<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported) July 31, 1997
-------------------------------
SECURFONE AMERICA, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
33-83526 94-4453386
- ----------------------------------- -----------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
Suite 220, 5850 Oberlin Drive, San Diego, California 92121
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(619) 677-5580
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
Page 1 of 61 pages
<PAGE> 2
SECURFONE AMERICA, INC.
FORM 8-K
Item 2. Acquisition or Disposition of Assets.
On July 31, 1997, the Registrant, then known as Material Technology,
Inc., filed its Quarterly Report on Form 10-Q. In Item 5 of such Form 10-Q, the
Registrant reported the reverse merger of the Registrant with SecurFone America,
Inc. and related transactions. Reference is made to the description of the
transactions set forth in such Form 10-Q, which is incorporated herein by
reference. This Current Report on Form 8-K is filed for the purpose of filing
the financial statements identified in Item 7.
Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
-------------------------------------------
(1) Audited financial statements of Material Technology,
Inc. as of and for the year ended December 31, 1996.
(2) Audited financial statements of SecurFone America, Inc.
as of and for the year ended December 31, 1996.
(b) Pro Forma Financial Information.
-------------------------------
Consolidated Pro Forma financial statements of SecurFone
America, Inc. (formerly Material Technology, Inc.).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized,
SECURFONE AMERICA, INC.
By: /s/ Michael R. Lee
------------------------
Michael R. Lee
Chief Financial Officer
December 19, 1997
Page 2 of 61 pages
<PAGE> 3
<TABLE>
<CAPTION>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
FINANCIAL STATEMENTS
Contents
--------
Page
----
<S> <C>
Independent Auditor's Report F-1
Balance Sheets F-3
Statements of Operations F-5
Statement of Stockholders' Equity (Deficit) F-6
Statements of Cash Flows F-13
Notes to Financial Statements F-15
</TABLE>
<PAGE> 4
Independent Auditor's Report
Board of Directors
Material Technology, Inc.
(Formerly Tensiodyne Scientific Corporation)
Los Angeles, California
We have audited the accompanying balance sheets of Material Technology, Inc.
(Formerly Tensiodyne Scientific Corporation) (A Development Stage Company) as of
December 31, 1996 and 1995, and the related statements of operations, cash
flows, and stockholders' equity (deficit) for the three years then ended, 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
F-1
<PAGE> 5
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Material Technology, Inc.
(Formerly Tensiodyne Scientific Corporation) as of December 31, 1996, and the
results of its operations and its cash flows for the year then ended, 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, CPA
Jonathon P. Reuben,
Certified Public Accountant
Torrance, California
June 12, 1997
F-2
<PAGE> 6
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
1995 1996
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 1,226 $ --
Prepaid Expenses -- 6,472
-------- --------
TOTAL CURRENT ASSETS 1,226 6,472
-------- --------
FIXED ASSETS
Property and Equipment, Net
of Accumulated Depreciation 100,958 98,016
-------- --------
OTHER ASSETS
Investments -- 55,200
Intangible Assets, Net of
Accumulated Amortization 22,658 20,669
Note Receivable (Including
Accrued Interest) 23,661 25,753
Refundable Deposit 2,189 2,189
-------- --------
TOTAL OTHER ASSETS 48,508 103,811
-------- --------
TOTAL ASSETS $150,692 $208,299
======== ========
</TABLE>
See accompanying notes and independent accountants' report
F-3
<PAGE> 7
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
---------------------------------------
<TABLE>
<CAPTION>
December 31,
1995 1996
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Bank Overdraft $ -- $ 2,422
Legal Fees Payable 111,343 128,191
Other Accounts Payable 18,185 33,221
Accrued Officers Salary 172,000 372,000
Accrued Payroll Taxes Payable 12,051 19,124
Loan Payable - Officer 23,272 56,846
Loans Payable-Others 84,439 32,627
Payable on Research and
Development Sponsorship 188,495 188,495
----------- -----------
TOTAL CURRENT LIABILITIES 609,785 832,926
Loan Payable - Officer 113,268 122,698
Loans Payable - Other 60,829 90,893
----------- -----------
TOTAL LIABILITIES 783,882 1,046,517
----------- -----------
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, 2004 150,000 150,000
----------- -----------
STOCKHOLDERS' (DEFICIT)
Class A Common Stock, $.001 Par Value, Authorized 100,000,000
Shares, Outstanding 2,157,880 Shares at December 31, 1995,
and 2,580,546 Shares at December 31, 1996 2,157 2,580
Class B Common Stock, $.001 Par Value, Authorized 300,000
Shares, Outstanding 60,000 Shares 60 60
Class A Preferred, $.001 Par Value, Authorized 10,000,000 Shares
Outstanding 350,000 Shares 350 350
Additional Paid in Capital 1,763,698 1,799,181
Less Notes Receivable - Common Stock (14,720) (14,720)
Deficit Accumulated During the Development Stage (2,380,135) (2,830,869)
Unrealized Holding Gain on Investment Securities -- 55,200
----------- -----------
----------- -----------
TOTAL STOCKHOLDERS' (DEFICIT) (783,190) (988,218)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 150,692 $ 208,299
=========== ===========
</TABLE>
See accompanying notes and independent accountants' report.
F-4
<PAGE> 8
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From Inception
(October 21, 1983)
Through
1994 1995 1996 December 31, 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Sale of Fatigue Fuses $ -- $ -- $ -- $ 64,505
Sale of Royalty Interests -- -- -- 198,750
Research and Development Revenue -- -- -- 712,580
Test Services -- -- -- 10,870
----------- ----------- ----------- -----------
TOTAL REVENUES -- -- -- 986,705
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Research and Development 83,360 15,104 10,700 1,508,296
General and Administrative 295,488 188,745 472,486 2,150,508
----------- ----------- ----------- -----------
TOTAL COSTS AND EXPENSES 378,848 203,849 483,186 3,658,804
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (378,848) (203,849) (483,186) (2,672,099)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Expense Reimbursed -- -- 12,275 (6,527)
Interest Income 1,785 1,928 2,427 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 17,750
----------- ----------- ----------- -----------
TOTAL OTHER INCOME 1,785 6,303 32,452 131,170
----------- ----------- ----------- -----------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS AND PROVISION FOR INCOME TAXES (377,063) (197,546) (450,734) (2,540,929)
PROVISION FOR INCOME TAXES -- -- -- (7,000)
----------- ----------- ----------- -----------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS (377,063) (197,546) (450,734) (2,547,929)
EXTRAORDINARY ITEMS
Forgiveness of Debt -- -- -- (289,940)
Utilization of Operating Loss Carry forward -- -- -- 7,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (377,063) $ (197,546) $ (450,734) $(2,830,869)
=========== =========== =========== ===========
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> 9
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
Class A Common Class B Common Class A Preferred Stock Class B Preferred Stock
-------------------- -------------------- ----------------------- -----------------------
Shares Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount Outstanding Amount
----------- ------ ----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <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 -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Deficit
Accumulated
Capital During the
in Excess of Development
Par Value Stage Total
----------- ------------ ------
<S> <C> <C> <C>
Initial Issuance of Common Stock,
October 21, 1983 $2,498 $ -- $2,500
Adjustment to Give Effect
to Recapitalization on
December 15, 1986
Cancellation of Shares (2) -- --
------ ------ ------
2,496 -- 2,500
Balance, October 21, 1983
Shares Issued By Tensiodyne
Corporation in Connection
With Pooling of Interests 4,328 -- 4,342
Net (Loss), Year Ended
December 31, 1983 -- (4,317) (4,317)
------ ------ ------
Balance, January 1, 1984 6,824 (4,317) 2,520
Capital Contribution 21,727 -- 21,755
Issuance of Common Stock 10,695 -- 10,700
Costs Incurred in Connection
with Issuance of Stock (2,849) -- (2,849)
Net (Loss), Year Ended
December 31, 1984 -- (21,797) (21,797)
------ ------ ------
</TABLE>
See accompanying notes and independent accountants' report.
F-6
<PAGE> 10
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
Class A Common Class B Common Class A Preferred Stock Class B Preferred Stock
-------------------- -------------------- ----------------------- -----------------------
Shares Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount Outstanding Amount
----------- ------ ----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <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 -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Deficit
Accumulated
Capital During the
in Excess of Development
Par Value Stage Total
----------- ------------ ------
<S> <C> <C> <C>
Balance, January 1, 1985 36,397 (26,114) 10,329
Shares Contributed Back
to Company 0 -- --
Capital Contribution 200,555 -- 200,555
Sale of 12,166 Warrants at
$1.50 Per Warrant 18,250 -- 18,250
Shares Cancelled 9 -- --
Net (Loss), Year Ended
December 31, 1985 -- (252,070) (252,070)
--------- --------- ---------
Balance, January 1, 1986 255,211 (278,184) (22,936)
Net (Loss), Year Ended
December 31, 1986 -- (10,365) (10,365)
--------- --------- ---------
Balance, January 1, 1987 255,211 (288,549) (33,300)
Issuance of Common Stock Upon
Exercise of Warrants 27,082 -- 27,082
Net (Loss), Year Ended
December 31, 1987 -- (45,389) (45,389)
--------- --------- ---------
</TABLE>
See accompanying notes and independent accountants' report.
F-7
<PAGE> 11
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
Class A Common Class B Common Class A Preferred Stock Class B Preferred Stock
-------------------- -------------------- ----------------------- -----------------------
Shares Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount Outstanding Amount
----------- ------ ----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <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 -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Deficit
Accumulated
Capital During the
in Excess of Development
Par Value Stage Total
----------- ------------ ------
<S> <C> <C> <C>
Balance, January 1, 1988 282,293 (333,938) (51,607)
Issuance of Common Stock
Sale of Stock (Unaudited) 101,749 -- 101,752
Services Rendered (Unaudited) 70,597 70,600
Net (Loss), Year Ended
December 31, 1988 (Unaudited) -- (142,335) (142,335)
-------- -------- --------
Balance, January 1, 1989
(Unaudited), 454,639 (476,273) (21,590)
Issuance of Common Stock
Sale of Stock 1,996 -- 2,000
Services Rendered 17,964 -- 18,000
Net (Loss), Year Ended
December 31, 1989 -- (31,945) (31,945)
-------- -------- --------
Balance, January 1, 1990 474,599 (508,218) (33,535)
Issuance of Common Stock
Sale of Stock 59,248 -- 59,250
Services Rendered 32,393 -- 32,400
Net Income, Year Ended
December 31, 1990 -- 133,894 133,894
-------- -------- --------
</TABLE>
See accompanying notes and independent accountants' report.
F-8
<PAGE> 12
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
Class A Common Class B Common Class A Preferred Stock Class B Preferred Stock
-------------------- -------------------- ----------------------- -----------------------
Shares Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount Outstanding Amount
----------- ------ ----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <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 -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Deficit
Accumulated
Capital During the
in Excess of Development
Par Value Stage Total
----------- ------------ ------
<S> <C> <C> <C>
Balance January 1, 1991
as Restated 566,240 (374,324) 192,009
Issuance of Common Stock
Sale of Stock 273,335 -- 273,686
Services Rendered 64,880 -- 64,884
Conversion of Warrants --
Conversion of Stock -- -- --
Net (Loss), Year Ended
December 31, 1991 -- (346,316) (346,314)
-------- -------- -------
Balance January 1, 1992 904,455 (720,640) 184,265
Issuance of Common Stock
Sale of Stock 15,980 -- 16,000
Services Rendered 15,515 -- 15,520
Conversion of Warrants 14,994 -- 15,000
Sale of Class B Stock 14,940 -- 15,000
Issuance of Stock to
Unconsolidated Subsidiary 71,659 -- 71,664
Conversion of Stock -- -- --
Cancellation of Shares 7 -- --
Net (Loss), Year Ended
December 31, 1992 -- (154,986) (158,196)
-------- -------- -------
</TABLE>
See accompanying notes and independent accountants' report.
F-9
<PAGE> 13
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
Class A Common Class B Common Class A Preferred Stock Class B Preferred Stock
-------------------- -------------------- ----------------------- -----------------------
Shares Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount Outstanding Amount
----------- ------ ----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1992 127,620 127 60,000 60 350,000 350 -- --
Issuance of Common Stock
Licensing Agreement 12,500 13 -- -- -- -- -- --
Services Rendered 67,030 67 -- -- -- -- -- --
Warrant Conversion 56,000 56 -- -- -- --
Cancellation of Shares (31,700) (32) -- -- -- -- -- --
Net (Loss) for Year Ended
December 31, 1993 (Restated) -- -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Balance December 31, 1993 231,449 231 60,000 60 350,000 350 -- --
-------- -------- -------- -------- -------- -------- -------- --------
Deficit
Accumulated
Capital During the
in Excess of Development
Par Value Stage
----------- ------------
<S> <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> 14
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
Class A Common Class B Common Class A Preferred Stock Class B Preferred Stock
-------------------- -------------------- ----------------------- -----------------------
Shares Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount Outstanding Amount
----------- ------ ----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Adjustment to Give Effect
to Recapitalization on
February 1, 1994 30,818 31 -- -- -- -- -- --
Issuance of Shares for
Services Rendered 223,000 223 -- -- -- -- -- --
Sale of Stock 1,486,112 1,486 -- -- -- -- 15 150,000
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 15 150,000
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 15 150,000
Deficit
Accumulated
Capital During the
in Excess of Development
Par Value Stage
----------- ------------
<S> <C> <C>
Adjustment to Give Effect
to Recapitalization on
February 1, 1994 385,393 --
Issuance of Shares for
Services Rendered -- --
Sale of Stock 23,300 --
Issuance of Shares for
the Modification of Agreements (34) --
Net (Loss) for the Year
Ended December 31, 1994 - -- (377,063)
--------- ---------
Balance - December 31, 1994 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 1,763,698 (2,380,135)
</TABLE>
See accompanying notes and independent accountants' report.
F-11
<PAGE> 15
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
Class A Common Class B Common Class A Preferred Stock Class B Preferred Stock
-------------------- -------------------- ----------------------- -----------------------
Shares Shares Shares Shares
Outstanding Amount Outstanding Amount Outstanding Amount Outstanding Amount
----------- ------ ----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Shares for
Services Rendered 164,666 165 -- -- -- -- -- --
Sale of Stock 70,000 70 -- -- -- -- -- --
Issuance of Shares for
the Modification of Agreements 250,000 250 -- -- -- -- -- --
Cancellation of Shares Held
in Treasury (62,000) (62) -- -- -- -- -- --
Net (Loss) for the Year
Ended December 31, 1996 -- -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Balance - December 31, 1996 2,580,546 $ 2,580 60,000 $ 60 350,000 $ 350 15 $ 150,000
========= ========= ========= ========= ========= ========= ========= =========
Deficit
Accumulated
Capital During the
in Excess of Development
Par Value Stage
----------- ------------
<S> <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 $ 1,799,181 $ (2,830,869)
========== ==========
</TABLE>
See accompanying notes and independent accountants' report.
F-12
<PAGE> 16
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From Inception
(October 21, 1983)
December 31, Through
1994 1995 1996 December 31, 1996
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (377,063) $ (197,546) $ (450,734) $ (2,830,869)
------------ ------------ ------------ ------------
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided
(Used) by Operating Activities
Depreciation and Amortization 5,553 5,555 4,931 159,715
Charge off of Deferred Offering Costs -- 31,480 -- 31,480
Increase in Prepaid Expenses -- -- (1,472) (1,472)
Loss on Sale of Equipment -- -- -- 12,780
Issuance of Common Stock for Services 223 -- 16,467 295,965
Issuance of Common Stock for Agreement Modifications -- 152 -- 152
Forgiveness of Indebtedness -- -- -- 165,000
Increase (Decrease) in Accounts
Payable and Accrued Expenses 97,612 16,032 238,957 552,535
Interest Accrued on Notes Payable 10,870 17,681 28,551
Increase in Research and Development --
Sponsorship Payable -- -- -- 188,495
(Increase) in Note for Litigation Settlement (1,766) (1,921) (2,092) (25,753)
(Increase) in Deposits -- -- -- (2,189)
------------ ------------ ------------ ------------
TOTAL ADJUSTMENTS 101,622 62,168 274,472 1,405,259
------------ ------------ ------------ ------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (275,441) (135,378) (176,262) (1,425,610)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From Sale of Equipment -- -- -- 10,250
Purchase of Property and Equipment -- -- -- (226,109)
(Increase) in Other Assets -- -- -- (69,069)
Payment for License Agreement -- -- -- (6,250)
------------ ------------ ------------ ------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES -- -- -- (291,178)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Common Stock
Net of Offering Costs 24,787 -- 174,040 732,319
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 43,250 356,307
Repayments to Officer (78,446) (16,000) (64,676) (230,262)
Increase in Loan Payable-Others 78,495 58,000 25,000 164,664
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes and accountants' report.
F-13
<PAGE> 17
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From Inception
(October 21, 1983)
December 31, Through
1994 1995 1996 December 31, 1996
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 268,406 $ 142,874 $ 172,614 $ 1,714,366
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (7,035) 7,496 (3,648) (2,422)
BEGINNING BALANCE - CASH AND
CASH EQUIVALENTS 765 (6,270) 1,226 --
------------ ------------ ------------ ------------
ENDING BALANCE - CASH AND CASH
EQUIVALENTS $ (6,270) $ 1,226 $ (2,422) $ (2,422)
============ ============ ============ ============
</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 exchange 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.
During 1996, the Company cancelled 62,000 shares of Class A Common which
it held in its treasury.
See accompanying notes and accountants' report.
F-14
<PAGE> 18
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization
Tensiodyne Scientific Corporation (the "Company") was organized on
November 7, 1985, under the laws of the state of Delaware.
On November 29, 1985, all of the Company's, outstanding stock was
acquired by Tensiodyne Corporation (the "Parent"). The Company had
little activity from its inception through 1992. In 1993, the Company
received $385,424 in exchange for the issuance of 30,818 of the
Company's common stock.
On December 20, 1993, the Company entered into an agreement to
distribute 262,267 of its Class A Common Stock, 60,000 shares of its
Class B Common stock, and 350,000 shares of its Class A Preferred
Convertible Stock to the existing shareholders of Tensiodyne
Corporation. In exchange for the issuance of these shares, the Company
received all of the assets and assumed all of the liabilities of the
Parent. A schedule of the assets and liabilities acquired is as
follows:
<TABLE>
<S> <C>
Assets
Cash $ 765
Loan Receivable
- Officer 10,205
Property & Equipment
at Net 108,091
Licensing Agreement and
Patents 26,634
Notes Receivable 19,974
Other Assets 2,189
----------
$ 167,858
Liabilities
Accrued Expenses $ (91,935)
Accrued Salaries
- Officer (108,000)
Deposit Payable (10,000)
Loans Payable (3,169)
Note Payable on
Licensing Agreement (188,495)
----------
$ (401,599)
Liabilities in Excess
of Assets Transferred $ (233,741)
==========
</TABLE>
F-15
<PAGE> 19
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization (continued)
For financial reporting purposes, the above transaction was treated as
a recapitalization. Therefore, the assets and liabilities transferred
have been recorded at historical cost.
On January 30, 1994, the Company filed with the office of the Secretary
of State of Delaware an Amended and Restated Certificate of
Incorporation whereby its capital structure was changed to provide for
the authorization to issue 100,000,000 shares of Class A Common Stock,
$.00l par value; 3,000,000 shares of Class B Common Stock, $.00l par
value; and 10,000,000 shares of Class A Convertible Preferred Stock,
$.00l par value.
The Company authorized a 1 for 10 reverse stock split of its Class A
common shares on June 22, 1994. All references to the Company's Class A
Common Stock as reflected in the accompanying financial statements and
notes have been restated to reflect the 1:10 reverse stock split.
On July 19, 1994, the Company filed with the Secretary of State of
Delaware, an amendment to its Certificate of Incorporation changing its
name from Tensiodyne Scientific Corporation to Material Technology,
Inc.
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-16
<PAGE> 20
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.
F-17
<PAGE> 21
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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 $2,830,869 since
its inception through December 31,1996. These continuing losses are an
indication that the Company may not be able to continue to operate.
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.
F-18
<PAGE> 22
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 4 - Intangibles
Intangible assets consist of the following:
<TABLE>
<CAPTION>
Period of December 31,
Amortization 1995 1996
------------ -------- -------
<S> <C> <C> <C>
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
======== ========
</TABLE>
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.
F-19
<PAGE> 23
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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 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.
F-20
<PAGE> 24
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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.
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:
F-21
<PAGE> 25
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
December 31,
1995 1996
---- ----
<S> <C> <C>
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
========= =========
</TABLE>
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 10(b).
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.
F-22
<PAGE> 26
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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.
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.
F-23
<PAGE> 27
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
In October 1996, 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"). The provision for income
taxes differs from the amounts currently payable because of timing
differences in the recognition of certain income and expense items for
financial and tax reporting purposes.
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.
For income tax purposes, the Company has approximately $413,000 in net
operating losses available to offset future income through the year
2011, however, the actual losses which may used in the future could be
limited due to recapitalization or other factors.
Note 10 - Commitments and Contingencies
The Company's commitments and contingencies are as follows:
F-24
<PAGE> 28
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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, the Company
is obligated 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
F-25
<PAGE> 29
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
are secured by the Company's patents, products, and accounts receivable,
which may be related to technology developed with the funding.
d. In 1994, the Company issued to Variety Investments, Ltd. of Vancouver,
Canada ("Variety"), 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.
F-26
<PAGE> 30
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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.
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 for 15 shares of Redeemable Class B Preferred Stock of the
Company's subsidiary. The rights of the new issuance will be the same as
the rights of the shares exchanged except the shares in the subsidiary
will be redeemable two years earlier on January 31, 2002. In
consideration for the exchange, the Company paid Tensiodyne $5,000.
The exchange was made in view of the fact that the Company has entered
into an agreement with an unrelated third party to reverse merge with this
party and to transfer to the subsidiary the Company's current operations
including all of its assets and liabilities (See Note 15, "Subsquent
Events")
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
F-27
<PAGE> 31
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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.
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:
F-28
<PAGE> 32
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Fatigue Fatigue
Sensor Fuse
------ ------
<S> <C> <C>
Tensiodyne 1985-1 R&D Partnership --* --
Advanced Technology Center
Future Gross Sales --* --
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%
----- -----
21.00% 10.00%
------ ------
<FN>
*Royalties limited to specific rates of return as discussed in Notes
10(a) and (c) above.
** The Company granted 12% royalties on sales from sublicensing. These
royalties are also limited to specific rates of return as discussed in
Note 10(c) above.
</TABLE>
F-29
<PAGE> 33
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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.
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
F-30
<PAGE> 34
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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-31
<PAGE> 35
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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 $.72 ("initial conversion price") per share of
Class A Preferred Stock which will be adjusted depending upon the
occurrence of certain events. The holders of these preferred shares
shall have the right to vote and cast that number of votes which the
holder would have been entitled to cast had such holder converted the
shares immediately prior to the record date for such vote.
The holders of these shares shall participate in all dividends declared
and paid with respect to the Common Stock to the same extent had such
holder converted the shares immediately prior to the record date for
such dividend.
e. Redeemable Preferred Stock
The Company has authorized a class of 10,000,000 shares of preferred
stock ($.001 par value) of which 510 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
F-32
<PAGE> 36
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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 to remove any director so elected. The holders
of these shares shall participate in all cash dividends declared and
paid with respect to the 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.
F-33
<PAGE> 37
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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 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.
F-34
<PAGE> 38
MATERIAL TECHNOLOGIES, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
e. 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.
f. 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.
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.
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.
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.
F-35
<PAGE> 39
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
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.
j. 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.
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.
F-36
<PAGE> 40
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 15 - Subsequent Events
a. In February 1997, the Company entered into an agreement with
Montpilier Holdings, Inc.("Montpilier")) and its wholly owned
subsidiary, SecurFone America, Inc. ("SecurFone"), and Robert
M. Bernstein, the Company's president. Under the terms of the
agreement, the Company will sell 4,500,000 shares of
authorized but unissued shares comprising 90% of the
outstanding stock at the date of closing to Montpilier
(adjusted for a 1:10 reverse stock split) in exchange for
3,000 shares of SecurFone's common stock, which constitutes
100% of the SecurFone's outstanding shares as of the closing
date. In addition, Montpilier agrees to reimburse the Company
for its expenses in an amount equal to $120,000.
The $120,000 expense reimbursement will be paid to the
subsidiary upon the effective date of the registration
statement ("Closing Date"). The $120,000 is paid in three
installments with the first installment amounting to $70,000
being due on the closing. The second installment of $25,000 is
due 30 days after closing, and the third installment of
$25,000 is due 75 days of closing. The second and third
installments will be evidenced by a non-interest bearing
promissory secured by the shares of the subsidiary owned by
the Company.
Under the terms of the agreement, the Company will transfer
its current operations, including all of its assets and
liabilities to a wholly owned subsidiary which was formed on
March 7, 1997, in exchange for receiving 5,560,000 shares of
the subsidiary's common stock. Of these shares, approximately
5,000,000 shares will be distributed to the Company's current
shareholders.
In connection with the above transaction, the Company
authorized the issuance of 520,000 shares of its Class A
Common Stock to Mr. Bernstein in exchange for the convertible
note issued to him; the issuance of 60,000 shares of Class B
Common of the subsidiary in exchange for the cancellation of
the 60,000 shares of Class B Common Stock currently owned by
him; the issuance of 280,000 shares of the Company's Class A
Common stock to Mr. Baker in exchange for the convertible note
issued to him; the authorization to enter into an agreement
with the holders of the Company's class A Preferred stock to
exchange these shares, which will be canceled, for class A
Preferred Stock of the Company's subsidiary; and the issuance
of 20,000 shares of the Company's Class A Common Stock as
partial payment to the Company's legal counsel.
In addition, in consideration for the cancellation of
$372,000 in accrued salary, Mr. Bernstein will receive
1,049,454 of Class A Common Stock of the Company for services
rendered in relation to the above transaction and related
matters. Robert M. Bernstein has agreed to assign any accrued
salaries owed him by the Company to the Subsidiary.
In connection with the above transaction, the Company entered
into a consulting agreement with Mr. Bernstein. Under the
terms of this agreement, Mr. Bernstein has agreed to act as a
consultant to the Company for a period of 18 months beginning
upon the effective date of the registration statement. In
consideration for his services, Mr. Bernstein will receive
$5,000 and will receive stock options entitling him to
purchase Class A Common stock of the Company equaling 7% of
the sum of the total number of shares of any class of equity
securities of the Company, that, during the five years
following the closing, the Company registers on Form S-8 and
sells through Regulation S.
b. On January 2, 1997, the Company authorized the issuance of
100,000 shares of Class A Common Stock through its 1996 Stock
Option Plan at a price of $1.00 per share.
c. During 1996, the Company entered into a teaming agreement with
Southwest Research Institute ("SWRI") and the University of
Pennsylvania. 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 United States Air Force
capability to perform durability assessments of military
aircraft, including both airframes 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 which is required to be
disbursed for specific purposes as defined in the
subcontractor's agreement.
F-37
<PAGE> 41
SECURFONE AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
DECEMBER 31, 1996
<PAGE> 42
SECURFONE AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet as of December 31, 1996
Statement of Operations for the eight months ended December 31, 1996 3
Statement of Stockholders' Equity for the eight months ended December 31, 1996 4
Statement of Cash Flows for the eight months ended December 31, 1996 5
NOTES TO FINANCIAL STATEMENTS 6
</TABLE>
<PAGE> 43
INDEPENDENT AUDITORS' REPORT
Board of Directors
Securfone America, Inc.
We have audited the accompanying balance sheet of Securfone America, Inc., a
development stage company, at December 31, 1996, and the related statements of
operations, stockholders' equity and cash flows for the eight months then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from 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 our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Securfone America, Inc. at
December 31, 1996, in conformity with generally accepted accounting principles.
/s/ Conte Co., CPA, Inc
Conte Co., CPA, Inc.
Akron, OH
December 8, 1997
1
<PAGE> 44
SECURFONE AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 54,619
Note receivable 200,000
Royalties receivable 250,000
Interest receivable 5,833
---------
TOTAL CURRENT ASSETS 510,452
---------
FIXED ASSETS
Property and equipment, net of
accumulated depreciation 147,936
---------
OTHER ASSETS
Intangible assets, net of
accumulated amortization 185,319
Deposits 50,000
---------
TOTAL OTHER ASSETS 235,319
---------
TOTAL ASSETS $ 893,707
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 53,369
---------
TOTAL CURRENT LIABILITIES 53,369
---------
Deferred royalty revenue 250,000
---------
TOTAL LIABILITIES 303,369
---------
STOCKHOLDERS' EQUITY
Common stock, par value .01 per share,
3,000 shares issued and outstanding 30
Paid-in capital 975,770
Deficit accumulated during the development stage (385,462)
---------
TOTAL STOCKHOLDERS' EQUITY 590,338
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 893,707
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 45
SECURFONE AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE EIGHT MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
REVENUES $ 665
COST OF GOODS SOLD 465
--------------
GROSS PROFIT 200
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES 391,495
--------------
LOSS FROM OPERATIONS (391,295)
OTHER INCOME (EXPENSE)
Interest income 5,833
--------------
NET LOSS $ (385,462)
==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 46
SECURFONE AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE EIGHT MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Capital in Deficit Accumulated
Common Excess of During the
Stock Par Value Development Stage
------------ ------------ ------------
<S> <C> <C> <C>
Initial Issuance of Common
Stock, May 20, 1996 $ 30 $ 975,770 $ --
Net Loss -- -- (385,462)
------------ ------------ ------------
Balance December 31, 1996 $ 30 $ 975,770 $ (385,462)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 47
SECURFONE AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE EIGHT MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(385,462)
---------
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 60
Increase in notes receivable (200,000)
Increase in royalties receivable (250,000)
Increase in intangibles and other assets (241,151)
Increase in accounts payable and
accrued expenses 53,369
Increase in deferred royalty revenue 250,000
---------
Total adjustments (387,722)
---------
NET CASH USED BY OPERATING ACTIVITIES (773,184)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (147,997)
---------
NET CASH USED BY INVESTING ACTIVITIES (147,997)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution to capital 975,800
---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 975,800
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 54,619
BEGINNING BALANCE-CASH AND CASH EQUIVALENTS --
---------
ENDING BALANCE-CASH AND CASH EQUIVALENTS $ 54,619
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 48
SECURFONE AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by Securfone America, Inc. ("the
Company") are set forth below.
Nature of Operations
- --------------------
Securfone America, Inc., a wholly owned subsidiary of Montpilier Holdings, Inc.,
is principally engaged in the sale and licensing of prepaid cellular phone
services. The Company has been in its development stage since its formation on
May 20, 1996. The Company provides these services in some markets, and in other
markets, licenses the Company's resources to unrelated parties. When a license
is sold, the Company agrees to provide certain services to the licensor.
Generally, these services include providing an understanding of the market and
assistance in promotion and advertising.
The cellular services the Company offers which provide them a competitive
advantage include prepaid cellular calling cards, subscriber recharges on
prepaid calling cards via an automated intelligent voice response unit,
unrestricted international calling capabilities, multi-lingual capabilities, a
uniform, flat rate for long distance service from anywhere in the United States,
capability to provides services from any cellular phone, regardless of model,
and voice mail service from both cellular and landline sources.
In addition to cellular services, the company is also aggressively pursuing
regional and national distribution of landline prepaid calling cards.
The Company has also developed software which virtually eliminates cellular
fraud, and is assessing the feasibility of licensing this technology to other
cellular providers and carriers.
Cash and Cash Equivalents
- -------------------------
For the purposes of the statement of cash flows, the Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents. The Company maintains its cash accounts in one commercial
bank. Accounts are guaranteed by the Federal Deposit Insurance Company (FDIC) up
to $100,000.
6
<PAGE> 49
SECURFONE AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Property and Equipment
- ----------------------
The cost of property and equipment is depreciated over the estimated useful
lives of the related assets. Depreciation is calculated using accelerated
depreciation for both financial reporting and income tax purposes. At December
31, 1996, $147,574 of property and equipment was for construction in process,
and no depreciation for these assets was charged to operations.
Financial Instruments
- ---------------------
As collateral for performance and advances on long-term contracts, the Company
may obtain letters of credit up to $1,000,000 from a major bank. The letter of
credit agreement is secured by assets of a major shareholder of the parent
company and by the assets of an unrelated third party. As of December 31, 1996,
the Company had no contingent liability under it's letter of credit agreements.
Revenue and Expense Recognition
- -------------------------------
The Company recognizes revenue from sales of license agreements, net of an
allowance for uncollectable amounts, when substantially all significant services
to be provided by the Company have been performed. Expenses are recognized in
the period in which they are incurred.
Intangible Assets
- -----------------
Intangible assets are comprised of various costs incurred by the Company as part
of start up phase of operations. As of December 31, 1996, the Company is still
in the start up phase of operations. Hence, no amortization expense was charged
to operations. The Company will amortize these costs using the straight-line
method over a sixty month period, beginning at the end of the start up phase of
operations.
Use of Estimates
- ----------------
In preparing the Company's financial statements, management is required to make
estimates and assumptions that effect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period.
Actual results could differ from those estimates.
Income Taxes
- ------------
No provision has been made at December 31, 1996 for federal or state income
taxes.
7
<PAGE> 50
SECURFONE AMERICA, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 2 - NOTE RECEIVABLE
The note receivable is a 7%, ten month, note from the Company's parent company.
The note is secured by publicly traded securities held by an affiliated
corporation owned by a principal shareholder of the parent company.
NOTE 3 - ROYALTIES RECEIVABLE
Royalties receivable at March 31, 1997 represents the portion of total revenue
from initial license sales attributable to services required to be provided by
the Company that have not yet been performed. These revenues will be recognized
on a pro-rata basis as these services are provided to the licensor.
8
<PAGE> 51
SECURFONE AMERICA, INC.
(Formerly Material Technology, Inc.)
(A Development Stage Corporation)
CONSOLIDATED PROFORMA FINANCIAL STATEMENTS
Consolidated Proforma Balance Sheet, December 31, 1996
Consolidated Proforma Balance Sheet, August 1, 1997
Consolidated Proforma Statement of Operations,
May 20 - December 31, 1996
Consolidated Proforma Statement of Operations for the
seven months ended August 1, 1997
Notes to Consolidated Proforma Financial Statements
<PAGE> 52
SECURFONE AMERICA, INC.
(Formerly Material Technology, Inc.)
(A Development Stage Corporation)
CONSOLIDATED PROFORMA BALANCE SHEET
December 31, 1996
<TABLE>
<CAPTION>
Securfone Material Spin-off of Material Purchase
America, Inc. Technology, Inc. Technology, Inc. Adjustments Consolidated
(unaudited) (audited) (unaudited) (unaudited) (unaudited)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 54,619 $ -- $ -- $ -- $ 54,619
Royalties receivable 250,000 -- -- -- 250,000
interest
Prepaid expenses -- 6,472 (6,472) -- --
------------ ------------ ------------ ------------ ------------
TOTAL CURRENT ASSETS 304,619 6,472 (6,472) -- 304,619
------------ ------------ ------------ ------------ ------------
PROPERTY, PLANT, AND EQUIPMENT,
NET OF ACCUMULATED DEPRECIATION 147,936 98,016 (98,016) -- 147,936
------------ ------------ ------------ ------------ ------------
OTHER ASSETS
Investments -- 55,200 (55,200) -- --
Intangible assets, net of
amortization 185,319 20,669 (20,669) 125,598 310,917
Note receivable, including
accrued interest 205,833 25,753 (25,753) (75,598) 130,235
Deposits 50,000 2,189 (2,189) -- 50,000
------------ ------------ ------------ ------------ ------------
TOTAL OTHER ASSETS 441,152 103,811 (103,811) 50,000 491,152
------------ ------------ ------------ ------------ ------------
TOTAL ASSETS $ 893,707 $ 208,299 $ (208,299) $ 50,000 $ 943,707
============ ============ ============ ============ ============
</TABLE>
1
<PAGE> 53
SECURFONE AMERICA, INC.
(Formerly Material Technology, Inc.)
(A Development Stage Corporation)
CONSOLIDATED PROFORMA BALANCE SHEET
December 31, 1996
<TABLE>
<CAPTION>
Securfone Material Spin-Off of Material Purchase
America, Inc. Technology, Inc. Technology, Inc. Adjustments Consolidated
(unaudited) (audited) (unaudited) (unaudited) (unaudited)
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES
Bank overdraft $ -- $ 2,422 $ (2,422) $ -- $ --
Current portion of long-term debt -- 89,473 (89,473) -- --
Accounts payable 53,369 33,221 (33,221) -- 53,369
Legal fees payable -- 128,191 (128,191) -- --
Accrued officer's salary -- 372,000 (372,000) -- --
Other accrued liabilities -- 19,124 (19,124) -- --
Research and Development --
Sponsorship -- 188,495 (188,495) -- --
-------------- -------------- -------------- -------------- --------------
TOTAL CURRENT LIABILITIES 53,369 832,926 (832,926) -- 53,369
-------------- -------------- -------------- -------------- --------------
LONG-TERM DEBT
Loan payable-officer -- 122,698 (122,698) -- --
Loan payable-other -- 90,893 (90,893) 50,000 50,000
Note payable -- -- -- -- --
-------------- -------------- -------------- -------------- --------------
TOTAL LONG-TERM DEBT -- 213,591 (213,591) 50,000 50,000
-------------- -------------- -------------- -------------- --------------
DEFERRED ROYALTY REVENUE 250,000 -- -- -- 250,000
-------------- -------------- -------------- -------------- --------------
TOTAL LIABILITIES $ 303,369 $ 1,046,517 $ (1,046,517) $ 50,000 $ 353,369
-------------- -------------- -------------- -------------- --------------
</TABLE>
2
<PAGE> 54
SECURFONE AMERICA, INC.
(Formerly Material Technology, Inc.)
(A Development Stage Corporation)
CONSOLIDATED PROFORMA BALANCE SHEET
December 31, 1996
<TABLE>
<CAPTION>
Securfone Material Spin-Off of Material Purchase
America, Inc. Technology, Inc. Technology, Inc. Adjustments Consolidated
(unaudited) (audited) (unaudited) (unaudited) (unaudited)
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
REDEEMABLE PREFERRED STOCK $ -- $ 150,000 $ (150,000) $ -- $ --
-------------- -------------- -------------- -------------- --------------
STOCKHOLDERS' EQUITY (DEFICIT)
Class A Common Stock, $.001 par
value, 10,000,000 shares authorized
5,000,000 shares outstanding -- 2,580 (2,580) -- --
Class B Common Stock, $.001 par
value 300,000 shares authorized
60,000 shares outstanding 60 (60) -- --
Class A Preferred, $.001 par value,
900,000 shares authorized,
350,000 shares outstanding -- 350 (350) -- --
Common Stock, $.01 par value,
5,000,000 shares authorized,
4,120,000 shares outstanding 30 -- -- -- 30
Common Stock , $.001 par value,
5,000,000 shares authorized and --
outstanding 5,000 5,000
Additional paid in capital 975,770 1,799,181 (1,799,181) -- 975,770
Less: notes and subscriptions receivable (5,000) (14,720) 14,720 -- (5,000)
Unrealized gain on investments -- 55,200 (55,200) -- --
development stage (385,462) (2,830,869) 2,830,869 -- (385,462)
-------------- -------------- -------------- -------------- --------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 590,338 (988,218) 988,218 -- 590,338
-------------- -------------- -------------- -------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 893,707 $ 208,299 $ (208,299) $ 50,000 $ 943,707
============== ============== ============== ============== ==============
</TABLE>
3
<PAGE> 55
SECURFONE AMERICA, INC.
(Formerly Material Technology, Inc.)
(A Development Stage Corporation)
CONSOLIDATED PROFORMA BALANCE SHEET
August 1, 1997
<TABLE>
<CAPTION>
Spin-Off
Securfone Material of Material Purchase
America, Inc. Technology, Inc. Technology, Inc. Adjustments Consolidated
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 7,380 $ 3,076 $ (3,076) $ -- $ 7,380
Accounts receivable 4,624 45,174 (45,174) -- 4,624
Royalties receivable 700,000 -- -- -- 700,000
Note receivable, including accrued
Inventory 8,913 -- -- -- 8,913
Prepaid expenses 615 5,223 (5,223) -- 615
------------- ------------- ------------- ------------- -------------
TOTAL CURRENT ASSETS 721,532 53,473 (53,473) -- 721,532
------------- ------------- ------------- ------------- -------------
PROPERTY, PLANT, AND EQUIPMENT,
NET OF ACCUMULATED DEPRECIATION 259,314 102,948 (102,948) -- 259,314
------------- ------------- ------------- ------------- -------------
OTHER ASSETS
Investments 1 13,800 (13,800) -- 1
Real estate, held for sale -- 47,000 (47,000) -- --
Intangible assets, net of
accumulated amortization 163,698 19,674 (19,674) 125,598 289,296
Note receivable, including
accrued interest 161,448 -- -- (75,598) 85,850
Deposits 1,225 2,189 (2,189) -- 1,225
------------- ------------- ------------- ------------- -------------
TOTAL OTHER ASSETS 326,372 82,663 (82,663) 50,000 376,372
------------- ------------- ------------- ------------- -------------
TOTAL ASSETS $ 1,307,218 $ 239,084 $ (239,084) $ 50,000 $ 1,357,218
============= ============= ============= ============= =============
</TABLE>
4
<PAGE> 56
SECURFONE AMERICA, INC.
(Formerly Material Technology, Inc.)
(A Development Stage Corporation)
CONSOLIDATED PROFORMA BALANCE SHEET
August 1, 1997
<TABLE>
<CAPTION>
Spin-Off
Securfone Material of Material Purchase
America, Inc. Technology, Inc. Technology, Inc. Adjustments Consolidated
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES
Current portion of notes payable $ -- $ 131,920 $ (131,920) $ -- $ --
Current portion of capital lease
obligations 47,449 $ -- -- -- 47,449
Accounts payable 167,007 86,286 (86,286) -- 167,007
Legal fees payable -- 125,600 (125,600) -- --
Accrued officer's salary -- 45,000 (45,000) -- --
Other accrued liabilities 32,000 24,002 (24,002) -- 32,000
Research and Development --
Sponsorship -- 188,495 (188,495) -- --
------------- ------------- ------------- ------------- -------------
TOTAL CURRENT LIABILITIES 246,456 601,303 (601,303) -- 246,456
------------- ------------- ------------- ------------- -------------
LONG-TERM LIABILITIES
Notes payable -- 25,000 (25,000) 50,000 50,000
Capital lease obligations 98,067 -- -- -- 98,067
------------- ------------- ------------- ------------- -------------
TOTAL LONG-TERM LIABILITIES 98,067 25,000 (25,000) 50,000 148,067
------------- ------------- ------------- ------------- -------------
DEFERRED ROYALTY REVENUE 700,000 -- -- -- 700,000
------------- ------------- ------------- ------------- -------------
TOTAL LIABILITIES $ 1,044,523 $ 626,303 $ (626,303) $ 50,000 $ 1,094,523
------------- ------------- ------------- ------------- -------------
</TABLE>
5
<PAGE> 57
SECURFONE AMERICA, INC.
(Formerly Material Technology, Inc.)
(A Development Stage Corporation)
CONSOLIDATED PROFORMA BALANCE SHEET
August 1, 1997
<TABLE>
<CAPTION>
Spin-Off
Securfone Material of Material Purchase
America, Inc. Technology, Inc. Technology, Inc. Adjustments Consolidated
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
REDEEMABLE PREFERRED STOCK $ -- $ 150,000 $ (150,000) $ -- $ --
------------- ------------- ------------- ------------- -------------
STOCKHOLDERS' EQUITY (DEFICIT)
Class A Common Stock, $.001 par
value, 10,000,000 shares authorized
5,000,000 shares outstanding -- 5,000 (5,000) -- --
Class B Common Stock, $.001 par
value 300,000 shares authorized
60,000 shares outstanding 60 (60) -- --
Class A Preferred, $.001 par value,
900,000 shares authorized,
350,000 shares outstanding -- 350 (350) -- --
Common Stock, $.01 par value,
5,000,000 shares authorized,
4,120,000 shares outstanding 41,200 -- -- -- 41,200
Common Stock , $.001 par value,
5,000,000 shares authorized and
outstanding 5,000 5,000
Additional paid in capital 1,054,600 2,459,354 (2,459,354) -- 1,054,600
Less: notes and subscriptions receivable (5,000) (14,720) 14,720 -- (5,000)
Unrealized gain on investments -- 13,800 (13,800) -- --
Deficit accumulated during the
development stage (833,105) (3,001,063) 3,001,063 -- (833,105)
------------- ------------- ------------- ------------- -------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 262,695 (537,219) 537,219 -- 262,695
------------- ------------- ------------- ------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 1,307,218 $ 239,084 $ (239,084) $ 50,000 $ 1,357,218
============= ============= ============= ============= =============
</TABLE>
6
<PAGE> 58
SECURFONE AMERICA, INC.
(Formerly Material Technology, Inc.)
(A Development Stage Corporation)
CONSOLIDATED PROFORMA STATEMENT OF OPERATIONS
May 20 - December 31, 1996
<TABLE>
<CAPTION>
Securfone Material
America, Inc. Technology, Inc.
May 20- January 1- Spin-Off
December 31, December 31, of Material Purchase
1996 1996 Technology, Inc. Adjustments Consolidated
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
SALES
Research and development $ -- $ -- $ -- $ -- $ --
Prepaid cellular 665 -- -- -- 665
--------------- --------------- --------------- --------------- ---------------
TOTAL SALES 665 -- -- -- 665
--------------- --------------- --------------- --------------- ---------------
COST OF GOODS SOLD
Research and development -- 10,700 (10,700) -- --
Cellular airtime 465 -- -- -- 465
Cellular calling cards -- -- -- -- --
--------------- --------------- --------------- --------------- ---------------
TOTAL COST OF GOODS SOLD 465 10,700 (10,700) -- 465
--------------- --------------- --------------- --------------- ---------------
GROSS PROFIT (LOSS) 200 (10,700) 10,700 -- 200
SELLING, GENERAL, AND ADMINISTRATIVE 391,495 472,486 (472,486) -- 391,495
--------------- --------------- --------------- --------------- ---------------
INCOME (LOSS) FROM OPERATIONS (391,295) (483,186) 483,186 -- (391,295)
--------------- --------------- --------------- --------------- ---------------
OTHER (INCOME) EXPENSE
Expenses reimbursed -- 12,275 (12,275) -- --
Interest income 5,833 2,427 (2,427) -- 5,833
Gain on sale of stock -- 17,750 (17,750) -- --
Royalty revenue -- -- -- -- --
Interest expense-capital leases -- -- -- -- --
Interest expense-letters of credit -- -- -- -- --
--------------- --------------- --------------- --------------- ---------------
TOTAL OTHER (INCOME) EXPENSE 5,833 32,452 (32,452) -- 5,833
--------------- --------------- --------------- --------------- ---------------
NET INCOME (LOSS) $ (385,462) $ (450,734) $ 515,638 $ -- $ (397,128)
=============== =============== =============== =============== ===============
NET INCOME (LOSS) PER SHARE $ (0.08) $ (0.17) $ 0.17 $ (0.08)
=============== =============== =============== ===============
COMMON SHARES OUTSTANDING 5,000,000 2,580,546 (2,580,546) 5,000,000
=============== =============== =============== ===============
</TABLE>
7
<PAGE> 59
SECURFONE AMERICA, INC.
(Formerly Material Technology, Inc.)
(A Development Stage Corporation)
CONSOLIDATED PROFORMA STATEMENT OF OPERATIONS
For the Seven Months Ended August 1, 1997
<TABLE>
<CAPTION>
Spin-Off
Securfone Material of Material Purchase
America, Inc. Technology, Inc. Technology, Inc. Adjustments Consolidated
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
SALES
Research and development $ -- $ 104,722 $ (104,722) $ -- $ --
Prepaid cellular 14,035 -- -- -- 14,035
------------- ------------- ------------- ------------- -------------
TOTAL SALES 14,035 104,722 (104,722) -- 14,035
------------- ------------- ------------- ------------- -------------
COST OF GOODS SOLD
Research and development -- 31,385 (31,385) -- --
Cellular airtime 12,529 -- -- -- 12,529
Cellular calling cards 22,450 -- -- -- 22,450
------------- ------------- ------------- ------------- -------------
TOTAL COST OF GOODS SOLD 34,979 31,385 (31,385) -- 34,979
------------- ------------- ------------- ------------- -------------
GROSS PROFIT (LOSS) (20,944) 73,337 (73,337) -- (20,944)
SELLING, GENERAL, AND ADMINISTRATIVE 904,156 277,288 (277,288) -- 904,156
------------- ------------- ------------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS (925,100) (203,951) 203,951 -- (925,100)
------------- ------------- ------------- ------------- -------------
OTHER (INCOME) EXPENSE
Rental income -- 3,843 (3,843) -- --
Gain on foreclosure -- 16,014 (16,014) -- --
Gain on sale of stock -- 13,901 (13,901) -- --
Interest income (5,615) (5,615)
Royalty revenue (550,000) -- -- -- (550,000)
Interest expense-capital leases 5,657 -- -- -- 5,657
Interest expense-letters of credit 23,521 -- -- -- 23,521
Loss on Securfone New York 48,980 -- -- -- 48,980
------------- ------------- ------------- ------------- -------------
TOTAL OTHER (INCOME) EXPENSE (477,457) 33,758 (33,758) -- (477,457)
------------- ------------- ------------- ------------- -------------
NET INCOME (LOSS) $ (447,643) $ (170,193) $ 237,709 $ -- $ (447,643)
============= ============= ============= ============= =============
NET INCOME (LOSS) PER SHARE $ 0.09 $ (0.02) $ 0.02 $ (0.09)
============= ============= ============= =============
COMMON SHARES OUTSTANDING 5,000,000 5,000,000 (5,000,000) 5,000,000
============= ============= ============= =============
</TABLE>
8
<PAGE> 60
SECURFONE AMERICA, INC.
(Formerly Material Technology, Inc.)
(A Development Stage Corporation)
NOTES TO CONSOLIDATED PROFORMA FINANCIAL STATEMENTS
December 31, 1996 and August 1, 1997
NOTE 1 - EXPLANATION OF AMOUNTS
The amounts contained in the proforma balance sheets and statements of
operations of Securfone America, Inc. at December 31, 1996 and August 1, 1997
are as follows:
Securfone America, Inc.
- -----------------------
The balances for Securfone America, Inc. represent the consolidated balance
sheets and results of operations of Securfone America, Inc. and its wholly owned
subsidiary, Securfone, Inc., as of and for the year and seven months ended
December 31, 1996 and August 1, 1997. Intercompany transactions and balances
have been eliminated in the consolidated financial statements.
Material Technology, Inc.
- -------------------------
The balances for Material Technology, Inc. represent the balance sheets and
results of operations of Securfone America, Inc. and its wholly owned
subsidiary, Secufone, Inc., as of and for the year and seven months ended
December 31, 1996 and August 1, 1997.
Spin-off of Material Technology, Inc.
- -------------------------------------
The balances for spin -off of Material Technology, Inc. are to close out the
balances of Material Technology, Inc. as a result of the reverse merger which
took place between Securfone America, Inc. and Material Technology, Inc.
Purchase Adjustments
- --------------------
The balances for purchase adjustments represent the inclusion of costs
associated with the reverse merger between Material Technology, Inc. and
Securfone America, Inc. which were paid by Securfone America, Inc. after the
merger date of August 1, 1997.
Consolidated
- ------------
The consolidated balances represent the balances for Securfone America, Inc. and
results of operations of Securfone America, Inc. and its wholly owned
subsidiary, Securfone, Inc., as of and for the year and seven months ended
December 31, 1996 and August 1, 1997, after inclusion of costs associated with
the reverse merger with Material Technology, Inc. and the spin-off of Material
Technology Inc's operations.
9
