<PAGE>
Commission File No. 3383526
SCHEDULE 14C INFORMATION STATEMENT
AMENDMENT 2
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
Check the appropriate box:
[x ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14c-5(d)(2)
[ ] Definitive Information Statement
MATERIAL TECHNOLOGY, INC.
(Name of Registrant As Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box)
[ ] No fee required
[x ] Fee computed on table below per Exchange Act
Rules 14c-5(g) and 0-11.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF AGGREGATE NUMBER PER UNIT MAXIMUM TOTAL
SECURITIES OF SECURITIES PRICE AGGREGATE VALUE FEE PAID
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Material Technology, Inc., 4,500,000 Shares $.001 $4,500 $.30
Class A Common Stock Par Value
- ------------------------------------------------------------------------------------------------------------------------------------
SecurFone America, Inc. 4,120,000 Shares $.19791 $815,690 $163.14
common stock Book Value
- ------------------------------------------------------------------------------------------------------------------------------------
Material Technologies, Inc. 5,560,000 Shares $.001 $5,560 $.37
Class A Common Stock Par Value
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL $ 163.81
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[x ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
_____________________________
2) Form, Schedule or Registration Statement No.:
_____________________________
3) Filing Party:
_____________________________
4) Date Filed:
_____________________________
<PAGE>
MATERIAL TECHNOLOGY, INC.
11661 San Vicente Boulevard, Suite 707
Los Angeles, CA 90049
NOTICE OF THE TAKING OF CORPORATE ACTION
WITHOUT A MEETING BY WRITTEN CONSENT
Notice is hereby given that, twenty-one (21) days after this Information
Statement is mailed to shareholders of Material Technology, Inc., a Delaware
corporation (the "Corporation"), approximately July __, 1997, Robert M.
Bernstein, as the holder of approximately 53.3% of the outstanding capital stock
of the Corporation, by written consent, will authorize the Corporation to: (1)
transfer all of its assets and liabilities to Material Technologies, Inc., in
exchange for 5,560,000 shares of that corporation's Class A common stock and to
distribute 5,000,000 of those shares to the Corporation's existing shareholders;
(2) to effect a reverse one for ten (1 for 10) stock split reducing the
Corporation's outstanding shares from 5,000,000 to 500,000 shares of Class A
Common Stock; (3) enter into the reverse merger with SecurFone America, Inc. in
accordance with the February 17, 1997 Stock Purchase Agreement and issue
4,500,000 shares of Class A Common Stock in exchange for all of the stock of
SecurFone America, Inc.; and (4) change the Corporation's name to SecurFone
America, Inc., by amending the Corporation's Certificate of Incorporation.
These transactions are contingent on the satisfaction of certain conditions and
the closing is expected to occur by July 31, 1997. Assuming that these
conditions are satisfied, the Board of Directors intends to authorize the
Corporation to close the transactions. Concurrent with the closing, each of the
current members of the Board of Directors will resign and Robert M. Bernstein,
by written consent, will (a) amend the Corporation's Bylaws to increase the
number of directors to five (5) and (b) will elect new directors. The current
members of the Board of Directors and officers will, however, remain as
directors and officers of Matech 2. No shareholder approval for elections of
the new directors is required and none is being sought.
The accompanying information statement is furnished under Section 14(c) of the
Securities Exchange Act of 1934 and the Rules thereunder.
July 7, 1997 By: /s/ Joel Freedman
--------------------------------
Joel Freedman, Secretary
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY
1
<PAGE>
MATERIAL TECHNOLOGY, INC.
11661 San Vicente Boulevard, Suite 707
Los Angeles, CA 90049
INFORMATION STATEMENT
Material Technology, Inc., a Delaware corporation, (the "Corporation") is
furnishing this Information Statement to its shareholders in connection with
taking shareholder action without a meeting by less than unanimous written
consent of the Corporation's stockholders under Section 228 of Delaware General
Corporation Law. Robert M. Bernstein holds 2,426,130 shares of the
Corporation's Class A Common Stock representing 53.3% of the outstanding voting
shares. On or about July __, 1997, as the Corporation's majority shareholder,
Mr. Bernstein intends to execute a written consent of shareholders authorizing
the Corporation to: (1) transfer all of its assets and liabilities to Material
Technologies, Inc., ("Matech 2", a new corporation formed on March 4, 1997, for
this transaction) in exchange for 5,560,000 shares of that corporation's Class A
common stock and to distribute 5,000,000 of those shares to the Corporation's
existing shareholders; (2) to effect a reverse one for ten (1 for 10) stock
split reducing the Corporation's outstanding shares from 5,000,000 to 500,000
shares of Class A Common Stock; (3) enter into the reverse merger with SecurFone
America, Inc. in accordance with the February 17, 1997 Stock Purchase Agreement
and issue 4,500,000 shares of the Corporation's Class A Common Stock in exchange
for all of the stock of SecurFone America, Inc.; and (4) change the
Corporation's name to SecurFone America, Inc., by amending the Corporation's
Certificate of Incorporation.
These transactions are contingent on the satisfaction of certain conditions and
the closing is expected to occur by July 31, 1997. Assuming these conditions
are satisfied, the Board of Directors intends to authorize the Corporation to
close the transactions. Concurrent with the closing, each of the current
members of the Board of Directors will resign and Robert M. Bernstein, by
written consent, will (a) amend the Corporation's Bylaws to increase the number
of directors to five (5) and (b) will elect new directors. The current members
of the Board of Directors and officers will, however, remain as directors and
officers of Matech 2. No shareholder approval for elections of the new
directors is required and none is being sought.
This is only an Information Statement.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
This Information Statement is mailed to stockholders on or about July __, 1997.
Record holders of the Corporation's Class A Common Stock at the close of
business on July __, 1997 are entitled to receive a copy of this Information
Statement. On July __, 1997, there were 4,550,000 shares of Class A Common
Stock outstanding with each share entitled to one vote.
2
<PAGE>
VOTING SECURITIES AND SECURITIES TO BE ISSUED
On July __, 1997, the Corporation had four million five hundred fifty
thousand (4,550,000) shares of Class A Common Stock outstanding. Holders of the
Class A Common stock have one vote per share of common stock held and vote as a
single Class with holders of Class B Common Stock, who have 200 votes per share,
on all matters submitted to stockholder vote including annual election of
directors, amendment of the Certificate of Incorporation, merger or
consolidation of the Company, sale, lease, or exchange of all or substantially
all of the Company's property and assets, dissolution of the Company, and all
other matters required to be submitted to stockholder vote under Delaware
Corporation Law. A majority of the shares entitled to vote is necessary to
effect these transactions under Delaware Corporation Law. No super majority is
required by the Company's Certificate of Incorporation or Bylaws. Class A
Common stockholders are entitled to receive such dividends out of the funds or
assets of the Corporation legally available therefor as, from time to time, the
Board may declare. In electing directors, if one or more Stockholders or their
proxy deliver written notice to the Secretary of the Corporation prior to the
meeting, or to the Chairperson prior to the vote for directors, all Stockholders
may cumulate their votes in electing directors. If and only if such notice is
given, every Stockholder entitled to vote for directors shall have the number of
votes determined by multiplying the number of directors to be elected by the
number of shares the Stockholder is entitled to vote and each Stockholder may
then give one nominated candidate all such votes or distribute such votes in any
proportion among the nominated candidates.
Upon closing the transaction, the Corporation will issue an additional 450,000
shares of its Class A Common Stock, 225,000 to Irwin Renneisen and 225,000 to
David Jordan, two individuals not affiliated with the Corporation, as
compensation for introducing the Corporation to SecurFone resulting in the
closing of the transaction. After this issuance there will be 5,000,000 shares
of Class A Common Stock outstanding. The Corporation will then reverse split
these shares in a ratio of 1 for 10 resulting in 500,000 shares outstanding.
The Corporation will then issue 4,500,000 shares of its Class A Common Stock to
the stockholders of SecurFone America, Inc. ("SecurFone") in exchange for all of
the outstanding common stock of SecurFone. No person has any preemptive rights
to any of these shares under the Corporation's Certificate of Incorporation, its
Bylaws, or any agreements to which the Corporation is a party.
The Corporation's other outstanding equity securities, including Class B Common
Stock, Class A and Class B Preferred Stock, were previously exchanged for equity
securities in Matech 2.
INTERESTS OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
In connection with the Stock Purchase Agreement, the Corporation issued
2,319,454 shares of its Class A Common Stock so that the total number of shares
outstanding was increased from 2,680,546 shares to 4,550,000 and 450,000
additional shares will be issued upon closing the Stock Purchase Agreement for a
total of 5,000,000 shares as follows:
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Description Number of Shares Issued Number of Shares Issued
to all Shareholders to Robert M. Bernstein
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding as of March 9, 1997 2,680,546 856,676
- ------------------------------------------------------------------------------------------------------------------------------------
Issued to Robert M. Bernstein in 1,049,454 1,049,454
lieu of $372,000 in accrued salary(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Authorized to be issued upon 450,000 0
closing to Irwin Renneisen and
David Jordan for initiating
SecurFone Transaction
- ------------------------------------------------------------------------------------------------------------------------------------
Issued to Robert M. Bernstein for 520,000 520,000
$108,000 Note
- ------------------------------------------------------------------------------------------------------------------------------------
Issued to the Baker Group for 280,000 0
$58,000 Note
- ------------------------------------------------------------------------------------------------------------------------------------
Issued to the Company's Counsel 20,000 0
for Services in 1995 and 1996
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ISSUED 2,319,454
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL OUTSTANDING 5,000,000 2,426,130
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Under the agreement with Mr. Bernstein, upon closing the Stock Purchase
Agreement, the Corporation will distribute an additional 450,000 shares of
Matech 2 Class A Common Stock to Mr. Bernstein so that he will own a total
of 2,876,130 shares of Matech 2. 1,499,454 of these shares will be subject
to forfeiture to Matech 2 if, within two (2) years, Mr. Bernstein leaves
his positions as an officer and director of Matech 2 other than as a result
of death or disability.
After all steps in the transaction are complete, the following table sets forth
the percentages of each Company that certain persons will own when all steps of
the transaction are completed.
<TABLE>
<CAPTION>
Owner Per Cent of SecurFone's Per Cent of Matech 2's
----- ----------------------- ----------------------
Outstanding Common Stock Outstanding Common Stock
------------------------ ------------------------
<S> <C> <C>
SecurFone's Shareholders 90% 0%
SecurFone 0% 10.1%
Robert M. Bernstein 4.9% 51.7%
Current Directors including Mr. 5.2% 54.7%
Bernstein
All other Stockholders of the 4.8% 35.2%
Corporation
</TABLE>
In addition, Mr. Bernstein will own all 60,000 shares of Matech 2's Class B
Common Stock representing 12,000,000 votes leaving him in control of Matech 2.
In addition, in connection with the Stock Purchase Agreement, Mr. Bernstein will
enter into an agreement with SecurFone to provide consulting services for 18
months following the closing. Un-
4
<PAGE>
der the consulting agreement, SecurFone will pay Mr. Bernstein $5,000 upon
closing the transaction. In addition, for five years from the date of the
closing, Mr. Bernstein will be entitled to receive stock options, nonexercisable
for one year from the date of issue. The number of shares subject to Mr.
Bernstein's options will equal 7% of the sum (a) the total number of shares
SecurFone registers with the Securities and Exchange Commission on Form S-8 plus
(b) the total number of shares, if any, that SecurFone sells under Regulation S
of the Securities Act of 1933. Mr. Bernstein will have to pay for the shares in
accordance with the terms of the options when issued and those terms will be
substantially the same as the other shares registered on Form S-8 or sold under
Regulation S. The number of such options and/or shares that will be issued, if
any, their value, terms, and the dates of issuance cannot be determined at this
time but will be determined by SecurFone's Board of Directors during the five
year period depending on the Board's judgment of various factors that cannot be
predicted at this time, including, but not limited to, the need to reward
SecurFone's officers, directors, and employees, and its capital requirements.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class of Stock Name and Address of Amount and Nature of Percent of Class
Beneficial Owner Beneficial Ownership
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A Robert M. Bernstein, CEO 2,426,130 Shares 53.3%(1)
Common Stock East Tower, Suite 705
11835 Olympic Blvd.
Los Angeles, CA 90064
- ------------------------------------------------------------------------------------------------------------------------------------
Joel R. Freedman, Director 113,481 Shares 2.5%
1 Bala Plaza
Bala Cynwyd, PA 19004
- ------------------------------------------------------------------------------------------------------------------------------------
John Goodman, Director 50,000 Shares 1.1%
East Tower, Suite 705
11835 Olympic Blvd.
Los Angeles, CA 90064
- ------------------------------------------------------------------------------------------------------------------------------------
Directors and executive officers 2,589,611 Shares 56.9%
as a group (3 persons)
- ------------------------------------------------------------------------------------------------------------------------------------
Sherman Baker 505,700 Shares 11.1%
555 Turnpike St.
Canton, MA 02021
- ------------------------------------------------------------------------------------------------------------------------------------
Sherman Baker Group 883,768 Shares 19.4%
composed of 15 investors
including Mr. Baker
</TABLE>
DISSENTERS' RIGHT OF APPRAISAL
Shareholders who disapprove of the Corporation's merger with SecurFone America,
Inc., have appraisal rights under Section 262 of Delaware General Corporation
Law. To exercise appraisal rights, within twenty (20) days of the mailing of
this notice, a shareholder must demand in writing from the Corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the Corporation of the identity of the stockholder and that
the stockholder intends thereby
5
<PAGE>
to demand the appraisal of such holder's shares. If such a demand is received
within the designated time, such shareholder will then be entitled to Notice
from the Corporation of the effective date of merger. A copy of Section 262 of
Delaware General Corporation Law entitled "Appraisal rights" is attached hereto
as Exhibit A.
BACKGROUND
THE CORPORATION
Material Technology, Inc. was incorporated in the State of Delaware on
November 7, 1985 under the name of Tensiodyne Scientific Corporation. On
July 19, 1994, the Corporation amended its Certificate of Incorporation,
changing its name to Material Technology, Inc. The Corporation's principal
offices are located at 11835 West Olympic Boulevard, East Tower, Suite 705, Los
Angeles, California 90064.
The Corporation, a development stage company, owns that certain device known as
the Fatigue Fuse, which requires additional testing to more precisely identify
commercial uses prior to marketing. It is also the exclusive licensee of the
Electrochemical Fatigue Sensor ("EFS"), which requires substantial additional
development. These technologies are intended to indicate the level of fatigue
of certain metal structures including aircraft, bridges, cranes, ships, and
other structures. No commercial applications of the Corporation's products have
been arranged to date. The Corporation intends to develop a market for the
Fatigue Fuse once testing is completed and for the EFS once it has been fully
developed. (SEE, attached Form 10K of Material Technology, Inc. for the fiscal
year ended December 31, 1996, p.2.)
Prior to 1994, the Corporation had virtually no assets or liabilities and was a
subsidiary of Tensiodyne Corporation ("Tensiodyne"). In February 1994, as part
of a reorganization, Tensiodyne assigned all of its assets and liabilities to
the Corporation. On January 22, 1994, Tensiodyne's board of directors resolved
to transfer its assets and liabilities to the Company and distribute, to
Tensiodyne's holders of record at the close of business on February 1, 1994, one
share of the Corporation's Class A Common Stock for each share of Tensiodyne
Class A Common Stock. That distribution was subsequently made pursuant to an
S-1 registration statement filed with the Securities and Exchange Commission
effective on January 19, 1996.
SECURFONE AMERICA, INC.
On February 17, 1997, the Company entered into an agreement to effect a similar
transaction with SecurFone America, Inc., ("SecurFone"). SecurFone is
principally engaged in the sale and licensing of prepaid cellular phone
services. It has been in the development state since its formation on May 20,
1996. SecurFone provides these services in some markets and, in other markets,
licenses its resources to unrelated third parties. Generally, these services
include providing understanding of the market and assistance in promotion and
advertising.
SecurFone's services 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
6
<PAGE>
States, capability to provide services from any cellular phone, regardless of
model, and voice mail service from both cellular and landline sources.
In addition, SecurFone is pursuing regional and national distribution of
landline prepaid calling cards. It has also developed software to eliminate
cellular fraud and is assessing the feasibility of licensing this technology to
other cellular providers and carriers. SecurFone's principal offices are in San
Diego, California and its primary network facilities are in Miami, Fl.
REASONS FOR THE TRANSACTION
The Corporation's Board of Directors has reviewed the transaction, including the
various steps, described in this Information Statement and determined that they
are fair to the Corporation and its shareholders. The Board concluded that the
transaction is in the best interests of the Corporation's shareholders because
it will result in each shareholder obtaining an interest in a different high
technology public company that is closer than the Corporation to realizing
revenues and profits. The Board expects Corporation's business to remain in the
development stage for some time yet. The transaction will also supply the
Corporation additional working capital.
The transfer of assets and liabilities to Matech 2 and distribution of Matech
2's shares are designed to keep the two businesses separate. Each company has a
distinct mission and distinct financial, investment, and operating
characteristics, as well as different management. Maintaining the separation
allows each company to adopt strategies and pursue objectives appropriate to its
specific business to be valued independently from the other. The distribution
enables the Corporation's management to keep its attention and resources focused
on developing its Fatigue Fuse and Electrochemical Fatigue Sensor without regard
to the corporate and financial objectives and policies of SecurFone. The
distribution allows investors to evaluate better, in accordance with their
objectives and views, the different merits and outlooks of Matech 2 and
SecurFone.
THE STOCK PURCHASE AGREEMENT AND RELATED TRANSACTIONS
As of February 17, 1997, the Corporation entered into a Stock Purchase Agreement
with Montpilier Holdings, Inc., ("MHI") SecurFone America, Inc., ("SecurFone")
and Robert M. Bernstein, the Chief Executive Officer and controlling shareholder
of both the Corporation and Material Technologies, Inc., ("Matech 2"). Under
that agreement, the parties intend to effect a reverse merger of SecurFone into
the Corporation immediately after distributing 5,000,000 shares of Matech 2's
Class A Common Stock to the Corporation's shareholders. Upon closing,
SecurFone's shareholders will acquire 90% of the Corporation's outstanding
capital stock in exchange for 100% of SecurFone's outstanding capital stock.
The principal executive offices of Matech 2 and SecurFone America, Inc. are as
follows:
Material Technologies, Inc. SecurFone America, Inc.
East Tower, Suite 705 Suite 220
11835 West Olympic Boulevard 5850 Oberlin Drive
Los Angeles, CA 90064 San Diego, CA 92121
(310) 208-5589 (619) 677-5580
7
<PAGE>
Matech 2 was incorporated on March 4, 1997, for this transaction. On March 9,
Matech 2's Board authorized issuance of 5,560,000 shares of its Class A Common
Stock to the Corporation in exchange for all of the Corporation's assets and
liabilities. Matech 2 also issued (a) 60,000 shares of its Class B Common Stock
to Robert M. Bernstein in exchange for cancellation of his 60,000 shares of the
Corporation's Class B Common Stock, (b) 350,000 shares of Matech 2's Class A
Convertible Preferred Stock to the Baker Group in exchange for cancellation of
that group's 350,000 shares of the Corporation's Class A Preferred Stock, (c) 15
shares of Matech 2's Class B Preferred Stock to Tensiodyne in exchange for
cancellation of the Corporation's Class B Preferred Stock, and (d) 1,700,000
warrants to purchase 1,700,000 shares of Matech 2's Class A Common Stock for
$.50 per share in exchange for cancellation of like warrants to purchase the
Corporation's common stock. The rights, privileges, and designations of Matech
2's Class B Common Stock, warrants, and its preferred stock are the same as the
Corporation's corresponding securities except the redemption date of the Class B
Preferred Stock was changed from January 31, 2004 to January 1, 2002. As a
result, the Corporation has outstanding 4,550,000 shares of its Class A Common
Stock and no other securities.
On March 9, 1997, the Corporation's Board authorized the exchange of its assets
and liabilities for 5,560,000 shares of Matech 2's Class A Common Stock. That
transaction will be approved by the majority of the Corporation's shareholders
approximate 21 days after this Information Statement is mailed to the Company's
shareholders who will not vote on the transaction. The Corporation also agreed
to distribute 5 million shares of Matech 2's Class A Common Stock to its
shareholders in a ratio of one for one. The Corporation intends to distribute
369,172 shares of Matech 2's Class A Common Stock to 405 shareholders upon the
effectiveness of an S-1 Registration Statement filed with the Securities and
Exchange Commission on March 19, 1997. The remainder of the 5,000,000 shares
being distributed will be distributed to the Corporation's affiliates under the
private offering exemption from registration and such shares will be restricted.
The Corporation will retain 560,000 shares of Matech 2's Class A Common Stock
equal to 10.1% of the outstanding shares.
After the distribution, the Corporation will issue 450,000 shares to certain
individuals who introduced the Company to SecurFone and reverse split its
5,000,000 outstanding shares, 1 for 10, leaving approximately 500,000 shares
outstanding. Fractional shares will be rounded up. Thus, stockholders owning
less than ten shares of the Corporation's Class A Common Stock will still
receive one share in the reverse split.
The Corporation will then issue 4,500,000 new shares to SecurFone shareholders
in exchange for all of SecurFone's outstanding shares leaving the Corporation's
present shareholders with a 10% interest in SecurFone. SecurFone will pay
Matech 2 $120,000 to cover expenses related to the transaction. The Corporation
will then change its name to SecurFone America, Inc.; its officers and
directors will resign; and new directors will be elected and new officers
appointed. The resigning officers and directors will remain officers and
directors of Matech 2. The Corporation's present shareholders will retain
approximately 90% of their interest in the metal fatigue technologies business
through Matech 2 and own 10% of SecurFone's prepaid cellular telephone and
calling card business as well.
8
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
For financial reporting purposes the above transaction will be treated as a
recapitalization. Therefore, the assets and liabilities will be recorded at
historical cost. As the liabilities being transferred from the Corporation to
Matech 2 exceed the assets being transferred, there will be a taxable gain to
the Corporation under Internal Revenue Code Section 357(c). The federal income
tax, however, will be minimal as a result of the Corporation's net operating
loss and other factors.
It is management's understanding that the above transaction will not qualify as
a tax free spin-off under Internal Revenue Code Section 355. As such the
distribution will be a taxable dividend to the Corporation's shareholders under
Internal Revenue Code Section 301. The Corporation's shareholders will be
required to include in their taxable ordinary income for the taxable year in
which the distribution is received, the fair market value of the Corporation's
Stock distributed to them. The Corporation's Board of Directors has determined
that the value of its Common Stock is $.001 per share. This value was
determined due to the lack of marketability of the Corporation's stock, as well
as its negative net worth and its predecessors' history of accumulated losses.
There can be no assurance that the Internal Revenue Service (the "Service") or
other taxing agency will not assert a higher value, resulting in greater tax
liability to the Corporation's shareholders as a result of the distribution.
CONDITIONS FOR CLOSING THE TRANSACTION
The reverse merger contemplated by the Stock Purchase Agreement is conditioned
on the Registration Statement filed with the Securities and Exchange Commission
on March 19, 1997, becoming effective to allow distribution of Matech 2's
Class A Common Stock to the Corporation's public shareholders prior to
July 31, 1997. The Corporation is aware of no federal or state regulatory
requirements or approvals that will be necessary prior to effecting the
proposed reverse merger of SecurFone into the Corporation.
These transactions are contingent on satisfying certain conditions including
that the closing occur by July 31, 1997. In addition, prior to closing, the
Corporation must obtain the agreement of certain affiliates of the Corporation
to restrict their ability to sell or otherwise transfer their shares of the
Corporation for one year from the date of the closing. Closing is also
conditioned on counsel for the Corporation and SecurFone verifying that the
various steps in the transaction described above have been legally and properly
taken prior to closing and that no material adverse information has come to
light. Assuming that these conditions are satisfied, the Board of Directors
intends to authorize the Corporation to close the transactions. Concurrent with
closing, each of the current members of the Board of Directors will resign
and Robert M. Bernstein, by written consent, will (a) amend the Corporation's
Bylaws to increase the number of directors to five (5) and (b) will elect new
directors. No shareholder approval for elections of the new directors is
required and none is being sought.
9
<PAGE>
The above discussion of the Stock Purchase Agreement and the conditions to
closing contains all material terms of the Agreement.
SELECTED FINANCIAL INFORMATION
On March 9, 1997, Matech 2 authorized issuance of 5,560,000 shares of its
Class A Common Stock to the Corporation, 60,000 shares of its Class B Common
Stock to Robert M. Bernstein, 350,000 shares of its Class A Convertible
Preferred Shares to the Corporation's Class A Convertible Preferred Shareholders
in exchange for their Convertible Preferred in the Corporation, and 15 shares of
Class B Convertible Preferred Shares to the Corporation's Class B Convertible
Preferred Shareholder, Tensiodyne Corporation in exchange for its Class B
Convertible Preferred in the Corporation. Matech 2 will continue substantially
in the same line of business as the Corporation including owning all of its
assets and liabilities. The selected financial data for the Corporation are
derived from the Corporation's consolidated financial statements. The selected
financial data should be read in conjunction with the Corporation's financial
statements attached hereto as Exhibit 1.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ending December 31 Three Months Ending Inception to
March 31 March 31
- ------------------------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1996 1997 1997
(Unaudited) (Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales 0 0 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From
Continued Operations $(51,180) ($714,605) $(378,848) $(203,849) $(483,186) $(150,541) $(87,649) $(2,755,193)
- ------------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From
Continued Operations
Per Common Share $(.17) $(.016)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Shares
Outstanding 2,580,546 5,560,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $178,944 $167,858 $184,579 $150,692 $208,299 $165,481 $172,418 $172,418
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities $46,481 $401,600 $620,375 $783,882 $1,046,517 $914,049 $493,146 $493,146
- ------------------------------------------------------------------------------------------------------------------------------------
Redeemable Preferred
Stock 0 0 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Stockholders'
Equity (Deficit) $132,463 $(619,166) $(585,796) $(783,190) $(988,218) $(898,568) $(470,728) $(470,728)
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends 0 0 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following selected financial data compares, as of March 31, 997, the
Corporation's per share finances with SecurFone's per share finances as derived
from the audited financial statements attached to this Information Statement
with the pro forma data as if the transaction had been completed on March 31,
1997. For financial reporting purposes, the transaction is treated as a
recapitalization of both companies.
The SecurFone SecurFone
Corporation (Pro Forma)
- --------------------------------------------------------------------------------
Number of Shares of Common Stock
Outstanding as of March 31, 1997 5,000,000 4,000,000 5,000,000
10
<PAGE>
- --------------------------------------------------------------------------------
Book Value per share as of March 31, 1997 $(.094) $.20 $.163
- --------------------------------------------------------------------------------
Loss per share for period ending
March 31, 1997.* $(.016) $(.07) $(.056)
- --------------------------------------------------------------------------------
Dividends 0 0 0
- --------------------------------------------------------------------------------
*As SecurFone began operations in the fall of 1996, its financial statements
reflect only its first four months of operations ending on March 31, 1997
compared to three months of the Corporation's operations ending March 31, 1997.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of results of operations, capital resources, and
liquidity pertains to the consolidated activities of Tensiodyne Corporation for
1994 and of the Company for the two years ended December 31, 1996 and the three
months ended March 31, 1996 and 1997. Since February 1994, the Company has been
successor to all of the assets and operations of Tensiodyne pertaining to the
Fatigue Fuse and the Electrochemical Fatigue Sensor.
Results of Operations for the Years Ended December 31, 1994, 1995, and 1996, and
the first quarter of 1997 as compared with 1996.
Revenues
Neither the Company's parent Tensiodyne or Company generated any significant
revenue in 1996, 1995, 1994, or the three months ended March 31, 1997. Revenue
generated during the first quarter of 1996 consisted of interest of $507 which
accrued on a note due the Company and $9,656 on the sale of Tensiodyne
Corporation common stock. Revenue generated during the first quarter of 1997
consisted of $4,555 for research and development under the Company's subcontract
with Southwest Research Institute and $1,135 for expense reimbursement under
that contract.
COSTS AND EXPENSES
Research and Development costs (pertaining to testing) in 1996 were $699, as
compared to $15,104 in 1995 and $83,360 in 1994. The amount spent in
development costs by the Company is directly related to its available funds.
For the three months ended March 31, 1997, the Company spent $4,555 on research
and development reflecting the start up of its efforts in connection with the
Southwest Research Institute subcontract.
In the three months ended March 31, 1996 and 1997, General and Administrative
costs were $150,541 and $83,094, respectively. The major costs incurred during
the first quarter of 1996 consisted of telephone of $4,813, rent of $3,862,
professional fees of $20,183, officer's salary of $105,000, and office expense
of $8,051. The major costs incurred during the first quarter of 1997 consisted
of officer's salary of $45,000, professional fees of $21,643, telephone expenses
of $2,800, office expense of $1,869, and rent of $3,575.
11
<PAGE>
General and Administrative costs were $421,053 for 1996, $188,745 for 1995, and
$295,488 for 1994. The major cost in 1996 were officers' salaries of $200,000,
professional fees of $111,080, office related expenses of $45,136, travel
expenses of $21,902, rent of $16,742 and consulting fees totaling $34,631. The
primary increase in these expenses resulted from the Board approving
compensation of $200,000 to Robert M. Bernstein for his successful negotiation
of the teaming agreement with SWRI the University of Pennsylvania which resulted
in the United States Air Force awarding Southwest Research Institute a
$2,500,000 contract in February 1997 to conduct research on the Company's EFS
technology. In 1995, Mr. Bernstein's compensation was $0.
The major costs incurred during 1995 were professional fees of $33,206, the
charge-off of the third offering costs of $31,480, office related expenses of
$19,751, travel cost of $28,298, rent of $28,514, interest of $10,817, and
consulting fees of $15,362.
The major cost incurred in 1994 were officer salaries of $72,000, professional
fees of $55,824, office related expenses of $32,206, travel costs of $36,991,
rent of $16,169, and utilities of $23,023.
Liquidity and Capital Resources
The Company's accountant has opined that the Company's financial condition
raises substantial doubt concerning the Company's ability to continue as a going
concern. As a result of the Company's subcontract with SWRI related to its
contract with the U.S. Air Force which is providing $2.5 million for research on
the EFS technology and the possibility of an additional $2.5 million addition to
that contract, it appears that the Company will have sufficient funds to
continue operating at least through August 1998.
As reflected in the numbers below, over the past three years, to continue
seeking capital and to maintain its patents, the Company was totally dependent
on the willingness of the Company's President, Mr. Bernstein, and long time
investors in the Company to loan the Company money or purchase additional
securities from the Company. Over the next 18 months, the Company expects to
receive approximately $550,000 from a subcontract with SWRI relating to its
research contract that the United States Air Force awarded to SWRI on February
25, 1997. These funds, however, are not guaranteed but rather the Company's best
estimate based on SWRI's contract with the Air Force and the Company's
subcontract with SWRI. In addition, the Company expects to receive $120,000
from SecurFone America, Inc. under the Stock Purchase Agreement which will
provide the Company additional working capital. These funds, however, are only
a beginning, the Company estimates an additional $5,000,000 will have to be
raised to complete research and development and bring its products to market.
Although, Mr. Bernstein intends to continue to loan the Company funds as
required to seek additional financing, he is under no obligation to do so. The
Company does not expect to receive any additional material financing from its
other long time investors.
Although the Company has provided information to various investment bankers and
venture capitalists in an effort to obtain financing, no specific plans are
under consideration. Any prediction of the likelihood or timing of obtaining
the required funding would be highly speculative. The Company's ability to
obtain such financing may depend on the results of the research contract with
SWRI which will not be evident for a year or more.
12
<PAGE>
Cash and cash equivalents as of March 31, 1996 and 1997 were ($2,422) and $2,783
respectively. During the first quarter of 1996, the Company received $26,250
from officer loans. During the first quarter of 1997, the Company paid down
officer's loans by $44,000.
Cash and cash equivalents at December 31,1996 amounted to zero. During 1996,
the Company's president advanced $51,324, including direct loans to the Company
and payment of Company Expenses, and $64,676 was repaid towards his loan
account. In addition, an individual purchased a $25,000 convertible note, the
Company sold 50,000 of its shares of Tensiodyne Corporation for $17,750, and
$174,040 was received through the issuance of 70,000 shares of the Company's
Class A Common Stock through its 1996 stock option plan.
Cash and cash equivalents at December 31, 1995 amounted to $1,226. During 1995,
the Company's president advanced $100,874, including direct loans to the Company
and payment of Company expenses, of which $16,000 was repaid. Also in 1995, the
Company borrowed $58,000 from Mr. Sherman Baker. Of the amounts received in
1995, $135,378 was used in Company operations.
Cash and cash equivalents at December 31,1994 amounted to zero. During 1994,
the Company received $24,787 form its officers through the sale of its Class A
Common Stock, $140,000 from the sale of its Redeemable Class B Preferred Stock,
$135,050 from officer loans, and $78,495 from third-party loans. Of the total
amount received during the period, $275,441 was used in operations and $31,480
was paid in fees relating to the preparation and filing of the Registration
Statement and $78,446 was repaid to the Company's president.
AGREEMENTS AND ROYALTY OBLIGATIONS
There are certain outstanding agreements pursuant to which the Company and its
predecessors agreed to pay royalties or remuneration based upon revenues derived
from the commercial exploitation of the Fatigue Fuse and the EFS.
On December 24, 1985, Tensiodyne entered into agreements with Tensiodyne 1985-I
R&D Partnership to provide funding to research and develop the Fatigue Fuse.
These agreements were amended on October 9, 1989. Under these agreements, the
Company is obligated to pay the Partnership a 10% royalty on future gross sales
of the Fatigue Fuse limited to a return of the Partnership's original investment
of $912,500 plus interest at 6% per annum. In the event that the Company ceases
to be engaged in business, the Partnership will have all rights to the Fatigue
Fuse, and will pay a 15% royalty to the Company. See, Note 10a to the Financial
Statements.
In addition, the Company's predecessor entered into an agreement with Advanced
Technology Center ("ATC") pursuant to which, for a grant of $45,000, the Company
must return an amount equal to the grant by means of a royalty based on sales
and sub license agreements. Ben Franklin Techno-logy Center of South Eastern
Pennsylvania succeeded to this interest. The royalty obligation is limited to
the original advance and a return of 11% per annum. As of December 31, 1996,
this future royalty commitment was $119,336 compared to $107,510 as of December
31, 1995. Payment of this obligation will be made solely from Company sales and
is secured by a security interest
13
<PAGE>
in and to equipment used in developing its technology. SEE, Note 10 b to the
Financial Statements.
A similar agreement with the same entity was entered into May 4, 1987, under
which, in consideration for an additional grant of $63,775, ATC purchased a
royalty of 3% of future gross sales and 6% of sub licensing revenues. The
agreement was amended on August 2, 1987, and, as amended, the royalty cannot
exceed the lesser of (1) the amount of the advance plus a 26% annual rate of
return or, (2) total royalties earned for a term of 17 years. At December 31,
1995, and 1996, the total future royalty commitments, including the accumulated
26% annual rate of return, was limited to approximately $440,265 and $555,734,
respectively. Payment of future royalties will be made solely from Company's
sales of the Fatigue Fuse and are secured by the Company's patents, products,
and accounts receivable related to the Fatigue Fuse only, the technology
developed with the funding. SEE, Note 10 c to the Financial Statements.
On June 27, 1991, Tensiodyne issued to Variety Investments, Ltd., and Countryman
Investments, Ltd. (hereinafter the "Issuees"), both of Vancouver, British
Columbia, a royalty in an amount equal to 20% of gross sales of a joint venture
named Tensiodyne Marketing, Inc., consisting of Tensiodyne, Variety and
Countryman. Variety and Countryman were to advance $400,000 to Tensiodyne and
additionally purchase a 2.5% royalty for $100,000. The $100,000 was paid,
however, the Issuees advanced only $360,017 and the agreement was modified.
Pursuant to the modified agreement, the $360,017 was to be repaid solely from
funds derived from the sale of equity received by December 31, 1994, and the
royalty was to be modified upon the issuance of 100,000 shares of the common
stock of Tensiodyne. The obligation to Variety and Countryman bears interest at
the rate of 4.5% per annum. No portion of this sum was repaid by December 31,
1994 as required; consequently, the Issuees will receive, in the aggregate, a
royalty interest in the amount of 16.2%. SEE, Note 10 d to the Financial
Statements.
Under the February, 2, 1994 reorganization agreement, Tensiodyne was obligated
to provide $5,100,000 in financing to the Company. During 1994, the Company
received $150,000 under this agreement in exchange for 7,560 shares of its Class
A Common Stock and 15 shares of redeemable Class B Preferred Stock. The Class B
Preferred stockholders had the right to redeem their stock at $10,000 per share
on January 31, 2004. In connection with the Stock Purchase Agreement,
Tensiodyne agreed to exchange its 15 Class B Preferred shares in the Company for
$5,000 and 15 Class B preferred shares in Matech 2 with the same redemption
rights except that Tensiodyne may redeem its shares two years earlier on January
31, 2002.
Tensiodyne provided no further funding under its agreement to provide financing
to the Company. As a result, the Company sued Tensiodyne. On March 28, 1995, a
settlement of that action was reached and Tensiodyne issued 6,375,000 shares of
its common stock to the Company. The proceeds from the sale of these shares are
applied to reduce Tensiodyne's obligation under the agreement. The balance owed
is $4,950,000 plus accrued interest at 7% per year. The Company also received
an additional 250,000 shares of Tensiodyne upon signing the settlement
agreement.
These Tensiodyne shares have little or no value. Management believes Tensiodyne
has insufficient capital to pay any of the amount owed. The Company's
Tensiodyne shares are restricted
14
<PAGE>
and subject to Rule 144 under the Securities Act. It thus appears highly
unlikely that the Company will receive any significant funds from this source.
SEE, Note 10 e to the Financial Statements.
On August 4, 1995, the Company entered into an agreement with an unrelated third
party, Stephen Forrest Beck, to compensate him for providing the idea of
pursuing a government contract to fund the development of the EFS. As amended
on February 7, 1997, the agreement requires Matech 2 to issue him 2.5% of Matech
2's outstanding Class A common stock as of the date a subcontract is signed with
SWRI, appoint him to Matech 2's Board of Directors, and issue him a promissory
note equal to 15% of the amount of SWRI's contract with the government. The
funds due on the note are to be paid only when such funds are available to
Matech 2 from financing or revenues other than from a government contract.
Under this Agreement Matech 2 must execute a promissory note to pay this third
party $375,000 plus interest at major bank prime rate when such funds are
available to Matech 2. Interest accrues nine months after the government
contract is executed, and is payable quarterly. Matech 2 is obligated to pay
12.5% of the first $1,000,000 earned or raised through financing, other than a
government contract, and 15% of any amount over $1,000,000 until the note and
accrued interest are paid. SEE, Note 10 f to the Financial Statements.
On August 26, 1993, Tensiodyne entered into a license agreement with the
University of Pennsylvania whereby the University licensed to Tensiodyne the
right to develop and exploit the Electrochemical Fatigue Sensor. Under this
agreement, Tensiodyne issued 12,500 shares of its common stock to the University
and granted it a 5% royalty interest on revenues from sales of the EFS. The
license was assigned to the Company and terminates upon expiration of the
underlying patents.
Also on August 26, 1993, Tensiodyne entered into a Sponsored Research Agreement
with the University of Pennsylvania under which Tensiodyne agreed to sponsor
development of the EFS including paying the University $200,000 in 18 monthly
installments. These payments were not made for lack of funds. This agreement
was also assigned to the Company.
The Company expects to enter into modification agreements with the University of
Pennsylvania. Under the contemplated modification agreements, the University's
royalty on the EFS will be increased from 5% to 7%; the Company will issue the
University and certain affiliates of the University (the "University Group")
sufficient additional shares of Class A Common Stock so that the University
Group's percentage ownership equals 5% of the outstanding Class A Common Stock;
and the Company will pay the University 30% of any amounts the Company raises
from financing (excluding government contracts) in excess of $150,000 until the
$200,000 owed to the University is paid. SEE, Note 6 to the Financial
Statements.
The following summarizes the Company's royalty obligations on the Fatigue Fuse
and the EFS:
- --------------------------------------------------------------------------------
Fatigue Fuse EFS
- --------------------------------------------------------------------------------
Tensiodyne 1985-1 R&D Partnership 10.0%(1) 0
- --------------------------------------------------------------------------------
Advanced Technology Center
Future Gross Sales 6.0%(2) 0
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
Sublicensing Fees 12%(3)
- --------------------------------------------------------------------------------
Variety Investments, Ltd. 20.0% 0
- --------------------------------------------------------------------------------
University of Pennsylvania
Net Sales of EFS 0 7.0%
Net Sales of Services 0 2.5%
- --------------------------------------------------------------------------------
Sherman Baker 1.0% 0.5%
- --------------------------------------------------------------------------------
Totals 49.0% 10.0%
- --------------------------------------------------------------------------------
(1) The R&D Partnership's 10% royalty is limited to capital contributed plus
accrued interest.
(2) Advanced Technology Center's 6% royalty is limited to $45,000 plus 11% per
year return which equaled $119,336 as of December 31, 1996.
(3) Advanced Technology Center's 12% royalty on sales from sublicensing the
Fatigue Fuse is limited to $63,775 plus a 26% annual return which equaled
$554,734 as of December 31, 1996.
There are no prior affiliations, including stock ownership, among or between the
Company and the other persons described above to whom the Company has royalty
obligations.
BUSINESS
The Company, a development stage company, owns that certain device known as the
Fatigue Fuse, which requires additional testing to more precisely identify
commercial uses prior to manufacturing and marketing. The Company is also the
exclusive licensee of the Electrochemical Fatigue Sensor ("EFS"), which requires
substantial additional development. These technologies are intended to indicate
the level of fatigue of certain metal structures including aircraft, bridges,
cranes, ships, and other structures. No commercial application of these
products has been arranged to date. The Company intends to develop a market for
the Fatigue Fuse once testing is completed and for the EFS once it has been
fully developed.
The Fatigue Fuse is in its final testing and development stages which will last
from 6 to 12 months and cost approximately $2,000,000, including technical
testing and final development. If testing, development, and marketing are
successful, management estimates the Company should begin receiving revenue from
Fatigue Fuse sales a year of receiving the $2,000,000. At this time, management
cannot estimate the amount of revenue that may be realized. Management
estimates the EFS will require two years and approximately $2,875,000 for
development and marketing. If successful, Matech 2's two products will
complement each other and be used together in systems to detect and measure
metal fatigue. On the other hand, neither may be successful for many reasons
listed above.
At first, management intends to market the Fatigue Fuse separately. If the EFS
is successfully developed, the two products will complement on another. Several
manufacturers are capable of producing the Fatigue Fuse at a reasonable cost.
It is uncertain, however, that these products (a) will be successfully
developed, (b) can be commercially produced, (c) will perform to expectations,
or (d) that commercial markets will be successfully developed. Moreover, there
is and will be significant competition for the Fatigue Fuse if and when it is
marketed.
DEVELOPMENT OF TECHNOLOGIES
16
<PAGE>
The development and application sequence for the Fatigue Fuse and EFS consists
of Basic Research, Advanced Development, Prototype Evaluation, Application
Demonstration, and Commercial Sales and Service. The Fatigue Fuse came first
and is furthest along in the sequence. The Basic Research was by the inventor,
Professor Maurice Brull of the University of Pennsylvania. Tensiodyne conducted
the Advanced Development, including variations of the adhesive bonding process,
and fabrication of a laboratory grade recorder (i.e., a fatigue recorder capable
of high precision and reliability, but not designed for use outside a
laboratory) for the separation events which constitute proper functioning of the
Fatigue Fuse. The next step, Prototype Applications, is on hold pending the
receipt of funding, including empirical tailoring of Fuse parameters (i.e.,
parameters to match the measured structure's material and the Fuse's exact
geometric design to the structure's material and use) to fit actual spectrum
loading (i.e., random stress loads over a specific range of loads) expected in
specific applications. Associated tests include coupon specimens (i.e., small
blocks of metal which can be conveniently loaded in a test laboratory) and full
scale structural tests (i.e., the object being tested is a large assembly
constituting a section of the structure, e.g., an airplane wing) with attached
Fuses. A prototype of a flight qualifiable operational (i.e., it can be
modified to function when attached to a flying airplane) separation event
recorder (i.e., a device which detects, stores, and displays the information
that the metal strips in the Fuse have separated at specific times) was
designed, fabricated, and successfully demonstrated. The next tasks will be to
prepare a mathematical analysis for more efficient selection of Fuse parameters
and to conduct a comprehensive test program to prove the ability of the Fuse to
accurately indicate fatigue damage when subjected to realistically large
variations in spectrum loading. The final tasks prior to marketing will be a
larger group of demonstration tests, e.g. on bridges, helicopters, tankers, or
windmills.
To date, certain organizations have included Matech's Fatigue Fuse in test
programs. Already completed are tests for welded steel civil bridge members.
In 1996, Westland Helicopter, a British firm, tested the Fatigue Fuse on
Helicopters. That test was successful in that the legs of the fuses failed in
sequence as predicted. British Aerospace is conducting a full scale, 3 year
test of the Fatigue Fuse on Grumman T-38 training aircraft. Testing will be
completed in approximately one year. The Company has also received commercial
inquiries on the availability of Fatigue Fuses for windmills, marine cranes, and
refinery pressure vessels.
Basic Research for the EFS was conducted at the University of Pennsylvania. It
defined the unique physical effect on which the EFS is based, and the materials,
configuration, instrumentation and procedures to be employed. The next phase
will be Advanced Development with more complex load cycles, additional alloys,
fabrication of a movable Electrochemical Fatigue Sensor device, and production
of another body of reproducible test data. Prototype Applications will then
include fabrication of a truly portable near-operational device. And again the
final steps are multiple demonstration tests followed by routine sales.
The Company has a teaming agreement with Southwest Research Institute ("SWRI")
and the University of Pennsylvania (collectively the "Team"). On February 25,
1997, the United States Air Force awarded the Team a $2.5 million Phase I
contract to "determine the feasibility of [the Company's Electrochemical Fatigue
Sensor] to improve the United States Air Force capability to perform durability
assessments of military aircraft, including both air frames and engines through
the
17
<PAGE>
application of EFS to specific military aircraft alloys." The Company is a
subcontractor to SWRI and its share of this award is approximately $550,000 for
which the Company will perform certain technical tasks in accordance with its
expertise. This research will substantially assist the Company in determining
the feasibility of the EFS.
DESCRIPTION OF TECHNOLOGIES
The Company is developing these technologies because the existing methods of
detecting metal fatigue have certain disadvantages which may be avoided by the
Fatigue Fuse and/or EFS. The Fatigue Fuse, like other competing technologies,
must remain attached to the structure to respond to the structure's complete
loading history. Its advantages over the other technologies are (a) it costs
less and (b) it can be simply interpreted without a complex computer analysis
system. If the EFS is developed successfully, it will have a unique advantage
over all competing metal fatigue detection systems in that it will be able to
determine the degree of fatigue damage after a few days of temporary
installation. It will not require continuous input and will be able to assess
structures which have never before been tested for fatigue damage.
Moreover, there is a possibility that these two systems will work well together.
If the EFS can measure the status of the metal fatigue of a structure, then the
Fatigue Fuse may be calibrated to that level of fatigue and installed on the
structure to accurately measure metal fatigue as it occurs in the structure from
that date forward.
The Fatigue Fuse
The Fatigue Fuse, developed by Tensiodyne and now owned by the Company, was
designed to be affixed to a structure and to give a number of warnings as
preselected portions of the fatigue life have been used up (i.e., how far to
failure the object has progressed). It will give warnings against a condition
of widespread generalized cracking due to fatigue.
The Fatigue Fuse is a thin piece of metal similar to the material being
monitored. It consists of a series of parallel metal strips connected to a
common base, much as fingers are attached to a hand. Each "finger" has a
different geometric pattern called "notches" defining its boundaries. By
applying the laws of physics in determining the geometric contour of each of the
notches, the fatigue life of each finger should be finite and predictable. When
the fatigue life for a given finger (or fuse) is reached, the fuse breaks. By
implementing different geometry for each finger in the array, different
increments of fatigue life become observable. Typically, notches will be
designed to facilitate observation of increments of fatigue life of 10% to 20%.
By mechanically attaching or bonding these devices to different areas of the
structural member of concern, the Fuses undergo the same fatigue history as the
structural member. Therefore, breakage of a fuse will indicate that an
increment of fatigue life has been reached for the structural member.
Fatigue results from a metal object being subjected to repeated cyclic strain.
In a commercial context this strain and concomitant stress result from a large
number of cycles of loading and unloading. Sudden fracture can result. Fatigue
damage and the resulting compromise of the stability and integrity of the member
experiencing fatigue presents the potential for structural failure and extreme
danger. Objects such as bridges and wings of airplanes are subject to fatigue.
It is obvious that
18
<PAGE>
sudden fracture of such objects could have disastrous results. It is presently
impossible, under any generally acceptable theory of fatigue phenomena, to
predict by analysis alone when the limit is reached and when a fracture may take
place. Further, in normal usage, the damage occurs cumulatively, at microscopic
levels and can only be detected, in the early stages at a time when dire results
can be avoided by examination of the microscopic structure.
This difficulty has caused designers of objects and structures subject to
fatigue to be extremely conservative. They have attempted to design structures
to maintain the stresses presented in critical areas of a structure at a level
well below known endurance limits of the material. In many instances this
results in extreme expense. In spite of this "over-designing," catastrophic
fatigue failures still occur. Although tests of the Fatigue Fuse have been
performed in independent laboratories and the Fuse has been shown to perform as
designed and as expected, Management has determined that substantial additional
testing is necessary to ensure that it will be possible to calibrate various
types of loading spectra, i.e., the range and types of stresses which a metal
object experiences during usage. Management estimates it will require an outlay
of approximately $355,000 to accomplish this additional testing. If this money
were available, Management estimates that such additional testing could be
accomplished in 6 to 12 months.
Management believes the Fuse will be of value in monitoring aircraft, ships,
bridges, conveyor systems, mining equipment, cranes, etc. No special training
will be needed to qualify individuals to report any broken segments of Fuse to
the appropriate engineering authority for necessary action. The development of
such value is contingent upon the Company's successful production and marketing
of the Fuse, and no assurance can be given that the Company will be able to
overcome the obstacles relating to introduction to the market of a new product.
In order to determine its ability to produce and market the Fatigue Fuse, it
will be necessary for the Company to have substantial capitalization and no
assurance can be given that needed capital will be available.
Electrochemical Fatigue Sensor
In August 1993, Tensiodyne entered into two agreements, a license and
development agreement, with the University of Pennsylvania regarding a new
invention, the EFS, designed to measure electrochemically the status of fatigue
of a structure without knowing the structure's past loading history. Under the
license Agreement, 12,500 shares of Tensiodyne's common stock were issued, a 5%
royalty on sales of the EFS was granted, and, under the development agreement,
Tensiodyne undertook to pay $11,112 per month for 18 months totaling $200,000.
No payments have been made on this obligation. The Company and the University
of Pennsylvania are negotiating an agreement to modify their previous agreements
(a) to increase the University's royalty from 5% to 7% of the sale of related
products, (b) to issue additional shares of the Company's Class A Common Stock
so that the University and certain affiliates will own to 5% of the outstanding
Class A Common Stock of the Company as of the effective date of the modified
agreements, and (c) to pay the University 30% of any financing the Company
receives in excess of $150,000 (excluding amounts received from government
grants or contracts) up to the $200,000 owed to the University.
The EFS is a high precision instrument consisting of (a) a cell which can be
attached to a structure to measure electrical current and (b) software to
interpret the current measurements. The cell con-
19
<PAGE>
sists of an enclosure which contains a fluid which conducts electricity and two
metal electrodes connected to external wires leading to a battery and the
current measuring instrument. The sensor is temporarily attached to a
structural member, then the member is subjected to multiple loads while the
instrument records the current. A computer analyzes the current record to
determine the degree of fatigue damage present at the location of the sensor in
the structure. Then the sensor is removed.
The EFS is in the initial stage of research. No assurance can be given that it
can be developed successfully or that, if developed, it can be produced at a
price which will permit its marketing, or that, even if these two conditions are
met, that the EFS will find a market.
PATENTS
The Company is the assignee of four patents originally issued to Tensiodyne.
The first was issued on May 27, 1986, and expires on May 27, 2003. It is
entitled "Device for Monitoring Fatigue Life" and bears United States Patent
Office Number 4,590,804. The second patent entitled "Method of Making a Device
for Monitoring Fatigue Life" was issued on February 3, 1987 and expires February
3, 2004. It bears United States Patent Office Number 4,639,997. The third
patent, entitled "Metal Fatigue Detector," was issued on August 24, 1993 and
expires on August 24, 2010. It bears United States Patent Number 5,237,875.
The fourth patent, entitled "Device for Monitoring the Fatigue Life of a
Structural Member and a Method of Making Same," was issued on June 14, 1994 and
expires on June 14, 2011. It bears United States Patent Number 5,319,982. This
latter patent was pending when Tensiodyne assigned the rights to the Company in
February 1994 and was assigned to the Company upon issuance later in 1994.
DISTRIBUTION METHODS OF PRODUCT
If funds become available, the Company intends to exhibit the Fatigue Fuse and
the EFS at various aerospace trade shows and market its products directly to end
users, including aircraft manufacturing companies, aircraft maintenance
companies, manufacturers and operators of cranes, certain state regulatory
agencies which oversee bridge maintenance, companies engaged in manufacturing
and maintaining ships and tankers, and the military. Although management
intends to undertake marketing, dependent on the availability of funds, within
and without the United States, no assurance can be given that any such marketing
activities will be implemented.
COMPETITION
The Company's Products
1. The EFS is intended to provide a fatigue measurement which cannot now be
obtained from any other instrument, namely, an assessment of the extent of
fatigue damage before cracks have grown to a size detectable by nondestructive
inspection, in a structure which has not previously been instrumented or
monitored to record the loads or strains experienced in service.
2. The Fatigue Fuse provides a simple low-tech way to assess and predict
fatigue damage, which otherwise requires complex instrumentation, precision data
recording, and sophisticated analytical computer programs.
20
<PAGE>
Competitor's Products
Nevertheless, other technologies exist which indicate fatigue damage. Single
cracks larger than a certain minimum size can be found by nondestructive
inspection methods such as dye penetrant, radiography, eddy current, acoustic
emission, and ultrasonics. Tracking of load and strain history, for subsequent
estimation of fatigue damage by computer processing, is possible with recording
instruments such as strain gauges and counting accelerometers. These methods
have been used for up to 40 years and also offer the advantage that they have
been accepted in the marketplace, whereas the Company's products will remain
largely unproved for some currently indeterminable period. Companies marketing
these alternate technologies include Magnaflux Corporation,
Kraut-kremer-Branson, Dunegan-Endevco, and MicroMeasurements. These companies
have more substantial assets, greater experience, more human and other resources
than the Company, including but not limited to established distribution channels
and an established customer base. The familiarity and loyalty to these
technologies may be difficult to dislodge. Because the Company is still in its
development stages, it is unable to predict whether its technologies may be
successfully developed and commercially attractive to various potential markets.
SOURCES OF BASIC MATERIAL
All of the materials used in the Company's technologies are easily available
from numerous sources. The Company will not be dependent on any supplier as a
sole provider of materials.
DEPENDENCE UPON ONE OR MORE MAJOR CUSTOMERS
The Company believes that its products may be utilized within the aerospace,
crane, bridge, large ship and tanker industries and by the military. If it
successfully develops its products, as to which no assurance can be given, the
Company will attempt to market its products to a variety of companies and
governmental agencies. Nevertheless, the Company believes that it is likely,
for several years following introduction of its products, that it may be
dependent on a small number of large customers, the loss of any one of which
would have a material adverse effect upon the Company's revenues and the
perceived reliability of its products within the marketplace.
TOTAL NUMBER OF EMPLOYEES
The Company has three employees, Robert M. Bernstein, its President and Chief
Executive Officer, who spends substantially full time on its affairs, John
Goodman, its Chief Engineer, who works part time, and a secretary. The Company
will employ other persons as needed on a part time or consulting basis, as
appropriate, based on the availability of funds.
PLAN OF OPERATIONS
The Company estimates that it requires $5,000,000 in order to complete testing
of the Fatigue Fuse and to market the Fatigue Fuse and EFS. Of this sum, it
estimates that funds would be allocated approximately as follows:
21
<PAGE>
- --------------------------------------------------------------------------------
Preparation of production models $1,250,000
- --------------------------------------------------------------------------------
Referral fees for prior funding $625,000
- --------------------------------------------------------------------------------
Fatigue Fuse lab testing for specific loading conditions $500,000
- --------------------------------------------------------------------------------
Fatigue Fuse Beta test completion $250,000
- --------------------------------------------------------------------------------
EFS Beta testing on Turbine blades $500,000
- --------------------------------------------------------------------------------
Marketing efforts for two years including personnel $660,000
- --------------------------------------------------------------------------------
University of Pennsylvania license payment $200,000
- --------------------------------------------------------------------------------
Office administration and overhead for two years $1,015,000
- --------------------------------------------------------------------------------
TOTAL $5,000,000
- --------------------------------------------------------------------------------
The Company is seeking to raise funds from numerous sources, including various
state and federal governmental agencies and/or private or public offerings of
securities. At this time, however, the Company has no firm agreements other
than the subcontract with Southwest Research Institute related to the Air Force
contract signed on February 25,1997. That contract will provide $2,500,000 for
basic feasibility research on the EFS related to air frames and engines through
the application of EFS to specific military aircraft alloys. The Company will
receive approximately $550,000 to pay its overhead during EFS development which
will allow the Company to continue to search for the additional $5 million
needed to complete testing of the Fatigue Fuse and to market both the Fatigue
Fuse and EFS.. Sufficient interest has been generated by the military and the
Pentagon that additional military and congressional funding should be
forthcoming based upon the success of Phase I. Southwest Research has informed
the Company that Congress has appropriated an additional $2,500,000 for research
related to the EFS technology and that the contracting process for the
additional funds has begun. The Company anticipates that process will take
three to four months.
DESCRIPTION OF PROPERTY
The Company leased offices beginning June 1, 1997 at 11661 San Vicente
Boulevard, Suite 707, Los Angeles, California, 90049. The space consists of 830
square feet of useable space and will be adequate for the Company's current and
foreseeable needs. The rent is $40,464.00 payable at $1,868.00 per month.
The Company owns a remote monitoring system and certain manufacturing equipment
which is presently leased to the University of Pennsylvania (Laboratory for
Research on the Structure of Matter) for instructional and testing purposes. In
consideration of leasing this equipment, the University has agreed to perform
1,200 hours of testing on materials to be used in conjunction with the Fatigue
Fuse. The first five year term of this lease will expire on March 31, 1998.
Lessee has the right to borrow the equipment for a further five year period.
Upon the expiration of the second five year period, the University has the right
to purchase the equipment at its then fair market value.
LEGAL PROCEEDINGS
The Company is not presently involved in any legal proceedings which in
management's opinion might have a material effect on the Company.
22
<PAGE>
DIRECTORS, EXECUTIVE OFFICERS, AND CONTROL PERSONS
The name, age, office, and principal occupation of the executive officers and
directors of Matech and certain information relating t their business
experiences are set forth below:
NAME AGE POSITION
Robert M. Bernstein 62 President/Chief Financial Officer
Chairman of the Board
Joel R. Freedman 36 Secretary/Director
Dr. John Goodman 62 Chief Engineer/Director
The Term of the directors and officers of Matech is until the next annual
meeting or until their successors are elected.
ROBERT M. BERNSTEIN, PRESIDENT/CHIEF FINANCIAL OFFICER/CHAIRMAN OF THE BOARD
Robert M. Bernstein is 62 years of age. He received a Bachelor of Science
degree from the Wharton School of the University of Pennsylvania in 1956. From
August 1959 until his certification expired in August 1972, he was a Certified
Public Accountant Licensed in Pennsylvania. From 1961 to 1981, he acted as a
consultant specializing in mergers, acquisitions, and financing. From 1981 to
1986, Mr. Bernstein was Chairman and Chief Executive Officer of Blue Jay
Enterprises, Inc. of Philadelphia, Pennsylvania, an oil and gas exploration
company. In December 1986, he formed a research and development partnership for
Tensiodyne funding approximately $750,000 for research on the Fatigue Fuse.
From January 1986 until September 1986, Mr. Bernstein was President and Chief
Executive Officer of Tensiodyne Corporation and in October 1988 became Chairman
of the Board, President, Chief Financial Officer, and CEO of Matech and retained
these positions with Matech after the reorganization in February 1994.
JOEL R. FREEDMAN, SECRETARY/DIRECTOR
Joel R. Freedman is 36 years of age. From October 1989 until February 1994,
Mr. Freedmen was Secretary and a Director of Tensiodyne and Matech, retaining
these positions with Matech after the reorganization in February 1994. Mr.
Freedman attends board meetings and provides advice to the Company as needed.
Since 1983, he has been president of Genesis Securities, Inc., a full-serve
brokerage firm in Philadelphia, PA. His duties there are a full-time
commitment. Accordingly, he does not take part in Matech's day to day
activities. He is not a director of any other company.
DR. JOHN W. GOODMAN, CHIEF ENGINEER/DIRECTOR
Dr. John W. Goodman is 62 years of age. Dr. John Goodman is presently Senior
Staff Engineer, Materials Engineering Department of TRW Space and Electronics
and was formerly Chairmen of the Aerospace Division of the American Society
of Mechanical Engineers. He holds a Doctorate of Philosophy in Materials
Science which was awarded with distinction by the University of California at
Los Angeles in 1970, received in 1957 a Masters of Science degree in Applied
Mechanics from Penn State University and in 1955 he received a Bachelor of
Science degree in Mechanical Engineering from Rutgers University. From 1972
to 1987 Dr. John Goodman was with the United States Air Force as lead
Structural Engineer for the B-1 aircraft; Chief of the Fracture and
Durability Branch and Materials Group Leader, Structures Department,
Aeronautical Systems Center, Wright-
23
<PAGE>
Patterson Air Force Base. From 1987 to December, 1993, he was on the Senior
Staff, Materials Engineering Department of TRW Space and Electronics. He has
been Chief Engineer Development of Matech's products since May 1993. He worked
full time for Matech from August 1993 to December 1994, when he returned to TRW.
Since the he has consulted with Matech periodically.
The following individuals will constitute the Board of Directors following the
resignation of the current members of the Board:
WILLIAM STUEBER, age 37, became President of SecurFone America, Inc. in June
1996. Since 1982, he has been the owner and president of Direct Mobile, Inc.
(formerly known as Vortex Cellular, Inc.), a distributor of cellular telephones,
pages, and other communications equipment.
NICHOLAS WILSON, age 51, became Chief Executive Officer of SecurFone America,
Inc. in June 1996. From September 1994 until October 1996, Mr. Wilson was
Chairman of the Board of Intek Diversified Corporation, a publicly-traded
company engaged in the development of 220 MHZ special mobile radio systems. Mr.
Wilson is President of Roamer One Holdings, Inc. a privately-held holding
company which owns a major position in Intek Diversified Corporation. Since
1989, Mr. Wilson has served as President and Chief Executive Officer of Roamer
Communications Network which was responsible for providing engineering services
to a large number of 220 MHz licensees. In addition to serving as Director to
several private companies, Mr. Wilson serves as a Director of Ventel, Inc. a
Canadian corporation listed on both the Vancouver and Montreal Stock Exchanges.
MICHAEL LEE, age 38, became Chief Financial Officer of SecurFone America, Inc.
in June 1996. He is a certified public accountant and member of the American
Institute of Certified Public Accountants and the Ohio Society of Certified
Public Accountants. Mr. Lee has been a tax partner since October 1993 at Bober,
Markey & Company, a large regional public accounting firm. Previously he worked
as a tax manager for ten years at Grant Thorton International LLP, one of the
world's largest public accounting firms. Mr. Lee presently serves as Treasurer
and Director of Roamer One Holdings, Inc. and has served as a Director for
numerous private companies.
DEREK DAVIS, age 29, became Chief Operating Officer of SecurFone America, Inc.
in June 1996. From March 1993 until June 1996, Mr. Davis was Director of
Operations of Central Communications Corporation, a company engaged in the
construction and operation of 220 MHz special mobile radio systems. From
December 1990 until September 1991, Mr. Davis was a financial analyst for Rovic
Diamonds, a diamond mining company. Mr. Davis has a Masters of Business
Administration from the University of San Diego.
STEVEN L. WASSERMAN, age 43, became Secretary and a Director of SecurFone
America, Inc. in June 1996. Mr. Wasserman is an attorney and a partner of the
law firm of Kohrman Jackson & Krantz, PLL, Cleveland, Ohio. He is Secretary and
a Director of Intek Diversified Corporation, and is also a member of Intek's
Audit Committee and Stock Option Committee. Mr. Wasserman is also a Director of
Roamer One Holdings, Inc. He was a principal of the law corporation of Honohan,
Harwood, Chernett & Wasserman, LPA, Cleveland, Ohio, from September 1983 until
September 1, 1994. Mr. Wasserman is a member of the bars of Ohio and Florida.
23
<PAGE>
The Board of Directors does not have any committees. All Board actions during
the previous fiscal year, 1996, were conducted by the unanimous consent of the
three directors.
EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Other Restricted All Other
Name and Annual Stock Options LTIP Compen-
Principal Salary($) Bonus Compen- Awards /SARs Payouts sation ($)
Position Year ($) sation($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Robert M. 1994 $72,000(1) 0 0 $0 0 0 $10(2)
Bernstein 1995 0 0 0 0 0 0 0
CEO 1996 $200,000(1) 0 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------
John W. 1994 $71,096 0 0 0 0 0 0
Goodman 1995 2,745 0 0 0 0 0 0
Director and 1996 0 0 0 0 0 0 0
Engineer
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) This amount was accrued. On April 25, contingent on Mr. Bernstein
remaining as an officer and director of Matech 2 for two years, the Corporation
agreed to issue Mr. Bernstein 1,049,454 shares of its Class A Common Stock and
an additional 450,000 shares of Matech 2 Class A Common Stock in exchange for
cancellation of the $372,000 in salary accrued by Mr. Bernstein.
(2) In February 1994, the Company issued 10,000 shares of Class A Common Stock,
par value $.001, to Mr. Bernstein
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On January 12,1996, Matech's S-1 registration became effective for distribution
of 262.267 shares of Class A Common Stock to 391 shareholders of Tensiodyne
Corporation as of February 2, 1994. Of these shares, 132,565 shares were
distributed to Robert M. Bernstein.
Approximately two weeks later, Matech Class A Common Shares were quoted on the
NASDAQ Bulletin Board. Its trading symbol is MTKN. During 1996, Matech's
Class Common Stock traded between a low of $2.50 per share and a high of $5.00
per share. The following chart contains the high and low prices per share at
which the stock traded in each 1996 calendar quarter.
- --------------------------------------------------------------------------------
High Low
- --------------------------------------------------------------------------------
First Quarter Unavailable Unavailable
- --------------------------------------------------------------------------------
Second Quarter $4.50 per share $3.00 per share
- --------------------------------------------------------------------------------
Third Quarter $3.50 $2.50
- --------------------------------------------------------------------------------
Fourth Quarter $2.50 $5.00
- --------------------------------------------------------------------------------
On December 31, 1996, there were 405 shareholders.
25
<PAGE>
No dividends on any of the Company's shares were declared or paid during 1996
nor are any dividends contemplated in the foreseeable future.
On February 20, 1996, and December 20, 1996, Matech filed Form S-8 registration
statements registering 220,000 shares of the Company's Class A Common Stock to
be issued to employees, advisors and consultants under the Company's 1996 Stock
Option Plan adopted by the Board of Directors on February 19, 1996. As of June
30, 1997, 170,000 shares have been issued under this plan to various
consultants.
INDEPENDENT PUBLIC ACCOUNTANT
The Corporation's independent public accountant for its most recent fiscal year,
1996, was Jonathon Reuben, CPA, An Accounting Corporation. The Corporation has
not retained an accountant for the current fiscal year.
ATTACHMENTS
Attachment A: Delaware General Corporation Law, Section 262: Appraisal Rights
Exhibit 1: Financial Statements of Material Technology, Inc.
Exhibit 2: Financial Statements of SecurFone America, Inc.
26
<PAGE>
ATTACHMENT A
DELAWARE GENERAL CORPORATION LAW
Section 262 Appraisal rights
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a non stock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a non stock corporation; and
the words "depository receipt" means a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an inter dealer
quotation system by the National Association of Securities Dealers, Inc. or
(ii) held of record by more than 2,000 holders; and further provided that
no appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts at the respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as a
national market system security on an inter dealer quotation system by
the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
27
<PAGE>
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identify of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing
to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holder of any class or series of stock
of such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of
the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting
28
<PAGE>
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before
the effective date of the merger or consolidation notifying each of the
holders of any class or series of stock of such constituent corporation
that are entitled to appraisal rights of the effective date of the merger
or consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
the subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix , in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of the subsection (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement
shall be mailed to the stockholder within 10 days after his written request for
such a statement is received by the surviving or resulting corporation or
within 10 days after expiration of the period for delivery of demands for
appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week be-
29
<PAGE>
fore the day hearing, in a newspaper of general circulation published in the
City of Wilmington, Delaware or such publication as the Court deems advisable.
The forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting
corporation .
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair
rate of interest, the Court may consider all relevant factors, including the
rate of interest which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder entitled to
participate in the appraisal proceeding, the Court may, in its discretion,
permit discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the stockholder entitled to an
appraisal. Any stockholder whose name appears on the list filed by the
surviving or resulting corporation pursuant to subsection (f) of this section
and who has submitted his certificates of stock to the Register in Chancery, if
such is required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of the stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of his demand for an
appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Not-
30
<PAGE>
withstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (8 Del. C. 1953, Section 262;
56 Del. Laws, C. 50; 56 Del. Laws, C. 186, Section 24; 57 Del. Laws, C. 148,
Sections 27-29; 59 Del. Laws, C. 106, Section 12; 60 Del. Laws, C. 371, Sections
3-12; 63 Del. Laws, C. 25, Section 14; 63 Del. Laws, C. 152, Sections 1,2; 64
Del. Laws, C. 112, Sections 46-54; 66 Del. Laws, C. 136, Sections 30-32; 66 Del.
Laws, C. 352, Section 9; 67 Del. Laws, C. 376, Sections 19, 20; 68 Del. Laws, C.
337, Sections 3, 4; 69 Del. Laws, C. 61, Section 10; 69 Del. Laws, C. 262,
Sections 1-9 ; 70 Del. Laws, C. 79, Section 16; 70 Del. Laws, C. 186. Section
1;70 Del. Laws, C. 299, Sections 2, 3; 70 Del. Laws, C. 349, Section 22.)
31
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
FINANCIAL STATEMENTS
Contents
--------
Page
----
Independent Auditor's Report F1
Balance Sheets F3
Statements of Operations F5
Statements of Stockholders' Equity (Definciency) F6
Statements of Cash Flows F14
Notes to Financial Statements F16
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' 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 each of the three years in the
period ended December 31, 1996, and for the period from January 1, 1991,
through December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. Statements of
operations and cash flows for the period from October 21, 1983 (inception)
through December 31, 1990, (with the exception of 1989 which was unaudited) were
audited by other auditors whose reports dated on various dates, expressed
unqualified opinions including an explanatory paragraph, as discussed in Note 3,
regarding the Company's ability to continue as a going concern.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provides a reasonable basis for our
opinion.
F-1
<PAGE>
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Material Technology, Inc.
(Formerly Tensiodyne Scientific Corporation) as of December 31, 1996, and 1995,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1996 and for the period from January 1, 1991
through December 31, 1996, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Jonathon P. Reuben
- --------------------------
Jonathon P. Reuben,
Certified Public Accountant
Calabasas, California
June 12, 1997
F-2
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
BALANCE SHEETS
ASSETS
December 31, March 31,
1995 1996 1997
----------- ---------- -------------
(Unaudited)
CURRENT ASSETS
Cash and Cash Equivalents $ 1,226 $ -- $ 2,783
Accounts Receivable -- -- 4,555
Prepaid Expenses -- 6,472 5,848
----------- ---------- -------------
TOTAL CURRENT ASSETS 1,226 6,472 13,186
----------- ---------- -------------
FIXED ASSETS
Property and Equipment, Net
of Accumulated Depreciation 100,958 98,016 97,318
----------- ---------- -------------
OTHER ASSETS
Investments -- 55,200 13,800
Intangible Assets, Net of
Accumulated Amortization 22,658 20,669 20,172
Note Receivable (Including
Accrued Interest) 23,661 25,753 25,753
Refundable Deposit 2,189 2,189 2,189
----------- ---------- -------------
TOTAL OTHER ASSETS 48,508 103,811 61,914
----------- ---------- -------------
TOTAL ASSETS $ 150,692 $ 208,299 $ 172,418
----------- ---------- -------------
----------- ---------- -------------
F-3
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
December 31, March 31,
1995 1996 1997
------------ ----------- ----------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES
Bank Overdraft -- $ 2,422 $ --
Legal Fees Payable 111,343 128,191 126,835
Other Accounts Payable 18,185 33,221 39,687
Accrued Officers Salary 172,000 372,000 45,000
Accrued Payroll Taxes 12,051 19,124 22,656
Loan Payable - Officer 23,272 56,846 12,846
Loans Payable-Others 84,439 32,627 32,627
Payable on Research and
Development Sponsorship 188,495 188,495 188,495
------------ ----------- ----------
TOTAL CURRENT LIABILITIES 609,785 832,926 468,146
Loan Payable - Officer 113,268 122,698 --
Loans Payable - Other 60,829 90,893 25,000
------------ ----------- ----------
TOTAL LIABILITIES 783,882 1,046,517 493,146
------------ ----------- ----------
REDEEMABLE PREFERRED STOCK
Class B Preferred Stock, $.001 Par Value
Authorized 510 Shares, Outstanding 15 Shares at December
31, 1996; Redeemable at $10,000 Per Share After January 31, 2002 150,000 150,000 150,000
------------ ----------- ----------
STOCKHOLDERS' (DEFICIT)
Class A Common Stock, $.001 Par Value, Authorized 10,000,000
Shares, Outstanding 2,157,880 Shares at December 31, 1995,
2,580,546 Shares at December 31, 1996, and 5,000,000 Shares at March 31, 1997 2,157 2,580 5,000
Class B Common Stock, $.001 Par Value, Authorized 300,000
Shares, Outstanding 60,000 Shares 60 60 60
Class A Preferred, $.001 Par Value, Authorized 900,000 Shares
Outstanding 350,000 Shares 350 350 350
Additional Paid in Capital 1,763,698 1,799,181 2,459,354
Less Notes and Subscriptions Receivable - Common Stock (14,720) (14,720) (36,464)
Deficit Accumulated During the Development Stage (2,380,135) (2,830,869) (2,912,828)
Unrealized Holding Gain on Investment Securities -- 55,200 13,800
------------ ----------- ----------
TOTAL STOCKHOLDERS' (DEFICIT) (783,190) (988,218) (470,728)
------------ ----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 150,692 $ 208,299 $ 172,418
------------ ----------- ----------
------------ ----------- ----------
</TABLE>
F-4
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From Inception
For the Three Months Ended (October 21, 1983)
March 31, Through
1994 1995 1996 1996 1997 March 31, 1997
----------- ---------- --------- ----------- ---------- ----------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Sale of Fatigue Fuses $ -- $ -- $ -- $ -- $ -- $ 64,505
Sale of Royalty Interests -- -- -- -- -- 198,750
Research and Development Revenue -- -- -- -- 4,555 717,135
Test Services -- -- -- -- -- 10,870
----------- ---------- --------- ----------- ---------- ----------------
TOTAL REVENUES -- -- -- -- 4,555 991,260
----------- ---------- --------- ----------- --------- ----------------
COSTS AND EXPENSES
Research and Development 83,360 15,104 10,700 -- 4,555 1,512,851
General and Administrative 295,488 188,745 472,486 150,541 83,094 2,233,602
----------- ---------- --------- ----------- --------- ----------------
TOTAL COSTS AND EXPENSES 378,848 203,849 483,186 150,541 87,649 3,746,453
----------- ---------- --------- ----------- --------- ----------------
INCOME (LOSS) FROM OPERATIONS (378,848) (203,849) (483,186) (150,541) (87,649) (2,755,193)
----------- ---------- --------- ----------- --------- ----------------
OTHER INCOME (EXPENSE)
Expense Reimbursed -- -- 12,275 1,135 (5,392)
Interest Income 1,785 1,928 2,427 507 -- 39,487
Miscellaneous Income -- 4,375 -- -- -- 25,145
Loss on Sale of Equipment -- -- -- -- -- (12,780)
Settlement of Teaming Agreement -- -- -- -- -- 50,000
Litigation Settlement -- -- -- -- -- 18,095
Gain on Sale of Stock -- -- 17,750 9,656 -- 17,750
----------- ---------- --------- ----------- --------- ----------------
TOTAL OTHER INCOME 1,785 6,303 32,452 10,163 1,135 132,305
----------- ---------- --------- ----------- --------- ----------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS AND PROVISION FOR INCOME TAXES (377,063) (197,546) (450,734) (140,378) (81,959) (2,622,888)
PROVISION FOR INCOME TAXES -- -- -- -- -- (7,000)
----------- ---------- --------- ----------- --------- ----------------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS (377,063) (197,546) (450,734) (140,378) (81,959) (2,629,888)
EXTRAORDINARY ITEMS
Forgiveness of Debt -- -- -- -- -- (289,940)
Utilization of Operating Loss Carry forward -- -- -- -- -- 7,000
----------- ---------- --------- ----------- --------- ----------------
NET INCOME (LOSS) $ (377,063) $ (197,546) $ (450,734) $ (140,378) $ (81,959) $ (2,912,828)
----------- ---------- --------- ----------- --------- ----------------
----------- ---------- --------- ----------- --------- ----------------
PER SHARE DATA
Income (Loss) Before Extraordinary Item $ (0.17)
Extraordinary Items -
---------
NET INCOME (LOSS) $ (0.17)
---------
---------
COMMON SHARES OUTSTANDING 2,580,546
---------
---------
</TABLE>
See accompanying notes and independent accountants' report.
F-5
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
Class A Common Class B Common Class A Preferred Stock 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 -- -- -- -- -- -- -- --
------ ----- ----- ----- ----- ------- ------- -----
<CAPTION>
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>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
Class A Common Class B Common Class A Preferred Stock 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 -- -- -- -- -- -- -- --
------- --- ------- ------- ------- ------ ------- -------
<CAPTION>
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>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
Class A Common Class B Common Class A Preferred Stock 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 -- -- -- -- -- -- -- --
------- --- ------- ------- ------- ------- ------- -------
<CAPTION>
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>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
Class A Common Class B Common Class A Preferred Stock 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 -- -- -- -- -- -- -- --
--------- ----- ------- ------- ------- ------- ------- -------
<CAPTION>
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>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
Class A Common Class B Common Class A Preferred Stock 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 -- --
--------- ----- ------- ------- ------- ------- ------- -------
<CAPTION>
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>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
Redeemable
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
========= ===== ======= ======= ======= ======= ======= =======
<CAPTION>
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>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
Redeemable
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
Sale of Stock 100,000 100 -- -- -- -- -- --
Conversion of Indebtedness 800,000 800 -- -- -- -- -- --
Class A Common Stock Issued
in Cancellation of $372,000
Accrued Wages Due Officer 1,049,454 1,050 -- -- -- -- -- --
<CAPTION>
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)
Sale of Stock 99,900 --
Conversion of Indebtedness 187,793 --
Class A Common Stock Issued
in Cancellation of $372,000
Accrued Wages Due Officer 370,950 --
</TABLE>
See accompanying notes and independent accountants' report.
F-12
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD OCTOBER 21, 1983 (INCEPTION) THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
Redeemable
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 20,000 20 -- -- -- -- -- --
Adjustment to Give Effect
to Recapitalization on
March 9, 1997 450,000 450 -- -- -- -- -- --
Net (Loss) for the Three
Months Ended March 31, 1997 -- -- -- -- -- -- -- --
--------- ----- ------- ------- ------- ------- ------- -------
5,000,000 $ 5,000 60,000 $ 60 350,000 $ 350 15 $ 150,000
========= ===== ======= ======= ======= ======= ======= =======
<CAPTION>
Deficit
Accumulated
Capital During the
in Excess of Development
Par Value Stage
------------ -----------
<S> <C> <C>
Issuance of Shares for
Services Rendered 1,980 --
Adjustment to Give Effect
to Recapitalization on
March 9, 1997 (450) --
Net (Loss) for the Three
Months Ended March 31, 1997 -- (81,959)
--------- ---------
$ 2,459,354 $ (2,912,828)
========== ==========
</TABLE>
See accompanying notes and independent accountants' report.
F-13
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the From Inception
Three Months Ended (October 21, 1983)
December 31, March 31, Through
1994 1995 1996 1996 1997 March 31, 1997
---------- ------------ --------- ---------- ---------- ----------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 268,406 $ 142,874 $ 172,614 $ 51,250 $ 34,256 $ 1,748,622
---------- ------------ --------- ---------- ---------- ----------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (7,035) 7,496 (3,648) 15,670 5,205 2,783
BEGINNING BALANCE - CASH AND
CASH EQUIVALENTS 765 (6,270) 1,226 1,226 (2,422) --
---------- ------------ --------- ---------- ---------- ----------------
ENDING BALANCE - CASH AND CASH
EQUIVALENTS $ (6,270) $ 1,226 $ (2,422) $ 16,896 2,783 $ 2,783
---------- ------------ --------- ---------- ---------- ----------------
---------- ------------ --------- ---------- ---------- ----------------
</TABLE>
SUPPLEMENTAL INFORMATION:
A. Definition of Cash and Cash Equivalents
For the purpose of the statements of cash flows, all highly liquid
investments with a maturity of three months or less are considered
to be cash equivalents.
B. During the periods from the date of inception (October 21, 1983)
to December 31, 1995, there have been no cash payments for income
taxes or interest.
During 1996, the Company made interest payments totalling $2,000.
There were no payments in 1996 for income taxes.
C. Non Cash Investing and Financing Activities
During 1994, the Company authorzed the issuance to certain
directors and to members of its advisory board a total of 198,000
shares of its Class A Common Stock.
Also in 1994, the Company authorized the issuance of 15,000 to unrelated
third parties for services rendered to the Company and also authorized
the issuance of 10,000 shares of Class A Common Stock to its president
for past services.
During 1995, the Company forgave $154,600 on an obligation due
from the Company's President in consideration for the President returning
62,000 shares of the Company's Class A Common Stock to its treasury.
During 1995, the Company also issued 152,500 shares of its Class A
Common stock to third parties in consideration for the modification
of certain agreements.
During 1996, the Company issued 250,000 shares of its Class A Common
stock in consideration for the cancellation of a 2.5% royalty interest in
the Company's Fatigue Fuse
During 1996, a unrelated third party assigned his interest in a $55,000
loan owed him by the Company to the Company's President.
See accompanying notes and accountants' report.
F-14
<PAGE>
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:
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)
---------
---------
<PAGE>
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.
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.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage company)
NOTES TO FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (continued)
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 SAD Topic l.B.2.
d. Persuasiveness 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 contemplates
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.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne scientific corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 4 - Intangibles
Intangible assets consist of the following:
Period of December 31,
Amortization 1995 1996
------------- ------- -------
Patent Costs 17 years $ 28,494 $ 28,494
organization costs 5 Years 9,076 9,076
License Agreement 20 Years 6,250 6,250
(See Note 7) -------- --------
43,820 43,820
Less Accumulated Amortization (21,162) (23,151)
-------- --------
$ 22,658 20,669
Amortization charged to operations for 1994, 1995, and 1996, were
$1,988, $1,988 and $1,989, respectively.
Note 5 - Litigation settlement
On October 26, .1992, the Company agreed to an out-of-court settlement
resulting from improprieties by its chief Technical consultant, who
was also an officer and director. The settlement resulted in a return
from the individual of 5,650 shares of the Company's common stock, a
return of 600 warrants to purchase 600 shares of common stock, and a
promissory note for $50,000 secured by a mortgage interest on the
individual's residence.
The note is non-interest bearing and 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 AFD-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.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 5 - Litigation Settlement
As of December 31, 1996, the note was in default due to the failure by
the individual to maintain insurance on the property and to pay
property taxes. The Company commenced foreclosure proceedings with a
public foreclosure sale pending and scheduled for March 1997.
Management estimates that the net amount the Company should receive on
the sale of the property approximates the balance of the note as of
December 31, 1996.
Accrued interest credited to operations for the years 1994, 1995 and
1996 were $1,766, $1,929 and $2,091, respectively.
Note 6 - License Agreement
The Company has entered into a license agreement with the University of
Pennsylvania regarding the development and marketing of the
Electrochemical Fatigue Sensor. The Sensor is designed to measure
electrochemically the status of a structure without knowing the
structure's past loading history. The Company is in the initial stage
of developing the Sensor.
Under the terms of the agreement the Company issued to the University
12,500 shares of its common stock and a 5% royalty on sales of the
product. The Company valued the licensing agreement at $6,250. Under
the terms of the agreement, the license terminates upon the expiration
of the underlying patents, unless sooner terminated as provided in the
agreement. The Company is amortizing the license over 20 years.
In addition to entering into the licensing agreement, the Company also
agreed to sponsor the development of the Sensor. Under the
Sponsorship agreement, the Company agreed to reimburse the University
development costs totaling approximately $200,000 which was to be paid
in 18 monthly installments of $11,112. The research and development
costs are recorded at present value, using an annual interest rate of
8.5%. At December 31, 1995, and 1996, the present value of this
obligation was $188,494. The Company charged the full $188,494 to
operations as research and development in 1993. The Company has not
made any payments toward this obligation.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 6 - License Agreement (Continued)
Pursuant to the terms of the agreement, the Company reimbursed the
University in 1996, $10,000 for the cost it incurred in the
prosecution and maintenance of its patents relating to the
Electrochemical Fatigue Sensor.
The Company and the University have agreed to modify the terms of the
licensing agreement and related obligation. The terms of the modified
agreements include an increase in the University's royalty to 7% of
the sale of related products, the issuance of additional shares of the
Company's Class A Common stock to equal 5% of the outstanding stock of
the Company as of the effective date of the modified agreements, and
to pay to the University 30% of any amounts raised by the Company in
excess of $150,000 (excluding amounts received on government grants or
contracts) up to the amount owed to the University.
Note 7 - Property and Equipment
The following is a summary of property and equipment:
December 31,
1995 1996
------- -------
Office Equipment $ 14,345 $ 14,345
Remote Monitoring System 97,160 97,160
Manufacturing Equipment 100,067 100,067
------- --------
211,572 211,572
Less: Accumulated
Depreciation (110,614) (113,556)
-------- --------
$100,958 $ 98,016
-------- --------
-------- --------
Depreciation charged to operations was $3,567, $3,566 and $2,942 in
1994, 1995, and 1996, respectively. The useful lives of office and
manufacturing equipment for the purpose of computing depreciation is
five years.
The Company's equipment has been pledged as collateral on the note
payable to Advanced Technology Center (See Note 10(b)).
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 7 - Property and Equipment (Continued)
The Company has entered into an agreement dated April 1,1993, with the
University of Pennsylvania acting through the Laboratory for Research
on the Structure of Matter ("LRSM") to loan certain manufacturing
equipment to the LRSM for instructional and research related purposes
for a period of 5 years, beginning December 1, 1992, and ending
December 1, 1997. Upon expiration of the five year period, LRSM may
retain the right to borrow the equipment for another 5 year period.
In exchange for loaning the equipment to LRSM, the Company receives
substantial testing from LRSM which aides the Company in the
development of the Fatigue Fuse. Upon the expiration of the second
five year period, LRSM has the option to purchase the equipment at its
fair market value then prevailing.
Under the terms of the agreement, LRSM shall perform 1,200 hours of
research and testing of materials to be used in conjunction with the
Fatigue Fuse.
Note 8 - Notes Payable
On May 27, 1994, the Company borrowed $25,000 from Mr. Sherman Baker,
a current shareholder. The loan is evidenced by a promissory note
which is assessed interest at major bank prime rate. The principal
and all accrued interest is fully due and payable in 2 years, but the
Company is required to pay-off the loan and accrued interest in full
from the proceeds of any independent financing.
As additional consideration for the loan, the Company granted to Mr.
Baker, a 1% royalty interest in the Fatigue Fuse and a .5% royalty
interest in the Electrochemical Fatigue Sensor. The Company has not
placed a value on the royalty interest granted. The balance due on
this loan as of December 31, 1995, and 1996, was $29,270 and $32,459,
respectively.
The Company did not pay any amounts due on this note when it matured
on May 26, 1996, and the note is in default.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage company)
NOTES TO FINANCIAL STATEMENTS
Note 8 - Notes Payable (continued)
In addition, the Company borrowed an additional $58,000 from Mr. Baker
in 1995. Under the terms of the loan agreement, interest accrues on
this loan at the prime lending rate of Mellon Bank NA, 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 balance due
on this note as of December 31, 1995, and 1996 was approximately
$60,829 and $65,893, respectively.
In October 1997, the Company borrowed $25,000 from an unrelated third
party. Under the terms of the loan agreement, interest accrues on this
loan at an annual interest 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 cannot be determined when, or if, the tax benefits derived
from these operating losses will materialize.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 9 - Income Taxes (continued)
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 future years could
be limited due to recapitalization or other factors.
Note 10 - Commitments and Contingencies
The Company's commitments and contingencies are as follows:
a. On December 24, 1985, in order to provide funding for research
and development related to the Fatigue Fuse, the Company entered
into various agreements with the Tensiodyne 1985-I R & D
Partnership. These agreements were amended on October 9, 1989, and
under the revised terms, 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 sub-licensing 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.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 10 - Commitments and Contingencies (Continued)
At December 31, 1995, and 1996, the total future royalty commitments,
including the accumulated 26% annual rate of return, was limited to
approximately $440,265, and $554,734, respectively. The future
royalties are secured by the Company's patents, products, and accounts
receivable, which may be related to technology developed with the
funding.
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 to the Company.
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.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 10 - Commitments and Contingencies (continued)
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 currently owns 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,
"Subsequent Events").
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 10 - Commitments and Contingencies (continued)
f. The Company entered into an agreement with an unrelated third party
for providing the idea of pursuing a government contract for the
funding of the development of the Company's technologies, under which
he would receive a number of the Company's Class A Common Stock equal
to 2.5% of the number of shares outstanding as of the date a
government contract is signed, 15% of the amount of the government
contract, and an appointment to the Company's Board of Directors.
Funds due him will be paid only when such funds become available to
the Company.
The Company's obligation is created on the date the government
contract is signed. Under the agreement with this individual, the
amounts due will be evidenced by a promissory note bearing interest at
major bank prime.
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
$l,000,0000 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:
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 10 - Commitments and contingencies (Continued)
Fatigue Fatigue
Fuse Sensor
------ -------
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% 2.50%
Sherman Baker 1.00% 0.50% 1.00% 0.50%
------- ------
21.00% 10.00%
* Royalties limited to specific rates of return as discussed in Note
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 11(c) above.
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 Act.
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
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.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 12 - Stockholders' Equity
a. Warrants
On August 10, 1994, the Company granted 994,500 Class A Warrants to
Mr. Robert Bernstein, 170,000 Class A Warrants to Mr. Joel Freedman,
and 535,500 Class A Warrants to certain preferred shareholders. Each
Class A Warrant entitles the registered holder to purchase one share
of Class A Common Stock of the Company for $.50. On December 15,
1995, the Company's Board of Directors extended the expiration date of
the Warrants from August 22, 1996 to August 22, 1999.
At the date of grant, 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.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 12 - Stockholders' Equity (Continued)
The holders of these shares have a liquidation preference to receive
out of assets of the Company, an amount equal to $.72 per share. Such
amounts shall be paid upon all outstanding shares before any payment
shall be made or any assets distributed to the holders of the common
stock or any other stock of any other series or class ranking junior
to the Shares as to dividends or assets.
These shares are convertible to shares of the Company's common stock
at a conversion price of $ .72 ("initial conversion price") 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 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
<PAGE>
MATERIAL TECHNOLOGY, INC.
Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 12 - Stockholders' Equity (Continued)
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 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.
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.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 13 - Transactions With Management (continued)
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. In 1995, the Company's Board of Directors amended the Company's
by-laws increasing the number of Directors from 2 to 3, and
establishing an advisory board consisting of 7 people.
The Company authorized the issuance of 58,000 shares of its Class A
Common stock to the new board member and authorized the issuance of
20,000 shares of its Class A Common Stock to each member of the
advisory board. Each member must serve on the advisory board for at
least 2 years or will have to return the issued shares back to the
Company.
g. 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.
h. 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, NA 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.
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.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 13 - Transactions with Management (continued)
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. During 1996, the Company issued 62,000 shares of the Company's Class A
common Stock to the President for services.
Note 14 - Stock Option Plan
a. 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.
Note 15 - Subsequent Events
a. In February 1997, the Company entered into an agreement with
Montpilier Holding, Inc.("Montpilier")) and its wholly owned
subsidiary SecurFone America, Inc. (91SecurFone"), and Robert M.
Bernstein, the Company's president. Under the terms of the
agreement, the Company
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 15 - Subsequent Events (continued)
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 and $450,000 shares of Class A Common Stock of
the subsidiary. The issuance of these shares are issued subject to
certain restrictions and forfeiture.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(Formerly Tensiodyne Scientific corporation)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Note 15 - Subsequent Events (continued)
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-B 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' 5 agreement.
<PAGE>
MATERIAL TECHNOLOGY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 1. Summary of Accounting Policies
In the opinion of the Company's Management, the accompanying unaudited
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position
of the Company as of March 31, 1997 and 1996, and the results of
operations and cash flows for the three month periods then ended. The
operating results of the Company on a quarterly basis may not be
indicative of the operating results for the full year.
Note 2. Investments
As of March 31, 1997, of the remaining 6,575,000 shares of Tensiodyne
Corporation Common Stock owned by the Company, approximately 690,000
shares were free trading and were valued at their market value using
the price as quoted on the bulletin board at March 31, 1997, of $.02
per share. The Company has classified these shares as available for
sale and the unrealized loss on these shares at March 31, 1997,
amounting to $41,400 has been classified to stockholders' deficit.
<PAGE>
SECURFONE AMERICA, INC.
(A Development Stage Corporation)
FINANCIAL STATEMENTS
March 31, 1997
<PAGE>
SECURFONE AMERICA, INC.
TABLE OF CONTENTS
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations 3
Statement of Stockholders' Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Securfone America, Inc.
We have audited the accompanying balance sheet of Securfone America, Inc. (the
"Company") as of March 31, 1997, and the related statements of operations,
changes in stockholders' equity, and cash flows for the four months then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these combined financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audits to
obtain reasonable assurance about whether the combined financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Securfone America, Inc. as of
March 31, 1997 and the results of operations and cash flows for the four months
then ended in conformity with generally accepted accounting principles.
/s/ CONTE CO., CPA, INC.
- -------------------------------
CONTE CO., CPA, INC.
June 16, 1997
1
<PAGE>
SECURFONE AMERICA, INC.
(A Development Stage Company)
BALANCE SHEET
March 31,
1997
------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 128,448
Note receivable 150,000
Royalties receivable 750,000
Inventory 50,000
Prepaid expenses 37,000
----------
TOTAL CURRENT ASSETS 1,115,448
FIXED ASSETS
Property and equipment, net of
accumulated depreciation 238,493
----------
OTHER ASSETS
Intangible assets, net of
accumulated amortization 526,423
Deposits 50,775
----------
TOTAL OTHER ASSETS 577,198
TOTAL ASSETS $1,931,139
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of obligations under
capital leases $ 47,449
Accounts payable 189,342
Accrued payroll 16,458
----------
TOTAL CURRENT LIABILITIES 253,249
----------
Obligations under capital leases 112,200
Deferred royalty revenue 750,000
----------
TOTAL LIABILITIES 1,115,449
----------
STOCKHOLDERS' EQUITY
Common stock 41,200
Paid-in capital 1,054,600
Deficit accumulated during the development stage (280,110)
----------
TOTAL STOCKHOLDERS' EQUITY 815,690
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,931,139
----------
----------
See accompanying notes and independent accountants report.
2
<PAGE>
SECURFONE AMERICA, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
For the four
months ended
March 31,
1997
-------------
REVENUES $ 2,661
COST OF GOODS SOLD 450
--------
GROSS PROFIT 2,211
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES 233,340
LOSS ON ABANDONMENT-SFNY 48,980
--------
NET LOSS FROM OPERATIONS $(280,110)
--------
--------
NET LOSS PER SHARE $ (0.07)
--------
--------
See accompanying notes and independent accountants report.
3
<PAGE>
SECURFONE AMERICA, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDER'S EQUITY
For the Four Months Ended March 31, 1997
Deficit
Capital in Accumulated
Common Excess of During the
Stock Par Value Development Stage
----------- ---------- -----------------
Initial Issuance of Common
Stock, May 20, 1996 $ 30 $ 975,770 $ -
Stock Split 1,333.33 to 1 39,970 (39,970)
Sale of Stock 1,200 118,800 -
Net Loss - - (280,110)
------- ---------- ----------
Balance March 31, 1997 $41,200 $1,054,600 $(280,110)
------- ---------- ----------
------- ---------- ----------
See accompanying notes and independent accountants report.
4
<PAGE>
SECURFONE AMERICA, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
For the Four
Months Ended
March 31,
1997
---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (280,110)
-----------
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 35,809
Increase in notes receivable (150,000)
Increase in royalties receivable (750,000)
Increase in inventory (50,000)
Increase in prepaid expenses (37,000)
Increase in intangibles and other assets (604,426)
Increase in accounts payable and
accrued expenses 205,800
Increase in deferred royalty revenue 750,000
-----------
Total adjustments (599,817)
-----------
NET CASH USED BY OPERATING ACTIVITIES (879,927)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (247,074)
-----------
NET CASH USED BY INVESTING ACTIVITIES (247,074)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution to capital 1,095,800
Proceeds from capital lease 159,650
-----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,255,450
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 128,448
BEGINNING BALANCE-CASH AND CASH EQUIVALENTS -
-----------
ENDING BALANCE-CASH AND CASH EQUIVALENTS $ 128,448
-----------
-----------
See accompanying notes and independent accountants' report.
5
<PAGE>
SECURFONE AMERICA, INC.
(A Development Stage Corporation)
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
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>
SECURFONE AMERICA, INC.
(A Development Stage Corporation)
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
INVENTORY
Inventories are valued on the first in, first out (FIFO) method, at cost.
Inventories at March 31, 1997 consist of prepaid calling cards.
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.
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 March 31, 1997,
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. The Company began amortizing these costs over a
five year period as of January 1, 1997, using the straight-line method. As of
March 31, 1997, $27,228 in amortization expense of organizational costs has been
charged to 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 March 31, 1997 for federal or state income taxes.
7
<PAGE>
SECURFONE AMERICA, INC.
(A Development Stage Corporation)
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
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.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment at March 31, 1997 is comprised of the following:
Office equipment $ 5,663
Computer software 81,763
Computer hardware 159,649
---------
247,075
Accumulated depreciation (8,582)
---------
$ 238,493
---------
---------
NOTE 5 - CAPITAL LEASE
In March, 1997, the Company entered into a sale-leaseback arrangement which is
being accounted for as a capital lease. Under the agreement, the Company sold
certain equipment and leased it back for a period of 48 months, at which time
the Company will repurchase the equipment from the lessor.
8
<PAGE>
SECURFONE AMERICA, INC.
(A Development Stage Corporation)
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
Minimum future lease payments under non-cancelable capital leases for the next
five years are as follows:
1997 $ 35,586
1998 47,449
1999 47,449
2000 29,165
2001 and thereafter -
---------
Total minimum future
lease payments $ 159,649
---------
---------
NOTE 6 - COMMON STOCK
On March 5, 1997, the Company authorized an additional 4,700,000 share of common
stock, bringing the total shares authorized for issuance to 5,000,000 shares.
All shares of stock are the same class.
On March 6, 1997 the shareholders approved a stock split of 1,333.33 to 1
shares, increasing the 3,000 shares issued, and outstanding to 4,000,000 shares
with a par value of .01 per share. The amount of $39,770 was transferred from
the paid-in-capital account to common stock account to record the split. All
per share amounts have been restated to reflect this stock split.
On March 6, 1997, the Company also sold an additional 120,000 shares of stock at
$1.00 per share, bringing the total number of shares issued and outstanding as
of March 31, 1997 to 4,120,000.
NOTE 7 - LOSS ON ABANDONMENT
In August, 1996, the Company entered into a licensing agreement with Securfone
New York, Inc. (SFNY). As part of the agreement, The Company forwarded monies
to SFNY to cover various start up costs. After four months SFNY fell into
default under the terms of the licensing agreement and ceased operations. The
monies paid by the Company to SFNY were written off as a one-time charge to
income of $48,980.
9
<PAGE>
SECURFONE AMERICA, INC.
(A Development Stage Corporation)
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
NOTE 8 - SUBSEQUENT EVENTS
On February 17, 1997 the Company entered into a reverse merger agreement with
Materials Technologies, Inc. in which the Company's parent company, Montpelier
Holdings Inc. will take control of Materials Technologies, Inc. As of March 31,
1997, the reverse merger had not been fully completed, however, the Company
anticipates all parties will fulfill their obligations under the agreement.
10
