Form SB-2/A for Material Technologies Inc
As Filed With The U.S. Securities and Exchange Commission on May 2, 2003
Registration No. 333-97833
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT 3
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
offered by selling shareholders 18,247,626 $0.015 $273,715 $25.20
Total $273,715 $25.20
================================================================================
(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 May 1,
2003.
TABLE OF CONTENTS
Page No.
Prospectus summary.............................................................4
Summary financial data.........................................................5
Risk factors...................................................................6
Use of proceeds...............................................................12
Dividend policy...............................................................12
Management's discussion and analysis of financial condition
and results of operations...................................................13
Business......................................................................15
Management....................................................................22
Certain transactions..........................................................27
Principal stockholders........................................................28
Selling shareholders..........................................................32
Description of securities.....................................................36
Plan of distribution for selling shareholders.................................36
Legal matters.................................................................38
Experts.......................................................................38
Index to financial statements.................................................38
2
PROSPECTUS
SUBJECT TO COMPLETION, DATED MAY 1, 2003
MATERIAL TECHNOLOGIES, INC.
SHARES OF CLASS "A" COMMON STOCK
(PAR VALUE $.001)
We are registering 18,247,626 shares of our class "A" 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 class "A" common stock
is quoted on the Electronic Bulletin Board maintained by the National
Association of Securities Dealers, Inc. under the symbol "MTEY." We also have
outstanding 300,000 shares of class "B" common stock, par value, $.001 per
share, which is held entirely by our chief executive officer, Robert M.
Bernstein, with each share having 1,000 to one voting rights over each share of
our class "A" common stock. Mr. Bernstein's voting control of our outstanding
shares of both classes of common stock equals 327,800,966 votes against
approximately 137,283,905 shares of our class "A" common stock outstanding at
the date of this prospectus.
The expenses of this registration statement, estimated to be approximately
$43,533.60 , 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 $.015 and $.015 , 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 8 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 May 2, 2003
3
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. We have not yet
commenced commercial distribution or sales of any of our metal fatigue detection
or monitoring products.
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 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.
4
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, 2002 and 2001 , and
should be read in conjunction with our audited financial statements included
elsewhere in this prospectus. The historical financial data as of December 31,
2002 and 2001 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.
Fiscal Year Ending December 31, Inception
to
December 31,
1998 1999 2000 2001 2002 2002
(restated) (restated)
___________ ___________ ___________ ___________ ___________ ___________
Net Sales $ - $ - $ - $ - $ - $ -
___________ ___________ ___________ ___________ ___________ ___________
Income from Research
Development Contract $ 373,324 $ 924,484 $ 635,868 $ 1,579,823 $ 461,323 $ 5,024,812
Income (Loss) from
Continued Operations $ (549,187) $ (539,283) $(1,241,690) $(3,546,574) $(3,785,818) $(12,185,680)
___________ ___________ ___________ ___________ ___________ ___________
Income (Loss) from
Continued Operations
Per Common Share $ (.06) $ (.04) $ (.06) $ (.11) $ (.06)
___________ ___________ ___________ ___________ ___________ ___________
Basic Weighted
Average - Common
Shares Outstanding 8,782,808 12,242,534 18,900,019 33,640,393 63,073,970
___________ ___________ ___________ ___________ ___________ ___________
Balance sheet data
Total Assets $ 233,746 $ 250,041 $ 108,776 $ 516,282 $ 372,620
___________ ___________ ___________ ___________ ___________ ___________
Total Liabilities $ 618,582 $ 719,178 $ 870,586 $ 1,154,696 $ 2,466,937
___________ ___________ ___________ ___________ ___________ ___________
Total
Stockholders'
Equity (Deficit) $ (485,432) $ (620,545) $ (710,459) $ (638,414) $(2,094,317)
___________ ___________ ___________ ___________ ___________ ___________
Dividends $ - $ - $ - $ - $ -
___________ ___________ ___________ ___________ ___________ ___________
Statements of operations for the years 2000 and 2001 have been restated to
reflect shares issued for services at the respective share's market value at
date of issuance.
5
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 $3,548,559 and $3,852,296 for the years ended
December 31, 2001 and 2002, respectively 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. This
recently concluded research and development contract was our sole source of
revenue. We have not yet developed our products for 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 to generate any significant revenues from our products if and when they
become commercialized, nor can we provide assurances that our contract revenue
will continue to any extent.
6
WE HAVE A LIMITED NUMBER OF EMPLOYEES TO DEVELOP AND MARKET OUR PRODUCTS.
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 A FFECTED 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 various 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.
7
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 September 30, 2003, although we have sufficient cash to continue our
research and development efforts for the next three months. Over the next 12
months, we anticipate that approximately $6,500,000 will be required to complete
research and development of both products and market them. Even if the necessary
$6,500,000 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
resale of 18,247,626 shares or approximately 13% of our issued and outstanding
common stock at this time. Presently, we have 137,283,905 shares of common stock
issued and 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.
8
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 various 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 $500,000 , 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
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.
9
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 $500,000 , 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 cash
compensation from us to $150,000 per year until the loan and accrued interest
was fully paid. Including non-cash compensation, total compensation delivered to
Mr. Bernstein for accrued salary from prior years in the form of additional
shares of our common stock exceeded $150,000 of value per year. The balance of
our obligation to the University at December 31, 2002, was $498,731. 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 continuing 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.
OUR AGREEMENT TO COMPENSATE OUR ATTORNEYS THAT HANDLED A LAWSUIT FOR US THAT HAS
BEEN FULLY RESOLVED, MAY MATERIALLY REDUCE OUR AVAILABLE CASH FLOW.
On July 15, 2002, we entered into a settlement agreement fully resolving pending
litigation against Stephen F. Beck. On August 1, 2002, we entered into an
agreement with our counsel that represented us in the case involving Mr. Beck,
and in that agreement, we agreed to pay for accrued legal services by delivering
1,000,000 shares of our class "A" common stock and executing a promissory note
to our counsel in the amount of $1,481,895, plus interest at the rate of 6%
until paid in full. However, our payments on this promissory note are payable
only out of 25% of our earnings before interest, taxes, depreciation and
amortization expenses. Accordingly, if and when we begin to generate earnings,
as defined in the agreement, we will be obligated to apply 25% of our available
earnings towards principal and interest due under the agreement with our
counsel, which will reduce our available cash flow for other corporate purposes.
WE DO NOT INTEND TO PAY CASH DIVIDENDS ON OUR COMMON STOCK IN THE FUTURE.
We do not expect to be able to pay cash 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 cash 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. Subject to regulatory approval, we intend to declare
a stock dividend to our shareholders of record on May 30, 2003 consisting of a
distribution of all shares of the capital stock we own in our wholly-owned
subsidiary, Matech International Corp. The effectiveness of that stock dividend
is uncertain at this time and we can make no assurance that the dividend will
actually occur. 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.
10
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.
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" common stock, each of which has 1,000 votes per share, which
represents 300,000,000 votes, and also beneficially owns 27,800,966 shares of
our class "A" common stock representing approximately 18% of the total
outstanding shares of class "A" common stock. Aggregating Mr. Bernstein's voting
rights from his ownership of his class "A" and "B" shares of common stock, he
has approximately 327,800,966 votes out of a total of 137,283,905 shares of our
voting common stock issued and outstanding. This represents almost 300% of the
votes available to the shareholders of our class "A" common stock. As a result,
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. From time to
time, Mr. Bernstein may have a conflict of interest as a result of his position
as an officer, director and a controlling shareholder and due to the fact that
we may owe him for advances he has made to us from time to time or he may owe us
for our advances made to him. At the present time, Mr. Bernstein owes us
approximately $76,000. 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
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.
11
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 cash dividends and do not plan on paying cash 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. By resolution dated April 21, 2003, our
board of directors declared a stock dividend to our shareholders of record as of
May 30, 2003 whereby our directors declared that we would distribute all of the
shares of capital stock that we hold as of that date in our wholly-owned
subsidiary, Matech International Corp., on a one for 10 pari passu, prorata
basis. It is uncertain at this time whether the stock dividend will be qualified
as spin off to our shareholders of record at that date and to what extent the
stock distribution is exempt from registration under state and Federal
securities laws.
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
12
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
FIRST QUARTER 2003 $.015 $.015
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion of results of operations, capital resources, and
liquidity pertains to our activities for the years ended December 31, 2000, 2001
and 2002.
RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
In 2002, we completed our two subcontracts on programs with the
United States Air Force for application engineering and enhancement of the EFS
and earned $461,323 in contract revenue. In 2001, and 2000, we earned
$1,579,823, and $635,868, respectively, from the same two subcontracts. In 2002,
interest income totaled $52,782 of which $729 was earned from investments and
the remaining $52,053 was accrued on loans due the Company from its president,
and from stock subscriptions due from the president, a director, and a third
party. In 2001, interest income totaled $102,283, of which $657 was from
investments and the remaining $101,626 was accrued on loans due the Company from
its president, and from stock subscriptions due from the president, a director,
and a third party. In 2000, interest income was $103,419, the majority of which
pertains to interest accruing on subscriptions due from the Company's president
and a director. The major difference in the amount of accrued interest in 2002
as compared to 2001 and 2000 pertains to the June 2001 modification of certain
stock subscription agreements that reduced the amounts due from the president
and a director from $1,995,000 to $495,000. Our sole source of contract revenue
from our research and development contracts with the United States Air Force
concluded in the second quarter of 2002 and we have not replaced any contract
revenue since that contract concluded.
Costs and expenses
Expenses for 2001 and 2000 have been restated to reflect the value of
all services which were compensated through the issuance of our common stock at
the quoted market price of the shares issued on the date of issuance. Expenses
for 2002 for professional and consulting fees increased materially due to our
reliance in compensating several of our consultants and our legal counsel in the
form of shares of our common stock, which are valued at the market price on the
date of issuance. We decided to rely more heavily on non-cash compensation in
order to preserve our available cash. Legal fees in 2002 also included the
settlement of the litigation with Stephen Beck, which materially increased those
expenses in 2002 as compared to the prior year.
Research and development costs were $665,435, $1,493,628, and $496,501,
for 2002, 2001 and 2000, respectively. Of the research and development costs
incurred, $400,201, $1,069,671, and $409,823 related to subcontractor costs for
the years 2002, 2001 and 2000, respectively. General and administrative costs
were $3,581,706, $3,632,769, and $1,381,047 for 2002, 2001 and 2000,
respectively.
In 2002, actual cash paid to our President, Mr. Bernstein, totaled
$110,018. We also accrued an additional $9,982 in additional compensation to Mr.
Bernstein. In addition, we issued Mr. Bernstein 13,000,000 shares of common
stock for past services having a market value of $260,000. These shares were
issued subject to forfeiture in the event that Mr. Bernstein is no longer
employed by the Company. Legal fees in 2002 amounted to $1,922,861 of which
$1,599,200 relates to the settlement of the litigation that was pending with
Stephen Beck. Of the $1,599,200, $1,481,895 is evidenced by a promissory note,
$112,193 was paid through the issuance of 2,027,639 shares of our common stock,
and $5,112 paid in cash. We also incurred $314,729 in the filing of our
registration statement on Form SB-2, of which $297,500 was paid through the
issuance of 7,750,000 shares of common stock valued at the market price on the
date of issuance and $17,229 was paid in cash. Other expenses in 2002 included
consulting services of $940,160, of which $662,098 was paid through the issuance
of 10,881,118 shares of our common stock, office salaries of $36,968, telephone
expense of $23,284, travel expenses of $57,797, accounting and auditing fees of
$71,317 and rent of $28,176.
13
In 2001, actual cash compensation paid to our President totaled
$90,000. We also accrued $30,000 in additional compensation due to him. 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 and another Director,
Joel Freedman, in connection with their purchases of our common stock.
Initially, we agreed to issue 4,650,000 and 350,000 shares of our class "A"
common stock to Messrs. Bernstein and Freedman, respectively, in exchange for
their issuance to us of non-recourse promissory notes in the amount of
$1,855,350 by Mr. Bernstein and $139,650 by Mr. Freedman. At the time of their
purchase of our shares, the market price of our common stock was approximately
$.60 per share. Both promissory notes mature on May 25, 2005 and accrue interest
at 8% per annum. On June 18, 2001, we authorized the $1,500,000 reduction of the
combined principal amount of these notes since the market value of our common
stock declined to approximately $.10 per share. This reduction and charge to
operations was deemed to be fair and reasonable under the circumstances.
We issued 6,000,000 shares of restricted common stock to Mr. Bernstein
during 2001, valued at $1,128,000, for past compensation due to him. Previously,
the financial statements have reflected the value of the shares at $420,000, the
fair market value of the services rendered. We revalued the shares issued to Mr.
Bernstein as a result in the policies adopted by the U.S. Securities and
Exchange Commission indicating that all shares issued in exchange for services
should be valued at the quoted market price of the shares issued on the date of
issuance. These 6,000,000 shares have been issued subject to certain
restrictions limiting the President's ability to sell or transfer the shares.
Other expenses in 2001 included consulting fees of $477,671, of which
$281,635 was paid through the issuance of 2,275,000 shares of our common stock,
legal fees of $256,736, of which $138,750 was paid through the issuance of
915,000 shares of our common stock, 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 officers' salaries of $127,183, consulting
fees of $856,202, legal fees of $206,198, accounting and auditing fees of
$23,063 and travel costs of $26,443.
Interest charged to operations for 2002, 2001 and 2000, amounted to
$118,460, $70,468 and $60,634, respectively. Of the $118,460 incurred in 2002,
$76,078 was accrued on our promissory note due to the University of Pennsylvania
and $37,271 was accrued on the promissory note due for legal fees on the
settlement with Stephen Beck. Of the $70,468 incurred in 2001, $64,472 was
accrued on the promissory note due to the University of Pennsylvania. Of the
$60,634 incurred in 2000, $54,638 was accrued on the promissory note due to the
University of Pennsylvania.
Liquidity and capital resources
In 2002, we raised $892,261 net of offering costs through the issuance
of 28,046,766 shares of our common stock through a Regulation S offering and
through the offer and sale of 143,250 shares of our preferred stock. We also
received $175,646 during 2002 from our subcontracts with the Air Force. Of the
$1,067,907 we received, we used $927,439 in our operations, we advanced $33,547
to our President and paid $29,608 for equipment. In 2001, we raised a net
$286,567 through the issuance of 4,932,358 shares of our common stock through
our Regulation S offering. Although Mr. Bernstein maycontinue to loan us working
capital as required while we seek additional financing, he is under no
obligation to do so. We do not expect to receive any additional material
financing from other long time investors, although we continue to undertake a
variety of efforts to locate suitable debt or equity financing.
During 2000, the Company received $746,732 from our research and
development contract, $22,490 from the sale of our common stock, and $251,798
from the sale of DCH Technologies, Inc., shares. Our President advanced $8,000
and received $39,500 back from the Company. In 2000, we spent $1,035,470 in our
operations and $15,000 was invested in Antaeus Research, LLC.
As indicated, as of December 31, 2002, we had available funds of
$251,782 on hand. At our current rate of overhead, we have sufficient cash
resources to fund approximately three 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.
With respect to the settlement agreement we entered into to resolve the
litigation pending with Stephen F. Beck, we entered into an agreement with our
legal counsel to pay for accrued legal services by delivering 1,000,000 shares
of our class "A" common stock and executing a promissory note to our counsel in
the amount of $1,481,895, plus interest at the rate of 6% until paid in full.
However, our payments on this promissory note are payable only out of 25% of our
earnings before interest, taxes, depreciation and amortization expenses.
Accordingly, if and when we begin to generate earnings, as defined in the
agreement, we will be obligated to apply 25% of our available earnings towards
principal and interest due under the agreement with our counsel, which will
reduce our available cash flow for other corporate purposes
Critical accounting issues
The discussion and analysis of the Company's financial condition and
results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses. In consultation with its
Board of Directors, the Company has identified three accounting policies that it
believes are key to an understanding of its financial statements. These are
important accounting policies that require management's most difficult,
subjective judgments.
14
The first critical accounting policy relates to revenue recognition. Income
from the Company's subcontracts with the Air Force is recognized at the time
services are rendered and billed for.
The second critical accounting policy relates to research and development
expense. Costs incurred in the development of the Company's fatigue fuse and the
electrochemical sensor are expensed as incurred.
The third critical accounting policy relates to the valuation of non-
monetary consideration issued for services rendered. The Company values all
services rendered in exchange for its common stock at the quoted price of the
shares issued at date of issuance. All other services provided in exchange for
other non-monetary consideration is valued at either the fair value of the
services received or the fair value of the consideration relinquished, whichever
is more readably determinable.
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
protected by patents, although we hold patents ourselves only on the fatigue
fuse and license the technology on the electrochemical fatigue sensor.
15
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
that structural member so we can design the Fatigue Fuse to monitor the
remaining fatigue life potential.
16
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.
Our early planning for our borescope product includes our recent formation of
two wholly-owned subsidiaries, Matech Aerospace, Inc. and Matech International
Corp., both Nevada corporations, from which we intend to further develop, market
and distribute our borescope product. Our planning includes the grant of a
comprehensive license agreement to Matech International Corp. that licenses all
rights to our products and technologies in all commercial markets outside of the
United States in exchange for a royalty fee payable to us equal to seven (7%) of
gross sales generated by the subsidiary. We are similarly planning to license
all rights to our products and technologies to Matech Aerospace, Inc. in the
commercial market within the United States, in exchange for a royalty fee to be
determined.
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,
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.
17
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 second 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
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 was 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.
18
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.
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
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, 200 1 ,
and 200 2 , the future royalty commitment was limited to $227,149 and $249,864 ,
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.
19
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. We
believe, that although we have not yet cured our defaults on the loans to Mr.
Baker, our current communications with him suggest that Mr. Baker does not have
the present intention of foreclosing on the patents as collateral or the pursuit
of legal action against us to collect the balance due under our note.
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 the United States, no assurance can be given that
any such marketing activities will be implemented.
We have formed two new Nevada corporations as wholly-owned subsidiaries with
initial officers and directors that are in common with us. On January 22, 2003,
we formed Matech International Corp. and on March 13, 2003, we formed Matech
Aerospace, Inc. The formation of our new subsidiaries is for the purpose of
facilitating the international and domestic distribution and sales of our
Borescope, Fatigue Fuse and EFS products. All of the capital stock that has been
issued by both newly formed subsidiaries is beneficially owned by us.
Since the potential of the international distribution of our products is greater
in the current international marketplace, we have entered into a licensing
agreement with Matech International, Inc. effective as of April 15, 2003. The
license agreement provides for a grant of licensing rights covering our three
products and the technologies associated with these products, initially outside
of the United States in all other international commercial markets. In exchange
for the grant of these licensing rights to Matech International Corp., which
carry a 10-year term, we received all of the issued shares of capital stock of
the subsidiary and we will receive a 7% royalty fee payable to us on all sales
of the licensed technologies, generated during the term of the agreement. Our
board of directors has recently approved, subject to other regulatory approvals,
a stock dividend to all of our shareholders of record at May 30, 2003, on a pari
passu, prorata basis, the capital stock of Matech International Corp. that we
beneficially own at the record date.
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 ten
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
advice in the areas of marketing, technology and research and development.
20
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 one-year extension of our lease, which permits us to remain in
our facility at the same cost until June 30, 2003. We also have options to
extend the lease on either a month to month basis or options to extend the
lease term twice, each for a three month extension. Management has not
determined which lease option is most advantageous to us at this time.
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.
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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
May 2 , 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
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.
22
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 did not issue any shares to our advisory board members. In fiscal
year 2001, we issued 100,000 shares of common stock, with a market value of
$19,000 and during our most recent fiscal year that ended December 31, 2002, we
issued 1,000,000 shares of common stock with a market value of $101,000.
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
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.
23
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.
Dr. A.EMIN AKTAN. Dr. Aktan is the John Roebling Professor of Infrastructure
Studies at Drexel University Department of Civil Engineering and Architecture.
He is the director of Drexel Intelligent Infrastructure & Transportation Safety
Institute. His research interest is system identification and health monitoring
for management of civil infrastructure systems (CIS) while generating
fundamental knowledge regarding the actual behavior and loading environments of
constructed facilities. Dr. Aktan received a Ph.D. in Earthquake Structural
Engineering from the University of Illinois at Urbana-Champaign in 1973 and
served as a Post-Doctorate associate at University of California at Berkeley for
five years. Dr. Aktan has held faculty positions at Middle East Technical
University, Louisiana State University and University of Cincinnati before
joining Drexel University.
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.
24
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, 2002 , our board of directors acted by written consent and by
telephonic board meetings, a total of approximately 90 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
Name and Annual Restricted All Other
Principal Compen- Stock Options LTIP Compen-
Position Year Salary ($) Bonus ($) sation ($) Awards ($) (SARs (#) Payout($) sation ($)
Robert M. Bernstein 2000 $120,000 $ - $ - $ 4,183(1) - $ - $ -
CEO 2001 $120,000 $ - $ - $1,128,000(2) - $ - $ -
$1,395,000(3) - $ - $ -
2002 $120,000 $ - $ - $ 200(4) - $ - $ -
$ 260,000(5)
John W. Goodman 2000 $ 26,614 $ - $ - $ - - $ - $ -
Director and 2001 $ 23,076 $ - $ - $ 147,600(6) - $ - $ -
Engineer 2002 $ 17,945 $ - $ - $ 40,000(7) - $ - $ -
William Berks 2000 $ - $ - $ 39,235 $ - - $ - $ -
Vice-President 2001 $ 55,388 $ - $ - $ 147,600(6) - $ - $ -
2002 $ 70,301 $ - $ - $ 40,000(7) - $ - $ -
==================================================================================================================
(1) In 2000, we issued to Mr. Bernstein, solely as escrow holder, 4,183,675
shares of our common stock subject to severe restrictions and subject to
those shares being used for delivery against options we granted. We have
included the par value of these shares issued in Mr. Bernstein's 2000
compensation amounting to $4,183. We have not included the market value of
these shares in Mr. Bernstein's 2000 compensation since he does not have
beneficial ownership of the shares and they are subject to conditions
subsequent.
(2) In 2001, the we issued Mr. Bernstein 6,000,000 shares for past compensation.
We valued these shares at $1,128,000, which was market value on the date of
issuance.
(3) In 2001, we reduced the obligation from Mr. Bernstein to us on a non-
recourse promissory note relating to the issuance of 4,650,000 shares of
our common stock from $1,855,350 to $460,350.
(4) In 2002, the we issued 200,000 shares of its Class B Common stock to our
president in relinquishment of his security interest in our patents. The
shares were valued at par.
(5) In 2002, we issued 13,000,000 shares of our common stock to Mr. Bernstein
for past compensation. The shares had a market value of $260,000 and are
subject to forfeiture in the event Mr. Bernstein is no longer employed by
us.
(6) In 2001, we issued each to Mr. Goodman and Mr. Berks 900,000 shares of
restricted common stock. These shares were valued at $147,600.
(7) In 2002, we issued each to Mr. Goodman and to Mr. Berks 1,000,000 shares of
restricted common stock. These shares were valued at $40,000.
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, 2002, was $548,446 (3 persons). As a part the aggregate
compensation paid as shown in the table, during fiscal year 2002, we issued to
Mr. Bernstein as past compensation that accrued, 13,000,000 shares of our common
stock with an aggregate market value of $260,000.
25
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. On
February 8, 1999, we granted to Miles Wilson, an option to purchase 175,000
shares of our common stock at an exercise price of $2.50. The initial term of
this option expired on February 1, 2002. In January 2002, we extended the term
of this option, which now expires February 1, 2005 and adjusted the exercise
price under the option to $.10 per share.
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 representing all 20,000,000 shares initially authorized in the 2002 Stock
Issuance/Stock Option Plan to several of our officers, directors and
consultants. On March 4, 2003, we approved amendments to the 2002 Stock
Issuance/Stock Option Plan that authorize us to issue up to 20,000,000
additional shares of our common stock and options to purchase our common stock
under the plan. We have issued 1,500,000 shares of our common stock under the
amended plan and we have outstanding, options issued under the plan and amended
plan that represent 13,300,000 shares of our common stock.
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. The discretion given to the board of directors in
establishing the exercise price of the option grants is limited only by their
continuing fiduciary duties owed to us and our shareholders. Option grants made
where the exercise price of the option is less than 100% of fair market value on
the date of grant, is charged as a compensation expense to the extent of the
difference between the exercise price and the fair market value on the grant
date, and is treated as compensation payable to the optionee.
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.
On March 27, 2002, we granted a non-statutory stock option agreement to one of
our legal counsel, E.G. Shuster. We then amended and restated Mr. Shuster's
option agreement on November 1, 2002. As amended and restated, Mr. Shuster has a
right to acquire 800,000 shares of our common stock at an exercise price of $.02
per share. This option grant to Mr. Shuster expires on November 1, 2007.
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
- any transaction from which the director derives an improper personal
benefit.
26
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, Mr. Bernstein owed us
$76,000 for advances we made to him during the most recent fiscal year.
During fiscal year 2002, 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.
By agreement dated December 4, 2002, we issued 200,000 additional shares of our
class "B" common stock to Mr. Bernstein in exchange for his release of any
security interest or lien in his favor against our patents, technologies or
products. As a result, Mr. Bernstein no longer has any security for the payment
of any amounts we may owe him for accrued compensation or advances. Our class
"B: common stock has no stated market value since there is no public market for
the class "B" common stock. The equivalent market value for 200,000 shares of
our class "A" common stock on the date of issuance, was $4,800.
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 market price, which value 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 $750,000 . 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 by us at $.40 per share, for a total share
value of $2,000,000. The market value per share for the shares acquired by Mr.
Bernstein was $.60 per share totaling $2,790,000 and the market value of Mr.
Freedman/s shares totaled $210,000.
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 pursuant to a
stock escrow/grant agreement. We 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.
27
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 at the time of
release of the shares.
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 May 2 , 2003, and the following table provides the
beneficial ownership for:
28
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 13 % of our issued and outstanding
common stock.
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL
CLASS OF STOCK BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS(3)
----------------- ----------------- ----------------- ----------------
Robert M. Bernstein
Suite 707
11661 San Vicente Blvd.
Common Stock Los Angeles, CA 90049 27,800,966(1) 20%
----------------- ----------------- ----------------- ----------------
Joel R. Freedman
1 Bala Plaza
Bala Cynwyd, PA 19004 626,471 *
----------------- ----------------- ----------------- ----------------
John Goodman
Suite 707
11661 San Vicente Blvd.
Los Angeles, CA 90049 2,000,000 *
----------------- ----------------- ----------------- ----------------
William Berks
532 14th Street
Manhattan Beach, CA
90266 2,000,000 *
----------------- ----------------- ----------------- ----------------
29
Directors and
executive officers
as a group
(4 persons) 32,427,437 24%
----------------- ----------------- ----------------- ----------------
Class B
Common Stock Robert M. Bernstein
Suite 707
11661 San Vicente Blvd.
Los Angeles, CA 90049 300,000(2) 100.0%
----------------- ----------------- ----------------- ----------------
* Less than 1%
(1) Mr. Bernstein holds beneficial ownership of 27,800,966 Class A Common
S hares. 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 137,283,905 shares of Class "A" Common Shares
outstanding as of the date of this prospectus.
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
32
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
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
33
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
34
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.
35
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.
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 4 50,000,000 shares of capital stock, $.001
par value, in classes as follows:
- 4 00,000,000 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, a majority of the votes of our
shareholders, by written consent, approved an increase in the
number of shares of our common stock from 200,000,000 shares to
400,000,000 shares. The certificate of amendment to our articles of
incorporation was filed with and accepted by the Delaware
Secretary of State on January 7, 2003.
- 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.
36
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
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.
On February 17, 2003, our directors approved and authorized the filing of a
Certificate of Designation with the Delaware Secretary of State, bringing into
existence a third class of convertible preferred stock designated as Class
C---Series A Convertible Preferred Stock, consisting of 25,000,000 shares of
convertible preferred stock to be offered and sold with common stock purchase
warrants that were combined with the convertible preferred stock and offered as
units in private placements exempt from registration. The units offered
consisted of 100 shares of Class C---Series A Convertible Preferred Stock and
100 common stock purchase warrants entitling the purchaser to acquire additional
shares of our Class A Common Stock at $.05 per share.
Shares of our newly designated Class C---Series A Convertible Preferred Stock
are convertible into shares of our Class A Common Stock on a one for one basis
at anytime at the election of the purchaser. Holders of these shares are
entitled to receive cumulative cash dividends at the rate of 8% simple interest
per year on the principal amount of their investment, for a period of two years.
However, dividends on these shares are only payable out of our earnings
generated after interest, taxes, depreciation and amortization expenses,
calculated pursuant to generally acceptable accounting principals. These shares
of convertible preferred stock also have liquidation preferences equal to $.001
per share and that are superior to our shares of common stock outstanding, but
junior to all other shares of preferred stock that is authorized and
outstanding. Holders of these shares have no voting rights, but have
registration rights covering the shares of Class A Common Stock received upon
conversion of the convertible preferred stock and upon receipt of the exercise
of the common stock purchase warrants.
Registration rights become effective only after the first anniversary after the
sale of the units to the purchasers. These registration rights include one-time
piggyback registration rights and two-time short form demand registration
rights. Any registrations are at our expense except underwriting discounts and
selling commissions applicable to the resale of the shares registered.
The common stock purchase warrants that were issued as units to the purchasers
of our Class C---Series A Convertible Preferred Stock entitle the holder to
purchase, for a term of one year from the date of each warrant, another share of
our Class A Common Stock at $.05 per share. These warrants are redeemable by us,
at our option, upon 30 days advance written notice to the holders of the
warrants, at a redemption price equal to $.0001 per warrant, plus any accrued
and unpaid dividends.
37
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 1,000,000 shares of our class A
common stock, of which all are restricted securities. In addition, Mr. Bartko
beneficially owns 214,000 shares of our class A preferred stock, which is
convertible into 428,000 shares of our restricted class A 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.
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
Contents
Page
Independent Auditors' Report F-1
Balance Sheets F-2
Statements of Operations F-3
Statement of Stockholders' Equity (Deficit) F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6 - F-20
38
Independent Auditors' Report
Board of Directors
Material Technologies, Inc.
Los Angeles, California
I have audited the accompanying balance sheets of Material Technologies, Inc.,
(A Development Stage Company) as of December 31, 2001 and 2002, and the related
statements of operations, stockholders' (deficit), and cash flows, for the years
ended December 31, 2000, 2001, 2002, and for the period from the Company's
inception (October 21, 1983) through December 31, 2002. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audits.
I conducted my audits in accordance with auditing standards generally accepted
in the United States. These standards require that I 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. I believe that my audits provide a reasonable basis for my
opinion.
In my 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 2002, and the results of its operations, and its cash
flows for the years ended December 31, 2000, 2001, 2002, and for the period from
the Company's inception (October 21, 1983) through December 31, 2002, in
conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discuss in Note 15 to the financial
statements, the Company has suffered recurring losses from operations and has a
net capital deficiency, which raises substantial doubt about the its ability to
continue as a going concern. Management's plans regarding those matters also are
also described in Note 15. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Jonathon P. Reuben CPA
Jonathon P. Reuben,
Certified Public Accountant
Torrance, California
March 7, 2003
F-1
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
________________________________________________________________________________
December 31, December 31,
2001 2002
_____________ _____________
(Restated)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 174,469 $ 251,782
Receivable due on research contract 285,677 -
Receivable from officer 35,880 76,109
Employee receivable - 1,433
Prepaid expense - 1,179
_____________ _____________
TOTAL CURRENT ASSETS 496,026 330,503
_____________ _____________
FIXED ASSETS
Property and equipment, net
of accumulated depreciation 2,708 27,649
_____________ _____________
OTHER ASSETS
Intangible assets:
Patents and other, subject to amortization 15,200 12,120
Refundable deposit 2,348 2,348
_____________ _____________
TOTAL OTHER ASSETS 17,548 14,468
_____________ _____________
TOTAL ASSETS $ 516,282 $ 372,620
============= =============
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Legal fees payable $ 282,950 $ 216,783
Fees payable to R&D subcontractor 196,043 -
Accounting fees payable 42,417 22,443
Other accounts payable 14,326 15,736
Accrued expenses 43,213 33,880
Accrued officer wages 70,000 75,482
Notes payable - current portion 25,688 25,688
Payable on research and
development sponsorship 422,653 498,731
Loans payable - others 57,406 59,028
_____________ _____________
TOTAL CURRENT LIABILITIES 1,154,696 947,771
LONG-TERM DEBT - 1,519,166
STOCKHOLDERS' EQUITY (DEFICIT)
Class A Common Stock, $.001 par value,
authorized 399,700,000 shares, issued and
outstanding 42,433,378 at December 31, 2001
and 109,228,185 shares at December 31, 2002,
Shares held in reserve 60,000,000 at December
31, 2001 and 101,602,800 at December 31, 2002 42,433 109,228
Class B Common Stock, $.001 par value,
authorized 300,000 Shares, issued and
outstanding 100, 000 shares at December 31,
2001, and 300,000 at December 31, 2002 100 300
Preferred stock, $.001 par value, authorized
50,000,000 Shares, issued and outstanding 337,471
shares at December 31, 2001, and 480,721 shares
issued and outstanding at December 31, 2002 337 480
Additional paid in capital 8,851,436 11,223,453
Less notes receivable - common stock (731,549) (774,311)
Deficit accumulated during the development
stage (8,801,171) (12,653,467)
_____________ _____________
TOTAL STOCKHOLDERS' (DEFICIT) (638,414) (2,094,317)
_____________ _____________
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIT) $ 516,282 $ 372,620
============= =============
[See Accompanying Notes To Financial Statements]
F-1
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
________________________________________________________________________________
From Inception
(October 21, 1983)
For the Year Ended December 31, Through
2000 2001 2002 December 31, 2002
__________ __________ __________ __________
(Restated) (Restated)
REVENUES
Sale of fatigue fuses $ - $ - $ - $ 64,505
Sale of royalty interests - - - 198,750
Research and development revenue 635,868 1,579,823 461,323 5,024,812
Test services - - - 10,870
__________ __________ __________ __________
TOTAL REVENUES 635,868 1,579,823 461,323 5,298,937
__________ __________ __________ __________
COSTS AND EXPENSES
Research and development 496,501 1,493,628 665,435 5,030,763
General and administrative 1,381,047 3,632,769 3,581,706 12,453,854
__________ __________ __________ __________
TOTAL COSTS AND EXPENSES 1,877,548 5,126,397 4,247,141 17,484,617
__________ __________ __________ __________
INCOME (LOSS) FROM OPERATIONS (1,241,680) (3,546,574) (3,785,818) (12,185,680)
__________ __________ __________ __________
OTHER INCOME (EXPENSE)
Interest income 103,419 102,283 52,782 300,600
Interest expense (60,634) (70,468) (118,460) (434,447)
Loss on abandonment of interest in
joint venture - (33,000) - (33,000)
__________ __________ __________ __________
TOTAL OTHER INCOME 42,785 (1,185) (65,678) (166,847)
__________ __________ __________ __________
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS AND PROVISION FOR INCOME TAXES (1,198,895) (3,547,759) (3,851,496) (12,352,527)
PROVISION FOR INCOME TAXES (800) (800) (800) (11,000)
__________ __________ __________ __________
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS (1,199,695) (3,548,559) (3,852,296) (12,363,527)
EXTRAORDINARY ITEMS
Forgiveness of indebtness - - - (289,940)
__________ __________ __________ __________
NET INCOME (LOSS) $(1,199,695) $(3,548,559) $(3,852,296) $(12,653,467)
__________ __________ __________ __________
__________ __________ __________ __________
PER SHARE DATA
Basic income (loss) before
extraordinary item $ (0.06) $ (0.11) $ (0.06)
Basic extraordinary items - - -
__________ __________ __________
BASIC NET INCOME (LOSS) PER SHARE $ (0.06) $ (0.11) $ (0.06)
========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 18,900,019 33,640,393 63,073,970
========== ========== ==========
[See Accompanying Notes To Financial Statements]
F-2
Material Technologies, Inc.
(A Development Stage Company)
Statement of Stockholders' Equity (Deficit)
________________________________________________________________________________
Deficit
Class A Common Class B Common 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)
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
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)
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
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 -
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) -
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)
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
14,597,435 $ 14,597 60,000 $ 60 350,000 $ 350 3,455,002 $(4,052,917)
Issuance of Shares for
Services Rendered - as
restated 699,500 699 - - - - 823,817 -
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
- restated - - - - - - - (1,199,695)
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
Balance December 31,
2000 - restated 24,618,167 $ 24,618 100,000 $ 100 337,471 $ 337 6,650,348 $(5,252,612)
Issuance of Shares for
Services Rendered -
restated 6,185,000 6,185 - - - - 798,151 -
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 - - - - 1,122,000 -
Net (Loss) for the Year
Ended December 31, 2001 -
restated - - - - - - - (3,548,559)
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
42,433,378 $ 42,433 100,000 $ 100 337,471 $ 337 8,851,436 $(8,801,171)
Issuance of Shares for
Services Rendered 21,835,018 21,835 - - - - 1,163,796 -
Issuance of Shares to
University of
Pennsylvania 1,096,476 1,096 (1,096)
Shares issued in settlement
of lawsuit 1,397,200 1,398 - - - - 38,602
Shares Issued for Cash 28,046,766 28,047 - - 143,250 143 1,125,546 -
Offering costs - - - - (200,412)
Shares issued in canellation of
President's interest in
patents - - 200,000 200 - - -
Cancellation of shares in
stock grant (1,322,000) (1,322) 1,322
Shares issued to Company's
president for past
compensation 13,000,000 13,000 247,000
Shares Issued in
Connection with Private
Offering 2,741,347 2,741 - - - - (2,741) -
Net (Loss) for the Year
Ended December 31, 2002 - - - - - - - (3,852,296)
___________ ___________ ___________ ___________ ___________ ___________ ___________ ___________
Balance -
December 31, 2002 109,228,185 $ 109,228 300,000 $ 300 480,721 $ 480 11,223,453 $(12,653,467)
=========== =========== =========== =========== =========== =========== =========== ===========
[See Accompanying Notes To Financial Statements]
F-3
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
________________________________________________________________________________
From Inception
For the Year Ended December 31, (October 21, 1983)
________________________________________ Through
2000 2001 2002 December 31, 2002
____________ ____________ ____________ ____________
(Restated) (Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,199,695) $ (3,548,559) $ (3,852,296) $(12,653,467)
____________ ____________ ____________ ____________
Adjustments to reconcile net income
(loss) to net cash provided
(used) in operating activities
Depreciation and amortization 2,948 3,755 7,747 185,612
Accrued interest income (98,557) (98,298) (49,444) (247,731)
Gain on sale of securities - - - (196,596)
Charge off of investment in joint venture - 33,000 - 33,000
Officers' and directors compensation on stock
subscription modification - 1,500,000 - 1,500,000
Issuance of common stock to officer for past servicea 260,000 260,000
Charge off of deferred offering costs - - - 36,480
Charge off of long-lived assets due to impairment - - - 92,919
Modification of royalty agreement - - - 7,332
Gain on foreclosure - - - (18,697)
(Increase) decrease in accounts receivable 112,364 (255,073) 285,677 (50,328)
(Increase) decrease in employee advances - - (1,433) (1,433)
(Increase) decrease in prepaid expense - (212) (1,179) (1,338)
Loss on sale of equipment - - 12,780
Issuance of common stock for services 828,699 1,932,336 1,286,894 4,581,656
Issuance of stock for agreement modification - - - 152
Forgiveness of Indebtedness - - - 215,000
Increase (decrease) in accounts
payable and accrued expenses 8,441 267,742 (284,625) 902,989
Increase in legal fees secured by note payable - - 1,481,895 1,481,895
Interest accrued on note payables 57,062 67,718 114,971 387,726
Increase in research and development
sponsorship payable - - 218,000
(Increase) in note for litigation settlement - - (25,753)
(Increase) in Deposits - - (2,189)
____________ ____________ ____________ ____________
TOTAL ADJUSTMENTS
910,957 3,450,968 3,100,503 9,371,476
____________ ____________ ____________ ____________
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (288,738) (97,591) (751,793) (3,281,991)
____________ ____________ ____________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From sale of equipment - - 10,250
Purchase of property and equipment - (5,961) (29,608) (266,472)
Proceeds from sale of securities - - - 283,596
Purchase of securities - - - (90,000)
Proceeds from foreclosure - - - 44,450
Investment in joint ventures (15,000) - - (102,069)
Payment for license agreement - - - (6,250)
____________ ____________ ____________ ____________
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (15,000) (5,961) (29,608) (126,495)
____________ ____________ ____________ ____________
[See Accompanying Notes To Financial Statements]
F-4
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
________________________________________________________________________________
From Inception
(October 21, 1983)
For the Year Ended December 31, Through
2000 2001 2002 December 31, 2002
___________ ___________ ___________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock net of offering costs $ 274,288 $ 366,126 $ 1,153,735 $ 2,901,468
Costs incurred in offerings - (79,559) (261,474) (372,513)
Sale of common stock warrants - - - 18,250
Sale of preferred stock - - - 258,500
Sale of redeemable preferred stock - - - 150,000
Capital contributions - - - 301,068
Payment on proposed reorganization - - - (5,000)
Loans From officer 8,000 42,800 - 778,805
Officer advances and repayments (39,500) (53,300) (33,547) (542,379)
Increase in loan payable-others - - - 172,069
___________ ___________ ___________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES: 242,788 276,067 858,714 3,660,268
___________ ___________ ___________ ___________
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (60,950) 172,515 77,313 251,782
BEGINNING BALANCE CASH AND
CASH EQUIVALENTS 62,904 1,954 174,469 -
___________ ___________ ___________ ___________
ENDING BALANCE CASH AND CASH
EQUIVALENTS $ 1,954 $ 174,469 $ 251,782 $ 251,782
=========== =========== =========== ===========
[See Accompanying Notes To Financial Statements]
F-5
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization
Material Technologies, Inc. (the "Company") was organized on March 4, 1997,
under the laws of the state of Delaware.
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 Accounts Receivable
Accounts receivable are reported at the customers' outstanding balances less any
allowance for doubtful accounts. Interest is not accrued on overdue accounts
receivable.
b. Allowance for Doubtful Accounts
The allowance for doubtful accounts on accounts receivable is charged to income
in amounts sufficient to maintain the allowance for uncollectible accounts at a
level management believes is adequate to cover any probable losses. Management
determines the adequacy of the allowance based on historical write-off
percentages and information collected from individual customers. Accounts
receivable are charged off against the allowance when collectibility is
determined to be permanently impaired (bankruptcy, lack of contact, account
balance over one year old, etc.).
c. Property and Equipment
Property and equipment are stated at cost. Major renewals and improvements are
charged to the asset accounts while replacements, maintenance and repairs, which
do not improve or extend the lives of the respective assets, are expensed. At
the time property and equipment are retired or otherwise disposed of, the asset
and related accumulated depreciation accounts are relieved of the applicable
amounts. Gains or losses from retirements or sales are credited or charged to
income.
Material Technologies, Inc. depreciates its property and equipment as follows:
F-6
Financial statement reporting - straight line method as follows:
Machinery 5 years
Computer equipment 3-5 years
Office equipment 5 years
Long-Lived Assets
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the historical cost-carrying value of an
asset may no longer be appropriate. The Company assesses recoverability of the
carrying value of an asset by estimating the future net cash flows expected to
result from the asset, including eventual disposition. If the future net cash
flows are less than the carrying value of the asset, an impairment loss is
recorded equal to the difference between the asset's carrying value and fair
value.
b. 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.
c. Accounting 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.
d. Fair Value of Financial Instruments
The Company estimates the fair value of its financial instruments at their
current carrying amounts.
e. 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.
f. Revenue Recognition
During 2002, Significantly all of the Company's revenue was derived from the
Company's sub-contract with the United States Air Force relating to the further
development of the Electrochemical Fatigue Fuse. Revenue on the sub-contract is
recognized at the time services are rendered. . The Company bills monthly for
services pursuant to this sub-contract at which time revenue is recognized for
the period that the respective invoice relates. The objective of the contract
with the US Air Force 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 Air Force. 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. The sub-contract expired in 2002.
F-7
All other income is reported in the period that the income was earned.
g. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers cash and cash
equivalents to include all stable, highly liquid investments with maturities of
three months or less.
h. Income Taxes
The Company accounts for its income taxes under the provisions of Statement of
Financial Accounting Standards 109 ("SFAS 109"). The method of accounting for
income taxes under SFAS 109 is an asset and liability method. The asset and
liability method requires the recognition of deferred tax liabilities and assets
for the expected future tax consequences of temporary differences between tax
bases and financial reporting bases of other assets and liabilities.
i. Recent Accounting Pronouncements
The FASB recently issued the following statements:
FASB 144 - Accounting for the Impairment or Disposal of Long-Lived Assets
FASB 145 - Rescission of FASB Statements 4, 44 and 64 and Amendment of FASB 13
FASB 146 - Accounting for Costs Associated with Exit or Disposal Activities
FASB 147 - Acquisitions of Certain Financial Institutions
FASB 148 - Accounting for Stock-Based Compensation
These FASB statements did not have, or are not expected to have, a material
impact on the Company's financial position and results of operations.
Note 3 - Accounts Receivable
Accounts receivable consists entirely of amounts due under the Company's
research and development sub-contract and consists of the following:
December 31,
2001 2002
_________ _________
Accounts Receivable $ 285,677 $ 8,362
Less allowance for doubtful accounts - (8,362)
_________ _________
$ 285,677 $ -
========= =========
F-8
Note 4 - Intangibles
Intangible assets consist of the following:
Period of December 31,
Amortization 2001 2002
_________ _________
Patent Costs 17 Years $ 28,494 $ 28,494
License Agreement 17 Years 6,250 6,250
(See Note 4)
Website 5 Years 5,200 5,200
_________ _________
39,944 39,944
Less Accumulated Amortization (24,744) (27,824)
_________ _________
$ 15,200 $ 12,120
_________ _________
_________ _________
Amortization charged to operations for 2000, 2001, and 2002 were $1,989, and
$2,249, and 3,080 respectively.
Estimated amortization expense for the remaining life of the contract is as
follows:
2003 $2,116
2004 $2,116
2005 $2,116
2006 $1,856
2007 $ 1076
Note 5 - 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 state of fatigue damage in a metal
structural member. 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 2000, 2001, and 2002, relating to this
obligation was $54,638, $64,472, and $76,078, respectively. The balance of the
note at December 31, 2001, and 2002, was $422.653 and $498,731, 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-9
Note 6 - Property and Equipment
The following is a summary of property and equipment:
December 31,
2001 2002
________ _________
Office and computer equipment $ 24,142 $ 24,142
Manufacturing equipment 100,067 129,675
________ _________
124,209 153,817
Less: Accumulated
Depreciation (121,501) (126,168)
________ _________
$ 2,708 $ 27,649
======== =========
Depreciation charged to operations was $959, and $1,044, and $4,667, in 2000,
2001, and 2002, respectively. The Company's equipment has been pledged as
collateral on the agreement with Advanced Technology Center (See Note 8(b)).
Note 7 - 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. The loan has not been paid
and is now in default.
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, 2001,
and 2002, was $57,237, and $58,859, respectively. Interest charged to operations
for 2000, 2001 and 2002 was $3,245, $3,246, and $1,622, 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 2000, 2001, and
2002, 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 8 - 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
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. The allowance for 2000, 2001 and 2002 was $1,199,695,
$3,548,559, and $3,590,712, respectively. As of December 31, 2002, the Company
has unused operating loss carryforwards, which may provide future tax benefits
in the amount of $12,391,883 which expire in various years through 2022.
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 9 - 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.
F-10
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, 2001, and 2002, the future royalty
commitment was limited to $227,149 and $249,864, 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, 2001, and 2002, the total future royalty commitments, including
the accumulated 26% annual rate of return, were limited to approximately
$1,725,234, and $2,173,795, 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"), 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. 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
The Company leases its existing office under a non-cancelable lease, which
expires on June 30, 2003. The lease has a provision allowing the Company to
extend the lease period an additional six months, which the Company intends to
do, making the extended lease term to end on December 31, 2003.
Rental expense charged to operations for the years ended December 31, 2000,
2001, and 2002 was approximately $23,129, $29,468, and $28,176 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.
F-11
Minimum rental commitments under the noncancelable leases expire as follows:
Year Ended 2003 $ 11,740
i) Straight Documentary Credit
In October 2001, the Company reserved for issuance 100,000,000 shares of its
common stock as collateral for Allied Boston pursuant to the terms of a Straight
Documentary Credit Agreement. The delivery and selling of these shares was
contingent upon the occurrence of future events. Further, these shares could not
be voted on by Allied Boston until such time as the credit was funded. Since
these shares could not be sold or voted, the Company treated the shares as held
in reserve, and not outstanding.
Management has determined that this letter of credit facility will not fund
as originally contemplated and as a result, the transaction with Allied Boston
has been abandoned and the shares on reserve returned to fully authorized and
unissued shares available for future issuance.
j) Litigation
In July 2002, the Company settled its pending lawsuit with Mr. Beck. Under the
terms of the settlement, Mr. Beck received 1,000,000 shares of the Company
common stock. The shares to be issued are non-dilutive for a period of five
years.. The Company valued the shares issued to Mr. Beck at $40,000, the quoted
price of the shares on date of issuance 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. The balance of
this obligation at December 31 2002 including accrued interest is $1,519,166.
Interest charged to operations for 2002 totaled $37,271.
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 that could limit the amounts spent on
future projects or expansion.
Note 10 - Investments
a) The Company owns 65,750 shares of Class A Common Stock of Tensiodyne
Corporation. At December 31, 2002, 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.
F-12
Note 11 - 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 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. Class C Preferred Stock
During 2002, the Company sold to its legal counsel 143,250 shares of its Class B
preferred stock for $141,250. These shares are convertible to shares of the
Company's common stock at a conversion price of $.50 per share. The shares
accrue interest at 8% payable out of earnings before income tax, depreciation,
and amortization. The accrued interest is cumulative. Dividends accrued but not
actually payable at December 31, 2002 totaled $4,022.
F-13
e. Issuances Involving Non-cash Consideration
All issuances of the Company's stock for non-cash consideration have been
assigned a dollar amount equaling the quoted market price of the shares at date
of issuance.
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 $59,375. 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 $26,563. On February 28, 2000, the Company issued 200,000 of common stock to
a consultant for financial services. These shares were valued at $381,250. Also
on February 28, 2000, the Company issued 4,500 of common stock to a public
relations consultant. These shares were valued at $8,578. 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 fuse. . These shares were valued at $140,625. 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 $81,250. On 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 $15,469. On April 11,
2000, the Company issued 25,000 shares of common stock for advisory services.
These shares were valued at $25,781. On April 28, 2000, the Company issued
30,000 shares of common stock for advisory services. These shares were valued at
$26,250. 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 $21,875. 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 $37,500. 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 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.
F-14
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 $18,800. 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 $9,400. 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 $31,200. 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 $12,500. On March 6, 2001, the Company issued its
President 6,000,000 shares of common stock for services rendered. These shares
were valued at $1,128,000. On April 6, 2001, the Company issued a consultant
200,000 shares of its common stock for services rendered. These shares were
valued at $21,800. On April 17, 2001, the Company issued a consultant 250,000
shares of its common stock for services rendered. These shares were valued at
$22,500. 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 $9,000. On May 3, 2001, the Company issued to one of its employee's
100,000 shares of its common stock for services rendered on the Company's
research project. These shares were valued at $9,000. Also May 3, 2001, the
Company issued a consultant 100,000 shares of its common stock for services
rendered. These shares were valued at $9,000. 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 balance due for the
services. 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
$2,750. 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 $5,000. On
July 26, 2001, the Company issued a consultant 200,000 shares of its common
stock for services rendered. These shares were valued at $26,000. On August 6,
2001, the Company issued a consultant 125,000 shares of its common stock for
services rendered. These shares were valued at $16,250. On August 9, 2001, the
Company issued an attorney 265,000 shares of its common stock for services
rendered. These shares were valued at $39,750. 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 $42,000. On September 6, 2001, the Company issued a consultant 37,500
shares of its common stock for services rendered. These shares were valued at
$3,750. On September 14, 2001, the Company issued a consultant 50,000 shares of
its common stock for services rendered. These shares were valued at $5,000. On
September 19, 2001, the Company issued a consultant 125,000 shares of its common
stock for services rendered. These shares were valued at $11,250. 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 $102,000. On October 16, 2001, the Company
issued a consultant 50,000 shares of its common stock for services rendered.
These shares were valued at $4,560. 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 $4,000. On October 23, 2001, the Company issued an
attorney 150,000 shares of its common stock for services rendered. These shares
were valued at $33,000. On October 25, 2001, the Company issued 697,853 as
additional fees pertaining to its Regulation S offering.. These shares were
valued at $118,635. 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 $56,000. On November 14, 2001, the Company issued a consultant 150,000 shares
of its common stock for services rendered. These shares were valued at $33,000.
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 $16,125.
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
$90,325.
F-15
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 against the balance of the
debt owed, and shares issued relating to the Regulation S offering were charged
against the related proceeds received.
On January 11, 2002, the Company issued a consultant 20,000 shares of its common
stock for services rendered. These shares were valued at $3,200. On January 30,
2002, the Company issued a consultant 15,000 shares of its common stock for
services rendered. These shares were valued at $2,850. On February 13, 2002, the
Company issued 4,000 shares its common stock for clerical services rendered.
These shares were valued at $760. On February 14, 2002, the Company issued a
consultant 300,000 shares of its common stock for services rendered. These
shares were valued at $72,000. On March 4, 2002, the Company issued its
executive assistant 25,000 shares of its common stock. These shares were valued
at $6,750. Also on March 4, 2002, the Company issued to six individuals a total
of 650,000 shares of its common stock for consulting services rendered. These
shares were valued at $175,500. On March 15, 2002, the Company issued 150,000
shares of its common stock for consulting services rendered. These shares were
valued at $37,500. On March 18, 2002, the Company issued 150,000 shares of its
common stock for consulting services rendered. These shares were valued at
$22,500. On March 19, 2002, the Company issued to 125,000 shares of its common
stock for legal services rendered. These shares were valued at $20,000. On April
2, 2002, the Company issued to two members of its advisory board a total of
469,918 shares of its common stock for consulting services rendered. These
shares were valued at $65,789. On April 2, 2002, the Company issued its
executive assistant 25,000 shares of its common stock. These shares were valued
at $3,500. On April 4, 2002, the Company issued to 120,000 shares of its common
stock for legal services rendered. These shares were valued at $16,800. On April
4, 2002, the Company issued 4,000 shares its common stock for clerical services
rendered. These shares were valued at $560. On April 10, 2002, the Company
issued to 42,100 shares of its common stock for legal services rendered. These
shares were valued at $5,473. On April 12, 2002, the Company issued to 105,000
shares of its common stock for legal services rendered. These shares were valued
at $14,000. On April 25, 2002, the Company issued 550,000 shares of its common
stock for consulting services rendered. These shares were valued at $49,500. On
May 10, 2002, the Company issued 215,000 shares of its common stock for legal
services rendered. These shares were valued at $32,250. On May 10, 2002, the
Company issued 115,000 shares of its common stock for legal services rendered.
These shares were valued at $17,250. On May 21, 2002, the Company issued 400,000
shares of its common stock for consulting services rendered. These shares were
valued at $36,000. On May 22, 2002, the Company issued 1,000,000 shares of its
common stock for legal services rendered. These shares were valued at $90,000.
On June 5, 2002, the Company issued 150,000 shares of its common stock for
consulting services rendered. These shares were valued at $9,000. On June 5,
2002, the Company issued 50,000 shares of its common stock for legal services
rendered. These shares were valued at $3,000. On June 6, 2002, the Company
issued 50,000 shares of its common stock for consulting services rendered. These
shares were valued at $3,000. On July 3, 2002, the Company issued 1,000,000
shares of its common stock for legal services rendered. These shares were valued
at $50,000. On July 3, 2002, the Company issued 250,000 shares of its common
stock for consulting services rendered. These shares were valued at $12,500. On
July 8, 2002, the Company issued 200,000 shares of its common stock for legal
services rendered. These shares were valued at $8,000. On July 8, 2002, the
Company issued 200,000 shares of its common stock for consulting services
rendered. These shares were valued at $8,000. On July 26, 2002, the Company
issued 1,000,000 shares of its common stock for consulting services rendered.
F-16
These shares were valued at 40,000. On August 5, 2002, the Company issued
1,000,000 shares of its common stock to an employee for services rendered in
connection for the development of the fatigue fuse. These shares were valued at
$40,000. On August 5, 2002, the Company issued 1,230,000 shares of its common
stock for legal services. These shares were valued at $49,200. On August 14,
2002, the Company issued 1,000,000 shares of its common stock for legal
services. These shares were valued at $40,000. On August 29, 2002, the Company
issued 1,000,000 shares of its common stock for legal services. These shares
were valued at $30,000. On September 5, 2002, the Company issued 300,000 shares
of its common stock for consulting services rendered. These shares were valued
at $6,000. On September 5, 2002, the Company issued 75,000 shares of its common
stock for legal services. These shares were valued at $1,500. On September 10,
2002, the Company issued 2,000,000 shares of its common stock for consulting
services. These shares were valued at $60,000. On September 11, 2002, the
Company issued 1,000,000 shares of its common stock for legal services. These
shares were valued at $20,000. On September 12, 2002, the Company issued
2,500,000 shares of its common stock for legal services. These shares were
valued at $50,000. On October 7, 2002, the Company issued 2,500,000 shares of
its common stock for consulting services. These shares were valued at $75,000.
On October 9, 2002, the Company issued its executive assistant 50,000 shares of
its common stock. These shares were valued at $1,500. On October 29, 2002, the
Company issued 250,000 shares of its common stock for consulting services. These
shares were valued at $5,000. On December 6, 2002, the Company issued 650,000
shares of its common stock for consulting services. These shares were valued at
$19,500. On December 6, 2002, the Company issued 250,000 shares of its common
stock for legal services. These shares were valued at $7,500.. On December 16,
2002, the Company issued 1,000,000 shares of its common stock to a member of the
Company's advisory board. These shares were valued at $30,000. On December 17,
2002, the Company issued 1,000,000 shares of its common stock for legal
services. These shares were valued at $30,000. On December 18, 2002, the Company
issued 13,000,000 shares of its common stock to its president for past
compensation due to him. These shares were valued at $260,000.
The value assigned to shares issued for services were charged to operations.
Shares issued for legal services included services rendered in connection with
the Beck matter as discussed and preparation of the Company's registration
statement. During 2002, the Company issued 2,042,080 shares of Class A Common
Stock as additional consideration in connection with the Companys Regulation S
offering. In addition, the Company issued 200,000 shares of the Company's Class
B common shares to its President in consideration for the relinquishment of his
total interest in the Company's patents. In addition, during 2002, the Company
cancelled 450,000 shares of its common stock previously issued to consultants.
The value assigned to these cancelled shares was $48,250 was credited against
operations. The Company also issued 1,397,500 shares of its Class A Common Stock
to Mr. Stephen Beck pursuant to the anti-dilution provisions of the settlement
agreement (see note 9(j)). During 2002, the Company cancelled 1,322,000 shares
of originally issued to Mr. Bernstein pursuant to the Stock Escrow/Grant
Agreement.
F-17
Note 12 - 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. 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.
c. 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.
d. 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 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,
2002, 1,150,000 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.
e. On February 19, 2001, the Company issued its President 6,000,000 shares of
common stock for services rendered. These shares were valued at $1,128,000.
f. 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.
g. 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.
F-18
h. During 2002, the Company issued 200,000 shares of its Class B common stock
in exchange for the Company's President relinquishing all of the interest
that he had in the Company's patents.
i. On December 18, 2002, the Company issued 13,000,000 shares of its common
stock to its president for past compensation due hom. These shares had a
total market value of $260,000, but the Company valued these shares at
$420,000, the amount of past due compensation relinquished by Mr. Bernstein
in exchange for the shares.
j. During 2002, the Company cancelled 1,322,000 shares of originally issued to
Mr. Bernstein pursuant to the Stock Escrow/Grant Agreement.
k. During 2002, the Company made advances to its President amounting to
$34,826. The outstanding amount due from the President as of December 31,
2001 and 2002, is $35,880 and $76,109. The amount of interest credited to
operations for 2001 and 20002 was $3,327 and $6,682, respectively.
Note 13 - 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. The
remaining outstanding options under this plan expired in 2002.
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. On March 4,
2003, the Company amended the 2002 Stock Issuance/Stock Option Plan to
authorize the issuance of an additional 20,000,000 shares of common stock
under the plan. 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.
F-19
The following is a summary of the various plans' activities :
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 determined:
2000 2001 2002
_______ _______ _______
Risk free interest rate: 5% n/a 4%
Expected life: 3 years n/a 1.5 years
Expected volatility 80% n/a 34%
Note 14 - Adjustments to Prior Periods
For the years 2000 and 2001, the Company changed its method in determining the
value of the shares of stock it issued for non-monetary consideration to the
quoted market price of the shares on date of issue. In addition, in 2001, the
Company changed the life of its license for amortization purposes to 17 years.
The following is a reconciliation of net loss as restated for the 2000 and 2001
two years.
2000 2001
___________ ___________
Net loss as originally reported $ (459,129) $(2,432,638)
Increase in operating loss due to
changes in valuation of non-monetary
consideration and amortization (740,566) (1,158,074)
___________ ___________
Net loss as adjusted $(1,199,695) $(3,590,712)
___________ ___________
___________ ___________
Loss Per Share - as originally reported $ (.02) $ (.07)
Change due to adjustment (.04) (.04)
Loss per share as adjusted $ (.06) $ (.11)
___________ ___________
___________ ___________
Note 15 - Management's Discussion on Future Operations
Since its inception, the Company has had recurring losses totaling $12,391,883.
The Company has enough cash resources to meet its obligation for the next
six-months. The Company is attempting to raise additional funding through the
offering of its convertible preferred stock in a private placement. Management
is also attempting to seek additional funding through debt offerings.
F-20
Contents
--------
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 May 2 , 2003
Description of securities 35
Plan of distribution for
selling shareholders 34
Legal matters 37
Experts 37
Index to financial statements 38
UNTIL JUNE ___, 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.
================================================================================
39
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 $ 33.60
Printing and Engraving (1) $ 500.00
Blue Sky Fees (1) $ 1,000.00
Auditing Fees (1) $ 5,000.00
Legal Fees (1) $ 2 5,000.00
Miscellaneous (1) $ 2,000.00
------------
TOTAL $ 43,533.60
(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
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.
40
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.
41
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.
42
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( 2 ) of the
Securities Act of 1933. We also entered into a Securities Subscription
Agreement dated April 29, 2003 with Mr. Bartko whereby we agreed to issue 39,000
shares of our class A preferred stock, par value $.001 per share, in exchange
for Mr. Bartko's investment of $39,000. The shares of class A preferred stock
issued to Mr. Bartko are convertible at his election into 78,000 shares of our
class A common stock, par value $.001 per share. At the time of his most recent
investment, Mr. Bartko was 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(2) 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. We also entered into a
Securities Subscription Agreement dated April 29, 2003 with Mr. Bartko whereby
we agreed to issue 39,000 shares of our class A preferred stock, par value $.001
per share, in exchange for Mr. Bartko's investment of $39,000. The shares of
class A preferred stock issued to Mr. Bartko are convertible at his election
into 78,000 shares of our class A common stock, par value $.001 per share. At
the time of his most recent investment, Mr. Bartko was 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(2) of the
Securities Act of 1933.
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.
43
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
--------------------------- ------------- ----------------- ------------------ ---------------
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
--------------------------- ------------- ----------------- ------------------ ---------------
44
--------------------------- ------------- ----------------- ------------------ ---------------
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
--------------------------- ------------- ----------------- ------------------ ---------------
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
--------------------------- ------------- ----------------- ------------------ ---------------
45
--------------------------- ------------- ----------------- ------------------ ---------------
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
--------------------------- ------------- ----------------- ------------------ ---------------
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
--------------------------- ------------- ----------------- ------------------ ---------------
46
--------------------------- ------------- ----------------- ------------------ ---------------
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
--------------------------- ------------- ----------------- ------------------ ---------------
47
--------------------------- ------------- ----------------- ------------------ ---------------
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
--------------------------- ------------- ----------------- ------------------ ---------------
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
--------------------------- ------------- ----------------- ------------------ ---------------
48
--------------------------- ------------- ----------------- ------------------ ---------------
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
--------------------------- ------------- ----------------- ------------------ ---------------
49
--------------------------- ------------- ----------------- ------------------ ---------------
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
--------------------------- ------------- ----------------- ------------------ ---------------
50
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
51
Commencing on February 18, 2003, we offered and sold a total of
11,250,000 units consisting of 100 shares of Class C Series A Preferred Stock
and 100 common stock purchase warrants entitling the holder of each warrant to
purchase an additional share of our common stock. Each unit was offered and sold
for $1.00 per unit. In the aggregate, we have received $112,358 from these
sales. The names, dates of purchase and total aggregate amounts of investment
made by each purchaser is set forth in the table that follows.
Carlos DeCarol 2/18/2003 400,000 $ 3,985
James Wilman 2/20/2003 300,000 $ 3,000*
Carlos DeCarlo 2/20/2003 100,000 $ 985
John Moran 2/20/2003 500,000 $ 5,000
Bruce Simpson 2/21/2003 300,000 $ 3,000
Bruce Quinlan 2/26/2003 500,000 $ 5,000*
Giovanni
Martinazzo 2/28/2003 600,000 $ 5,985
Ken Lackenby 3/03/2003 500,000 $ 5,000
Euan Macfarlane 3/10/2003 500,000 $ 5,000
Bruce Quinlan 3/12/2003 500,000 $ 5,000*
Frank Jenkins 3/12/2003 350,000 $ 3,500*
Barbara Jenkins 3/12/2003 350,000 $ 3,500*
Nate Esformes 3/14/2003 500,000 $ 5,000*
Nate Esformes 3/14/2003 500,000 $ 5,000*
Trevor Schultz 3/14/2003 250,000 $ 2,483
Austin Family 3/18/2003 2,250,000 $ 22,500
Bob Adams 3/18/2003 500,000 $ 4,980
Louis Tziavaras 3/18/2003 250,000 $ 2,500
Michael Mayo 3/21/2003 500,000 $ 4,980
David McNabb 3/25/2003 250,000 $ 2,500
Bruce Simpson 3/25/2003 400,000 $ 4,000
Hannu
Hamalainen 4/03/2003 250,000 $ 2,480
Louis Tziavaras 4/15/2003 500,000 $ 5,000
Brian Robinson 4/16/2003 200,000 $ 1,980
Totals 11,250,000 $112,358
--------------------------------------
* These investors are residents of the U.S.
All of these offers and sales were exempt from registration in the case of
certain foreign residents under Regulation S promulgated under the Securities
Act of 1933 and in the case of sales made to the U.S. residents, such sales were
exempt from registration under Rule 506 of Regulation D promulgated under the
Securities Act of 1933 or in the alternative under Section 4(2) of the
Securities Act. All purchasers of these securities 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 executed a common form of
subscription agreement and investment representation statement before their
subscription to the units was accepted by us.
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)
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 (3)
Certificate of Amendment, dated January 7, 2003 (3)
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)
4.4 Class C Series A Convertible Preferred Stock Certificate of
Designations (4)
4.5 Specimen Common Stock Purchase Warrant (4)
4.6 Specimen Form of Certificate For Class C Series A Convertible
Preferred Stock (4)
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)
52
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. (3)
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 (3)
10.20 License Agreement Between Integrated Technologies, Inc. and
Austin Tech, LLC Dated January 3, 2003 (3)
10.21 Non-Statutory Stock Option Agreement between the Registrant and
Peter Jegou dated October 15, 2002. (3)
10.22 Non-Statutory Stock Option Agreement between the Registrant and
Richard Margulies dated October 15, 2002. (3)
10.23 Amended and Superceding Securities Subscription Agreement
between the Registrant and Gregory Bartko dated December 17,
2002. (3)
10.24 License Agreement Between the Registrant and Integrated
Technologies, Inc. Dated January 3, 2003 (3)
10.25 Security Agreement (To Pay For Past Legal Services), dated August
1, 2002 among Robert A. Brunette, Hassel Hill, Jr. and the
Registrant (4)
10.26 License Agreement dated April 15, 2003 Between the Registrant and
Matech International Corp.(4)
10.27 Securities Subscription Agreement between the Registrant and
Gregory Bartko, Esq. dated April 29, 2003. (4)
10.28 Common Stock Purchase Warrant Between the Registrant and Miles
Miles Wilson Dated February 8, 1999 (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)
______________________________________
53
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.
54
(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.
55
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 2nd day of
May, 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, May 2, 2003
Robert M. Bernstein Chief Executive Officer,
Chief Financial Officer,
Principal Accounting Officer,
and Director
/s/ *
------------------------------- Secretary and director May 2, 2003
Joel Freedman
/s/ *
------------------------------- Director May 2, 2003
John Goodman
________________________________
* By Power of Attonery
56
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, dated December 2, 2002 (3)
Certificate of Amendment, dated January 7, 2003 (3)
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)
4.4 Class C Series A Convertible Preferred Stock Certificate of
Designations (4)
4.5 Specimen Common Stock Purchase Warrant (4)
4.6 Specimen Form of Certificate For Class C Series A Convertible
Preferred Stock (4)
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)
57
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. (3)
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 (3)
10.20 License Agreement Between Integrated Technologies, Inc. and
Austin Tech, LLC Dated January 3, 2003 (3)
10.21 Non-Statutory Stock Option Agreement between the Registrant and
Peter Jegou dated October 15, 2002. (3)
10.22 Non-Statutory Stock Option Agreement between the Registrant and
Richard Margulies dated October 15, 2002. (3)
10.23 Amended and Superceding Securities Subscription Agreement
between the Registrant and Gregory Bartko dated December 17,
2002. (3)
10.24 License Agreement Between the Registrant and Integrated
Technologies, Inc. Dated January 3, 2003 (3)
10.25 Security Agreement (To Pay For Past Legal Services), dated August
1, 2002 among Robert A. Brunette, Hassel Hill, Jr. and the
Registrant (4)
10.26 License Agreement dated April 15, 2003 Between the Registrant and
Matech International Corp.(4)
10.27 Securities Subscription Agreement between the Registrant and
Gregory Bartko, Esq. dated April 29, 2003. (4)
10.28 Common Stock Purchase Warrant Between the Registrant and Miles
Miles Wilson Dated February 8, 1999 (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.