued 250,000 shares of our common stock to James
Clark, an individual that brought suit against us that was later determined to
be Without merit, but we agreed to settle the lawsuit brought against us by
issuing these shares to Mr. Clark
On December 19, 2000, we issued 200,000 shares of our common stock to
another of our consultants, Yuanfeng Li in exchange for his consulting services.
As one of our consultants, we had a pre-existing relationship with Mr. Li,
and all material information concerning our business, our operations and our
financial condition was available to him at the time he received shares of
common stock.
On January 8, 2001, we issued 50,000 shares of our common stock to one of
our consultants, Robert Waite, in exchange for his technical services rendered
to us. As one of our consultants, we had a pre-existing relationship with Mr.
Waite, and all material information concerning our business, our operations and
our financial condition was available to him at the time he received shares of
common stock.
On January 8, 2001, we issued 100,000 shares of our common stock to Dr.
Campbell Laird, another of our advisory board members, for services rendered to
us. As one of our consultants, we had a pre-existing relationship with Dr.
Laird, and all material information concerning our business, our operations and
our financial condition was available to him at the time he received shares of
common stock.
Between January 2001 and October 21,2002, we offered and sold a total of
1,317,500 shares of our common stock at a 30% discount to the market price at
the time of each sale, to 244 purchasers. In the aggregate, we have received
$1,230,700 from these sales. The names, dates of purchase, purchase price per
share and total aggregate amount of investment made by each purchaser is set
forth in the table that follows.
All of these offers and sales were exempt from registration pursuant to
Rule 506 of Regulation D promulgated under the Securities Act of 1933, and in
the case of certain foreign residents, the offers and sales were exempt from
registration under Regulation S promulgated under the Securities Act of 1933.
All purchasers of these shares represented to us that they received and have had
access to any financial and other information concerning our operations and
financial condition as well as our securities, including an opportunity to ask
questions of and receive answers from our management regarding any other
material information the purchasers may have needed in order to make their
investment decision. All purchasers named in the table below, received their
shares of common stock under the exemption provided by Regulation S, or under
the exemption provided by Rule 506 of Regulation D as "accredited investors".
All purchasers executed a common form of subscription agreement and investment
representation statement.
TRANSACTION AGGREGATE SHARES
NAME DATE AMOUNT PURCHASED PRICE PER SHARE
--------------------------- ------------- ----------------- ------------------ ---------------
Willard Clapp 1/9/2001 $ 1,001 14,300 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Deborah Darragh 7/16/2001 $ 10,080 160,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
77
Adrian Bell 7/16/2001 $ 1,709 23,180 0.075
--------------------------- ------------- ----------------- ------------------ ---------------
Jill Robinson 7/17/2001 $ 1,063 14,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Adrian Bell 7/19/2001 $ 1,240 16,820 0.075
--------------------------- ------------- ----------------- ------------------ ---------------
Brian Robinson 7/19/2001 $ 7,700 100,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Bob Guthrie 7/20/2001 $ 5,760 75,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Robert Smith 7/20/2001 $ 18,311 238,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Graeme McLean 7/23/2001 $ 2,085 30,000 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Max Guille 7/24/2001 $ 15,385 200,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Wallace Sew-Hoy 7/25/2001 $ 6,985 100,000 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Colin Gregan 7/26/2001 $ 1,155 15,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Chris Mackertich 7/26/2001 $ 2,487 27,500 0.091
--------------------------- ------------- ----------------- ------------------ ---------------
Matt Develin 7/26/2001 $ 7,685 100,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Phil Roden 7/31/2001 $ 2,487 27,500 0.091
--------------------------- ------------- ----------------- ------------------ ---------------
Eva Pelayo 7/31/2001 $ 7,000 100,000 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
James Willman 8/2/2001 $ 4,550 50,000 0.091
--------------------------- ------------- ----------------- ------------------ ---------------
Dr. George Amaro 8/7/2001 $ 9,995 110,000 0.091
--------------------------- ------------- ----------------- ------------------ ---------------
Ron Sakovits 8/8/2001 $ 1,072 12,000 0.091
--------------------------- ------------- ----------------- ------------------ ---------------
Glen Harris 8/9/2001 $ 2,310 30,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
John Green 8/10/2001 $ 4,774 62,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
John Moran 8/10/2001 $ 5,005 55,000 0.091
--------------------------- ------------- ----------------- ------------------ ---------------
Jamie Hull 8/10/2001 $ 5,005 55,000 0.091
--------------------------- ------------- ----------------- ------------------ ---------------
Howard Chew 8/10/2001 $ 9,080 100,000 0.091
--------------------------- ------------- ----------------- ------------------ ---------------
George Johnson 8/13/2001 $ 4,990 55,000 0.091
--------------------------- ------------- ----------------- ------------------ ---------------
David McNabb 8/16/2001 $ 3,850 50,000 0.770
--------------------------- ------------- ----------------- ------------------ ---------------
Tony McCullough 8/17/2001 $ 7,685 100,000 0.077
78
--------------------------- ------------- ----------------- ------------------ ---------------
Jack Ingram Jr. 8/23/2001 $ 4,400 70,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Adam Gilbert 8/24/2001 $ 3,765 60,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Phil Roden 8/27/2001 $ 622 10,000 0.062
--------------------------- ------------- ----------------- ------------------ ---------------
Chris Mackertich 8/27/2001 $ 622 10,000 0.062
--------------------------- ------------- ----------------- ------------------ ---------------
Tim Wheaton 8/28/2001 $ 3,450 55,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Doug Tysoe 8/28/2001 $ 1,996 32,000 0.062
--------------------------- ------------- ----------------- ------------------ ---------------
Bob Adams 8/28/2001 $ 5,025 80,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
John Darragh 8/29/2001 $ 10,080 160,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Clayton Gilbert 8/30/2001 $ 5,241 83,190 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
John Gilbert 8/30/2001 $ 1,560 25,000 0.062
--------------------------- ------------- ----------------- ------------------ ---------------
Frank Jenkins 8/31/2001 $ 18,900 300,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Val Wood 9/4/2001 $ 5,040 80,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Doug Hamilton 9/4/2001 $ 4,095 65,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Trevor Gosling 9/6/2001 $ 5,025 80,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
George Amaro 9/10/2001 $ 5,655 90,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Robert Foster 9/12/2001 $ 2,250 32,357 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Bettyanne Austen 9/14/2001 $ 3,135 45,000 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Euan Macfarlane 9/27/2001 $ 6,600 100,000 0.066
--------------------------- ------------- ----------------- ------------------ ---------------
Robert Wickham 9/28/2001 $ 3,132 45,000 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Bahaderalli Keshani 10/1/2001 $ 6,650 100,000 0.067
--------------------------- ------------- ----------------- ------------------ ---------------
John Moran 10/3/2001 $ 6,650 100,000 0.067
--------------------------- ------------- ----------------- ------------------ ---------------
Clarence Fitzner 10/9/2001 $ 2,665 40,000 0.067
--------------------------- ------------- ----------------- ------------------ ---------------
George Johnson 10/9/2001 $ 3,150 50,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Jim Willman 10/9/2001 $ 4,550 70,000 0.065
--------------------------- ------------- ----------------- ------------------ ---------------
Carol Drugan 10/9/2001 $ 1,064 16,000 0.067
79
--------------------------- ------------- ----------------- ------------------ ---------------
Bahaderalli Keshani 10/9/2001 $ 9,975 150,000 0.067
--------------------------- ------------- ----------------- ------------------ ---------------
David Israel 10/9/2001 $ 1,315 20,000 0.066
--------------------------- ------------- ----------------- ------------------ ---------------
Ross Williams 10/9/2001 $ 1,648 25,007 0.066
--------------------------- ------------- ----------------- ------------------ ---------------
Warren Heuston 10/9/2001 $ 1,995 30,000 0.067
--------------------------- ------------- ----------------- ------------------ ---------------
Ross Williams 10/9/2001 $ 4,972 74,993 0.066
--------------------------- ------------- ----------------- ------------------ ---------------
Greg Rynne 10/9/2001 $ 12,985 200,000 0.065
--------------------------- ------------- ----------------- ------------------ ---------------
Maria Sarabia 10/10/2001 $ 6,825 105,000 0.065
--------------------------- ------------- ----------------- ------------------ ---------------
Bernard Coble 10/10/2001 $ 1,995 30,000 0.067
--------------------------- ------------- ----------------- ------------------ ---------------
Brad Smyth 10/10/2001 $ 500 6,500 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Glen Humbert 10/10/2001 $ 3,305 50,000 0.066
--------------------------- ------------- ----------------- ------------------ ---------------
Francis Sliwinski 10/11/2001 $ 1,078 11,000 0.098
--------------------------- ------------- ----------------- ------------------ ---------------
Wesley Moser 10/11/2001 $ 3,325 50,000 0.067
--------------------------- ------------- ----------------- ------------------ ---------------
HS Williams 10/12/2001 $ 1,155 15,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Nancy Demarr 10/12/2001 $ 5,145 52,500 0.098
--------------------------- ------------- ----------------- ------------------ ---------------
Coslow Holt 10/12/2001 $ 1,655 21,500 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Genice Akins 10/12/2001 $ 2,000 28,500 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Robert Foster 10/12/2001 $ 1,239 12,800 0.097
--------------------------- ------------- ----------------- ------------------ ---------------
Charles Hannan 10/15/2001 $ 4,032 32,000 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Adam Gilbert 10/18/2001 $ 1,300 20,000 0.066
--------------------------- ------------- ----------------- ------------------ ---------------
Dorothy Ellerbe 10/18/2001 $ 980 13,611 0.072
--------------------------- ------------- ----------------- ------------------ ---------------
Euan Macfarlane 10/19/2001 $ 6,720 60,000 0.112
--------------------------- ------------- ----------------- ------------------ ---------------
Roderick L. Carter 11/5/2001 $ 1,050 10,000 0.105
--------------------------- ------------- ----------------- ------------------ ---------------
Howard Wilson 11/9/2001 $ 4,985 50,000 .10
--------------------------- ------------- ----------------- ------------------ ---------------
Frank Alexander 11/15/2001 $ 1,050 10,000 0.105
--------------------------- ------------- ----------------- ------------------ ---------------
Ali Siddiqui 11/16/2001 $ 2,016 18,000 0.112
80
--------------------------- ------------- ----------------- ------------------ ---------------
James Willman 11/16/2001 $ 5,600 50,000 0.112
--------------------------- ------------- ----------------- ------------------ ---------------
Warren Heuston 11/16/2001 $ 2,001 32,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Christopher Collins 11/19/2001 $ 1,260 10,000 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Luz Pelayo 11/28/2001 $ 1,000 8,400 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
Eva Pelayo 11/28/2001 $ 7,497 63,000 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
Brian Taylor 1/4/2002 $ 5,005 71,500 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
James Marshall 1/14/2002 $ 986 13,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
James Auld 1/14/2002 $ 2,526 33,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Philip Guilfoyle 1/14/2002 $ 10,060 120,000 0.080
--------------------------- ------------- ----------------- ------------------ ---------------
Maria DelaRosario Leon 1/17/2002 $ 4,988 47,500 0.105
--------------------------- ------------- ----------------- ------------------ ---------------
John Law 1/24/2002 $ 2,610 25,000 0.105
--------------------------- ------------- ----------------- ------------------ ---------------
John Brandenburg 1/29/2002 $ 21,000 200,000 0.105
--------------------------- ------------- ----------------- ------------------ ---------------
Steven Moffatt 2/1/2002 $ 9,996 102,000 0.098
--------------------------- ------------- ----------------- ------------------ ---------------
Peter Fitzpatrick 2/5/2002 $ 17,485 250,000 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Bill Peatt 2/6/2002 $ 1,960 28,000 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Graham Howe 2/6/2002 $ 2,505 36,000 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Maria DelaRosario Leon 2/7/2002 $ 10,000 142,857 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Sabina & Lee Braun 2/8/2002 $ 21,000 300,000 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Gerardo Leon 2/11/2002 $ 4,000 47,619 0.084
--------------------------- ------------- ----------------- ------------------ ---------------
George Goodare 2/12/2002 $ 1,680 20,000 0.084
--------------------------- ------------- ----------------- ------------------ ---------------
David Campbell 2/15/2002 $ 7,825 70,000 0.112
--------------------------- ------------- ----------------- ------------------ ---------------
Arthur Kyriakos 2/19/2002 $ 4,745 40,000 0.120
--------------------------- ------------- ----------------- ------------------ ---------------
Richard Outhred 2/19/2002 $ 994 10,300 0.098
--------------------------- ------------- ----------------- ------------------ ---------------
Ben Bailey 2/21/2002 $ 5,102 43,000 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
Doug Caswell 2/22/2002 $ 17,835 150,000 0.119
81
--------------------------- ------------- ----------------- ------------------ ---------------
Peggy Letney 2/22/2002 $ 5,350 45,000 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
Charles Hannan 2/22/2002 $ 8,092 68,000 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
Leonard Kline 2/22/2002 $ 5,350 45,000 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
John Marlowe 2/22/2002 $ 11,900 100,000 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
George Goodare 2/25/2002 $ 1,487 12,500 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
Christopher Collins 2/25/2002 $ 1,785 15,000 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
Frank Jenkins 2/25/2002 $ 10,200 85,714 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
Carol Drugan 2/26/2002 $ 2,520 20,000 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Wesley Moser 2/26/2002 $ 3,250 27,937 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Joseph Faggion 2/27/2002 $ 1,245 10,000 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
John Green 2/27/2002 $ 2,142 18,000 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
Bill Peate 2/27/2002 $ 5,520 40,000 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
David Gusmeroli 2/27/2002 $ 9,505 80,000 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
Bernard Coble 2/28/2002 $ 2,500 19,841 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Coslow Holt 2/28/2002 $ 2,000 15,873 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Genice Akins 2/28/2002 $ 2,000 15,873 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Glen Harris 3/1/2002 $ 4,760 40,000 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
Graeme McLean 3/1/2002 $ 6,555 45,000 0.146
--------------------------- ------------- ----------------- ------------------ ---------------
Maria Sarabia 3/1/2002 $ 9,983 64,818 0.154
--------------------------- ------------- ----------------- ------------------ ---------------
Euan Macfarlane 3/5/2002 $ 12,600 90,000 0.144
--------------------------- ------------- ----------------- ------------------ ---------------
Tony McCullough 3/5/2002 $ 15,370 100,000 0.154
--------------------------- ------------- ----------------- ------------------ ---------------
Howard Chew 3/7/2002 $ 7,680 50,000 0.154
--------------------------- ------------- ----------------- ------------------ ---------------
Anne Wittington 3/8/2002 $ 2,548 16,300 0.154
--------------------------- ------------- ----------------- ------------------ ---------------
Jerry Yeatts 3/12/2002 $ 500 3,968 0.126
82
--------------------------- ------------- ----------------- ------------------ ---------------
Don Foster 3/12/2002 $ 6,300 50,000 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Eva Pelayo 3/14/2002 $ 2,016 16,000 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Don Foster 3/14/2002 $ 6,300 62,069 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Tony McCullough 3/19/2002 $ 11,185 100,000 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Wendy Billington 3/19/2002 $ 50,385 496,550 0.105
--------------------------- ------------- ----------------- ------------------ ---------------
Bruce Burton 3/20/2002 $ 3,024 24,000 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Michael Bornstein 3/20/2002 $ 4,908 48,551 0.100
--------------------------- ------------- ----------------- ------------------ ---------------
Gary Jones 3/25/2002 $ 2,000 19,705 0.101
--------------------------- ------------- ----------------- ------------------ ---------------
Maria Sarabia 3/25/2002 $ 9,500 93,596 0.101
--------------------------- ------------- ----------------- ------------------ ---------------
Frank Jenkins 3/25/2002 $ 1,525 15,026 0.101
--------------------------- ------------- ----------------- ------------------ ---------------
Luz Pelayo 3/25/2002 $ 15,000 100,000 0.101
--------------------------- ------------- ----------------- ------------------ ---------------
Eric Dyer 3/27/2002 $ 5,060 50,000 0.101
--------------------------- ------------- ----------------- ------------------ ---------------
Deborah Taylor 3/27/2002 $ 10,150 100,000 0.101
--------------------------- ------------- ----------------- ------------------ ---------------
James Willman 4/4/2002 $ 2,940 30,000 0.098
--------------------------- ------------- ----------------- ------------------ ---------------
David Barrett 4/5/2002 $ 4,885 50,000 0.098
--------------------------- ------------- ----------------- ------------------ ---------------
Murry Timms 4/7/2002 $ 5,287 54,100 0.098
--------------------------- ------------- ----------------- ------------------ ---------------
Leonard Kline 4/9/2002 $ 2,940 30,000 0.098
--------------------------- ------------- ----------------- ------------------ ---------------
Tim McCraig 4/17/2002 $ 4,985 64,935 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
George McCraig 4/17/2002 $ 4,985 64,935 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Bahaderalli Keshani 4/29/2002 $ 1,680 30,000 0.056
--------------------------- ------------- ----------------- ------------------ ---------------
Bill Peat 5/1/2002 $ 2,800 50,000 0.056
--------------------------- ------------- ----------------- ------------------ ---------------
Louis Tziavaras 5/1/2002 $ 5,600 100,000 0.056
--------------------------- ------------- ----------------- ------------------ ---------------
Charles DeCarlo 5/2/2002 $ 2,785 50,000 0.056
--------------------------- ------------- ----------------- ------------------ ---------------
Brian Robinson 5/2/2002 $ 2,783 50,000 0.056
--------------------------- ------------- ----------------- ------------------ ---------------
David Cox 5/3/2002 $ 5,935 100,000 0.059
--------------------------- ------------- ----------------- ------------------ ---------------
Damier Biki 5/3/2002 $ 2,018 35,000 0.058
83
--------------------------- ------------- ----------------- ------------------ ---------------
Robert Harper 5/8/2002 $ 6,300 100,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Ben Bailey 5/8/2002 $ 5,832 92,519 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Adam Gilbert 5/9/2002 $ 2,085 30,000 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Bahaderalli Keshani 5/9/2002 $ 5,250 75,000 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Charlotte Wickham 5/15/2002 $ 3,804 60,615 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Leslie Schwebel 5/22/2002 $ 1,581 24,000 0.660
--------------------------- ------------- ----------------- ------------------ ---------------
Anthony High 5/23/2002 $ 10,002 150,400 0.660
--------------------------- ------------- ----------------- ------------------ ---------------
Jim Willman 5/30/2002 $ 1,288 23,000 0.056
--------------------------- ------------- ----------------- ------------------ ---------------
Giovanni Martinazzo 6/3/2002 $ 2,778 50,000 0.560
--------------------------- ------------- ----------------- ------------------ ---------------
Tony McCullough 6/20/2002 $ 23,985 1,100,000 0.024
--------------------------- ------------- ----------------- ------------------ ---------------
Sabina & Lee Braun 6/20/2002 $ 9,600 440,000 0.024
--------------------------- ------------- ----------------- ------------------ ---------------
Bill Peat 6/20/2002 $ 4,320 220,000 0.024
--------------------------- ------------- ----------------- ------------------ ---------------
David McNabb 6/21/2002 $ 3,600 165,000 0.024
--------------------------- ------------- ----------------- ------------------ ---------------
Douglas Caswell 6/21/2002 $ 4,780 220,000 0.024
--------------------------- ------------- ----------------- ------------------ ---------------
Euan Macfarlane 6/21/2002 $ 6,000 275,000 0.024
--------------------------- ------------- ----------------- ------------------ ---------------
Wallace Sew-Hoy 6/25/2002 $ 2,400 110,000 0.024
--------------------------- ------------- ----------------- ------------------ ---------------
Deborah Taylor 7/1/2002 $ 4,800 220,000 0.024
--------------------------- ------------- ----------------- ------------------ ---------------
Clayton Gilbert 7/2/2002 $ 2,784 92,800 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Gary McDonald 7/5/2002 $ 5,885 147,500 0.040
--------------------------- ------------- ----------------- ------------------ ---------------
Jim Willman 7/8/2002 $ 3,000 100,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Christopher Collins 7/8/2002 $ 2,250 75,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Grahm McClean 7/12/2002 $ 3,730 125,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Carlos DeCarlo 7/15/2002 $ 2,985 100,000 0.030
84
--------------------------- ------------- ----------------- ------------------ ---------------
Frank Jenkins 7/16/2002 $ 4,478 149,260 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Peter Fitzpatrick 8/15/2002 $ 14,980 500,000 0.300
--------------------------- ------------- ----------------- ------------------ ---------------
John Martinazo 8/15/2002 $ 2,985 100,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Richard Saxton 8/23/2002 $ 3,000 100,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Steven Moffatt 8/30/2002 $ 2,980 100,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Jeff Campbell 9/4/2002 $ 3,000 100,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Geoffrey Rynne 9/5/2002 $ 11,985 400,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
John Martinazo 9/10/2002 $ 8,985 300,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Tibor Ambros 9/11/2002 $ 10,000 500,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Dale Megli 9/12/2002 $ 2,985 100,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Brian Robinson 9/12/2002 $ 735 25,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Carlos DeCarlo 9/13/2002 $ 4,485 150,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Bob Guthrie 9/13/2002 $ 4,983 200,000 0.025
--------------------------- ------------- ----------------- ------------------ ---------------
Colin Gregan 9/13/2002 $ 1,500 60,000 0.025
--------------------------- ------------- ----------------- ------------------ ---------------
Jill Robinson 9/18/2002 $ 400 20,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Glen Harris 9/20/2002 $ 5,100 170,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Dave Madden 9/20/2002 $ 2,985 100,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Larry Warden Braden 9/23/2002 $ 750 25,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Jim Willman 9/23/2002 $ 2,500 100,000 0.025
--------------------------- ------------- ----------------- ------------------ ---------------
Thomsen Family 9/23/2002 $ 5,100 170,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Max Guille 10/1/2002 $ 3,980 200,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
John Brandenburg 10/4/2002 $ 6,000 300,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Adam Gilbert 10/4/2002 $ 985 50,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Dale Megli 10/4/2002 $ 1,985 100,000 0.020
85
--------------------------- ------------- ----------------- ------------------ ---------------
Trevor Schultz 10/4/2002 $ 3,983 200,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Jack Ingram Jr. 10/4/2002 $ 1,000 50,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Bettyanne Austin (Dave Cox) 10/4/2002 $ 5,080 255,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
David Saxton 10/4/2002 $ 3,980 200,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Graeme McLean 10/4/2002 $ 1,985 100,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Bill Peat 10/4/2002 $ 5,000 250,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Bruce Simpson 10/4/2002 $ 5,000 250,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Jeff Campbell 10/9/2002 $ 4,000 200,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Laura Martinazzo 10/9/2002 $ 1,000 50,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Michael Bornstein 10/9/2002 $ 2,000 100,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
John Moran 10/9/2002 $ 4,000 200,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Kim & Paul Braun 10/9/2002 $ 4,685 235,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Doug Caswell 10/9/2002 $ 9,980 500,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Sabina Braun 10/9/2002 $ 23,980 1,200,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Wesley Moser 10/10/2002 $ 2,000 100,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Wendy Billington 10/10/2002 $ 3,980 200,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Clayton Thompson 10/10/2002 $ 2,695 135,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Bruce Simpson 10/10/2002 $ 5,000 250,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Maria Sarabia 10/11/2002 $ 2,000 100,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Frank Jenkins 10/11/2002 $ 6,000 300,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Willard Clapp 10/11/2002 $ 3,000 150,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Charles Hannan 10/11/2002 $ 4,000 200,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Hannu Hamalainen 10/11/2002 $ 6,980 350,000 0.020
86
--------------------------- ------------- ----------------- ------------------ ---------------
David Martin 10/11/2002 $ 7,985 400,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Tonny Hamalainen 10/11/2002 $ 3,985 20,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Doug Caswell 10/11/2002 $ 4,980 250,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Charles Wickham 10/11/2002 $ 2,707 125,000 0.022
--------------------------- ------------- ----------------- ------------------ ---------------
Tim McCaig 10/11/2002 $ 1,211 61,312 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
John Gilbert 10/11/2002 $ 1,325 68,300 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Dave Barrett 10/11/2002 $ 2,980 150,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Jeff Campbell 10/11/2002 $ 4,000 200,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Glen Harris 10/11/2002 $ 4,985 250,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
David Gusmeroli 10/11/2002 $ 7,980 400,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
G & J Cottrell 10/15/2002 $ 2,285 100,000 0.023
--------------------------- ------------- ----------------- ------------------ ---------------
Leonard Kline 10/15/2002 $ 2,000 100,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Jeff Campbell 10/18/2002 $ 4,550 227,500 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
John Moran
10/21/2002 $ 8,000 40,000 0.020
------------- ----------------- ------------------ ---------------
$1,230,700.00 1,317,500 Shares
----------------- ------------------
ITEM 27. EXHIBITS
a. Index of Exhibits
Exhibit No. Description of Document
------------ -------------------------
3(i) Certificate of Incorporation of Material Technologies, Inc.(1)
Certificate of Amendment, February 16, 2000(2)
Certificate of Amendment, July 12, 2000(2)
Certificate of Amendment, July 19, 2000(2)
Certificate of Amendment, July 31, 2000(2)
Certificate of Amendment, October 16, 2001(2)
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)
87
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(2)
10.8 Amendment to Agreement Between Material Technologies, Inc. and
Tensiodyne 1985-1 R&D Partnership(2)
10.9 Agreement Between Advanced Technology Center of Southeastern
Pennsylvania and Material Technology, Inc.(2)
10.10 Addendum to Agreement Between Advanced Technology Center of
Southeastern Pennsylvania and Material Technologies, Inc.(2)
10.11 Agreement Between Allied Boston International, Inc. and Material
Technologies, Inc.(2)
10.12 Securities Subscription Agreement dated June 27, 2002 between the
Registrant and Gregory Bartko, Esq.(4)
10.13 Specimen Subscription Agreement Used By Registrant in Recent Sales
Of Common Stock By Private Placement(4)
10.14 Registrant's Stock Issuance/ Stock Option Plan For 2002 (4)
10.15 Settlement Agreement and Mutual Release Between Stephen F.
Beck and Registrant (4)
10.16 Business Consulting Agreement Between Circle Group
Internet, Inc. and Registrant (4)
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. Incorporated by reference to the Registrant's S-1 registration statement
filed March 9, 1997, bearing File Number 333-23617, and as subsequently
amended at date of effectiveness on July 28, 1997.
2. Incorporated by reference to the Registrant's SB-2 registration statement
filed November 30, 2001, bearing File Number 333-74202 and as subsequently
amended at date of effectiveness on February 7, 2002.
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.
88
(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) 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.
(c) 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 amended
registration
statement to be signed on its behalf by the undersigned, in the city of Los
Angeles, State of California, on the 31st day of October, 2002.
MATERIAL TECHNOLOGIES, INC.
/s/ Robert M. Bernstein
-------------------------------
Robert M. Bernstein, Chairman of
the Board of Directors, Chief
Executive Officer and President
89
LIST OF EXHIBITS
Exhibit Description of Document
Number
------ -------------------------
3(i) Certificate of Incorporation of Material Technologies, Inc.(1)
Certificate of Amendment, February 16, 2000(2)
Certificate of Amendment, July 12, 2000(2)
Certificate of Amendment, July 19, 2000(2)
Certificate of Amendment, July 31, 2000(2)
Certificate of Amendment, October 16, 2001(2)
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(2)
10.8 Amendment to Agreement Between Material Technologies, Inc. and
Tensiodyne 1985-1 R&D Partnership(2)
10.9 Agreement Between Advanced Technology Center of Southeastern
Pennsylvania and Material Technology, Inc.(2)
10.10 Addendum to Agreement Between Advanced Technology Center of
Southeastern Pennsylvania and Material Technologies, Inc.(2)
10.11 Agreement Between Allied Boston International, Inc. and Material
Technologies, Inc.(2)
10.12 Securities Subscription Agreement dated June 27, 2002 between the
Registrant and Gregory Bartko, Esq.(4)
10.13 Specimen Subscription Agreement Used By Registrant in Recent Sales
Of Common Stock By Private Placement(4)
10.14 Registrant's Stock Issuance/ Stock Option Plan For 2002 (4)
10.15 Settlement Agreement and Mutual Release Between Stephen F.
Beck and Registrant (4)
10.16 Business Consulting Agreement Between Circle Group
Internet, Inc. and Registrant (4)
90
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. Incorporated by reference to the Registrant's S-1 registration statement
filed March 9, 1997, bearing File Number 333-23617, and as subsequently
amended at date of effectiveness on July 28, 1997.
2. Incorporated by reference to the Registrant's SB-2 registration statement
filed November 30, 2001, bearing File Number 333-74202 and as subsequently
amended at date of effectiveness on February 7, 2002.
4. Filed herein.