<PAGE>
Commission File No. 3383526
SCHEDULE 14C INFORMATION STATEMENT
AMENDMENT 1
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 AGGREGATE NUMBER PER UNIT MAXIMUM TOTAL
OF 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, 4,120,000 Shares $.19791 $815,690 $163.14
Inc. 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.
After all steps in the transaction are complete, Robert M. Bernstein will own
4.9% SecurFone America, Inc.'s outstanding common stock and 51.7% of Matech 2's
outstanding Class A common stock. 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. The current Board of Directors as a group
will own 5.2% of SecurFone's outstanding common stock and 54.7% of Matech 2's
outstanding Class A Common Stock. SecurFone will own 10.1% of Matech 2's
outstanding Class A Common Stock.
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.
June 24, 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
<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 June __, 1997.
Record holders of the Corporation's Class A Common Stock at the close of
business on June __, 1997 are entitled to receive a copy of this Information
Statement. On June __, 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 June 16, 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>
Number of Shares Issued Number of Shares Issued
Description to all Shareholders to Robert M. Bernstein
- ----------------------------------------------------------------------------------------
<S> <C> <C>
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 520,000 520,000
for $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.
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. Under 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.
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Name and Address of Amount and Nature of Percent of Class
Class of Stock Beneficial Owner Beneficial Ownership
- --------------------------------------------------------------------------------------
<S> <S> <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 2,589,611 Shares 56.9%
officers 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 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
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 market-
5
<PAGE>
ing. 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.
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
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.
6
<PAGE>
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
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 Corporation 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 the Corporation's 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% inter-
7
<PAGE>
est in SecurFone. SecurFone will pay Matech 2 $120,000 to cover the 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 Corporation's metal fatigue technologies business through
Matech 2 and own 10% of SecurFone's prepaid cellular telephone and calling
card business as well.
SecurFone is a start-up company providing prepaid cellular and telephone line
calling cards. SecurFone utilizes an advanced switching platform to provide
prepaid debit products to telephone customers. SecurFone's principal offices
are in San Diego, California and its primary network facilities are in Miami,
Fl.
It is management's understanding that the distribution will be a taxable
dividend to the Corporation's shareholders. 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.
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
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. No shareholder approval for elections of the new directors is
required and none is being sought.
8
<PAGE>
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 contained in the Corporation's Annual Report on Form 10K attached
hereto as Exhibit 1.
<TABLE>
<CAPTION>
Three Months Ending Inception to
Fiscal Year Ending December 31 March 31 March 31
- -----------------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1996 1997 1997
(Unaudited) (Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales 0 0 0 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Income (Loss) From $(51,180) $(714,605) $(378,848) $(203,849) $(483,186) $(150,541) $(87,649) $(2,755,193)
Continued
Operations
- -----------------------------------------------------------------------------------------------------------------------------
Income (Loss) From $(.17) $(.016)
Continued
Operations Per
Common Share
- -----------------------------------------------------------------------------------------------------------------------------
Common Shares 2,580,546 5,560,000
Outstanding
- -----------------------------------------------------------------------------------------------------------------------------
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 0 0 $150,000 $150,000 $150,000 $150,000 $150,000 $150,000
Preferred Stock
- -----------------------------------------------------------------------------------------------------------------------------
Total Stockholders' $132,463 $(619,166) $(585,796) $(783,190) $(988,218) $(898,568) $(470,728) $(470,728)
Equity (Deficit)
- -----------------------------------------------------------------------------------------------------------------------------
Dividends 0 0 0 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
<TABLE>
<CAPTION>
The SecurFone
Corporation SecurFone (Pro Forma)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Number of Shares of Common Stock Outstanding
as of March 31, 1997 5,000,000 4,000,000 5,000,000
- ---------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
* 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.
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 Technology Center of
South Eastern Pennsylvania succeeded to this interest. The royalty
obligation is limited to the original advance and a return of 11% per annum.
As of December 31, 1996, this future royalty commitment was $119,336 compared
to $107,510 as of December 31, 1995. Payment of this obligation will be made
solely from Company sales and is secured by a security interest in and to
equipment used by the Company in developing its technology. SEE, Note 10 b
to the Financial Statements.
A similar agreement with the same entity was entered into May 4, 1987, under
which, in consideration for an additional grant of $63,775, ATC purchased a
royalty of 3% of future gross sales and 6% of sub licensing revenues. The
agreement was amended on August 2, 1987, and, as amended, the royalty cannot
exceed the lesser of (1) the amount of the advance plus a 26% annual rate of
return or, (2) total royalties earned for a term of 17 years. At December
31, 1995, and 1996, the total future royalty commitments, including the
accumulated 26% annual rate of 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
10
<PAGE>
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
$5,100,000 in 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 a total of 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 February 2, 1994 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 that
Tensiodyne has insufficient capital to pay any of the amount owed and the
Company's Tensiodyne shares are restricted and subject to Rule 144 under the
Securities and Exchange Act. It thus appears highly unlikely that the
Company will receive any significant funds from this source. SEE, Note 10 e
to the Financial Statements.
On August 4, 1995, 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 the Company's outstanding Class A common stock as of the date Matech 2
signs a subcontract 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.
11
<PAGE>
On August 26, 1993, Tensiodyne entered into a license agreement with the
University of Pennsylvania whereby the University licensed to Tensiodyne the
right to develop and exploit the Electrochemical Fatigue Sensor. Under this
agreement, Tensiodyne issued 12,500 shares of its common stock to the University
and granted the University a 5% royalty interest on revenues from sales of the
EFS. The license was assigned to the Company and terminates upon the expiration
of the underlying patents.
Also on August 26, 1993, Tensiodyne entered into a Sponsored Research Agreement
with the University of Pennsylvania under which Tensiodyne agreed to sponsor
development of the EFS including paying the University $200,000 in 18 monthly
installments. These payments were not made for lack of funds. This agreement
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 was increased from 5% to 7%; the Company will
issue the University and certain affiliates of the University (the
"University Group") sufficient additional shares of Class A Common Stock so
that the University Group's percentage ownership equals 5% of the outstanding
Class A Common Stock; and the Company will pay the University 30% of any
amounts the Company raises from financing (excluding government contracts) in
excess of $150,000 until the $200,000 owed to the University is paid. SEE,
Note 6 to the Financial Statements.
The following summarizes the Company's royalty obligations on the Fatigue Fuse
and the EFS:
Fatigue Fuse EFS
- ------------------------------------------------------------------------
Tensiodyne 1985-1 R&D Partnership 10.0%(1) 0
- ------------------------------------------------------------------------
Advanced Technology Center 0
Future Gross Sales 6.0%(2)
Sublicensing Fees 12%(3)
- ------------------------------------------------------------------------
Variety Investments, Ltd. 20.0% 0
- ------------------------------------------------------------------------
University of Pennsylvania
Net Sales of EFS 0 7.0%
Net Sales of Services 0 2.5%
- ------------------------------------------------------------------------
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.
12
<PAGE>
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 the 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
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
13
<PAGE>
detects, stores, and displays the information that the metal strips in the
Fuse have separated at specific times) was designed, fabricated, and
successfully demonstrated. The next tasks will be to prepare a mathematical
analysis for more efficient selection of Fuse parameters and to conduct a
comprehensive test program to prove the ability of the Fatigue Fuse to
accurately indicate fatigue damage when subjected to realistically large
variations in spectrum loading. The final tasks prior to marketing will be
an even larger group of demonstration tests, e.g. on bridges, helicopters,
tankers, or windmills.
To date, certain organizations have included Matech's Fatigue Fuse in test
programs. Already completed are tests for welded steel civil bridge members.
Tests are ongoing on a full scale trainer aircraft. 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 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
14
<PAGE>
level of fatigue and installed on the structure to accurately measure metal
fatigue as it occurs in the structure from that date forward.
The Fatigue Fuse
The Fatigue Fuse, developed by Tensiodyne and now owned by the Company, was
designed to be affixed to a structure and to give a number of warnings as
preselected portions of the fatigue life have been used up (i.e., how far to
failure the object has progressed). It will give warnings against a condition
of widespread generalized cracking due to fatigue.
The Fatigue Fuse is a thin piece of metal similar to the material being
monitored. It consists of a series of parallel metal strips connected to a
common base, much as fingers are attached to a hand. Each "finger" has a
different geometric pattern called "notches" defining its boundaries. By
applying the laws of physics in determining the geometric contour of each of
the notches, the fatigue life of each finger should be finite and
predictable. When the fatigue life for a given finger (or fuse) is reached,
the fuse breaks. By implementing different geometry for each finger in the
array, different increments of fatigue life become observable. Typically,
notches will be designed to facilitate observation of increments of fatigue
life of 10% to 20%. By mechanically attaching or bonding these devices to
different areas of the structural member of concern, the Fuses undergo the
same fatigue history as the structural member. Therefore, breakage of a fuse
will indicate that an increment of fatigue life has been reached for the
structural member.
Fatigue results from a metal object being subjected to repeated cyclic
strain. In a commercial context this strain and concomitant stress result
from a large number of cycles of loading and unloading. Sudden fracture can
result. Fatigue damage and the resulting compromise of the stability and
integrity of the member experiencing fatigue presents the potential for
structural failure and extreme danger. Objects such as bridges and wings of
airplanes are subject to fatigue. It is obvious that sudden fracture of such
objects could have disastrous results. It is presently impossible, under any
generally acceptable theory of fatigue phenomena, to predict by analysis
alone when the limit is reached and when a fracture may take place. Further,
in normal usage, the damage occurs cumulatively, at microscopic levels and
can only be detected, in the early stages at a time when dire results can be
avoided by examination of the microscopic structure.
This difficulty has caused designers of objects and structures subject to
fatigue to be extremely conservative. They have attempted to design
structures to maintain the stresses presented in critical areas of a
structure at a level well below known endurance limits of the material. In
many instances this results in extreme expense. In spite of this
"over-designing," catastrophic fatigue failures still occur. Although tests
of the Fatigue Fuse have been performed in independent laboratories and the
Fuse has been shown to perform as designed and as expected, Management has
determined that substantial additional testing is necessary to ensure that it
will be possible to calibrate various types of loading spectra. Management
estimates that it will require an outlay of approximately $355,000 to
accomplish this additional testing. If this money were available, Management
estimates that such additional testing could be accomplished in 6 to 12
months.
Management believes that the Fatigue Fuse will be of value in monitoring
aircraft, ships, bridges, conveyor systems, mining equipment, cranes, etc. No
special training will be needed to qualify in-
15
<PAGE>
dividuals to report any broken segments of the Fatigue Fuse to the
appropriate engineering authority for necessary action. The development of
such value is contingent upon the Company's successful production and
marketing of the Fatigue Fuse, and no assurance can be given that the Company
will be able to overcome the obstacles relating to the introduction to the
market of a new product. In order to determine its ability to produce and
market the Fatigue Fuse, it will be necessary for the Company to have
substantial capitalization and no assurance can be given that the needed
capital will be available.
Electrochemical Fatigue Sensor
In August 1993, Tensiodyne entered into two agreements, a license and a
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 consists of an enclosure which
contains a fluid which conducts electricity and two metal electrodes
connected to external wires leading to a battery and the current measuring
instrument. The sensor is temporarily attached to a structural member, then
the member is subjected to multiple loads while the instrument records the
current. A computer analyzes the current record to determine the degree of
fatigue damage present at the location of the sensor in the structure. Then
the sensor is removed.
The EFS is in the initial stage of research. No assurance can be given that
it can be developed successfully or that, if developed, it can be produced at
a price which will permit its marketing, or that, even if these two
conditions are met, that the EFS will find a market.
PATENTS
The Company is the assignee of four patents originally issued to Tensiodyne.
The first was issued on May 27, 1986, and expires on May 27, 2003. It is
entitled "Device for Monitoring Fatigue Life" and bears United States Patent
Office Number 4,590,804. The second patent entitled "Method of Making a
Device for Monitoring Fatigue Life" was issued on February 3, 1987 and
expires February 3, 2004. It bears United States Patent Office Number
4,639,997. The third patent, entitled "Metal Fatigue Detector," was issued
on August 24, 1993 and expires on August 24, 2010. It bears United States
Patent Number 5,237,875. The fourth patent, entitled "Device for Monitoring
the Fa-
16
<PAGE>
tigue 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.
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.
17
<PAGE>
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:
- -------------------------------------------------------------------------
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.
18
<PAGE>
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 the leasing of this equipment, the University of Pennsylvania
has agreed to perform 1,200 hours of testing on materials to be used in
conjunction with the Fatigue Fuse. The first five year term of this lease will
expire on March 31, 1998. Lessee has the right to borrow the equipment for a
further five year period. 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.
DIRECTORS, EXECUTIVE OFFICERS, AND CONTROL PERSONS
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 a
Director to several private companies, Mr. Wilson serves as a Director on the
Board 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
19
<PAGE>
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.
The Board of Directors does not have any committees. All actions of the
Board during the previous fiscal year, 1996, were conducted by the unanimous
consent of the three directors, Robert M. Bernstein, Joel Freedman, and John
Goodman.
EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
AWARDS PAYOUTS
--------------------------------------------------------------------------------------------
OTHER RESTRICTED ALL OTHER
NAME AND ANNUAL STOCK OPTIONS LTIP COMPEN-
PRINCIPAL SALARY BONUS COMPEN- AWARDS /SARS PAYOUTS SATION ($)
POSITION YEAR ($) ($) SATION ($) ($) (#) ($)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert M. 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 1996 0 0 0 0 0 0 0
and
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
20
<PAGE>
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: Annual Report on Form 10-K Amendment 1 of Material Technology, Inc.
Exhibit 2: Financial Statements of SecurFone America, Inc.
21
<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
22
<PAGE>
by the National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;
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
23
<PAGE>
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 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 within10 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
24
<PAGE>
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 before 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
25
<PAGE>
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.
Notwithstanding 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.)
26
<PAGE>
Amendment 1 to the Form 10K for Material Technology, Inc., is being
filed separately and is incorporated herein by reference as Exhibit 1.
i
<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
