MATERIAL TECHNOLOGIES INC /CA/, S-1/A, 1997-05-14

MATERIAL TECHNOLOGIES INC /CA/
S-1/A, 1997-05-14
INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL

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File No. 333-23617

SECURITIES AND EXCHANGE COMMISSION

AMENDMENT NO. 2
----------------

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1993
(File No. 33-23617)

MATERIAL TECHNOLOGIES, INC.
---------------------------
(Exact Name of Registrant as Specified in its Charter)

DELAWARE
--------
(State or other jurisdiction of incorporation or organization)

1057
----
(Primary Standard Industrial Classification Code Number)

95-4622822
(I.R.S. Employer Identification No.)

Suite 705, East Tower
11835 West Olympic Blvd.
Los Angeles, California 90064
(310) 208-5589
(Address, including zip code, and telephone number, including area code of
registrant's principal executive offices)

C. Timothy Smoot, Esq.
Law Offices of C. Timothy Smoot
23505 Crenshaw Boulevard, Suite 174
Torrance, California 90505-5221
(310) 530-3366
(Name, address, telephone number of agent for service)

Approximate date of commencement of proposed distribution to the public:
The date this Registration Statement becomes effective.

If any of 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, 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 1993 or until the registration statement shall become
effective on such date as the Commission acting pursuant to said Section 8(a),
may determine.

<PAGE>

CALCULATION OF REGISTRATION FEE

- ------------------------------------------------------------------------------------------------------------------------------
Title of each class of securities to Amount to be Par Value Per Book Value Amount of
be registered registered Share (1) of Assets registration fee
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock of
Material Technologies, Inc., held 369,172 (1)(2) $.001 $172,418 $52.25
by the Company for distribution
to its public shareholders
- ------------------------------------------------------------------------------------------------------------------------------
Registration Fee Previously Paid $12.00
- ------------------------------------------------------------------------------------------------------------------------------
Registration Fee Paid $42.25
- ------------------------------------------------------------------------------------------------------------------------------

</TABLE>

(1) No current market exists for these securities, and registrant is unable to
determine the price, if any, at which these shares will trade.
(2) Registrant will receive no proceeds from the distribution of Material
Technologies, Inc.'s Class A Common Stock to Registrant's shareholders.

<PAGE>

MATERIAL TECHNOLOGIES, INC.
CROSS REFERENCE SHEET
BETWEEN ITEMS IN PART I OF FORM S-1 AND PROSPECTUS

Exhibit Index at Page II 3

Item Number and Caption Location in Prospectus

1. Forepart of the Registration Outside Front Cover of Prospectus
Statement and Outside Front Cover Page
of Prospectus.

2. Inside Front and Outside Back Inside Front and Outside Back Cover
Cover Pages of Prospectus

3. Summary Information and Risk Prospectus Summary and Risk Factors
Factors, Ratio of Earnings to Fixed
Charges - not applicable

4. Use of Proceeds Not Applicable

5. Determination of Offering Price Not Applicable

6. Dilution Dilution

7. Selling Security Holders Not Applicable

8. Plan of Distribution The Distribution

9. Description of Securities to be The Distribution
Registered

10. Interests of Named Experts and Not Applicable
Counsel

11. Information with Respect to Business, The Distribution,
Registrant Description of Capital Stock,
Description of Shares, Financial
Statements, Selected Financial
Information, Management s Discussion
and Analysis, Management, Executive
Compensation, Principle Stockholders,
Certain Relationships and Related
Transactions

12. Disclosure of Commission Position Indemnification of Directors and
on Indemnification for Securities Act Officers
Liabilities

<PAGE>

PROSPECTUS
MATERIAL TECHNOLOGIES, INC.
369,172 Shares of Class A Common Stock

Material Technologies, Inc., ( "Matech 2" or the "Company") is
distributing 369,172 shares of its Class A Common Stock (the "Shares") to 405
shareholders of Material Technology, Inc. ("Matech 1") of record on May __ ,
1997, pro rata, one Share of Matech 2 for each share of Matech 1 held by each
shareholder. The distribution to Matech 1's shareholders is being made in
accordance with a February 17, 1997 Stock Purchase Agreement among Matech 1,
Montpelier Holdings, Inc., SecurFone America, Inc., ("SecurFone") and Robert
M. Bernstein, the Chief Executive Officer and controlling shareholder of both
Matech 1 and Matech 2. Under that agreement, immediately after the
distribution, the parties intend to effect a reverse merger of SecurFone into
Matech 1. The purpose of the distribution is to spin-off Matech 2 from
Matech 1 allowing Matech 1's shareholders to retain an interest in Matech 1's
business, while keeping that business separate from SecurFone's new business.
No one will receive any proceeds from distribution of the Shares.

Material Technologies, Inc., is a development stage company requiring
approximately $5,000,000 to fund operations and complete development and
marketing of its two products. As the result of the Company's recurring losses
from operations, there is substantial doubt about its ability to continue as a
going concern. As of March 31, 1997, the Company has an accumulated deficit of
$2,912,828 and $2,783 in cash. It has a net loss of $140,378 in 1996 and
$81,959 for the three months ending March 31, 1997. Moreover, Robert M.
Bernstein will retain overwhelming voting control of the Company with 83.4% of
the votes entitled to be cast by stockholders. The stockholders receiving this
distribution will have approximately 2% of the votes entitled to be cast, Matech
1 will have 3%, and insiders and affiliates other than Mr. Bernstein will
control the remaining votes.

As the result of a teaming agreement with Southwest Research Institute to
provide services relating to a government research contract, the Company expects
to receive sufficient funds to operate until August 1998. Absent additional
funds within the next 18 months, however, the Company may go out of business.
If the Company fails, investors will lose their entire investment. The Company
has no products currently available for commercial sale and is unlikely to have
any such products for six to twelve months from the date it receives additional
capital, if that occurs. The Company is seeking the required funding through
(1) additional government grants, (2) private financing, and (3) public
financing. There can be no assurance of obtaining the needed funds.

<PAGE>

THE SECURITIES BEING DISTRIBUTED ARE HIGHLY SPECULATIVE AND ENTAIL A VERY HIGH
DEGREE OF RISK. -- SEE "VERY HIGH RISK FACTORS" BEGINNING ON PAGE 3.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The date of this Prospectus is July __ , 1997

The Company intends to furnish its stockholders annual reports containing
audited financial statements examined and reported upon by a certified public
accounting firm and quarterly reports for each of the first three quarters of
each fiscal year containing unaudited financial statements.

Prior to this distribution, there was no public market for any of the Company's
securities including the Class A Common Stock (the "Shares"). No assurance can
be given that any trading market for the Shares will develop or that if such a
market develops that such a market will continue. In the absence of the Company
obtaining the necessary funds to conduct its operations beyond the next 18
months, the Company does not expect that any trading market will be meaningful.

The Company may be reached at its principal executive offices as follows:

Material Technologies, Inc.
East Tower, Suite 705
11835 W. Olympic Blvd.
Los Angeles, CA 90064
(310) 208-5589

<PAGE>

MATERIAL TECHNOLOGIES, INC.

TABLE OF CONTENTS

Page
----
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
VERY HIGH RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . .1
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
THE BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
THE DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
COMMON STOCK OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . .3
WARRANTS OUTSTANDING:. . . . . . . . . . . . . . . . . . . . . . . . . .3

VERY HIGH RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . .3

CESSATION OF THE COMPANY AS A GOING CONCERN. . . . . . . . . . . . . . .3
NO OPERATING HISTORY . . . . . . . . . . . . . . . . . . . . . . . . . .4
NO ASSURANCE OF PRODUCT DEVELOPMENT; NEED FOR ADDITIONAL RESEARCH AND
DEVELOPMENT; MARKET UNCERTAINTY. . . . . . . . . . . . . . . . . . . . .4
LIMITED CURRENT ABILITY TO MARKET PRODUCTS . . . . . . . . . . . . . . .4
LACK OF EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . .4
DEPENDENCE ON MANAGEMENT CONSULTANTS AND ADVISORS. . . . . . . . . . . .4
COMPETITION FROM OTHER TECHNOLOGIES. . . . . . . . . . . . . . . . . . .4
PATENT PROTECTION MAY BE INADEQUATE. . . . . . . . . . . . . . . . . . .5
POSSIBLE LOSS OF PATENTS TO SECURED LENDERS. . . . . . . . . . . . . . .5
NEED FOR ADDITIONAL FINANCING; LIKELY NEGATIVE CASH FLOW . . . . . . . .5
VERY SUBSTANTIAL DILUTION. . . . . . . . . . . . . . . . . . . . . . . .5
NO PUBLIC MARKET FOR SHARES; SALES OF COMMON STOCK . . . . . . . . . . .6
IMPEDIMENTS TO OBTAINING ADDITIONAL FINANCING. . . . . . . . . . . . . .6
SALARY BENEFIT TO MR. BERNSTEIN FROM FUTURE FINANCING. . . . . . . . . .6
SUBSTANTIAL ROYALTY OBLIGATIONS. . . . . . . . . . . . . . . . . . . . .7
NO DIVIDENDS LIKELY. . . . . . . . . . . . . . . . . . . . . . . . . . .7
RISK OF NEW PRODUCT AND TECHNOLOGY . . . . . . . . . . . . . . . . . . .7
ROBERT M. BERNSTEIN'S CONTINUING CONTROL OF THE COMPANY. . . . . . . . .7
ROBERT M. BERNSTEIN'S CONFLICTS OF INTEREST. . . . . . . . . . . . . . .7
IMPEDIMENTS TO RESALE FROM PENNY STOCK REGULATIONS . . . . . . . . . . .8
POSSIBLE TAX LIABILITY OF THE DISTRIBUTION . . . . . . . . . . . . . . .8
RIGHTS OF TENSIODYNE CORPORATION AS CLASS B PREFERRED STOCKHOLDER. . . .8

CAPITALIZATION.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

DIVIDEND POLICY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

SELECTED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . 10

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Results of Operation for the Fiscal Years Ended December 31, 1994,
1995, and 1996. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . 12

MARKET INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

<PAGE>

BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
The Stock Purchase Agreement . . . . . . . . . . . . . . . . . . . . . 15
Agreements and Royalty Obligations . . . . . . . . . . . . . . . . . . 17
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Development of Technologies. . . . . . . . . . . . . . . . . . . . . . 20
Description of Technologies. . . . . . . . . . . . . . . . . . . . . . 22
Patents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Distribution Methods of Product. . . . . . . . . . . . . . . . . . . . 24
Competition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Sources of Basic Material. . . . . . . . . . . . . . . . . . . . . . . 25
Dependence Upon One or More Major Customers. . . . . . . . . . . . . . 25
Total Number of Employees. . . . . . . . . . . . . . . . . . . . . . . 25
Plan of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Description of Property. . . . . . . . . . . . . . . . . . . . . . . . 26
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . 27

MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

ADVISORY BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . 30

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . 30

PRINCIPAL STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . 32

DESCRIPTION OF CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . 33

WARRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

DESCRIPTION OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . 35

LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

INDEMNIFICATION OF DIRECTORS AND OFFICERS. . . . . . . . . . . . . . . . . 36

EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

FURTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

FINANCIAL STATEMENTS - INDEX . . . . . . . . . . . . . . . . . . . . . . . .1

ii
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH PERSON RECEIVING THE
SHARES IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY.

INTRODUCTION

Material Technologies, Inc. ("Matech 2" or the "Company") is in the business of
(1) developing for commercial exploitation the Fatigue Fuse, a patented device
designed to give early warning of metal fatigue in bridges, aerospace, shipping,
transportation, and other applications where such information is of significance
and (2) researching and developing the Electrochemical Fatigue Sensor, a device
which, if successfully developed, will indicate the fatigue status of a metal
structure at any time in its life without knowing the structure's past history.
The Company requires $5,000,000 to complete development of these two products,
pay overhead and debts, and market the products. No funds, however, will be
raised in connection with this distribution. The Company has no specific plans
to raise the necessary $5,000,000. It has provided information to various
investment bankers and venture capitalists but no viable plan for raising the
funds has been initiated as of the date of this Prospectus. Prior to this
offering, there has been no public market for any of Matech 2's securities and
no assurance can be given that such a market will develop for its Class A Common
Stock.

VERY HIGH RISK FACTORS

The securities being distributed involve a very high degree of risk. The very
high risk factors include, among others: Matech 2's (1) need for an additional
$5 million to complete development of its products and market them, (2) absence
of operating history, and (3) dependence on management. In addition,
technological changes could destroy the potential usefulness of the Company's
products, and there is substantial uncertainty regarding market acceptance of
its products. SEE, Very High Risk Factors, p. 3.

THE COMPANY

The Company is a development stage company which intends to complete testing and
developing the Fatigue Fuse, a patented device owned by the Company, and the
Electrochemical Fatigue Sensor ("EFS"), a device invented at the University of
Pennsylvania. The Company holds an exclusive worldwide license to develop and
exploit the EFS. The Company was incorporated in the State of Delaware on March
4, 1997. Its principal offices are located at 11835 West Olympic Boulevard,
East Tower, Suite 705, Los Angeles, California 90064.

Matech 2 was formed as a subsidiary of Matech 1 to receive the assets and
liabilities of Matech 1 in connection with a February 17, 1997 Stock Purchase
Agreement among Matech 1, Montpelier Holdings, Inc., SecurFone America, Inc.,
("SecurFone") and Robert M. Bernstein, the Chief Executive Officer and
controlling shareholder of both Matech 1 and Matech 2. Under that agreement,
the parties intend to effect a reverse merger of SecurFone into Matech 1
immediately after

<PAGE>

this distribution. In March 1997, in accordance with the Stock Purchase
Agreement, Matech 1's Board of Directors authorized assignment of all of its
assets and liabilities to the Company. The $172,418 in assets included four
patents and liabilities totaling $493,146 as of March 31, 1997.

In exchange for Matech 1's business, on March 9, 1997, the Company authorized
issuance of 5,560,000 shares its Class A Common Stock to Matech 1 who is
distributing 5,000,000 shares to its shareholders of record as of the date of
this Prospectus. The distribution keeps Matech 1's former business, now the
Company's business described in this Prospectus, separate from SecurFone's
business that Matech 1 will enter into on closing the reverse merger.
Accordingly, 405 public shareholders of record of Matech 1 as of the date of
this Prospectus are receiving 369,172 shares of the Company's Class A Common
stock, approximately 6.6%. Control persons and affiliates will own 4,630,828
shares, approximately 83.3%, with Robert M. Bernstein, President and Chief
Executive Officer of the Company receiving 2,936,130 of these shares,
approximately 52.8%. Matech 1 will retain 560,000 shares, approximately 10.1%
of the outstanding shares.

THE BUSINESS

On July __, 1997, Matech 1 assigned all of its assets and liabilities to the
Company including four patents, together with all related know-how, on a device
known as the Fatigue Fuse and its license agreement with the University of
Pennsylvania to exploit the Electrochemical Fatigue Sensor ("EFS"). Although
the Company believes the Fatigue Fuse is in its final stage of testing and
development, no commercial application has been arranged to date and no
assurance can be given that the Company will successfully market it. The
Company requires $5,000,000 to complete development and marketing of its
products including paying overhead and accrued debts. It requires approximately
$2,000,000 to finish testing and developing the Fatigue Fuse and to commercially
produce and market it. The Company estimates that approximately $2,875,000 will
be required to complete research and development of the EFS. SEE, Plan of
Operations.

The Company has a teaming agreement with Southwest Research Institute ("SWRI")
and the University of Pennsylvania (collectively the "Team"). On February 25,
1997, the United States Air Force awarded the Team a $2.5 million Phase I
contract to "determine the feasibility of [the Company's EFS] to improve the
United State Air Force capability to perform durability assessments of military
aircraft, including both air frames and engines through the application of EFS
to specific military aircraft alloys." The Company is a subcontractor to SWRI
and its share of this award is approximately $550,000 for which the Company will
perform certain technical tasks in accordance with its expertise.

The Company is seeking additional funding through (1) additional government
grants, (2) private financing, and (3) public financing to finish development of
its Fatigue Fuse and the EFS. If all required funds were received today, the
Company estimates that six to twelve months would be required to bring the
Fatigue Fuse to market and two years would be required to bring the EFS to
market. The Company will expend monies it receives from any financing as they
are received.

<PAGE>

Therefore, the time necessary to bring each of these products to market will be
lengthened as the Company is required to stretch out and complete work depending
on the availability of funds. No assurance can be given that all or part of
these funds will be raised. Assuming the products are successfully tested and
developed, however, competition or other significant risks may prevent the
Company from successfully marketing one or both of these products.

THE DISTRIBUTION

SECURITIES DISTRIBUTED: 369,172 shares of Class A Common Stock. As of the date
of this Prospectus, one share of Matech 2's Class A Common Stock will be
distributed for each share of Matech 1 Class A Common Stock owned on the record
date which will be the date of this Prospectus. Within two weeks after the date
of this Prospectus, which will be the effective date of the spin-off of Matech 2
from Matech 1, stock certificates in Matech 2 will be mailed to shareholders.
No shareholder action is required. After the distribution, Matech 1 will
reverse split its 5,000,000 outstanding shares, 1 for 10, leaving approximately
500,000 shares outstanding. Fractional shares will be rounded up. Thus,
stockholders owning less than ten Matech 1 shares will still receive one share
of Matech 1 in the reverse split.

It is management's understanding that the distribution will be a taxable
dividend to Matech 1's shareholders. Matech 1 shareholders will be required to
include in their taxable ordinary income for the taxable year in which the
distribution is received, the fair market value of the Company's Stock
distributed to them. The Company's Board of Directors has determined that the
value of its Common Stock is $.001 per share. This value was determined due to
the lack of marketability of the Company's stock, as well as the Company's
negative net worth and its predecessors' history of accumulated losses. There
can be no assurance that the Internal Revenue Service (the "Service") or other
taxing agency will not assert a higher value, resulting in greater tax liability
to Matech 1's shareholders as a result of this distribution.

COMMON STOCK OUTSTANDING

Before and After This Distribution: 5,560,000 shares of Class A Common Stock
and 60,000 shares of Class B Common Stock.

WARRANTS OUTSTANDING:

BEFORE AND AFTER THIS DISTRIBUTION: 1,700,000 Warrants each to purchase one
share of Class A Common Stock for $.50 per share until August 22, 1999. (Note
12 a to Financial Statements.)

VERY HIGH RISK FACTORS

THE SHARES BEING DISTRIBUTED HEREBY ARE HIGHLY SPECULATIVE AND ARE SUBJECT TO
MANY SIGNIFICANT RISKS.

CESSATION OF THE COMPANY AS A GOING CONCERN

<PAGE>

The Company's independent auditor has issued an opinion that the recurring
losses from operations raise substantial doubt about the Company's ability to
continue as a going concern. The Company may have to cease operations and go
out of business if it does not raise sufficient additional capital. The
business of the Company sustained operating losses on a consolidated basis
totaling $2,832,869 from inception through December 31, 1996, and $2,912,828
through March 31, 1997. The Company has no current product to market and must
rely on loans and investment capital to meet its current obligations and
continue its operations. If necessary funds are not raised, Management will be
forced to discontinue operating and liquidate the Company. Most of the Company's
liabilities are contingent on raising funds or selling Fatigue Fuses or
Electro-Chemical Fatigue Sensors. No lenders will be required to consent to
additional financings. The Company was in default on an agreement with the
University of Pennsylvania, but that default has been cured with a
modification agreement. The Company is in default on a $25,000 loan from
Sherman Baker, but expects to obtain an extension of that loan as Mr. Baker
is a substantial investor in the Company and has not given notice of default.

NO OPERATING HISTORY

The Company has no established history of business operations, has not generated
any sales revenue, and is in the early stage of development.

NO ASSURANCE OF PRODUCT DEVELOPMENT; NEED FOR ADDITIONAL RESEARCH AND
DEVELOPMENT; MARKET UNCERTAINTY

The Company's products are in the research, development, and testing stage.
Unexpected problems, technological or specifications changes (1) may make the
technologies obsolete, (2) may affect the products' overall feasibility, or (3)
may delay completion and increase costs of research, development, and testing.
The time required to bring one or both products to market is uncertain. Market
acceptance cannot be determined until product development is complete.

LIMITED CURRENT ABILITY TO MARKET PRODUCTS

The Company's operating results will depend on its ability to market its
products. Its present marketing capability is limited to contacts of its
officers, directors, and consultants and is unproved. It has yet to establish 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 its ability to bring its products to
market and continue operating.

LACK OF EMPLOYEES

The Company has only three (3) employees, Robert M. Bernstein, President,
John Goodman, a part-time engineer, and a secretary. John Goodman recently
returned as the Company's chief engineer after a two year hiatus while the
Company sought funding. There is a substantial risk that the Company may not
have funds to hire additional employees that may be needed to complete the
development and marketing of its products.

DEPENDENCE ON MANAGEMENT CONSULTANTS AND ADVISORS

The Company's success largely depends on the performance of its President
and Chief Executive Officer, Robert M. Bernstein, its consultants, and
advisors. Failure to attract and retain key consultants, advisors, and
employees with necessary skills could have a materially adverse impact on the
Company's ability to bring its products to market and continue operating.
The Company has an Advisory Board, the members of which serve without
compensation. The Company intends to issue these members 18,000 shares of
Class A Common Stock each, if and when the Company obtains substantial
funding but has no obligation to do so. The Company has no contracts with its
advisors or any consultants. The Company's advisors have advised the
Company's President for more than five years without compensation other than
common stock that they received more than five years ago. Each advisor has an
area of expertise based on his background. For example, Alexander Adelson
personally holds 64 patents and has advised the Company with respect to
applying for and maintaining its patents. Others have extensive experience
with aircraft, bridges, and metal fatigue technology. SEE, "Advisory Board",
INFRA. To date these advisors have been willing to provide advice based on
their expertise when needed on an ad hoc basis generally consisting of
telephone conferences ranging from once a month to several times in a week.
There is a risk that these advisors will no longer be willing to advise the
Company without compensation and that the Company will not have the funds to
retain them. Loss of these advisors would seriously impair the Company's
ability to develop and market its products.

COMPETITION FROM OTHER TECHNOLOGIES

<PAGE>

The metal fatigue measuring industry has significant competition. Other
technologies exist which can indicate the presence of metal fatigue damage.
Single cracks larger than a certain 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, 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 also offer the advantage that they have
been accepted in the marketplace, whereas the Company's products will remain
largely unproved for some currently indeterminable period of time. Other
companies with greater financial and technical resources and larger marketing
organizations than the Company pose a potential threat if they commence an
effort to compete in the Company's market segment. The Company is unaware of
any other companies developing technology similar to the Company's technology
and the Company's patents protect its unique technologies. On the other hand,
the companies marketing alternative technologies include Magnaflux
Corporation, Kraut-kremer-Branson, Dunegan-Endevco, and MicroMeasurements.
These companies have more substantial assets, greater experience, more human
and other resources than the Company, 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.
See, "Description of Technologies" and "Competition".

PATENT PROTECTION MAY BE INADEQUATE

The Company relies on patents to protect its interests in its products. In the
event of a patent infringement, the costs to the Company to enforce its rights
may be substantial whether or not enforcement is successful. Moreover, there
can be no assurance that the Company will have sufficient funds to attempt to
protect its patents from infringement.

POSSIBLE LOSS OF PATENTS TO SECURED LENDERS

The Company's patents are encumbered by certain liabilities as described
under the heading, "Description of Technologies" and "Business". If the
Company fails to discharge its obligations under those liabilities, it may
lose its interests in the patents or certain rights to exploit the technology
to certain lenders including Robert M. Bernstein, a principal shareholder,
Director and Chief Executive Officer. See "Management - Certain
Transactions." The Company is not in default on any of its indebtedness
secured by patents or out of compliance with any covenants of such
indebtedness. Most of the Company's liabilities are contingent on raising
funds or selling Fatigue Fuses or Electro-Chemical Fatigue Sensors. No
lenders will be required to consent to additional financings through
indebtedness. The Company was in default on its agreement with the University
of Pennsylvania, but that default has been cured with a modification
agreement.

NEED FOR ADDITIONAL FINANCING; LIKELY NEGATIVE CASH FLOW

If the Company fails to raise additional funds necessary for the research,
development, and testing from either government grants, the sale of securities,
borrowings, or other sources, it will not have a product for a potential market
and stockholders will have no possibility of any financial return or economic
benefit from their ownership of shares. Even if the necessary $5,000,000 is
raised and research, development, and testing is completed, no assurance can be
given that the results will establish that the products will be marketable.
Moreover, no assurance can be given that the products can be produced at a cost
which will make it possible to market them at a commercially feasible price.
The Company is likely to have negative cash flow through at least March 31,
1998. Over the next 24 months, $5,000,000 is required to complete research and
development of both products and market them. If the Company does not
successfully raise these funds, it may be compelled to halt all operations
resulting in complete loss of share value.

VERY SUBSTANTIAL DILUTION

<PAGE>

If the Company raises funds through a securities offering, the shares being
distributed may be subject to very substantial dilution of voting control and
percentage ownership of the Company.

NO PUBLIC MARKET FOR SHARES; SALES OF COMMON STOCK

The failure to develop a public market for the shares of the Company could have
a significant adverse impact on the Company's ability to obtain financing in the
future. The 369,172 shares of common stock being distributed to Matech 1
shareholders may be resold by those shareholders. The fact that these shares
are eligible for sale could adversely affect the Company's ability to sell
Shares in future financings by means of a public offering of shares, since any
potential underwriter would have to be concerned about shareholders offering
shares of the Company's stock for sale at prices lower than that at which an
underwriter might offer such stock. These shares may be immediately sold if a
public market develops and the effect of having these shares eligible for sale
in any market cannot be determined, but may be depressive.

Presently there are no market makers in the Company's stock and thus no
public market for purchase and sale of the Company's stock. The Company
intends to encourage trading of the Shares on the National Association of
Securities Dealer's Bulletin Board. The Company cannot predict the prices at
which the Shares may trade, if at all. Over the last year, Matech 1's Class
A Common Stock has been quoted and traded at prices ranging from $2.50 per
share to $5.37 per share with 4 market makers. It is likely that any
substantial selling into the market would cause a substantial decrease in the
quoted price of these shares because of the thin trading market. Matech 1's
trading volume ranged from 2,800 shares in all of October 1996 to 90,300
shares in December 1996 after Matech 1 announced the signing a Letter of
Intent with SecurFone America, Inc. for the reverse merger. At that time,
the price increased from $2.50 per share to $4.73 per share on January 6,
1997. As this January 6, 1997 price reflected the market's view of the
reverse merger as well as supply and demand, the Shares being distributed are
likely to trade, if at all, substantially below that price.

IMPEDIMENTS TO OBTAINING ADDITIONAL FINANCING

Under modified agreements with the University of Pennsylvania and an agreement
with an unrelated third party, Stephen Forrest Beck, a Los Angeles investment
banker, the Company must pay to them a percentage of amounts raised from
financing other than from government contracts. The Company must pay the
University 30% of any such financing up to $200,000 and pay Mr. Beck 12.5% of
the first $1,000,000 raised and 15% of any amount over $1,000,000 until $375,000
is paid. In addition, the Company is obligated to pay royalties totaling 37% on
revenues received from the sale of the Fatigue Fuse and 10% of revenues received
from the sale of the EFS. These commitments are likely to increase the
difficulty in finding third party financing. Underwriters and other financing
sources are less likely to agree to finance the Company's research and
development of its technologies if these amounts must be paid out rather than
used for additional research and development. SEE, Notes 6, 10 f, and 10 g to
the Financial Statements and "Agreements and Royalty Obligations".

SALARY BENEFIT TO MR. BERNSTEIN FROM FUTURE FINANCING

<PAGE>

As of March 31, 1997, the Company was indebted to Robert M. Bernstein in the
amount of $45,000 for accrued salary. If the Company raises additional funds,
it will retire all or part of this debt to Mr. Bernstein. Subject to approval
by the Board of Directors, the Company intends to enter into an employment
agreement with Mr. Bernstein, commencing the first full month after it raises at
least $500,000 at the rate of $200,000 per year. As a result, Mr. Bernstein is
likely to derive a substantial PERSONAL benefit if the Company obtains
additional financing.

SUBSTANTIAL ROYALTY OBLIGATIONS

Over the years, to finance development of the Fatigue Fuse and Electrochemical
Sensor, the Company's predecessors sold substantial royalty rights to others.
As of the date of this Prospectus, the Company was obligated to pay royalties to
others totaling 37% of revenues from sales of its Fatigue Fuse and 10% of
revenues from sales of its EFS. If these products are manufactured and sold,
these royalty obligations will substantially lower the funds available to the
Company from revenues. See, Note 10g to the Financial Statements.

NO DIVIDENDS LIKELY

The Company has never paid any dividends and will not pay dividends for the
foreseeable future.

RISK OF NEW PRODUCT AND TECHNOLOGY

The manufacturing and marketing of the Company's products which incorporate new
technology, has inherent risk. It is uncertain how each product will operate
over time and under various conditions of use. Even if one or both products are
successfully developed, manufactured, and marketed, warranty or product
liability, or lack of market acceptance due to product failure or failure to
meet expectations, could prevent the Company from becoming profitable.
Developing new technologies for manufacture is frequently subject to unforeseen
expenses, difficulties, and complications and, in some cases, such development
cannot be accomplished.

ROBERT M. BERNSTEIN'S CONTINUING CONTROL OF THE COMPANY

Mr. Bernstein owns 60,000 shares of Class B stock, each of which has 200 votes
per share and also owns 2,936,130 shares of the Company's Class A common stock
representing 52.8% of such shares. Thus, in any shareholder vote, Mr. Bernstein
has 14,936,130 votes out of a possible 17,910,015 votes equal to 83.4% voting
control of the Company. Mr. Bernstein overwhelmingly controls the Company's
direction and management. The Company's 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.

ROBERT M. BERNSTEIN'S CONFLICTS OF INTEREST

Mr. Bernstein controls the Company as its majority stockholder, its President,
Chief Financial Officer, and its Chairman of the Board. He has conflicts of
interest as follows: (1) he received

<PAGE>

2,936,130 shares of the Company's Class A Common Stock as a result of (a)
converting a convertible note into 580,000 shares and (b) Matech 1 deciding to
issue him an additional 1,499,454 shares in satisfaction of his accrued salary
as of December 31, 1996, totaling $372,000. These shares increased his
percentage of the business from 36.5% to 52.8%; (2) the Company owes him
$12,846 plus accrued salary of $45,000 through March 31, 1997. If sufficient
funds are raised, he will be paid these amounts; (3) he may receive a future
salary of $200,000 per year; and (4) he has a lien on the Company's patents
giving him the right to foreclose on them if loans that he made to the Company
are not repaid. Mr. Bernstein's right to foreclose means that, if the Company
fails, he could potentially profit by gaining personal control of the Company's
technology. On the other hand, as a director, officer, and controlling
shareholder, Mr. Bernstein owes a fiduciary duty to the Company and its
shareholders to act in the Company's and shareholders best interests.

IMPEDIMENTS TO RESALE FROM PENNY STOCK REGULATIONS

The Securities and Exchange Commission (the "SEC") has adopted regulations which
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, the broker dealer must make a delivery, prior to the transaction, of a
disclosure schedule prepared by the SEC relating to the penny stock market. The
broker dealer also must disclose the commissions payable to both the broker
dealer and the registered representative, current quotations for the securities,
and, if the broker dealer is the sole market maker, the broker dealer must
disclose this fact and the broker dealer's presumed control over the market.
Finally, monthly statements must be sent out 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 the Company's securities and may affect the
ability of purchasers in the offering to sell the Company's securities in the
secondary market.

POSSIBLE TAX LIABILITY OF THE DISTRIBUTION

RIGHTS OF TENSIODYNE CORPORATION AS CLASS B PREFERRED STOCKHOLDER

<PAGE>

Fifteen (15) shares of Class B Preferred Stock have been issued to Tensiodyne
Corporation in exchange for canceling its 15 Class B Preferred shares in Matech
1. In the event of liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, Tensiodyne as holder of Class B Preferred
Stock will be entitled to receive $10,000 per share as a liquidation preference
or a total of $150,000. This liquidation preference is senior to liquidation
rights of all other classes of stock except the Class A Preferred's liquidation
rights. This provision may have the effect of delaying, deferring or preventing
a change in control. In addition, after January 31, 2002, Tensiodyne will have
the option to redeem its shares at any time for $150,000. In addition,
Tensiodyne as a holder of Class B Preferred Stock, has the right to receive cash
dividends, which are determined pursuant to a formula in the Certificate of
Designation. That formula reads as follows: "Each time a cash dividend is paid
on the Common Stock there shall also be paid with respect to each outstanding
share of Class B Preferred Stock an amount determined by multiplying the
aggregate amount of the dividend paid with respect to the Common Stock by a
fraction (i) the numerator of which is 3,214,480 and (ii) the denominator of
which is the number of shares of Common Stock on which the dividend was paid,
and (x) multiplying the resulting product by thirty percent (30%) and then (y)
dividing the resulting product by five hundred and ten (510)."

CAPITALIZATION

The following sets forth the Company's pro forma capitalization as of March 31,
1997, as if the transfer of assets and liabilities from Matech 1 to the Company
had taken place on that date.

- --------------------------------------------------------------------------------
Short Term Debt $468,146
- --------------------------------------------------------------------------------
Long Term Debt $25,000
- --------------------------------------------------------------------------------
TOTAL LIABILITIES $493,146
- --------------------------------------------------------------------------------
REDEEMABLE CLASS B PREFERRED STOCK $150,000
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Class A Common Stock, $.001 Par Value, Authorized 10,000,000
Shares, Outstanding 5,560,000 shares. $5,560
- --------------------------------------------------------------------------------
Class B. Common Stock, $.001 Par Value, Authorized
300,000 Shares, Outstanding 60,000 Shares $60
- --------------------------------------------------------------------------------
Class A Preferred Stock, $.001 Par Value, Authorized
9,999,490 Shares, Outstanding 350,000 Shares $350
- --------------------------------------------------------------------------------
Additional Paid in Capital $2,458,794
- --------------------------------------------------------------------------------
Less Notes and Subscriptions Receivable - Common Stock ($36,464)
- --------------------------------------------------------------------------------
Deficit Accumulated During the Development Stage ($2,912,828)
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS EQUITY (DEFICIT) ($470,728)
- --------------------------------------------------------------------------------

DIVIDEND POLICY

The Company and its predecessors have never paid cash dividends. Management
does not intend to pay dividends in the near future and any dividends paid will
depend on the Company's future

<PAGE>

earnings and working capital requirements. Currently, there are no contractual
restrictions placed on the Company in terms of declaring and paying dividends.

DILUTION

There will be no dilution of stockholder equity as a result of this
distribution. There was, however, a substantial dilution of stockholder's
percentage interest in the Company's business as a result of Matech 1 issuing
stock in relation to the Stock Purchase Agreement. See, "Stock Purchase
Agreement" for a schedule of shares issued. Prior to Matech 1 entering into the
Stock Purchase Agreement on February 17, 1997, there were 2,580,546 shares of
Matech 1's Class A Common Stock outstanding with 327,911 shares in the hands of
public shareholders representing 12.7% of the outstanding shares. As a result
of the issuance of shares in connection with this transaction, the Company now
has 5,560,000 shares outstanding. Accordingly, the percentage interest of
Matech 1's public shareholders in the Company's business after this distribution
will decrease from 12.7% to 5.9% resulting in a 46.5% reduction in each
shareholders percentage interest in the Company's business. On the other hand,
each shareholder will also have a small percentage interest in the business of
SecurFone America, Inc.

SELECTED FINANCIAL INFORMATION

On March 9, 1997, the Company authorized issuance of 5,560,000 shares of its
Class A Common Stock to Matech 1, 60,000 shares of its Class B Common Stock to
Robert M. Bernstein, 350,000 shares of its Class A Convertible Preferred Shares
to Matech 1's Convertible Preferred Shareholders in exchange for their Matech 1
Convertible Preferred, and 15 shares of its Class B Convertible Preferred Shares
to Matech 1's Class B Convertible Preferred Shareholder, Tensiodyne Corporation.
In consideration for assuming all of Matech 1's liabilities and obligations, the
Company will receive all of the assets of Matech 1 as of the effective date of
the exchange, twenty-one days after an information statement is mailed to
shareholders of Matech 1. The Company is presenting in its financial statements
the activity of Matech 1, as the Company continues substantially in the same
line of the business including all of its assets and liabilities. The selected
financial data of the Company are derived from the consolidated financial
statements of Matech 1. The selected financial data should be read in
conjunction with the Company's financial statements included elsewhere in this
prospectus.

- -------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ending December 31 Three Months Ending Inception to
March 31 March 31
- -------------------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1996 1997 1997
(Unaudited) (Unaudited) (Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales 0 0 0 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From $(51,180) ($714,605) $(377,063) $(197,546) $(483,186) $(150,541) $(87,649) $(2,912,828)
Continued Operations
- -------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From $(.17) $(.016)
Continued Operations
Per Common Share
- -------------------------------------------------------------------------------------------------------------------------------
Common Shares 2,580,546 5,560,000
Outstanding
- -------------------------------------------------------------------------------------------------------------------------------

<PAGE>

- -------------------------------------------------------------------------------------------------------------------------------
Total Assets $178,944 $167,858 $184,579 $150,692 $208,299 $165,481 $172,418 $172,418
- -------------------------------------------------------------------------------------------------------------------------------
Total Liabilities $46,481 $401,600 $620,375 $783,882 $832,926 $914,049 $493,146 $493,146
- -------------------------------------------------------------------------------------------------------------------------------
Redeemable Preferred 0 0 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000
Stock
- -------------------------------------------------------------------------------------------------------------------------------
Total Stockholders $132,463 $(619,166) $(585,796) $(783,190) $(988,218) $(898,568) $(470,728) $(470,728)
Equity (Deficit)
- -------------------------------------------------------------------------------------------------------------------------------
Dividends 0 0 0 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------------------

</TABLE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion should be read in conjunction with "Selected Financial
Data" and the Company's financial statements and notes thereto contained
elsewhere in this Prospectus.

BACKGROUND

The Company's predecessors were engaged in developing and testing the Fatigue
Fuse and developing the EFS. The majority of funds used in operations,
development and testing were raised through sales of future royalty interests in
the Company's products and private offerings of common and preferred stock.

The Company was formed on March 4, 1997, as a subsidiary of Matech 1, a Delaware
corporation. On March 9, 1997, in accordance with a February 17, 1997 Stock
Purchase Agreement among Matech 1, Montpilier Holdings, Inc., SecurFone America,
Inc., ("SecurFone") and Robert M. Bernstein, (the "Stock Purchase Agreement")
Matech 1 agreed to assign all its assets and liabilities to the Company
including all Patents and know-how relating to the Fatigue Fuse and the
Electrochemical Fatigue Sensor in exchange for 5,560,000 shares of the Company's
Class A Common Stock. Matech 1 also agreed to distribute 5 million of these
5,560,000 shares to its shareholders thereby spinning off the Company. Upon
completing this distribution, Matech 1 will own 560,000 shares of the Company's
Class A common stock. From its inception through 1993, Tensiodyne Corporation
developed the Fatigue Fuse. In August 1993, Tensiodyne licensed the rights to
develop and exploit the EFS from the University of Pennsylvania. In February
1994, Matech 1 acquired all of the assets and liabilities of Tensiodyne in a
reorganization that resulted in Matech 1 distributing shares to Tensiodyne'
shareholders in January 1996 as part of transactions similar to the transactions
contemplated by the Stock Purchase Agreement.

The following discussion of results of operations, capital resources, and
liquidity pertains to the Company's consolidated activity for the three years
ended December 31, 1994, 1995, and 1996.

RESULTS OF OPERATION FOR THE FISCAL YEARS ENDED DECEMBER 31, 1994, 1995, AND
1996

Revenues

<PAGE>

The Company's predecessors did not generate any significant revenues in 1994,
1995, or 1996. In 1996, Matech 1 received $12,275 in expense reimbursements,
$2,427 as interest income, and $17,750 from the sale of 50,000 shares of
Tensiodyne Corporation stock. In 1995, Matech 1 generated interest income of
$1,928 and $4,375 of miscellaneous income. In 1994 Matech 1 generated interest
income of $1,785.

Costs and Expenses

In 1996, research and development costs were $10,700 compared to $15,104 in
1995, $83,360 in 1994, and $330,112 in 1993. In 1993, funds were available for
development. Since that time, substantial funds have not been available. In
1996, $10,000 was paid to the University of Pennsylvania to reimburse it for
costs related to maintaining patents for the EFS. The remaining $700 was for
testing the Fatigue Fuse. In 1995, the Company spent $12,359 for testing the
Fatigue Fuse and spent the remainder for consulting fees of $2,745 related to
that testing. In 1994, the majority of research and development costs was the
salary of Matech 1's in-house engineer totaling $71,096 and testing costs of
$7,263. In 1993, research and development costs included $188,495, which is the
present value of the Company's obligation to sponsor the development of the EFS
with the University of Pennsylvania. Also included in research and development
for 1993 is the salary of the Company's engineer totaling $53,288 and testing
costs of $76,843.

General and administrative costs were $466,286, $188,745, and $295,488 for 1996,
1995, and 1994, respectively. In 1996, the major costs were $200,000 of accrued
salary to the Company's President, Robert M. Bernstein, and $86,633 in legal
fees to (a) represent the Company in contract negotiations with SWRI which
resulted in a teaming agreement and subcontract with SWRI relating to a
government research contract from the U. S. Air Force, (b) complete Matech 1's
January 1996 S-1 registration statement, (c) negotiate the Stock Purchase
Agreement, and (d) preserve the Company's patents. In addition, in the
Company's ongoing effort to raise funds, it incurred costs of $34,632 for
various consultants, $21,902 for travel and entertainment, $21,766 for
telephone, $17,526 for accounting, $29,017 for office rent and $14,454 for
office expenses.

The major costs incurred in 1995 were $56,170 related to attempts to find
funding for research and development including $28,298 for travel and
entertainment expenses, $15,362 in professional fees, and $12,510 in
professional services. In addition, $31,480 was incurred for costs related to
the S-1 Registration statement filed on January 19, 1996, 28,514 for office
rent, $20,696 for accounting fees, $19,751 for telephone and $10,871 for
interest.

In 1994, the major costs were the President's salary of $72,000, which was
accrued and not paid, professional fees of $55,824, office related expense of
$32,206, travel costs of $36,991, rent of $16,169, and utilities of $23,023.
The professional fees were for negotiating and consummating the spin off of
Matech 1 and the audit of the 1993 financial statements.

LIQUIDITY AND CAPITAL RESOURCES

As reflected in the numbers below, over the past three years, to continue
seeking capital and to maintain its patents, the Company's predecessor was
totally dependent on the willingness of the

<PAGE>

Company's President, Mr. Bernstein, and long time investors in the Company to
loan the Company money or purchase additional securities from the Company. Over
the next 18 months, the Company expects to receive approximately $550,000 from a
subcontract with SWRI relating to its research contract that the United States
Air Force awarded to SWRI on February 25, 1997. These funds, however, are not
guaranteed but rather the Company's best estimate based on SWRI's contract with
the Air Force and the Company's subcontract with SWRI. Moreover, these funds
are only a beginning, the Company estimates an additional $5,000,000 will have
to be raised to complete research and development and bring its products to
market. Although, Mr. Bernstein intends to continue to loan the Company funds
as required to seek additional financing, he is under no obligation to do so.
The Company does not expect to receive any additional material financing from
its other long time investors.

Although the Company has provided information to various investment bankers and
venture capitalists in an effort to obtain financing, no specific plans are
under consideration. Any prediction of the likelihood or timing of obtaining
the required funding would be highly speculative. The Company's ability to
obtain such financing may depend on the results of the research contract with
SWRI which will not be evident for a year or more.

The Company expects to receive $120,000 from SecurFone America, Inc. under the
Stock Purchase Agreement which will provide the Company additional working
capital. The Company expects that its subcontract with SWRI to conduct research
on the EFS will provide operating funds until approximately August of 1998.

As of December 31, 1996, cash and cash equivalents were 0. During 1996, the
Company received $242,290 including $170,040 for the issuance of Class A common
stock under the Company's 1996 Stock Option Plan, a $43,250 loan from the
President, and a $25,000 loan from an unrelated third party. Of the $242,290
received, $64,676 repaid loans from the President, $5,000 paid legal fees in
connection with the S-1 Registration Statement, and the remaining $172,614 was
used in operations.

Cash and cash equivalents as of December 31, 1995, was $1,226. During 1995,
the Company received $158,874 including $100,874 as a loan from the President
and $58,000 as a loan from a third party. Of the $158,874, $16,000 repaid loans
from the President and the remaining $142,874 was used in operations.

Cash and cash equivalents as of December 31, 1994, was 0. During 1994,, the
Company received $24,787 from its officers on the sale of its Class A Common
Stock, $140,000 from the sale of its redeemable Class B Preferred Stock,
$135,050 from officer loans, and $78,495 from third party loans. Of the
$346,852 received during 1994, $275,441 was used in operations and $31,480 was
paid in fees relating to the preparation and filing of the S-1 registration
statement and $78,446 was repaid to the Company's officer.

MARKET INFORMATION

Currently there is no established public trading market for any of the Company's
securities.

<PAGE>

As of the date of this Prospectus the Company has issued 5,560,000 shares of its
Class A Common Stock to Matech 1 in exchange for all of Matech 1's assets and
the Company has assumed all of Matech 1's liabilities. As of the date of this
Prospectus, Matech 1 is distributing 5,000,000 shares of the Company's Class A
Common Stock to its shareholders of record, approximately 405 shareholders on a
pro rata basis, one share of the Company's Class A Common for each share of
Matech 1 Class A Common held of record as of the date of this Prospectus. Only
369,172 shares, however, are registered with the Securities and Exchange
Commission. The remaining 4,630,828 shares are being distributed as restricted
stock to affiliates of the Company and 560,000 shares are being retained by
Matech 1.

As of the date of this Prospectus, the Company has issued 60,000 shares of its
Class B Common Stock to one shareholder, Robert M. Bernstein.

BUSINESS

THE COMPANY

Material Technologies, Inc., a development stage company, was incorporated in
the State of Delaware on March 4, 1997. The Company's principal offices are
located at 11835 West Olympic Boulevard, East Tower, Suite 705, Los Angeles,
California 90064.

BACKGROUND

Prior to February 1994, Matech 1 was a majority-owned subsidiary of Tensiodyne
Corporation, a Delaware corporation ("Tensiodyne") and was named Tensiodyne
Scientific Corporation. Although in 1994 Tensiodyne Scientific Corporation
changed its name to Material Technology, Inc., to provide continuity especially
in its attempts to obtain government funding, the corporation continued to do
business as Tensiodyne Scientific Corporation. The Company also does business
under this name.

From approximately October 1983 until February 1994, Tensiodyne was engaged in
the development for commercial exploitation of a device generally known as the
Fatigue Fuse, a device designed to give early warning of metal fatigue, where
such information is of significance. See "Description of Technologies." On
August 26, 1993, Tensiodyne entered into a license agreement with the University
of Pennsylvania whereby the University licensed to Tensiodyne the right to
develop and exploit the Electrochemical Fatigue Sensor ("EFS"). On December 20,
1993, Tensiodyne agreed to assign to Matech 1 all of Tensiodyne's assets,
including but not limited to the four patents pertaining to the Fatigue Fuse and
the license agreement with the University of Pennsylvania, in exchange for the
assumption of all of Tensiodyne's liabilities. As a result of that agreement
and reorganization, after February, 1994, Matech 1 succeeded to all of the
operations and liabilities of Tensiodyne relating to the Fatigue Fuse and the
EFS. On January 22, 1994, Tensiodyne's board of directors resolved to transfer
its assets and liabilities to Matech 1 and distribute, to Tensiodyne's holders
of record at the close of business on February 1, 1994, one share of the Matech
1's Class A Common Stock for each share of Tensiodyne Class A

<PAGE>

Common Stock. That distribution was subsequently made pursuant to an S-1
registration statement filed with the Securities and Exchange Commission
effective on January 19, 1996.

From February 1994 to February 1997, Matech 1's primary activity was to obtain
financing to complete development of the Fatigue Fuse and to fund research and
development of the EFS. That effort resulted in a February 25, 1997, $2.5
million research contract between the United States Air Force and Southwest
Research Institute ("SWRI"). SWRI is subcontracting part of the research to the
Company under an August 23, 1996 Teaming Agreement between SWRI, Matech 1, and
the University of Pennsylvania. The subcontract with SWRI will provide the
Company with operating funds to approximately August 1998. SEE, "Development of
Technologies", INFRA.

THE STOCK PURCHASE AGREEMENT

As of February 17, 1997, Matech 1 entered into a Stock Purchase Agreement with
Montpelier Holdings, Inc., ("MHI") SecurFone America, Inc., ("SecurFone") and
Robert M. Bernstein, the Chief Executive Officer and controlling shareholder of
both Matech 1 and Matech 2. Under that agreement, the parties intend to effect
a reverse merger of SecurFone into Matech 1 immediately after this distribution.
Upon closing, SecurFone's shareholders will acquire 90% of Matech 1's
outstanding capital stock in exchange for 100% of SecurFone's outstanding
capital stock. Matech 1 also issued 2,319,454 shares of its Class A Common
Stock so that the total number of shares outstanding was increased from
2,680,546 shares to 5,000,000 shares as follows:

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Description Number of Shares Issued Number of Shares Issued
to all Shareholders to Robert M. Bernstein
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding as of March 9, 1997 2,680,546 916,676
- ----------------------------------------------------------------------------------------
Issued to Robert M. Bernstein in 1,499,454 1,499,454
lieu of $372,000 in accrued salary
- ----------------------------------------------------------------------------------------
Issued to Robert M. Bernstein for 520,000 520,000
$108,000 Note
- ----------------------------------------------------------------------------------------
Issued to the Baker Group for 280,000 0
$58,000 Note
- ----------------------------------------------------------------------------------------
Issued to C. Timothy Smoot, Esq.
Matech 1's Counsel for 20,000 0
Services in 1995 and 1996
- ----------------------------------------------------------------------------------------
TOTAL ISSUED 2,319,454
- ----------------------------------------------------------------------------------------
TOTAL OUTSTANDING 5,000,000 2,936,130
- ----------------------------------------------------------------------------------------
</TABLE>

After the issuance of these shares, Robert M. Bernstein owned 58.7% of Matech
1's outstanding Class A Common Stock; the Baker Group, a group of 15 long
time investors in the business, owned 883,768 shares representing 17.7% of
Matech 1's outstanding Class A Common Stock; and C. Timothy Smoot Esq. owned
20,000 shares representing .004% of such outstanding shares.

The Company was incorporated on March 4, 1997, for this transaction. On March
9, the Company's Board authorized the issuance of 5,560,000 shares of its Class
A Common Stock to Matech 1 in exchange for all of Matech 1's assets and
liabilities. It also issued (a) 60,000 shares

<PAGE>

of its Class B Common Stock to Robert M. Bernstein in exchange for cancellation
of his 60,000 shares of Class B Common Stock in Matech 1, (b) 350,000 shares of
its Class A Convertible Preferred Stock to the Baker Group in exchange for
cancellation of that group's 350,000 shares of preferred stock in Matech 1, (c)
15 shares of the Company's Class B Preferred Stock to Tensiodyne Corporation in
exchange for cancellation of its preferred stock in Matech 1, and (d) 1,700,000
warrants to purchase 1,700,000 shares of the Company's Class A Common Stock for
$.50 per share in exchange for cancellation of like warrants to purchase Matech
1's common stock. The rights, privileges, and designations of the Company's
Class B Common Stock, warrants, and its preferred stock are the same as the
corresponding Matech 1 securities except that the redemption date of the
Company's Class B Preferred Stock was changed from January 31, 2004 to January
1, 2002.

On March 9, 1997, Matech 1's Board authorized the exchange of its assets and
liabilities for 5,560,000 shares of the Company's Class A Common Stock. That
transaction was approved by the majority of Matech 1's shareholders and an
information statement was mailed to Matech 1's shareholders who did not vote on
the transaction. The transaction took effect 21 days after that mailing.
Matech 1 also agreed to distribute 5 million shares of the Company's Class A
Common Stock to Matech 1's shareholders in a ratio of one for one. This public
distribution is part of that distribution. Matech 1 retains 560,000 shares of
the Company's Class A Common Stock equal to 10.1% of the outstanding shares.

After the distribution, Matech 1 will reverse split its 5,000,000 outstanding
shares, 1 for 10, leaving approximately 500,000 shares outstanding. Fractional
shares will be rounded up. Thus, stockholders owning less than ten Matech 1
shares will still receive one share in the reverse split.

Matech 1 will then issue 4,500,000 new shares to SecurFone shareholders in
exchange for all of SecurFone's outstanding shares leaving Matech 1's present
shareholders with a 10% interest in SecurFone. SecurFone will pay the Company
$120,000 to cover expenses. Matech 1 will then change its name to SecurFone.
Accordingly, Matech 1's shareholders will retain approximately 90% of their
interest in the Company's metal fatigue technologies business and own 10% of
SecurFone's prepaid cellular and calling card business as well.

SecurFone is a start-up company providing prepaid cellular and telephone line
calling cards. SecurFone utilizes an advanced switching platform to provide
prepaid debit products to telephone customers. SecurFone's principal offices
are in San Diego, California and its primary network facilities are in Miami,
Fl. The purpose of the distribution is to spin-off Matech 2 from Matech 1
allowing Matech 1's shareholders to retain an interest in Matech 1's business,
while keeping that business separate from SecurFone's new business.

The transfer of assets and liabilities to the Company and the distribution of
its shares is designed to provide Matech 1's shareholders with an interest in
SecurFone's business while separating the two businesses which have distinct
missions and distinct financial, investment, and operating characteristics, as
well as different management teams. Maintaining the separation allows the
Company to adopt strategies and pursue objectives appropriate to its specific
business to be valued independently from SecurFone. The distribution enables
the Company's management to

<PAGE>

concentrate its attention and resources on developing its Fatigue Fuse and
Electrochemical Fatigue Sensor without regard to the corporate and financial
objectives and policies of SecurFone. The distribution allows investors to
evaluate better, in accordance with their objectives and views, the different
merits and outlooks of the Company and SecurFone.

AGREEMENTS AND ROYALTY OBLIGATIONS

There are certain outstanding agreements pursuant to which the Company's
predecessors agreed to pay royalties or remuneration based upon revenues derived
from the commercial exploitation of the Fatigue Fuse and the EFS. The Company
has assumed these obligations.

On December 24, 1985, Tensiodyne entered into agreements with Tensiodyne 1985-I
R&D Partnership to provide funding to research and develop the Fatigue Fuse.
These agreements were amended on October 9, 1989. Under these agreements, the
Company is obligated to pay the Partnership a 10% royalty on future gross sales
of the Fatigue Fuse limited to a return of the Partnership's original investment
of $912,500 plus interest at 6% per annum. In the event that the Company ceases
to be engaged in business, the Partnership will have all rights to the Fatigue
Fuse, and will pay a 15% royalty to the Company. SEE, Note 10 a to the
Financial Statements.

In addition, the Company's predecessors entered into an agreement with Advanced
Technology Center ("ATC") pursuant to which, for a grant of $45,000, the Company
must return an amount equal to the grant by means of a royalty based on sales
and sub license agreements. Ben Franklin Technology Center of South Eastern
Pennsylvania succeeded to this interest. The royalty obligation is limited to
the original advance and a return of 11% per annum. As of December 31, 1996,
this future royalty commitment was $119,336 compared to $107,510 as of December
31, 1995. Payment of this obligation will be made solely from Company sales and
is secured by a security interest in and to equipment used by the Company in
developing its technology. SEE, Note 10 b to the Financial Statements.

A similar agreement with the same entity was entered into May 4, 1987, under
which, in consideration for an additional grant of $63,775, ATC purchased a
royalty of 3% of future gross sales and 6% of sub licensing revenues. The
agreement was amended on August 2, 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,
1995, and 1996, the total future royalty commitments, including the accumulated
26% annual rate of

<PAGE>

return, was limited to approximately $440,265 and $555,734, respectively.
Payment of future royalties will be made solely from Company's sales of the
Fatigue Fuse and are secured by the Company's patents, products, and accounts
receivable related to the Fatigue Fuse only, the technology developed with
the funding. SEE, Note 10 c to the Financial Statements.

On June 27, 1991, Tensiodyne issued to Variety Investments, Ltd., and Countryman
Investments, Ltd. (hereinafter the "Issuees"), both of Vancouver, British
Columbia, a royalty in an amount equal to 20% of gross sales of a joint venture
named Tensiodyne Marketing, Inc., consisting of Tensiodyne, Variety and
Countryman. Variety and Countryman were to advance $400,000 to Tensiodyne and
additionally purchase a 2.5% royalty for $100,000. The $100,000 was paid,
however, the Issuees advanced only $360,017 and the agreement was modified.
Pursuant to the modified agreement, the $360,017 was to be repaid solely from
funds derived from the sale of equity received by December 31, 1994, and the
royalty was to be modified upon the issuance of 100,000 shares of the common
stock of Tensiodyne. The obligation to Variety and Countryman bears interest at
the rate of 4.5% per annum. No portion of this sum was repaid by December 31,
1994 as required; consequently, the Issuees will receive, in the aggregate, a
royalty interest in the amount of 16.2%. SEE, Note 10 d to the Financial
Statements.

Under the February, 2, 1994 reorganization agreement, Tensiodyne was obligated
to provide $5,100,000 in financing to Matech 1. During 1994, Matech 1 received
$150,000 under this agreement in exchange for 7,560 shares of its Class A Common
Stock and 15 shares of redeemable Class B Preferred Stock. The Class B
Preferred stockholders had the right to redeem their stock at $10,000 per share
on January 31, 2004. In connection with the Stock Purchase Agreement,
Tensiodyne agreed to exchange its 15 Class B Preferred shares in Matech 1 for
$5,000 and 15 Class B preferred shares in the Company with the same redemption
rights except that Tensiodyne may redeem its shares two years earlier on
January 31, 2002.

Tensiodyne provided no further funding under its agreement to provide $5,100,000
in financing to Matech 1. As a result, Matech 1 sued Tensiodyne. On March 28,
1995, a settlement of that action was reached and Tensiodyne issued a total of
6,375,000 shares of its common stock to Matech 1. The proceeds from the sale of
these shares are applied to reduce Tensiodyne's obligation under the February 2,
1994 agreement. The balance owed is $4,950,000 plus accrued interest at 7% per
year. Matech 1 also received an additional 250,000 shares of Tensiodyne upon
signing the settlement agreement.

These Tensiodyne shares were transferred to the Company with all of Matech 1's
other assets but have little or no value. Management believes that Tensiodyne
has insufficient capital to pay any of the amount owed and the Company's
Tensiodyne shares are restricted and subject to Rule 144 under the Securities
and Exchange Act. It thus appears highly unlikely that the Company will receive
any significant funds from this source. SEE, Note 10 e to the Financial
Statements.

On August 4, 1995, Matech 1 entered into an agreement with an unrelated third
party, Stephen Forrest Beck, to compensate him for providing the idea of
pursuing a government contract to fund the development of the EFS. As amended
on February 7, 1997, the agreement requires the Company to issue him 2.5% of the
Company's outstanding Class A common stock

<PAGE>

as of the date the Company signs a subcontract with SWRI, appoint him to the
Company's Board of Directors, and issue him a promissory note equal to 15% of
the amount of SWRI's contract with the government. The funds due on the note
are to be paid only when such funds are available to the Company from financing
or revenues other than from a government contract. Under this Agreement the
Company must execute a promissory note to pay this third party $375,000 plus
interest at major bank prime rate when such funds are available to the Company.
Interest accrues nine months after the government contract is executed, and is
payable quarterly. The Company is obligated to pay 12.5% of the first
$1,000,000 earned or raised through financing, other than a government contract,
and 15% of any amount over $1,000,000 until the note and accrued interest are
paid. SEE, Note 10 f to the Financial Statements.

On August 26, 1993, Tensiodyne entered into a license agreement with the
University of Pennsylvania whereby the University licensed to Tensiodyne the
right to develop and exploit the Electrochemical Fatigue Sensor. Under this
agreement, Tensiodyne issued 12,500 shares of its common stock to the University
and granted the University a 5% royalty interest on revenues from sales of the
EFS. The license was assigned to the Company and terminates upon the expiration
of the underlying patents.

Also on August 26, 1993, Tensiodyne entered into a Sponsored Research Agreement
with the University of Pennsylvania under which Tensiodyne agreed to sponsor
development of the EFS including paying the University $200,000 in 18 monthly
installments. These payments were not made for lack of funds. This agreement
also assigned to the Company.

On May __ , 1997, the Company entered into modification agreements with
the University of Pennsylvania. Under the modification agreements, the
University's royalty on the EFS was increased from 5% to 7%; the Company will
issue the University and certain affiliates of the University (the "University
Group") sufficient additional shares of Class A Common Stock so that the
University Group's percentage ownership equals 5% of the outstanding Class A
Common Stock; and the Company will pay the University 30% of any amounts the
Company raises from financing (excluding government contracts) in excess of
$150,000 until the $200,000 owed to the University is paid. SEE, Note 6 to the
Financial Statements.

The following summarizes the Company's royalty obligations on the Fatigue Fuse
and the EFS:

- ---------------------------------------------------------------------
Fatigue Fuse EFS
- ---------------------------------------------------------------------
Tensiodyne 1985-1 R&D Partnership 10.0%(1) 0
- ---------------------------------------------------------------------
Advanced Technology Center 0
Future Gross Sales 6.0%(2)
Sublicensing Fees 12%(3)
- ---------------------------------------------------------------------
Variety Investments, Ltd. 20.0% 0
- ---------------------------------------------------------------------
University of Pennsylvania
Net Sales of EFS 0 7.0%
Net Sales of Services 0 2.5%
- ---------------------------------------------------------------------

<PAGE>

- ---------------------------------------------------------------------
Sherman Baker 1.0% 0.5%
- ---------------------------------------------------------------------
Totals 49.0% 10.0%
- ---------------------------------------------------------------------

(1) The R&D Partnership's 10% royalty is limited to capital contributed plus
accrued interest.
(2) Advanced Technology Center's 6% royalty is limited to $45,000 plus 11% per
year return which equaled $119,336 as of December 31, 1996.
(3) Advanced Technology Center's 12% royalty on sales from sublicensing the
Fatigue Fuse is limited to $63,775 plus a 26% annual return which equaled
$554,734 as of December 31, 1996.

There are no prior affiliations, including stock ownership, among or between the
Company and the other persons described above to whom the Company has royalty
obligations.

BUSINESS

The Company (also "Matech 2"), a development stage company, owns that certain
device known as the Fatigue Fuse, which requires additional testing to more
precisely identify commercial uses prior to manufacturing and marketing. Matech
2 is also the exclusive licensee of the Electrochemical Fatigue Sensor ("EFS"),
which requires substantial additional development. These technologies are
intended to indicate the level of fatigue of certain metal structures including
aircraft, bridges, cranes, ships, and other structures. No commercial
application of Matech 2's products has been arranged to date. The Company
intends to develop a market for the Fatigue Fuse once testing is completed and
for the EFS once it has been fully developed.

The Fatigue Fuse is in its final testing and development stages which will last
from 6 to 12 months and cost approximately $2,000,000, including technical
testing and final development. If testing, development, and marketing are
successful, management estimates the Company should begin receiving revenue from
Fatigue Fuse sales a year of receiving the $2,000,000. At this time, management
cannot estimate the amount of revenue that may be realized. Management
estimates the EFS will require two years and approximately $2,875,000 for
development and marketing. If successful, Matech 2's two products will
complement each other and be used together in systems to detect and measure
metal fatigue. On the other hand, neither may be successful for the many
reasons listed above. SEE, Very High Risks, p.3.

At first, management intends to market the Fatigue Fuse separately. If the EFS
is successfully developed, the two products will complement on another. Several
manufacturers are capable of producing the Fatigue Fuse at a reasonable cost.
It is uncertain, however, that these products (a) will be successfully
developed, (b) can be commercially produced, (c) will perform to expectations,
or (d) that commercial markets will be successfully developed. Moreover, there
is and will be significant competition for the Fatigue Fuse if and when it is
marketed.

DEVELOPMENT OF TECHNOLOGIES

The development and application sequence for the Fatigue Fuse and EFS consists
of Basic Research, Advanced Development, Prototype Evaluation, Application

<PAGE>

Demonstration, and Commercial Sales and Service. The Fatigue Fuse came first
and is furthest along in the sequence. The Basic Research was by the inventor,
Professor Maurice Brull of the University of Pennsylvania. Tensiodyne conducted
the Advanced Development, including variations of the adhesive bonding process,
and fabrication of a laboratory grade recorder (i.e., a fatigue recorder capable
of high precision and reliability, but not designed for use outside a
laboratory) for the separation events which constitute proper functioning of the
Fatigue Fuse. The next step, Prototype Applications, is on hold pending the
receipt of funding, including empirical tailoring of Fuse parameters (i.e.,
parameters to match the measured structure's material and the Fuse's exact
geometric design to the structure's material and use) to fit actual spectrum
loading (i.e., random stress loads over a specific range of loads) expected in
specific applications. Associated tests include coupon specimens (i.e., small
blocks of metal which can be conveniently loaded in a test laboratory) and full
scale structural tests (i.e., the object being tested is a large assembly
constituting a section of the structure, e.g., an airplane wing) with attached
Fuses. A prototype of a flight qualifiable operational (i.e., it can be
modified to function when attached to a flying airplane) separation event
recorder (i.e., a device which detects, stores, and displays the information
that the metal strips in the Fuse have separated at specific times) 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, e.g. on bridges, helicopters, tankers,
or windmills.

To date, certain organizations have included Matech's Fatigue Fuse in test
programs. Already completed are tests for welded steel civil bridge members.
Tests are ongoing on a full scale trainer aircraft and a large mining machine.
Matech 1 has also received commercial inquiries on the availability of Fatigue
Fuses for windmills, marine cranes, and refinery pressure vessels.

Basic Research for the EFS was conducted at the University of Pennsylvania. It
defined the unique physical effect on which the EFS is based, and the materials,
configuration, instrumentation and procedures to be employed. The next phase
will be Advanced Development with more complex load cycles, additional alloys,
fabrication of a movable Electrochemical Fatigue Sensor device, and production
of another body of reproducible test data. Prototype Applications will then
include fabrication of a truly portable near-operational device. And again the
final steps are multiple demonstration tests followed by routine sales.

The Company has a teaming agreement with Southwest Research Institute ("SWRI")
and the University of Pennsylvania (collectively the "Team"). On February 25,
1997, the United States Air Force awarded the Team a $2.5 million Phase I
contract to "determine the feasibility of [the Company's Electrochemical Fatigue
Sensor] to improve the United States Air Force capability to perform durability
assessments of military aircraft, including both air frames and engines through
the application of EFS to specific military aircraft alloys." The Company is a
subcontractor to SWRI and its share of this award is approximately $550,000 for
which the Company will perform certain technical tasks in accordance with its
expertise. This research will substantially assist the Company in determining
the feasibility of the EFS.

<PAGE>

DESCRIPTION OF TECHNOLOGIES

The Company is developing these technologies because the existing methods of
detecting metal fatigue have certain disadvantages which may be avoided by the
Fatigue Fuse and/or EFS. The Fatigue Fuse, like other competing technologies,
must remain attached to the structure to respond to the structure's complete
loading history. Its advantages over the other technologies are (a) it costs
less and (b) it can be simply interpreted without a complex computer analysis
system. If the EFS is developed successfully, it will have a unique advantage
over all competing metal fatigue detection systems in that it will be able to
determine the degree of fatigue damage after a few days of temporary
installation. It will not require continuous input and will be able to assess
structures which have never before been tested for fatigue damage.

Moreover, there is a possibility that these two systems will work well together.
If the EFS can measure the status of the metal fatigue of a structure, then the
Fatigue Fuse may be calibrated to that level of fatigue and installed on the
structure to accurately measure metal fatigue as it occurs in the structure from
that date forward.

THE FATIGUE FUSE

The Fatigue Fuse, developed by Tensiodyne and now owned by the Company, was
designed to be affixed to a structure and to give a number of warnings as
preselected portions of the fatigue life have been used up (i.e., how far to
failure the object has progressed). It will give warnings 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. By
applying the laws of physics in determining the geometric contour of each of the
notches, the fatigue life of each finger should be finite and predictable. When
the fatigue life for a given finger (or fuse) is reached, the fuse breaks. By
implementing different geometry for each finger in the array, different
increments of fatigue life become observable. Typically, notches will be
designed to facilitate observation of 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 Fuses undergo the same fatigue history as the
structural member. Therefore, breakage of a fuse will indicate that an
increment of fatigue life has been reached for the structural member.

Fatigue results from a metal object being subjected to repeated cyclic strain.
In a commercial context this strain and concomitant stress result from a large
number of cycles of loading and unloading. Sudden fracture can result. Fatigue
damage and the resulting compromise of the stability and integrity of the member
experiencing fatigue presents the potential for structural failure and extreme
danger. Objects such as bridges and wings of airplanes are subject to fatigue.
It is obvious that sudden fracture of such objects could have disastrous
results. It is presently impossible, under any generally acceptable theory of
fatigue phenomena, to predict by analysis alone

<PAGE>

when the limit is reached and when a fracture may take place. Further, in
normal usage, the damage occurs cumulatively, at microscopic levels and can only
be detected, in the early stages at a time when dire results can be avoided by
examination of the microscopic structure.

This difficulty has caused designers of objects and structures subject to
fatigue to be extremely conservative. They have attempted to design structures
to maintain the stresses presented in critical areas of a structure at a level
well below known endurance limits of the material. In many instances this
results in extreme expense. In spite of this "over-designing," catastrophic
fatigue failures still occur. Although tests of the Fatigue Fuse have been
performed in independent laboratories and the Fuse has been shown to perform as
designed and as expected, Management has determined that substantial additional
testing is necessary to ensure that it will be possible to calibrate various
types of loading spectra. Management estimates that it will require an outlay of
approximately $355,000 to accomplish this additional testing. If this money
were available, Management estimates that such additional testing could be
accomplished in 6 to 12 months.

Management believes 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 development of such value is contingent upon the Company's
successful production and marketing of the Fatigue Fuse, and no assurance can be
given that the Company will be able to overcome the obstacles relating to the
introduction to the market of a new product. In order to determine its ability
to produce and market the Fatigue Fuse, it will be necessary for the Company to
have substantial capitalization and no assurance can be given that the needed
capital will be available. See "Business" "and "Plan of Operations."

ELECTROCHEMICAL FATIGUE SENSOR

In August 1993, Tensiodyne entered into a license and development agreement with
the University of Pennsylvania regarding a new invention, the EFS, designed to
measure electrochemically the status of fatigue of a structure without knowing
the structure's past loading history. Under this Agreement, 12,500 shares of
Tensiodyne's common stock were issued, a 5% royalty on sales of the EFS was
granted, and Tensiodyne undertook to pay $11,112 per month for 18 months
totaling $200,000. No payments have been made on this obligation. Under the
terms of the governing agreement either party may terminate the agreement
effective upon written notice to the other party. The Company and the
University of Pennsylvania agreed to modify their previous agreements (a) to
increase the University's royalty from 5% to 7% of the sale of related products,
(b) to issue additional shares of the Company's Class A Common Stock so that the
University and certain affiliates will own to 5% of the outstanding Class A
Common Stock of the Company as of the effective date of the modified agreements,
and (c) to pay the University 30% of any financing the Company receives in
excess of $150,000 (excluding amounts received from government grants or
contracts) up to the $200,000 owed to the University.

<PAGE>

The EFS is a high precision instrument consisting of (a) a cell which can be
attached to a structure to measure electrical current and (b) software to
interpret the current measurements. The cell consists of an enclosure which
contains a fluid which conducts electricity and two metal electrodes connected
to external wires leading to a battery and the current measuring instrument.
The sensor is temporarily attached to a structural member, then the member is
subjected to multiple loads while the instrument records the current. A
computer analyzes the current record to determine the degree of fatigue damage
present at the location of the sensor in the structure. Then the sensor is
removed.

The EFS is in the initial stage of research. No assurance can be given that it
can be developed successfully or that, if developed, it can be produced at a
price which will permit its marketing, or that, even if these two conditions are
met, that the EFS will find a market.

PATENTS

The Company is the assignee of four patents originally issued to Tensiodyne.
The first was issued on May 27, 1986, and expires on May 27, 2003. It is
entitled "Device for Monitoring Fatigue Life" and bears United States Patent
Office Number 4,590,804. The second patent entitled "Method of Making a Device
for Monitoring Fatigue Life" was issued on February 3, 1987 and expires
February 3, 2004. It bears United States Patent Office Number 4,639,997. The
third patent, entitled "Metal Fatigue Detector," was issued on August 24, 1993
and expires on August 24, 2010. It bears United States Patent Number 5,237,875.
The fourth patent, entitled "Device for Monitoring the Fatigue Life of a
Structural Member and a Method of Making Same," was issued on June 14, 1994 and
expires on June 14, 2011. It bears United States Patent Number 5,319,982. This
latter patent was pending when Tensiodyne assigned the rights to Matech 1 in
February 1994 and was assigned to Matech 1 upon issuance later in 1994.

DISTRIBUTION METHODS OF PRODUCT

If funds become available, the Company intends to exhibit the Fatigue Fuse and
the EFS at various aerospace trade shows and market its products directly to end
users, including aircraft manufacturing companies, aircraft maintenance
companies, manufacturers and operators of cranes, certain state regulatory
agencies which oversee bridge maintenance, companies engaged in manufacturing
and maintaining ships and tankers, and the military. Although management
intends 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. See "Very High Risk Factors" p. 3.

COMPETITION

The Company's Products

1. The EFS is intended to provide a fatigue measurement which cannot now be
obtained from any other instrument, namely, an assessment of the extent of
fatigue damage before cracks have grown to a size detectable by
nondestructive inspection, in a structure

<PAGE>

which has not previously been instrumented or monitored to record the loads or
strains experienced in service.

2. The Fatigue Fuse provides a simple low-tech way to assess and predict
fatigue damage, which otherwise requires complex instrumentation, precision data
recording, and sophisticated analytical computer programs.

Competitor's Products

Nevertheless, other technologies exist which indicate fatigue damage. Single
cracks larger than a certain 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, 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 used for up to 40 years and also offer the advantage
that they have been accepted in the marketplace, whereas the Company's
products will remain largely unproved for some currently indeterminable
period. Companies marketing these alternate technologies include Magnaflux
Corporation, Kraut-kremer-Branson, Dunegan-Endevco, and MicroMeasurements.
These companies have more substantial assets, greater experience, more human
and other resources than the Company, 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 the Company is still in its development stages, it is unable to
predict whether its technologies may be successfully developed and
commercially attractive to various potential markets.

SOURCES OF BASIC MATERIAL

All of the materials used in the Company's technologies are easily available
from numerous sources. The Company will not be dependent on any supplier as a
sole provider of materials.

DEPENDENCE UPON ONE OR MORE MAJOR CUSTOMERS

The Company believes that its products may be utilized within the aerospace,
crane, bridge, large ship and tanker industries and by the military. If it
successfully develops its products, as to which no assurance can be given, the
Company will attempt to market its products to a variety of companies and
governmental agencies. See "Business - Distribution Methods of Products."
Nevertheless, the Company believes that it is likely, for several years
following introduction of its products, that it may be dependent on a small
number of large customers, the loss of any one of which would have a material
adverse effect upon the Company's revenues and the perceived reliability of its
products within the marketplace.

TOTAL NUMBER OF EMPLOYEES

The Company has three employees, Robert M. Bernstein, its President and Chief
Executive Officer, who spends substantially full time on its affairs, John
Goodman, its Chief Engineer, who works part time, and a secretary. The Company
will employ other persons as

<PAGE>

needed on a part time or consulting basis, as appropriate, based on the
availability of funds and as a result of the Air Force contract.

PLAN OF OPERATIONS

The Company estimates that it requires $5,000,000 in order to become fully
operational. Of this sum, it estimates that funds would be allocated
approximately as follows:

- ----------------------------------------------------------------------------
Preparation of production models $1,250,000
- ----------------------------------------------------------------------------
Referral fees for prior funding $625,000
- ----------------------------------------------------------------------------
Fatigue Fuse lab testing for specific "loading conditions $500,000
- ----------------------------------------------------------------------------
Fatigue Fuse Beta test completion $250,000
- ----------------------------------------------------------------------------
EFS Beta testing on Turbine blades $500,000
- ----------------------------------------------------------------------------
Marketing efforts for two years including personnel $660,000
- ----------------------------------------------------------------------------
University of Pennsylvania license payment $200,000
- ----------------------------------------------------------------------------
Office administration and overhead for two years $1,015,000
- ----------------------------------------------------------------------------
TOTAL $5,000,000
- ----------------------------------------------------------------------------

The Company is seeking to raise funds from numerous sources, including various
state and federal governmental agencies and/or private or public offerings of
securities. At this time, however, the Company has no firm agreements other
than the subcontract with Southwest Research Institute related to the Air Force
contract signed on February 25, 1997. That contract will provide $2,500,000 for
basic feasibility research on the EFS related to air frames and engines through
the application of EFS to specific military aircraft alloys. The Company will
receive approximately $550,000 to fund its operations related specifically to
that research which will also be conducted at the University of Pennsylvania and
SWRI.

DESCRIPTION OF PROPERTY

The Company leases offices at 11835 West Olympic Boulevard, Suite 705, Los
Angeles, California 90064. The lease expires on May 30, 1997. As of April 10,
1997, the Company entered into a new lease with a term of twenty four months
beginning June 1, 1997 at 11661 San Vincente Boulevard, Suite 706, Los Angeles,
California, 90025. The space consists of 830 square feet of useable space and
will be adequate for the Company's current and foreseeable needs. The rent is
$40,464.00 payable at $1,868.00 per month.

The Company owns a remote monitoring system and certain manufacturing equipment
which is presently leased to the University of Pennsylvania (Laboratory for
Research on the Structure of Matter) for instructional and testing purposes. In
consideration of the leasing of this equipment, the University of Pennsylvania
has agreed to perform 1,200 hours of testing on materials to be used in
conjunction with the Fatigue Fuse. The first five year term of this lease will
expire on March 31, 1998. Lessee has the right to borrow the equipment for a
further five year period.

<PAGE>

Upon the expiration of the second five year period, the University has the right
to purchase the equipment at its then fair market value.

LEGAL PROCEEDINGS

The Company is not presently involved in any legal proceedings which in
management's opinion might have a material effect on the Company.

MANAGEMENT

The name, age and office of principal occupation of the executive officers and
directors of the Company and certain information relating to their business
experiences are set forth below:

NAME AGE POSITION
- ---- --- --------

Robert M. Bernstein 62 President/Chief Financial Officer
Chairman of the Board

Joel R. Freedman 35 Secretary/Director

Dr. John W. Goodman 62 Chief Engineer/Director

The directors' and officers' term of office is until the 1998 annual meeting to
be held prior to April 1, 1998.

Robert M. Bernstein, 62 years of age, is the Company's President, Chief
Financial Officer, and Chairman of the Board of Directors and Principal
Shareholder. Mr. Bernstein received a Bachelor of Science degree from the
Wharton School of the University of Pennsylvania in 1956. From August 1959 to
August 1972 he was a Certified Public Accountant licensed in Pennsylvania. In
August 1972, his accounting license expired because he was no longer a
practicing accountant in Pennsylvania. From 1961 to 1981 he acted as 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, Pennsylvania, an oil and gas exploration
company. In December 1985, he formed a research and development partnership
funding approximately $750,000 for research on the Fatigue Fuse. From October
of 1988, until February 2, 1994, Mr. Bernstein was president and chief executive
officer of Tensiodyne. He retained these positions with Matech 1 after the
reorganization in February 1994.

Joel R. Freedman, 35 years of age, is Secretary and a Director of the Company.
From October 1989 until February 1994, Mr. Freedman was Secretary and a Director
of Tensiodyne, retaining these positions with Matech 1 after the reorganization
in February 1994. Mr. Freedman attends board meetings and provides advice to
the Company as needed. Since 1983, he has been president of Genesis Securities,
Inc., a full-service brokerage firm in Philadelphia, Pennsylvania. His duties
there are a full-time commitment. Accordingly, he does not take part in the
Company's day to day activities. He is not a director of any other company.

<PAGE>

Dr. John W. Goodman, 62 year of age, is a Director and Chief Engineer for the
Company. As of February 25, 1997, the Company rehired Dr. Goodman part time
after a two year hiatus while Matech 1 sought funding. Dr. Goodman is also
Senior Staff Engineer, Materials Engineering Department of TRW Space and
Electronics and Chairman of the Aerospace Division of the American Society of
Mechanical Engineers. He holds a Doctorate of Philosophy in Materials Science
which was awarded with distinction by the University of California at Los
Angeles in 1970, received in 1957 a Masters of Science degree in Applied
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 United States 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. He
has been the chief engineer developing the Company's products since May 1993. He
worked full time for Tensiodyne and Matech 1 from August 1993 to December 1994
when he returned to TRW. From December 1994 to February 25, 1997, he
consulted with Matech 1 periodically.

ADVISORY BOARD

Since 1987, Tensiodyne and then Matech 1, as the successor to Tensiodyne's
former business, has had an Advisory Board presently consisting of Alexander M.
Adelson, William F. Ballhaus, Robert P. Coogan, Campbell Laird, Ronald Landgraf,
Robert Maddin, and Samuel I. Schwartz. These individuals will consult with the
Company on an as needed basis usually a few hours per month. The members of the
Advisory Board serve at will. Each member of the board will receive 18,000
shares of Class A Common Stock as consideration for accepting a two year term if
and when the Company is funded. The Advisory Board advises Management on
technical, financial and business matters and may in the future be additionally
compensated for these services. A brief biographical description of the members
of the advisory board is as follows:

Alexander M. Adelson, age 51: Has thirty years as an applied physicist and
businessman specializing in technical marketing matters. Since 1974,
Mr. Adelson has led the Technology Resource Group of RTS Research Lab, Inc.
("RTS"). This group provides management, product development, and related
marketing services to various clients with specialization in technical
marketing matters. For example, RTS helped conceive and develop the first
portable bar code scanner and acted as program manager for 12 years while
developing two generations of portable bar code laser scanners for Symbol
Technologies, Inc. Mr. Adelson holds 64 patents in the fields of optical
electronics, bar code technology, automatic inspection and medical software.
Mr. Adelson serves on the board of directors of Base 10, Inc., Nocopi
Technologies, Inc., and PatComm Corporation.

William F. Ballhaus, age 78: Now retired, was an Aerodynamacist with Douglas
Aircraft Co., a Vice President and General Manager, Nortronics Division of
Northrop Aircraft, Inc., Executive Vice President of Northrop Corp., and was
President of Beckman Instruments, Inc. from 1965-1983. He is a director of
Republic Automotive Parts, Microbics Corp., and Nuco Industries.

<PAGE>

Vice Admiral Robert P. Coogan, age 72: 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.

Campbell Laird, age 60: Received his Ph.D. 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. His research has
focused on the strength, structure and fatigue of materials, in which areas he
has published in excess of 250 papers. He is the co-inventor of the EFS.

Ronald W. Landgraf, age 57: Presently a Professor in the Department of
Engineering Science & Mechanics at Virginia Tech, Blacksburg, Virginia. He
spent 20 years in the industrial sector, first as a Materials Engineer in the
Micro Switch Division of Honeywell, Inc. in Freeport, Illinois, and later as a
Research Scientist, Metallurgy Dept., Engineering & Research Staff of Ford Motor
Company in Dearborn, Michigan. In 1988, he became a Visiting Professor at
Virginia Tech and in 1990, a Professor.

Robert Maddin, age 77: Presently retired, received his BS from Purdue
University in 1942 and Doctor of Engineering from Yale University in 1948. From
1957 to 1972, he was a director and later chairman of the Department of
Metallurgy, University of Pennsylvania; from 1973 to 1983 was a Professor of
Metallurgy at the University of Pennsylvania, from 1984 to 1987 was a visiting
professor of anthropology at Harvard University, and from February 1987 to the
present is an honorary curator of archeological sciences, Peabody Museum of
Archeology and Ethnology, Harvard University.

Samuel I. Schwartz, age 48: Presently President of Sam Schwartz Co., consulting
engineers, primarily in the bridge industry. Mr. Schwartz received his BS in
Physics from Brooklyn College in 1969, and his Masters in Civil Engineering from
the University of Pennsylvania in 1970. From February, 1986 to March, 1990, was
the Chief Engineer/First Deputy Commissioner, New York City Department of
Transportation and from April, 1990 to the present has acted as a director of
Infrastructure Institute at the Cooper Union College, New York City, New York.
From April 1990 to 1994 he was a Senior Vice President of Hayden Wegman
Consulting Engineers, and a columnist for the NEW YORK DAILY NEWS.

EXECUTIVE COMPENSATION

<PAGE>

SUMMARY COMPENSATION TABLE

- ---------------------------------------------------------------------------------------------------
AWARDS PAYOUTS
Other Restricted All Other
Name and Annual Stock Options/ LTIP Compen-
Principal Salary Bonus Compen- Awards SARs Payouts sation
Position Year ($) ($) sation ($) ($) (#) ($) ($)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert M. 1993 $130,000(1) 0 0 0 0 0 $165,300(2)
Bernstein 1994 $72,000(3) 0 0 0 0 0 $10(4)
CEO 1995 0 0 0 0 0 0 0
1996 $200,000(3) 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------
John W. 1993 $55,796 0 0 0 0
Goodman 1994 71,096 0 0 0 0 0 0
Director and 1995 2,745 0 0 0 0 0 0
Engineer 1996 0 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------

</TABLE>

(1) Of this $130,000, $30,000 was paid and $100,000 was accrued.

(2) In 1993, Matech 1 issued 300,000 shares to Mr. Bernstein at par value
of $.001 per share. In addition $165,000 results from Tensiodyne agreeing to
reduce the purchase price of 6,000 shares of stock that Mr. Bernstein
purchased in 1992 from $30 per share to $2.50 per share by reducing the
amount of a promissory note executed by Mr. Bernstein in the amount of
$180,000 to $15,000 for a total reduction of $165,000.

(3) This amount was accrued. On April 25, the Matech 1 agreed to issue
Mr. Bernstein 1,499,454 shares of its Class A Common Stock in exchange for
cancellation of the $372,000 in salary accrued by Mr. Bernstein.

(4) In February 1994, Matech 1 issued 10,000 shares of Class A Common Stock,
par value $.001, to Mr. Bernstein

To date, the Company's Board has not authorized any salaries for 1997. As a
result of the subcontract with SWRI, the Company expects Mr. Bernstein to begin
receiving a salary of at least $120,000 per year. Neither Mr. Bernstein nor Mr.
Goodman have received perquisites, other personal benefits, securities, or
property exceeding 10% of their salary in any calendar year from 1993 to the
present.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On March 9, 1997, the Company authorized the issuance of 60,000 shares of
Class B Common Stock to Mr. Bernstein in exchange for cancellation of his 60,000
shares of Class B Common Stock in Matech 1. Class B Common has voting rights of
200 votes per share but no dividend or liquidation rights. Thus, this
transaction assured Mr. Bernstein voting control of the Company by giving him
12,000,000 votes.

On February 28, 1994, Tensiodyne authorized the issuance of 10,000 shares of
Class A Common Stock to Mr. Bernstein for past services.

<PAGE>

In March 1994, Mr. Bernstein advanced Matech 1 $48,750 of which $12,000 was
canceled in exchange for the issuance of 1,200,000 shares of Matech 1's Class A
Common Stock. Mr. Bernstein sold 420,000 share for $4,200 to Joel Freedman and
certain preferred shareholders.

On June 21, 1994, Matech 1 amended its By-Laws and increased the number of
Directors from 3 to 5 and established an advisory board of five individuals. It
also authorized the issuance of 36,000 shares of its Class A Common Stock to
each of its new board members and the issuance of 18,000 shares of its Class A
Common Stock to each advisory board member.

During 1994, the President, Mr. Bernstein, and a director, Joel Freedman,
purchased 278,550 shares of the Matech 1's Class A Common Stock for $2,786.

In connection with the reorganization of Tensiodyne in February 1994, certain
preferred shareholders of Tensiodyne, known as the Baker Group exchanged their
preferred shares in Tensiodyne for 350,000 Matech 1 Class A Preferred Stock. In
connection with the Stock Purchase Agreement, the Baker Group has exchanged
their 350,000 Matech 1 Class A Preferred Shares for 350,000 of the Company's
Class A Preferred Shares.

August 10, 1994, Matech 1's Board of Directors granted 994,500 Class A Warrants
to Mr. Robert Bernstein, 170,000 Class A Warrants to Mr. Joel Freedman, and
535,500 Warrants to Mr. Baker and his associates. Each Class A Warrant entitled
the registered holder to purchase one share of Class A Common Stock of Matech 1
for $.50 per share until August 9, 1996. On December 15, 1995, Matech 1's Board
extended the expiration date to August 22, 1999. In connection with the Stock
Purchase Agreement these warrants are being exchanged for the same number of the
Company's warrants and with same terms.

From time to time, Robert M. Bernstein has advanced funds to Tensiodyne and
Matech 1 and at December 31, 1996, Matech 1 owed him $179,544. The amount of
accrued interest charged to operations on the President's loans were $5,268 in
1995 and $9,430 in 1996. Robert M. Bernstein is under no obligation to make
advances to the Company but may to do so at his sole discretion. In addition,
on December 31, 1996, Matech 1 was obligated to Robert M. Bernstein in the
amount of $372,000 for accrued salary. On April 25, 1997, Matech 1 agreed to
issue Mr. Bernstein 1,499,454 shares of its Class A Common Stock in exchange for
cancellation of the $372,000 in salary accrued by Mr. Bernstein. As a result of
the transfer of Matech 1's assets and liabilities to the Company, these are the
Company's liabilities.

On July 24, 1995, Matech 1 authorized issuance of convertible notes to Robert M.
Bernstein and the Baker Group. Mr. Bernstein's note was for $108,000 and in
exchange for $108,000 in cash advances from Mr. Bernstein. The note's term was
three years. Mr. Bernstein had the right at any time to convert the note or any
ratable portion into 520,000 shares of the Company's Class A Common Stock. The
note to the Baker Group was for $58,000 and in exchange for $58,000 cash paid to
the Company. The term was also three years. The Baker Group had the right at
any time to convert the note or any ratable portion thereof into 280,000 shares
of the Company's Class A Common Stock. In connection with the Stock Purchase
Agreement these notes were converted into 580,000 shares of Matech 1's Class A
Common Stock to Mr. Bernstein and 280,000 shares

<PAGE>

of Matech 1's Class A Common Stock to the Baker Group. Accordingly, these notes
are no longer in existence. On the other hand, the conversion of these notes
entitled Mr. Bernstein and the Baker Group to receive a like number of the
Company's Class A Common shares as part of Matech 1's distribution of 5,000,000
shares of the Company's Class A Common.

PRINCIPAL STOCKHOLDERS

As of the date of this Prospectus, the following table sets forth information
the stock ownership of each officer and directors and each person known to the
Company to be the beneficial owner of more than five percent of each class of
the Company's voting securities.

- -------------------------------------------------------------------------------------------------------------------
Percent of
Name and Address of Amount and Nature of Percent of Class Votes Entitled
Class of Stock Beneficial Owner Beneficial Ownership To Be Cast
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
<C>
Class A Robert M. Bernstein, CEO 2,936,130 Shares 52.8%(1) 16.3%
Common Stock East Tower, Suite 705
11835 Olympic Blvd.
Los Angeles, CA 90064
- -------------------------------------------------------------------------------------------------------------------
Joel R. Freedman, Director 113,481 Shares 2.0% .6%
1 Bala Plaza
Bala Cynwyd, PA 19004
- -------------------------------------------------------------------------------------------------------------------
John Goodman, Director 50,000 Shares 0.9% .3%
11835 Olympic Blvd.
East Tower, Suite 705
Los Angeles, CA 90064
- -------------------------------------------------------------------------------------------------------------------
Directors and executive offi- 3,099,611 Shares 55.7% 17.2%
cers as a group (3 persons)
- -------------------------------------------------------------------------------------------------------------------
Material Technology, Inc. 560,000 Shares 10.1%(2) 3.1%
11835 Olympic Blvd.
East Tower, Suite 705
Los Angeles, CA 90064
- -------------------------------------------------------------------------------------------------------------------
Sherman Baker 505,700 Shares 9.1%(3) 2.8%
555 Turnpike St.
Canton, MA 02021
- -------------------------------------------------------------------------------------------------------------------
Class B Robert M. Bernstein 60,000 Shares 100.00%(1) 66.5%
Common Stock East Tower, Suite 705
11835 Olympic Blvd.
Los Angeles, CA 90064
- -------------------------------------------------------------------------------------------------------------------
Class A Sherman Baker 131,600 Shares, Beneficial 37.60%(3) .7%
Preferred 555 Turnpike St. Owner (1)
Canton, MA 02021
- -------------------------------------------------------------------------------------------------------------------
Nathan Greenberg 35,000 Shares, Beneficial 10.00% .2%
306 Main Street Owner (1)
Worchester, MA 01608
- -------------------------------------------------------------------------------------------------------------------

<PAGE>

- -------------------------------------------------------------------------------------------------------------------
Melvin Nessel 35,000 Shares, Beneficial 10.00% .2%
180 Beacon Street Owner (1)
Boston, MA 02111
- -------------------------------------------------------------------------------------------------------------------
Eugene Ribakoff 35,000 Shares, Beneficial 10.00% .2%
46 W. Boylston Street Owner (1)
Worchester, MA 01608
- -------------------------------------------------------------------------------------------------------------------
Norman Fain 21,000 Shares, Beneficial 6.00% .1%
505 Central Avenue Owner (1)
Pawtucket, RI 02862
- -------------------------------------------------------------------------------------------------------------------
Morris Loeb 21,000 Shares, Beneficial 6.00% .1%
2368 Century Hill Owner (1)
Los Angeles, CA 90067
- -------------------------------------------------------------------------------------------------------------------
A. Sandler 21,000 Shares, Beneficial 6.00% .1%
139 Atlantic Avenue Owner (1)
Swamscott, MA 01907
- -------------------------------------------------------------------------------------------------------------------
Class B Tensiodyne Corporation 15 Shares 100% .000001%
Preferred 400 S. Colorado Blvd.
Denver, CO 80222
- -------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Robert M. Bernstein's Class A and Class B common stock
ownership entitle him to cast 82.8% of all votes entitled to be
cast by all common and preferred shareholders and thus voting
control of the Company. All shares of the Company's common and
preferred stock have one vote each except Class B common which has
200 votes each.

(2) Matech 1's Class A Common Stock entitle it to cast 2.7% of
the votes entitled to be cast by all common and preferred
shareholders.

(3) Sherman Baker's Class A Common Stock and his Class A
Preferred Stock entitle him to cast 3.5% of the votes entitled to
be cast by all common and preferred shareholders. The Sherman
Baker Group composed of 15 investors including Mr. Baker are
entitled to cast 6.8% of the votes entitled to be cast by all
common and preferred shareholders.

In addition, the Company is committed under its modified agreement with the
University of Pennsylvania to issue the University and its affiliates additional
shares of the Company's Class A Common Stock so that their holdings equal 5% of
the outstanding Class A Common Stock.

DESCRIPTION OF CAPITAL STOCK

The Company is authorized to issue 11,000,000 shares of stock. Each of the
11,000,000 shares of stock has a par value of $.001. Of the shares authorized,
10,000,000 are Class A Common Stock; 100,000 are Class B Common Stock; and
900,000 are Preferred Stock. The Company has designated 350,000 shares as
Class A Preferred Stock and 100 shares as Class B Preferred Stock.

Holders of the Class A Common stock have one vote per share of common stock held
and vote as a single Class with holders of Class B Common Stock, who have 200
votes per share, on all

<PAGE>

matters submitted to stockholder vote including annual election of
directors, amendment of the Certificate of Incorporation, merger or
consolidation of the Company, sale, lease, or exchange of all or
substantially all of the Company's property and assets, dissolution of the
Company, and all other matters required to be submitted to stockholder vote
under Delaware Corporation Law. Class A Common stockholders are entitled to
receive such dividends out of the funds or assets of the Corporation legally
available therefor as, from time to time, the Board may declare.

Holders of Class B Common stock have 200 votes for each share of Class B Common
held but are not entitled to have dividends paid on Class B Common Stock; nor
are they entitled to participate in any proceeds in the event of a liquidation
of the company.

The Company's Certificate of Incorporation provides that the designation of
powers, preferences and rights, including voting rights, if any, qualifications,
limitations or restrictions on Preferred Stock is to be fixed by resolution or
resolutions of the Board of Directors.

On April 28, 1997, the Company filed with the Secretary of State of the State of
Delaware a Certificate of Designation designating 350,000 shares of preferred
stock designated Class A Convertible Preferred Stock (hereinafter referred to as
"Class A Preferred".) Class A Preferred has a liquidation preference. In the
event of liquidation, holders of Class A Preferred have the right to receive
$.72 for each share of Class A Preferred held; before any payment is made or any
assets are distributed to holders of Common Stock, or any other stock of any
other series or class ranking junior to these shares. In the event of
liquidation, holders of Class A Preferred 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 Class A Preferred is convertible
into common stock at the discretion of the holder, at the rate of one share of
Class A Preferred for each .72 share of common stock. Thus, the 350,000
outstanding shares of Class A Preferred Stock are convertible into 486,111
shares of Class A Common Stock. Under the Certificate of Designation, the
Company is not permitted to issue stock which is senior to or pari passu with
Class A Preferred without prior consent of a majority of the outstanding Class A
Preferred shares. Adjustment of the number of Class A Preferred 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 of the Company 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 are
outstanding a stock dividend on the Common Stock is issued, the conversion price
will be adjusted to prevent any dilution of the holders of Class A Preferred
right of conversion. If (a) there is a reclassification or change in the
Company's Common Stock to which the Class A is convertible other than stock
splits or other decrease or increase in the number of shares outstanding, (b)
the Company consolidates or merges with another corporation, or (c) the Company
sells or transfers substantially all of its assets, then the Class A Preferred
shareholders 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 Class A Preferred are similar to
those rights of the Common Stock.

On April 28, 1997, the Company filed a Certificate of Designation bringing into
existence a Class B Preferred Stock. Class B Preferred Stock is junior and
subordinate to Class A Convertible Preferred Stock. 100 shares of Class B
Preferred Stock were authorized from the

<PAGE>

550,000 undesignated preferred shares. Fifteen (15) shares have been issued to
Tensiodyne in exchange for canceling its 15 Class B Preferred shares in Matech
1. In the event of liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, holders of Class B Preferred Stock are
entitled to receive $10,000 per share as a liquidation preference. This
liquidation preference is senior to liquidation rights of all other classes of
stock except the Class A Preferred's liquidation rights. This provision may
have the effect of delaying, deferring or preventing a change in control. At
any time, the Company has the option to redeem Class B Preferred stock for
$10,000 per share plus any unpaid dividends. At any time after January 31,
2002, holders have the right to compel the Company to redeem their shares for
$10,000 per share plus any unpaid dividends. The holders have the right to
receive cash dividends, which are determined pursuant to a formula in the
Certificate of Designation. That formula reads as follows: "Each time a cash
dividend is paid on the Common Stock there shall also be paid with respect to
each outstanding share of Class B Preferred Stock an amount determined by
multiplying the aggregate amount of the dividend paid with respect to the Common
Stock by a fraction (i) the numerator of which is 3,214,480 and (ii) the
denominator of which is the number of shares of Common Stock on which the
dividend was paid, and (x) multiplying the resulting product by thirty percent
(30%) and then (y) dividing the resulting product by five hundred and ten
(510)." Holders of Class B Preferred Stock shall have one (1) vote per share
and shall be entitled by class vote to elect one (1) director and to vote, as a
class, on removal of any director so elected. Otherwise, holders of Class B
Preferred Stock shall not have the right to vote as a class on any matter.

As of the date hereof, 5,560,000 shares of Class A common stock are outstanding
and upon distribution of the shares under this prospectus 405 shareholders will
hold 369,172 shares; 60,000 shares of Class "B" Common stock are outstanding and
held by one shareholder, Robert M. Bernstein; 350,000 shares of Class A
Convertible Preferred stock are outstanding and are held by 12 shareholders; and
15 shares of Class B Preferred stock are outstanding and are held by one
shareholder, Tensiodyne.

WARRANTS

On March 9, 1997, the Company's Board granted 1,700,000 Class A Warrants,
994,500 to Robert M. Bernstein, 170,000 to Joel Freedman, and 535,500 to Sherman
Baker and his associates in exchange for each of these individuals agreeing to
cancel a like number of warrants to purchase Matech 1 common stock on the same
terms. Each Class A Warrant entitles the registered holder to purchase one
share of Class A Common Stock at $.50 per share until August 22, 1999. Each
holder may exercise by surrendering the warrant certificate, with the form of
election completed and executed, together with payment of the exercise price to
the Company at its corporate offices. The exercise price is payable in cash or
by check acceptable to the Company. If less than all warrants evidenced by the
warrant certificate are exercised, a new certificate is issued for the remaining
warrants. The Board has the right to extend the exercise period and price.

DESCRIPTION OF SHARES

<PAGE>

The Shares being distributed are 369,172 shares of the Company's Class A Common
Stock. No assurance can be given that a public market will develop for the
Company's Shares.

LEGAL MATTERS

The Law Offices of C. Timothy Smoot, Torrance, California, has opined on the
validity of the Shares of Class A Common Stock being distributed.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article VII, Section 3 of the Company's bylaws permit the Corporation

"to indemnify to the fullest extent permitted by applicable law any person
who was or is a party or is threatened to be made a party to any
threatened, pending, or completed proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in the right
of the Corporation) relating to such person's status or acts as a director,
officer, employee, or agent of the Corporation, or relating to such
person's service at the request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise, against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement actually and reasonably
incurred by such per-son in connection with such proceeding if he or she
acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect
to any criminal action, had no reasonable cause to believe his or her
conduct was unlawful. The termination of any proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed
to be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful."

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against the public policy as expressed in the Act and is
therefore unenforceable.

EXPERTS

Jonathon Reuben, CPA, An Accounting Corporation, Independent Certified Public
Accountants, has opined on the financial statements of the Company for the three
years ended December 31, 1996, 1995, and 1994 included in the prospectus and in
the registration statement and audited the financial statements to the extent
and for the period set forth in their report appearing elsewhere herein and in
the registration statement. The financial statements are included in reliance
upon such report given upon the authority of said firm as experts in auditing
and accounting.

<PAGE>

FURTHER INFORMATION

The Company has filed with the Commission a registration statement under the
Securities Act of 1933 as amended, with respect to the securities being
distributed. This prospectus does not contain all the information set forth in
the registration statement. Certain parts of the registration statement are
omitted in accordance with the Commission's rules. The statements contained in
this prospectus as to the contents of any contract or other document are not
necessarily complete but include descriptions of the material provisions of such
contracts, and in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the registration statement. Copies of
these contracts and other documents may be obtained upon payment of prescribed
fees or examined without charge at the office of the Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.

Moreover, the Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The Commission's Web address is
http://www.sec.gov.

Matech 1's periodic reports are available for inspection at the Commission's
Washington Office and, from the second quarter of 1996 to date, at the
Commission's Web site.

<PAGE>

FINANCIAL STATEMENTS - INDEX

MATERIAL TECHNOLOGIES, INC.

(Formerly Material Technology, Inc.)
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)

Page

Independent Auditor's Report F-1

Balance Sheets F-3

Statements of Operations F-5

Statement of Stockholder's Equity (Deficiency) F-6

Statement of Cash Flows F-14

Notes to Financial Statements F-16

<PAGE>

[LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

Board of Directors
Material Technologies, Inc.
(A Development Stage Company)
Los Angeles, California

We have audited the accompanying balance sheets of Material Technologies, Inc.
(A Development Stage Company) as of December 31, 1996 and 1995, and the related
statements of operations, cash flows, and stockholders' equity (deficit) for
each of the three years in the period ended December 31, 1996, and for the
period from January 1, 1991, through December 31, 1996. 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. Statements of operations and cash flows for the period from October
21, 1983 (inception) through December 31, 1990, (with the exception of 1989
which was unaudited) were audited by other auditors whose reports dated on
various dates, expressed unqualified opinions including an explanatory
paragraph, as discussed in Note 3, regarding the Company's ability to continue
as a going concern.

We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provides a reasonable basis for our opinion.

F-1

<PAGE>

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, 1996, and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 and for
the period from January 1, 1991 through December 31, 1996, in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.

/s/ Jonathon P. Reuben

Jonathon P. Reuben,
Certified Public Accountant
Calabasas, California

April 25, 1997

F-2

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS

ASSETS

December 31, March 31,
1995 1996 1997
--------- --------- ---------
(Unaudited)
CURRENT ASSETS
Cash and Cash Equivalents $ 1,226 $ -- $ 2,783
Accounts Receivable -- -- 4,555
Prepaid Expenses -- 6,472 5,848
--------- --------- ---------
TOTAL CURRENT ASSETS 1,226 6,472 13,186
--------- --------- ---------

FIXED ASSETS
Property and Equipment, Net
of Accumulated Depreciation 100,958 98,016 97,318
--------- --------- ---------

OTHER ASSETS
Investments -- 55,200 13,800
Intangible Assets, Net of
Accumulated Amortization 22,658 20,669 20,172
Note Receivable (Including
Accrued Interest) 23,661 25,753 25,753
Refundable Deposit 2,189 2,189 2,189
--------- --------- ---------

TOTAL OTHER ASSETS 48,508 103,811 61,914
--------- --------- ---------

TOTAL ASSETS $ 150,692 $ 208,299 $ 172,418
--------- --------- ---------
--------- --------- ---------

See accompanying notes and independent accountants' report.
F-3

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS' (DEFICIT)

<TABLE>
<CAPTION>
December 31, March 31,
1995 1996 1997
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES
Bank Overdraft $ -- $ 2,422 $ --
Legal Fees Payable 111,343 128,191 126,835
Other Accounts Payable 18,185 33,221 39,687
Accrued Officers Salary 172,000 372,000 45,000
Accrued Payroll Taxes 12,051 19,124 22,656
Loan Payable - Officer 23,272 56,846 12,846
Loans Payable-Others 84,439 32,627 32,627
Payable on Research and
Development Sponsorship 188,495 188,495 188,495
----------- ----------- -----------

TOTAL CURRENT LIABILITIES 609,785 832,926 468,146

Loan Payable - Officer 113,268 122,698 --
Loans Payable - Other 60,829 90,893 25,000
----------- ----------- -----------

TOTAL LIABILITIES 783,882 1,046,517 493,146
----------- ----------- -----------

REDEEMABLE PREFERRED STOCK
Class B Preferred Stock, $.001 Par Value
Authorized 510 Shares, Outstanding 15 Shares at December
31, 1996; Redeemable at $10,000 Per Share After January 31, 2002 150,000 150,000 150,000
----------- ----------- -----------

STOCKHOLDERS' (DEFICIT)
Class A Common Stock, $.001 Par Value, Authorized 10,000,000
Shares, Outstanding 2,157,880 Shares at December 31, 1995,
2,580,546 Shares at December 31, 1996, and 5,560,000 Shares at March 31, 1997 2,157 2,580 5,560
Class B Common Stock, $.001 Par Value, Authorized 300,000
Shares, Outstanding 60,000 Shares 60 60 60
Class A Preferred, $.001 Par Value, Authorized 900,000 Shares
Outstanding 350,000 Shares 350 350 350
Additional Paid in Capital 1,763,698 1,799,181 2,458,794
Less Notes and Subscriptions Receivable - Common Stock (14,720) (14,720) (36,464)
Deficit Accumulated During the Development Stage (2,380,135) (2,830,869) (2,912,828)
Unrealized Holding Gain on Investment Securities -- 55,200 13,800
----------- ----------- -----------

TOTAL STOCKHOLDERS' (DEFICIT) (783,190) (988,218) (470,728)
----------- ----------- -----------

TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 150,692 $ 208,299 $ 172,418
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

See accompanying notes and independent accountants' report.
F-4

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
From Inception
For the Three Months Ended (October 21, 1983)
March 31, Through
1994 1995 1996 1996 1997 March 31, 1997
--------- --------- --------- --------- --------- ---------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Sale of Fatigue Fuses $ -- $ -- $ -- $ -- $ -- $ 64,505
Sale of Royalty Interests -- -- -- -- -- 198,750
Research and Development Revenue -- -- -- -- 4,555 717,135
Test Services -- -- -- -- -- 10,870
--------- --------- --------- --------- --------- ----------
TOTAL REVENUES -- -- -- -- 4,555 991,260
--------- --------- --------- --------- --------- ----------

COSTS AND EXPENSES
Research and Development 83,360 15,104 10,700 -- 4,555 1,512,851
General and Administrative 295,488 188,745 472,486 150,541 83,094 2,233,602
--------- --------- --------- --------- --------- ----------
TOTAL COSTS AND EXPENSES 378,848 203,849 483,186 150,541 87,649 3,746,453
--------- --------- --------- --------- --------- ----------
INCOME (LOSS) FROM OPERATIONS (378,848) (203,849) (483,186) (150,541) (87,649) (2,755,193)
--------- --------- --------- --------- --------- ----------

OTHER INCOME (EXPENSE)
Expense Reimbursed -- -- 12,275 1,135 (5,392)
Interest Income 1,785 1,928 2,427 507 -- 39,487
Miscellaneous Income -- 4,375 -- -- -- 25,145
Loss on Sale of Equipment -- -- -- -- -- (12,780)
Settlement of Teaming Agreement -- -- -- -- -- 50,000
Litigation Settlement -- -- -- -- -- 18,095
Gain on Sale of Stock -- -- 17,750 9,656 -- 17,750
--------- --------- --------- --------- --------- ----------
TOTAL OTHER INCOME 1,785 6,303 32,452 10,163 1,135 132,305
--------- --------- --------- --------- --------- ----------

NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS AND PROVISION FOR INCOME TAXES (377,063) (197,546) (450,734) (140,378) (81,959) (2,622,888)
PROVISION FOR INCOME TAXES -- -- -- -- -- (7,000)
--------- --------- --------- --------- --------- ----------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS (377,063) (197,546) (450,734) (140,378) (81,959) (2,629,888)
EXTRAORDINARY ITEMS
Forgiveness of Debt -- -- -- -- -- (289,940)
Utilization of Operating Loss Carry forward -- -- -- -- -- 7,000
--------- --------- --------- --------- --------- ----------
NET INCOME (LOSS) $ (377,063) $ (197,546) $ (450,734) $ (140,378) $ (81,959) $(2,912,828)
--------- --------- --------- --------- --------- ----------
--------- --------- --------- --------- --------- ----------

PER SHARE DATA
Income (Loss) Before Extraordinary Item $ (0.17)
Extraordinary Items --
---------
NET INCOME (LOSS) $ (0.17)
---------
---------
COMMON SHARES OUTSTANDING 2,580,546
---------
---------
</TABLE>

See accompanying notes and accountants' report.
F-5

<PAGE>

<TABLE>
<CAPTION>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH DECEMBER 31, 1996

Class A Common Class B Common Class A Preferred Stock
-------------------------- ---------------------- -----------------------
Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount
------------- ------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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 0 -- -- -- --
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 -- -- -- -- -- --
------- ---- ------- ------- ------- -------
</TABLE>

<TABLE>
<CAPTION>
Deficit
Class B Preferred Stock Accumulated
----------------------- Capital During the
Shares in Excess of Development
Outstanding Amount Par Value Stage
----------- --------- ------------ -----------
<S> <C> <C> <C> <C>
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)
------- ------- --------- ---------
</TABLE>

See accompanying notes and independent accountants' report.
F-6

<PAGE>

<TABLE>
<CAPTION>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH DECEMBER 31, 1996

Class A Common Class B Common Class A Preferred Stock
-------------------------- ---------------------- -----------------------
Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount
------------- ------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1985 47,355 47 -- -- -- --
Shares Contributed Back
to Company (315) (0) -- -- -- --
Capital Contribution -- -- -- -- -- --
Sale of 12,166 Warrants at
$1.50 Per Warrant -- -- -- -- -- --
Shares Cancelled (8,758) (9) -- -- -- --
Net (Loss), Year Ended
December 31, 1985 -- -- -- -- -- --
------- --- ------- ------- ------- -------
Balance, January 1, 1986 38,282 38 -- -- -- --
Net (Loss), Year Ended
December 31, 1986 -- -- -- -- -- --
------- --- ------- ------- ------- -------
Balance, January 1, 1987 38,282 38 -- -- -- --
Issuance of Common Stock Upon
Exercise of Warrants 216 0 -- -- -- --
Net (Loss), Year Ended
December 31, 1987 -- -- -- -- -- --
------- --- ------- ------- ------- -------
</TABLE>

Deficit
Class B Preferred Stock Accumulated
----------------------- Capital During the
Shares in Excess of Development
Outstanding Amount Par Value Stage
----------- --------- ------------ -----------

<S> <C> <C> <C> <C>
Balance, January 1, 1985 -- -- 36,397 (26,114)
Shares Contributed Back
to Company -- -- 0 --
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)
------- ------- --------- ---------
</TABLE>

See accompanying notes and independent accountants' report.
F-7

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997

<TABLE>
<CAPTION>
Class A Common Class B Common Class A Preferred Stock
-------------------------- ---------------------- -----------------------
Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount
------------- ------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1988 38,498 38 -- -- -- --
Issuance of Common Stock
Sale of Stock (Unaudited) 2,544 3 -- -- -- --
Services Rendered (Unaudited) 3,179 3 -- -- -- --
Net (Loss), Year Ended
December 31, 1988 (Unaudited) -- -- -- -- --
------- --- ------- ------- ------- -------
Balance, January 1, 1989
(Unaudited), 44,221 44 -- -- -- --
Issuance of Common Stock
Sale of Stock 4,000 4 -- -- -- --
Services Rendered 36,000 36 -- -- -- --
Net (Loss), Year Ended
December 31, 1989 -- -- -- -- -- --
------- --- ------- ------- ------- -------
Balance, January 1, 1990 84,221 84 -- -- -- --
Issuance of Common Stock
Sale of Stock 2,370 2 -- -- -- --
Services Rendered 6,480 7 -- -- -- --
Net Income, Year Ended
December 31, 1990 -- -- -- -- -- --
------- --- ------- ------- ------- -------
</TABLE>

<TABLE>
<CAPTION>
Deficit
Class B Preferred Stock Accumulated
----------------------- Capital During the
Shares in Excess of Development
Outstanding Amount Par Value Stage
----------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Balance, January 1, 1988 -- -- 282,293 (333,938)
Issuance of Common Stock
Sale of Stock (Unaudited) -- -- 101,749 --
Services Rendered (Unaudited) -- -- 70,597
Net (Loss), Year Ended
December 31, 1988 (Unaudited) -- -- -- (142,335)
------- ------- --------- ---------
Balance, January 1, 1989
(Unaudited), -- -- 454,639 (476,273)
Issuance of Common Stock
Sale of Stock -- -- 1,996 --
Services Rendered -- -- 17,964 --
Net (Loss), Year Ended
December 31, 1989 -- -- -- (31,945)
------- ------- --------- ---------
Balance, January 1, 1990 -- -- 474,599 (508,218)
Issuance of Common Stock
Sale of Stock -- -- 59,248 --
Services Rendered -- -- 32,393 --
Net Income, Year Ended
December 31, 1990 -- -- -- 133,894
------- ------- --------- ---------
</TABLE>
See accompanying notes and independent accountants' report.
F-8

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997

<TABLE>
<CAPTION>
Class A Common Class B Common Class A Preferred Stock
-------------------------- ---------------------- -----------------------
Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount
------------- ------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1991 as Restated 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 -- -- -- -- -- --
--------- ----- ------- ------- ------- -------
</TABLE>

<TABLE>
<CAPTION>
Deficit
Class B Preferred Stock Accumulated
----------------------- Capital During the
Shares in Excess of Development
Outstanding Amount Par Value Stage
----------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Balance January 1, 1991 as Restated -- -- 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)
------- ------- --------- ---------
</TABLE>

See accompanying notes and independent accountants' report.
F-9

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997

<CAPTION>
Deficit
Class B Preferred Stock Accumulated
----------------------- Capital During the
Shares in Excess of Development
Outstanding Amount Par Value Stage
----------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Balance December 31, 1992 -- -- 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 (Restated) -- -- -- (929,900)
------- ------- --------- ---------
Balance December 31, 1993 -- -- 1,355,039 (1,805,526)
------- ------- --------- ---------
</TABLE>

See accompanying notes and independent accountants' report.
F-10
<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997

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 - December 31, 1994 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 - December 31, 1995 2,157,880 2,157 60,000 60 350,000 350
========= ===== ======= ======= ======= =======

Issuance of Shares for
Services Rendered -- -- -- --
Sale of Stock 15 150,000 23,300 --
Issuance of Shares for
the Modification of Agreements -- -- (34) --
Net (Loss) for the Year
Ended December 31, 1994 - -- -- -- (377,063)
------- ------- --------- ---------
Balance - December 31, 1994 15 150,000 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 - December 31, 1995 15 150,000 1,763,698 (2,380,135)
======= ======= ========== ==========
</TABLE>

See accompanying notes and independent accountants' report.
F-11
<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997

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 -- -- -- --
</TABLE>

<TABLE>
<CAPTION>
Redeemable Deficit
Class B Preferred Stock Accumulated
----------------------- Capital During the
Shares in Excess of Development
Outstanding Amount Par Value Stage
----------- --------- ------------ -----------
<S> <C> <C> <C> <C>
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 - December 31, 1996 15 150,000 1,799,181 (2,830,869)

Sale of Stock -- -- 99,900 --
Conversion of Indebtedness -- -- 187,793 --
Class A Common Stock Issued
in Cancellation of $372,000
Accrued Wages Due Officer -- -- 370,500 --
</TABLE>

See accompanying notes and independent accountants' report.
F-12

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997

Redeemable Deficit
Class B Preferred Stock Accumulated
----------------------- Capital During the
Shares in Excess of Development
Outstanding Amount Par Value Stage
----------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Issuance of Shares for
Services Rendered -- -- 1,980 --
Adjustment to Give Effect
to Recapitalization on
March 9, 1997 -- -- (560) --
Net (Loss) for the Three
Months Ended March 31, 1997 -- -- -- (81,959)
------- ------- --------- ---------
15 $ 150,000 $ 2,458,794 $(2,912,828)
======= ======= ========== ==========
</TABLE>

See accompanying notes and independent accountants' report.
F-13
<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
From Inception
For the Three Months (October 21, 1983)
December 31, Ended March 31, Through
1994 1995 1996 1996 1997 March 31, 1997
--------- --------- --------- --------- --------- --------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (377,063) $ (197,546) $ (450,734) $ (140,378) $ (81,959) $(2,912,828)
--------- --------- --------- --------- --------- ----------
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided (Used) by Operating Activities
Depreciation and Amortization 5,553 5,555 4,931 1,388 1,194 160,909
Gain on Sale of Tensiodyne
Corporation Common Stock -- -- (17,750) (9,656) (17,750)
Charge off of Deferred Offering Costs -- 31,480 -- -- -- 31,480
(Increase) Decrease in Accounts Receivable -- -- -- -- (4,555) (4,555)
(Increase) Decrease in Prepaid Expenses -- -- (1,472) -- 625 (847)
Loss on Sale of Equipment -- -- -- -- -- 12,780
Issuance of Common Stock for Services 223 -- 16,467 -- 2,000 297,965
Issuance of Common Stock for
Agreement Modifications -- 152 -- -- -- 152
Forgiveness of Indebtedness -- -- -- -- -- 165,000
Increase (Decrease) in Accounts -- --
Payable and Accrued Expenses 97,612 16,032 238,957 100,000 53,644 606,179
Interest Accrued on Notes Payable -- 10,870 17,681 3,917 -- 28,551
Increase in Research and Development --
Sponsorship Payable -- -- -- -- 188,495
(Increase) in Note for Litigation Settlement (1,766) (1,921) (2,092) (507) -- (25,753)
(Increase) in Deposits -- -- -- -- -- (2,189)
--------- --------- --------- --------- --------- ----------
TOTAL ADJUSTMENTS 101,622 62,168 256,722 95,142 35,158 1,458,167
--------- --------- --------- --------- --------- ----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (275,441) (135,378) (194,012) (45,236) (46,801) (1,454,661)
--------- --------- --------- --------- --------- ----------

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From Sale of Equipment -- -- -- -- -- 10,250
Purchase of Property and Equipment -- -- -- -- -- (226,109)
Proceeds from Sale of Tensiodyne Corporation
Common Stock -- -- 17,750 9,656 17,750 --
(Increase) in Other Assets -- -- -- -- -- (69,069)
Payment for License Agreement -- -- -- -- -- (6,250)
--------- --------- --------- --------- --------- ----------

NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES -- -- 17,750 9,656 17,750 (291,178)
--------- --------- --------- --------- --------- ----------

CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Common Stock Net of Offering Costs 24,787 -- 174,040 25,000 78,256 810,575
Costs incurred in Offering (31,480) -- -- -- -- (31,480)
Sale of Common Stock Warrants -- -- -- -- -- 18,250
Sale of Preferred Stock -- -- -- -- -- 258,500
Sale of Redeemable Preferred Stock 140,000 -- -- -- -- 150,000
Capital Contributions -- -- -- -- -- 301,068
Proceeds From Note Payable -- -- -- -- -- --
Payment on Proposed Reorganization -- -- (5,000) -- (5,000)
Loans From Officers 135,050 100,874 43,250 26,250 19,000 375,307
Repayments to Officer (78,446) (16,000) (64,676) -- (63,000) (293,262)
Increase in Loan Payable-Others 78,495 58,000 25,000 -- -- 164,664
--------- --------- --------- --------- --------- ----------
</TABLE>

See accompanying notes and accountants' report.
F-14

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

From Inception
For the Three Months Ended (October 21, 1983)
December 31, March 31, Through
1994 1995 1996 1996 1997 March 31, 1997
--------- --------- --------- --------- --------- --------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 268,406 $ 142,874 $ 172,614 $ 51,250 $ 34,256 $ 1,748,622
--------- --------- --------- --------- --------- ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (7,035) 7,496 (3,648) 15,670 5,205 2,783
BEGINNING BALANCE - CASH AND
CASH EQUIVALENTS 765 (6,270) 1,226 1,226 (2,422) --
--------- --------- --------- --------- --------- ------------
ENDING BALANCE - CASH AND CASH
EQUIVALENTS $ (6,270) $ 1,226 $ (2,422) $ 16,896 2,783 $ 2,783
--------- --------- --------- --------- --------- ------------
--------- --------- --------- --------- --------- ------------

</TABLE>

SUPPLEMENTAL INFORMATION:

A. Definition of Cash and Cash Equivalents

For the purpose of the statements of cash flows, all highly liquid
investments with a maturity of three months or less are considered
to be cash equivalents.

B. During the periods from the date of inception (October 21, 1983)
to December 31, 1995, there have been no cash payments for income
taxes or interest.

During 1996, the Company made interest payments totalling $2,000.
There were no payments in 1996 for income taxes.

C. Non Cash Investing and Financing Activities

During 1994, the Company authorzed the issuance to certain
directors and to members of its advisory board a total of 198,000
shares of its Class A Common Stock.

Also in 1994, the Company authorized the issuance of 15,000 to unrelated
third parties for services rendered to the Company and also authorized
the issuance of 10,000 shares of Class A Common Stock to its president
for past services.

During 1995, the Company forgave $154,600 on an obligation due
from the Company's President in consideration for the President returning
62,000 shares of the Company's Class A Common Stock to its treasury.

During 1995, the Company also issued 152,500 shares of its Class A
Common stock to third parties in consideration for the modification
of certain agreements.

During 1996, the Company issued 250,000 shares of its Class A Common
stock in consideration for the cancellation of a 2.5% royalty interest in
the Company's Fatigue Fuse

During 1996, a unrelated third party assigned his interest in a $55,000
loan owed him by the Company to the Company's President.

See accompanying notes and accountants' report.
F-15

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS

Note 1 - Organization

Material Technologies, Inc. (the "Company") was organized on March 4, 1997,
under the laws of the state of Delaware.

On March 9, 1997, the Company's Board of Directors authorized the issuance
of 5,560,000 of its Class A Common Stock to Material Technology, Inc.
("Matech 1") in exchange for all of Matech 1's operations including all of
its assets and the assumption of all of Matech 1's liabilities.

The formation of this subsidiary and related transfer of assets and
liabilities is in connection with a February 17, 1997 Stock Purchase
Agreement among Matech 1, Montpilier Holdings, Inc., SecurFone America,
Inc. and the Company's President. Under this agreement, the parties
intend to effect a reverse merger of SecurFone into Matech 1 immediately
after the distribution of this Company's stock to the shareholders of
Matech 1 (See Note 15).

A schedule of the assets and liabilities acquired is as follows:

Assets
Prepaid Expenses $ 6,472
Property & Equipment
Net 98,016
Licensing Agreement and
Patents 20,669
Notes Receivable 25,753
Other Assets 57,389
---------
$ 208,299
---------
---------

F-16

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS

Note 1 - Organization (continued)

Liabilities
Bank Overdraft $ (2,422)
Payables and Other
Accrued Expenses (180,536)
Accrued Salaries
- Officer (372,000)
Loans Payable - Officer (56,846)
Loans Payable - Other (57,627)
Note Payable on
Licensing Agreement (188,495)
------------

(857,926)
Redeemable Preferred
Stock (150,000)
------------
Liabilities in Excess
of Assets Transferred $ (799,627)
------------
------------

The amounts reflected above are the balances reflected in Matech 1's
audited balance sheet as of December 31, 1996, adjusted to take into effect
the conversion of certain loans due a shareholder and the Company's
President as discussed further in Notes B and 12. Management has determined
that the activity between this balance sheet date and the actual date of
transfer is immaterial.

For financial reporting purposes, the above transaction was treated as a
recapitalization. Therefore, the assets and liabilities transferred have
been recorded at historical cost.

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 which may be paid in
the future will depend on the financial requirements of the Company and
other relevant factors.

F-17

<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS

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 4).

c. Net Loss Per Share

Net loss per share is computed pursuant to SAB Topic
1.B.2.

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.

Note 3 - Realization of Assets

The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which
contemplate continuation of the Company as a going concern. However,
the Company has sustained substantial operating losses totaling
$2,824,669 since its inception through December 31,1996. These
continuing losses are an indication that the Company may not be able
to continue to operate.

F-18

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS

Note 3 - Realization of Assets

The Company anticipates that it needs approximately $5,000,000 in order to
complete the development and marketing of its two products. Management
believes the source of the $5,000,000 will be through government grants,
sale of the Company's stock, entering into joint ventures, and or through
the sale of royalty interests.

Note 4 - Intangibles

Intangible assets consist of the following:

Period of December 31,
Amortization 1995 1996
------------ -------- --------

Patent Costs 17 Years $ 28,494 $ 28,494
Organization Costs 5 Years 9,076 9,076
License Agreement 20 Years 6,250 6,250
(See Note 7) -------- --------

43,820 43,820
Less Accumulated Amortization (21,162) (23,151)
-------- --------

$ 22,658 $ 20,669
-------- --------
-------- --------

Amortization charged to operations for 1994, 1995, and 1996, were $1,988,
$1,988 and $1,989, respectively.

Note 5 - Litigation Settlement

On October 26, 1992, the Company agreed to an out-of-court settlement
resulting from improprieties by its chief technical consultant, who was
also an officer and director. The settlement resulted in a return from the
individual of 5,650 shares of the Company's common stock, a return of 600
warrants to purchase 600 shares of common stock, and a promissory note for
$50,000 secured by a mortgage interest on the individual's residence.

The note is non-interest bearing due and payable upon either the death of the
individual's spouse or upon conveyance or attempted conveyance of any interest
in

F-19

<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS

Note 5 - Litigation Settlement (continued)

the individual's residence. Interest has been imputed pursuant to APB-21
at an annual rate of 8.5%. The balance of this note as of December 31,
1995, and 1996, was $23,661 and $25,753, respectively.

As of December 31, 1996, the note was in default due to the failure by the
individual to maintain insurance on the property and to pay property taxes.
The Company commenced foreclosure proceedings with a public foreclosure
sale pending and scheduled for March 1997. Management estimates that the
net amount the Company should receive on the sale of the property
approximates the balance of the note as of December 31, 1996. Accrued
interest credited to operations for the years 1994, 1995 and 1996 were
$1,766, $1,929 and $2,091, respectively.

Note 6 - License Agreement

The Company has entered into a license agreement with the University of
Pennsylvania regarding the development and marketing of the Electrochemical
Fatigue Sensor. The Sensor 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 Sensor.

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. Under the
terms of the agreement, the license terminates upon the expiration of the
underlying patents, unless sooner terminated as provided in the agreement.
The Company is amortizing the license over 20 years.

In addition to entering into the licensing agreement, the Company also
agreed to sponsor the development of the Sensor. Under the Sponsorship
agreement, the Company agreed to reimburse the University development costs
totaling approximately $200,000 which was to be paid in 18 monthly
installments of $11,112. The research and development costs are recorded
at present value, using an annual interest rate of 8.5%. At December 31,
1995, and 1996, the present value of this obligation was $188,494. The
Company charged the full $188,494 to operations as research and development
in 1993. The Company has not made any payments toward this obligation.

F-20

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS

Note 6 - License Agreement (continued)

Pursuant to the terms of the agreement, the Company reimbursed the
University in 1996, $10,000 for the cost it incurred in the prosecution and
maintenance of its patents relating to the Electrochemical Fatigue Sensor.

The Company and the University have agreed to modify the terms of the
licensing agreement and related obligation. The terms of the modified
agreements include an increase in the University's royalty to 7% of the
sale of related products, the issuance of additional shares of the
Company's Class A 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 owed to the University.

Note 7 - Property and Equipment

The following is a summary of property and equipment:

December 31,
1995 1996
---- ----
Office Equipment $ 14,345 $ 14,345
Remote Monitoring system 97,160 97,160
Manufacturing Equipment 100,067 100,067
------- -------
211,572 211,572
Less: Accumulated
Depreciation (110,614) (113,556)
------- -------
$100,958 $ 98,016
------- -------
------- -------

Depreciation charged to operations was $3,567, $3,566 and $2,942 in 1994,
1995, and 1996, respectively. The useful lives of office and manufacturing
equipment for the purpose of computing depreciation is five years.

The Company's equipment has been pledged as collateral on the note payable
to Advanced Technology Center (See Note 9(b).

F-21

<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS

Note 7 - Property and Equipment (continued)

The Company has entered into an agreement dated April 1, 1993, with the
University of Pennsylvania acting through the Laboratory for Research on
the Structure of Matter ("LRSM") to loan certain manufacturing equipment to
the LRSM for instructional and research related purposes for a period of 5
years, beginning December 1, 1992, and ending December 1, 1997. Upon
expiration of the five year period, LRSM may retain the right to borrow the
equipment for another 5 year period. In exchange for loaning the equipment
to LRSM, the Company receives substantial testing from LRSM which aides the
Company in the development of the Fatigue Fuse. Upon the expiration of the
second five year period, LRSM has the option to purchase the equipment at
its fair market value then prevailing.

Under the terms of the agreement, LRSM shall perform 1,200 hours of
research and testing of materials to be used in conjunction with the
Fatigue Fuse.

Note 8 - 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 which is
assessed interest at major bank prime rate. The principal and all accrued
interest is fully due and payable in 2 years, but the Company is required
to pay-off the loan and accrued interest in full from the proceeds of any
independent financing.

As additional consideration for the loan, the Company granted to Mr. Baker,
a 1% royalty interest in the Fatigue Fuse and a .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,
1995 and 1996 was $29,270 and $32,459, respectively.

The Company did not pay any amounts due on this note when it matured on May
26, 1996, and the note is in default.

F-22

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS

Note 8 - Notes Payable (continued)

In addition, the Company borrowed an additional $58,000 from Mr. Baker in
1995. Under the terms of the loan agreement, interest accrues on this loan
at the prime lending rate of Mellon Bank N.A., and is fully payable with
accrued interest on June 11, 2000. At the option of Mr. Baker, he can
convert the balance due at any time into approximately 280,000 shares of
the Company's Class A common stock. The balances due on this note as of
December 31, 1995, and 1996 were approximately $60,829 and $65,893,
respectively.

In March 1997, Mr. Baker converted the balance owed him into the 280,000
shares of Common Stock.

In October 1997, the Company borrowed $25,000 from an unrelated third
party. Under the terms of the promissory note, the loan is assessed
interest at an annual rate of 10% and matures on October 15, 1998. The
loan is convertible at any time prior to payoff at the option of the payee
into 25,000 shares of the Company's Class A Common Stock. Interest charged
to operations on this loan in 1996 amounted to approximately $527.

Note 9 - 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
which requires the recognition of 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
can not be determined when, or if, the tax benefits derived from these
operating losses will materialize.

F-23

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS

Note 10 - Commitments and Contingencies

The Company's commitments and contingencies are as follows:

a. On December 24, 1985, in order to provide funding for research and
development related to the Fatigue Fuse, the Company entered into
various agreements with the Tensiodyne 1985-I R & D Partnership.
These agreements were amended on October 9, 1989, and under the
revised terms, obligated the Company to pay the Partnership a royalty
of 10% of future gross sales. The Company's obligation to the
Partnership is limited to the capital contributed to it by its
partners in the amount of approximately $912,500 and accrued interest.

b. On August 30, 1986, the Company entered into a funding agreement with
the Advanced Technology Center ("ATC"), whereby ATC paid $45,000 to
the Company for the purchase of a royalty of 3% of future gross sales
and 6% of sublicensing revenue. The royalty is limited to the $45,000
plus an 11% annual rate of return. At December 31, 1995, and 1996,
the future royalty commitment was limited to $107,510 and $119,336,
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, 1995, and 1996, the total future royalty commitments,
including the accumulated 26% annual rate of return, was limited to
approximately $440,265, and $554,734, respectively. The future
royalties are secured by the Company's patents, products, and accounts
receivable, which may be related to technology developed with the
funding.

F-24

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS

Note 10 - Commitments and Contingencies (Continued)

d. In 1994, the Company issued to Variety Investments, Ltd. of Vancouver,
Canada ("Variety"), a 22.5% royalty interest on the Fatigue Fuse in
consideration for the cancellation of cash advances made to the
Company by Variety.

In December 1996, in exchange for the issuance by the Company of
250,000 shares of its Class A Common Stock, Variety reduced its
royalty interest to 20%.

e. Under an agreement which was effective February 2, 1994, Tensiodyne
Corporation, the Company's former parent, was obligated to provide
$5,100,000 in financing.

During 1994, the Company received $150,000 under this agreement in
exchange for the issuance of 7,560 shares of its Class A common stock
and 15 shares of its Redeemable Class B Preferred Stock. The $150,000
has been classified for financial purposes as Redeemable Preferred
Stock.

The Shareholders of the preferred stock have the right of redemption
at $10,000 per share, if the preferred shares are not redeemed by the
Company within 10 years of issuance.

Dividends are payable on the preferred shares to the same extent as
aggregate dividends on the number of shares of common stock equal to
30% of shares of the Company's common stock outstanding on the closing
date. The holders of the preferred shares will be allowed to elect a
director of the Company.

Tensiodyne was not able to fund the full amount of its obligation to
the Company and on November 22, 1994, the Company filed suit against
Tensiodyne for breach of contract. On March 28, 1995, a settlement
agreement was entered into whereby Tensiodyne issued to the Company
6,375,000 shares of its Common Stock. The proceeds received from the
sale of these shares will be used to reduce Tensiodyne's obligation to
pay the remaining balance owing of $4,950,000 and accrued interest
which is assessed under the settlement agreement at 7% per annum.

F-25

<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS

Note 10 - Commitments and Contingencies (Continued)

The Company also received upon the signing of the settlement agreement
250,000 shares of Tensiodyne common stock.

Management believes that Tensiodyne has insufficient capital to meet
its obligation to pay any of the amounts owed and the Company will
have to rely on the proceeds it receives through the sale of the
Tensiodyne shares to reduce the amount due.

The shares received are subject to restrictions imposed under SEC Rule
144. Based upon these restrictions and the limited market in which to
sell the Tensiodyne stock, it is impractical to estimate the full
value of the obligation owed the Company by Tensiodyne.

On December 30, 1996, an agreement was entered into whereby Tensiodyne
agreed to exchange the 15 shares of Redeemable Class B Preferred Stock
it owned in Matech 1 for 15 shares of the Company's Redeemable Class B
Preferred Stock. The rights of the new issuance will be the same as
the rights of the shares exchanged except the shares in the Company
will be redeemable two years earlier on January 31, 2002. In
consideration for the exchange, the Company paid Tensiodyne $5,000.

f. The Company entered into an agreement with an unrelated third party
for providing the idea of pursuing a government contract for the
funding of the development of the Company's technologies, under which
he would receive a number of the Company's Class A 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 government
contract, and an appointment to the Company's Board of Directors.
Funds due him will be paid only when such funds become available to
the Company.

The Company's obligation is created on the date the government
contract is signed. Under the agreement with this individual, the
amounts due will be evidenced by a promissory note bearing interest at
major bank prime.

F-26

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS

Note 10 - Commitments and Contingencies (Continued)

Interest accrues nine months after the government contract is
executed, and is payable quarterly. The principal balance and any
accrued interest is paid through funds raised or earned by the
Company. The Company is obligated to pay 12.5% of the first
$1,000,000 earned or raised and 15% of any amount in excess of the
$1,000,000.

The Agreement contains anti-dilution provisions relating to the shares
to be issued which 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. The personal guarantee expires upon the individual receiving
$100,000.

g. As discussed in Note 8, 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 which the Company has granted and are
outstanding as of December 31, 1996, follows:

Fatigue Fatigue
Fuse Sensor
----------------- ------

Tensiodyne 1985-1 R&D Partnership --* --
Advanced Technology Center
Future Gross Sales 6.00%* --
Sublicensing Fees --** --
Variety Investments, Ltd 20.00% --
University of Pennsylvania
Net Sales of Licensed Products --
7.00% Net Sales of Services -- 2.50%
Sherman Baker 1.00% 0.50%
----- -----

27.00% 10.00%
------ ------
------ ------

*Royalties limited to specific rates of return as discussed in Notes
10(a) and (c) above.

F-27

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS

Note 10 - Commitments and Contingencies (Continued)

** The Company granted 12% royalties on sales from sublicensing.
These royalties are also limited to specific rates of return as
discussed in Note 11(c) above.

h. The Company has a teaming agreement with Southwest Research Institute
("SWRI") and the University of Pennsylvania (Collectively known as the
"Team"). On February 25, 1997, the United States Air Force awarded
the Team a $2,500,000 Phase I contract to "determine the feasibility
of [the Company's Electrochemical Fatigue Sensor ("EFS")] to improve
the Unites States Air Force capability to perform durability
assessments of military aircraft, including both air frames and
engines through the application of EFS to specific military aircraft
alloys". The Company is a subcontractor to SWRI and its share of the
award is approximately $550,000 which is to be disbursed for specific
purposes as defined in the contract.

Note 11 - Investments

The Company through a settlement with Tensiodyne Corporation received
6,625,000 of Class A Common Stock of Tensiodyne Corporation. These
shares are restricted and subject to Rule 144 of the Securities and
Exchange Commission. During 1996, the Company received approximately
$17,750 through the sale of 50,000 shares of Tensiodyne Corporation
stock.

As of December 31, 1996, of the remaining 6,575,000 shares owned by
the Company, approximately 690,000 shares were free trading. The
Company is accounting for the free trading shares pursuant to FASB
Statement 115. The 690,000 shares were valued at their market value
using the price as quoted on the bulletin board at December 31, 1996,
of $.08 per share. The Company has classified these shares as
available for sale and the unrealized gain on these shares at December
31, 1996, amounting to $55,200 has been classified to stockholders'
deficit.

F-28

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS

Note 12 - Stockholders' Equity

a. Warrants

On August 10, 1994, the Company granted 994,500 Class A Warrants to
Mr. Robert Bernstein, 170,000 Class A Warrants to Mr. Joel Freedman,
and 535,500 Class A Warrants to certain preferred shareholders. Each
Class A Warrant entitles the registered holder to purchase one share
of Class A Common Stock of the Company for $.50. On December 15,
1995, the Company's Board of Directors extended the expiration date of
the Warrants from August 22, 1996 to August 22, 1999.

At the dates of the original grant and subsequent extension, the
exercise price was greater than market value, therefore, no
compensation costs were recognized.

b. Class A Common Stock

The holders of the Company's Class A Common Stock are entitled to one
vote per share of common stock held.

c. 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 200 votes for each share of Class B Common held.

d. 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 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 Class A Common Stock. The holders of these
shares have a liquidation preference to receive out of assets of the
Company, an amount

F-29

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS

Note 12 - Stockholders' Equity (Continued)

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 which 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.

e. Redeemable Preferred Stock

The Company has authorized a class of 900,000 shares of preferred
stock ($.001 par value) of which 100 shares have been designated Class
B Preferred Shares.

The holders of these shares have a liquidation preference to receive
out of assets of the Company, an amount equal to $10,000 per share.
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.

The holders of these preferred shares shall have the right to vote and
cast one vote per share on all matters on which the holders of common
stock have the right to vote. The holders of these shares shall be
entitled by class to vote to elect one member of the board of
directors and to vote as a class

F-30

<PAGE>

to remove any director so elected. The holders of these shares shall
participate in all cash dividends declared and paid with respect to
the

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS

Note 12 - Stockholders' Equity (Continued)

to remove any director so elected. The holders of these shares shall
participate in all cash dividends declared and paid with respect to
the Common Stock based upon a set formula as defined in the Company's
Class B Preferred Stock Certificate of Designation.

These shares may be redeemed at the option of the Corporation at any
time upon the payment of $10,000 per share, plus any unpaid dividend
to which the holders are entitled. The shares shall be redeemed at the
option of the holders thereof at any time after January 31, 2002.

g. Issuances Involving Non-cash Consideration

All issuances of the Company's stock for non-cash consideration have
been assign a dollar amount equaling either the market value of the
shares issued or the value of consideration received whichever is more
readably determinable. The majority of the non-cash consideration
received pertains to services rendered by consultants and others.

Note 13 - Transactions With Management

a. On December 10, 1992, the Company issued to Mr. Robert M. Bernstein,
the President of the Company, 60,000 shares of the Company's Class B
common stock. In exchange for the stock, Mr. Bernstein executed a
five year non-interest bearing note for $15,000. The Note is
non-recourse as the only security pledged for the obligation was the
stock purchased.

b. During 1993, Mr. Bernstein exercised warrants to purchase 56,000
shares of the Company's Class A common stock. Pursuant to the
resolution on April 12, 1993, adjusting the per share amount from
$10.00 to $2.50, Mr. Bernstein paid $560 and executed two five year
non-interest bearing notes

F-31

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS

Note 13 - Transactions With Management (continued)

to the Company for $124,500 and $14,940. The Note is non-recourse as
the only security pledged for the obligation was the stock purchased.

c. On February 28, 1994, the Company authorized the issuance of 10,000
shares of Class A Common Stock to Mr. Bernstein for past services.

d. In March 1994, Mr. Bernstein advanced the Company $48,750 of which
$12,000 was canceled in exchange for the issuance of 1,200,000 shares
of the Company's Class A Common Stock. Of these shares purchased, Mr.
Bernstein sold 420,000 shares for $4,200 to Joel Freedman and certain
preferred shareholders.

e. In 1994, the president and a director of the Company purchased 278,550
shares of the Company's Class A common stock for $2,786.

f. In 1995, the Company's Board of Directors amended the Company's
By-Laws increasing the number of Directors from 2 to 3, and
establishing an advisory board consisting of 7 people.

The Company authorized the issuance of 58,000 shares of its Class A
Common Stock to the new board member and authorized the issuance of
20,000 shares of its Class A Common Stock to each member of the
advisory board. Each member must serve on the advisory board for at
least 2 years or will have to return the issued shares back to the
Company.

g. On June 12, 1995, $108,000 of the total advances made by the Company's
President to the Company was converted into an interest bearing loan.
The loan is assessed interest at Mellon Bank, N.A. prime lending rate
and is convertible into 520,000 shares of the Company's Class A Common
Stock on a pro rata basis. The loan matures in five years and the
conversion of the $108,000 or any portion thereof can occur any time
prior to maturity.

In March 1997, the President converted the balance owed him into
520,000 shares of Common Stock.

F-32

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS

h. In 1995, the Company forgave $154,600 on an obligation due from the
Company's President in consideration for the President returning
62,000 shares of the Company's Class A Common Stock to the Company's
Treasury.

Note 13 - Transactions With Management (continued)

i. During 1996, the Company's President made advances to the Company
totaling approximately $43,250. During 1996, the Company paid back to
the President approximately $64,676.

During 1996, a loan owed by the Company to an unrelated third party in
the amount of $55,000 was assigned to the Company's President. The
total amounts owed the president of the Company as of December 31,
1995 and 1996 amounted to $136,540 and $179,544, respectively. The
amount of accrued interest charged to operations on the President's
loans were $5,268 in 1995, and $9,430 in 1996.

In 1996, the Company issued the President 62,000 shares of its Class A
Common Stock for services.

Note 14 - Stock Option Plan

In January 1996, the Company registered with the Securities Exchange
Commission its 1996 Stock Option Plan. The plan was formed to
encourage ownership of the Common Stock of the Company by key
employees, advisors, consultants, and officers providing service to
the Company. 120,000 shares of Class A Common Stock are reserved
under the plan. The option price will be determined by a Committee
appointed by the Company's Board of Directors. 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.

F-33

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS

Note 14 - Stock Option Plan (continued)

During 1996, the Company received $174,040 through the issuance of
70,000 shares of the Company's Class A Common Stock through the plan.

Note 15 - Subsequent Events

The Company is in the process of preparing a registration statement
under the Securities Act of 1993 whereby the Company will register
369,172 shares of its common stock which will then distributed to
shareholders of Matech.

During the three month period ended March 31, 1997, the Company issued
100,000 shares of its Class A Common Stock. The amount received in
1997 to date amounted to approximately $78,256. The remaining balance
due is secured by 3,300 shares of Nevada Manhattan common stock.

During the three month period ended March 31, 1997, the Company
cancelled the approximately $372,000 of accrued salary owed the
Company's President in exchange for issuing to him 1,499,454 shares of
the Company's Class A Common Stock.

F-34

<PAGE>

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS

NOTES TO UNAUDITED FINANCIAL STATEMENTS

Note 1. Summary of Accounting Policies

In the opinion of the Company's Management, the accompanying unaudited
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position
of the Company as of March 31, 1996 and 1995, and the results of
operations and cash flows for the three month periods then ended. The
operating results of the Company on a quarterly basis may not be
indicative of the operating results for the full year.

Note 2. Investments

As of March 31, 1997, of the remaining 6,575,000 shares of Tensiodyne
Corporation Common Stock owned by the Company, approximately 690,000
shares were free trading and were valued at their market value using
the price as quoted on the bulletin board at March 31, 1997, of $.02
per share. The Company has classified these shares as available for
sale and the unrealized loss on these shares at March 31, 1997,
amounting to $41,400 has been classified to stockholders' deficit.

F-35

<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

No dealer, sales person, or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus in connection with the distribution made by this Prospectus, and, if
given or made, such information or representations must not be relied upon as
having beeen authorized by the Company. Neither the delivery of this Prospectus
nor any distribution made hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is correct as of any
date subsequent to the date hereof. This Prospectus does not constitute an
offer to sell or solicitation to buy the Shares of the Company.

MATERIAL
TECHNOLOGIES, INC.

369,172 SHARES OF CLASS A COMMON STOCK

PROSPECTUS

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

Fees and expenses incurred or to be incurred in connection with the distribution
of securities being registered are as follows:

Securities and Exchange Commission filing fee $11
State Securities Laws (Blue Sky) fees and expenses $5,000 (Estimated)
Transfer Agent's Fees $500 (Estimated)
Printing and mailing expenses $3,000 (Estimated)
Legal fees and costs $30,000 (Estimated)
Accounting fees and costs $5,000
Miscellaneous Expenses $3,000 (Estimated)
------ -----------
TOTAL $46,511

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

In accordance with Delaware general corporation law, the Company has included a
provision in its Certificate of Incorporation to limit the personal liability of
its directors for violation of their fiduciary duty. The provision serves to
eliminate such directors' liability to the Company or its stockholders for
monetary damages, except for (i) any breach of the director's duty of loyalty to
the Company or its 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

II-1
<PAGE>

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 may be permitted to directors, officers, or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is
therefore unenforceable.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

On March 9, 1997, the Company's Board authorized the issuance 5,560,000 shares
of its Class A Common Stock to Material Technology, Inc., in connection with the
February 17, 1997 Stock Purchase Agreement among Montpilier Holdings, Inc.,
SecurFone America, Inc., Material Technology, Inc., and Robert M. Bernstein.
Material Technology, Inc., will retain 560,000 shares and the remaining
5,000,000 shares are being distributed on the effective date of this
registration statement to the holders of Material Technology, Inc.'s 5,000,000
shares of common stock in a ratio of one to one as follows: (a) 2,936,130 to
Robert M. Bernstein, (b) 339,172 to 405 shareholders of Material Technology,
Inc., under this registration statement, and (c) 1,724,698 shares to insiders
and affiliates including 1,580,441 shares to the Baker Group.

On March 9, 1997, the Company's Board authorized the issuance of 60,000 shares
of Class B Common Stock to Robert M. Bernstein.

On March 9, 1997, the Company's Board authorized the issuance of 350,000 shares
Class A Preferred Stock to the Baker Group.

On March 9, 1997, the Company's Board authorized the issuance of 15 shares of
Class B Convertible Preferred to Tensiodyne Corporation.

On March 9, 1997, the Company's Board authorized the issuance of 1,700,000 Class
A Warrants, 994,500 to Robert M. Bernstein, 170,000 to Joel Freedman, and
535,500 to Sherman Baker and his associates.

For additional information concerning these transactions, see "Principal
Stockholders" and "Warrants."

The securities were issued in reliance upon applicable exemptions including the
exemption from the registration contained in Section 4(2) of the Securities Act
of 1933, as amended (the "Act"). The issuances did not involve public offerings
of securities, no general solicitation or advertising was involved in connection
with the offering and the purchasers took for investment only and not with a
view to distribution of the securities.

II-2

<PAGE>

ITEM 16. EXHIBITS

- --------------------------------------------------------------------------------
Exhibit No. Description Page No.
- --------------------------------------------------------------------------------

2.1 Stock Purchase Agreement among Montpilier Holdings, Previously
Inc., SecurFone America, Inc., Material Technology, filed
Inc., and Robert M. Bernstein

- --------------------------------------------------------------------------------

2.2 Letter Agreement among Montpilier Holdings, Inc., Previously
Material Technology, Inc., and Robert M. Bernstein filed

- --------------------------------------------------------------------------------

3(i) Certificate of Incorporation of Material Technologies, Previously
Inc. filed

- --------------------------------------------------------------------------------

3(ii) Bylaws of Material Technologies, Inc. Previously
filed

- --------------------------------------------------------------------------------

4.1 Class A Convertible Preferred Stock Certificate of Previously
Designations filed

- --------------------------------------------------------------------------------

4.2 Class B Convertible Preferred Stock Certificate of Previously
Designations filed

- --------------------------------------------------------------------------------

5 Opinion of C. Timothy Smoot re legality Previously
filed

- --------------------------------------------------------------------------------

10.1 License Agreement Between Tensiodyne Corporation and Previously
the Trustees of the University of Pennsylvania filed

- --------------------------------------------------------------------------------

10.2 Sponsored Research Agreement between Tensiodyne Previously
Corporation and the Trustees of the University of filed
Pennsylvania

- --------------------------------------------------------------------------------

10.3 Amendment to License Agreement Between Tensiodyne Previously
Scientific Corporation and the Trustees of the filed
University of Pennsylvania

- --------------------------------------------------------------------------------

10.4 Repayment Agreement Between Tensiodyne Scientific Previously
Corporation and the Trustees of the University of filed
Pennsylvania

- --------------------------------------------------------------------------------

10.5 Teaming Agreement Between Tensiodyne Scientific Previously
Corporation and Southwest Research Institute filed

- --------------------------------------------------------------------------------

10.6 Letter Agreement between Tensiodyne Scientific Previously
Corporation, Robert M. Bernstein, and Stephen Forrest filed
Beck and Handwritten modification.

- --------------------------------------------------------------------------------

10.7 Agreement Between Tensiodyne Corporation and Tensiodyne Previously
1985-1 R&D Partnership is incorporated by reference filed
from Exhibit 10.3 of Material Technology, Inc.'s S-1
Registration Statement, File No. 33-83526 which became
effective on January 19, 1996.

- --------------------------------------------------------------------------------

10.8 Amendment to Agreement Between Material Technology, Previously
Inc. and Tensiodyne 1985-1 R&D Partnership is filed
incorporated by reference from Exhibit 10.6 of Material
Technology, Inc.'s S-1 Registration Statement, File No.
33-83526 which became effective on January 19, 1996.

- --------------------------------------------------------------------------------

10.9 Agreement Between Advanced Technology Center of Previously
Southeastern Pennsylvania and Material Technology, Inc. filed
is incorporated by reference from Exhibit 10.4 of
Material Technology, Inc.'s S-1 Registration Statement,
File No. 33-83526 which became effective on January 19,
1996.

- --------------------------------------------------------------------------------

10.10 Addendum to Agreement Between Advanced Technology Previously
Center of Southeastern Pennsylvania and Material filed
Technology, Inc. is incorporated by reference from
Exhibit 10.5 of Material Technology, Inc.'s S-1 Regis-
tration Statement, File No. 33-83526 which became
effective on January 19, 1996.

- --------------------------------------------------------------------------------

10.11 Shareholder Agreement Between Tensiodyne Corporation, Previously
Variety Investments, Ltd. and Countryman Investments, filed
Ltd. is incorporated by reference from Exhibit 10.7 of
Material Technology, Inc.'s S-1

- --------------------------------------------------------------------------------

II-3

<PAGE>

- --------------------------------------------------------------------------------
Registration Statement, File No. 33-83526 which became
effective on January 19, 1996.
- --------------------------------------------------------------------------------

10.12 Agreement and Plan of Reorganization By and Between Previously
Tensiodyne Corporation, Pegasus Technologies, Inc. and filed
Lloyd and E. Anne Eisenhower and Doug Froom is
incorporated by reference from Exhibit 2.1 of Material
Technology, Inc.'s S-1 Registration Statement, File No.
33-83526 which became effective on January 19, 1996.

- --------------------------------------------------------------------------------

10.13 Settlement Agreement and Modification to Agreement and Previously
Plan of Reorganization is incorporated by reference filed
from Exhibit 2.3 of Material Technology, Inc.'s S-1
Registration Statement, File No. 33-83526 which became
effective on January 19, 1996.

- --------------------------------------------------------------------------------

10.14 Equipment Loan Agreement between Tensiodyne and the Previously
University of Pennsylvania is incorporated by reference filed
from Exhibit 10.8 of Material Technology, Inc.'s S-1
Registration Statement, File No. 33-83526 which became
effective on January 19, 1996.

- --------------------------------------------------------------------------------

23.1 Consent of Jonathan P. Reuben, C.P.A., An Accountancy Previously
Corporation filed

- --------------------------------------------------------------------------------

23.2 Consent of C. Timothy Smoot, Attorney Previously
filed

- --------------------------------------------------------------------------------

27 Financial Data Schedule Previously
filed

- --------------------------------------------------------------------------------

II-4

<PAGE>

ITEM 17. UNDERTAKINGS

ITEM 512(h) - Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant 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
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant 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 registrant will, unless in
the opinion of its counsel the 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.

II-5

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1993, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California, on the 13th day of May, 1997.

Registrant: MATERIAL TECHNOLOGIES, INC.

By: Robert M. Bernstein
Robert M. Bernstein
President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

Signature Title Date
---------

Robert M. Bernstein Chairman of the Board, President, May 13, 1997
Robert M. Bernstein Chief Executive Officer, Chief
Financial Officer (Principal
Executive Officer, Principal
Financial Officer, and Principal
Accounting Officer)

Joel Freedman Director and Secretary May 13, 1997
Joel Freedman

John Goodman Director May 13, 1997
John Goodman

II-6