As Filed With The U.S. Securities and Exchange Commission on January 30, 2003
Registration No. 333-97833
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT 2
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
MATERIAL TECHNOLOGIES, INC.
(Name of Small Business Issuer)
Delaware 1057 95-4622822
---------------------------- ----------------------------- ------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code) Identification No.)
11661 San Vicente Boulevard
Suite 707
Los Angeles, California 90049
310-208-5589
(Address and telephone number of principal office)
Robert M. Bernstein, Chief Executive Officer
11661 San Vicente Boulevard
Suite 707
Los Angeles, California 90049
310-208-5589
(Name, address and telephone number of agent for service)
COPIES TO:
Law Office of Gregory Bartko, P.C.
Gregory Bartko, Esq.
3475 Lenox Road
Suite 400
Atlanta, Georgia 30326
404-238-0550 (telephone)
404-238-0551 (facsimile)
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
practicable after this registration statement becomes effective.
If the securities being registered on this form are to be offered on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as
amended (the "Securities Act"), please check the following box. [XX]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434 check
the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
1
CALCULATION OF REGISTRATION FEE
PROPOSED
PROPOSED MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(1) PRICE(1) FEE
------------------------------ ------------- -------------- ----------- ----------
Common stock, par
value $.001 per share 18,247,626 $0.031 $565,676 $52.05
offered by selling shareholders
Total $565,676 $52.05
========================================================================================
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 of the Securities Act. Offering price is calculated using
the best bid and asked prices of the registrant's common stock as quoted on the
Electronic Bulletin Board maintained by the NASD on January 27, 2003.
2
TABLE OF CONTENTS
Page No.
--------
Prospectus summary 5
Summary financial data 6
Risk factors 7
Use of proceeds 13
Dividend policy 13
Management's discussion and analysis of financial condition
and results of operations 14
Business 16
Management 23
Certain transactions 28
Principal stockholders 29
Selling shareholders 31
Description of securities 35
Plan of distribution for selling shareholders 34
Legal matters 37
Experts 37
Index to financial statements 38
3
PROSPECTUS
SUBJECT TO COMPLETION, DATED JANUARY 30, 2003
MATERIAL TECHNOLOGIES, INC.
SHARES OF COMMON STOCK
(PAR VALUE $.001)
We are registering 18,247,626 shares of our common stock, par value, $.001 per
share, for resale by certain selling shareholders, under this prospectus. We
will not receive any of the proceeds from the resale of the shares of common
stock by the selling shareholders. Our common stock is quoted on the Electronic
Bulletin Board maintained by the National Association of Securities Dealers,
Inc. under the symbol "MTEY."
The expenses of this registration statement, estimated to be approximately
$23,552.05, will be paid by us. Expenses of resale of the common stock, such as
commissions or discounts, are being paid by the selling shareholders on a pro
rata basis.
Bid and asked prices for our common stock as quoted on the Electronic Bulletin
Board at the date of this prospectus were $.02 and $.03, respectively.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This investment involves a high degree of risk. Please see the risk factors
beginning on page 7 of this prospectus to read about factors you should consider
before purchasing any of our shares of common stock. You should purchase our
common stock only if you can afford a complete loss of your investment.
Information contained in this prospectus is subject to completion or amendment.
A registration statement relating to these securities has been filed with the
United States Securities and Exchange Commission. These securities may not be
sold nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer to
sell or the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such state.
The date of this prospectus is January 30, 2003
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
Investors should read the entire prospectus carefully, including the financial
statements, which are an integral part of this prospectus.
OUR BUSINESS
We are engaged in research and development of metal fatigue detection,
measurement, and monitoring technologies. We are a development stage company
doing business as Tensiodyne Scientific Corporation.
Our efforts are dedicated to developing devices and systems that indicate the
presence of very small cracks and the true fatigue status of a metal component.
To date, we have developed two products. The first is a small, extremely simple
device that continuously monitors fatigue life in a structural member. It is
called a "Fatigue Fuse." The second is an instrument that is expected to detect
very small cracks and is intended to determine crack growth rates. The
electrochemical fatigue sensor has demonstrated that it can detect cracks as
small as 10 microns (0.0004 inches), which is smaller than any other practical
technologies, as acknowledged by the United States Air Force.
The fatigue fuse is a real-time cycle counter, and to our knowledge, there is no
other device that can perform this service. Fatigue cracks in metal occur as a
result of stress and strain, known as cycles. A real-time cycle counter is a
device that measures stress and strain in metal fatigue. Both of our fatigue
measuring devices are pioneering technology in the metal fatigue field that
stand as cutting-edge solutions. Both of these products are patented. We license
the patented technology for the electro chemical fatigue sensor from the
University of Pennsylvania and we have our own patents that relate to the
fatigue fuse.
CORPORATE BACKGROUND
We were formed as a Delaware corporation on March 4, 1997. We are the successor
to the business of Material Technology, Inc., a Delaware corporation, also doing
business as Tensiodyne Scientific, Inc., which was the successor to the business
of Tensiodyne Corporation that began developing the Fatigue Fuse in 1985. Our
two corporate predecessors, Tensiodyne Corporation and Material Technonogy, Inc,
were engaged in developing and testing the Fatigue Fuse and, beginning in 1993,
developing an electro chemical fatigue sensor called an EFS.
This prospectus registers 18,247,626 shares of our common stock for resale by
the selling shareholders.
Our principal executive office is located at 11661 San Vicente Boulevard, Suite
707, Los Angeles, California 90049. Our telephone number is (310) 208-5589 and
our fax number is (310) 473-3177. Our website can be accessed at
www.matechcorp.com.
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SUMMARY FINANCIAL DATA
The following table summarizes the financial data of our business. This
information is qualified by reference to, and should be read together with, the
historical financial data for the periods ended December 31, 2001 and 2000, and
for the nine months ended September 30, 2002,, and should be read in conjunction
with our audited financial statements included elsewhere in this prospectus. The
historical financial data as of December 31, 2001 and 2000 is derived from and
should be read in conjunction with our audited financial statements included
elsewhere in this prospectus. The data presented below should also be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and accompanying notes
appearing elsewhere in this prospectus.
(UNAUDITED) YEARS
NINE MONTHS ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
2001 2002 2000 2001
----------- ------------ ------------ ------------
Operating Data:
Income from Contracts $ 1,038,060 $ 461,323 $ 635,868 $ 1,579,823
Net Income (Loss) $(2,156,016) $(2,873,203) $(459,129) $(2,433,101)
Net Income (Loss) Per Share:
Basic $ ( 0.07) $ (0.05) $ (0.02) $ (0.07)
Weighted Average Shares
Outstanding:
Basic 31,272,062 54,377,617 18,900,019 33,640,393
September 30, September 30, December 31, December 31,
2001 2002 2000 2001
------------ ----------- ------------ ------------
Balance Sheet Data:
Working Capital (Deficit) $ (200,386) $2,186,553 $ (352,279) $(601,264)
Total Assets $ 384,350 $ 296,359 $ 108,776 $ 516,745
Net Stockholder's Equity
(Deficit) $ (606,921) $(2,141,014) $ (735,078) $(637,951)
6
RISK FACTORS
The purchase of our securities involves a high degree of risk. Accordingly, each
prospective purchaser, before investing in the shares, should carefully read
this prospectus in its entirety and should consider the following risks and
speculative features inherent in and affecting this offering and our business,
as well as general investment risks. An investment in our securities should be
made only by persons who can afford an investment involving such risks and is
suitable only for persons able to sustain the loss of their entire investment.
WE HAVE A HISTORY OF OPERATING LOSSES AND WE EXPECT OUR LOSSES TO CONTINUE IN
THE FUTURE.
We have incurred losses of $459,129 and $2,432,638 for the years ended December
31, 2000 and 2001, respectively, and we have incurred losses of $2,873,203 for
the year to date period ended September 30, 2002 and expect losses from our
operations to continue in the future due to the fact that our sole source of
contract revenue ended in the quarter that ended June 30, 2002. We also expect
our losses to continue during the time that we are finalizing research and
development of our products and technologies. Expenses associated with product
development are not currently offset by sales revenue since we have not yet
brought our products to the market place. We may experience delays, expenses and
other problems such as setbacks in our research and development efforts. These
delays or setbacks would delay our ability to begin marketing our products,
which in turn will result in the continuation of the operating losses we have
experienced in the past. Any such delays or shortfalls will have an immediate
adverse impact on our business, operations and financial condition.
OUR PRODUCTS ARE STILL IN THE RESEARCH AND DEVELOPMENT STAGE AND THERE CAN BE NO
ASSURANCE GIVEN THAT WE WILL EVER BRING ANY OF OUR PRODUCTS INTO THE COMMERCIAL
MARKETPLACE.
Our products are in the research, development, and testing stage. Unexpected
problems, technological or specifications changes: (i) may make our technologies
obsolete; (ii) may affect our products' overall feasibility; or (iii) may delay
completion and increase costs of research, development, and testing. The time
required to bring one or both of our products to market is uncertain. Market
acceptance of our products cannot be determined until product development is
complete.
SINCE OUR PRODUCTS ARE NOT YET DISTRIBUTED TO A COMMERCIAL MARKET, WE DO NOT
HAVE A SALES FORCE OR DISTRIBUTION NETWORK TO BRING OUR PRODUCTS TO MARKET AND
IT MAY BE DIFFICULT FOR US TO ESTABLISH A SALES AND DISTRIBUTION NETWORK IN THE
FUTURE.
Since our products are in the research, development and testing state, our
future operating results will depend on our ability to market our products. We
have not yet established a direct sales force or distribution network. Failure
to put into place an experienced and skillful marketing infra-structure, in a
timely manner, could have a materially adverse impact upon our ability to bring
our products to market and continue operating.
WE HAVE ONLY GENERATED REVENUES TO DATE FROM OUR RESEARCH AND DEVELOPMENT
CONTRACTS, AND OUR MOST RECENT CONTRACT WITH THE UNITED STATES AIR FORCE IS NOW
CONCLUDED, AND WE DO NOT EXPECT ADDITIONAL RESEARCH AND DEVELOPMENT REVENUE.
Our revenue generated to date has been limited to revenue received from our
research and development agreements, the most recent contract with the United
States Air Force having concluded in the quarter ended June 30, 2002. We have
not yet developed our products for widespread distribution or sale to multiple
customers. Our operating results will depend on our ability to increase and
replace our sources of contract revenue through product sales and to market our
products to a variety of potential customers rather than relying in large
measure on contract revenues. We cannot give any assurances that we will be able
to utilize our products once they become commercialized, nor can we provide
assurances that our contract revenue will continue to any extent.
WE HAVE A LIMITED NUMBER OF EMPLOYEES TO DEVELOP AND MARKET OUR PRODUCTS.
7
We currently only have four employees, Robert M. Bernstein, president, a
part-time engineer, a part-time vice president and a secretary. There is a
substantial risk that we may not have funds to hire additional employees that
may be needed to complete the development and marketing of our products. Without
the ability to market products we have developed, our business and financial
condition will be materially adversely affected.
WE RELY HEAVILY ON MANAGEMENT CONSULTANTS AND OUTSIDE ADVISORS. OUR BUSINESS AND
PROSPECTS MAY BE ADVERSELY EFFECTED IF WE ARE UNABLE TO KEEP OUR CONSULTANTS AND
ADVISORS.
Our success largely depends on the performance of our president and chief
executive officer, Robert M. Bernstein, and the nine independent consultants,
and advisors we rely on for consulting services. Our consultants provide us with
technological advice and guidance, product development expertise and financial
advice and services. During the fiscal year ended December 31, 2002, we issued
5,034,949 shares of our common stock, valued at $230,343 to compensate these
consultants for their services since we are unable to compensate them in any
other manner. We also compensated our chief executive officer, Mr. Bernstein
during the most recent fiscal year, 13,200,000 shares of our common stock,
valued at $317,000 and 6,000,000 shares of common stock during the previous
fiscal year, valued at $1,080,000. Loss of these consultants or our inability
to continue compensating these consultants by issuing shares of our common stock
to them, could seriously impair our ability to develop and market our products.
Moreover, failure to attract and retain key consultants, advisors, and employees
with necessary skills could have a materially adverse impact on our ability to
bring our products to market and continue operating. We have no written
contracts with our advisors or any consultants.
OUR PRODUCTS AND TECHNOLOGIES MAY NOT BE AS COMPETITIVE AS OTHER FATIGUE
MEASURING PROCESSES THAT HAVE BEEN IN USE FOR UP TO 40 YEARS AND OFFER
ADVANTAGES OF BEING ACCEPTED IN THE MARKETPLACE.
The metal fatigue measuring industry has significant competition. Other
technologies exist which indicate the presence of metal fatigue damage. Single
cracks larger than a certain minimum size can be found by non-destructive
inspection methods such as dye penetrant, radiography, eddy current, acoustic
emission, and ultrasonics. Tracking of load and strain history, for subsequent
estimation of fatigue damage by computer processing, is possible with recording
instruments such as strain gauges and counting accelerometers. These methods
have been in use for up to 40 years and offer the advantage that they have been
accepted in the marketplace, whereas our products will remain largely unproven
for some currently indeterminable time. Other companies with greater financial
and technical resources and larger marketing organizations than ours pose a
potential threat if they commence competing in our market segment. We are
unaware of any other companies developing technology similar to our technology
and our patents protect our unique technologies. On the other hand, companies
marketing alternative technologies addressing the same market needs as our
products, include Magnaflux Corporation, Kraut-Kremer-Branson, Dunegan-Endevco,
and MicroMeasurements. These companies have more substantial assets, greater
experience, more human and other resources than ours, including but not limited
to established distribution channels and an established customer base.
OUR PATENTS COVERING OUR FATIGUE FUSE PRODUCTS AND TECHNOLOGIES HAVE BEEN
ENCUMBERED AS SECURITY TO OUR LENDERS. WE MAY LOOSE OUR PATENT PROTECTION, AS
WE HAVE DEFAULTED ON ONE OF OUR LENDING COMMITMENTS.
We hold patents on our fatigue fuse technology. Our patents are encumbered by
certain liabilities as described under the heading, "Business." A first priority
security interest in our patents is held by Mr. Sherman Baker, one of our
lenders and a shareholder, If we fail to pay obligations to our lenders when
they become due that are secured by a pledge of our patents, including the
debt obligation to Sherman Baker, we may lose the interests in our patents,
resulting in a loss of patent protection covering our technologies and products,
or certain rights to exploit our technology. Presently, we are in default on the
debt obligations we owe to Mr. Baker, but he has not taken any action as a
result of our default.
No assurances can be given that we will not be in default on some or all of our
other debt obligations in the future, which could then result in loss of our
patents and our patent protection. No assurances can be given that the
shareholder that is holding the note that we are in default on, will not seek to
foreclose on his interest held in our patents as collateral for his loan.
8
WE CAN NOT BE CERTAIN THAT OUR PROPRIETARY RIGHTS IN OUR PRODUCTS AND
TECHNOLOGIES ARE ADEQUATELY PROTECTED FROM INFRINGEMENT BY COMPETITORS OR OTHER
THIRD PARTIES.
We rely on a combination of patent and trade secret protection, non-disclosure
agreements, licensing arrangements and new patent filings to establish and
protect our proprietary rights. We have in the past and intend in the future to
file applications as appropriate for patents covering our products. Due to the
increasing number of patent applications filed with the United States Patent and
Trademark Office, we are uncertain as to if or when patents will issue from any
of our pending applications or, if patents do issue, that claims allowed will be
sufficiently broad to protect our technology and products. In addition, there is
a possibility that any patents that may be issued could be challenged,
invalidated or circumvented, or that the rights granted to us as owners of the
patents will not provide proprietary protection to us. Since U.S. patent
applications are maintained in secrecy until patents issue, and since
publication of inventions in the technical or patent literature tend to lag
behind such inventions by several months, there is a possibility that we may not
be the first creator of inventions covered by such patents or pending patent
applications or that we may not be the first to file patent applications for
such inventions. Despite our efforts to safeguard and maintain our proprietary
rights, we are uncertain as to whether we will be successful in doing so or that
our competitors will not independently develop or patent technologies that are
substantially equivalent or superior to our technologies.
TWO OF OUR PATENTS WILL EXPIRE FROM PATENT PROTECTION WITHIN THE NEXT 18 MONTHS,
AND AS A RESULT, THE PROTECTION FOR OUR INTELLECTUAL PROPERTY COULD BE
ADVERSELY AFFECTED.
Two of our four patents expire within 18 months from the date of this
prospectus, but we believe our remaining two patents adequately protect our
technologies. Our first patent issued on May 27, 1986, expires on May 27, 2003.
It is titled "Device for Monitoring Fatigue Life" and bears United States Patent
Office Numbers 4,590,804. Our second patent, titled "Method of Making a Device
for Monitoring Fatigue Life" was issued on February 3, 1987 and expires February
3, 2004, United States Patent Office Number 4,639,997. Although we believe that
our two remaining longer-term patents adequately protect our technologies, no
assurances can be given that we will be able to continue protection of the
intellectual property rights protected by our first two patents after they
expire, nor can we give any assurances that the loss of protection will not have
a materially adverse affect on our operations and financial condition.
IF WE DO NOT OBTAIN ADDITIONAL INVESTMENT CAPITAL TO CONTINUE OUR RESEARCH AND
DEVELOPMENT ACTIVITIES, WE WILL NOT BE ABLE TO COMPLETE OUR PRODUCT DEVELOPMENT.
If we fail to raise additional funds necessary for research, development, and
testing from either government grants, sales of securities, borrowings, or other
sources, we will not have a product for a potential market and shareholders will
have no possibility of any financial return or economic benefit from their
ownership of our shares. We are likely to have negative cash flow through at
least June 30, 2003, although we have sufficient cash to continue our research
and development efforts for the next five months. Over the next 12 months, we
anticipate that approximately $5,000,000 will be required to complete research
and development of both products and market them. Even if the necessary
$5,000,000 is raised and research, development, and testing is completed, no
assurance can be given that the results will establish that our products will be
marketable. Moreover, no assurance can be given that our products can be
produced at a cost that will make it possible to market them at a commercially
feasible price.
DURING OUR LAST TWO FISCAL YEARS, WE ISSUED A SIGNIFICANT NUMBER OF SHARES OF
COMMON STOCK IN PRIVATE PLACEMENTS THAT ARE BEING REGISTERED FOR RESALE IN THIS
PROSPECTUS, WHICH HAS INCREASED DILUTION TO OUR SHAREHOLDERS AND RESULTED IN AN
INCREASE IN THE NUMBER OF SHARES AVAILABLE FOR PUBLIC RESALE.
During the last two fiscal years, we issued 18,247,626 shares of our common
stock in private placements that are being registered for resale in this
prospectus. Issuing these additional shares results in material dilution to our
shareholders and the resale of these shares in the public market could cause a
reduction in the market price of our common stock. This prospectus covers the
9
resale of 18,247,626 shares or approximately 18.7% of our issued and outstanding
common stock at December 31, 2002. As of that date, we had 97,719,335 shares of
common stock issued, although we do not treat 100,000,000 of our shares of
common stock held in a pledge arrangement with Allied First Boston as
outstanding. Any substantial resales of our common stock may result in the
reduction of the market price, and as a result, a reduction in the value of your
investment. Moreover, the perceived risk of dilution may cause other existing
shareholders to sell their shares in the public market, which could contribute
to the downward movement in the price of our common stock.
WE HAVE RELIED ON THE ISSUANCE OF SHARES OF OUR COMMON STOCK TO COMPENSATE OUR
CHIEF EXECUTIVE OFFICER AND MANY OF OUR CONSULTANTS AND ADVISORS.
To compensate our chief executive officer and our consultants and advisors, we
have had to rely on the issuance of shares of our common stock as compensation
for their services. In our most recent fiscal year ended December 31, 2002, we
issued a total of 5,034,949 to our nine consultants and advisors and another
13,200,00 shares of our common stock to Mr. Bernstein, our chief executive
officer. These shares had an aggregate market value of $547,343 when issued.
Since we are reliant on the issuance of common stock as compensation, additional
dilution has occurred to our shareholders that may have paid cash for their
shares. We believe that additional dilution to existing shareholders will occur
in the future since we plan to continue to issue our common stock to our
officers and consultants as compensation for their services.
OUR STOCK PRICE IS HIGHLY VOLATILE AND SUBJECT TO FLUCTUATIONS DUE TO A VARIETY
OF MARKET FACTORS, INCLUDING PUBLIC ANNOUNCEMENTS REFLECTING AN INCREASE IN THE
SHARES WE HAVE OUTSTANDING OR COMMITTED FOR ISSUANCE.
The market price of our common stock may be highly volatile and subject to wide
fluctuations in response to quarterly variations in operating results,
announcements of technological innovations, services, or affiliations or new
products by us or our competitors, changes in financial estimates by securities
analysts, lack of market acceptance of our products and services, or other
events or factors, including the risk factors described herein. In addition, the
stock market in general, and the technology stocks in particular, experience
significant price and volume fluctuations that are often unrelated to a
company's operating performance. Additionally, issuing options, warrants or
other commitments to issue common stock may result in the perception in the
market that we will issue additional shares in the public market. The potential
of sales of our common stock in the public market following this offering, could
cause a decrease in the market price for the common stock and make it more
difficult for us to raise additional capital through the offer and sale of our
common stock.
SINCE OUR SHARES OF COMMON STOCK ARE QUOTED ON THE OVER-THE-COUNTER ELECTRONIC
BULLETIN BOARD, AND NOT ON ANY NATIONAL SECURITIES EXCHANGE, INVESTING IN OUR
COMMON STOCK MAY RESULT IN LIMITED LIQUIDITY OF YOUR SHARES SINCE AN ACTIVE
TRADING MARKET HAS NOT DEVELOPED.
Your purchase of our common stock may not be a liquid investment because our
common stock is only quoted on the Over-the-Counter Electronic Bulletin Board
maintained by the National Association of Securities Dealers, Inc. We are not
eligible to seek a listing of our common stock on a national securities
exchange, and our ineligibility to do so may impair our ability to develop a
liquid and orderly market in our common stock. You should consider carefully the
limited liquidity of your investment before purchasing any shares of our common
stock. We have no obligation to apply for quotation of our common stock on any
national securities exchange. Factors such as our lack of earnings history, the
absence of expectation of dividends in the near future, mean that there can be
no assurance that an active and liquid market for our common stock will exist at
any time, that a market can be sustained, or that investors in the common stock
will be able to resell their shares. In addition, the free transferability of
the common stock will depend on the securities laws of the various states in
which it is proposed that a sale of the common stock be made.
OUR ROYALTY AND LICENSE AGREEMENTS MAY IMPAIR OUR ABILITY TO RAISE ADDITIONAL
EQUITY CAPITAL IN THE FUTURE.
Under agreements with the University of Pennsylvania to satisfy the debt due
them in the amount of approximately $525,000, we must pay a percentage of
amounts raised from financings, other than from government contracts. We must
pay the University 30% of any such financing over $150,000. In addition, we are
obligated to pay royalties totaling 12% on revenues received from the sale of
10
the Fatigue Fuse and 10% of revenues received from sale of the EFS. These
commitments are likely to increase the difficulty in finding third-party
financing and decreases the net amount of any financing that we do obtain that
can benefit our company. Underwriters and other financing sources are less
likely to agree to finance our research and development if these amounts must be
paid out rather than used for additional research and development.
WE HAVE DEFAULTED ON OUR AGREEMENTS WITH THE UNIVERSITY OF PENNSYLVANIA AND WE
MAY BE UNABLE TO RESOLVE OR CURE THESE DEFAULTS.
With respect to our agreement to pay the University of Pennsylvania
approximately $525,000, we are in default on our agreements with the University.
The balance we owed on the agreement was $200,000 and commencing June 30, 1997,
the balance due accrued interest at 1.5% per month until the loan matured on
December 16, 2001, at which time the balance became fully due and payable. In
addition, under the agreement, Mr. Bernstein agreed to limit his compensation
from us to $150,000 per year until the loan and accrued interest was fully paid.
The balance of our obligation to the University at September 30, 2002, was
$479,712. As of December 31, 2002, we also agreed to issue an additional
1,404,464 shares of our common stock to the University pursuant to our revised
agreement. We're currently in discussions with the University regarding the
issuance of the shares and other related matters in an effort to cure any
defaults.
OUR ROYALTY AND LICENSE AGREEMENTS WILL ALSO REDUCE OUR REVENUE GENERATED FROM
FUTURE PRODUCTS SALES.
In order to finance development of the Fatigue Fuse and Electrochemical Sensor,
our corporate predecessors sold substantial royalty rights to the Advanced
Technology Center, which is affiliated with the University of Pennsylvania. As
of the date of this prospectus, we are obligated to pay royalties totaling 12%
of revenues from sales of our Fatigue Fuse and 10% of revenues from sales of
EFS. If these products are manufactured and sold, these royalty obligations will
reduce our revenue from the sale of these products.
WE DO NOT INTEND TO PAY DIVIDENDS ON OUR COMMON STOCK IN THE FUTURE.
We do not expect to be able to pay dividends until we recover any losses that we
may have incurred and we become profitable. We intend to retain our earnings to
finance growth and expansion and for general corporate purposes. Any future
declaration and payment of dividends on our common stock will depend upon our
earnings and financial condition, liquidity and capital requirements, the
general economic and regulatory climate, our ability to service any equity or
debt obligations senior to the common stock, and other factors deemed relevant
by our board of directors. Holders of our preferred stock have the right to
dividends declared with respect to the common stock on an as-converted basis.
WE DO NOT HAVE AN AUDIT COMMITTEE, A COMPENSATION COMMITTEE AND OTHER CORPORATE
GOVERNANCE REQUIREMENTS IN PLACE IN ORDER TO SATISFY NEW COMPLIANCE REQUIREMENTS
IMPOSED BY FEDERAL LAW.
Under new Federal laws that become effective on April 28, 2003, all companies
that file periodic reports with the U.S. Securities and Exchange Commission, are
required to create an audit committee that is comprised of independent
directors, at least one of whom must meet qualifications as a financial expert
as defined under the law. None of our directors qualify as an independent
director for purposes of these requirements, nor do any of our current directors
qualify as a financial expert and so we do not currently have an audit committee
or a compensation committee. We expect to be in compliance with these new
Federal requirements no later than when they become effective, but we cannot
give any assurances that we actually will be in compliance at that time. In
addition, in the event that the new Bulletin Board Exchange ("BBX") created by
the NASD becomes effective, we do not now qualify for listing on the BBX, and
will not be able to qualify to have our common stock listed on the BBX unless
and until we implement the corporate governance requirements of the BBX. If we
are not in compliance with these new Federal requirements, our common stock will
be de-listed and will thereafter only trade, if at all, in the Pink Sheets.
SINCE THE TECHNOLOGIES WE HAVE DEVELOPED FOR OUR PRODUCTS ARE SUBJECT TO RAPID
TECHNOLOGICAL CHANGES, WE MAY NEED TO MAKE SIGNIFICANT CAPITAL INVESTMENTS IN
NEWER TECHNOLOGIES AND EQUIPMENT.
11
The technologies we expect to use in our manufacturing and marketing of our
products are subject to rapid technological change and could cause us to make
significant capital investment in new technologies and equipment. Our market is
characterized by rapid technological changes. Newer technologies, techniques or
products for determining metal fatigue could be developed with better
performance and results than our products. Developing new technologies for
manufacture is frequently subject to unforeseen expenses, difficulties, and
complications and, in some cases, such development cannot be accomplished. The
availability of new and better metal fatigue testing technologies or other
products could require us to make significant investments in technology, render
our current technology obsolete and have a significant negative impact on our
business and results of operations.
WE HAVE ENTERED INTO TRANSACTIONS WITH OUR CHIEF EXECUTIVE OFFICER, ROBERT M.
BERNSTEIN, THAT WERE FAVORABLE TO HIM, THAT RELATE TO THE ISSUANCE OF SHARES OF
OUR CAPITAL STOCK.
During the time that our chief executive officer, Mr. Bernstein, has controlled
our affairs, we have entered into several transactions that were favorable to
him, that include compensation paid to Mr. Bernstein in the form of our capital
stock and reductions made to the balances of indebtedness owed to us by Mr.
Bernstein. During the fiscal years ended December 31, 1999 through 2002,
inclusive, we compensated Mr. Bernstein from all sources including cash, the
market value of common stock issued to him and the reduction of indebtedness he
owed to us, a total of $150,000, $873,062, $2,265,000 and $317,000,
respectively. These transactions were approved by the other members of our board
of directors, but we can not assure investors that all such transactions were
fair to us or our shareholders, nor can we assure investors that similar
transactions beneficial to Mr. Bernstein will not occur in the future. See
"Certain Transactions."
SINCE ROBERT M. BERNSTEIN, OUR CHIEF EXECUTIVE OFFICER, CONTINUES TO CONTROL OUR
AFFAIRS, OTHER SHAREHOLDERS MAY HAVE NO CONTROL OVER MANAGEMENT AND MANAGEMENT'S
DECISIONS.
Our president and chief executive officer, Robert M. Bernstein, owns 300,000
shares of Class B stock, each of which has 1,000 votes per share, which
represents 300,000,000 votes, and also beneficially owns 24,419,291 shares of
our Class A common stock representing approximately 25% of the total outstanding
shares of common stock, excluding the 100,000,000 shares of our common stock
held in the pledge arrangement with Allied Boston. Including his voting rights
associated with his Class B stock, Mr. Bernstein has votes that overwhelmingly
control our direction and management. Our bylaws do provide for cumulative
voting. Nevertheless, a minority shareholder will have no control over
management and probably will be unable to elect any directors.
OUR CHIEF EXECUTIVE OFFICER AND CONTROLLING SHAREHOLDER, MR. BERNSTEIN, HAS
CONFLICTS OF INTEREST THAT MAY RESULT IN OUR BEST INTERESTS AND THOSE OF OTHER
SHAREHOLDERS BEING SUBORDINATED TO HIS OWN INTERESTS.
Mr. Bernstein controls our operations as the majority shareholder, president,
chief executive officer, and chairman of our board of directors. Mr. Bernstein
may have a conflict of interest as a result of his position as an officer,
director and a controlling shareholder and the fact that we have outstanding
debt obligations to Mr. Bernstein, which are due on demand, including accrued
and unpaid salary, plus the net amount of cash advances Mr. Bernstein has made
to us in the past, all of which debt totals approximately $36,115. On the
other hand, as a director, officer, and controlling shareholder, Mr. Bernstein
owes a fiduciary duty to us and our shareholders to act in our best interests.
IF WE WERE TO BE DEEMED TO BE A PSEUDO CALIFORNIA CORPORATION, THEN THE
CALIFORNIA GENERAL CORPORATION LAW WOULD MANDATE THAT SHAREHOLDERS WOULD HAVE
THE RIGHT TO CUMULATIVE VOTING AT THE ELECTION OF DIRECTORS.
Section 2115 of the California General Corporation Law subjects certain foreign
corporations doing business in California to various substantive provisions of
the California General Corporation Law in the event that the average of its
property, payroll and sales is more than 50% in California and more than
one-half of its outstanding voting securities are held of record by persons
residing in the State of California. Some of the substantive provisions include
laws relating to annual election of directors, removal of directors without
12
cause, removal of directors by court proceedings, indemnification of officers
and directors, directors' standard of care and liability of directors for
unlawful distributions. The law does not apply to any corporation which, among
other things, has outstanding securities designated as qualified for trading as
a national market security on the Nasdaq Stock Market if such corporation has at
least 800 holders of its equity securities as of the record date of its most
recent annual meeting of shareholders. It is currently anticipated that we may
be subject to Section 2115 of the California General Corporation Law which, in
addition to other areas of the law, will subject us to Section 708 of the
California General Corporation Law, which mandates that shareholders have the
right of cumulative voting at the election of directors.
OUR COMMON STOCK MAY BE MORE DIFFICULT TO TRADE DUE TO CERTAIN PENNY STOCK
REGULATIONS THAT MUST BE COMPLIED WITH BY BROKER-DEALERS.
The U.S. Securities and Exchange Commission regulations generally define "penny
stock" to be any equity security that has a market price (as defined) less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions. For transactions covered by these rules, a broker-dealer
must make a delivery, prior to any brokerage transaction, of a disclosure
schedule relating to the penny stock market. A broker-dealer also must disclose
the commissions payable to both the broker dealer and registered representative,
current quotations for the securities, and, if the broker-dealer is the sole
market maker in that security, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market. Finally, monthly statements
must be sent disclosing recent price information for the penny stock held in the
customer's account and information on a limited market in penny stocks.
Consequently, the "penny stock" rules may restrict the ability of broker-dealers
to sell our securities and may affect the ability of stockholders to sell our
securities in the secondary market.
USE OF PROCEEDS
All shares of common stock being offered by this prospectus are being offered
for resale by the selling shareholders. No proceeds of the sale of the shares
will be received by us.
DIVIDEND POLICY
We have not paid dividends and do not plan on paying dividends in the near
future. Instead, we currently intend to retain any earnings for use in expanding
our business and, therefore, we do not anticipate paying cash dividends in the
foreseeable future.
MARKET PRICE OF OUR COMMON STOCK
Our common stock is traded on the Over-the-Counter Electronic Bulletin Board
maintained by the National Association of Securities Dealers, Inc., under the
symbol "MTEY." We now have approximately 733 shareholders. Over-the-Counter
quotations of our common stock reflect inter-dealer prices, without retail
markup, markdown, or commission and may not necessarily represent actual
transactions. The following chart shows the high and low bid prices per share
per calendar quarter from January 2000, when we became eligible for price
quotations on the Electronic Bulletin Board, to the end of our most recent
calendar quarter:
HIGH BID PRICE LOW BID PRICE
----------------------------
FIRST QUARTER 2000 $ 2.875 $ .343
---------------------------------
SECOND QUARTER 2000 $ 1.437 $ .42
---------------------------------
THIRD QUARTER 2000 $ .54 $ .22
------------------------------
FOURTH QUARTER 2000 $ .312 $ .13
--------------------------------
FIRST QUARTER 2001 $ .23 $ .09
------------------------------
13
SECOND QUARTER 2001 $ .12 $ .08
-------------------------------
THIRD QUARTER 2001 $ .22 $ .084
-------------------------------
FOURTH QUARTER 2001 $ .25 $ .10
-------------------------------
FIRST QUARTER 2002 $ .27 $ .10
------------------------------
SECOND QUARTER 2002 $ .10 $ .07
-------------------------------
THIRD QUARTER 2002 $ .02 $ .02
------------------------------
FOURTH QUARTER 2002 $.015 $.015
---------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
In 2001, we received $1,579,823 under two subcontracts on programs with the
United States Air Force for application engineering and enhancement of the EFS.
Also in 2001, we accrued interest income relating to the non-recourse notes to
from our president and a director amounting to $98,297. In 2000, we received
$635,868 under two subcontracts on programs with the Air Force for application
engineering and enhancement of the EFS. Also in 2000, we accrued interest income
relating to the non-recourse notes from our president and a director amounting
to $96,197. Revenue from our research and development contracts with the Air
Force concluded in the second quarter of 2002.
COSTS AND EXPENSES
Research and development costs were $1,284,928 for 2001 and $496,501 for 2000.
Of the $1,284,928 and $496,501 incurred in 2001 and 2000, $1,069,671 and
$406,823 related to subcontractor costs, respectively. General and
administrative costs were $2,725,548 for 2001 and $640,481 for 2000.
In 2001, actual cash compensation paid to our president, Mr. Bernstein, totaled
$90,000. We also accrued $30,000 in additional compensation due to Mr.
Bernstein. We charged to operations $1,500,000 due to a reduction in the balance
of the non-recourse promissory note due to us by Mr. Bernstein in connection
with his purchase of our common stock. We issued 6,000,000 shares of restricted
common stock to Mr. Bernstein during 2001, valued at $420,000, for past
compensation due to him. Other expenses in 2001 included consulting fees of
$225,363, legal fees of $209,486, accounting fees of $51,120, travel expenses of
$42,092, office salaries of $36,225, office expense of $34,880, rent of $29,468,
telephone expense of $13,838, and a write off of our $33,000 investment in
Antaeus Research, LLC.
The major costs in 2000 were officer's salary of $127,183, consulting fees of
$127,512, legal fees of $197,322, accounting and auditing fees of $23,063,
interest expense of $60,634, and travel expenses of $26,443.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2002
We had no sales during the nine-month period ended September 30, 2002 or during
the nine month period ended September 30, 2001. We generated $461,323 under our
research and development contracts during the first three-quarters of 2002, as
compared to $1,038,060 that was generated during the same period in 2001,
although our final contract payments from our research and development contracts
with the U.S. Air Force concluded prior to the third quarter of 2002.
Interest earned during the first three quarters in 2002 totaled $36,057, which
mostly consisted of accrued interest earned on promissory notes due from our
president, Mr. Bernstein and a director, Mr. Freedman, on common stock purchased
during the second quarter of 2000. Interest earned in 2001 amounted to $89,933.
14
During the nine month period ended September 30, 2002, we incurred $508,195 in
development costs of which $440,201 relates to subcontract costs. We earned the
full amount of our grant from the U.S. Air Force in the prior quarter, but
continued our product development during the third quarter. During the same
nine-month period in the prior year, we incurred $828,326 in development costs
of which $744,659 related to subcontract costs.
General and administrative costs were $2,799,781 and $2,402,032, respectively,
for the nine-month periods ended September 30, 2002 and 2001. The major costs
incurred during 2002, included officer's salary of $90,000 of which $33,000 was
accrued, office salaries of $29,597, professional fees of $1,916,125, consulting
fees of $582,798, travel of $38,290, telephone expense of $18,919, rent of
$21,132, and office expense of $25,343. Of the $1,916,125 in professional fees,
$1,481,895 is accrued and due to two attorneys in the settlement of the lawsuit
we had pending involving Stephen Beck. Our obligation to pay this attorney fee
is contingent upon our receipt of earnings (See Note 2 to the financial
statements). Also included are legal fees of $367,110 that were paid through the
issuance of 9,872,100 shares of our common stock. Of the $582,798 incurred in
consulting fees, $363,147 was paid through the issuance of 7,998,918 shares of
our common stock. Also included in consulting fees were the 1,000,000 shares of
our common stock that were issued in full settlement to Stephen Beck. The
1,000,000 shares were valued at $30,000.
The major expenses incurred during the nine-month period ended September 30,
2001, consisted of $1,500,000 relating to the modification of the amount owed to
us by our president, Mr. Bernstein and a director, Mr. Freedman, on non-recourse
common stock subscriptions, $420,000 of prior years' compensation due to Mr.
Bernstein that was paid in our common stock in 2001, $147,569 in consulting
fees, $90,000 in officer's salary, $97,695 in professional fees, $16,454 in
rent, $11,706 in telephone expense, that were paid through the issuance of
7,805,000 shares of our common stock. Of the $351,858 incurred in consulting
fees, $155,700 was paid through the issuance of 5,190,000 shares of our common
stock. Also included in consulting fees were the 1,000,000 shares of our common
stock that was issued in full settlement to Stephen Beck. The 1,000,000 shares
were valued at $30,000. The major expenses incurred in 2001, consisted of
officer's salaries of $30,000, office salaries of $10,617, consulting fees of
$113,066, professional services of $46,486, rent of $6,833, office expense of
$13,129, telephone expense of $6,875, and travel expense of $16,674.
Interest expense for the three-months ended September 30, 2002 totaled $21,095
as compared to $17,617 incurred during the first nine-months of 2001.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents as of September 30, 2002 and 2001 were $243,438, and
$101,610, respectively. During 2002, we received $738,638 through our research
contracts, $797,430 through the issuance of our common stock and $1,555 from
interest earned on savings. Of the $1,537,623 received, $1,258,560 was used in
operations, $29,608 was used in the purchase of equipment, $149,231 was used to
pay offering expenses, and $29,700 was repaid to our president, Mr. Bernstein.
During 2001, we received $885,808 through our research contracts, $14,800
through advances from our president, and $230,309 through the issuance of our
common stock. Of the $1,130,917 received, $949,580 was used in operations,
$5,600 was used in the development of our website, $47,281 was used in the
selling of our common stock and $28,800 was advanced to our president. As of
September 30, 2002, total amounts owed by us to our president for accrued wages
of $100,000 were charged against the loans due from him amounting to $66,985,
leaving a balance due him in the amount of $33,115.
During the nine month period ended September 30, 2002, we settled the lawsuits
involving Stephen Beck by agreement dated July 15, 2002. Pursuant to our
settlement agreement, we issued to Mr. Beck 1,000,000 shares of our restricted
common stock with anti-dilution protection for 18 months after the date of the
agreement. The anti-dilution provision requires us to issue additional shares of
common stock, options or warrants to Mr. Beck in order to maintain his relative
ownership of our outstanding common stock, during the 18 month period after the
date of the agreement. As of the date of this prospectus, we have issued
1,000,000 shares of our restricted common stock to Mr. Beck, with a market value
of approximately $45,000 as of the date of settlement. Pursuant to the
settlement, we have also issued into escrow 2,000,000 shares of restricted
common stock to cover the anti-dilution provisions of the settlement. In
addition to the settlement with Mr. Beck, we agreed to compensate our attorneys
handling that case by issuing them 1,000,000 shares of our restricted common
stock and up to $1,500,000 in cash fees payable only by the delivery to our
counsel of 25% of our earnings before interest, depreciation, taxes and
administrative expenses. When we issued these shares to our attorneys, the
shares had a market value of approximately $45,000.
15
We are continuing discussions with various investor groups that we are hopeful
may provide us with additional investment capital sufficient to continue our
research and development for at least 12 additional months following the date of
this prospectus. Our discussions includes the potential of receiving funding
from Allied Boston International, Inc. under its straight documentary credit
facility. We can give no assurances that we will in fact receive any additional
debt or equity financing on any terms or terms acceptable to us. If we do not
receive additional financing, management believes our ability to continue as a
going concern is in substantial doubt.
On October 10, 2001, we entered into an arrangement whereby Allied Boston Group
agreed to provide us with a straight documentary credit, or letter of credit for
$12,500,000. Under the terms of the commitment, we agreed to pledge sufficient
shares of our common stock to equal 125% of the letter of credit funded. The
letter of credit has not been funded as of the date of this prospectus and
management is concerned over the Allied Boston Group's ability to actually fund
the letter of credit. Management is now in discussions with representatives of
Allied Boston Group to review and evaluate when and if the letter of credit will
fund.
Under the initial terms of the letter of credit transaction, our shares were
valued at $.27 per share. If our stock price decreased, we agreed to pledge
additional shares in support of the letter of credit. If our stock price
increased to a $1.00 per share, then Allied Boston is required to liquidate a
sufficient number of shares to pay off the amount funded through this letter of
credit. After the amount is paid off, Allied Boston will retain 25,000,000
shares of our common stock. Any remaining shares are to be returned to our
treasury.
Upon funding of the letter of credit, we are required to pay a fee to Allied
Boston in the amount of 8% of the amount funded of which 50% will be paid in
cash and the remainder of the fee will be paid through the issuance of our
common stock to be valued at market value at the time of issuance. As long as
the letter of credit is in force, Allied Boston will have two voting seats on
our board of directors. All out-of-pocket expenses pertaining to the issuance of
the instrument will be borne by us.
In October 2001, we issued 60,000,000 shares of common stock as collateral to
Allied Boston pursuant to the terms of our agreement, and in January 2002, we
issued 40,000,000 shares as additional collateral. The selling or transfer of
these shares is contingent upon the occurrence of future events that are
uncertain. Therefore, we treat these 100,000,000 pledged shares as issued but
not outstanding.
As indicated, as of September, 2002, we had available funds of $243,438. At our
current rate of overhead, we have sufficient cash resources to fund
approximately five months of current operating expenses. Without an infusion of
capital through the sale of additional shares of our stock or the receipt of new
contract revenue or sales revenue, we may not be able to continue operating
after our cash on hand is depleted.
BUSINESS
OVERVIEW OF OUR BUSINESS
We are engaged in research and development of metal fatigue detection,
measurement, and monitoring technologies. As such, we are developing a
comprehensive system of monitoring devices for metal fatigue measurement. We are
a development stage company doing business as Tensiodyne Scientific Corporation.
Our efforts are dedicated to developing devices and systems that indicate the
true fatigue status of a metal component. We have developed two products, with a
third product now under development. The first is a small, extremely simple
device that continuously integrates the effect of fatigue loading in a
structural member. It is called a fatigue fuse. The second, is an instrument
that detects very small cracks and is intended to determine crack growth rates.
The electrochemical fatigue sensor has demonstrated that it can detect cracks
as small as 10 microns (0.0004 inches), which is smaller than any other
practical technologies, as acknowledged by the United States Air Force. We
believe that nothing comparable to this instrument currently exists in materials
technology.
Both devices are pioneering technology in the fatigue field that we believe
provide cutting-edge solutions in materials technology. Both products are
16
protected by patents, although we hold patents ourselves only on the fatigue
fuse and license the technology on the electrochemical fatigue sensor.
Another product currently under development is a borescope which comprises a
fiber optic bundle and light source together with a working channel through
which certain non-destructive test sensors such as ultrasound and/or eddy
current devices can be passed, to inspect visually or manually inaccessible
regions of structures.
The device is unique in its capabilities by having a maximum diameter of 6 mm
(0.236 inches). Contained within this diameter is a working channel of 2.8 mm
(0.11 inches) diameter, through which proprietary eddy current or ultrasonic
sensors may be passed and used to examine areas of interest. The fiber optic
bundle provides very clear video resolution, utilizing a video camera integrated
in the borescope handle. Images are then displayed on a monitor and can be
recorded. The borescope is derived from similar devices in wide use in medicine.
Its uniqueness is its small diameter and its capability for applying multiple
sensors, such as ultrasound and/or eddy current. Developed under United States
Air Force auspices to inspect internal components of fully assembled jet turbine
engines using the existing inspection holes in assembled engine outer surfaces,
it can be used to access remote areas of bridges and other structures to monitor
fatigue and other cracks, permitting good visual access to otherwise
inaccessible areas.
We were formed as a Delaware corporation on March 4, 1997. It is the successor
to the business of Material Technology, Inc., a Delaware corporation, also doing
business as Tensiodyne Scientific, Inc. Material Technology, Inc. was the
successor to the business of Tensiodyne Corporation that began developing the
fatigue fuse in 1983. Our two predecessors, Tensiodyne Corporation and Material
Technology, Inc. were engaged in developing and testing the fatigue fuse and,
beginning in 1993, developing the electrochemical fatigue sensor.
THE FATIGUE FUSE
The Fatigue Fuse is designed to be affixed to a structure to give warnings as
pre-selected portions of the fatigue life have been used up (i.e., how far to
failure the structure has progressed). It warns against a condition of
widespread generalized cracking due to fatigue.
The Fatigue Fuse is a thin piece of metal similar to the material being
monitored. It consists of a series of parallel metal strips connected to a
common base, much as fingers are attached to a hand. Each "finger" has a
different geometric pattern called "notches" defining its boundaries. Each
finger incorporates a design specific notch near the base. By applying the laws
of physics to determine the geometric contour of each notch, the fatigue life of
each finger is finite and predictable. When the fatigue life of a finger (Fuse)
is reached, the Fuse breaks.
By implementing different geometry for each finger in the array, different
increments of fatigue life are observable. Typically, notches will be designed
to facilitate observing increments of fatigue life of 10% to 20%. By
mechanically attaching or bonding these devices to different areas of the
structural member of concern, the Fuse undergoes the same fatigue history
(strain cycles) as the structural member. Therefore, breakage of a Fuse
indicates that an increment of fatigue life has been reached for the structural
member. The notch and the size and shape of the notch concentrate energy on each
finger. The Fuse is intimately attached to the structural member of interest.
Therefore, the Fuse experiences the same load and wear history as the member.
We believe that the Fatigue Fuse will be of value in monitoring aircraft, ships,
bridges, conveyor systems, mining equipment, cranes, etc. No special training
will be needed to qualify individuals to report any broken segments of the
Fatigue Fuse to the appropriate engineering authority for necessary action. The
success of the device is contingent upon our successful development and
marketing of the Fatigue Fuse, and no assurance can be given that we will be
able to overcome the obstacles relating to introducing a new product to the
market. To determine its ability to produce and market the Fatigue Fuse, we need
substantial additional capital and no assurance can be given that needed capital
will be available.
In a new structure, we generally assume there is no fatigue and can thus design
the Fatigue Fuse for 100% of its life potential. But in an existing structure,
one that experienced loading and wear, we must determine the fatigue status of
17
that structural member so we can design the Fatigue Fuse to monitor the
remaining fatigue life potential.
THE ELECTROCHEMICAL FATIGUE SENSOR ("EFS")
The EFS is a device that employs the principle of electrochemical/mechanical
interaction to find cracks. It is an instrument that detects very small cracks
and is intended to determine crack growth rates. The electrochemical magnetic
fatigue sensor has demonstrated that it can detect cracks as small as 10 microns
(0.0004 inches), which is smaller than any other practical technologies, as
acknowledged by the United States Air Force. We believe that nothing comparable
to this instrument currently exists in materials technology.
The EFS functions by treating the location of interest (the target) associated
with the structural member as an electrode of an electrochemical cell. To
complete the electro-cellular reaction an electrolyte, in the form of a low
corrosion gel, is placed in contact with the target. By imposing a constant
voltage-equivalent circuit as the control mechanism for the electrochemical
reaction at the target surface - current flows as a function of stress action.
The EFS is always a dynamic process; therefore stress action is required, e.g.
to measure a bridge structural member it is necessary that cyclic loads be
imposed, as normal traffic on the bridge would do. The results are a specific
set of current waveforms and amplitudes that is expected to characterize and
report fatigue damage (age).
THE BORESCOPE
Stress points are very often located in difficult to get at places for humans.
Therefore, it has become desirable to miniaturize the process and develop a
means for delivery to inaccessible areas. The borescope comprises a fiber optic
bundle and light source together with a working channel through which certain
non-destructive test sensors such as ultrasound and/or eddy current devices can
be passed, to inspect visually or manually inaccessible regions of structures.
The device is unique in its capabilities by having a maximum diameter of 6 mm
(0.236 inches). Contained within this diameter is a working channel of 2.8 mm
(0.11 inches) diameter, through which proprietary eddy current or ultrasonic
sensors may be passed and used to examine areas of interest.
The borescope's uniqueness is its small diameter and its capability for applying
multiple sensors, such as ultrasound and/or eddy current. Developed under United
States Air Force auspices to inspect internal components of fully assembled jet
turbine engines using the existing inspection holes in assembled engine outer
surfaces, it can be used to access remote areas of bridges and other structures
to monitor fatigue and other cracks, permitting good visual access to otherwise
inaccessible areas.
During the quarter ended December 31, 2002, we announced preliminary plans to
launch a joint venture with Optim, Incorporated of Sturbridge, Maine, which is
intended to commercially introduce a new borescope product known as the OptiSpec
Flaw Detection System. This new product combines remote visual inspection with
ultrasonic and eddy current non-destructive testing methods which rapidly and
accurately determine if the observed indication is, in fact, a flaw that merits
evaluation or repair. Optim, Incorporated designs, manufactures, markets and
sells flexible endoscopy products for both the medical and industrial markets.
Our preliminary joint venture agreement has not yet been finalized, but our
current discussions with Optim reflect that 45% of the intellectual property
developed in pursuit of the OptiSpec Flaw Detection System will be proprietary
to us and 45% will be proprietary to Optim, Incorporated. The remainder of the
intellectual property rights will be held by minority shareholders. We are
uncertain at this juncture when a formal joint venture agreement will be entered
into and if entered into, the extent to which revenues may be generated from the
commercial development of the OptiSpec Flaw Detection System and if generated,
when product sales will begin. No assurances can be given by us at this time
that we will be in a position to jointly develop and market the OptiSpec Flaw
Detection System with Optim, Incorporated.
DEVELOPMENT OF OUR TECHNOLOGIES
Status of the fatigue fuse
The development and application sequence for the Fatigue Fuse and EFS is (a)
basic research, (b) exploratory development, (c) advanced development, (d)
prototype evaluation, (e) application demonstration, and (f) commercial sales
and service. The Fatigue Fuse came first. The inventor, Professor Maurice Brull,
18
conducted the basic research at the University of Pennsylvania. We conducted the
advanced development, including variations of the adhesive bonding process, and
fabricating a laboratory-grade remote recorder for finger separation events that
constitute proper functioning of the Fatigue Fuse. The next step, prototype
evaluation, that encompasses empirical tailoring of Fuse parameters to fit the
actual spectrum loading expected in specific applications, needs to be done. The
tests associated with further development of the Fatigue Fuse include
full-scale structural tests with attached Fuses. A prototype of the Fatigue Fuse
has been designed, fabricated, and successfully demonstrated. The next tasks
will be to prepare an 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 measuring stresses and strains in fatiguing metal. The final tasks
prior to marketing will be an even larger group of demonstration tests.
The Fatigue Fuse is at its final stages of testing and development. To begin
marketing, the Fuse will take from six to 12 months and cost approximately
$600,000, including technical and beta testing and final development. If
testing, development, and marketing are successful, we estimate we should begin
receiving revenue from the sale of the Fatigue Fuse within a year of receiving
the $600,000. However, we cannot estimate the amount of revenue that may be
realized from sales of the Fuse, if any.
To date, certain organizations have included our Fatigue Fuse in test programs.
We have already completed the tests for welded steel civil bridge members
conducted at the University of Rhode Island. In 1996, Westland Helicopter, a
British firm, tested the Fatigue Fuse on Helicopters. That test was successful
with the legs of the Fuses failing in sequence as predicted.
Status of the EFS
The existence and size of very small cracks can be determined by EFS, and in
this regard it appears superior in resolution to other current non-destructive
testing techniques. It has succeeded in regularly detecting cracks as small as
40 microns in a titanium alloy, in a laboratory environment, as verified by a
scanning electronic microscope, and has proven to be capable of detecting cracks
down to 10 microns as acknowledged by the materials laboratory at Wright
Patterson Air Force Based upon delivery of a lab testing device. This is much
smaller than the capability of any other practical non-destructive testing
method for structural components. There is also a vast body of testing
supporting successful use of this technology with selected aluminum alloys.
However, additional testing is required to verify EFS' crack detection
capabilities under various industrial environments which are more representative
of actual structures in the field, like a highway bridge or aircraft fuselage.
Joint technology venture with Integrated Technologies, Inc.
By agreement dated January 1, 2003, a new co joint venture subsidiary we
formed, Integrated Technologies, Inc. a Delaware corporation and Austin Tech,
LLC, a Texas limited liability company, entered into a license agreement. We own
51% of the outstanding capital stock of Integrated Technologies, Inc. and Austin
Tech, LLC owns the remaining 49% of the outstanding capital stock. We jointly
formed Integrated Technologies, Inc. for the purpose of jointly developing,
marketing and licensing a new brand of remote transmittal monitoring products
from our combined technologies.
Integrated Technologies, Inc. as the licensee of the technologies owned by
Austin Tech, LLC, has also entered into a form of license agreement directly
with us for the purpose of having access to our technologies for joint
development purposes. The license agreements granted to Integrated Technologies,
Inc. by Austin Tech, LLC and by us, expire on January 1, 2005 unless terminated
earlier under the provisions of the agreements. The terms of the licenses
granted to Integrated Technologies, Inc. are exclusive, royalty free and are
geographically limited to certain territories described in the license
agreements, which include the United States, Canada, Middle Eastern countries,
several Northern European countries, Mexico and Brazil.
GOVERNMENT CONTRACT FUNDING
Historically, we have generated contract revenue by seeking research and
development contracts awarded by agencies of the United States government, such
as the U.S. Air Force. In developing our contract revenue, we have enlisted the
assistance of research and development partners that have used us as
subcontractors in the research and development effort. In August 1996, we
executed an agreement entitled, "Teaming Agreement," with the Southwest Research
Institute and the University of Pennsylvania for coordinated research and
development efforts.
We have also entered into similar relationships with Universal Technology
Corporation, which is a government contractor that acts as a pass through or
monitor of our contract. Universal Technology Corporation has acted as the prime
contractor with the Air Force, and we function as a first tier subcontractor.
Other than our association with these groups as research and development
partners, we have no other affiliation. Our contract revenue from all sources
of research and development agreements concluded in the third quarter of fiscal
year 2002, and we do not have any additional contract revenue anticipated during
the next 12 months.
On February 25, 1997, the Southwest Research Institute was awarded from the
United States Air Force, a $2,500,000 phase one contract to determine the
feasibility of the EFS to improve the U.S. Air Force capability to perform
durability assessments of military aircraft, including air frames and engines
through the application of the EFS to specific military aircraft alloys. Our
share of this award was approximately $550,000. On June 18, 1998 Universal
Technology Corporation, one of our contracting partners was awarded a second
contract in the amount of $2,061,642 to determine the applicability of the EFS
to improve the U. S. Air Force capability to perform durability assessments of
19
military aircraft, including both air frames and engines through the application
of the EFS to specific military aircraft alloys. Our share of this award was
approximately $538,000. On February 5, 1999, a third contract in the amount of
$2,000,000 was awarded to Universal Technology Corporation to continue and
expand the efforts for turbine engines. Our directly subcontracted share was
approximately $382,000. A fourth contract was awarded to Universal Technology
Corporation on November 3, 2000 in the amount of approximately $2,000,000 to
continue the borescope and EFS technologies, as well as alternate means of
fatigue sensing. This fourth contract has been fully performed. Our directly
subcontracted share is approximately $700,000. Accordingly, over the last four
years we have been awarded approximately $8,500,000 in research and develop
services covering the EFS. The results of this research are encouraging and
provide a basis for us and our contract partners to obtain additional funding.
However, we can not provide any assurance that additional contract revenue will
be generated by us or received in the future.
COMMERCIAL MARKETS FOR OUR PRODUCTS AND TECHNOLOGIES
No commercial application of our products has been arranged to date, but the
technology has matured to a point where we believe it can be applied to certain
markets. Our technology is applicable to many market sectors such as bridges and
aerospace as well as ships, cranes, power plants, nuclear facilities, chemical
plants, mining equipment, piping systems, and heavy iron. We do anticipate that
our planned joint venture with Optim, Incorporated for the commercial sale and
distribution of the OptiSpec Flaw Detection System, will begin to generate
material product sales from the jointly developed borescope, in the second
quarter of the current fiscal year. We can not provide assurances that the
marketing and distribution of the OptiSpec Flaw Detection System will in fact
occur at any specific time in the future due to the possibility that we may not
enter into a formal joint venture agreement with Optim Incorporated or if we do,
we may experience delays or difficulties in the initial marketing, sales and
distribution of the product. Nor can we provide assurances that our results of
operations and our financial condition will materially improve from the planned
commercial distribution of the OptiSpec Flaw Detection System.
APPLICATION OF OUR TECHNOLOGIES FOR BRIDGES
Our EFS and fatigue fuse products primarily address the detection of fatigue in
structures such as bridges. In the United States alone there are more than
610,000 bridges of which over 260,000 are rated by the Federal Highway
Administration as requiring major repair, rehabilitation, or replacement. Our
EFS and fatigue fuse products can be effectively used as fatigue detection
devices for all metal bridges located within the United States. Our detection
devices also address maintenance problems associated with bridge structures.
Although there are normal business imperatives, the bridge market is essentially
macro-economically and government policy driven. In our opinion, only technology
can provide the solution. The need for increased spending accelerates
significantly each year as infrastructure ages. The Federal government has
recently mandated bridge repair and detection through the passage of the
Intermodal Surface Transportation and Efficiency Act in 1991 and again recently
in the $200 billion, 1998 Transportation Equity Act. We do not currently have
contracts in place to install our fatigue detection products on bridge
structures within the United States.
OUR PATENT PROTECTIONS
We are the assignee of four patents originally issued to Tensiodyne Corporation.
The first was issued on May 27, 1986, and expires on May 27, 2003. It is titled
"Device for Monitoring Fatigue Life" and bears United States Patent Office
Numbers 4,590,804. The second patent, titled "Method of Making a Device for
Monitoring Fatigue Life" was issued on February 3, 1987 and expires February 3,
2004, United States Patent Office Number 4,639,997. The third patent, titled
"Metal Fatigue Detector" was issued on August 24, 1993 and expires on August 24,
2010, United States Patent Number 5,237,875. The fourth patent, titled "Device
for Monitoring the Fatigue Life of a Structural Member and a Method of Making
Same," was issued on June 14, 1994 and expires on June 14, 2011, United States
Patent Number 5,319,982. In addition, we own a fifth patent, titled "Device for
Monitoring the Fatigue Life of a Structural Member and a Method of Making Same,"
which was issued June 20, 1995, United States Patent Number 5,425,274, and
expires June 20, 2012.
OUR PATENTS ARE ENCUMBERED
The patents described in the preceding section are pledged as collateral to
secure the repayment of loans extended to us or indebtedness that we currently
20
owe. On August 30, 1986, we entered into a funding agreement with the Advanced
Technology Center, whereby ATC paid $45,000 to us for the purchase of a royalty
of 3% of future gross sales and 6% of sublicensing revenue. The royalty is
limited to the $45,000 plus an 11% annual rate of return. At December 31, 2000,
and 2001, the future royalty commitment was limited to $204,639 and $227,149,
respectively. The payment of future royalties is secured by equipment we use in
the development of technology as specified in the funding agreement, however, no
lien against our equipment or our patents in favor of ATC vests until we
generate royalties from products sales.
On May 4, 1987, we entered into a funding agreement with ATC whereby ATC
provided $63,775 to us for the purchase of a royalty of 3% of future gross sales
and 6% of sublicensing revenue. The agreement was amended August 28, 1987, and
as amended, the royalty cannot exceed the lesser of (1) the amount of the
advance plus a 26% annual rate of return or, (2) total royalties earned for a
term of 17 years. As with our first agreement with ATC, no lien or encumbrance
against our assets, including our patents, vests in favor of ATC until we
generate royalties from product sales. If we were to default on these payments
to ATC, our obligations relating to these agreements then become secured by our
patents, products and accounts receivable.
On May 27, 1994, we borrowed $25,000 from Sherman Baker, one of our share-
holders. We gave Mr. Sherman a promissory note due May 31, 2002 and we pledged
our patents as collateral to secure the repayment of this note. As of the date
of this prospectus, there is a first priority security interest in our patents
as collateral for the repayment of the amounts we owe to Mr. Baker. As
additional consideration for this loan, we granted to Mr. Baker, a 1% royalty
interest in the fatigue fuse and a 0.5% royalty interest in the electrochemical
fatigue sensor. We are in default of the repayment terms of the note held by Mr.
Baker, and at the date of this prospectus, we owe Mr. Baker approximately
$60,000 in principal and accrued interest. Mr. Baker has not taken any action to
foreclose his interest in the collateral and we are in discussions with Mr.
Baker, with the expectation that we will cure any default in the note he holds
and avoid any foreclosure of his security interest held in our patents.
DISTRIBUTION OF OUR PRODUCTS
Subject to available financing, we intend to exhibit the Fatigue Fuse and the
Electrochemical Fatigue Sensor at various aerospace trade shows and intend to
also market our products directly to end users, including aircraft manufacturing
and aircraft maintenance companies, crane manufactures and operators, certain
state regulatory agencies charged with overseeing bridge maintenance, companies
engaged in manufacturing and maintaining large ships and tankers, and the
military. Although we intend to undertake marketing, dependent on the
availability of funds, within and without the United States, no assurance can be
given that any such marketing activities will be implemented.
COMPETITION
Other technologies exist which measure and indicate fatigue damage. Single
cracks larger than a minimum size can be found by nondestructive inspection
methods such as dye penetrant, radiography, eddy current, acoustic emission, and
ultrasonics. Tracking of load and strain history, to subsequently estimate
fatigue damage by computer processing, is possible with recording instruments
such as strain gauges and counting accelerometers. These methods have been used
for 40 years and also offer the advantage of having been accepted in the market,
whereas our products remain largely unproven. Companies marketing these
alternate technologies include Magnaflux Corporation, Kraut-Kermer-Branson,
Dunegan-Endevco, and Micro Measurements. These companies have more substantial
assets, greater experience, and more resources than ours, including, but not
limited to, established distribution channels and an established customer base.
The familiarity and loyalty to these technologies may be difficult to dislodge.
Because we are still in the development stage, we are unable to predict whether
our technologies will be successfully developed and commercially attractive in
potential markets.
EMPLOYEES
We have four employees, Robert M. Bernstein, our president and chief executive
officer, a secretary, one part-time engineer and one part-time government
contract advisor. In addition, we retain consultants for specialized
work we require on a periodic basis. As of the date of this prospectus, we have
nine advisory board members, all of whom provide their services on a part-time,
as needed bases. Our advisory board members are providing us with consulting and
21
advice in the areas of marketing, technology and research and development.
OUR FACILITIES
We lease an office at 11661 San Vicente Blvd., Suite 707, Los Angeles,
California, 90049. The space consists of 830 square feet and will be adequate
for our current and foreseeable needs. The total rent is $2,348 per month and
the initial lease expired on June 1, 2002. Effective as of June 1, 2002, we then
entered into a short extension of this facilities lease, which permits us to
remain in our facility at the same cost until June 30, 2003.
LEGAL PROCEEDINGS
We are not presently involved in any legal proceedings that, in our opinion,
might have a material effect on our operations.
On April 30, 2001, Stephen Beck, a former consultant filed a complaint against
us and our chief executive officer in Stephen Forest Beck vs. Robert M.
Bernstein, Material Technologies, Inc. et al., Los Angeles Superior Court No.
BC249547, alleging breach of contract a declaration of his contract rights, and
fraud. The complaint related to a February 8, 1995, consulting agreement under
which Mr. Beck was to provide assistance in obtaining government contract
private funding. Mr. Beck claimed that over $1.5 million in contingent
consulting fees are immediately due, as we obtained funding through four
government contracts since 1995. This suit also sought punitive damages in an
unspecified amount.
On April 30, 2001, we filed a complaint against Mr. Beck in Material
Technologies, Inc. v Stephen Forrest Beck, L.A. Superior Court No. BC249495 for
the rescission of the consulting agreement, the return of 195,542 shares of
common stock issued to Mr. Beck pursuant to the consulting contract, and
attorney's fees, interest, and the cost of the lawsuit.
We settled the lawsuits involving Mr. Beck by agreement dated July 15, 2002.
Pursuant to our settlement agreement, which fully and completely resolved all
claims and counter-claims involving Mr. Beck, we agreed to issue to Mr. Beck
1,000,000 shares of our restricted common stock with anti-dilution protection
for 18 months after the date of the settlement agreement. The anti-dilution
provision requires us to issue additional shares of common stock, options or
warrants to Mr. Beck in order to maintain his relative ownership of our
outstanding common stock, during the 18 month period after the date of the
agreement. As of the date of this prospectus, we have issued 1,000,000 shares of
our restricted common stock to Mr. Beck, with a market value of approximately
$45,000 as of the date of settlement.
In addition to the settlement with Mr. Beck, we agreed to compensate our
attorneys by issuing them 1,000,000 shares of our restricted common stock and up
to $1,500,000 in cash fees payable only by the delivery to our counsel of 25% of
our earnings before interest, depreciation, taxes and administrative expenses.
When we issued these shares to our counsel, they had a market value of
approximately $45,000.
TRANSFER AGENT
The transfer agent for our securities is Interwest Transfer Company, Inc., 1981
E. 4800 South, Ste. 100, Salt Lake City, Utah 84117, and its telephone number is
(801) 272-9294.
22
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The name, age, office, and principal occupation of our executive officers and
directors and certain information relating to their business experience as of
January ___, 2003, is set forth below:
NAME AGE POSITION
---- --- --------
Robert M. Bernstein 69 President, Chief Executive Officer, Chairman of
the Board
Joel R. Freedman 43 Secretary, Treasurer, Director
Dr. John Goodman 69 Chief Engineer, Director
William Berks 72 Vice President of Government Projects
ROBERT M. BERNSTEIN---is our president, chief executive officer, and the
chairman of the board of directors, and has served in each of those capacities
since October 1988. Mr. Bernstein received a Bachelor of Science degree from the
Wharton School of the University of Pennsylvania in 1956. From August 1959 until
his certification expired in August 1972, he was a certified public accountant
licensed in Pennsylvania. From 1961 to 1981, he was a consultant specializing in
mergers, acquisitions, and financing. From 1981 to 1986, Mr. Bernstein was
chairman and chief executive officer of Blue Jay Enterprises, Inc. of
Philadelphia, PA., an oil and gas exploration company. In December 1985, Mr.
Bernstein formed a research and development partnership for Tensiodyne, and
assisted in locating funding of approximately $750,000 for research on the
Fatigue Fuse.
JOEL R. FREEDMAN---is our secretary/treasurer and a director Mr. Freedman has
acted as our secretary and treasurer since 1989. From 1983, he was president of
Genesis Advisors, Inc., an investment advisory firm in Bala Cynwyd, Pennsylvania
and since January 1, 2000, he has been a senior vice president of PMG Capital
Corp., a securities brokerage and investment advisory firm in West Conshohocken,
Pennsylvania. His duties with PMG Capital require a full time commitment from
him, so he acts as our secretary and treasurer only on a part time, as needed
basis. Accordingly, he does not take part in our daily activities.
DR. JOHN W. GOODMAN---is our chief engineer and a director. Dr. Goodman is
retired from TRW Space and Electronics and was formerly chairman of the
Aerospace Division of the American Society of Mechanical Engineers. Dr. Goodman
holds a Doctorate of Philosophy degree in Materials Science that was awarded
with distinction by the University of California at Los Angeles in 1970. In
1957, he received a Masters of Science degree in Engineering Mechanics from Penn
State University and in 1955 he received a Bachelor of Science degree in
Mechanical Engineering from Rutgers University. From 1972 to 1987, Dr. Goodman
was with the U. S. Air Force as lead Structural Engineer for the B-1 aircraft,
Chief of the Fracture and Durability Branch, and Materials Group Leader,
Structures Department, Aeronautical Systems Center, Wright-Patterson Air Force
Base. From 1987 to December 1993, he was on the Senior Staff, Materials
Engineering Department of TRW Space and Electronics. Dr. Goodman has been Chief
Engineer for Development of our products since May 1993. Since June, 1998, Dr.
Goodman has consulted for us on a part time basis.
WILLIAM BERKS---is our vice-president of government projects. Mr. Berks retired
from TRW, Inc. in November 1992 where he was employed for 26 years. Mr. Berks
has served in the capacity of our vice-president of operations since leaving TRW
in November 1992. His last assignment was as a project manager in the Advanced
Systems Division of TRW's Space and Technology Group. He managed the Structures
and Mechanism Subsystem of the Universal Test Bed Project, which is a three axis
stabilized advanced bus for large geostationary satellites. In a collateral
assignment, he was responsible for planning a building and its equipment for the
National Space Program Office of Taiwan, Republic of China, for the design,
assembly, integration and test of small three axis spacecraft and each of their
23
subsystems, and manpower planning for a spacecraft program. Recently he was the
Chief Mechanical Engineer for the Space and Technology Group's commercial
satellite operations. He served six years as Manager of the Mechanical Design
Laboratory, the engineering design skill center for the design and development
of spacecraft mechanical systems, which had as many as 350 individuals. For ten
years he was Manager of the Advanced Systems Design Department, which was
responsible for mechanical systems design for all spacecraft project. Mr. Berks
was Assistant Project Manager for Mechanical Subsystems for a major spacecraft
program, which included preparation of plans, specifications and drawings,
supervision of two major subcontracts, and responsibility for flight hardware
fabrication and testing. Mr. Berks has also managed independent research and
development projects (antennas, materials, solar arrays) and holds six patents.
He has over 30 years of experience in spacecraft mechanical systems engineering.
OUR ADVISORY BOARD
Since 1987, we and our corporate predecessors, have had an advisory board
consisting of senior experienced businessmen and technologists, most of whom are
nationally prominent. These individuals consult with us on an as needed basis,
and in the past, we have compensated our consulting advisory board members for
their services to us through the issuance of our common stock. During fiscal
year 2000 we issued 50,000 shares of common stock to our advisory board members,
with a market value of $93,750. In fiscal year 2001, we issued 625,000 shares,
with a market value of $74,450 and during the most recent fiscal year ended
December 31, 2002, we issued a total of 2,184,949 shares, with a market value of
$137,743.
Members of the advisory board serve at will, but have not received any separate
compensation for their services on the advisory board and there is no current
plan to compensate advisory board members. The advisory board advises us on
technical, financial, and business matters and may in the future be compensated
for these services. A biographical description of the members of the advisory
board is as follows:
ADM. ROBERT P. COOGAN, USN (RET.) --- Robert P. Coogan retired from a
distinguished naval career spanning 40 years during which he held numerous posts
including: Commander U.S. Third Fleet, Commander Naval Air Force - U.S. Pacific
Fleet, Commandant of Midshipmen - U.S. Naval Academy, and Chief of Staff -
Commander Naval Air Force - U.S. Atlantic Fleet. From 1980 to 1991, he was with
Aerojet General Company and served as Executive Vice President of Aerojet
Electrosystems Co. from 1982-1991. He has his B.S. in Engineering from the U.S.
Naval Academy and M.A. in International Affairs from George Washington
University.
ROBERT F. CUSHMAN, ESQ. Mr. Cushman is a partner in the Philadelphia office of
Pepper Hamilton LLP, and is also the permanent chairman of the Andrews
Conference Group Construction Super Conference, and is the organizing chairman
of the Forbes Magazine Conferences on Worldwide Infrastructure Partnerships,
Rebuilding America's Infrastructure Conference, Alternative Dispute Resolution,
the Forbes/ Council of the Americas Latin American Marketing Conference and the
Forbes Environmental Super Conference.
CAMPBELL LAIRD Mr. Laird received his Ph.D. degree in 1963 from the University
of Cambridge. His Ph.D. thesis title was "Studies of High Strain Fatigue." He is
presently professor and graduate group chairman in the Department of Materials,
Science & Engineering at the University of Pennsylvania. Dr. Laird's research
has focused on the strength, structure, and fatigue of materials, in which areas
he published in excess of 250 papers. He is a co-inventor of the EFS.
T. Y. LIN Mr. Lin graduated from Tangshan College, Jiaotong University, and
received a M.S. degree in Civil Engineering from the University of California at
Berkeley. Since 1934, he has taught and practiced civil engineering in China and
the United States and planned and designed highways, railways, and over 1,000
bridges and buildings in Asia and the Americas. He is known as Mr. Prestressed
Concrete in the United States, having pioneered both the technology and industry
in the 1950s. Mr. Lin has authored and co-authored three textbooks in structural
engineering and more than 100 technical papers. Mr. was the founder of T.Y. Lin
International that provides design and analysis for all types of concrete and
steel structures and pioneered the design of long-span structures, prestressing
technology, and new design and construction methods over the past 40 years.
Y. C. YANG Mr. Yang is a pioneer in "value engineering" which optimized many
projects with economic te-designs. He is a recipient of the 1988 Jiaotong
University Outstanding Alumnus Award, a citation from Engineering News Record,
and the ACI Mason Award. With their partnership dating back to wartime China in
the early 1940s, Mr. Lin and Mr. Yang established their international stature in
24
the United States over the five decades that followed. In 1992, they formed the
San Francisco, CA headquartered firm, Lin Tung-Yen China, Inc., to continue
their tradition of excellence and innovation in structural and civil engineering
and to serve as a bridge between East and West. The firm serves its clients
through various tasks, ranging from planning and designs to construction
management and the introduction of financing.
SAMUEL I. SCHWARTZ Mr. Schwartz is presently president of Sam Schwartz Co.,
consulting engineers, primarily in the bridge industry. Mr. Schwartz received
his B. S. degree in Physics from Brooklyn College in 1969, and his Masters
degree in Civil Engineering from the University of Pennsylvania in 1970. From
February 1986 to March 1990, he was the chief -- engineer/first deputy
commissioner, New York City Department of Transportation and from April, 1990,
to the present, acted as a director of the Infrastructure Institute at the
Cooper Union College, New York City, New York. From April, 1990 to 1994, Mr.
Schwartz was a senior vice-president of Hayden Wegman Consulting Engineers, and
is a columnist for the New York Daily News.
NICK SIMIONESCU. Mr. Simionescu joined HNTB in 1974, one of the largest
consulting engineering companies in the world, and is currently vice-president,
director of business development in the New York City Office. He has over 37
years of management, construction, design, inspection and detailing experience.
Mr. Simionescu is very familiar with the New York City infrastructure. For
nearly 28 years he has been working in New York City, primarily on projects with
the New York City Department of Transportation and New York State Department of
Transportation Regions 10 and 11. His projects have included management of the
inspections of the Williamsburg, Brooklyn, Triborough, Manhattan, and Queensboro
bridges. Additionally, he has been the project manager of bridge inspection for
many other arterial and local bridges throughout New York. Mr. Simionescu's
responsibilities with HNTB have involved a variety of national and international
projects. He has been the senior structural designer and manager of bridges in
South Carolina, Rhode Island, Malaysia and Florida.
LIEUTENANT GENERAL JOE N. BALLARD. General Ballard is retired from the United
States Army and has served as president and chief executive officer of The
Ravens Group, Inc., a business development, consulting, and executive level
leadership service company, since March 2001. He received his MS in Engineering
Management from the University of Missouri, BS in Electrical Engineering from
Southern University, and he is a registered professional engineer. He served as
Commanding General, US Army Corps of Engineers from 1996 until 2000, Chief of
Staff, US Army Training and Doctrine Command, from 1995 until 1996, Commander of
the US Army Engineer Center in Missouri from 1993 until 1995, Director of the
Total Army Basing Study at the Pentagon from 1991 until 1993, and he was
Commander of the 18th Engineering Brigade in Germany from 1988 until 1990.
General Ballard has received many honors including the Deans of Historical Black
Colleges and Minority Institutions Black Engineer of the Year in 1998, Honorary
Doctorate of Engineering from the University of Missouri in 1999, Honorary
Doctorate of Law L.L.D. from Lincoln University in 1998, Honorary Doctorate of
Engineering from Southern University in 1999, and Fellow of the Society of
American Military Engineers in 1999.
HENRYKA HANES. Ms Hanes is the founder and president of H. MANES & ASSOCIATES,
the first consulting firm to specialize in enabling environmental technology
Companies reach their next level of growth through exporting. Established in
1999, HMA is a boutique-consulting firm that works closely with clients through
the entire process of exporting from assessing their technologies in
relationship to the international markets; to developing a suitable export
strategy; identifying viable potential partners; assisting in raising capital;
interfacing in partnership negotiations; introducing clients to political
decision-makers and business peers; and providing guidance until complete
implementation of the export plan.
DIRECTORS' COMPENSATION
Our president and chief executive officer, Robert Bernstein, received shares of
our common stock in conjunction with certain activities associated with his
services as chief executive officer and our operations. Mr. Bernstein did not
receive such compensation for his activities as a director, rather as employee
compensation. Our non-employee directors may receive reimbursement for their
out-of-pocket expenses for attendance at each meeting of the board of directors
or any committee of the board of directors. We anticipate that our directors
will meet at least once each year. No directors' fees or compensation is paid to
our non-employee directors.
25
BOARD COMPOSITION
Our board of directors consists of at least three members who each serve as
directors for one-year terms. Terms for each of our directors expire at the
annual meeting next ensuing. There are no family relationships among any of our
directors, officers or key employees. Each director holds office until their
successor is duly elected and qualified. Vacancies in the office of any director
may be filled by a majority vote of the directors then in office.
Our president and chief executive officer is appointed by our board of
directors, and all of our other executive officers are appointed by the
president and chief executive officer.
Our board of directors reviews and approves transactions that are beneficial to
other members of our board of directors by a majority vote, with the director
benefiting from the transaction abstaining from consideration of the
transaction. In the case of transactions beneficial to our chief executive
officer and director, Robert M. Bernstein, they have been approved by majority
vote of the remaining two directors. Directors' meetings are typically conducted
by telephone and many actions taken by our directors are approved by written
consents approved by our directors. During our last fiscal year that ended
December 31, 2001, our board of directors acted by written consent and by
telephonic board meetings, a total of 60 times.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid to our chief
executive officer, Robert M. Bernstein and two of our other officers, William
Berks and John Goodman, for each of the last three fiscal years. We have no
employment agreements with any executive officer.
EXECUTIVE COMPENSATION
Other
Annual All Other All other
Name and Compen- Restricted LTIP compen-
Principal Salary Bonus sation Stock Options Payout sation
Position Year ($) ($) ($) Awards ($) (SARs (#) ($) ($)
--------------- -------- ------------ ----------- ------- ----------- ---------- ----------- ---------------
Robert M. 1999 $150,000 $-- $-- $-- $-- $-- $ --
Bernstein CEO 2000 $120,000 $-- $-- $753,062(1) -- $-- $ --
2001 $120,000 $-- $-- $750,000(2) -- $-- $1,395,000(3)
--------------- -------- ------------ ----------- ------- ----------- ---------- ----------- ---------------
John W. Goodman 1999 $23,384 $-- $-- $ 89,760(4) -- $-- $ --
Director and 2000 $26,614 $-- -- $ -- -- $-- $ --
Engineer 2001 $23,076 $-- -- $132,000(5) -- $-- $ --
William Berks 1999 $23,384 $-- $-- $ 57,050(6) -- $-- $ --
Director and 2000 $26,614 $-- -- $ -- -- $-- $ --
Engineer 2001 $23,076 $-- -- $134,200(7) -- $-- $ --
====================================================================================================================
(1) In 2000, the Corporation issued to Mr. Bernstein, as escrow holder,
4,183,675 shares of its common stock, in part, for accrued compensation and
subject to restrictions. For purposes of this table, we have included the market
value of these shares in Mr. Bernstein's 2000 compensation, which equals
$753,062.
(2) In 2001, we issued Mr. Bernstein 6,000,000 shares for past compensation. We
valued these shares at $420,000. The fair market value of these shares when
issued to Mr. Bernstein was $750,000.
(3) In 2001, we reduced the obligation due to us from Mr. Bernstein on his
non-recourse promissory note given to us for the issuance of 4,650,000 shares
of restricted common stock, from $1,855,350 to $460,350.
(4) In 1999, we issued Mr. Goodman 142,000 shares of restricted common stock.
These shares were valued at $11,700. The fair market value of these shares when
issued to Mr. Goodman was $89,760.
(5) In 2001, we issued Mr. Goodman 800,000 shares of restricted common stock.
These shares were valued at $50,500. The fair market value of these shares when
issued to Mr. Goodman was $132,000.
(6) In 1999, we issued Mr. Berks 100,000 shares of restricted stock. The
fair market value of these shares when issued was $57,050.
(7) In 2001, we issued Mr. Berks 900,000 shares of restricted stock. The
fair market value of these shares when issued was $134,200.
26
The aggregate compensation paid or delivered to all persons who served in the
capacity of a director or executive officer during the most recent fiscal year
ended December 31, 2001, was $1,865,500 (2 persons), respectively. As a part the
aggregate compensation paid as shown in the table, during fiscal year 2001, we
issued to Mr. Bernstein as past compensation that accrued from 1991 to 1995,
6,000,000 shares of our common stock valued at the bid price ($.08) of our
common stock at the date of issuance.
STOCK ISSUANCE AND OPTION PLANS
In 1996, we adopted the 1996 stock option plan and reserved 1,700,000 shares of
common stock for distribution under the plan. Eligible plan participants include
employees, advisors, consultants, and officers who provide services to us. A
committee appointed by our board of directors determines the option price and
the number of shares subject to each option granted. In the case of incentive
stock options granted to an optionee who owns more than 10% of our outstanding
stock, the option price is at least 110% of the fair market value of a share of
common stock at date of grant. In 2000, we increased the number of reserved
shares that could issue under the plan to 6,800,000.
In 1998, we granted options to acquire 900,000 shares of which 500,000 shares
were exercised for $125,000. In addition, under the 1996 plan, we issued an
additional 50,000 shares for consulting services, valued at $5,000.
In 1999, we granted options to acquire 775,000 shares of common stock through
the 1996 plan. We did not issue any shares in 1999 under the 1996 plan.
In 1998, we adopted the 1998 stock plan and reserved 800,000 shares of Common
Stock for distribution under the plan. The 1998 plan was adopted to provide a
means by which we could compensate key employees, advisors, and consultants by
issuing them stock in exchange for services and thereby conserve our cash
resources. A committee of the board of directors determines the value of the
services rendered and the related number of shares to be issued through the plan
for these services. In 2000, we increased the number of reserved shares to
6,800,000. In 1998, we issued 310,000 shares of common stock through the 1998
plan in exchange for consulting services. We valued these shares at $31,000, the
fair value of the services rendered.
On February 1, 2002, we approved the adoption of our 2002 Stock Issuance/Stock
Option Plan, which is intended to assist us in attracting, retaining and
motivating our officers, directors and employees, which includes non-employed
consultants. This plan is administered by our board of directors and permits the
directors to issue up to 20,000,000 shares of our common stock and options to
purchase shares of common stock, as granted within the discretion of the board
of directors, as a means of compensating and providing incentives to the
recipients of the grants. As of the date of this prospectus, we have issued
shares under the plan to several of our officers, directors and consultants.
Options that can issue under this plan allow recipients of the options to
purchase our common stock at 100% of the fair market value of our common stock
at either the date of grant of the option or such other date as the board of
directors may determine. Options issued under the 2002 plan have a term of five
years. On October 15, 2002, we granted a non-statutory stock option agreement to
two of our consultants, Peter Jegou and Richard Margulies. Both option
agreements were issued under the 2002 Stock Issuance/stock Option Plan. In the
case of the option granted to Peter Jegou, the optionee has the right to acquire
1,200,000 shares of our common stock at an exercise price of $.03 per share;
$1,200,000 shares at an exercise price of $.04 per share; 1,200,000 shares at an
exercise price of $.06 per share; 1,200,000 at an exercise price of $.08 per
share; and 1,200,000 shares at an exercise price of $.10 per share. The options
granted to Mr. Jegou expire on October 15, 2003 unless exercised prior to that
date
On October 15, 2002, we granted a non-statutory stock option agreement to the
second consultant, Richard Margulies. In the case of the option granted to
Richard Margulies, the optionee has the right to acquire 1,300,000 shares of our
common stock at an exercise price of $.03 per share; $1,300,000 shares at an
exercise price of $.04 per share; 1,300,000 shares at an exercise price of $.06
per share; 1,300,000 at an exercise price of $.08 per shake; and 1,300,000
shares at an exercise price of $.10 per share. The options grant to Mr.
Margulies expire on October 15, 2003 unless exercised prior to that date.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our certificate of incorporation provides that our directors will not be
personally liable for monetary damages for breach of their fiduciary duties as
directors, except liability for:
- any breach of their duty of loyalty to us or our stockholders;
- acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided by Section 174 of the Delaware General Corporation Law; or
27
- any transaction from which the director derives an improper personal benefit.
Such limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission. Our certificate of
incorporation and bylaws provide that we shall indemnify our directors and
executive officers and may indemnify our other officers and employees and other
agents to the fullest extent permitted by Delaware law. Our bylaws also permit
us to secure insurance on behalf of any officer, director, employee or other
agent for any liability arising out of his or her actions in such capacity,
regardless of whether the bylaws would permit indemnification.
At present, we are not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent in which
indemnification would be required or permitted. We are not aware of any
threatened litigation or proceeding that might result in a claim for such
indemnification.
CERTAIN TRANSACTIONS
From time to time, Robert M. Bernstein, our president and chief executive
officer, has agreed to advance us funds. Our board of directors has approved
paying Mr. Bernstein interest at the rate of 10% per year on his advances. Mr.
Bernstein is under no obligation to make further advances to us but may continue
to so do at his sole discretion. In addition, during past fiscal years, we
accrued some of the unpaid compensation we agreed to pay Mr. Bernstein. In
1991, 1992, 1994 and 1995 we paid no salary to Mr. Bernstein. In 1993 and 1997,
we paid Mr. Bernstein $30,000 and $90,417, respectively in salary. For 1996, we
issued Mr. Bernstein 1,499,454 shares of our common stock as partial
compensation for that year.
As of December 31, 2002, the balance due to Mr. Bernstein on his advances to us
and accrued but unpaid compensation for the most recent fiscal year was $36,115.
Under these arrangements, we accrued approximately $400,000 of accrued
compensation for previous fiscal years that was not paid to Mr. Bernstein
through his receipt of shares of our common stock for those past years. This
accrued compensation due to Mr. Bernstein was, until recently, secured by our
pledge to Mr. Bernstein of a security interest in our technologies and products.
On December 18, 2002, we agreed to issue to Mr. Bernstein, 13,000,000 restricted
shares of our common stock as full payment for his accrued and unpaid
compensation through the fiscal year ended December 31, 2001.These shares were
valued at a per share price above the actual market price, at the market price,
which in the aggregate totaled $400,000. The aggregate market value of these
shares was $312,000. Mr. Bernstein no longer holds any security interest or lien
against our patents or other assets.
In August 1997, our board of directors approved a resolution recognizing our
extreme dependence on the experience, contacts, and efforts of Mr. Bernstein and
authorized to pay Mr. Bernstein a salary of $150,000 a year since 1991. On
February 19, 2001, we issued to Mr. Bernstein 6,000,000 shares of restricted
common stock for a portion of the accrued salary in past years we agreed to pay
him. We valued these shares at $420,000 although the market value of the shares
was approximately $600,000. We agreed to value these shares at a discount to
account for the discounted value normally associated with the issuance of shares
that cannot be transferred or traded into the public market
On May 25, 2000, we issued to Mr. Bernstein, 4,650,000 shares of restricted
common stock in exchange for $4,650 and a $1,855,350 non-recourse promissory
note bearing interest at an annual rate of 8%. On the same day, we issued
350,000 shares our restricted common stock to another of our directors, Joel
Freedman, in exchange for $350 and a $139,650 non-recourse promissory note
bearing interest at an annual rate of 8%. Both notes mature on May 25, 2005,
when the principal and accrued interest becomes fully due and payable. At the
date of issuance, these shares were valued at $.40 per share, for a total share
value of $2,000,000.
In June 2002, our board of directors authorized the reduction in the amount owed
to us by Messrs. Bernstein and Freedman on their respective non-recourse
promissory notes, down to $460,350 and $34,650, respectively. This reduction was
due to the fact that the market value of our common stock that we had delivered
to Messrs. Bernstein and Freedman as a partial reduction in the amounts we owed
them had declined substantially in the public market. In addition, approximately
1,500,000 of the shares of common stock delivered to Mr. Bernstein as partial
compensation for accrued salary was subject to an option that Mr. Bernstein
granted to a group of investors in July 1998, in connection with the settlement
of a lawsuit between these investors, us and Mr. Bernstein.
On October 27, 2000, we issued 4,183,675 shares to Mr. Bernstein for partial
past but unpaid compensation pursuant to a stock escrow/grant agreement. We
28
created the stock escrow arrangement to satisfy a potential source of debt
capital we were negotiating with at the time, Allied Boston International.
Allied Boston required us to maintain a certain number of fully diluted shares
of our common stock even if we were required to issue more shares if holders of
our options and warrants chose to exercise their options or warrants. The shares
issued to Mr. Bernstein under the stock escrow agreement were to be released
back to us for use in issuing shares of common stock to the holders of the
options and warrants if exercised. Under the terms of the agreement, Mr.
Bernstein is required to hold these shares in escrow. While in escrow, Mr.
Bernstein cannot vote the shares but has full rights to cash and non-cash
dividends, stock splits or other reclassification of the shares. Any additional
shares issued to Mr. Bernstein in the form of non-cash dividends, stock splits
or other reclassification of his ownership of the 4,183,675 shares are
issuable to Mr. Bernstein free of the escrow arrangement.
Under the terms of this stock escrow/grant agreement, Mr. Bernstein has agreed
to release to us shares he holds in escrow in the event that we are called upon
to issue shares of our common stock to holders of options, purchase warrants or
other similar rights to receive our shares of common stock to the persons listed
on a schedule attached to the agreement. The schedule lists the following
optionees, warrant holders and others having rights to receive our common stock:
Miles Wilson Robert Cushman
Harold Rapp University of Pennsylvania
As of the date of this prospectus the initial number of shares granted to Mr.
Bernstein has been reduced down to 2,461,675 shares due to the fact that
1,722,000 of the escrowed shares were released to us for issuance to the above
holders of options or warrants.
The shares held in escrow by Mr. Bernstein are non-transferable and will be
owned beneficially by Mr. Bernstein only after the options and warrants
outstanding either are fully exercised or expire without being exercised, or
upon the direction of the board of directors, in its sole discretion, or the
mutual agreement by Mr. Bernstein and the board of directors to terminate the
agreement. At the date we established these 4,183,675 shares into escrow, we
valued these shares at par value. Upon the unconditional release of the
remaining shares to Mr. Bernstein from the escrow, the shares issued will be
valued at market value and charged to operations as compensation.
During our fiscal year that ended December 31, 2001, we issued shares of our
common stock to a number of other officers, directors and an advisory board
member, in exchange for services they rendered to us. During the 2001 fiscal
year, we issued a total of 900,000 shares of our restricted common stock to
William Berks, our vice-president of government contracts and a director, for
engineering and other services rendered to us. The aggregate market value of
those 900,000 shares was $134,200. During the fiscal year ended December 31,
2002, we issued to Mr. Berks for his services, a total of 1,000,000 shares of
restricted common stock with a market value of $42,000.
In fiscal year 2001, we issued 100,000 shares of our restricted common stock to
Dr. Campbell Laird, an advisory board member, for services rendered. The market
value for those shares when issued was $19,000. During the fiscal year ended
December 31, 2002, we issued to Dr. Laird for his services, 234,949 shares of
restricted common stock with a market value of $35,242.
In fiscal year 2001, we issued 800,000 shares of our restricted common stock to
John Goodman, a director and part-time employee, for engineering and other
services rendered. In the aggregate, the market value of those shares was
$132,000. During the fiscal year ended December 31, 2002, we issued to Mr.
Goodman for his services, 1,000,000 shares of restricted common stock with a
market value of $30,000.
In the aggregate, the market value of the restricted shares of common stock we
have issued to our officers and directors during the previous two fiscal years
was $1,635,062. We valued these shares at $479,683 to account for the discounted
value normally associated with the issuance of shares that can not be
transferred or traded into the public market, and expensed those shares to
general and administrative expenses.
OUR PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial ownership of
our common stock as of January ___, 2003, and the following table provides the
beneficial ownership for:
29
o each person known by us to be the beneficial owner of more than 5% of the
outstanding shares of our common stock;
o each of our directors and executive officers;
o our executive officers and directors as a group; and
o the selling shareholder.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated, we believe each person
possesses sole voting and investment power with respect to all of the shares of
common stock owned by such person, subject to community property laws where
applicable.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options
or warrants held by that person that are currently exercisable or exercisable
within 60 days are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of any other
person.
The number of shares beneficially owned by a person and the percentage ownership
of that person includes shares of our common stock issuable upon exercise of
warrants held by that person, but not those held by any other persons, that are
currently exercisable or exercisable within 60 days from the date of this
prospectus. Shares of our common stock registered for resale under this
prospectus will constitute approximately .056% of our issued and outstanding
common stock.
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT OF CLASS(3)
CLASS OF STOCK BENEFICIAL OWNER OWNERSHIP
----------------------------------- --------------------- -------------- ----------------
Robert M. Bernstein
Suite 707
11661 San Vicente Blvd.
Common Stock Loa Angeles, CA 90049 24,419,291(1) 25%
----------------------------------- --------------------- -------------- ----------------
Joel R. Freedman
1 Bala Plaza
Bala Cynwyd, PA 19004 618,616 *
----------------------------------- --------------------- -------------- ----------------
John Goodman
Suite 707
11661 San Vicente Blvd.
Los Angeles, CA 90049 2,000,000 2.1%
----------------------------------- --------------------- -------------- ----------------
William Berks
532 14th Street
Manhattan Beach, CA
90266 2,000,000 2.1%
----------------------------------- --------------------- -------------- ----------------
30
Directors and executive officers
as a group (4 persons) 29,037,907 29.1%
----------------------------------- --------------------- --------------- ---------------
Class B
Common Stock Robert M. Bernstein 300,000(2) 100.0%
Suite 707
11661 San Vicente Blvd.
Los Angeles, CA 90049
----------------------------------- --------------------- --------------- ---------------
* Less than 1%
(1) Mr. Bernstein holds beneficial ownership of 24,419,291 shares. He also holds
an additional 2,461,675 shares of our common stock that are held by him subject
to an escrow agreement that includes rights in favor of certain optionees. The
shares held in escrow are not considered to be subject to Mr. Bernstein's
beneficial ownership for purposes of Section 16(a) of the Securities Exchange
Act of 1934.
(2) Each of Mr. Bernstein's Class B Common Shares has 1,000 votes on any matter
on which the common stockholders vote. Accordingly, these shares give Mr.
Bernstein 300,000,000 votes. Those votes give Mr. Bernstein voting control of
our outstanding voting securities.
(3) Based on a total of 97,719,335 shares of common stock outstanding at
December 31, 2002. Does not include 100,000,000 shares of common stock held in
escrow for Allied Boston International, Inc.
SELLING SHAREHOLDERS
An aggregate of 18,247,626 shares of our issued and outstanding common stock are
being registered for resale in this offering for the account of the selling
shareholders. Subject to certain restrictions discussed below, the shares of
common stock being registered for the account of the selling shareholders may be
sold by the selling shareholders, or their transferees, commencing on the third
business day after this registration statement is declared effective by the
United States Securities and Exchange Commission. Sales of shares of our common
stock by the selling shareholders, or their transferees, may depress the price
of the common stock in any market that may develop for the common stock. We will
receive no sales proceeds from the resale of any of the shares of common stock
registered for resale under this prospectus.
The following table sets forth certain information with respect to persons for
whom we are registering such shares of common stock for resale to the public.
None of the selling shareholders has had any position, office or material
relationship with us prior to the date of this prospectus and none of the
selling shareholders are deemed to be our affiliates or control persons. None of
the selling shareholders has any plan, arrangement, understanding, agreement,
commitment or intention with us to sell their securities.
NUMBER OF NUMBER OF
SHARES BEFORE SHARES OFFERED
NAME OF SHAREHOLDERS ADDRESS OF SHAREHOLDERS OFFERING(1) FOR SALE
--------------------------------- ----------------------------------------------------------- ---------------- ---------------
AA Capital Ventures, Barry E.
Mitchell, President 32107 Lindero Cyn Rd #124 Westlake Village, CA 91361 1,387,498 1,387,498
Akins, Genice 5041 Mrs. White Lane Mebane, NC 27302 15,873 15,873
Ambrus, Aron 25 North Gate Rd Walnut Creek, CA 94598 50,000 50,000
31
Ambrus, Tibor 25 North Gate Rd Walnut Creek, CA 94598 450,000 450,000
Auld, James 29 Orlando St. Coffs Harbour NSW 2450 33,000 33,000
Bailey, Ben 5 Main Road Cardif Hts NSW 2285 243,879 243,879
Barrett, David 22 Second Ave Arrawarma NSW 2456 200,000 200,000
Biki, Damier 8 Alexander Ave Berringan NSW 2712 35,000 35,000
Bornstein, Michael 2/789 Burwood Rd Hawthorn 3123 148,551 148,551
Braden, Larry Warden 16 Flynn St Mt. Isa QLD 4825 25,000 25,000
Brandenburg, John PO Box 94 Newdegate 6355 500,000 500,000
Braun, Sabina & Lee Duncan Rd PMB2 Meringave VIC 3496 1,940,000 1,940,000
Kim Braun & Paul Braun Duncan Rd PMB2 Meringave VIC 3496 73,000 73,000
Burton, Bruce 5664 Co Real 35 Ada. OH 48840 24,000 24,000
Calhoun, Don L. 32107 Lindero Cyn Rd #124 Westlake Village, CA 91361 25,369 25,369
Campbell, David 1/21 Danks St Waterloo NSW 2017 70,000 70,000
Campbell, Jeff 23 Mermaid Quay, Noosaville, QLD. 4566, Aust 300,000 300,000
The Doug Caswell Realty Pty. Ltd.
Superannuation Fund, Doug
Caswell, President 119 Herries St., Toowoomba, QLD, 4350, Aust 250,000 250,000
Caswell, Douglas 175 Hume St Todwoomba QLD 4350 470,000 470,000
Caswell, Doris Maud 119 Herries St., Toowoomba, QLD, 4350, Aust 375,000 375,000
Cedar House Alpaca P/L, Wendy
Billington, President 8 Filfield Lane Yass NSW 0582 625,500 625,500
Cell Synergy Inc., Adam Gilbert,
President 1801 N. Green Valley Pkwy Henderson, NV 89074 30,000 30,000
Hun Teong Chew PO Box 41317 Casuraria NT 0811 50,000 50,000
Clapp, Willard 6230 Tallant Road McDonald, TN 73753 164,300 164,300
Coble, Bernard 5557 Sweps Sax Rd Graham, NC 27253 19,841 19,841
Coble, Bernard D. & Laura 5557 Sweps Sax Rd Graham, NC 27253 6,920 6,920
Collins, Christopher 16 Robertson Crescent Laverton VIC 3028 90,000 90,000
Cox, David 251 New Kamer Rd Albany, NY 12205 355,000 355,000
DeCarlo, Charles 1st Fl. 136 Longueville Rd Lane Cove NSW 2086 300,000 300,000
DelaRosario Leon, Maria 11947 Arminta St North Hollywood CA 91608 190,357 190,357
Doug Caswell Reality Pty Ltd 175 Hume St Todwoomba QLD 4350 150,000 150,000
Drugan, Carol 3031 Milboro Road Silver Lake, OH 44224 20,000 20,000
Dyer, Eric 2/50 Madden St. Kaniva VIC 3419 50,000 50,000
Faggion, Joseph 38 Malay Rd Wagman NT 0810 10,000 10,000
Fitzpatrick Brothers Pastoral Co.,
Peter Fitzpatick, President Lochgary Edith Via Oberon NSW 2787 250,000 250,000
Fitzpatrick, Peter Lochgary Edith, Via Oberon, NSW, 2787, Aust 500,000 500,000
Four Square Vending P/L McCaig
Supernational Fund, George
McGain, Trustee 213 Pollock Ave Wyong North NSW 2259 126,247 126,247
Gilbert, Clayton 2/5 Henry St Tarramatta NSW 2150 92,800 92,800
Goodare, George 8/331 High St Chatswood NSW 2076 32,500 32,500
Green, John 93 Smailes Rd North Maclean QLD 4280 18,000 18,000
Greene, Alex III 32107 Lindero Cyn Rd #124 Westlake Village, CA 91361 6,240 6,240
32
Gregan, Colin 18 Aitken Ave Queenscliff 2096 60,000 60,000
Guilfoyle, Philip 10 Katoomba Cresent Toowoomba QLD 4350 120,000 120,000
Guille, Max 14 Old Cliham Rd Lower Plenty VIC 3093 200,000 200,000
Gundstrom, Bob 28857 Oak Path Dr Agoura Hills, CA 91301 150,000 150,000
Gusmeroli, David 137 Charters Rowers Rd Hermit Park QLD 4812 480,000 480,000
Guthrie, Bob 5A Karloo PDE, Newport, NSW, 2106, AUST 200,000 200,000
Hannan, Charles 7808 Kentley Road Balto, MD 21222 268,000 268,000
Harris, Glen 34 High Range Dr. Condon QLD 4815 360,000 360,000
Heuston, Warren 26 Bray Street St. Coffs Harbor NSW 2450 32,000 32,000
High Family Trust, Tony High,
Trustee 4722 White Oak Ave Encino, CA 91316 150,400 150,400
Holt, Coslow 3763 S. Jim Minor Rd Haw River, NC 27258 15,873 15,873
Howe, Graham 19 Templar St. Forbes NSW 2871 36,000 36,000
Increase Inc. 143 Carr St Grafton NSW 2460 50,000 50,000
Ingram, Jack Jr. 2700 Beechwood, Midland, TX., 79765 50,000 50,000
J.R.S. Consulting, Inc., John
Sarabia, President 1930 Wilshire Blvd #210D Los Angeles, CA 90057 242,275 242,275
Jenkins, Frank 1812 Cadwell Ave Clev. Hts., OH 44111 550,000 550,000
Jones, Gary 2022 Cedar Lake Rd. Sanford, NC 27330 19,705 19,705
Shafik Keashani & Karim Keshani 2389 Dawes Hill Rd Coquiltam BC V3K6T2 30,000 30,000
Keshani, Bahaderalli 2389 Dawes Hill Rd Coquiltam BC V3K6T2 75,000 75,000
Kline, Leonard 1200 Los Angles Ave #206 Simi Valley, CA 93065 75,000 75,000
Kyriakos, Arthur 395 Belmore Rd Bawyn VIC 3103 40,000 40,000
Law, John 11 Buyuma Place Avalon NSW 2107 25,000 25,000
Leon, Gerardo 11947 Arminta St North Hollywood CA 91608 47,619 47,619
Letney, Peggy 1200 Los Angles Ave #206 Simi Valley, CA 93065 45,000 45,000
Macfarlane, Euan PO Box 313 Maleny QLD 4552 365,000 365,000
Madden, Dave 3 Yatama Place, Tewantin, QLD, 4565, Aust 100,000 100,000
Marlowe, John 10551 E. Orchard Pl Englewood, CO 80111 100,000 100,000
Marshall, James 4 St. Michaels Road #A Mitcham 5062 13,000 13,000
Martinazzo, Giovanni 437 Victoria Rd Malaqua, WA 6090 450,000 450,000
Martinazzo, Laura 437 Victoria Rd Malaqua, WA 6090 50,000 50,000
McCaig, Tim PO Box 8040 Coffs Harbour NSW 64,935 64,935
McLean, Graeme 70 Edward St., Riverstone, NSW, 2765, Aust 125,000 125,000
McCullough, Tony 25 Dickson Ave Aramon NSW 2064 1,300,000 1,300,000
McDonald, Gary Level 3, 499 st Kilda rd, Melbourne VIC 3004 147,500 147,500
McLean, Graeme 70 Edward St., Riverstone, NSW, 2765, Aust 145,000 145,000
Megli, Dale Kelso Imoree NSW 2400 200,000 200,000
Mitchell, Barry E. 32107 Lindero Cyn Rd #124 Westlake Village, CA 91361 597,998 597,998
Moffatt, Steven 30 Clematis Crt Marcoola QLD 4552 202,000 202,000
Moore, Tyrone 32107 Lindero Cyn Rd #124 Westlake Village, CA 91361 112,719 112,719
Moser, Wesley 2604 Sumac Lane Burlington, NC 27215 27,937 27,937
Mountain Investment Family
Limited Partnership, Don Foster,
Managing Partner 101 S. Main St Clinton, TN 37716 112,069 112,069
33
McNabb, Dave PO Box 2489 Martinez, CA 94553 165,000 165,000
Outhred, Richard 3 Ashton Ave Forbstvulle NSW 2285 10,300 10,300
Pay Source, Inc., Charles Newton,
President 251 New Kamer Rd Albany, NY 12205 100,000 100,000
Peatt, Bill 43 Churchill Ave Ararat VIC 3377 588,000 588,000
Pelayo, Eva 16707 S. Garfield Ave #1110 Paramount, CA 90723 16,000 16,000
Pelayo, Luz 5833 E. Imperial Hwy #B South Gate, CA 90280 147,783 147,783
Preferential Publications, (John
Moran) 35 Trout St., Ashgrove, QLD, 4060, Aust 200,000 200,000
Reynolds Technologies, Inc.,
Steven A. Reynolds, President 5520 Owensmouth Ave #110 Woodland Hills, CA 91367 167,600 167,600
Reynolds, Steven A. 5520 Owensmouth Ave #110 Woodland Hills, CA 91367 5,000 5,000
Robinson, Brian 2 Alfred Close Narre Warren N. VIC 3804 75,000 75,000
Robinson, Jill 1 Eualong Rd., Cremorne, NSW, 2090, Aust 20,000 20,000
Rynne, Geoffrey PO Box 67 Bungalow Caires 4870 400,000 400,000
Sarabia, John 3355 Wilshire Blvd #308 Los Angeles, CA 90010 41,718 41,718
Sarabia, Maria 3355 Wilshire Blvd #308 Los Angeles, CA 90010 158,414 158,414
Saxton, Richard 21 Glen Ferris Dr QLD 4226 300,000 300,000
Schultz, Trevor 8 Calluna Place, Mountain Creek, QLD, 4557, Aust 200,000 200,000
Schweble, Leslie 902 Old Northern Rd Gelenorie NSW 2157 24,000 24,000
Sew-Hoy, Wallace 35 Argyl St East Malbern VIC 3148 110,000 110,000
Simpson, Bruce Killara, Arramagone Rd., Greenfell, NSW, 2810, Aust 250,000 250,000
Taylor, Brian 18 Fitzwilliam St. Carrara QLD 4211 71,500 71,500
Taylor, Deborah 18 Fitzwilliam St. Carrara QLD 4211 320,000 320,000
Thomsen Family 6 Main St Palmwood QLD 4555 170,000 170,000
Timms, Murry 17 Thonna Close Karana Downes Brisbane 4306 54,100 54,100
Tziavaras, Louis 23 Second Ave Murrumbeena VIC 3163 100,000 100,000
Whittingham, Anne 1/7 Crystal Waterd Dr. Tweed Heads NSW 2485 16,300 16,300
Wickham, Charlotte 24 Dammerel Cris Emerald Beach NSW 2456 60,615 60,615
Willman, James 4431 Gordon Ave St. Louis, MO 63134 253,000 253,000
Yeatts, Jerry & Gaynelle
Williamson 3508-C-54 Hwy E. Graham, NC 27253 3,968 3,968
Total Shares Registered 18,247,626 18,247,626
============== ===============
(1) No selling shareholder beneficially owns 1% or more of our outstanding
shares of common stock. None of the selling shareholders is an officer,
director, advisory board member or a consultant.
PLAN OF DISTRIBUTION
FOR SELLING SHAREHOLDERS
We will not receive any proceeds from the resale of the common stock offered for
resale by the selling shareholders. The selling shareholders will be offering
for resale up to 18,247,626 shares. The selling shareholders have, prior to any
sales, agreed not to effect any offers or sales of our securities in any manner
other than as specified in this prospectus and have agreed not to purchase or
induce others to purchase any of our securities in violation of any applicable
state and federal securities laws, rules, and regulations and the rules and
regulations governing the Over-the-Counter Electronic Bulletin Board maintained
by the NASD.
34
We have agreed with the selling shareholders that we will prepare and file this
registration statement and such amendments and supplements to the registration
statement and the prospectus as may be necessary in accordance with the
Securities Act of 1933 and the rules and regulations promulgated there under to
keep it effective until the date as of which the selling shareholders have sold
all of the 18,247,626 shares offered by this prospectus. The selling
shareholders are bearing no expenses associated with our registration of the
shares offered by this prospectus.
The selling shareholders are subject to the applicable provisions of the
Exchange Act of 1934, including without limitations, Rule 10b-5 there under.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of our securities may not simultaneously engage in
market making activities with respect to such securities for a period beginning
when such person becomes a distribution participant and ending upon such
person's completion of participation in a distribution, including stabilization
activities in our securities to effect covering transactions, to impose penalty
bids, or to effect passive market making bids. In connection with the
transactions in our common stock, we also will be subject to applicable
provisions of the Exchange Act and the rules and regulations promulgated There
under, including, without limitations, the rule set forth above. These
restrictions may affect the marketability of the shares of our common stock
owned by the selling shareholders.
The shares of common stock have not been registered for resale by the selling
shareholders under the securities laws of any state as of the date of this
prospectus. Brokers or dealers effecting transactions in these securities should
confirm the registration thereof under the securities laws of the states in
which transactions occur or the existence of any exemption from registration.
The selling shareholders and any broker-dealers that participate with the
selling shareholders in the distribution of the common stock may be deemed to be
underwriters and commissions received by them and any profit on the resale of
securities positioned by them might be deemed to be underwriting discounts and
commissions under the Securities Act. There can be no assurance that the selling
shareholders will sell any or all of the shares being registered for resale
under this prospectus.
Commissions and discounts paid in connection with the sale of shares by the
selling shareholders will be determined through negotiations between them and
the broker-dealers through or to which the securities are to be sold and may
vary, depending on the broker-dealers' fee schedule, the size of the transaction
and other factors. The separate costs of the selling shareholders will be borne
by them.
DESCRIPTION OF SECURITIES
We are currently authorized to issue 250,000,000 shares of capital stock, $.001
par value, in classes as follows:
- 200,000,000 shares of stock designated as "common stock", of which 300,000
shares are designated as "Class B Common Stock", $.001 par value per share. We
have designated all common stock that is not class B common stock, as class A
common stock. The holders of common stock shall be entitled to receive such
dividends out of funds or assets legally available there from as, from time to
time, the board of directors may declare. The holders of class B common stock
shall not be entitled to receive dividends. The holders of common stock and the
holders of class B common stock shall vote as a single class on all matters
submitted to a vote of stockholders, with each share of common stock entitled to
one vote and each share of class B common stock entitled to 1,000 votes. In all
other aspects, the common stock and class B common stock shall be identical. As
of the end of our most recent fiscal year, we have approved an increase in the
number of shares of our common stock from 200,000,000 shares to 400,000,000
shares, but the required certificate of amendment to our articles of
incorporation have not yet been accepted for filing by the Delaware Secretary of
State. We expect the acceptance of the certificate of amendment in the current
quarter.
- 50,000,000 shares of stock designated as "Preferred Stock", $.001 par value
per share. The board of directors is granted the authority by resolution to
authorize us to issue one or more series of the preferred stock and to determine
the voting powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights of
each and every series of preferred stock and the qualifications, limitations or
restrictions on such preferences and/or rights. Our preferred stock is commonly
referred to as "blank check" preferred stock.
Class A common stock holders are entitled to receive such dividends out of funds
or assets legally available there from as, from time to time, the board of
35
directors may declare. Upon liquidation, holders of our class A common stock are
entitled to distribution of any remaining assets after payment of all creditors
and payment of the liquidation preferences of any outstanding shares of
preferred stock. Class A common stock holders have no preemptive rights. The
Baker Group, by agreement, has a right to purchase or receive from Mr.
Bernstein, our president and chief executive officer, or any affiliate of Mr.
Bernstein, 35% of all class A common stock that Mr. Bernstein, or any affiliate,
purchases or receives from us at the same price Mr. Bernstein, or such
affiliate, pays for stock he receives.
In electing directors, if one or more stockholders, or their proxy, delivers a
written notice to our secretary prior to a stockholders' meeting, or to the
chairman of the board of directors prior to the vote for directors, all
stockholders may cumulate their votes in electing one or more directors. If and
only if such notice is given, every stock holder entitled to vote for directors
shall have the number of votes determined by multiplying the number of directors
to be elected by the number of shares the stockholder is entitled to vote and
each stockholder may then give one nominated candidate all such votes or
distribute such votes in any proportion among the nominated candidates.
Our certificate of incorporation provides that the designation of powers,
preferences and rights, including voting rights, if any, qualifications,
limitations or restrictions on our preferred stock may be fixed by resolution or
resolutions of the board of directors.
On April 28, 1997, we filed with the Secretary of State of the State of
Delaware, a Certificate of Designation designating 350,000 shares of preferred
stock as class A convertible preferred stock. The class A preferred stock has a
liquidation preference superior to any other class of our common stock. In the
event of liquidation, holders of our class A preferred stock have the right to
receive $.72 for each share held, before any liquidation payment is made or any
assets are distributed to holders of our common stock, or any other stock of any
other series or class ranking junior to these shares. In the event of
liquidation, holders of our class A preferred stock are not entitled to payment
beyond $.72 per share. These provisions may have the effect of delaying,
deferring or preventing a change in control.
Each share of our class A preferred stock is convertible into class A common
stock at the discretion of the holder, at the rate of one share of class A
common stock for each .72 share of class A preferred stock. Accordingly, the
350,000 outstanding shares of class A preferred stock are convertible into
486,111 shares of class A common stock. Under our Certificate of Designation, we
are not permitted to issue stock which is senior to or pari passu with our class
A preferred stock without prior consent of a majority of the outstanding class A
preferred shares. Adjustment of the number of class A preferred shares
outstanding is provided for in the event of any reclassification of outstanding
securities or of the class of securities which are issuable upon conversion of
shares and in the event of any reorganization which results in any
reclassification or change in the number of shares outstanding. Similarly, in
the event of any such change, the conversion price is subject to adjustment to
reflect such change.
If at any time while shares of class A preferred stock outstanding, a stock
dividend on the common stock is declared, the conversion price will be adjusted
to prevent any dilution of the holders of class A preferred stock right of
conversion. If there is a reclassification or change in our common stock to
which the class A preferred stock is convertible other than stock splits or
other decreases or increases in the number of shares outstanding, or we
consolidate or merge with another corporation, or we sell or transfer
substantially all of our assets, then the class A preferred stockholders are
entitled to the same consideration as they would have been entitled to if their
shares had been converted prior to the reclassification, change, consolidation,
merger, sale, or transfer. This provision may have the effect of delaying,
deferring or preventing a change in control. Voting rights and the right to
receive dividends inherent in the class A preferred stock is similar to those
rights of our common stock.
On April 28, 1997, we filed a Certificate of Designation bringing into existence
a second class of preferred stock designated as class B preferred stock. Class B
preferred stock is junior and subordinate to our class A preferred stock. 100
shares of class B preferred stock were authorized from the 550,000 undesignated
shares of preferred stock. Of the 100 shares authorized, 15shares previously
were issued to Tensiodyne in exchange for canceling its 15 class B preferred
shares in Tensiodyne Scientific, Inc. We currently have no relationship with
Tensiodyne, and since the financial viability of Tensiodyne has been in serious
doubt over the last several years, we no longer treat the shares of class B
preferred stock issued and outstanding. We are treating the shares of class B
preferred stock as a part of the 550,000 undesignated shares of preferred stock
available for future designation by our directors.
36
LEGAL MATTERS
The legality of the shares offered hereby will be passed upon for us by Gregory
Bartko, Esq., of the Law Office of Gregory Bartko, P.C., 3475 Lenox Road, Suite
400, Atlanta, Georgia 30326. From time to time, we compensate Mr. Bartko for
certain of his legal services, in the form of shares of our common stock.
However, we have no contingency fee arrangements with Mr. Bartko. At the date of
this prospectus, Mr. Bartko beneficially owns 33,000 shares of our common stock,
of which all are restricted securities. In addition, Mr. Bartko beneficially
owns 100,000 shares of our class A preferred stock, which is convertible into
200,000 shares of our restricted common stock.
EXPERTS
The audited financial statements included in this registration statement, and
the prospectus which forms a part of the registration statement, have been
audited by Jonathan P. Reuben, independent certified public accountant, to the
extent and for the periods set forth in his report thereon and are included in
reliance upon such report given upon the authority of such firm as an expert in
accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION ABOUT US
We have filed with the U.S. Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act with respect to the securities
offered by this prospectus. This prospectus, which forms a part of the
registration statement, does not contain all of the information set forth in the
registration statement and the accompanying exhibits and schedules. For further
information with respect to us and the securities offered by this prospectus,
reference is made to the registration statement and the accompanying exhibits
and schedules. Statements contained in this prospectus as to the contents of any
contract or other document filed as an exhibit to the registration statement are
not necessarily complete and are qualified in their entirety by reference to the
exhibits for a complete statement of their terms and conditions.
The registration statement, including all amendments, exhibits and schedules,
may be inspected without charge at the offices of the Securities and Exchange
Commission at Judiciary Plaza, 450 Fifth Street NW, Washington, D.C. 20549.
Copies of this material may be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street NW, Washington, DC.
20549. The public may obtain information on the operations of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. The U.S Securities
and Exchange Commission also maintains a Web site (http://www.sec.gov) through
which the registration statement and other information can be retrieved.
We are subject to the reporting and other requirements of the Securities
Exchange Act and intend to furnish our stockholders annual reports containing
financial statements audited by our independent accountants and to make
available quarterly reports containing unaudited financial statements for each
of the first three quarters of each fiscal year.
37
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
Contents
--------
Page
-------
Independent Auditors' Report F-1
Balance Sheets F-2
Statements of Operations F-4
Statement of Stockholders' Equity (Deficit) F-6
Statements of Cash Flows F-13
Notes to Financial Statements F-16
Independent Auditors' Report
Board of Directors
Material Technologies, Inc.
Los Angeles, California
We have audited the accompanying balance sheets of Material Technologies, Inc.,
(A Development Stage Company) as of December 31, 2001, and the related
statements of operations, stockholders' equity (deficit), and cash flows, for
the years ended December 31, 2000, and 2001. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. These standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Material Technologies, Inc. as
of December 31, 2001, and the results of its operations, and its cash flows for
the years ended December 31, 2000, and 2001, in conformity with accounting
principles generally accepted in the United States.
s/s Jonathon P. Reuben CPA
Jonathon P. Reuben,
Certified Public Accountant
Torrance, California
February 8, 2002
F-1
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 2001 SEPTEMBER 30, 2002
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 174,469 $ 243,438
Receivable due on research contract 285,677 8,362
Receivable from officer 35,880 -
Prepaid expenses - -
TOTAL CURRENT ASSETS 496,026 251,800
FIXED ASSETS
Property and equipment,
net of accumulated depreciation 2,708 28,816
OTHER ASSETS
Intangible assets,
net of accumulated amortization 15,663 13,395
Refundable deposit 2,348 2,348
TOTAL OTHER ASSETS 18,011 15,743
TOTAL ASSETS $ 516,745 $ 296,359
The accompanying notes are an integral part of the financial statements.
F-2
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 2001 SEPTEMBER 30, 2002
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Legal fees payable $ 282,950 $ 1,758,113
Fees payable to R&D subcontractor 196,043 -
Consulting fees payable 5,525 -
Accounting fees payable 42,417 28,305
Other accounts payable 8,801 9,818
Accrued expenses 43,213 40,269
Accrued officer wages 70,000 36,115
Notes payable - current portion 25,688 25,688
Payable on research and development sponsorship 422,653 479,712
Loans payable - others 57,406 59,353
TOTAL CURRENT LIABILITIES 1,154,696 2,437,373
STOCKHOLDERS' EQUITY (DEFICIT)
Class A Common stock, $.001 par value, authorized
200,000,000 shares; 102,433,378 shares issued,
42,433,378 shares outstanding, and 60,000,000
shares held in reserve at December 31, 2001,
and 178,194,623 shares issued, 76,194,623 shares
outstanding, and 102,000,000 shares held in reserve
at September 30, 2002 42,433 76,195
Class B Common Stock, $.001 par value, authorized
100,000 shares, outstanding 100,000 shares at
December 31, 2001 and September 30, 2002 100 100
Class A Preferred, $.001 par value, authorized 50,000,000
outstanding 337,471 shares at December 31, 2001, and
487,471 shares at September 30, 2002 337 487
Additional paid-in capital 6,995,412 8,364,504
Less notes receivable - common stock (731,549) (764,413)
Deficit accumulated during development stage (6,944,684) (9,817,887)
TOTAL STOCKHOLDERS' (DEFICIT) (637,951) (2,141,014)
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 516,745 $ 296,359
The accompanying notes are an integral part of the financial statements.
F-3
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
-----------------------------------------------------------------------------------------------------------------
For the Year Ended For the Three Months Ended
December 31, September 30,
2000 2001 2001 2002
----------- ----------- ------------- -----------
(Unaudited) (Unaudited)
REVENUES
Sale of fatigue fuses $ -- $ -- $ -- $
Sale of royalty interests -- -- -- --
Research and development revenue 635,868 1,579,823 427,004 --
Test services -- -- -- --
------------ ------------ ------------ -----------
TOTAL REVENUES 635,868 1,579,823 427,004 --
------------ ------------ ------------ -----------
COSTS AND EXPENSES
Research and development 496,501 1,284,928 356,706 123,932
General and administrative 640,481 2,726,011 258,597 2,190,699
------------ ------------ ------------ -----------
TOTAL COSTS AND EXPENSES 1,136,982 4,010,939 615,303 2,314,631
------------ ------------ ------------ -----------
INCOME (LOSS) FROM OPERATIONS (501,114) (2,431,116) (188,299) (2,314,631)
------------ ------------ ------------ -----------
OTHER INCOME (EXPENSE)
Interest income 103,419 102,283 11,487 11,947
Interest expense (60,634) (70,468) (17,617) (21,095)
Loss on abandonment of interest in joint venture -- (33,000) -- --
------------ ------------ ------------ -----------
TOTAL OTHER INCOME 42,785 (1,185) (6,130) (9,148)
------------ ------------ ------------ -----------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS AND PROVISION FOR INCOME TAXES (458,329) (2,432,301) (194,429) (2,323,779)
PROVISION FOR INCOME TAXES (800) (800) -- --
------------ ------------ ------------ -----------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS (459,129) (2,433,101) (194,429) (2,323,779)
EXTRAORDINARY ITEMS
Forgiveness of indebtness -- -- -- --
------------ ------------ ------------ -----------
NET INCOME (LOSS) $ (459,129) $ (2,433,101) (194,429) $(2,323,779)
============ ============ ============ ===========
PER SHARE DATA
Basic income (loss) before extraordinary item $ (0.02) $ (0.07) $ 0.05 $ 0.06
Basic extraordinary items -- -- -- --
------------ ------------ ------------ -----------
BASIC NET INCOME (LOSS) PER SHARE $ (0.02) $ (0.07) $ 0.05 $ 0.06
============ ============ ============ ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 18,900,019 33,640,393 35,127,551 39,032,997
============ ============ ============ ===========
The accompanying notes are an integral part of the financial statements.
F-4
From Inception
For the Nine Months Ended (October 21, 1983)
September 30, Through
2001 2002 September 30, 2002
----------- ------------ ------------------
(Unaudited) (Unaudited) (Unaudited)
REVENUES
Sale of fatigue fuses $ -- $ -- $ 64,505
Sale of royalty interests -- -- 198,750
Research and development revenue 1,038,060 461,323 5,024,812
Test services -- -- 10,870
------------ ----------- -------------------
TOTAL REVENUES 1,038,060 461,323 5,298,937
------------ ----------- -------------------
COSTS AND EXPENSES
Research and development 828,326 508,195 4,664,823
General and administrative 2,402,032 2,799,781 10,024,605
------------ ----------- -------------------
TOTAL COSTS AND EXPENSES 3,230,358 3,307,976 14,689,428
------------ ----------- -------------------
INCOME (LOSS) FROM OPERATIONS (2,192,298) (2,846,653) (9,390,491)
------------ ----------- -------------------
OTHER INCOME (EXPENSE)
Interest income 89,933 36,057 283,875
Interest expense (52,851) (61,807) (377,794)
Loss on abandonment of interest in joint venture -- -- (33,000)
------------ ----------- -------------------
TOTAL OTHER INCOME 37,082 (25,750) (126,919)
------------ ----------- -------------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS AND PROVISION FOR INCOME TAXES (2,155,216) (2,872,403) (9,517,410)
PROVISION FOR INCOME TAXES (800) (800) (11,000)
------------ ----------- -------------------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS (2,156,016) (2,873,203) (9,528,410)
EXTRAORDINARY ITEMS
Forgiveness of indebtness -- -- (289,940)
------------- ----------- -------------------
NET INCOME (LOSS) $ (2,156,016) $(2,873,203) $ (9,818,350)
============ =========== ===================
PER SHARE DATA
Basic income (loss) before extraordinary item $ (0.07) $ (0.05)
Basic extraordinary items -- --
------------ -----------
BASIC NET INCOME (LOSS) PER SHARE $ (0.07) $ (0.05)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 31,272,062 54,377,617
============ ============
The accompanying notes are an integral part of the financial statements.
F-5
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
DEFICIT
CLASS A COMMON CLASS B COMMON CLASS A PREFERRED STOCK ACCUMULATED
-------------------- -------------------- -------------------- CAPITAL DURING THE
SHARES SHARES SHARES IN EXCESS OF DEVELOPMENT
OUTSTANDING AMOUNT OUTSTANDING AMOUNT OUTSTANDING AMOUNT PAR VALUE STAGE
----------- ------- ----------- ------- ----------- ------- ---------- -----------
Initial Issuance of Common Stock
October 21, 1983 2,408 $ 2 - $ - - $ - $ 2,498 $ -
Adjustment to Give Effect
to Recapitalization on
December 15, 1986
Cancellation of Shares (2,202) (2) - - - - (2) -
----------- ------- ----------- ------- ----------- ------- ---------- -----------
206 - - - - - 2,496 -
Balance - October 21, 1983
Shares Issued By Tensiodyne
Corporation in Connection
with Pooling of Interests 42,334 14 - - - - 4,328 -
Net (Loss), Year Ended
December 31, 1983 - - - - - - - (4,317)
----------- ------- ----------- ------- ----------- ------- ---------- -----------
Balance, January 1, 1984 42,540 14 - - - - 6,824 (4,317)
Capital Contribution - 28 - - - - 21,727 -
Issuance of Common Stock 4,815 5 - - - - 10,695 -
Costs Incurred in Connection
with Issuance of Stock - - - - - - (2,849) -
Net (Loss), Year Ended
December 31, 1984 - - - - - - - (21,797)
----------- ------- ----------- ------- ----------- ------- ---------- -----------
Balance, January 1, 1985 47,355 47 - - - - 36,397 (26,114)
Shares Contributed Back
to Company (315) (0) - - - - - -
Capital Contribution - - - - - - 200,555 -
Sale of 12,166 Warrants at
$1.50 Per Warrant - - - - - - 18,250 -
Shares Cancelled (8,758) 9 - - - - 9 -
Net (Loss), Year Ended
December 31, 1985 - - - - - - - (252,070)
----------- ------- ----------- ------- ----------- ------- ---------- -----------
F-6
Balance, January 1, 1986 38,282 38 - - - - 255,211 (278,184)
Net (Loss), Year Ended
December 31, 1986 - - - - - - - (10,365)
----------- ------- ----------- ------- ----------- ------- ---------- -----------
Balance, January 1, 1987 38,282 38 - - - - 255,211 (288,549)
Issuance of Common Stock upon
Exercise of Warrants 216 - - - - - 27,082 -
Net (Loss), Year Ended
December 31, 1987 - - - - - - - (45,389)
----------- ------- ----------- ------- ----------- ------- ---------- -----------
Balance, January 1, 1988 38,498 38 - - - - 282,293 (333,938)
Issuance of Common Stock
Sale of Stock 2,544 3 - - - - 101,749 -
Services Rendered 3,179 3 - - - - 70,597 -
Net (Loss), Year Ended
December 31, 1988 - - - - - - - (142,335)
----------- ------- ----------- ------- ----------- ------- ---------- -----------
F-7
Balance, January 1, 1989 44,221 44 - - - - 454,639 476,273
Issuance of Common Stock
Sale of Stock 4,000 4 - - - - 1,996 -
Services Rendered 36,000 36 - - - - 17,964 -
Net (Loss), Year Ended
December 31, 1989 - - - - - - - (31,945)
----------- ------- ----------- ------- ----------- ------- ---------- -----------
Balance, January 1, 1990 84,221 84 - - - - 474,599 (508,218)
Issuance of Common Stock
Sale of Stock 2,370 2 - - - - 59,248 -
Services Rendered 6,480 7 - - - - 32,393 -
Net Income, Year Ended
December 31, 1990 - - - - - - - 133,894
----------- ------- ----------- ------- ----------- ------- ---------- -----------
Balance January 1, 1991 93,071 93 - - - - 566,240 (374,324)
Issuance of Common Stock
Sale of Stock 647 1 - - 350,000 350 273,335 -
Services Rendered 4,371 4 - - - - 64,880 -
Conversion of Warrants 30 - -
Conversion of Stock (6,000) (6) 60,000 60 - - - -
Net (Loss), Year Ended
December 31, 1991 - - - - - - - (346,316)
----------- ------- ----------- ------- ----------- ------- ---------- -----------
Balance January 1, 1992 92,119 92 60,000 60 350,000 350 904,455 (720,640)
Issuance of Common Stock
Sale of Stock 20,000 20 - - - - 15,980 -
Services Rendered 5,400 5 - - - - 15,515 -
Conversion of Warrants 6,000 6 - - - - 14,994 -
Sale of Class B Stock - - 60,000 60 - - 14,940 -
F-8
Issuance of Stock to
Unconsolidated Subsidiary 4,751 5 - - - - 71,659 -
Conversion of Stock 6,000 6 (60,000) (60) - - - -
Cancellation of Shares (6,650) (7) - - - - 7 -
Net (Loss), Year Ended
December 31, 1992 - - - - - - - (154,986)
----------- ------- ----------- ------- ----------- ------- ---------- -----------
Balance January 1, 1993 127,620 127 60,000 60 350,000 350 1,037,550 (875,626)
Issuance of Common Stock
Licensing Agreement 12,500 13 - - - - 6,237 -
Services Rendered 67,030 67 - - - - 13,846 -
Warrant Conversion 56,000 56 - - - - 304,943 -
Cancellation of Shares (31,700) (32) - - - - (7,537) -
Net (Loss) for Year Ended
December 31, 1993 - - - - - - - (929,900)
----------- ------- ----------- ------- ----------- ------- ---------- -----------
Balance January 1, 1994 231,449 231 60,000 60 350,000 350 1,355,039 (1,805,526)
Adjustment to Give Effect
to Recapitalization on
February 1, 1994 30,818 31 - - - - 385,393 -
Issuance of Shares for
Services Rendered 223,000 223 - - - - - -
Sale of Stock 1,486,112 1,486 - - - - 23,300 -
Issuance of Shares for
the Modification of Agreements 34,000 34 - - - - 34 -
Net (Loss) for the Year
Ended December 31, 1994 - - - - - - - (377,063)
----------- ------- ----------- ------- ----------- ------- ---------- -----------
Balance January 1, 1995 2,005,380 2,005 60,000 60 350,000 350 1,763,698 (2,182,589)
Issuance of Common Stock
in Consideration for
Modification of Agreement 152,500 153 - - - - - -
Net (Loss) for the Year
Ended December 31, 1995 - - - - - - - - (197,546)
----------- ------- ----------- ------- ----------- ------- ---------- -----------
Balance January 1, 1996 2,157,880 2,157 60,000 60 350,000 350 1,763,698 (2,380,135)
Issuance of Shares for
Services Rendered 164,666 165 - - - - 16,301 -
Sale of Stock 70,000 70 - - - - 173,970 -
Issuance of Shares for
the Modification of Agreements 250,000 250 - - - - 250 -
F-9
Cancellation of Shares Held
in Treasury (62,000) (62) - - - - (154,538) -
Net (Loss) for the Year
Ended December 31, 1996 - - - - - - - 450,734
----------- ------- ----------- ------- ----------- ------- ---------- -----------
Balance January 1, 1997 2,580,546 2,580 60,000 60 350,000 350 1,799,181 (2,830,869)
Sale of Stock 100,000 100 - - - - 99,900 -
Conversion of Indebtedness 800,000 800 - - - - 165,200 -
Class A Common Stock Issued
in Cancellation of $372,000
Accrued Wages Due Officer 1,499,454 1,500 - - - - 370,500 -
Issuance of Shares for
Services Rendered 247,000 247 - - - - 2,224 -
Adjustment to Give Effect
to Recapitalization on
9-Mar-97 560,000 560 - - - - (560) -
Net (Loss) for the Year
Ended December 31, 1997 - - - - - - - (133,578)
----------- ------- ----------- ------- ----------- ------- ---------- -----------
5,787,000 5,787 60,000 60 350,000 350 2,436,445 (2,964,447)
Shares Issued in Cancellation
of Indebtedness 2,430,000 2,430 - - - - 167,570 -
Conversion of Options 500,000 500 - - - - 124,500 -
Issuance of Shares for
Services Rendered 1,121,617 1,122 - - - - 111,040 -
Shares Issued in Cancellation
of Redeemable Preferred Stock 50,000 50 - - - - 149,950 -
Shares Returned to Treasury
and Cancelled (560,000) (560) - - - - 560 -
Modification of Royalty Agreement 733,280 733 - - - - 6,599 -
Issuance of Warrants to Officer - - - - - - 27,567 -
Net (Loss) for the Year
Ended December 31, 1998 - - - - - - - (549,187)
----------- ------- ----------- ------- ----------- ------- ---------- -----------
10,061,897 $10,062 60,000 $ 60 350,000 $ 350 $3,024,231 $(3,513,634)
Shares Issued in Cancellation
of Indebtedness 2,175,000 2,175 - - - - 164,492 -
Issuance of Shares for
Services Rendered 1,255,000 1,255 - - - - 93,844 -
Shares Issued in Modification
of Licensing Agreement 672,205 672 - - - - (672) -
Sale of Stock 433,333 433 - - - - 173,107 -
Net (Loss) for the Year
Ended December 31, 1999 - - - - - - - (539,283)
----------- ------- ----------- ------- ----------- ------- ---------- -----------
F-10
14,597,435 $14,597 60,000 $ 60 350,000 $ 350 $3,455,002 $(4,052,917)
Issuance of Shares for
Services Rendered 699,500 699 - - - - 83,251 -
Shares Issued to Investors
Pursuant to Settlement Agreement 65,028 65 - - - - (65) -
Shares Issued for Cash
and Non-Recourse Promissory Notes 5,000,000 5,000 - - - - 1,990,000 -
Shares Issued for Cash 400,000 400 - - - - 281,294 -
Shares Issued in Cancellation
of Indebtedness 100,000 100 - - - - 99,900 -
Shares Issued as Compensation
Pursuant to Escrow Agreement 4,183,675 4,184 - - - - - -
Shares Returned from Escrow (400,000) (400) - - - - 400 -
Common Shares Converted
into Class B Common (40,000) (40) 40,000 40 - - - -
Preferred Shares Converted
into Common 12,529 13 - - (12,529) (13) - -
Net (Loss) for the Year
Ended December 31, 2000 - - - - - - - (459,129)
----------- ------- ----------- ------- ----------- ------- ---------- -----------
Balance December 31, 2000 24,618,167 $24,618 100,000 $ 100 337,471 $ 337 $5,909,782 $(4,512,046)
Issuance of Shares for
Services Rendered 6,185,000 6,185 - - - - 390,693 -
Shares Issued for Cash 4,932,358 4,932 - - - - 281,635 -
Shares Issued in Connection
with Private Offering 697,853 698 - - - - (698) -
Shares Issued to Officer 6,000,000 6,000 - - - - 414,000 -
Net (Loss) for the Year
Ended December 31, 2001 - - - - - - - (2,433,101)
----------- ------- ----------- ------- ----------- ------- ---------- -----------
42,433,378 $42,433 100,000 $ 100 337,471 $ 337 $6,995,412 $(6,945,147)
Issuance of Shares for
Services Rendered 18,900,018 18,900 - - - - 742,517 -
Issuance of Shares to
University of Pennsylvania 524,476 524 (524)
Shares Issued for Cash 12,463,044 12,464 - - 150,000 150 784,816 -
Offering costs 202,106
Cancellation of Prior Period's
Stock Issuance (750,000) (750) - - - - 750
Shares Issued in Connection
with Private Offering 2,623,347 2,623 - - - - 43,639 -
F-11
Net (Loss) for the Nine
Months Ended September 30, 2002 - - - - - - - $(2,873,203)
----------- ------- ----------- ------- ----------- ------- ---------- -----------
Balance - September 30, 2002
(Unaudited) 76,194,263 $76,194 100,000 $ 100 487,471 $ 487 $8,364,504 $(9,818,350)
=========== ======= =========== ======= =========== ======= ========== ===========
F-12
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FROM INCEPTION
(OCTOBER 21, 1931)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30 SEPTEMBER 30,
2001 2002 2001 2002 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (194,429) $(2,324,579) $(2,156,016) $(2,873,203) $(9,817,887)
Adjustments to reconcile net income
(loss) to net cash provided
(used) by operating activities
Depreciation and amortization 738 3,650 2,211 5,768 183,633
Accrued interest income (11,488) (10,960) (89,932) (32,864) (231,151)
Gain on sale of stocks - (196,596)
Gain on foreclosure - (18,697)
Charge off of deferred offering costs - 36,480
Charge off of long-lived assets
due to impairment - 92,919
Loss on sale of equipment - 12,780
Modification of royalty agreement - 7,332
Issuance of common stock for services 120,250 419,850 596,500 761,417 2,199,692
Issuance of stock for agreement modification - 152
Forgiveness of indebtedness - 215,000
(Increase) decrease in accounts receivable 81,108 57,244 (152,251) 277,315 (58,690)
Charge off of investment in joint venture - - 33,000
Officers' and directors' compensation
on stock subscriptions modification 1,500,000 1,500,000
(Increase) decrease in prepaid expenses - (109,166) - - (159)
Increase (decrease) in accounts payable
and accrued expenses (85,145) 1,445,505 184,928 1,283,944 2,471,558
Interest accrued on notes payable 811 649 2,434 642 273,397
Increase in research and development
sponsorship payable 16,118 19,020 - 57,059 275,059
(Increase) in note for litigation settlement 48,354 - (25,753)
(Increase) in deposits - - (2,189)
TOTAL ADJUSTMENTS 122,392 2,044,124 2,092,244 2,353,281 6,767,767
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (72,037) (280,455) (63,772) (519,922) (3,050,120)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment - - - - 10,250
Purchase of property and equipment (5,600) - (5,600) (29,608) (266,472)
Proceeds from sale of stocks - - - - 283,596
Purchase of stocks - - - - (90,000)
Investment in joint ventures - - - - (102,069)
Proceeds from foreclosure - - - - 44,450
Payment for license agreement - - - - (6,250)
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (5,600) - (5,600) (29,608) (126,495)
The accompanying notes are an integral part of the financial statements
F-13
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FROM INCEPTION
(OCTOBER 21, 1983))
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2002 2001 2002 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock $ 230,309 $ 166,850 $ 230,309 $ 797,430 $2,545,163
Costs incurred in Offering (47,281) (29,035) (47,281) (149,231) (260,270)
Sale of common stock warrants - - - - 18,250
Sale of preferred stocks - - - - 258,500
Sale of redeemable preferred stock - - - - 150,000
Capital contributions - - - - 301,068
Payment on proposed reorganization - - - - (5,000)
Loans from officers 500 - 14,800 - 778,805
Repayments to officer (10,000) - (28,800) (29,700) (538,532)
Increase (decrease) in loans - other - - - - 172,069
CASH FLOWS FROM FINANCING ACTIVITIES 173,528 137,815 169,028 618,499 3,420,053
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 95,891 (142,640) 99,656 68,969 243,438
BEGINNING BALANCE CASH AND CASH EQUIVALENTS 5,719 386,078 1,954 174,469 -
ENDING BALANCE CASH AND CASH EQUIVALENTS $ 101,610 $ 243,438 $ 101,610 $ 243,438 $ 243,438
The accompanying notes are an integral part of the financial statements.
F-14
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
From Inception From Inception
(October 21, 1983) For the Nine Months Ended (October 21,1983)
For the Year Ended Through September 30, Through
December 31, December 31, 2001 2001 2002 September 30,2002
----------------- ------------ ------------ --------------
2000 2001 (Unaudited) (Unaudited) (Unaudited)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock net of offering costs $274,288 $366,126 $ 1,747,733 $ 230,309 $ 797,430 $ 2,545,163
Costs incurred in offerings - (79,559) (111,039) (47,281) (149,231) (260,270)
Sale of common stock warrants - 18,250 - 18,350
Sale of preferred stock - 258,500 - - 258,500
Sale of redeemable preferred stock - 150,000 - - 150,000
Capital contributions - 301,068 - - 301,068
Payment on proposed reorganization - (5,000) - - (5,000)
Loans From officer 8,000 42,800 778,805 14,800 - 778,805
Repayments to officer (39,500) (53,300) (508,832) (28,800) (29,700) (538,532)
Increase in loan payable-others - - 172,069 - - 172,069
--------- --------- ---------------- ------------ ------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES: 242,788 276,067 2,801,554 169,028 618,499 3,420,153
--------- --------- ---------------- ------------ ------------ --------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (60,950) 172,515 174,469 100,656 68,969 243,538
BEGINNING BALANCE CASH AND
CASH EQUIVALENTS 62,904 1,954 -- 1,954 174,469 -
--------- --------- ---------------- ------------ ------------ --------------
ENDING BALANCE CASH AND CASH
EQUIVALENTS $ 1,954 $174,469 174,469 $ 102,610 $ 243,438 $ 243,538
========= ========= ================ ============ ============ ==============
F-15
NOTE 1 - ORGANIZATION
Material Technologies, Inc. (the "Company") was organized on March 4, 1997,
under the laws of the state of Delaware.
The Company is in the development stage, as defined in FASB Statement 7,
with its principal activity being research and development in the area of
metal fatigue technology with the intent of future commercial application.
The Company has not paid any dividends and dividends that may be paid in
the future will depend on the financial requirements of the Company and
other relevant factors.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Property and Equipment
The cost of property and equipment is depreciated over the estimated
useful lives of the related assets. Depreciation is computed on the
straight-line method for financial reporting purposes and for income
tax reporting purposes.
b. Intangible Assets
Intangibles are amortized on the straight-line method over periods
ranging from 5 to 20 years (see Note 3).
c. Net Loss Per Share
The Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" ("EPS")
that established standards for the computation, presentation and
disclosure of earnings per share, replacing the presentation of
Primary EPS with a presentation of Basic EPS.
d. Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
F-16
e) Fair Value of Financial Instruments
The Company estimates the fair value of its financial instruments at
their current carrying amounts.
f) Concentration of Credit Risk
Currently, the Company's only source of income comes from its
sub-contracts for Electrochemical Fatigue Sensor ("EFS") research with
the United States Air Force contractors. The Company believes these
contracts will continue through 2002.
g) Stock Based Compensation
For 1998 and subsequent years, the Company has adopted FASB Statement
123 which establishes a fair value method of accounting for its
stock-based compensation plans. Prior to 1998, the Company used APB
Opinion 25.
h) Investment in Unconsolidated Subsidiaries
Investments in companies in which the Company has less than a 20%
interest are carried at cost. The Company includes dividends received
from those companies in other income. The Company applies dividends
received in excess of the Company's proportionate share of accumulated
earnings as a reduction of the cost of the investment.
i) Revenue Recognition
Significantly all of the Company's revenue is derived from the
Company's sub-contract with the United States Air Force relatiing to
the further development of the Electrochemical Fatigue Fuse. Revenue
on the sub-contract is recognized at the time services are renderedThe
Company billls monthly for services pursuant to this sub-contract at
which time revenue is recoginzed for the period that the respective
invoice relatesThe objective of the contract with the US Airforce is
to further develop and validate a prototype Electrochemical Fatigue
Sensor (EFS) to inspect turbine engine blades and components in the
disassembled condition as well as without the need to disassemble the
engine. The project builds on work performed through previous
contracts with the Airforce. As required under the contract and
previous contracts with the Air Force, the technical data and /or
commercial computer software developed under the contracts will be
delivered to the Government with "Other Than Unlimited Rights". Under
the contracts, Material Technologies, Inc. has always maintained a
proprietary interest in the development of the data and software for
commercial use.
All other income is reported in the period that the income was earned.
j) Interim Financial Statements
The financial statements as of June 30, 2002, and for the nine-month
periods ended September 30, , 2001 and 2002 are unaudited. In the
opinion of management, the financial statements include all
adjustments consisting of normal recurring accruals necessary for a
fair presentation of the Company's financial position and results of
operations. Results of operations for the interim periods are not
necessarily indicative of those to be achieved for full fiscal years.
NOTE 3 - INTANGIBLES
F-17
Intangible assets consist of the following:
Period of December 31,
Amortization 2000 2001
------ ------
Patent Costs 17 Years $ 28,494 $ 28,494
License Agreement 17 Years 6,250 6,250
(See Note 4)
Website 5 Years -- 5,200
--------- ------
34,744 39,944
Less Accumulated Amortization (22,032) (24,744)
------
$ 12,712 $ 15,200
====== =========
Amortization charged to operations for 1999, 2000, and 2001, were $1,989,
$1,989, and $2,249, respectively.
NOTE 4 - LICENSE AGREEMENT
The Company has entered into a license agreement with the University of
Pennsylvania regarding the development and marketing of the EFS. The EFS is
designed to measure electrochemically the status of a structure without
knowing the structure's past loading history. The Company is in the initial
stage of developing the EFS.
Under the terms of the agreement the Company issued to the University
12,500 shares of its common stock, and a 5% royalty on sales of the
product. The Company valued the licensing agreement at $6,250. The license
terminates upon the expiration of the underlying patents, unless sooner
terminated as provided in the agreement. The Company is amortizing the
license over 17 years.
In addition to entering into the licensing agreement, the Company also
agreed to sponsor the development of the EFS. Under the Sponsorship
agreement, the Company agreed to reimburse the University development costs
totaling approximately $200,000 that was to be paid in 18 monthly
installments of $11,112.
Under the agreement, the Company reimbursed the University $10,000 in 1996
for the cost it incurred in the prosecution and maintenance of its patents
relating to the EFS.
The Company and the University agreed to modify the terms of the licensing
agreement and related obligation. The modified agreements increase the
University's royalty to 7% of the sale of related products, the issuance of
additional shares of the Company's Common Stock to equal 5% of the
outstanding stock of the Company as of the effective date of the modified
agreements, and to pay to the University 30% of any amounts raised by the
Company in excess of $150,000 (excluding amounts received on government
grants or contracts) up to the amount owing to the University.
The parties agreed that the balance owed on the Sponsorship Agreement was
$200,000 and commencing June 30, 1997, the balance due will accrue interest
at a rate of 1.5% per month until the loan matures on December 16, 2001,
when the loan balance and accrued interest become fully due and payable. In
addition, under the agreement, Mr. Bernstein agreed to limit his
compensation from the Company to $150,000 per year until the loan and
accrued interest is fully paid. Interest charged to operations for 1999,
2000, and 2001, relating to this obligation was $43,303, $54,638, and
$64,472, respectively. The balance of the note at December 31, 2000, and
2001, was $358,181 and $422.653, respectively,
As of December 31, 2001, the Company was required to issue an additional
1,404,464 shares to the University pursuant to the revised agreement. The
Company is currently in discussions with the University regarding the
issuance of the shares and other related matters. As indicated, the Note
matured on December 16, 2001 and the Company has not made any payments and
under the terms of the agreement is in default.
F-18
NOTE 5 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
December 31,
2000 2001
----- ------
Office Equipment $ 23,380 $ 24,142
Remote Monitoring System -- --
Manufacturing Equipment 100,067 100,067
------- -------
123,447 124,209
Less: Accumulated
Depreciation (120,457) (121,501)
------- -------
$ 2,990 $ 2,708
========= ==========
Depreciation charged to operations was $253, $959, and $1,044, in 1999,
2000, and 2001, respectively. The useful lives of office equipment for the
purpose of computing depreciation are five years. Management will commence
depreciating its manufacturing equipment upon the commencement of the
manufacturing of its products.
The Company's equipment has been pledged as collateral on the agreement
with Advanced Technology Center (See Note 8(b)).
NOTE 6 - NOTES PAYABLE
On May 27, 1994, the Company borrowed $25,000 from Mr. Sherman Baker, a
current shareholder. The loan is evidenced by a promissory note that is
assessed interest at major bank prime rate. The note matures on May 31,
2002, when principal and accrued interest become fully due and payable. The
Company has pledged its patents as collateral against this loan.
As additional consideration for the loan, the Company granted to Mr. Baker,
a 1% royalty interest in the Fatigue Fuse and a 0.5% royalty interest in
the Electrochemical Fatigue Sensor. The Company has not placed a value on
the royalty interest granted. The balance due on this loan as of December
31, 2000, and 2001, was $53,991, and $57,237, respectively. Interest
charged to operations for 1999, 2000 and 2001 was $4,640, $3,245, and
$3,246, respectively.
In October 1996, the Company borrowed $25,000 from an unrelated third
party. The loan was assessed interest at an annual rate of 11% and matured
on October 15, 2000. In addition the Company issued warrants to the lender
for the purchase of 2,500 shares of the Company's common stock at a price
of $1.00 per share. The loan balance as of December 31, 2000 and 2001 was
$25,527 and $25,527, respectively. Interest charged to operations on this
loan in 1999, 2000, and 2001, were $2,750, $2,750, and $2,750,
respectively.
The Company did not pay any amounts due on this note when it matured on
October 15, 2000, and the note is in default.
NOTE 7 - INCOME TAXES
Income taxes are provided based on earnings reported for financial
statement purposes pursuant to the provisions of Statement of Financial
Accounting Standards No. 109 ("FASB 109").
FASB 109 uses the asset and liability method to account for income taxes.
That requires recognizing deferred tax liabilities and assets for the
expected future
F-19
tax consequences of temporary differences between tax basis and financial
reporting basis of assets and liabilities.
An allowance has been provided for by the Company which reduced the tax
benefits accrued by the Company for its net operating losses to zero, as it
cannot be determined when, or if, the tax benefits derived from these
operating losses will materialize. As of December 31, 2001, the Company has
unused operating loss carryforwards, which may provide future tax benefits
in the amount of approximately $4,825,000 which expire in various years
through 2021.
The Company's use of its net operating losses may be restricted in future
years due to the limitations pursuant to IRC Section 382 on changes in
ownership.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company's commitments and contingencies are as follows:
a. On December 24, 1985, to provide funding for research and development
related to the Fatigue Fuse, the Company entered into various agreements
with the Tensiodyne 1985-I R & D Partnership. These agreements were amended
on October 9, 1989, and under the revised terms, obligated the Company to
pay the Partnership a royalty of 10% of future gross sales. The Company's
obligation to the Partnership is limited to the capital contributed to it
by its partners in the amount of approximately $912,500 and accrued
interest.
b. On August 30, 1986, the Company entered into a funding agreement with the
Advanced Technology Center ("ATC"), whereby ATC paid $45,000 to the Company
for the purchase of a royalty of 3% of future gross sales and 6% of
sublicensing revenue. The royalty is limited to the $45,000 plus an 11%
annual rate of return. At December 31, 2000, and 2001, the future royalty
commitment was limited to $204,639 and $227,149, respectively.
The payment of future royalties is secured by equipment used by the Company
in the development of technology as specified in the funding agreement.
c. On May 4, 1987, the Company entered into a funding agreement with ATC,
whereby ATC provided $63,775 to the Company for the purchase of a royalty
of 3% of future gross sales and 6% of sublicensing revenues. The agreement
was amended August 28, 1987, and as amended, the royalty cannot exceed the
lesser of (1) the amount of the advance plus a 26% annual rate of return
or, (2) total royalties earned for a term of 17 years.
At December 31, 2000, and 2001, the total future royalty commitments,
including the accumulated 26% annual rate of return, were limited to
approximately $1,369,233, and $1,725,234, respectively. If the Company
defaults on the agreement, then the obligation relating to this agreement
becomes secured by the Company's patents, products, and accounts
receivable, which may be related to technology developed with the funding.
d. In 1994, the Company issued to Variety Investments, Ltd. of Vancouver,
Canada ("Variety"), and a 22.5% royalty interest on the Fatigue Fuse in
consideration for the cash advances made to the Company by Variety.
In December 1996, in exchange for the Company issuing 250,000 shares of its
Common Stock to Variety, Variety reduced its royalty interest to 20%. In
1998, in exchange for the Company issuing 733,280 shares of its Common
Stock to Variety, Variety reduced its royalty interest to 5%.
e. In 1995, the Company entered into an agreement with an unrelated third
party for providing the idea of pursuing government contracts for the
funding of the development of the Company's technologies, under which he
would receive a number of the Company's Common Stock equal to 2.5% of the
number of shares outstanding as of the date a government contract is
F-20
signed, 15% of the amount of the respective government contract, and an
appointment to the Company's Board of Directors. Funds due him are to be
paid only when such funds become available to the Company. The Company and
the third part disagree as to the amount owed and the timing of payment
under the Agreement and are attempting to settle the disagreements
amicably.
Under the agreement, the Company's obligation is created on the date the
government contract is signed. Under the agreement with this individual,
the amounts due are to be evidenced by a promissory note bearing interest
at major bank prime.
The Agreement contains anti-dilution provisions relating to the shares to
be issued that expire once $50,000 is paid. The Company's obligation to
have this person as a Director expires once all amounts due are paid. The
contingent amount due has been personally guaranteed by the Company's
President and is secured by the Company's patents, subject to a prior lien
in favor of the Company's President. The personal guarantee expires upon
the individual receiving $100,000.
f. In 1999, the Company was notified that a former consultant used company
materials to sell shares of the Company's stock to the public. The
Consultant defrauded 25 investors out of $112,000. The Company had no
knowledge of his actions. But in order to avoid potential litigation and
have the ability to pursue the claims of these investors, the Company
authorized issuance of up to 110,000 shares of its restricted Common Stock
to these investors in exchange for the assignment of their respective
claims to the Company and a release of any claims against the Company.
During 2000, 65,028 shares of the Company's common stock were issued to
these defrauded investors.
g. As discussed in Note 6, the Company granted a 1% royalty interest in the
Company's Fatigue Fuse and a .5% royalty interest in its Electrochemical
Fatigue Sensor to Mr. Sherman Baker as part consideration on a $25,000 loan
made by Mr. Baker to the Company.
A summary of royalty interests that the Company has granted and are
outstanding as of December 31, 2001, follows:
Fatigue Fatigue
Fuse Sensor
------ -------
Tensiodyne 1985-1 R&D Partnership -- * --
Advanced Technology Center
Future Gross Sales 6.00%* --
Sublicensing Fees -- ** --
Variety Investments, Ltd 5.00% --
University of Pennsylvania
Net Sales of Licensed Products -- 7.00%
Net Sales of Services -- 2.50%
Sherman Baker 1.00% 0.50%
----- -----
12.00% 10.00%
===== =====
* Royalties limited to specific rates of return as discussed in Notes 8(a)
and (b) above.
** The Company granted 12% royalties on sales from sublicensing. These
royalties are also limited to specific rates of return as discussed in Note
8(b) and (c) above.
h. Operating Leases
F-21
The Company leases its existing office under a non-cancelable lease, which
expires on May 31, 2002.
Rental expense charged to operations for the years ended December 31, 1999,
2000, and 2001 was approximately $25,375, $23,129, and $29,468, which
consisted solely of minimum rental payments.
In addition to rent, the Company is obligated to pay property taxes,
insurance, and other related costs associated with the leased office.
Minimum rental commitments under the non-cancelable leases expire as
follows:
Year Ended 2002 $ 11,740
i. Straight Documentary Credit
On October 10, 2001, the Company entered into an arrangement whereby Allied
Boston Group will provide the Company with a Straight Documentary Credit (a
letter of credit) for $12,500,000. Under the terms of the commitment, the
Company will pledge sufficient shares of its common stock to equal 125% of
the Straight Documentary Credit. Under the initial terms, the shares were
valued at $.27 per share. If the Company's stock price goes lower, then
additional shares will be pledged. If the stock price goes to a $1.00 per
share, then Allied Boston is required to liquidate a sufficient number of
shares to pay off the amount funded through this Straight Documentary
Credit. After the amount is paid off, Allied Boston will retain 25 million
shares of the Company's common stock. Any remaining shares will be returned
to the Company;
Upon funding through the Straight Documentary Credit, the Company is
required to pay a Success Fee to Allied Boston in the amount of 8% of the
amount funded of which 50% will be paid in cash and the remainder of the
fee will be paid through the issuance of the Company's common stock to be
valued at market value at the time of issuance. As long as the Documentary
Credit is in force, Allied Boston will have 2 voting seats on the Company's
Board. All out-of-pocket expenses pertaining to the issuance of the
instrument will be borne by the Company.
In October 2001, the Company issued 60,000,000 shares of its common stock
as collateral to Allied Boston pursuant to the terms of the agreement, and
in January 2002, the Company issued 40,000,000 shares as additional
collateral. As indicated the selling of these shares are contingent upon
the occurrence of future events. Further, this shares can not be voted on
by Allied Boston until such time as the credit has been funded. Therefore
as these shares can not be sold or voted, the Company treats the shares
issued, held in reserve, and not outstanding.
As of the balance sheet date, the Credit has not been funded, however the
Company is in discussions with funding sources.
j) Litigation
1) On April 30, 2001, Stephen Beck, a former consultant filed a complaint
against the Company and its President (Stephen Forest Beck vs. Robert
M. Bernstein, Material Technologies, Inc. etal. Los Angeles Superior
Court No. BC249547, filed April 30, 2001) alleging breach of contract
a declaration of his contract rights, and fraud. The complaint all
relates to a February 8, 1995, consulting agreement under which Mr.
Beck was to provide assistance in the Company obtaining a government
contract private funding. Mr. Beck claims that over $1.5 million in
contingent consulting fees are immediately due, as Matech has obtained
funding through four since 1995. In addition, he is seeking punitive
damages in an unspecified amount. On April 30, 2001, the Company filed
a complaint against Mr. Beck (Material Technologies, Inc. v Stephen
Forrest Beck, L.A. Superior Court No BC249495) for the recission of
F-22
the consulting agreement the return of 195,542 shares of common stock
issued to him pursuant to the above indicated consulting contract, and
attorney's fees, interest, and the cost of the lawsuit. The case has
been consolidated with the above-reference suit and also goes to trial
on May 20, 2002.
In July 2002, the Company settled its pending lawsuit with Mr. Beck.
Under the terms of the settlement, Mr. Beck l received 1,000,000
shares of the Company common stock. The shares to be issued are
non-dilutive. The Company valued the shares issued to Mr. Beck at
$30,000, the fair market value of the shares issued which was charged
to operations, accordingly.
In addition, pursuant to the agreement that the Company had with the
attorneys who represented it in this matter, a contingent fee of
$1,481,895 became due them upon the settlement of the case. This fee,
however, is payable out of the Company's earnings derived before
interest, taxes, depreciation and amortization (EBIDA), limited each
year to 25% of EBIDA. Unpaid amounts owed towards the fee accrue
interest at a rate of 6% per annum until paid in full.
As the amounts due the attorneys are paid out of profits and amounts
paid annually are limited as indicated, management does not believe
that the liability to the attorneys will have any impact on the
Company's ability to continue operating. However, payments made to the
attorneys will obviously have a impact on the Company's future cash
flow which could limit the amounts spent on future projects or
expansion. The Company's unaudited balance sheet at September 30, 2002
reflects the $1,481,895 due the attorneys in its liablities and has
charged the same amount to its operations and is included in general
and administrative expense as reflected in the Company's statement of
operations for the three-months and nine-month periods ended Septemebr
30, 2002.
NOTE 9 - INVESTMENTS
a) The Company owns 65,750 shares of Class A Common Stock of Tensiodyne
Corporation. At December 31, 2001, there was no market for these
shares and the Company valued its interest at $0.
d) During 2001, the Company abandoned its 5% interest in Antaeus
Research, LLC. and charged its total investment of $33,000 to
operations. Prior to its abandonment, the Company accounts for this
investment under the Cost Method.
NOTE 10 - STOCKHOLDERS' EQUITY
a. Common Stock
The holders of the Company's Common Stock are entitled to one vote per
share of common stock held.
b. Class B Common Stock
The holders of the Company's Class B Common Stock are not entitled to
dividends, nor are they entitled to participate in any proceeds in the
event of a liquidation of the Company. However the holders are
entitled to 1,000 votes for each share of Class B Common held.
c. Class A Preferred Stock
During 1991, the Company sold to a group of 15 individuals, 2,585
shares of $100 par value preferred stock and warrants to purchase
2,000 shares of common stock for a total consideration of $258,500. In
the Company's 1994 spin off, these shares were exchanged for 350,000
shares of the Company's Class A Convertible Preferred Stock and
300,000 shares of its Common Stock. The holders of these shares have a
liquidation preference to receive out of assets of the Company, an
F-23
amount equal to $.72 per one share of Class A Preferred Stock. Such
amounts shall be paid upon all outstanding shares before any payment
shall be made or any assets distributed to the holders of the common
stock or any other stock of any other series or class ranking junior
to the Shares as to dividends or assets.
These shares are convertible to shares of the Company's common stock
at a conversion price of $.72 ("initial conversion price") per share
of Class A Preferred Stock that will be adjusted depending upon the
occurrence of certain events. The holders of these preferred shares
shall have the right to vote and cast that number of votes which the
holder would have been entitled to cast had such holder converted the
shares immediately prior to the record date for such vote.
The holders of these shares shall participate in all dividends
declared and paid with respect to the Common Stock to the same extent
had such holder converted the shares immediately prior to the record
date for such dividend.
In 2000, a holder of 12,259 shares of preferred stock exchanged these
shares for 12,259 shares of the Company's common. The 12,259 shares of
preferred were subsequently cancelled.
d. Issuances Involving Non-cash Consideration
All issuances of the Company's stock for non-cash consideration have
been assigned a dollar amount equaling either the market value of the
shares issued or the value of consideration received whichever is more
readily determinable. The majority of the non-cash consideration
received pertains to services rendered by consultants and others. Due
to the lack of marketability of the Company's shares, the prices of
the Company's shares fall dramatically when a large number of shares
are sold at any one time. Therefore value of the shares issued for
services and other non-cash consideration, when the consideration or
services received, were not determinable, were discounted at an
average of 30% of the share's market value due to this blockage.
On February 4, 1999, the Company issued 175,000 shares in exchange for
the cancellation of $66,667 of indebtedness due to a consultant. On
March 5, 1999, the Company issued 50,000 shares to Mr. John Goodman
for services rendered relating to the research and development
projects. These shares were valued at $2,500, the estimated value of
the stock issued, discounted for blockage. Also on March 5, 1999, the
Company issued 50,000 shares to a consultant. These shares were valued
at $2,500, the estimated value of the stock issued, discounted for
blockage. On April 15, 1999, the Company issued 50,000 shares to a
consultant. These shares were valued at $2,500, the estimated value of
the stock issued, discounted for blockage. On June 9, 1999, the
Company issued 2,000,000 shares to its President in exchange for
canceling $100,000 of indebtedness due him. These shares were valued
at market, discounted for blockage. On May 27, 1999, the Company
issued its director, Joel Freedman, 200,000 shares of stock from
services. These shares were valued at $10,000. These shares were
valued at market, discounted for blockage On June 21, 1999, the
Company issued 100,000 shares to a consultant for $.35 a share payable
by a non-recourse, non-interest bearing promissory note payable on or
before June 15, 2003 and is secured by the 100,000 shares. The shares
were valued at the present value of the note of $23,541. On June 12,
1999, the Company issued 200,000 shares to an attorney for services.
These shares were valued at $10,000, the estimated value of the stock
issued, discounted for blockage. On July 7, 1999, the Company issued
672,205 shares to the University of Pennsylvania pursuant to the terms
of the modified licensing agreement as discussed in Note 4. These
shares were valued at par and charged against paid-in capital. On
August 23, 1999, the Company issued 50,000 shares to a consultant.
These shares were valued at $2,500, the estimated value of the stock
issued, discounted for blockage. On September 29, 1999, the Company
issued 8,000 shares for public relations services. These shares were
valued at $400, the estimated value of the stock issued, discounted
for blockage. On October 27, 1999, the Company issued 300,000 to its
board of advisors. These shares were valued at $30,000, the estimated
value of the stock issued, discounted for blockage. On November 12,
1999, the Company issued 25,000 shares to a consultant. These shares
were valued at $2,500, the estimated value of the stock issued,
F-24
discounted for blockage. On November 14, 1999, the Company issued
92,000 shares to Mr. John Goodman for services rendered in connection
with the development of the fatigue fuse. These shares were valued at
$9,200, the estimated value of the stock issued, discounted for
blockage. On December 14, 1999, the Company issued 50,000 shares to a
consultant. These shares were valued at $5,000, the estimated value of
the stock issued, discounted for blockage. On December 21, 1999, the
Company issued 20,000 shares to a consultant for public relations
services. These shares were valued at $1,500, the estimated value of
the stock issued, discounted for blockage. On December 21, 1999, the
Company issued 10,000 shares to an individual who is on the Company's
advisory board. These shares were valued at $1,000, the estimated
value of the services rendered. On December 30, 1999, the Company
issued 150,000 shares to a consultant. These shares were valued at
$15,000, the estimated value of the stock issued, discounted for
blockage.
On January 31, 2000, the Company issued 50,000 shares of common stock
to a member of its advisory board. These shares were valued at $5,000,
the estimated value of the services rendered. On February 8, 2000, the
Company issued 10,000 shares of common stock to a consultant who
assisted in developing the Company's web site. The Company valued
these shares at $1,000, the estimated value of the services rendered.
On February 28, 2000, the Company issued 200,000 of common stock to a
consultant for financial services. These shares were valued at
$20,000, the estimated value of the stock issued, discounted for
blockageAlso on February 28, 2000, the Company issued 4,500 of common
stock to a public relations consultant. These shares were valued at
$4,500, the estimated value of the services rendered. On March 9,
2000, the Company issued 100,000 of common stock to a consultant in
cancellation of $100,000 due. On March 13, 2000, the Company issued
two consultants a total of 75,000 shares of common stock for services
relating to the development of the fatigue fuseThese shares were
valued at $7,500, the estimated value of the stock issued, discounted
for blockage. On March 21, 2000, the Company's President returned to
the Company 40,000 shares of Common stock in exchange for receiving
40,000 shares of Class B common stock. On March 29, 2000, the Company
issued 50,000 shares of common stock to a consultant for financial
services. These shares were valued at $10,000, the estimated value of
the stock issued, discounted for blockageOn April 11, 2000, the
Company issued 15,000 shares of common stock to consultant relating to
the operations of the Company joint venture. These shares were valued
at $3,000, the estimated value of the stock issued, discounted for
blockageOn April 11, 2000, the Company issued 25,000 shares of common
stock for advisory services. These shares were valued at $5,000, the
estimated value of the stock issued, discounted for blockage. On April
28, 2000, the Company issued 30,000 shares of common stock for
advisory services. These shares were valued at $12,000, the estimated
value of the services rendered. On May 4, 2000, the Company issued
12,529 shares of its common stock in exchange for 12,529 shares of its
preferred stock. The preferred shares were subsequently cancelled. On
May 25, 2000, the Company issued its President 4,650,000 shares its
common stock in exchange for $4,650 and a $1,855,350 non-recourse
promissory note bearing interest at an annual rate of 8%. On the same
day, the Company issued 350,000 shares its common stock to a Director
in exchange for $350 and a $139,650 non-recourse promissory note
bearing interest at an annual rate of 8%. Both notes mature on May 25,
2005, when the principal and accrued interest becomes fully due and
payable. On July 13, 2000, the Company issued 40,000 shares of its
common stock for legal services. These shares were valued at $10,000,
the estimated value of the services rendered. On October 27, 2000, the
Company issued 4,183,675 to its President for futures services to be
rendered pursuant to a stock grant and escrow agreement. As discussed
further in Note 11, these shares are held in escrow, subject to
substantial restrictions and the actual shares that may vest to the
President could be substantially less then the number of shares placed
in escrow. These shares were valued at par. On November 14, 2000,
pursuant to the stock grant and escrow agreement, the President
returned 400,000 shares of common stock to the Company that were
subsequently cancelled. On the same day, 400,000 shares were issued in
exchange for $22,490. On December 19, 2000, the Company issued 200,000
shares of its common stock to a consultant. These shares were valued
at $10,000, the estimated value of the stock issued, discounted for
blockage. During January and February 2000, the Company issued 65,028
shares of its common stock to investors who were defrauded by a former
consultant of the Company. These shares were valued at par. In
February 2000, the Company received $251,798 from the proceeds from
the sale of shares of DCH Technologies, Inc. These shares were placed
in a brokerage account in 1998 by a shareholder of the Company on the
F-25
Company's behalf. The Company had no access to the account. Due to the
restrictive covenants of the brokerage account, the Company did not
reflect the transaction on its financial statements prior to 2000,
when the shares were sold. The Company credited the proceeds to
additional paid-in capital.
On January 9, 2001, the Company issued 100,000 shares of its common
stock to a member of the Company's advisory board for consulting
services. These shares were valued at $5,000, the estimated value of
the stock issued, discounted for blockage. Also on January 9, 2001,
the Company issued 50,000 shares of its common stock to a consultant
for services rendered. These shares were valued at $2,500, the
estimated value of the stock issued, discounted for blockage. On
January 10, 2001, the Company issued 100,000 shares each to two
employees pertaining to services rendered on the Company's research
project. These shares were valued at $10,000, the estimated value of
the stock issued, discounted for blockage. On January 11, 2001, the
Company issued 100,000 shares of its common stock to an attorney for
legal services. These shares were valued at $10,000, the estimated
value of the services rendered. On March 6, 2001, the Company issued
its President 6,000,000 shares of common stock for services rendered.
These shares were valued at $420,000, the amount of accrued
compensation due him. On April 6, 2001, the Company issued a
consultant 200,000 shares of its common stock for services rendered.
These shares were valued at $10,000, the estimated value of the stock
issued, discounted for blockage. On April 17, 2001, the Company issued
a consultant 250,000 shares of its common stock for services rendered.
These shares were valued at $12,500, the estimated value of the stock
issued, discounted for blockage. On April 20, 2001, the Company issued
to two consultant 50,000 shares each of its common stock for marketing
services rendered. These shares were valued at $5,000, the estimated
value of the services rendered. On May 3, 2001, the Company issued to
one of employees 100,000 shares of its common stock for services
rendered on the Company's research project. These shares were valued
at $5,000, the estimated value of the stock issued, discounted for
blockage. Also May 3, 2001, the Company issued a consultant 100,000
shares of its common stock for services rendered. These shares were
valued at $5,000, the estimated value of the stock issued, discounted
for blockage. On June 8, 2001, the Company issued a consultant
1,000,000 shares of its common stock for past marketing services
rendered. These shares were valued at $50,000, the estimated market
value of the service rendered, On June 12, 2001, the Company issued
its Executive assistant 25,000 shares of its common stock for services
rendered. These shares were valued at $1,250, the estimated value of
the services rendered. On July 5, 2001, the Company issued an attorney
50,000 shares of its common stock for legal services rendered. These
shares were valued at $10,000, the estimated value of the services
rendered On July 26, 2001, the Company issued a consultant 200,000
shares of its common stock for services rendered. These shares were
valued at $9,100, the estimated value of the stock issued, discounted
for blockage. On August 6, 2001, the Company issued a consultant
125,000 shares of its common stock for services rendered. These shares
were valued at $8,125, the estimated value of the stock issued,
discounted for blockage. On August 9, 2001, the Company issued an
attorney 265,000 shares of its common stock for services rendered.
These shares were valued at $26,500, the estimated value of the
services rendered. On August 29, 2001, the Company issued 50,000
shares of its common stock to one consultant and 300,000 shares of its
common stock to another consultant for services rendered. These shares
were valued at $22,750, the estimated value of the stock issued,
discounted for blockage. On September 6, 2001, the Company issued a
consultant 37,500 shares of its common stock for services rendered.
These shares were valued at $2,438, the estimated value of the stock
issued, discounted for blockage. On September 14, 2001, the Company
issued a consultant 50,000 shares of its common stock for services
rendered. These shares were valued at $3,250, the estimated value of
the stock issued, discounted for blockage. On September 19, 2001, the
Company issued a consultant 125,000 shares of its common stock for
services rendered. These shares were valued at $8,125, the estimated
value of the stock issued, discounted for blockage. On October 8,
2001, the Company issued to two of its employees 300,000 shares of its
common stock each for services rendered in connection with the Company
research project. These shares were valued at $39,000, the estimated
value of the services rendered. On October 16, 2001, the Company
issued a consultant 50,000 shares of its common stock for services
rendered. These shares were valued at $1,853, the estimated value of
the stock issued, discounted for blockage. On October 18, 2001, the
Company issued its Executive assistant 20,000 shares of its common
stock for services rendered. These shares were valued at $1,300, the
estimated value of the services rendered. On October 23, 2001, the
F-26
Company issued an attorney 150,000 shares of its common stock for
services rendered. These shares were valued at $15,000, the estimated
value of the services rendered. On October 25, 2001, the Company
issued 697,853 as additional fees pertaining to its Regulation S
offeringThese shares were valued at $48,850, the value of the services
rendered. On November 6, 2001, the Company issued an attorney 350,000
shares of its common stock for legal services rendered. These shares
were valued at $35,000, the value of the services rendered. On
November 14, 2001, the Company issued a consultant 150,000 shares of
its common stock for services rendered. These shares were valued at
$9,750, the estimated value of the stock issued, discounted for
blockage On November 17, 2001, the Company issued to the same
consultant 107,500 shares of its common stock for services rendered.
These shares were valued at $6,988, the estimated value of the stock
issued, discounted for blockage. On December 20, 2001, the Company
issued to three consultants a total of 530,000 shares of its common
stock for services rendered. These shares were valued at $34,450, the
estimated value of the stock issued, discounted for blockage.
The value assigned to shares issued for services were charged to
operations. Additional shares issued to the University of Pennsylvania
were issued pursuant to a non-dilution provision of the agreement
between the Company and the University and were valued at par and
charged against paid-in capital. Shares issued in cancellation of
indebtedness were charged of against the balance of the debt owed, and
shares issued relating to the Regulation S offering were charged
against the related proceeds received.
NOTE 11 - TRANSACTIONS WITH MANAGEMENT
a. During 1993, Mr. Bernstein exercised warrants to purchase 6,000 shares
of the Company's common stock. Pursuant to the resolution on April 12,
1993, adjusting the per share amount from $10.00 to $2.50, Mr.
Bernstein paid $60 and executed a five year non-interest bearing note
to the Company for $14,940. The Note is non-recourse and the only
security pledged for the obligation is the stock purchased. The
promissory note was extended to the year 2003.
b. In 1999, the Company issued 2,000,000 shares of its Common Stock in
exchange for the cancellation of $100,000 of indebtedness owed its
President.
c. During 2000, the President advanced the Company $8,000 and received
$39,500 from the Company. The outstanding amount due from the
President as of December 31, 2000 is $22,052. The amount of interest
credited to operations for 2000 totaled $822. As of December 31, 2000,
the Company accrued $40,000 of unpaid compensation owed its President.
d. On May 25, 2000, the Company issued its President 4,650,000 shares its
common stock in exchange for $4,650 and a $1,855,350 non-recourse
promissory note bearing interest at an annual rate of 8%. On the same
day, the Company issued 350,000 shares its common stock to a Director
in exchange for $350 and a $139,650 non-recourse promissory note
bearing interest at an annual rate of 8%. Both notes mature on May 25,
2005, when the principal and accrued interest becomes fully due and
payable. At the date of issuance, the shares were valued by the
Company at $.40 per share.
1. On October 27, 2000, the Company issued 4,183,675 shares to its
President for future compensation pursuant to a Stock Escrow/Grant
Agreement. Under the terms of the agreement, the President is required
to hold these shares in escrow. While in escrow, the President cannot
vote the shares but has full rights as to cash and non-cash dividends,
stock splits or other change in shares. Any additional shares issued
to the President by reason of the ownership of the 4,183,675 shares
will also be escrowed under the same terms of the agreement.
Upon the exercise by certain holders of Company options or warrants or
upon the need by the Company, in the sole discretion of the Board, to
issue common stock to certain individuals or entities, the number of
shares required for issuance to these holders will be returned from
escrow by the President thereby reducing the number of shares he
F-27
holds. The shares held in escrow are non-transferable and will be
granted to the Company's President only upon the exercise or
expiration of all of the options and warrants, the direction of the
Board, in its sole discretion, or the mutual agreement by the
President and the Board of Directors to terminate the agreement. The
Company valued these shares at par. Upon the actual grant of the
remaining shares to the President, the shares issued will be valued
their market value when issued and charged to operations as
compensation. As of December 31, 2001, 400,000 of these shares were
issued to an unrelated third party. The original issuance of these
shares had no impact on the financial condition of the Company. As
shares are issued out of escrow, the Company will value the shares at
their fair market value or the value of the consideration received for
the shares, whichever is more readably determinable. Currently, any
shares issued to the President are contingent as discussed above.
2. On February 19, 2001, the Company issued its President 6,000,000
shares of common stock for services rendered. These shares were valued
at $420,000.
g. In June 2001, the Company's Board of Directors authorized the
reduction in the amount owed by the President and a Director on
non-recourse promissory notes referred to in footnote (d) above to
$460,350 and $34,650, respectively. The reduction was due to the
substantial reduction in the market value of the Company's stock. The
$1,500,000 reduction was charged to general and administrative
expenses as compensation to the President.
h. During 2001, the President advanced the Company $42,000 and received
$53,300 from the Company. The outstanding amount due from the
President as of December 31, 2001 is $35,880. The amount of interest
credited to operations for 2001 totaled $3,327. For 2001, the Company
accrued $30,000 of unpaid compensation owed its President.
NOTE 12 - STOCK-BASED COMPENSATION PLANS
a In 1996, the Company adopted the 1996 Stock Option Plan and reserved
1,700,000 shares of Common Stock for distribution under the Plan.
Eligible Plan participants include employees, advisors, consultants,
and officers who provide services to the Company. A Committee
appointed by the Company's Board of Directors determines the option
price and the number of shares subject to each option granted. In the
case of Incentive Stock Options granted to an optionee who owns more
than 10% of the Company's outstanding stock, the option price shall be
at least 110% of the fair market value of a share of common stock at
date of grant. In 2000, the Company increased the number of reserved
shares to 6,800,000.
In 1998, the Company granted options to acquire 900,000 shares of
which 500,000 shares were exercised for $125,000. In addition, under
the Plan, the Company issued additional 50,000 shares for consulting
services. The Company charged the fair value of the 50,000 shares of
$5,000 to operations.
In 1999, the Company granted options to acquire 775,000 shares of
Common Stock through the Plan. The Company did not issue any shares in
1999 under the Plan.
b. In 1998, the Company adopted the 1998 Stock Plan and reserved 800,000
shares of Common Stock for distribution under the plan. The Plan was
adopted to provide a means by which the Company could compensate key
employees, advisors, and consultants by issuing them stock in exchange
for services and thereby conserve the Company's cash resources. A
Committee of the Board of Directors determines the value of the
services rendered and the related number of shares to be issued
through the Plan for these services. In 2000, the Company increased
the number of reserved shares to 6,800,000.
In 1998, the Company issued 310,000 shares of Common Stock through the
plan in exchange for consulting services. The Company valued these
shares at $31,000, the fair value of the services rendered.
F-28
In February 2002, the Company adopted the 2002 Stock Issuance/Stock
Plan, and reserved 20,000,000 shares of its common stock for
distribution under the Plan. Eligible Plan participants include
employees, advisors, consultants, and officers who provide services to
the Company. The option price shall be 100% of the fair market value
of a share of common stock at either, a) date of grant or such other
day as the as the Board may determine. Options issued under this plan
expire 5 years from date of grant.
The following is summary of the 1996 and 1998 Stock option plans as well as
relevant information regarding the 2002 Plan:
1996 Stork Option Plan 1998 Stock Option Plan 1999 Stock Plan
---------------------- ---------------------- -----------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
Outstanding Dec 31, 1998 - $ - 350,000,000 $ - - $ -
============ =========== ============== ============ ========== ===========
Granted - $ - 750,000,000 $ 0.25 - $ -
Exercised - $ - 100,000,000 $ 0.35 - $ -
Forfieted - $ - - $ - - $ -
------------ ----------- -------------- ------------- ---------- ------------
Outstanding Dec 31, 1999 - $ 1,000,000.00 $ - - $ -
============ =========== ============== ============ ========== ===========
Granted - $ - $ - $ 5,490,000 $ 0.42
Exercised - $ - 50,000.00 $ 0.25 5,199,500 $ 0.41
Forfieted - $ - - $ - 15,500 $ 0.10
------------ ----------- -------------- ------------- ---------- ------------
Outstanding Dec 3l, 2000 - $ - 950,000.00 $ - 275,000 $ 0.60
============ =========== ============== ============ ========== ===========
Granted - $ - - $ - $ -
Exercised - $ - $ 0.10 - $ -
Forfieted - $ - 50,000.00 $ 0.20 - $ -
Cancelled - $ 900,000.00 $ 0.46 - $ -
------------ ----------- -------------- ------------- ---------- ------------
Outstanding Dec 31 2001 - $ - - $ - 275 000 $ 0.60
============ =========== ============== ============ ========== ===========
Weighted Average Fair Value of Options Granted
During 1999 $ 0.25
============
Weighted Average Fair Veins of Options Granted
During 2000 $ 0.42
============
Weighted Average Fair Value of Options Granted
During 2001 $ a/a
============
In determining the fair value of the options granted during the respective
years, the Black Scholes Option Pricing Model was used with the following
assumptions:
1999 2000 2001
---- ---- ----
Risk free interest rate: 6% 5% n/a
Expected life: 10 years 3 years n/a
Expected volatility 80% 80% n/a
F-29
TABLE OF CONTENTS
Page MATERIAL TECHNOLOGIES, INC.
--------
Prospectus summary 5
Summary financial data 6
Risk factors 7
Use of proceeds 13 18,247,626 Shares of Common Stock
Dividend policy 13
Management's discussion and
analysis of financial condition
and results of operations 14
Business 16 PROSPECTUS
Management 23
Certain transactions 28
Principal stockholders 29
Selling shareholders 31 Dated January ___, 2003
Description of securities 35
Plan of distribution for
selling shareholders 34
Legal matters 37
Experts 37
Index to financial statements 38
UNTIL JANUARY ___, 2003,
25 DAYS AFTER THE DATE OF THIS
PROSPECTUS, ALL DEALERS THAT BUY,
SELL OR TRADE THE SHARES, WHETHER
OR NOT PARTICIPATING IN THIS
OFFERING, MAYBE REQUIRED TO DELIVER
A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATIONS
OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS.
================================================================================
66
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with Delaware General Corporation Law, we have included a
provision in our Certificate of Incorporation to limit the personal liability of
our directors for violations of fiduciary duties. The provision serves to
eliminate such directors' liability to us or our stockholders for monetary
damages, except for (i) any breach of the director's duty of loyalty to us or
our stockholders, (ii) acts of omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) unlawful payment of
dividends or unlawful stock purchases or redemptions, or (iv) any transaction
from which a director derived an improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 being permitted to directors, officers, or persons controlling us pursuant
to the foregoing provisions, we have been informed that, in the opinion of the
United Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act of 1933 and is therefore
unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Filing fee under the Securities Act of 1933 $ 52.05
Printing and Engraving (1) $ 500.00
Blue Sky Fees (1) $ 1,000.00
Auditing Fees (1) $ 5,000.00
Legal Fees (1) $ 15,000.00
Miscellaneous (1) $ 2,000.00
------------
TOTAL $ 23,552.05
(1) Estimates
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
At various times during the previous three fiscal years, we issued common stock
to various persons in reliance on Section 4(2) of the Securities Act of 1933.
Each and every such person has been associated with us in some way, is
sophisticated, and is familiar with our business and our financial position.
With only minor exception, these shares were issued in exchange for services
rendered to us by the recipient of the shares. None of the shares of common
stock described below were registered under the Securities Act of 1933, rather
all issuances are exempt from registration under the Act.
On January 14, 1999, we authorized the issuance of a warrant to purchase 2,500
shares of our common stock for $1.00 per share to Adele Rosenberg, one of our
long time investors in exchange for exchanging a promissory note due to be paid
for a new note. Mrs. Rosenberg, being an existing shareholder, had an existing
relationship with us and all material information concerning our business, our
operations and our financial condition was available to her at the time she
received her warrant to purchase additional shares of our common stock.
On February 4, 1999, we authorized the issuance to one of our consultants, Miles
Wilson, whom we owed $66,666, 175,000 shares of common stock and a common stock
purchase warrant to purchase an additional 175,000 shares of common stock at
$2.50 per share with an expiration date of February 1, 2002, in exchange for
canceling the debt. Mr. Wilson, being one of our consultants, had an existing
relationship with us and all material information concerning our business, our
operations and our financial condition was available to him at the time he
received his shares and warrant to purchase additional shares of our common
stock.
On March 5, 1999, we authorized the issuance of 50,000 shares of common stock,
and on November 22, 1999 we authorized the issuance of 92,000 shares of common
stock to John Goodman, one of our directors, for services rendered to us. On
those same dates, we authorized the issuance of 50,000 and 92,000 shares of
common stock to another of our consultants, William Berks, in exchange for
services rendered to the us. On January 9, 2001, we issued 100,000 shares of our
common stock to William Berks, in exchange for engineering and other services
67
rendered to us, and 100,000 shares of common stock to Mr. Goodman, in exchange
for his services. Mr. Berks also received an additional 100,000 shares of our
common stock on May 7, 2001 for his services. On October 4, 2001 we issued
300,000 shares of common stock each to Mr. Berks and Mr. Goodman in exchange for
their services. On November 20, 2001, we issued an additional 400,000 shares
each to Mr. Berks and Mr. Goodman in exchange for their services. Lastly, on
August 6, 2002, we issued 1,000,000 shares each to Mr. Berks and Mr. Goodman in
exchange for their services in fiscal year 2002. In each case involving Mr.
Berks and Mr. Goodman, we had a pre-existing relationship and all material
information concerning our business, our operations and our financial condition
was available to them at the time they received their respective shares of
common stock.
On May 27, 1999, we authorized the issuance of 200,000 shares of common stock to
Joel Freedman, another of our directors, for services rendered to us. In the
case of Mr. Freedman, he had a pre-existing relationship with us as a director,
and all material information concerning our business, our operations and our
financial condition was available to him at the time he received his shares of
common stock.
On June 9, 1999, we authorized the issuance of 2,000,000 shares of common stock
to Robert M. Bernstein, our chief executive officer and president, and
controlling shareholder, priced at $.05 per share in exchange for cancellation
of $100,000 of cash advances he made to us. On November 22, 1999, we issued two
warrants to purchase a total of 2,000,000 shares of common stock at $.10 per
share with an expiration date of June 30, 2002, that were originally authorized
on June 25, 1998 at $.50 per share. We have since extended the term of these
warrants so they are fully exercisable through June 30, 2004. Robert M.
Bernstein, our chief executive officer and president held one warrant to
purchase 1,800,000 shares and Joel Freedman, a director, held the other warrant
to purchase 200,000 shares.
On January 27, 2000, we issued 40,000 shares of our Class B common stock to
Robert M. Bernstein in exchange for 40,000 shares of common stock. Mr.
Bernstein, therefore, owns 100,000 shares of Class B common stock that has 1,000
votes per share. Therefore, Mr. Bernstein's Class B common stock has 100,000,000
votes and gives him effective voting control.
On May 25, 2000, we issued to Robert M. Bernstein, 4,650,000 shares of
restricted common stock in exchange for $4,650 and Mr. Bernstein's $1,855,350
non-recourse promissory note issued to us bearing interest at an annual rate of
8%. On the same day, we issued 350,000 shares of our restricted common stock to
one of our directors, Joel Freedman in exchange for $350 and a $139,650
non-recourse promissory note issued to us bearing interest at an annual rate of
8%. Both notes mature on May 25, 2005, when the principal and accrued interest
are due and payable.
On October 27, 2000, we issued 4,183,675 shares to Robert M. Bernstein, In
exchange for services previously rendered and pursuant to a stock escrow/grant
agreement. Under the terms of the agreement, Mr. Bernstein is required to hold
these shares in escrow. While in escrow, he cannot vote the shares but has full
rights as to cash and non-cash dividends, stock splits or other change in
shares. Any additional shares issued to Mr. Bernstein by reason of the ownership
of the 4,183,675 shares will also be escrowed under the same terms of the
agreement. As of the date of this prospectus, Mr. Bernstein has released
1,722,000 shares from escrow, resulting in 2,461,675 shares remaining in Mr.
Bernstein's escrow.
On February 19, 2001, we issued 6,000,000 shares of our common stock to Mr.
Bernstein for past compensation due. Approximately 1,500,000 of these shares are
subject to an option that Mr. Bernstein granted to a group of investors in July
1998 in connection with the settlement of a lawsuit among us, the investors, and
Mr. Bernstein.
On June 12, 1999, we issued 200,000 shares of our common stock to our legal
counsel, C. Timothy Smoot, as compensation for his legal services to us. With
regard to Mr. Smoot, we had a pre-existing relationship and all material
information concerning our business, our operations and our financial condition
was available to him as our legal counsel at the time he received his shares of
common stock.
On June 21, 1999, we authorized the issuance of 100,000 shares of common stock
to Robert Cushman, one of our consultants, valued at $.35 per share, payable by
a non-recourse, non-interest bearing promissory note payable on or before June
15, 2003 and secured by the 100,000 shares of common stock. As one of our
consultants, we had a pre-existing relationship with Mr. Cushman and all
material information concerning our business, our operations and our financial
condition was available to him at the time he received his shares of common
stock. In addition, on September 30, 1999, we authorized the grant of options to
purchase 200,000 shares of common stock, at $.60 per share, to Mr. Cushman for
services rendered to us.
On July 2, 1999, we authorized the issuance of 25,000 shares of common stock to
Alex Adelson, a consultant and advisory board member, or his designees, and
stock options for 675,000 additional shares of common stock with an exercise
price of $.25 per share. We had a pre-existing relationship with Mr. Adelson and
all material information concerning our business, our operations and our
financial condition was available to him at the time he received his shares of
common stock. On April 11, 2000, we issued another 15,000 shares of common stock
to Mr. Adelson relating to the operations of a joint venture. However, due to a
dispute that developed between us and Mr. Adelson, we subsequently canceled all
outstanding stock options issued in his name, and no options are outstanding at
this time.
On July 7, 1999, we authorized the issuance of 672,205 shares of common stock to
the University of Pennsylvania in accordance with our agreement with the
University, licensing rights to the EFS. Issuing these shares was a part of the
modification of our licensing agreement with the University and at the time we
issued the shares, the University had a pre-existing relationship with us as
licensor and a strategic partner in assisting us in research and development of
our technologies and products. All material information concerning our business,
our operations and our financial condition was available to the University at
the time it received shares of our common stock.
68
On August 23, 1999, we authorized the issuance of 50,000 shares of common stock
to another of our consultants, John J. DeLuccia, in exchange for services
rendered us. As one of our consultants, we had a pre-existing relationship with
Mr. DeLuccia and all material information concerning our business, our
operations and our financial condition was available to him at the time he
received his shares of common stock.
On September 29, 1999, we authorized the issuance of 8,000 shares of common
stock to The Blaine Group, in exchange for public relations services rendered to
us. On November 15, 1999, December 17, 1999, and February 28,2000, we issued
4,500 shares, 15,500 shares and 4,500 shares, respectively, of common stock to
The Blaine Group. As one of our consultants, we had a pre-existing relationship
with The Blaine Group and all material information concerning our business, our
operations and our financial condition was available to them at the time they
received shares of our common stock.
On October 11, 1999, we authorized the issuance of 333,333 shares of common
stock to a private investor, Nathan J. Esformes, for $.45 per share, which
totaled an investment of $150,000. We believe that Mr. Esformes had all material
information concerning our business, our operations and our financial condition
at the time he purchased shares of our common stock. We also believe Mr.
Esformes qualified as an accredited investor as defined in Rule 501 Of
Regulation D promulgated under the Securities Act of 1933.
On October 27, 1999, we authorized the issuance of a total 300,000 shares of
common stock to seven members of our advisory board in exchange for their
consulting services and advice given to us. No one member received more than
50,000 shares. These seven advisory board members included T.Y. Lin, Y.C. Yang,
Larry Chimerine, Thomas Root, Robert Cushman, Robert Coogan and Sam Schwartz. On
November 10, 1999, we authorized the issuance of 10,000 shares of common stock
to another member of our advisory board, Robert Maddin.
On December 31, 1999, we authorized the issuance of 150,000 shares of common
stock to one of our consultants, Irwin Renneisen, for services rendered to us.
As one of our consultants, we had a pre-existing relationship with Mr. Renneisen
and all material information concerning our business, our operations and our
financial condition was available to him at the time he received his shares of
common stock.
On January 12, 2000, the Board authorized the issuance of up to 110,000 shares
of common stock to a group of approximately 22 existing shareholders who claimed
they were defrauded by one of our former consultants, Robert Adams, in exchange
for an assignment of their claims to us and a release of all claims against us.
During January, February, and August 2000, we issued 65,028 shares of our common
stock to these investors in exchange for an assignment and release of claims.
On January 31, 2000, we issued 50,000 shares of common stock to David Haberman,
a new member of the advisory board, in exchange for his advice and services. As
an advisory board member, we had a pre-existing relationship and all material
information concerning our business, our operations and our financial condition
was available to Mr. Haberman at the time he received his shares of common
stock.
On February 8, 2000, we issued 10,000 shares of common stock to Barry Peril, one
of our consultants, in exchange for his services. As one of our consultants, we
had a pre-existing relationship with Mr. Peril and all material information
concerning our business, our operations and our financial condition was
available to him at the time he received his shares of common stock.
On February 28, 2000, we issued 200,000 of common stock to Quarum Capital
Funding, a consultant that rendered financial services advice to us. As one of
our consultants, we had a pre-existing relationship with them, and all material
information concerning our business, our operations and our financial condition
was available to Quarum Capital Funding at the time he received his shares of
common stock. We have since canceled the common stock certificate issued to this
consultant due to a dispute we have with their performance as a consultant. We
have also notified the consultant of our cancellation of these shares of common
stock.
On March 9, 2000, we issued 100,000 of common stock to Craig Snyder, one of our
consultants in exchange for his agreement to cancel a $100,000 promissory note
we issued to him. As one of our consultants, we had a pre-existing relationship
with Mr. Snyder, and all material information concerning our business, our
operations and our financial condition was available to him at the time he
received his shares of common stock.
On March 13, 2000, we issued Thomas Root, one of our consultants and Miles
Larson, another consultant, 50,000 and 25,000 shares, respectively, of our
Common stock, in exchange for their services to us. As one of our consultants,
we had a pre-existing relationship with Mr. Root and Mr. Larson and all material
information concerning our business, our operations and our financial condition
was available to them at the time they received shares of common stock.
On March 29, 2000, we issued 50,000 shares of common stock to another
consultant, First American Ventures, in exchange for their services. As one of
our consultants, we had a pre-existing relationship with this group, and all
material information concerning our business, our operations and our financial
condition was available to them at the time they received shares of common
stock.
On April 11, 2000, we issued 25,000 shares of common stock for advisory services
to a consultant, Alex Radin. As one of our consultants, we had a pre-existing
relationship with Mr. Radin, and all material information concerning our
business, our operations and our financial condition was available to him at the
time he received shares of common stock.
69
On April 28, 2000, we issued 30,000 shares of common stock for advisory services
to a consultant, Steven Requlinski. As one of our consultants, we had a
pre-existing relationship with Mr. Requlinski, and all material information
concerning our business, our operations and our financial condition was
available to him at the time he received shares of common stock.
On July 13, 2000, we issued 40,000 shares of common stock to Robert Brunette in
exchange for legal services he rendered to us as our counsel.
On November 14, 2000, we issued 400,000 shares of common stock to one of our
existing stockholders, Consulting Commerce Distribution, Inc. in exchange for
our receipt of $22,490.
On December 13, 2000, we issued 250,000 shares of our common stock to James
Clark, an individual that brought suit against us that was later determined to
be Without merit, but we agreed to settle the lawsuit brought against us by
issuing these shares to Mr. Clark
On December 19, 2000, we issued 200,000 shares of our common stock to another of
our consultants, Yuanfeng Li in exchange for his consulting services. As one of
our consultants, we had a pre-existing relationship with Mr. Li, and all
material information concerning our business, our operations and our financial
condition was available to him at the time he received shares of common stock.
On January 8, 2001, we issued 50,000 shares of our common stock to one of our
consultants, Robert Waite, in exchange for his technical services rendered to
us. As one of our consultants, we had a pre-existing relationship with Mr.
Waite, and all material information concerning our business, our operations and
our financial condition was available to him at the time he received shares of
common stock.
On January 8, 2001, we issued 100,000 shares of our common stock to Dr. Campbell
Laird, another of our advisory board members, for services rendered to us. As
one of our consultants, we had a pre-existing relationship with Dr. Laird, and
all material information concerning our business, our operations and our
financial condition was available to him at the time he received shares of
common stock.
On June 27, 2002, we issued 50,000 shares of our class A preferred stock, par
value $.001 per share, to our legal counsel, Gregory Bartko, in exchange for his
investment of $47,000. On August 12 and 29, 2002, we issued 25,000 shares each
for a total of 50,000 additional shares of our class A preferred stock to Mr.
Bartko, in exchange for his investment of $50,000. The shares received by Mr.
Bartko are convertible at his election into 200,000 shares of our class A common
stock, par value $.001 per share. Mr. Bartko is an accredited investor as
defined in Rule 501 of Regulation D promulgated under the Securities Act of
1933, had a pre-existing relationship with us as our legal counsel, and had
access to all information needed for him to make an informed investment
decision. The offers and sale of our class A preferred stock to Mr. Bartko was
exempt from registration under Rule 506 of Regulation D and Section 4(1) of the
Securities Act of 1933.
By Amended and Superceding Securities Subscription Agreement dated December 17,
2002, we entered into another agreement with Mr. Bartko clarifying that the
100,000 shares of Class A preferred stock purchased by him includes a 10% per
annum cumulative dividend payable only out of our earnings before interest,
taxes, depreciation and administrative expenses.
By agreement dated July 15, 2002, we settled the lawsuits involving Stephen
Beck. Pursuant to our settlement agreement, we issued to Mr. Beck 1,000,000
shares of our restricted common stock with anti-dilution protection for 18
months after the date of the agreement. The anti-dilution provision requires us
to issue additional shares of common stock, options or warrants to Mr. Beck in
order to maintain his relative ownership of our outstanding common stock, during
the 18 month period after the date of the agreement. As of the date of this
prospectus, we have issued 1,000,000 shares of our restricted common stock to
Mr. Beck, with a market value of approximately $45,000 as of the date of
settlement. Pursuant to the settlement, we have also issued into escrow
2,000,000 shares of restricted common stock to cover the anti-dilution
provisions of the settlement. In addition to the settlement with Mr. Beck, we
agreed to partially compensate our attorneys handling that case by issuing them
1,000,000 shares of our restricted common stock. In the case of these shares of
restricted common stock, the issuances were exempt from registration under
Section 4(2) of the Securities Act of 1933. Stephen Beck, and our counsel
representing us in that, case had all material information available to them,
enabling them to make an informed investment decision, and none of the parties
receiving these shares received the shares with a view towards resale or
distribution thereof, rather they had an investment intent in receiving these
shares.
Between January 2001 and October 21,2002, we offered and sold a total of
1,317,500 shares of our common stock at a 30% discount to the market price at
the time of each sale, to 244 purchasers. In the aggregate, we have received
$1,230,700 from these sales. The names, dates of purchase, purchase price per
share and total aggregate amount of investment made by each purchaser is set
forth in the table that follows.
All of these offers and sales were exempt from registration pursuant to Rule 506
of Regulation D promulgated under the Securities Act of 1933, and in the case of
certain foreign residents, the offers and sales were exempt from registration
under Regulation S promulgated under the Securities Act of 1933. All purchasers
of these shares represented to us that they received and have had access to any
financial and other information concerning our operations and financial
condition as well as our securities, including an opportunity to ask questions
of and receive answers from our management regarding any other material
information the purchasers may have needed in order to make their investment
decision. All purchasers named in the table below, received their shares of
common stock under the exemption provided by Regulation S, or under the
exemption provided by Rule 506 of Regulation D as "accredited investors". All
purchasers executed a common form of subscription agreement and investment
representation statement.
TRANSACTION AGGREGATE SHARES
NAME DATE AMOUNT PURCHASED PRICE PER SHARE
--------------------------- ------------- ----------------- ------------------ ---------------
Willard Clapp 1/9/2001 $ 1,001 14,300 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
70
Deborah Darragh 7/16/2001 $ 10,080 160,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Adrian Bell 7/16/2001 $ 1,709 23,180 0.075
--------------------------- ------------- ----------------- ------------------ ---------------
Jill Robinson 7/17/2001 $ 1,063 14,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Adrian Bell 7/19/2001 $ 1,240 16,820 0.075
--------------------------- ------------- ----------------- ------------------ ---------------
Brian Robinson 7/19/2001 $ 7,700 100,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Bob Guthrie 7/20/2001 $ 5,760 75,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Robert Smith 7/20/2001 $ 18,311 238,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Graeme McLean 7/23/2001 $ 2,085 30,000 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Max Guille 7/24/2001 $ 15,385 200,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Wallace Sew-Hoy 7/25/2001 $ 6,985 100,000 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Colin Gregan 7/26/2001 $ 1,155 15,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Chris Mackertich 7/26/2001 $ 2,487 27,500 0.091
--------------------------- ------------- ----------------- ------------------ ---------------
Matt Develin 7/26/2001 $ 7,685 100,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Phil Roden 7/31/2001 $ 2,487 27,500 0.091
--------------------------- ------------- ----------------- ------------------ ---------------
Eva Pelayo 7/31/2001 $ 7,000 100,000 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
James Willman 8/2/2001 $ 4,550 50,000 0.091
--------------------------- ------------- ----------------- ------------------ ---------------
Dr. George Amaro 8/7/2001 $ 9,995 110,000 0.091
--------------------------- ------------- ----------------- ------------------ ---------------
Ron Sakovits 8/8/2001 $ 1,072 12,000 0.091
--------------------------- ------------- ----------------- ------------------ ---------------
Glen Harris 8/9/2001 $ 2,310 30,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
John Green 8/10/2001 $ 4,774 62,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
John Moran 8/10/2001 $ 5,005 55,000 0.091
--------------------------- ------------- ----------------- ------------------ ---------------
Jamie Hull 8/10/2001 $ 5,005 55,000 0.091
--------------------------- ------------- ----------------- ------------------ ---------------
Howard Chew 8/10/2001 $ 9,080 100,000 0.091
--------------------------- ------------- ----------------- ------------------ ---------------
George Johnson 8/13/2001 $ 4,990 55,000 0.091
--------------------------- ------------- ----------------- ------------------ ---------------
David McNabb 8/16/2001 $ 3,850 50,000 0.770
--------------------------- ------------- ----------------- ------------------ ---------------
Tony McCullough 8/17/2001 $ 7,685 100,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Jack Ingram Jr. 8/23/2001 $ 4,400 70,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Adam Gilbert 8/24/2001 $ 3,765 60,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Phil Roden 8/27/2001 $ 622 10,000 0.062
--------------------------- ------------- ----------------- ------------------ ---------------
Chris Mackertich 8/27/2001 $ 622 10,000 0.062
--------------------------- ------------- ----------------- ------------------ ---------------
Tim Wheaton 8/28/2001 $ 3,450 55,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Doug Tysoe 8/28/2001 $ 1,996 32,000 0.062
--------------------------- ------------- ----------------- ------------------ ---------------
Bob Adams 8/28/2001 $ 5,025 80,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
John Darragh 8/29/2001 $ 10,080 160,000 0.063
71
--------------------------- ------------- ----------------- ------------------ ---------------
Clayton Gilbert 8/30/2001 $ 5,241 83,190 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
John Gilbert 8/30/2001 $ 1,560 25,000 0.062
--------------------------- ------------- ----------------- ------------------ ---------------
Frank Jenkins 8/31/2001 $ 18,900 300,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Val Wood 9/4/2001 $ 5,040 80,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Doug Hamilton 9/4/2001 $ 4,095 65,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Trevor Gosling 9/6/2001 $ 5,025 80,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
George Amaro 9/10/2001 $ 5,655 90,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Robert Foster 9/12/2001 $ 2,250 32,357 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Bettyanne Austen 9/14/2001 $ 3,135 45,000 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Euan Macfarlane 9/27/2001 $ 6,600 100,000 0.066
--------------------------- ------------- ----------------- ------------------ ---------------
Robert Wickham 9/28/2001 $ 3,132 45,000 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Bahaderalli Keshani 10/1/2001 $ 6,650 100,000 0.067
--------------------------- ------------- ----------------- ------------------ ---------------
John Moran 10/3/2001 $ 6,650 100,000 0.067
--------------------------- ------------- ----------------- ------------------ ---------------
Clarence Fitzner 10/9/2001 $ 2,665 40,000 0.067
--------------------------- ------------- ----------------- ------------------ ---------------
George Johnson 10/9/2001 $ 3,150 50,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Jim Willman 10/9/2001 $ 4,550 70,000 0.065
--------------------------- ------------- ----------------- ------------------ ---------------
Carol Drugan 10/9/2001 $ 1,064 16,000 0.067
--------------------------- ------------- ----------------- ------------------ ---------------
Bahaderalli Keshani 10/9/2001 $ 9,975 150,000 0.067
--------------------------- ------------- ----------------- ------------------ ---------------
David Israel 10/9/2001 $ 1,315 20,000 0.066
--------------------------- ------------- ----------------- ------------------ ---------------
Ross Williams 10/9/2001 $ 1,648 25,007 0.066
--------------------------- ------------- ----------------- ------------------ ---------------
Warren Heuston 10/9/2001 $ 1,995 30,000 0.067
--------------------------- ------------- ----------------- ------------------ ---------------
Ross Williams 10/9/2001 $ 4,972 74,993 0.066
--------------------------- ------------- ----------------- ------------------ ---------------
Greg Rynne 10/9/2001 $ 12,985 200,000 0.065
--------------------------- ------------- ----------------- ------------------ ---------------
Maria Sarabia 10/10/2001 $ 6,825 105,000 0.065
--------------------------- ------------- ----------------- ------------------ ---------------
Bernard Coble 10/10/2001 $ 1,995 30,000 0.067
--------------------------- ------------- ----------------- ------------------ ---------------
Brad Smyth 10/10/2001 $ 500 6,500 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Glen Humbert 10/10/2001 $ 3,305 50,000 0.066
--------------------------- ------------- ----------------- ------------------ ---------------
Francis Sliwinski 10/11/2001 $ 1,078 11,000 0.098
--------------------------- ------------- ----------------- ------------------ ---------------
Wesley Moser 10/11/2001 $ 3,325 50,000 0.067
--------------------------- ------------- ----------------- ------------------ ---------------
HS Williams 10/12/2001 $ 1,155 15,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Nancy Demarr 10/12/2001 $ 5,145 52,500 0.098
--------------------------- ------------- ----------------- ------------------ ---------------
Coslow Holt 10/12/2001 $ 1,655 21,500 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Genice Akins 10/12/2001 $ 2,000 28,500 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Robert Foster 10/12/2001 $ 1,239 12,800 0.097
--------------------------- ------------- ----------------- ------------------ ---------------
Charles Hannan 10/15/2001 $ 4,032 32,000 0.126
72
--------------------------- ------------- ----------------- ------------------ ---------------
Adam Gilbert 10/18/2001 $ 1,300 20,000 0.066
--------------------------- ------------- ----------------- ------------------ ---------------
Dorothy Ellerbe 10/18/2001 $ 980 13,611 0.072
--------------------------- ------------- ----------------- ------------------ ---------------
Euan Macfarlane 10/19/2001 $ 6,720 60,000 0.112
--------------------------- ------------- ----------------- ------------------ ---------------
Roderick L. Carter 11/5/2001 $ 1,050 10,000 0.105
--------------------------- ------------- ----------------- ------------------ ---------------
Howard Wilson 11/9/2001 $ 4,985 50,000 .10
--------------------------- ------------- ----------------- ------------------ ---------------
Frank Alexander 11/15/2001 $ 1,050 10,000 0.105
--------------------------- ------------- ----------------- ------------------ ---------------
Ali Siddiqui 11/16/2001 $ 2,016 18,000 0.112
--------------------------- ------------- ----------------- ------------------ ---------------
James Willman 11/16/2001 $ 5,600 50,000 0.112
--------------------------- ------------- ----------------- ------------------ ---------------
Warren Heuston 11/16/2001 $ 2,001 32,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Christopher Collins 11/19/2001 $ 1,260 10,000 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Luz Pelayo 11/28/2001 $ 1,000 8,400 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
Eva Pelayo 11/28/2001 $ 7,497 63,000 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
Brian Taylor 1/4/2002 $ 5,005 71,500 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
James Marshall 1/14/2002 $ 986 13,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
James Auld 1/14/2002 $ 2,526 33,000 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Philip Guilfoyle 1/14/2002 $ 10,060 120,000 0.080
--------------------------- ------------- ----------------- ------------------ ---------------
Maria DelaRosario Leon 1/17/2002 $ 4,988 47,500 0.105
--------------------------- ------------- ----------------- ------------------ ---------------
John Law 1/24/2002 $ 2,610 25,000 0.105
--------------------------- ------------- ----------------- ------------------ ---------------
John Brandenburg 1/29/2002 $ 21,000 200,000 0.105
--------------------------- ------------- ----------------- ------------------ ---------------
Steven Moffatt 2/1/2002 $ 9,996 102,000 0.098
--------------------------- ------------- ----------------- ------------------ ---------------
Peter Fitzpatrick 2/5/2002 $ 17,485 250,000 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Bill Peatt 2/6/2002 $ 1,960 28,000 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Graham Howe 2/6/2002 $ 2,505 36,000 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Maria DelaRosario Leon 2/7/2002 $ 10,000 142,857 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Sabina & Lee Braun 2/8/2002 $ 21,000 300,000 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Gerardo Leon 2/11/2002 $ 4,000 47,619 0.084
--------------------------- ------------- ----------------- ------------------ ---------------
George Goodare 2/12/2002 $ 1,680 20,000 0.084
--------------------------- ------------- ----------------- ------------------ ---------------
David Campbell 2/15/2002 $ 7,825 70,000 0.112
--------------------------- ------------- ----------------- ------------------ ---------------
Arthur Kyriakos 2/19/2002 $ 4,745 40,000 0.120
--------------------------- ------------- ----------------- ------------------ ---------------
Richard Outhred 2/19/2002 $ 994 10,300 0.098
--------------------------- ------------- ----------------- ------------------ ---------------
Ben Bailey 2/21/2002 $ 5,102 43,000 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
Doug Caswell 2/22/2002 $ 17,835 150,000 0.119
73
--------------------------- ------------- ----------------- ------------------ ---------------
Peggy Letney 2/22/2002 $ 5,350 45,000 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
Charles Hannan 2/22/2002 $ 8,092 68,000 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
Leonard Kline 2/22/2002 $ 5,350 45,000 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
John Marlowe 2/22/2002 $ 11,900 100,000 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
George Goodare 2/25/2002 $ 1,487 12,500 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
Christopher Collins 2/25/2002 $ 1,785 15,000 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
Frank Jenkins 2/25/2002 $ 10,200 85,714 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
Carol Drugan 2/26/2002 $ 2,520 20,000 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Wesley Moser 2/26/2002 $ 3,250 27,937 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Joseph Faggion 2/27/2002 $ 1,245 10,000 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
John Green 2/27/2002 $ 2,142 18,000 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
Bill Peate 2/27/2002 $ 5,520 40,000 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
David Gusmeroli 2/27/2002 $ 9,505 80,000 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
Bernard Coble 2/28/2002 $ 2,500 19,841 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Coslow Holt 2/28/2002 $ 2,000 15,873 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Genice Akins 2/28/2002 $ 2,000 15,873 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Glen Harris 3/1/2002 $ 4,760 40,000 0.119
--------------------------- ------------- ----------------- ------------------ ---------------
Graeme McLean 3/1/2002 $ 6,555 45,000 0.146
--------------------------- ------------- ----------------- ------------------ ---------------
Maria Sarabia 3/1/2002 $ 9,983 64,818 0.154
--------------------------- ------------- ----------------- ------------------ ---------------
Euan Macfarlane 3/5/2002 $ 12,600 90,000 0.144
--------------------------- ------------- ----------------- ------------------ ---------------
Tony McCullough 3/5/2002 $ 15,370 100,000 0.154
--------------------------- ------------- ----------------- ------------------ ---------------
Howard Chew 3/7/2002 $ 7,680 50,000 0.154
--------------------------- ------------- ----------------- ------------------ ---------------
Anne Wittington 3/8/2002 $ 2,548 16,300 0.154
--------------------------- ------------- ----------------- ------------------ ---------------
Jerry Yeatts 3/12/2002 $ 500 3,968 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Don Foster 3/12/2002 $ 6,300 50,000 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Eva Pelayo 3/14/2002 $ 2,016 16,000 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Don Foster 3/14/2002 $ 6,300 62,069 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Tony McCullough 3/19/2002 $ 11,185 100,000 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Wendy Billington 3/19/2002 $ 50,385 496,550 0.105
--------------------------- ------------- ----------------- ------------------ ---------------
Bruce Burton 3/20/2002 $ 3,024 24,000 0.126
--------------------------- ------------- ----------------- ------------------ ---------------
Michael Bornstein 3/20/2002 $ 4,908 48,551 0.100
--------------------------- ------------- ----------------- ------------------ ---------------
Gary Jones 3/25/2002 $ 2,000 19,705 0.101
--------------------------- ------------- ----------------- ------------------ ---------------
Maria Sarabia 3/25/2002 $ 9,500 93,596 0.101
--------------------------- ------------- ----------------- ------------------ ---------------
Frank Jenkins 3/25/2002 $ 1,525 15,026 0.101
74
--------------------------- ------------- ----------------- ------------------ ---------------
Luz Pelayo 3/25/2002 $ 15,000 100,000 0.101
--------------------------- ------------- ----------------- ------------------ ---------------
Eric Dyer 3/27/2002 $ 5,060 50,000 0.101
--------------------------- ------------- ----------------- ------------------ ---------------
Deborah Taylor 3/27/2002 $ 10,150 100,000 0.101
--------------------------- ------------- ----------------- ------------------ ---------------
James Willman 4/4/2002 $ 2,940 30,000 0.098
--------------------------- ------------- ----------------- ------------------ ---------------
David Barrett 4/5/2002 $ 4,885 50,000 0.098
--------------------------- ------------- ----------------- ------------------ ---------------
Murry Timms 4/7/2002 $ 5,287 54,100 0.098
--------------------------- ------------- ----------------- ------------------ ---------------
Leonard Kline 4/9/2002 $ 2,940 30,000 0.098
--------------------------- ------------- ----------------- ------------------ ---------------
Tim McCraig 4/17/2002 $ 4,985 64,935 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
George McCraig 4/17/2002 $ 4,985 64,935 0.077
--------------------------- ------------- ----------------- ------------------ ---------------
Bahaderalli Keshani 4/29/2002 $ 1,680 30,000 0.056
--------------------------- ------------- ----------------- ------------------ ---------------
Bill Peat 5/1/2002 $ 2,800 50,000 0.056
--------------------------- ------------- ----------------- ------------------ ---------------
Louis Tziavaras 5/1/2002 $ 5,600 100,000 0.056
--------------------------- ------------- ----------------- ------------------ ---------------
Charles DeCarlo 5/2/2002 $ 2,785 50,000 0.056
--------------------------- ------------- ----------------- ------------------ ---------------
Brian Robinson 5/2/2002 $ 2,783 50,000 0.056
--------------------------- ------------- ----------------- ------------------ ---------------
David Cox 5/3/2002 $ 5,935 100,000 0.059
--------------------------- ------------- ----------------- ------------------ ---------------
Damier Biki 5/3/2002 $ 2,018 35,000 0.058
--------------------------- ------------- ----------------- ------------------ ---------------
Robert Harper 5/8/2002 $ 6,300 100,000 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Ben Bailey 5/8/2002 $ 5,832 92,519 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Adam Gilbert 5/9/2002 $ 2,085 30,000 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Bahaderalli Keshani 5/9/2002 $ 5,250 75,000 0.070
--------------------------- ------------- ----------------- ------------------ ---------------
Charlotte Wickham 5/15/2002 $ 3,804 60,615 0.063
--------------------------- ------------- ----------------- ------------------ ---------------
Leslie Schwebel 5/22/2002 $ 1,581 24,000 0.660
--------------------------- ------------- ----------------- ------------------ ---------------
Anthony High 5/23/2002 $ 10,002 150,400 0.660
--------------------------- ------------- ----------------- ------------------ ---------------
Jim Willman 5/30/2002 $ 1,288 23,000 0.056
--------------------------- ------------- ----------------- ------------------ ---------------
Giovanni Martinazzo 6/3/2002 $ 2,778 50,000 0.560
--------------------------- ------------- ----------------- ------------------ ---------------
Tony McCullough 6/20/2002 $ 23,985 1,100,000 0.024
--------------------------- ------------- ----------------- ------------------ ---------------
Sabina & Lee Braun 6/20/2002 $ 9,600 440,000 0.024
--------------------------- ------------- ----------------- ------------------ ---------------
Bill Peat 6/20/2002 $ 4,320 220,000 0.024
--------------------------- ------------- ----------------- ------------------ ---------------
David McNabb 6/21/2002 $ 3,600 165,000 0.024
--------------------------- ------------- ----------------- ------------------ ---------------
Douglas Caswell 6/21/2002 $ 4,780 220,000 0.024
--------------------------- ------------- ----------------- ------------------ ---------------
Euan Macfarlane 6/21/2002 $ 6,000 275,000 0.024
--------------------------- ------------- ----------------- ------------------ ---------------
Wallace Sew-Hoy 6/25/2002 $ 2,400 110,000 0.024
--------------------------- ------------- ----------------- ------------------ ---------------
Deborah Taylor 7/1/2002 $ 4,800 220,000 0.024
--------------------------- ------------- ----------------- ------------------ ---------------
Clayton Gilbert 7/2/2002 $ 2,784 92,800 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Gary McDonald 7/5/2002 $ 5,885 147,500 0.040
75
--------------------------- ------------- ----------------- ------------------ ---------------
Jim Willman 7/8/2002 $ 3,000 100,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Christopher Collins 7/8/2002 $ 2,250 75,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Grahm McClean 7/12/2002 $ 3,730 125,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Carlos DeCarlo 7/15/2002 $ 2,985 100,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Frank Jenkins 7/16/2002 $ 4,478 149,260 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Peter Fitzpatrick 8/15/2002 $ 14,980 500,000 0.300
--------------------------- ------------- ----------------- ------------------ ---------------
John Martinazo 8/15/2002 $ 2,985 100,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Richard Saxton 8/23/2002 $ 3,000 100,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Steven Moffatt 8/30/2002 $ 2,980 100,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Jeff Campbell 9/4/2002 $ 3,000 100,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Geoffrey Rynne 9/5/2002 $ 11,985 400,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
John Martinazo 9/10/2002 $ 8,985 300,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Tibor Ambros 9/11/2002 $ 10,000 500,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Dale Megli 9/12/2002 $ 2,985 100,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Brian Robinson 9/12/2002 $ 735 25,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Carlos DeCarlo 9/13/2002 $ 4,485 150,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Bob Guthrie 9/13/2002 $ 4,983 200,000 0.025
--------------------------- ------------- ----------------- ------------------ ---------------
Colin Gregan 9/13/2002 $ 1,500 60,000 0.025
--------------------------- ------------- ----------------- ------------------ ---------------
Jill Robinson 9/18/2002 $ 400 20,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Glen Harris 9/20/2002 $ 5,100 170,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Dave Madden 9/20/2002 $ 2,985 100,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Larry Warden Braden 9/23/2002 $ 750 25,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Jim Willman 9/23/2002 $ 2,500 100,000 0.025
--------------------------- ------------- ----------------- ------------------ ---------------
Thomsen Family 9/23/2002 $ 5,100 170,000 0.030
--------------------------- ------------- ----------------- ------------------ ---------------
Max Guille 10/1/2002 $ 3,980 200,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
John Brandenburg 10/4/2002 $ 6,000 300,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Adam Gilbert 10/4/2002 $ 985 50,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Dale Megli 10/4/2002 $ 1,985 100,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Trevor Schultz 10/4/2002 $ 3,983 200,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Jack Ingram Jr. 10/4/2002 $ 1,000 50,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Bettyanne Austin (Dave Cox) 10/4/2002 $ 5,080 255,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
David Saxton 10/4/2002 $ 3,980 200,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Graeme McLean 10/4/2002 $ 1,985 100,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Bill Peat 10/4/2002 $ 5,000 250,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Bruce Simpson 10/4/2002 $ 5,000 250,000 0.020
76
--------------------------- ------------- ----------------- ------------------ ---------------
Jeff Campbell 10/9/2002 $ 4,000 200,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Laura Martinazzo 10/9/2002 $ 1,000 50,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Michael Bornstein 10/9/2002 $ 2,000 100,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
John Moran 10/9/2002 $ 4,000 200,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Kim & Paul Braun 10/9/2002 $ 4,685 235,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Doug Caswell 10/9/2002 $ 9,980 500,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Sabina Braun 10/9/2002 $ 23,980 1,200,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Wesley Moser 10/10/2002 $ 2,000 100,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Wendy Billington 10/10/2002 $ 3,980 200,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Clayton Thompson 10/10/2002 $ 2,695 135,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Bruce Simpson 10/10/2002 $ 5,000 250,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Maria Sarabia 10/11/2002 $ 2,000 100,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Frank Jenkins 10/11/2002 $ 6,000 300,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Willard Clapp 10/11/2002 $ 3,000 150,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Charles Hannan 10/11/2002 $ 4,000 200,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Hannu Hamalainen 10/11/2002 $ 6,980 350,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
David Martin 10/11/2002 $ 7,985 400,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Tonny Hamalainen 10/11/2002 $ 3,985 20,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Doug Caswell 10/11/2002 $ 4,980 250,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Charles Wickham 10/11/2002 $ 2,707 125,000 0.022
--------------------------- ------------- ----------------- ------------------ ---------------
Tim McCaig 10/11/2002 $ 1,211 61,312 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
John Gilbert 10/11/2002 $ 1,325 68,300 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Dave Barrett 10/11/2002 $ 2,980 150,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Jeff Campbell 10/11/2002 $ 4,000 200,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Glen Harris 10/11/2002 $ 4,985 250,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
David Gusmeroli 10/11/2002 $ 7,980 400,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
G & J Cottrell 10/15/2002 $ 2,285 100,000 0.023
--------------------------- ------------- ----------------- ------------------ ---------------
Leonard Kline 10/15/2002 $ 2,000 100,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Jeff Campbell 10/18/2002 $ 4,550 227,500 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
John Moran 10/21/2002 $ 8,000 40,000 0.020
77
Jeff Hawkins 10/23/2002 $ 3,030 150,000 0.02
--------------------------- ------------- ----------------- ------------------ ---------------
Michael Mayo 10/25/2002 $ 1,980 100,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Greame McLean 11/1/2002 $ 985 50,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Jeff Pearson 11/4/2002 $ 2,985 150,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Bruce Simpson 11/13/2002 $ 5,000 250,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
John Darragh 11/19/2002 $ 5,700 300,000 0.019
--------------------------- ------------- ----------------- ------------------ ---------------
Louis Tziavaras 11/25/2002 $ 3,000 150,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Michael Mayo 11/25/2002 $ 1,980 100,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Gary Jones 12/2/2002 $ 2,000 100,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
George Delores 12/4/2002 $ 2,780 140,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
John Darragh 12/6/2002 $ 5,700 300,000 0.190
--------------------------- ------------- ----------------- ------------------ ---------------
George Braden 12/10/2002 $ 500 25,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Graeme McLean 12/10/2002 $ 1,485 75,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Hannu Hamalainen 12/11/2002 $ 7,980 400,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Tony McCullough 12/12/2002 $ 25,185 1,259,250 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Euan Macfarlane 12/13/2002 $ 1,983 100,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
Glen Harris 12/13/2002 $ 9,675 500,000 0.019
--------------------------- ------------- ----------------- ------------------ ---------------
Max Guille 12/13/2002 $ 11,380 600,000 0.019
--------------------------- ------------- ----------------- ------------------ ---------------
Grant Howard 12/16/2002 $ 1,000 50,000 0.020
--------------------------- ------------- ----------------- ------------------ ---------------
TOTAL AGGREGATE PRICE $ 1,320,027 TOTAL SHARES 30,408,881
ITEM 27. EXHIBITS
a. Index of Exhibits
Exhibit No. Description of Document
------------ -------------------------
3(i) Certificate of Incorporation of Material Technologies, Inc.(1)
Certificate of Amendment, February 16, 2000(2)
78
Certificate of Amendment, July 12, 2000(2)
Certificate of Amendment, July 19, 2000(2)
Certificate of Amendment, July 31, 2000(2)
Certificate of Amendment, October 16, 2001(2)
Certificate of Amendment, dated December 2, 2002 (4)
3(ii) Bylaws of Material Technologies, Inc.(1)
4.1 Class A Convertible Preferred Stock
Certificate of Designations(1)
4.2 Class B Convertible Preferred Stock
Certificate of Designations(1)
4.3 Material Technologies, Inc. Stock Escrow/Grant(2)
5.0 Opinion of Legal Counsel (Exhibit 23.0 Included)(4)
10.1 License Agreement Between Tensiodyne Corporation and
the Trustees of the University of Pennsylvania(1)
10.2 Sponsored Research Agreement between Tensiodyne Corporation and
the Trustees of the University of Pennsylvania(1)
10.3 Amendment 1 to License Agreement Between Tensiodyne Scientific
Corporation and the Trustees of the University of Pennsylvania(1)
10.4 Repayment Agreement Between Tensiodyne Scientific Corporation and
the Trustees of the University of Pennsylvania(1)
10.5 Teaming Agreement Between Tensiodyne Scientific Corporation and
Southwest Research Institute(1)
10.6 Letter Agreement between Tensiodyne Scientific Corporation,
Robert M. Bernstein, and Stephen Forrest Beck and Handwritten
modification(1)
10.7 Agreement Between Tensiodyne Corporation and Tensiodyne 1985-1 R&D
Partnership(2)
79
10.8 Amendment to Agreement Between Material Technologies, Inc. and
Tensiodyne 1985-1 R&D Partnership(2)
10.9 Agreement Between Advanced Technology Center of Southeastern
Pennsylvania and Material Technology, Inc.(2)
10.10 Addendum to Agreement Between Advanced Technology Center of
Southeastern Pennsylvania and Material Technologies, Inc.(2)
10.11 Agreement Between Allied Boston International, Inc. and Material
Technologies, Inc.(2)
10.12 Securities Subscription Agreement dated June 27, 2002 between the
Registrant and Gregory Bartko, Esq.(4)
10.13 Specimen Subscription Agreement Used By Registrant in Recent Sales
Of Common Stock By Private Placement(3)
10.14 Registrant's Stock Issuance/ Stock Option Plan For 2002 (3)
10.15 Settlement Agreement and Mutual Release Between Stephen F.
Beck and Registrant (3)
10.16 Business Consulting Agreement Between Circle Group
Internet, Inc. and Registrant (3)
10.17 Securities Subscription Agreement dated August 12, 2002 between
the Registrant and Gregory Bartko, Esq.(3)
10.18 Securities Subscription Agreement dated August 29, 2002 between
the Registrant and Gregory Bartko, Esq.(3)
10.19 Amended and Restated Stock Option Agreement Between the Registrant
and E. G. Bud Shuster Dated November 1, 2002(4)
10.20 License Agreement Between Integrated Technologies, Inc. and
Austin Tech, LLC Dated January 3, 2003 (4)
10.21 Non-Statutory Stock Option Agreement between the Registrant and
Peter Jegou dated October 15, 2002. (4)
10.22 Non-Statutory Stock Option Agreement between the Registrant and
Richard Margulies dated October 15, 2002. (4)
80
10.23 Amended and Superceding Securities Subscription Agreement
between the Registrant and Gregory Bartko dated December 17,
2002. (4)
10.24 License Agreement Between the Registrant and Integrated
Technologies, Inc. Dated January 3, 2003 (4)
23.0 Consent of Gregory Bartko, Esq. (Incorporated into Exhibit 5.0)(4)
23.1 Consent of Jonathan P. Reuben, Certified Public
Accountant(4)
______________________________________
1. Incorporated by reference to the Registrant's S-1 registration statement
filed March 9, 1997, bearing File Number 333-23617, and as subsequently amended
at date of effectiveness on July 28, 1997.
2. Incorporated by reference to the Registrant's SB-2 registration statement
filed November 30, 2001, bearing File Number 333-74202 and as subsequently
amended at date of effectiveness on February 7, 2002.
3. Previously filed.
4. Filed herein.
ITEM 28. UNDERTAKINGS.
(a) The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to: (i) include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) reflect in
the Prospectus any facts or events which, individually or together, represent a
fundamental change in the information in the Registration Statement; and (iii)
include any material or changed information in the plan of distribution.
(2) For determining liability under the Securities Act of 1933, as amended (the
"Act"), treat each post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities as at that time to be
the initial bona fide offering thereof.
(3) File a post effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(b) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
that matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
81
(c) The undersigned small business issuer hereby undertakes that it will:
(1) For purposes of determining any liability under the Act that the information
omitted from the form of prospectus filed as part of this Registration Statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be
deemed to be a part of this Registration Statement as of the time the Commission
declared it effective.
(2) For the purpose of determining any liability under the Act, that each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
82
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this amended
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Los Angeles, California, on the 30th day of
January, 2003
MATERIAL TECHNOLOGIES, INC.
By: /s/ Robert M. Bernstein
----------------------------------------
Robert M. Bernstein, president,
chief executive officer, chief financial
officer, and principal accounting officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated. Each person whose signature appears
below hereby authorizes Robert M. Bernstein with the full power of substitution,
to execute in the name and on behalf of such person any amendment or any
post-effective amendment to this registration statement, and any registration
statement relating to any offering made in connection with the offering covered
by this registration statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, and to file the same,
with exhibits thereto, and other documents in connection therewith, making such
changes in this registration statement as the registrant deems appropriate, and
appoints Robert M. Bernstein Sr. with full power of substitution,
attorney-in-fact to sign any amendment and any post-effective amendment to this
registration statement and to file the same, with exhibits thereto, and other
documents in connection therewith.
NAME CAPACITY DATE
---- -------- ----
/s/ Robert M. Bernstein
------------------------------- Chairman, president, January 30, 2003
Robert M. Bernstein chief executive officer,
chief financial officer,
principal accounting officer,
and director
/s/ Joel Freedman
------------------------------- Secretary and director January 30, 2003
Joel Freedman
/s/ John Goodman
------------------------------- Director January 30, 2003
John Goodman
83
LIST OF EXHIBITS
Exhibit Description of Document
Number
------ -------------------------
3(i) Certificate of Incorporation of Material Technologies, Inc.(1)
Certificate of Amendment, February 16, 2000(2)
Certificate of Amendment, July 12, 2000(2)
Certificate of Amendment, July 19, 2000(2)
Certificate of Amendment, July 31, 2000(2)
Certificate of Amendment, October 16, 2001(2)
Certificate of Amendment, December 2, 2002 (4)
3(ii) Bylaws of Material Technologies, Inc.(1)
4.1 Class A Convertible Preferred Stock
Certificate of Designations(1)
4.2 Class B Convertible Preferred Stock
Certificate of Designations(1)
4.3 Material Technologies, Inc. Stock Escrow/Grant(2)
5.0 Opinion of Legal Counsel (Exhibit 23.0 Included)(4)
10.1 License Agreement Between Tensiodyne Corporation and
the Trustees of the University of Pennsylvania(1)
10.2 Sponsored Research Agreement between Tensiodyne Corporation and
the Trustees of the University of Pennsylvania(1)
10.3 Amendment 1 to License Agreement Between Tensiodyne Scientific
Corporation and the Trustees of the University of Pennsylvania(1)
10.4 Repayment Agreement Between Tensiodyne Scientific Corporation and
the Trustees of the University of Pennsylvania(1)
10.5 Teaming Agreement Between Tensiodyne Scientific Corporation and
Southwest Research Institute(1)
10.6 Letter Agreement between Tensiodyne Scientific Corporation,
Robert M. Bernstein, and Stephen Forrest Beck and Handwritten
modification(1)
10.7 Agreement Between Tensiodyne Corporation and Tensiodyne 1985-1 R&D
Partnership(2)
10.8 Amendment to Agreement Between Material Technologies, Inc. and
Tensiodyne 1985-1 R&D Partnership(2)
10.9 Agreement Between Advanced Technology Center of Southeastern
Pennsylvania and Material Technology, Inc.(2)
10.10 Addendum to Agreement Between Advanced Technology Center of
Southeastern Pennsylvania and Material Technologies, Inc.(2)
10.11 Agreement Between Allied Boston International, Inc. and Material
Technologies, Inc.(2)
10.12 Securities Subscription Agreement dated June 27, 2002 between the
Registrant and Gregory Bartko, Esq.(4)
84
10.13 Specimen Subscription Agreement Used By Registrant in Recent Sales
Of Common Stock By Private Placement(3)
10.14 Registrant's Stock Issuance/ Stock Option Plan For 2002 (3)
10.15 Settlement Agreement and Mutual Release Between Stephen F.
Beck and Registrant (3)
10.16 Business Consulting Agreement Between Circle Group
Internet, Inc. and Registrant (3)
10.17 Securities Subscription Agreement dated August 12, 2002 between
the Registrant and Gregory Bartko, Esq.(3)
10.18 Securities Subscription Agreement dated August 29, 2002 between
the Registrant and Gregory Bartko, Esq.(3)
10.19 Amended and Restated Stock Option Agreement Between the Registrant
and E. G. Bud Shuster Dated November 1, 2002(4)
10.20 License Agreement Between Integrated Technologies, Inc. and
Austin Tech, LLC Dated January 3, 2003 (4)
10.21 Non-Statutory Stock Option Agreement between the Registrant and
Peter Jegou dated October 15, 2002. (4)
10.22 Non-Statutory Stock Option Agreement between the Registrant and
Richard Margulies dated October 15, 2002. (4)
10.23 Amended and Superceding Securities Subscription Agreement
between the Registrant and Gregory Bartko dated December 17,
2002. (4)
10.24 License Agreement Between the Registrant and Integrated
Technologies, Inc. Dated January 3, 2003 (4)
23.0 Consent of Gregory Bartko, Esq. (Incorporated into Exhibit 5.0)(4)
23.1 Consent of Jonathan P. Reuben, Certified Public
Accountant(4)
______________________________________
1. Incorporated by reference to the Registrant's S-1 registration statement
filed March 9, 1997, bearing File Number 333-23617, and as subsequently amended
at date of effectiveness on July 28, 1997.
2. Incorporated by reference to the Registrant's SB-2 registration statement
filed November 30, 2001, bearing File Number 333-74202 and as subsequently
amended at date of effectiveness on February 7, 2002.
3. Previously filed.
4. Filed herein.
85