As
filed
with the Securities and Exchange Commission on June 15, 2006
An
Exhibit List can be found on page II-11.
Registration
No. 333-
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON
D.C. 20549
_____________________________
FORM
SB-2
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
_____________________________
MATERIAL
TECHNOLOGIES, INC.
(Name
of
small business issuer in its charter)
Delaware
|
3823
|
95-4622822
|
(State
or other
Jurisdiction
of
Incorporation
or
Organization)
|
(Primary
Standard Industrial
Classification
Code Number)
|
(I.R.S.
Employer
Identification
No.)
|
11661
San Vicente Boulevard, Suite 707
Los
Angeles, California 90049
(310)
208-5589
(Address
and telephone number of principal executive offices and principal place of
business)
Robert
M. Bernstein, Chief Executive Officer
MATERIAL
TECHNOLOGIES, INC.
11661
San Vicente Boulevard, Suite 707
Los
Angeles, California 90049
(310)
208-5589
(Name,
address and telephone number of agent for service)
Copies
to:
Gregory
Sichenzia, Esq.
Eric
A. Pinero, Esq.
Sichenzia
Ross Friedman Ference LLP
1065
Avenue of the Americas, 21st Flr.
New
York, New York 10018
(212)
930-9700
(212)
930-9725 (fax)
|
APPROXIMATE
DATE OF PROPOSED SALE TO THE PUBLIC: From
time
to time after this Registration Statement becomes effective.
If
any
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, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
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, please
check the following box. [ ]
CALCULATION
OF REGISTRATION FEE
Title
of each class of securities
to
be registered
|
Amount
to be
registered
(1)
|
Proposed
maximum offering
price
per
share
|
Proposed
maximum aggregate
offering
price
|
Amount
of
registration
fee
|
|
Class
A Common stock issuable upon conversion of debenture
|
18,518,519
(2)
|
$0.10(3)
|
$1,851,851.85
|
$198.15
|
|
Class
A Common Stock issuable upon exercise of warrants
|
50,000,000(4)
|
$0.01(5)
|
$500,000.00
|
$53.50
|
|
Class
A Common Stock, par value $0.001 per share
|
735,747(6)
|
$0.10(3)
|
$110,362.05
|
$7.87
|
|
Total
|
69,254,266
|
|
|
$259.52
|
|
(1)
Includes shares of our common stock, par value $0.001 per share, which may
be
offered pursuant to this registration statement, which shares are issuable
upon
conversion of a convertible debenture and the exercise of warrants held by
a
selling stockholder. In addition to the shares set forth in the table, the
amount to be registered includes a good faith estimate of the number of shares
issuable upon conversion of the debenture. The amount to be registered also
includes shares of common stock issuable upon exercise of the warrants, as
such
number may be adjusted as a result of stock splits, stock dividends and similar
transactions in accordance with Rule 416. Should the conversion ratio of
our convertible debenture result in our having insufficient shares, we will
not
rely upon Rule 416, but will file a new registration statement to cover the
resale of such additional shares should that become necessary. In
addition, should a decrease in the exercise price as a result of an issuance
or
sale of shares below the then current market price, result in our having
insufficient shares, we will not rely upon Rule 416, but will file a new
registration statement to cover the resale of such additional shares should
that
become necessary.
(2)
Includes a good faith estimate of the shares (150%) underlying convertible
debenture to account for market fluctuations.
(3)
Estimated solely for purposes of calculating the registration fee in accordance
with Rule 457(c) under the Securities Act of 1933, using the average of the
high
and low price as reported on the Over-The-Counter Bulletin Board on June 7,
2006, which was $0.10 per share.
(4)
Includes shares underlying warrants exercisable at $0.01 per share.
(5)
Estimated solely for purposes of calculating the registration fee in accordance
with Rule 457(g) under the Securities Act of 1933, using the exercise price
of
$0.01.
(6)
Includes shares of common stock issued to one of the selling stockholders
pursuant to certain Investor Relations Service Agreements dated as of December
8, 2005 and February 7, 2006 as compensation for investor relations services
performed by the selling stockholder under the Agreements.
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 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PRELIMINARY
PROSPECTUS SUBJECT TO COMPLETION, DATED JUNE 15, 2006
MATERIAL
TECHNOLOGIES, INC.
69,254,266
SHARES OF
COMMON
STOCK
This
prospectus relates to the resale by the selling stockholder of up to 69,254,266
shares of our common stock, including up to 18,518,519 shares of common stock
underlying convertible debentures, up to 50,000,000 issuable upon the exercise
of common stock purchase warrants and 735,747 shares of common stock issued
to
one of the selling stockholders. The convertible debentures are
convertible into the number of our shares of common stock equal to the dollar
amount of the debentures being converted, divided by the lesser of (i) $0.70,
(ii) eighty percent of the average of the three lowest volume weighted average
prices during the twenty (20) trading days prior to the conversion or (iii)
eighty percent of the volume weighted average price on the trading day prior
to
the conversion. The warrant is exercisable into 50,000,000 shares of
common stock for a period of three years at an exercise price of $0.01 per
share, provided that, the exercise price shall be equal to the price at which
we
sell common stock (through direct stock issuances, and/or conversions or
exercises of convertible securities, but not including common stock issued
as
compensation for services performed on our behalf) during the 30 days prior
to
the exercise date. The selling stockholder may sell common stock from time
to time in the principal market on which the stock is traded at the prevailing
market price or in negotiated transactions. The selling stockholder may be
deemed an underwriter of the shares of common stock, which it is offering.
We will pay the expenses of registering these shares.
Our
common stock is registered under Section 12(g) of the Securities Exchange Act
of
1934 and is listed on the Over-The-Counter Bulletin Board under the symbol
"MTNA". The last reported sales price per share of our common stock as
reported by the Over-The-Counter Bulletin Board on June 7, 2006, was $0.10.
Investing
in these securities involves significant risks. See "Risk Factors"
beginning on page 4.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this Prospectus
is
truthful or complete. Any representation to the contrary is a criminal offense.
The
date
of this prospectus is _______, 2006.
The
information in this Prospectus is not complete and may be changed. This
Prospectus is included in the Registration Statement that was filed by Material
Technologies, Inc., with the Securities and Exchange Commission. The
selling stockholder may not sell these securities until the registration
statement becomes effective. This Prospectus is not an offer to sell these
securities and is not soliciting an offer to buy these securities in any state
where the sale is not permitted.
Table
Of
Contents
Prospectus
Summary
|
3
|
|
|
Risk
Factors
|
5
|
|
|
Use
of Proceeds
|
12
|
|
|
Market
for Common Equity and Related Stockholder Matters
|
12
|
|
|
Management’s
Discussion and Analysis of Financial Condition
and Results of Operations
|
13
|
|
|
Description
of Business
|
19
|
|
|
Description
of Property
|
23
|
|
|
Legal
Proceedings
|
23
|
|
|
Directors,
Executive Officers, Promoters and Control Persons
|
24
|
|
|
Executive
Compensation
|
25
|
|
|
Certain
Relationships and Related Transactions
|
28
|
|
|
Changes
In and Disagreements with Accountants on Accounting and Financial
Disclosure
|
28
|
|
|
Security
Ownership of Certain Beneficial Owners and Management
|
30
|
|
|
Description
of Securities Being Registered
|
31
|
|
|
Indemnification
for Securities Act Liabilities
|
31
|
|
|
Plan
of Distribution
|
31
|
|
|
Selling
Stockholder
|
34
|
|
|
Legal
Matters
|
36
|
|
|
Experts
|
36
|
|
|
Available
Information
|
36
|
|
|
Financial
Statements
|
37
|
PROSPECTUS
SUMMARY
The
following summary highlights selected information contained in this prospectus.
This summary does not contain all the information you should consider before
investing in the securities. Before making an investment decision, you should
read the entire prospectus carefully, including the "risk factors" section,
the
financial statements and the notes to the financial statements.
MATERIAL
TECHNOLOGIES, INC.
We
are engaged in research and development of metal fatigue detection, measurement,
and monitoring technologies. As such, we are developing several monitoring
devices for metal fatigue detection and 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.
The first is a small, extremely simple device that continuously integrates
the
effect of fatigue loading in a structural member, called a Fatigue Fuse.
The second is an instrument that detects very small cracks in metals, The
Electrochemical Fatigue Sensor. It has demonstrated that it can detect
cracks, in the laboratory, as small as 10 microns (0.0004 inches), which is
smaller than any other practical crack detection technology, as acknowledged
by
the United States Air Force and confirmed by Rockwell Scientific
Corporation. We hold the patents on the Fatigue Fuse and license the
technology on the Electrochemical Fatigue Sensor from the University of
Pennsylvania.
For
the three months ended March 31, 2006 and 2005, we generated revenue in the
amount of $28,846 and $18,308, respectively, and a net loss of $3,834,275 and
$1,680,065, respectively. For the years ended December 31, 2005 and 2004, we
generated revenue in the amount of $139,346 and $146,932, respectively, and
a
net loss of $20,749,260 and $25,495,291, respectively. As a result of our
substantial need for working capital and other factors, our auditors in their
report dated January 31, 2006, have expressed substantial doubt about our
ability to continue as going concern.
Our
principal offices are located at 11661 San Vicente Boulevard, Suite 707, Los
Angeles, California 90049 and our telephone number is (310) 208-5589. We are
a
Delaware corporation.
The
Offering
|
|
Common
stock offered by selling stockholder
|
Up
to 69,254,266 shares, including up to 18,518,519 shares of common
stock
underlying convertible debenture in the amount of $1,000,000 and
up to
50,000,000 shares issuable upon the exercise of common stock purchase
warrants at an exercise price of $0.01 per share, based on current
market
prices and assuming full conversion of the convertible debenture
and the
full exercise of the warrants (includes a good faith estimate of
the
shares underlying convertible debenture and shares underlying warrants).
In addition, this prospectus includes 735,747 shares of common stock
issued to one of the selling stockholders pursuant to certain Investor
Relations Service Agreements dated as of December 8, 2005 and February
7,
2006 as compensation for investor relations services performed by
the
selling stockholder under the Agreements. This number represents
27.69% of
our then current outstanding stock.
|
Common
stock to be outstanding after the offering
|
Up
to 318,607,596 shares assuming the full exercise of our warrants
and
conversion of our convertible debenture.
|
Use
of proceeds
|
We
will not receive any proceeds from the sale of the common stock However,
we will receive at least $500,000 upon exercise of the warrants by
the
selling stockholder. We expect to use the proceeds received from
the
exercise of the warrants, if any, for general working capital purposes.
|
Over-The-Counter
Bulletin Board Symbol
|
MTNA
|
The
above information regarding common stock to be outstanding after the offering
is
based on 250,089,077 shares of common stock outstanding as of June 7, 2006
and
assumes the subsequent conversion of our issued convertible debenture and
exercise of warrants by our selling stockholder.
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with Golden Gate Investors, Inc. (“Golden Gate”) on December 16, 2005,
as amended by that certain Addendum to Convertible Debenture, Warrant to
Purchase Common Stock and Securities Purchase Agreement, and that certain
Addendum to Convertible Debenture and Warrant to Purchase Common Stock, each
dated as of December 16, 2005, and as further amended by that certain Addendum
to Convertible Debenture, Warrant to Purchase Common Stock and Securities
Purchase Agreement dated as of May 2, 2006 and Securities Purchase Agreement
dated as of May 30, 2006, and as further amended by that certain Addendum to
Convertible Debenture, Warrant to Purchase Common Stock and Securities Purchase
Agreement dated as of June 9, 2006, and as further amended bv that certain
Addendum to Warrant to Purchase Common Stock dated as of June 12, 2006, for
the
sale of (i) $1,000,000 in convertible debentures and (ii) warrants to buy
50,000,000 shares of our common stock. This prospectus relates to the
resale of the common stock underlying this convertible debenture and
warrants.
On
May 2,
2006, we entered into an Addendum to Convertible Debenture, Warrant to Purchase
Common Stock and Securities Purchase Agreement with Golden Gate pursuant to
which we increased the principal amount of the debenture to $1,000,000, provided
that previous amounts provided to us by Golden Gate ($75,000) were applied
to
the purchase price. Upon filing of the registration statement we are required
to
file registering shares of our common stock underlying the debenture and the
warrants, Golden Gate will provide us with $20,000. In addition, within 5 days
of the effectiveness of the registration statement, we are required to issue
20,000,000 shares of common stock to be held in escrow and to be released upon
conversions of the debenture by Golden Gate. Upon receipt of the 20,000,000
shares, Golden Gate is required to immediately wire to us the
remainder of the purchase price ($1,000,000 less the sum of all amounts
previously advanced to us).
The
debenture bears interest at 5¼%, matures three years from the date of issuance,
and is convertible into our common stock, at the selling stockholder’s
option. The conversion price of the convertible debenture is the lesser of
(i) $0.70, (ii) eighty percent of the average of the three lowest volume
weighted average prices during the twenty (20) trading days prior to the
conversion or (iii) eighty percent of the volume weighted average price on
the
trading day prior to the conversion. Accordingly, there is in fact no
limit on the number of shares into which the debenture may be converted.
Golden Gate has agreed that, beginning in the first full calendar month after
the registration statement is declared effective, it shall convert at least
10%,
but no more than 40%, of the debenture per calendar month, provided that the
common stock is available, registered and freely tradable; provided that, we
may
reduce the monthly maximum conversion from 40% to 6% for any three calendar
months during the term of the debenture upon ten business days notice prior
to
the first day of the applicable calendar month. However, in the event that
our
volume weighted average price is less than (i) $0.05 or (ii) the lowest price
at
which any of the 20,000,000 additional shares are issued or sold, the
Company shall have the option to do one of the following: (x) redeem that
portion of the Debenture that Holder elected to convert, plus any accrued and
unpaid interest, at 108% of such amount, or (y) increase the Discount Multiplier
to 99% on that portion of the Debenture that Holder elected to convert, or
(z)
one time during any six month period, not permit any Debenture conversions
by
Holder for a period of 60 days.
If we elect to prepay the debenture, Golden Gate may withdraw its conversion
notice. Golden Gate has agreed that, beginning in the first full calendar
month after the registration statement is declared effective, it shall exercise
1,250,000 warrants per week until all warrants are exercised. The warrant is
exercisable into 50,000,000 shares of common stock at an exercise price of
$.01
per share, provided that, the exercise price shall be equal to the price at
which we sell common stock (through direct stock issuances, and/or conversions
or exercises of convertible securities, but not including common stock issued
as
compensation for services performed on our behalf) during the 30 days prior
to
the applicable exercise date.
The
selling stockholder has contractually agreed to restrict its ability to convert
its debenture or exercise its warrants and receive shares of our common stock
such that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 9.99% of the then issued
and
outstanding shares of common stock.
On
December 8, 2005 and February 7, 2006, we entered into Investor Relations
Services Agreements with Lynx Consulting (“Lynx”), in which we engaged Lynx as
our consultant to provide investor relations services to our company. In
accordance with the Investor Relations Services Agreements, Lynx was provided
with piggyback registration rights for 735,747 shares of common stock it
received as compensation for services performed by Lynx under the
Agreements. Accordingly, we are registering 735,747 shares of common stock
issued to Lynx pursuant to this prospectus.
See
the "Selling Stockholders" and "Risk Factors" sections for a complete
description of the convertible debenture.
RISK
FACTORS
This
investment has a high degree of risk. Before you invest you should carefully
consider the risks and uncertainties described below and the other information
in this prospectus. If any of the following risks actually occur, our business,
operating results and financial condition could be harmed and the value of
our
stock could go down. This means you could lose all or a part of your investment.
Risks
Relating to Our Business:
We
have a history of losses which may continue, requiring us to seek additional
sources of capital which may not be available, requiring us to curtail or cease
operations.
We
incurred net losses of $20,749,260 for the year ended December 31, 2005 and
$25,495,291 for the year ended December 31, 2004. In addition, we incurred
net losses of $3,834,275 for the three months ended March 31, 2006 and
$1,680,065 for the three months ended March 31, 2005. Our monthly burn rate
is
approximately $100,000 per month and, accordingly, we will need to raise
approximately $1,200,000 over the next 12 months in order to sustain our current
operations. We cannot assure you that we can achieve or sustain
profitability on a quarterly or annual basis in the future. If revenues
grow more slowly than we anticipate, or if operating expenses exceed our
expectations or cannot be adjusted accordingly, we will continue to incur
losses. We will continue to incur losses until we are able to market and
sell our products. Our possible success is dependent upon the successful
development and marketing of our products, as to which there is no assurance.
Any future success that we might enjoy will depend upon many factors, including
factors out of our control or which cannot be predicted at this time. These
factors may include changes in or increased levels of competition, including
the
entry of additional competitors and increased success by existing competitors,
changes in general economic conditions, increases in operating costs, including
costs of supplies, personnel and equipment, reduced margins caused by
competitive pressures and other factors. These conditions may have a materially
adverse effect upon us or may force us to reduce or curtail operations. In
addition, we will require additional funds to sustain and expand our sales
and
marketing activities, particularly if a well-financed competitor emerges.
Based on our current funding arrangement with Golden Gate, upon the
effectiveness of this prospectus, which will require Golden Gate to fund the
balance of the debenture, we do not anticipate that we will require additional
funds to continue our operations for the next 6 months. In the event that
our financing arrangement with Golden Gate is terminated or if we need
additional financing, there can be no assurance that financing will be available
in amounts or on terms acceptable to us, if at all. The inability to
obtain sufficient funds from operations or external sources would require us
to
curtail or cease operations. Any additional equity financing may involve
substantial dilution to our then existing shareholders.
Our
Independent Registered Public Accounting Firm have expressed substantial doubt
about our ability to continue as a going concern, which may hinder our ability
to obtain future financing.
In
their report dated January 31, 2006, our independent registered public
accounting firm stated that our financial statements for the year ended December
31, 2005 were prepared assuming that we would continue as a going concern.
Our
ability to continue as a going concern is an issue raised as a result of cash
flow constraint, an accumulated deficit of $60,783,746 at December 31, 2005
and
recurring losses from operations. We continue to experience net losses.
Our ability to continue as a going concern is subject to our ability to generate
a profit and/or obtain necessary funding from outside sources, including
obtaining additional funding from the sale of our securities, increasing sales
or obtaining loans and grants from various financial institutions where
possible. Our continued net losses and stockholders’ deficit increases the
difficulty in meeting such goals and there can be no assurances that such
methods will prove successful.
Our
products are in the final development stage and there can be no assurance that
we will ever bring any of our products into the commercial marketplace.
Our
products are in the final development 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 development and testing. The time required to bring our
products to market is uncertain. Market acceptance of our products cannot be
determined until product development is complete. There can be no assurance
that
we will ever bring any of our products into the commercial marketplace.
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 development 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 infrastructure, in a timely manner, could have a materially
adverse impact upon our ability to bring our products to market and continue
operating.
We
have generated revenues to date from our government and research contracts.
We
cannot give any assurances that we will be able 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.
Our
revenue generated to date has been limited to revenue received from our
government and research contracts. 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 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.
We
currently 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 our President and CEO, management consultants and outside
advisors. Our business and prospects may be adversely affected if we are
unable to retain the services of our President and CEO, and 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, 2005 and the
three months ended March 31, 2006, we issued 3,440,435 and 14,526,000 shares
of
our common stock, respectively, valued at $3,405,507 and $1,779,400,
respectively, to compensate these consultants for their services since we are
unable to compensate them in any other manner. 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 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
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 certain of our lenders. We may lose 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 of this prospectus,
"Business." A first priority security interest in our patents is held by 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, 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, but the shareholder 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.
We
cannot 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.
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.
If
we do not obtain additional financing to continue our development activities,
we
will not be able to complete our product development.
If
we fail to raise additional funds necessary for development 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 6 months,
although we have sufficient cash to continue our development efforts for the
next 6 months. Over the next 12 months, we anticipate that approximately
$3,000,000 will be required to complete development of our products and market
them. Even if the necessary $3,000,000 is raised and development 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.
Our
royalty and license agreements will also reduce our revenue generated from
our
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.
Risks
Relating to Our Current Financing Arrangement:
There
are a large number of shares underlying our convertible debenture, and warrants
that may be available for future sale and the sale of these shares may depress
the market price of our common stock.
As
of June 7, 2006, we had 250,089,077 and 600,000 shares of Class A and Class
B
common stock issued and outstanding, respectively, and a convertible debenture
outstanding that may be converted into an estimated 12,345,679 shares of common
stock at current market prices, and outstanding warrants to purchase 50,000,000
shares of Class A common stock. In addition, the number of
shares of Class A common stock issuable upon conversion of the outstanding
convertible debenture may increase if the market price of our stock
declines. All of the shares, including all of the shares issuable upon
conversion of the debenture and upon exercise of our warrants, may be sold
without restriction. The sale of these shares may adversely affect the market
price of our common stock.
The
continuously adjustable conversion price feature of our convertible debenture
could require us to issue a substantially greater number of shares, which will
cause dilution to our existing stockholders.
Our
obligation to issue shares upon conversion of our convertible debenture is
essentially limitless. The following is an example of the amount of shares
of
our common stock that are issuable, upon conversion of our convertible debenture
(excluding accrued interest), based on market prices 25%, 50% and 75% below
the
market price, as of June 7, 2006 of $0.10.
|
|
Effective
|
Number
|
%
of
|
%
Below
|
Price
Per
|
Conversion
|
of
Shares
|
Outstanding
|
Market
|
Share
|
Price
|
Issuable
|
Stock
|
25%
|
$.075
|
$.06
|
16,666,667
|
6.25%
|
50%
|
$.050
|
$.04
|
25,000,000
|
9.09%
|
75%
|
$.025
|
$.02
|
50,000,000
|
16.66%
|
As
illustrated, the number of shares of common stock issuable upon conversion
of
our convertible debenture will increase if the market price of our stock
declines, which will cause dilution to our existing stockholders.
The
continuously adjustable conversion price feature of our convertible debenture
may encourage investors to make short sales in our common stock, which could
have a depressive effect on the price of our common stock.
Golden
Gate is contractually required to exercise its warrants on a concurrent
basis. The issuance of shares in connection with the exercise of the
warrants and conversion of the convertible debenture results in the issuance
of
shares at an effective 20% discount to the trading price of the common stock
prior to the conversion. The significant downward pressure on the price of
the
common stock as the selling stockholder converts and sells material amounts
of
common stock could encourage short sales by investors. This could place further
downward pressure on the price of the common stock. The selling stockholder
could sell common stock into the market in anticipation of covering the short
sale by converting their securities, which could cause the further downward
pressure on the stock price. In addition, not only the sale of shares issued
upon conversion or exercise of debenture, warrants and options, but also the
mere perception that these sales could occur, may adversely affect the market
price of the common stock.
The
issuance of shares upon conversion of the convertible debenture and exercise
of
outstanding warrants may cause immediate and substantial dilution to our
existing stockholders.
The
issuance of shares upon conversion of the convertible debenture and exercise
of
warrants may result in substantial dilution to the interests of other
stockholders since the selling stockholder may ultimately convert and sell
the
full amount issuable on conversion. Although the selling stockholder may not
convert its convertible debenture and/or exercise their warrants if such
conversion or exercise would cause them to own more than 9.9% of our outstanding
common stock, this restriction does not prevent the selling stockholder from
converting and/or exercising some of their holdings and then converting the
rest
of their holdings. In this way, the selling stockholder could sell more than
this limit while never holding more than this limit. There is no upper limit
on
the number of shares that may be issued which will have the effect of further
diluting the proportionate equity interest and voting power of holders of our
common stock, including investors in this offering.
If
we are unable to issue shares of common stock upon conversion of the convertible
debenture for any reason, we are required to pay penalties to Golden Gate,
redeem the convertible debenture at 108% and/or compensate Golden Gate for
any
buy-in that it is required to make.
If
we are unable to issue shares of common stock upon conversion of the convertible
debenture as a result of our inability to increase our authorized shares of
common stock or as a result of any other reason, we are required to:
•
|
pay
late payments to Golden Gate for late issuance of common stock upon
conversion of the convertible debenture, in the amount of $100 per
business day after the delivery date for each $10,000 of convertible
debenture principal amount being converted or redeemed.
|
•
|
in
the event we are prohibited from issuing common stock, or fail to
timely
deliver common stock on a delivery date, or upon the occurrence of
an
event of default, then at the election of Golden Gate, we must pay
to
Golden Gate a sum of money determined by multiplying up to the
outstanding principal amount of the convertible debenture designated
by
Golden Gate by 108%, together with accrued but unpaid interest thereon
|
•
|
if
ten days after the date we are required to deliver common stock to
Golden
Gate pursuant to a conversion, Golden Gate purchases (in an open
market
transaction or otherwise) shares of common stock to deliver in
satisfaction of a sale by Golden Gate of the common stock which it
anticipated receiving upon such conversion (a "Buy-In"), then we
are
required to pay in cash to Golden Gate the amount by which its total
purchase price (including brokerage commissions, if any) for the
shares of
common stock so purchased exceeds the aggregate principal and/or
interest
amount of the convertible debenture for which such conversion was
not
timely honored, together with interest thereon at a rate of 15% per
annum,
accruing until such amount and any accrued interest thereon is paid
in
full.
|
In
the
event that we are required to pay penalties to Golden Gate or redeem the
convertible debenture held by Golden Gate, we may be required to curtail or
cease our operations.
If
we are required for any reason to repay our outstanding convertible debenture,
we would be required to deplete our working capital, if available, or raise
additional funds. our failure to repay the convertible debenture, if
required, could result in legal action against us, which could require the
sale
of substantial assets.
In
December 2005, we entered into a Securities Purchase Agreement, as amended
by
that certain Addendum to Convertible Debenture, Warrant to Purchase Common
Stock
and Securities Purchase Agreement, and that certain Addendum to Convertible
Debenture and Warrant to Purchase Common Stock, each dated as of December 16,
2005, and as further amended by that certain Addendum to Convertible Debenture,
Warrant to Purchase Common Stock and Securities Purchase Agreement dated as
of
May 2, 2006 and Securities Purchase Agreement dated as of May 30, 2006, and
as
further amended by that certain Addendum to Convertible Debenture, Warrant
to
Purchase Common Stock and Securities Purchase Agreement dated as of June 9,
2006
for the sale of an aggregate of $1,000,000 principal amount of convertible
debenture, which are presently outstanding. The convertible debenture is
due and payable, with 5¼ % interest, three years from the date of issuance,
unless sooner converted into shares of our common stock. In addition, any
event of default could require the early repayment of the convertible debenture
at a price equal to 108% of the amount due under the debenture. We
anticipate that the full amount of the convertible debenture, together with
accrued interest, will be converted into shares of our common stock, in
accordance with the terms of the convertible debenture. If we are required
to
repay the convertible debenture, we would be required to use our limited working
capital and raise additional funds. If we were unable to repay the debenture
when required, the debenture holders could commence legal action against us
and
foreclose on all of our assets to recover the amounts due. Any such action
would
require us to curtail or cease operations.
Risks
Relating to Our Common Stock:
If
we fail to remain current on our reporting requirements, we could be removed
from the OTC Bulletin Board which would limit the ability of broker-dealers
to
sell our securities and the ability of stockholders to sell their securities
in
the secondary market.
Companies
trading on the OTC Bulletin Board, such as us, must be reporting issuers under
Section 12 of the Securities Exchange Act of 1934, as amended, and must be
current in their reports under Section 13, in order to maintain price quotation
privileges on the OTC Bulletin Board. If we fail to remain current on our
reporting requirements, we could be removed from the OTC Bulletin Board. As
a
result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary market.
Our
common stock is subject to the "Penny Stock" rules of the SEC and the trading
market in our securities is limited, which makes transactions in our stock
cumbersome and may reduce the value of an investment in our stock.
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes
the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions.
For
any transaction involving a penny stock, unless exempt, the rules require:
•
|
that
a broker or dealer approve a person's account for transactions in
penny
stocks; and
|
•
|
the
broker or dealer receive from the investor a written agreement to
the
transaction, setting forth the identity and quantity of the penny
stock to
be purchased.
|
In
order to approve a person's account for transactions in penny stocks, the broker
or dealer must:
•
|
obtain
financial information and investment experience objectives of the
person;
and
|
•
|
make
a reasonable determination that the transactions in penny stocks
are
suitable for that person and the person has sufficient knowledge
and
experience in financial matters to be capable of evaluating the risks
of
transactions in penny stocks.
|
The
broker or dealer must also deliver, prior to any transaction in a penny stock,
a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
•
|
sets
forth the basis on which the broker or dealer made the suitability
determination; and
|
•
|
that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
|
Generally,
brokers may be less willing to execute transactions in securities subject to
the
"penny stock" rules. This may make it more difficult for investors to dispose
of
our common stock and cause a decline in the market value of our stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both
the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account
and
information on the limited market in penny stocks.
USE
OF PROCEEDS
This
prospectus relates to shares of our common stock that may be offered and sold
from time to time by the selling stockholder. We will not receive any proceeds
from the sale of shares of common stock in this offering. However, we will
receive the sale price of any common stock we sell to the selling stockholder
upon exercise of the warrants in the amount of at least $500,000. We
expect to use the proceeds received from the exercise of the warrants, if any,
for general working capital purposes.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our
common stock is quoted on the OTC Bulletin Board under the symbol "MTNA".
For the periods indicated, the following table sets forth the high and low
bid
prices per share of common stock. These prices represent inter-dealer quotations
without retail markup, markdown, or commission and may not necessarily represent
actual transactions.
|
High
Bid Price
|
|
Low
Bid Price
|
First
Quarter 2003
|
$0.024
*
|
|
$0.006
*
|
Second
Quarter 2003
|
$0.016
*
|
|
$0.008
*
|
Third
Quarter 2003
|
$1.90
**
|
|
$0.003 **
|
Fourth
Quarter 2003
|
$2.75
**
|
|
$1.90
**
|
First
Quarter 2004
|
$3.15
**
|
|
$2.70
**
|
Second
Quarter 2004
|
$3.55
**
|
|
$3.15
**
|
Third
Quarter 2004
|
$3.45
**
|
|
$3.02
**
|
Fourth
Quarter 2004
|
$3.05
**
|
|
$1.75
**
|
First
Quarter 2005
|
$2.25
**
|
|
$1.30
**
|
Second
Quarter 2005
|
$1.65
**
|
|
$1.00
**
|
Third
Quarter 2005
|
$2.48
**
|
|
$1.05
**
|
Fourth
Quarter 2005
|
$1.80
**
|
|
$0.20
**
|
First
Quarter 2006
|
$0.25**
|
|
$0.08**
|
Second
Quarter 2006***
|
$0.31**
|
|
$0.10**
|
*
Price
prior to September 23, 2003 1000:1 reverse stock split.
**
Price
after September 23, 2003 1000:1 reverse stock split.
***Through
June 9, 2006.
HOLDERS
As
of June 7, 2006, we had approximately 1,602 holders of our Class A common stock
and 1 holder of our Class B common stock. The number of record holders was
determined from the records of our transfer agent and does not include
beneficial owners of common stock whose shares are held in the names of various
security brokers, dealers, and registered clearing agencies. The transfer agent
of our common stock is Interwest Transfer Company, Inc., 1981 East 4800 South,
Suite 100, Salt Lake City, Utah 84117.
We
have never declared or paid any cash dividends on our common stock. We do not
anticipate paying any cash dividends to stockholders in the foreseeable future.
In addition, any future determination to pay cash dividends will be at the
discretion of the Board of Directors and will be dependent upon our financial
condition, results of operations, capital requirements, and such other factors
as the Board of Directors deem relevant.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Some
of the information in this Form SB-2 contains forward-looking statements that
involve substantial risks and uncertainties. You can identify these statements
by forward-looking words such as "may," "will," "expect," "anticipate,"
"believe," "estimate" and "continue," or similar words. You should read
statements that contain these words carefully because they:
•
discuss
our future expectations;
•
contain
projections of our future results of operations or of our financial condition;
and
•
state
other "forward-looking" information.
We
believe it is important to communicate our expectations. However, there may
be
events in the future that we are not able to accurately predict or over which
we
have no control. Our actual results and the timing of certain events could
differ materially from those anticipated in these forward-looking statements
as
a result of certain factors, including those set forth under "Risk Factors,"
"Business" and elsewhere in this prospectus. See "Risk Factors."
Overview
We
research and develop technologies that detect and measure metal fatigue.
We have developed two products. Our two products are the Fatigue Fuse and
Electrochemical Fatigue Sensor. We do not generate any revenue from the
sale of our products, and thus we are a development stage company. We do
generate revenue from research and development services provided to third
parties, primarily one defense contractor, however our revenues are minimal.
Our
biggest challenge is funding the continued research and development of our
products, and then the marketing of our products, until they generate sufficient
revenue to support our operations. We try to keep our overhead low and
utilize outside consultants as much as possible in order to reduce expenses,
and
thus far we have been successful in raising enough capital through loans and
the
sale of our common stock to fund operations. For the foreseeable future,
we will continue to raise capital in this manner.
Results
of Operations
Three
Months Ended March 31, 2006 Compared to Three Months Ended March 31
2005
Introduction
Our
revenues for the first quarter of 2006 were substantially similar to the first
quarter of 2005 and the fourth quarter of 2005, and were limited exclusively
to
our research contracts with Northrop Grumman. Most of our research and
development costs in both years are related to the recorded cost of stock issued
to third party consultants.
Revenues
and Loss from Operations
Our
revenue, research and development costs, general and administrative expenses,
and loss from operations for the three months ended March 31, 2006, as compared
to the three months ended March 31, 2005 and December 31, 2005, are as
follows:
|
|
3
Months Ended
March
31,
2006
|
|
|
3
Months Ended
March
31,
2005
|
|
Percentage
Change
|
|
|
3
Months
Ended
December
31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
28,846
|
|
|
18,308
|
|
58
|
%
|
$
|
82,284
|
Research
and Development Costs
|
|
185,152
|
|
|
1,212,182
|
|
(85)
|
%
|
|
78,253
|
General
& Administrative Expenses
|
|
2,523,819
|
|
|
321,562
|
|
685
|
%
|
|
722,918
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
$
|
(2,680,125)
|
|
|
(1,515,436)
|
|
77
|
%
|
$
|
(718,887)
|
Our
revenue for all three quarters shown above came from our research contracts
with
Northrop Grumman.
During
the three month periods ended March 31, 2006 and 2005, we incurred research
and
development costs of $185,152 and $1,212,182, respectively. Of the $185,152
incurred in 2006, $112,000 was related to the issuance of 975,000 shares of
our
common stock for services provided by employees. Of the $1,212,182 incurred
in
2005, $1,135,000 was related to the issuance of 900,000 shares of our common
stock for services provided.
General
and administrative expenses were $2,523,819 and $321,562, respectively, for
the
three month periods ended March 31, 2006 and 2005. The major expenses incurred
during the three months ended March 31, 2006 and 2005, and December 31, 2005,
were:
|
|
3
Months Ended
March
31, 2006
|
|
|
3
Months
Ended
March
31, 2005
|
|
|
3
Months
Ended
December
31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
Services
|
$
|
1,958,498
|
|
$
|
126,602
|
|
$
|
505,533
|
Officer’s
Salary
|
|
48,000
|
|
|
54,000
|
|
|
48,000
|
Secretarial
Salary
|
|
15,377
|
|
|
10,574
|
|
|
10,202
|
Professional
Fees
|
|
341,230
|
|
|
63,924
|
|
|
98,800
|
Office
Expense
|
|
10,444
|
|
|
3,837
|
|
|
13,050
|
Travel
Expenses
|
|
20,632
|
|
|
16,226
|
|
|
13,106
|
Rent
|
|
7,044
|
|
|
7,044
|
|
|
7,044
|
Franchise
and Other Taxes
|
|
5,813
|
|
|
-
|
|
|
-
|
Payroll
Taxes
|
|
8,784
|
|
|
9,491
|
|
|
4,671
|
Telephone
|
|
4,852
|
|
|
7,886
|
|
|
4,340
|
Of
the
$1,958,498 incurred for consulting services for the first quarter of 2006,
$1,589,000 relates to the issuance of 12,801,000 shares of our common stock.
Of
the $126,602 incurred for consulting services for the first quarter of 2005,
$90,000 relates to the issuance of 75,000 shares of common stock. Of the
$505,533 of consulting services for the fourth quarter of 2005, $340,608 relates
to the issuance of 688,685 shares of our common stock.
Other
Income and Expenses and Net Loss
Our
other
income and expenses and net loss for the three months ended March 31, 2006
and
2005, as compared to the three months ended December 31, 2005 are as
follows:
|
|
3
Months Ended March 31, 2006
|
|
|
3
Months Ended March 31, 2005
|
|
Percentage
Change
|
|
|
3
Months Ended
December
31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
(149,938)
|
|
|
(165,353)
|
|
9
|
%
|
$
|
(6,062,376)
|
Realized/unrealized
loss on securities
|
|
(23)
|
|
|
(3,499)
|
|
99
|
%
|
|
(1,918,636)
|
Change
in fair value of derivative and warrant liabilities
|
|
(930,369)
|
|
|
-
|
|
N/A
|
|
|
|
Change
in fair value of investments derivative liability
|
|
(76,911)
|
|
|
-
|
|
N/A
|
|
|
(585,735)
|
Interest
income
|
|
3,891
|
|
|
5,023
|
|
(23)
|
%
|
|
3,298
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
$
|
(3,834,275)
|
|
|
(1,680,065)
|
|
128
|
%
|
$
|
(9,282,336)
|
During
the three months ended March 31, 2006 and 2005, the increase in other expenses
related primarily to the change in derivative liability, which is mostly due
to
the change in the Company’s stock price during the quarter.
During
the three months ended December 31, 2005, we incurred interest expense of
$6,062,376. Of this amount, $5,917,188 relates to the initial recording of
the
fair value of the derivative and warrant liabilities, $99,855 represents
amortization of the discount on convertible debt and accrued interest on our
various obligations of $45,333. Interest income during the quarter was $3,298
of
which $1,050 was accrued on amounts due from our president and $2,248 was earned
on our investments. We also recorded impairment losses on our Langley investment
of $1,918,587 and a derivative value of $585,735 related to our Birchington
investment.
Liquidity
and Capital Resources
Introduction
During
the three months ended March 31, 2006, we did not generate positive cash flow.
As a result, we funded our operations through the sale of marketable securities
that we obtained in a financing transaction, the sale of our common stock,
and
loans.
Our
cash,
investments in marketable securities held for trading, investments in marketable
securities available for sale, prepaid services, prepaid expenses and other
current assets, total current assets, total assets, total current liabilities,
and total liabilities as of March 31, 2006, as compared to March 31, 2005 and
December 31, 2005, were as follows:
|
|
March
31,
|
|
|
March
31,
|
|
|
December
31,
|
|
|
2006
|
|
|
2005
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
22,695
|
|
$
|
364,109
|
|
$
|
47,345
|
Certificates
of deposit
|
|
-
|
|
|
200,248
|
|
|
-
|
Marketable
securities - trading
|
|
130,392
|
|
|
186,400
|
|
|
302,841
|
Marketable
securities - available-for-sale
|
|
174,435
|
|
|
993,534
|
|
|
162,193
|
Prepaid
services
|
|
-
|
|
|
-
|
|
|
306,250
|
Prepaid
expenses and other
|
|
2,206
|
|
|
-
|
|
|
2,153
|
Total
current assets
|
|
329,728
|
|
|
769,368
|
|
|
891,607
|
Total
assets
|
|
3,929,185
|
|
|
1,788,508
|
|
|
4,493,227
|
Total
current liabilities
|
|
2,160,100
|
|
|
1,179,730
|
|
|
1,930,182
|
Total
liabilities
|
|
10,919,135
|
|
|
1,734,364
|
|
|
9,768,555
|
Cash
Requirements
For
the
three months ended March 31, 2006, our net cash used in operations was
$(327,957), compared to $(356,761) for the three months ended March 31, 2005.
Negative operating cash flows during the three months ended March 31, 2006,
were
primarily created by a net loss from operations of $3,834,275, offset by
non-cash stock related expenses of $1,952,645, change in fair value of
derivative and warrant liabilities of $1,007,280, amortization of discount
on
convertible debenture of $104,298, and decrease in prepaid expenses and other
current assets of $306,197. Because of our need for cash to fund our continuing
research and development, we do not have an opinion as to how indicative these
results will be of future results.
Negative
operating cash flows during the three months ended March 31, 2005, were
primarily created by a net loss from operations of $1,680,065, offset by
non-cash stock related expenses of $1,225,000, amortization of discount on
convertible debenture of $99,854, decrease in accounts payable and accrued
expenses of $47,338, and accrued interest expense added to principal of
$41,986.
Sources
and Uses of Cash
Net
cash
provided by investing activities for the three months ended March 31, 2006
and
2005, were $172,425 and $596,245, respectively. For the three months ended
March
31, 2006, the net cash came primarily from the sale of marketable securities
in
the amount of $174,988, offset by the amount for purchase of securities of
$(2,563).
Net
cash
provided by financing activities for the three months ended March 31, 2006
and
2005, were $130,882 and $1,000, respectively. For the three months ended March
31, 2006, the net cash came primarily from the sale of common stock and warrants
in the amount of $164,505, offset by a principal reduction in notes payable
of
$(25,000) and the purchase of treasury stock of $(8,623).
We
are
not generating sufficient cash flow from operations to fund growth. We cannot
predict when we will begin to generate revenue from the sale of our products,
and until that time, we will need to raise additional capital through the sale
of our equity securities. If we are unsuccessful in raising the required
capital, we may have to curtail operations.
Our
financial statements have been prepared assuming we will continue as a going
concern. Because we have generated very limited revenues, and have minimal
capital resources, our Independent Registered Public Accounting Firm included
an
explanatory paragraph in their December 31, 2005 report raising substantial
doubt about our ability to continue as a going concern.
Year
Ended December 31, 2005 Compared to Year Ended December 31, 2004
Introduction
In
2005, our revenues were limited exclusively to our research contracts with
Northrop Grumman, and totaled $139,346. In 2004 we generated only $46,932
from our contracts with Northrop Grumman, but also generated $100,000 of our
income for the year from research contract with URS Corporation. We
continued to fund the majority of our operations through the issuance of our
stock, resulting in large expenses in the areas of research and development
and
consulting. The amount of cash used our operations was relatively
consistent at approximately $1.05 million in 2005 and $1.32 million in
2004. We anticipate that we will continue to fund a substantial portion of
our operations through the issuance of stock until such time as we can begin
to
generate revenue from the sale of our products, and we do not have an estimate
of when such revenues will begin.
Our
revenue, research and development costs, general and administrative expenses,
and loss from operations for the year ended December 31, 2005 as compared to
the
year ended December 31, 2004 were as follows:
|
|
Year
Ended
December
31,
2005
|
|
Year
Ended
December
31,
2004
|
|
Percentage
Change
|
|
Revenue
|
|
$
|
139,346
|
|
|
146,932
|
|
|
(5)
|
%
|
Research
and development costs
|
|
|
2,364,059
|
|
|
7,605,747
|
|
|
(69)
|
%
|
General
and administrative expenses
|
|
|
1,801,928
|
|
|
8,010,423
|
|
|
(78)
|
%
|
Loss
from Operations
|
|
$
|
(4,026,641
|
)
|
|
(15,469,238
|
)
|
|
(74)
|
%
|
All
of our revenues in 2005 came from our research contracts with Northrop
Grumman. Of the $146,932 in revenues in 2004, $46,932 came from research
contracts with Northrop Grumman, while the balance came from a research contract
with URS Corporation.
Of
the $2,364,059 in research and development costs for 2005, $2,105,000 was
related to the issuance of 1,725,000 shares of our common stock, of which
700,000 shares were issued to Messrs. Goodman and Berks, our officers who are
responsible for project development, valued at $840,000. The remaining
1,025,000 shares were issued to other consultants. Of the $7,605,747 in
research and development costs for 2004, $7,174,203 was related to the issuance
of 3,422,075 shares of our common stock, of which 2,507,500 shares were issued
to Messrs. Goodman and Berks, valued at
$5,164,000.
General
and administrative expenses were $1,801,928 and $8,010,423 for the years ended
December 31, 2005 and 2004, respectively. The major expenses incurred
during each of the years were as follows:
|
|
Year
Ended
December
31,
2005
|
|
Year
Ended
December
31,
2004
|
|
Consulting
services
|
|
$
|
1,093,606
|
|
|
7,149,240
|
|
Officer’s
salary
|
|
|
192,000
|
|
|
192,000
|
|
Secretarial
salary
|
|
|
41,782
|
|
|
61,750
|
|
Professional
fees
|
|
|
245,153
|
|
|
398,492
|
|
Office
expense
|
|
|
39,991
|
|
|
35,608
|
|
Travel
expenses
|
|
|
47,364
|
|
|
49,456
|
|
Rent
|
|
|
28,176
|
|
|
28,171
|
|
Franchise
and other taxes
|
|
|
12,021
|
|
|
9,317
|
|
Payroll
taxes
|
|
|
22,624
|
|
|
10,670
|
|
Telephone
|
|
|
21,274
|
|
|
20,295
|
|
Of
the $1,093,606 in consulting expense for 2005, $948,159 was related to the
issuance of 1,618,685 shares of our common stock. Included in the
1,618,685 shares were 250,000 shares issued for services to be rendered through
July 2006 which were valued at $525,000, of which $218,750 was expensed and
included in consulting expense. The remaining $306,250 is considered
prepaid for services to be rendered in 2006 and is included in current assets
on
our balance sheet at December 31, 2005. Also included in the 1,618,685
shares were 200,000 shares issued to Joel Freedman, our corporate secretary,
valued at $240,000 and 50,000 shares to an employee valued at $54,000.
Of
the $7,149,240 in consulting expense for 2004, $6,842,477 was related to the
issuance of 3,159,923 shares of our common stock. Included in the
3,159,923 shares was 2,260,000 shares issued to Joel Freedman, valued at
$4,972,000.
Our
license modification expense, write-down of marketable securities, realized
loss
on the sale of marketable securities, unrealized loss on decrease in value
of
marketable securities, interest expense, interest income, and net loss for
the
year ended December 31, 2005 as compared to the year ended December 31, 2004
are
as follows:
|
|
Year
Ended
December
31,
2005
|
|
Year
Ended
December
31,
2004
|
|
Percentage
Change
|
|
Modification
of research and development
agreement
|
|
$
|
(7,738,400
|
)
|
$
|
-
|
|
|
100
|
%
|
Realized/unrealized
loss on securities
|
|
|
(1,922,176
|
)
|
|
(9,476,920
|
)
|
|
(80
|
)%
|
Change
in fair value of investment
derivative liability
|
|
|
(585,735
|
)
|
|
-
|
|
|
|
|
Interest
expense
|
|
|
(6,493,345
|
)
|
|
(605,980
|
)
|
|
972
|
%
|
Interest
income
|
|
|
17,837
|
|
|
12,497
|
|
|
43
|
%
|
Net
loss
|
|
$
|
(20,749,260
|
)
|
$
|
(25,495,291
|
)
|
|
(19
|
)%
|
In
2005, we charged $7,738,400 to operations relating to the issuance of 4,552,000
shares of our common stock to the University of Pennsylvania pursuant to the
terms of a workout agreement with them. There was no such workout
agreement in 2004.
The
realized/unrealized loss on securities relates to the Langley investment.
In 2004, the shares experienced a sharp decline, which leveled off in 2005.
As a
result, the loss recognized to operations was much larger in 2004.
The
change in fair value of investments derivative liability relates to our
investment in Birchington. This value represents the value of the downside
price protection shares that we would be required to sell to Birchington based
on the value of our shares as of December 31, 2005. The Birchington
transaction was new in 2005.
Of
the $6,493,345 in interest expense incurred in 2005, $5,917,188 was related
to
the fair values of derivative and warrant liabilities related to the GGI Notes
and $399,420 pertained to the amortization of the debt discount related to
the
beneficial conversion feature of the Palisades Debentures. In addition,
$45,354 was accrued on the note due the University of Pennsylvania, $127,010
was
accrued on the actual outstanding principal balance of the Palisades Debentures,
and $4,373 was accrued on our other interest-bearing obligations.
Of
the $605,980 in interest expense incurred in 2004, $122,827 was accrued on
the
note due to the University of Pennsylvania, $93,119 was accrued on the actual
outstanding principal balance of the convertible debenture, $326,161 pertains
to
the amortized portion of the discount attributed to the conversion feature
of
the debenture, and $59,500 was paid to the holder of a past due note as
additional consideration. The $59,500 was paid through the issuance of
25,000 shares of our common stock.
Critical
Accounting Policies
The
discussion and analysis of our financial condition and results of operations
are
based upon our consolidated financial statements, which have been prepared
in
accordance with accounting principles generally accepted in the United States
of
America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. In consultation with our Board of Directors, we
have identified four accounting policies that we believe are key to an
understanding of our financial statements. These are important accounting
policies that require management's most difficult, subjective judgments.
The
first critical accounting policy relates to revenue recognition. Income from
our
research 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 our products are expensed as
incurred.
The
third critical accounting policy relates to the valuation of non-monetary
consideration issued for services rendered. We value all services rendered
in
exchange for our common stock at the quoted price of the shares issued at date
of issuance or at the fair value of the services rendered, which ever is more
readily determinable. 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
readily determinable.
Our
accounting policy for equity instruments issued to consultants and vendors
in
exchange for goods and services follows the provisions of EITF 96-18, “
Accounting
for Equity Instruments That are Issued to Other Than Employees for Acquiring,
or
in Conjunction with Selling, Goods or Services ”
and
EITF 00-18, “ Accounting
Recognition for Certain Transactions Involving Equity Instruments Granted to
Other Than Employees .”
The
measurement date for the fair value of the equity instruments issued is
determined at the earlier of (i) the date at which a commitment for performance
by the consultant or vendor is reached or (ii) the date at which the consultant
or vendor’s performance is complete. In the case of equity instruments
issued to consultants, the fair value of the equity instrument is recognized
over the term of the consulting agreement. In accordance to EITF 00-18, an
asset
acquired in exchange for the issuance of fully vested, nonforfeitable equity
instruments should not be presented or classified as an offset to equity on
the
grantor’s balance sheet once the equity instrument is granted for accounting
purposes. Accordingly, we record the fair value of nonforfeitable common stock
issued for future consulting services as prepaid services in our consolidated
balance sheet.
The
fourth critical accounting policy is our accounting for conventional convertible
debt. When the convertible feature of the conventional convertible debt
provides for a rate of conversion that is below market value, this feature
is
characterized as a beneficial conversion feature (“BCF”). A BCF is
recorded by us as a debt discount pursuant to EITF Issue No. 98-5 (“EITF
98-05”), “ Accounting
for Convertible Securities with Beneficial Conversion Features or Contingency
Adjustable Conversion Ratio,” and
EITF
Issue No. 00-27, “ Application
of EITF Issue No. 98-5 to Certain Convertible Instruments .”
In those circumstances, the convertible debt will be record net of the discount
related to the BCF. We amortize the discount to interest expense over the
life of the debt using the effective interest method.
The
fifth critical account policy relates to the accounting for non-conventional
convertible debt and the related stock purchase warrants. In the case of
non-conventional convertible debt, we bifurcate our embedded derivative
instruments and records them under the provisions of SFAS No. 133, “
Accounting
for Derivative Instruments and Hedging Activities,”
as amended, and EITF Issue No. 00-19, “ Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in,
a
Company’s Own Stock. ”
These embedded derivatives include the conversion feature, liquidated damages
related to registration rights and default provisions. The accounting
treatment of derivative financial instruments requires that we record the
derivatives and related warrants at their fair values as of the inception date
of the agreement and at fair value as of each subsequent balance sheet
date. In addition, under the provisions of EITF Issue No. 00-19, as a
result of entering into the non-conventional convertible debenture, we are
required to value and classify all other non-employee stock options and warrants
as derivative liabilities at that date and mark them to market at each reporting
date thereafter. Any change in fair value will be recorded as
non-operating, non-cash income or expense at each reporting date. If the
fair value of the derivatives is higher at the subsequent balance sheet date,
we
will record a non-operating, non-cash charge. If the fair value of the
derivatives is lower at the subsequent balance sheet date, we will record
non-operating, non-cash income. We value our derivatives primarily using
the Black-Scholes Option Pricing Model. The derivatives are classified as
long-term liabilities.
The
sixth critical accounting policy relates to the recording of marketable
securities held for trading and available-for-sale. Marketable securities
purchased with the intent of selling them in the near term are classified as
trading securities. Trading securities are initially recorded at cost and are
adjusted to their fair value, with the change in fair value during the period
included in earnings as unrealized gains or losses. Realized gains or
losses on dispositions are based upon the net proceeds and the adjusted book
value of the securities sold, using the specific identification method, and
are
recorded as realized gains or losses in the consolidated statements of
operations. Marketable securities that are not classified as trading
securities are classified as available-for-sale securities.
Available-for-sale securities are initially recorded at cost.
Available-for-sale securities with quoted market prices are adjusted to their
fair value, subject to an impairment analysis (see below). Any change in
fair value during the period is excluded from earnings and recorded, net of
tax,
as a component of accumulated other comprehensive income (loss). Any
decline in value of available-for-sale securities below cost that is considered
to be “other than temporary” is recorded as a reduction of the cost basis of the
security and is included in the statement of operations as a write down of
the
market value (see below).
The
seventh critical accounting policy is our accounting for the fair market value
of non-marketable securities we have acquired. Non-marketable securities
are originally recorded at cost. In the case of non-marketable
securities we acquired with our common stock, we value the securities at a
significant discount to the stated per share cost based upon our historical
experience with similar transactions as to the amount ultimately realized from
the sale of the shares. Such investments are reduced when we have
indications that a permanent decline in value has occurred. At such time
as quoted market prices become available, the net cost basis of these securities
will be reclassified to the appropriate category of marketable securities.
Until that time, the securities will be recorded at their net cost basis,
subject to an impairment analysis (see below).
In
accordance with the guidance of EITF 03-1, “The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments,” we assess any decline in
value of available-for-sale securities and non-marketable securities below
cost
as to whether such decline is “other than temporary.” If a decline is
determined to be “other than temporary,” the decline is recorded as a reduction
of the cost basis of the security and is included in the statement of operations
as an impairment write down of the investment.
BUSINESS
Introduction
We
are engaged in research and development of metal fatigue detection, measurement,
and monitoring technologies. As such, we are developing several monitoring
devices for metal fatigue detection and 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.
The first is a small, extremely simple device that continuously integrates
the effect of fatigue loading in a structural member, called a Fatigue Fuse.
The second is an instrument that detects very small cracks in metals, the
Electrochemical Fatigue Sensor. It has demonstrated that it can detect
cracks, in the laboratory, as small as 10 microns (0.0004 inches), which is
smaller than any other practical crack detection technology, as acknowledged
by
the United States Air Force and confirmed by Rockwell Scientific Corporation.
We hold the patents on the Fatigue Fuse and license the technology on the
Electrochemical Fatigue Sensor from the University of Pennsylvania.
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. 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.
As
of December 31, 2005, our investments in our subsidiary companies represented
less than 10% of our total assets. We have controlling interests in each
of our subsidiary companies and members of our management also serve as officers
and directors of each subsidiary.
Our
Technologies
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 an application-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 strain and wear
history as the member. Methods are available for remote indication of Fuse
fracturing.
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 has 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.
We
believe that the Fatigue Fuse is of value in monitoring aircraft, ships,
bridges, conveyor systems, mining equipment, cranes, etc. No special
training is 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 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
implement our ability to produce and market the Fatigue Fuse, we need
substantial additional capital and no assurance can be given that this needed
capital will be available.
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 has the potential to determine crack growth rates. The
Electrochemical Fatigue Sensor has demonstrated in the laboratory that it can
detect cracks as small as 10 microns (0.0004 inches), which is smaller than
any
other practical technology, as acknowledged by the United States Air Force
and
Rockwell Scientific Corporation. 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. 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
characterize and indicate fatigue damage i.e., fatigue cracks.
Development
of our Technologies
Currently,
our primary focus is on the development and commercialization of the EFS.
Due to our limited resources, efforts in the development and testing of
the Fatigue Fuse have been delayed.
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, encompasses empirical tailoring of Fatigue Fuse parameters
to fit the actual spectrum loading expected in specific applications, and needs
to be done. The tests associated with further development of the Fatigue
Fuse include full-scale structural tests with attached Fatigue 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 Fatigue Fuse parameters and to conduct a comprehensive test program
to prove the ability of the Fatigue Fuse to accurately indicate fatigue damage
when subjected to realistically large variations in measuring stresses and
strains in fatiguing metal. The final tasks prior to marketing will be an
even larger group of demonstration tests.
The
Fatigue Fuse is at its final stages of testing and development. To begin
marketing the Fatigue Fuse, it is our belief that it 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 completing development. 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 Fatigue Fuses failing in sequence as predicted.
The
Fatigue Fuse has been at this stage for the past several years as we have not
had the necessary financial resources to finalize our development and commence
marketing. At the present time we have elected to defer future development
of the Fatigue Fuse and apply our resources to pursue the EFS technology.
Status
of the EFS
The
existence 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 ten microns, as acknowledged by the Materials Laboratory at Wright
Patterson Air Force on a titanium alloy and confirmed by evaluations at Rockwell
Scientific Corporation on bridge grade steel. 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. Within
the past twelve months, we have successfully evaluated EFS on six highway
bridges. These are considered Beta Tests verifying the procedure in the
real world. We are now preparing to begin the marketing of the EFS for
bridges.
Commercial
Markets for our Products and Technologies
No
commercial application of our products has been arranged to date, but 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, railways,
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
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 expired on May 27, 2003.
It is titled “Device for Monitoring Fatigue Life” and bears United States
Patent Office Number 4,590,804. The second 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 third 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 fourth 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, 2005,
the future royalty commitment was limited to approximately $344,000. 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
product sales.
On
May 4, 1987, we entered into a funding agreement with ATC whereby ATC provided
$63,775 to us for the purchase of a royalty of 3% of future gross sales and
6%
of sublicensing revenue. The agreement was amended August 28, 1987, and as
amended, the royalty cannot exceed the lesser of (1) the amount of the advance
plus a 26% annual rate of return or, (2) total royalties earned for a term
of 17
years. As with our first agreement with ATC, no lien or encumbrance
against our assets, including our patents, vests in favor of ATC until we
generate royalties from product sales. If we were to default on these
payments to ATC, our obligations relating to these agreements then become
secured by our patents, products and accounts receivable. At December 31,
2005, the total future royalty commitments, including the accumulated 26% annual
rate of return, were limited to approximately $6,142,000.
On
May 27, 1994, we borrowed $25,000 from Sherman Baker, one of our shareholders.
We gave Mr. Baker 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 December 31, 2005, we owe Mr. Baker $53,515 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 trade shows and intend to also market
our products directly to end users including certain state regulatory agencies
charged with overseeing bridge maintenance, companies engaged in manufacturing
and maintaining large ships and tankers, and the military. Although we
intend to undertake marketing, dependent on the availability of funds, within
and without the United States, no assurance can be given that any such marketing
activities will be implemented.
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 penetrate, 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.
We
have four employees, Robert M. Bernstein, President, Chief Executive Officer
and
Chief Financial Officer, a Secretary, and two part time engineers. In addition,
we retain consultants for specialized work.
DESCRIPTION
OF PROPERTIES
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 payable at $2,348 per month
on
a month-to-month basis. Either party may cancel the lease on 30 days notice.
On
March 8, 2006, Stephen Forrest Beck filed a lawsuit against us and our
President, Robert M. Bernstein, in the Superior Court of the State of
California, County of Los Angeles, Case No. SC088898, titled Stephen Forrest
Beck v. Material Technologies, Inc. and Robert M. Bernstein. Mr. Beck alleges
breach of contract and seeks approximately $135,000 in damages, plus the
issuance or the value of 3,896,620 shares of our Class A common stock to which
he believes he is entitled, plus interest. We have filed an answer and a hearing
has been scheduled.
On
June
15, 2005, we filed a Complaint in the Los Angeles Superior Court, State of
California, case number BC336689, against Gem Advisors, Inc., GEM Global
Emerging Markets, and Global Emerging Markets of North America, Inc., seeking
a
declaration regarding certain agreements we entered into with the parties.
We did not seek monetary damages. On November 16, 2005, Gem Advisors, Inc.
filed an Answer and Cross-Complaint, seeking approximately $1.9 million in
damages arising out of finders fees for certain transactions. On November
30, 2005, default judgments were entered against the other defendants who failed
to respond to our Complaint. A motion is currently pending to set aside the
defaults..We intend to pursue our Complaint and defend the Cross-Complaint
vigorously.
In
the ordinary course of business, we may be from time to time involved in various
pending or threatened legal actions. The litigation process is inherently
uncertain and it is possible that the resolution of such matters might have
a
material adverse effect upon our financial condition and/or results of
operations. However, in the opinion of our management, matters currently
pending or threatened against us are not expected to have a material adverse
effect on our financial position or results of operations.
MANAGEMENT
The
following information sets forth the names of our officers and directors, their
present positions with us, and their biographical information.
Name
|
Age
|
Office
|
Robert
M. Bernstein
|
71
|
President,
Chief Executive Officer, Chief Financial Officer and Chairman of
the
Board
|
Joel
R. Freedman
|
45
|
Secretary
and Director
|
Dr.
John W. Goodman
|
71
|
Chief
Engineer and Director
|
Dr.
William Berks
|
75
|
Vice
President and Director
|
ROBERT
M. BERNSTEIN, PRESIDENT/CHIEF FINANCIAL OFFICER/CHAIRMAN OF THE BOARD.
Robert
M. Bernstein is 71 years of age. He received a Bachelor of Science degree from
the Wharton School of the University of Pennsylvania in 1956. From August 1959
until his certification expired in August 1972, he was a Certified Public
Accountant licensed in Pennsylvania. From 1961 to 1981, he 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,
he
formed a research and development partnership for Tensiodyne, funding
approximately $750,000 for research on the Fatigue Fuse. In October 1988 he
became Chairman of the Board, President, Chief Financial Officer, and CEO of
Matech 1 and retained these positions with the Company after the spin off from
Matech 1 on July 31, 1997.
JOEL
R. FREEDMAN, SECRETARY/DIRECTOR.
Joel
R. Freedman is 45 years of age. From October 1989 until the present, Mr.
Freedmen holds the position of Secretary and a Director of the company. Mr.
Freedman attends board meetings and provides advice to the Company as needed.
From 1983 through 1999, he was president of Genesis Advisors, Inc., an
investment advisory firm in Bala Cynwyd, Pennsylvania. From January 1, 2000
through December 2002, he was a Senior Vice President of PMG Capital Corp.,
a
securities brokerage and investment advisory firm in West Conshohocken,
Pennsylvania. From December 2002 to present, he is a senior vice-president
of
Wachovia Securities LLC, a securities brokerage and investment advisory firm
in
Conshohocken, Pennsylvania. His duties there are a full-time commitment.
Accordingly, he does not take part in Matech's daily activities. He is not
a
director of any other company.
DR.
JOHN W. GOODMAN, CHIEF ENGINEER/DIRECTOR.
Dr.
John W. Goodman is 71 years of age. He is retired from TRW Space and Electronics
and was formerly Chairman of the Aerospace Division of the American Society
of
Mechanical Engineers. He holds a Doctorate of Philosophy 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.
He
has been Chief Engineer for Development of Matech's products since May 1993.
Over the last four years he has consulted part time for the Company.
DR.
WILLIAM BERKS, VICE-PRESIDENT/DIRECTOR
William
Berks- Vice-President/Director, age 75. He managed the previous Matech contracts
for the development of EFS at the University of Pennsylvania, Southwest Research
Institute, and Optim, Inc. Mr. Berks has a B. Aero. E and MS in Applied
Mechanics from Polytechnic Institute of New York and MS in Industrial Eng.,
Stevens Institute of Technology. With Matech since 1997 he has over 30 years'
experience in spacecraft mechanical systems engineering. He retired from TRW
in
November 1992 where he was employed for 26 years in a variety of management
positions: 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: Manager of the Advanced Systems Design
Department, which was responsible for mechanical systems design for all
spacecraft project: 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. He holds six patents.
Compliance
with Section 16(a) of the Securities Exchange Act.
Section
16(a) of the Securities Exchange Act of 1934 requires our directors, certain
officers and persons holding 10% or more of our common stock to file reports
regarding their ownership and regarding their acquisitions and dispositions
of
the Registrant's common stock with the Securities and Exchange Commission
("SEC"). Such persons are required by SEC regulations to furnish our company
with copies of all Section 16(a) forms they file.
Based
solely upon a review of Forms 3 and 4 and amendments thereto furnished to the
registrant under Rule 16a-3(d) during fiscal 2005, and certain written
representations from executive officers and directors, we are unaware that
any
required reports that have not been timely filed.
Code
of Ethics
We
have not adopted a code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. We have not adopted such
a
code of ethics because all of management's efforts have been directed to
building the business of the company; at a later time, such a code of ethics
may
be adopted by the board of directors.
Committees
of the Board Of Directors
We
presently do not have an audit committee, compensation committee, nominating
committee, an executive committee of our board of directors, stock plan
committee or any other committee of our board of directors.
Since
1987, we and our predecessors have had an Advisory Board consisting of very
senior experienced businessmen and technologists, most of whom are nationally
prominent. These individuals consult with us on an as needed basis. Members
of
the Advisory Board serve at will. The Advisory Board advises Matech's management
on technical, financial, and business matters and may in the future be
additionally compensated for these services. A brief biographical description
of
the members of the advisory board is as follows:
MARYBETH
MICELI. Ms. Miceli is currently Director of Marketing for Sam Schwartz,
LLC, Engineering and Planning Consultants, New York, NY, where she also consults
on infrastructure management, non-destructive testing, and fatigue testing.
Previously she was with Lucius Pitkin, Inc., Engineering Consultants, where
her
responsibilities included Quality Assurance Manager, and Assistant Radiation
Safety Officer. Among her duties was the supervision and performance of failure
analysis investigations, fatigue testing investigations, and interfacing with
government agencies on testing, regulations, and safety. She was a director
of
the American Society of Non-destructive Testing, and Chairman in 2003 of the
Metro NY Chapter. She is also a member of the American Society of Metals.
A graduate of Johns Hopkins University, she has an MS in Materials Science
and
Engineering, from Virginia Polytechnic Institute. She has published several
papers on non-destructive testing of bridge components and other related
subjects.
We
issued the following shares of common stock to Ms. Miceli as compensation for
services performed on our behalf:
•
75,000
shares on December 17, 2004 valued at $135,000;
•
75,000
shares on March 11, 2005 valued at $90,000;
•
125,000
shares on April 26, 2005 valued at $130,000; and
•
475,000
shares on January 9, 2006 valued at $76,000.
BRENT
M. PHARES. Dr. Phares has over 15 years of management, inspection,
research, and testing experience related to bridge structures. He
currently is the Associate Director for Bridges and Structures at Iowa State
University. In this position, Dr. Phares is responsible for the
development and deployment of innovative bridge evaluation and techniques and
for the development of applications for innovative materials in bridge
engineering. In the past, Dr. Phares has served as a consulting Research
Engineer at the Federal Highway Administration's Nondestructive Evaluation
Validation Center where he lead the execution of several validation and
developmental studies. More recently, Dr. Phares served as President and
CEO of a small engineering firm specializing in the evaluation of civil
infrastructure based on innovative sensors and monitoring strategies. He
is a registered professional engineer and serves as a voting member of many
national and international technical committees.
On
January 9, 2006, we issued Dr. Phares 1,000,000 shares of our common stock
as
compensation for services performed on our behalf valued at $160,000.
CAMPBELL
LAIRD. Campbell Laird, age 64, received his Ph.D. 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. His research has
focused on the strength, structure, and fatigue of materials, in which areas
he
published in excess of 250 papers. He is co-inventor of the EFS.
On
December 17, 2004, we issued Dr. Laird 100,000 shares of our common stock
subject to a two-year lockup agreement and valued at $180,000. Also in 2004
we
issued Dr. Laird 260,000 shares subject to a three-year lockup agreement which
were valued at $582,400.
SAMUEL
I. SCHWARTZ. Samuel I. Schwartz, age 50, is presently President of Sam Schwartz
Co., consulting engineers, primarily in the bridge industry. Mr. Schwartz
received his BS in Physics from Brooklyn College in 1969, and his Masters in
Civil Engineering from the University of Pennsylvania in 1970. From February
1986 to March 1990, 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 he 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 (800 ft. span), Rhode Island (366 ft. span), Malaysia (740 ft.
span), and Florida (1300 ft. span).
HENRYKA
MANES. Ms. Manes is the Founder and President of H. Manes & Associates, a
consulting firm that enables environmental and high technology companies to
export their products worldwide. She has a wide-range of experience with
projects in more than 20 countries in Asia, Africa, Eastern Europe and South
America. Prior to founding HMA, Ms. Manes was Director of Operations for the
American Jewish Joint Distribution Committee's International Development Program
and has worked with the World Bank, United States Agency for International
Development, and the United Nations Development Program. Ms. Manes received
her
B.A. from Macalester College in St. Paul, MN, and did her graduate work at
the
University of Minnesota, Minneapolis, MN.
Terms
of Office
Our
directors are appointed for a one year term to hold office until the next annual
general meeting of the holders of our Common Stock or until removed from office
in accordance with our by-laws. Our officers are appointed by our board of
directors and hold office until removed by our board of directors.
The
following tables set forth certain information regarding each of our most
highly-compensated executive officers whose total annual salary and bonus for
the fiscal year ending December 31, 2005, 2004 and 2003 exceeded $100,000:
Name
and
Principal
Position
|
|
Year
|
|
Salary
($)
|
|
|
|
Bonus($)
|
|
|
|
Other
Annual
Compen-sation ($)
|
|
|
|
Restricted
Stock
Awards
($)
|
|
|
|
Options
(SARs
(#)
|
|
LTIP
Payout($)
|
|
All
Other
Compen-
sation
($)
|
|
|
Robert
M. Bernstein
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEO
|
|
|
2005
|
|
$
|
192,000
|
(2) |
|
$
|
--
|
|
|
|
|
$
|
--
|
|
|
|
|
$
|
0
|
|
|
|
|
|
--
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
2004
|
|
$
|
192,000
|
(1) |
|
|
--
|
|
|
|
|
|
--
|
|
|
|
|
|
0
|
|
|
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
|
2003
|
|
$
|
138,000
|
|
|
|
|
$
|
--
|
|
|
|
|
$ |
19,617
|
(9) |
|
$ |
320,000
|
|
|
|
|
|
--
|
|
$
|
--
|
|
$ |
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
W. Goodman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineer
|
|
|
2005
|
|
$
|
41,700
|
|
|
|
|
$
|
--
|
|
|
|
|
$
|
--
|
|
|
|
|
$
|
240,000
|
(4) |
|
|
--
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
2004
|
|
$
|
35,250
|
|
|
|
|
$
|
--
|
|
|
|
|
$
|
--
|
|
|
|
|
$
|
2,760,000
|
(3) |
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
|
2003
|
|
$
|
18,943
|
|
|
|
|
$
|
--
|
|
|
|
|
$
|
--
|
|
|
|
|
$
|
10,000
|
(10) |
|
|
--
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William
Berks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vice-President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
Government
|
|
|
2005
|
|
$
|
83,350
|
|
|
|
|
$
|
--
|
|
|
|
|
$
|
--
|
|
|
|
|
$
|
600,000
|
(6) |
|
|
--
|
|
$
|
--
|
|
$
|
--
|
|
Projects
and
|
|
|
2004
|
|
$
|
79,500
|
|
|
|
|
$
|
--
|
|
|
|
|
$
|
--
|
|
|
|
|
$
|
2,404,000
|
(5) |
|
|
--
|
|
$
|
--
|
|
$
|
--
|
|
Director
|
|
|
2003
|
|
$
|
71,374
|
|
|
|
|
$
|
--
|
|
|
|
|
$
|
--
|
|
|
|
|
$
|
30,000
|
(11) |
|
|
--
|
|
$
|
--
|
|
$
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joel
Freedman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secretary
and
|
|
|
2005
|
|
$
|
--
|
|
|
|
|
$
|
--
|
|
|
|
|
$
|
--
|
|
|
|
|
$
|
240,000
|
(8) |
|
|
--
|
|
$
|
--
|
|
$
|
--
|
|
Director
|
|
|
2004
|
|
$
|
--
|
|
|
|
|
$
|
--
|
|
|
|
|
$
|
--
|
|
|
|
|
$
|
4,972,000
|
(7) |
|
|
--
|
|
$
|
--
|
|
$
|
--
|
|
===========================================================================================================================================
|
(1) Cash
compensation actually paid to Mr. Bernstein in 2004 amounted to $316,000 of
which $120,000 relates to 2004 with the remaining amount of $196,000 pertained
to the payment of prior years accrued compensation. Mr. Bernstein used the
net
pay received from the cashing of the accrued compensation to reduce the loan
balance he owed us by $97,450.
(2) Cash
compensation actually paid to Mr. Bernstein in 2005 amounted to $210,446 of
which $192,000 relates to 2005 with the remaining amount of $18,446 pertained
to
the payment of prior years' accrued compensation.
(3) In
2004, we issued Mr. Goodman 1,500,000 shares of our common stock subject to
a
two-year lockup agreement. The shares were valued at $2,760,000, which
represents 80% of the market price on date of issuance.
(4) In
2005, we issued Mr. Goodman 200,000 shares our common stock subject to a
two-year lockup agreement. The shares were valued at $240,000, which represents
80% of the market price on date of issuance.
(5) In
2004, we issued Mr. Berks 1,000,000 shares its common stock subject to a
three-year lockup agreement. The shares were valued at $2,380,000, which
represents 70% of the market price on date of issuance. In addition, in 2004,
we
issued Mr. Berks an additional 7,500 shares of our common stock which was valued
at $24,000, the fair value of the shares on date of issuance.
(6) In
2005, we issued Mr. Berks 500,000 shares our common stock subject to a two-year
lockup agreement. The shares were valued at $600,000, which represents 80%
of
the market price on date of issuance.
(7) During
2004, we issued 2,260,000 shares of our common stock to Mr. Freedman a member
of
the Board and Company Secretary, which were valued at $4,972,000, which
represents 80% of the market price on the date of issuance. The shares are
subject to a two-year lockup agreement.
(8) In
2005, we issued Mr. Freedman 200,000 shares our common stock subject to a
two-year lockup agreement. The shares were valued at $240,000, which represents
80% of the market price on date of issuance.
(9) In
2003, Mr. Bernstein’s 1,962 shares of common stock held in escrow were vested,
and he recognized $19,617 in additional compensation as a result.
(10)
In
2003, we issued 1,000 shares of common stock to Mr. Goodman. The shares
were valued at $10,000, the fair value of the shares on date of issuance.
(11) In
2003, we issued 3,000 shares of common stock to Mr. Berks. The shares were
valued at $30,000, the fair value of the shares on date of issuance.
Directors
of our company who are also employees do not receive cash compensation for
their
services as directors or members of the committees of the board of
directors. All directors may be reimbursed for their reasonable expenses
incurred in connection with attending meetings of the board of directors or
management committees.
Employment
Contract
On
September 24, 2003, we entered into an Employment Agreement with Robert M.
Bernstein, our President, Chief Executive Officer, and Chief Financial
Officer. Pursuant to the Employment Agreement, we will employ Mr.
Bernstein for a period of 3 years commencing September 24, 2003. Mr.
Bernstein will be paid an annual base salary of $16,000 per month (“Base
Salary”), of which $6,000 per month shall be deferred until the later of (i) 18
months from September 24, 2003, or (ii) when we report at least $250,000 of
earnings before depreciation and amortization in one fiscal quarter. During
the
term of his employment and for a period thereafter, Mr. Bernstein will be
subject to non-disclosure, non-competition and non-solicitation provisions,
subject to standard exceptions.
Upon
the execution of the employment agreement, Mr. Bernstein was issued an aggregate
300,000 shares of our common stock.
Other
Compensation
There
are no annuity, pension or retirement benefits proposed to be paid to officers,
directors, or employees of our company in the event of retirement at normal
retirement date as there was no existing plan as of December 31, 2005 provided
for or contributed to by our company.
Stock
Options
We
have three stock option plans: The 1998 Stock Plan (“the 1998 Plan”), the
2002 Stock Issuance/Stock Plan (“the 2002 Plan”) and the 2003 Stock Option, SAR
and Stock Bonus Consultant Plan (“the 2003 Plan”). There are currently no
options outstanding under any of the plans.
In
September 1998, we adopted the 1998 Plan and reserved 800,000 shares of our
common stock for grant under the plan. Eligible participants include
employees, advisors, consultants, and officers who provide services to us.
The option price is 100% of the fair market value of a share of common stock
at
either the date of grant or such other day as the as the Board may
determine. During 2005 and 2004, there were no options granted under the
1998 Plan. The 1998 Plan expires upon the earlier of all reserved shares being
granted or September 10, 2008.
In
February 2002, we adopted the 2002 Plan and reserved 20,000,000 shares of our
common stock for grant under the plan. Eligible plan participants include
employees, advisors, consultants, and officers who provide services to us.
The option price is 100% of the fair market value of a share of common stock
at
either the date of grant or such other day as the Board may determine.
There were no options granted under the 2002 Plan in 2005 or 2004. The
2002 Plan expires upon the earlier of all reserved shares being awarded or
December 31, 2007.
In
September 2003, we adopted the 2003 Plan and reserved and 10,000,000 shares
of
our common stock for grant. Eligible plan participants include independent
consultants. The option price shall be no less than 85% of the fair market
value of a share of common stock at date of grant. During 2005 and 2004,
there were no options granted under the 2003 Plan. The 2003 Plan expires
upon the earlier of all reserved shares being granted or September 23, 2006.
We
also have agreements with two consultants whereby we will grant options to
purchase shares of our common stock upon us increasing our annual revenue by
$5
million in any fiscal year over our revenues in 2002. The collective number
of
shares to be issued will give the two consultants a fifteen percent interest
in
the outstanding shares of our common stock. No grants have been made pursuant
to
these agreements as we have not achieved the required revenues. The agreements
expire in March 2008.
The
following represents a summary of the Company’s compensation plans as of
December 31, 2005:
Plan
category
|
Number
of securities
|
Weighted-average
|
Number
of securities
|
|
To
be issued upon
|
exercise
price
|
remaining
for
|
|
exercise
of
|
of
outstanding
|
available
for future
|
|
outstanding
options,
|
options,
warrants
|
issuance
under
|
|
warrants
and rights
|
and
rights
|
equity
compensation
|
|
|
|
plans
(excluding
|
|
|
|
securities
reflected
|
|
|
|
in
column a))
|
|
(a)
|
(b)
|
(c)
|
Equity
|
|
|
|
Compensation
|
|
|
|
plans
approved
|
|
|
|
by
shareholders
|
n/a
|
n/a
|
n/a
|
|
|
|
|
Equity
|
|
|
|
Compensation
|
|
|
|
plans
not approved
|
|
|
|
by
shareholders
|
30,800,000
|
n/a
|
30,800,000
|
------------------
|
------------
|
-------
|
------------
|
Total
|
30,800,000
|
n/a
|
30,800,000
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Other
than as set forth below, during the last two fiscal years there have not been
any relationships, transactions, or proposed transactions to which we were
or
are to be a party, in which any of the directors, officers, or 5% or greater
shareholders (or any immediate family thereof) had or is to have a direct or
indirect material interest.
During
2005, we paid our president $210,446, of which $192,000 pertains to salary
accruing in 2005 and $18,446 pertained to salary accrued in a previous year.
During
2005, we accrued $203 of interest on loans due us from our president. The
balance of the loans owed by our president including accrued interest as of
December 31, 2005 totaled $2,153.
During
2005, we accrued $3,989 of interest due us from our president on a stock
subscription. The balance owed us on this subscription as of December 31,
2005 totaled $59,085.
During
2005, we issued Mr. John Goodman, a member of the board and our employee,
200,000 shares of our common stock subject to a two year lockup agreement.
The shares were valued at $240,000.
During
2005, we issued Mr. William Berks, Vice-President, Director, and our employee,
500,000 shares of our common stock subject to a two year lockup agreement.
The shares were valued at $600,000.
During
2005, we issued Mr. Joel Freedman, Director, and Corporate Secretary, 200,000
shares of our common stock subject to a two year lockup agreement. The
shares were valued at $240,000.
During
2004, we paid our president $196,000 of the accrued compensation we owed him.
Mr. Bernstein paid down the loan balance he owed us by $90,450. The remaining
balance due from him at December 31, 2004 was $1,950. Interest credited to
operations on this loan for 2004 amounted to $8,460.
The
balance on the stock subscription due from our president at December 31, 2004
totaled $55,096. Interest credited to operations on this receivable for 2004
amounted to $4,000.
During
2004, we issued 1,500,000 shares of our common stock to Mr. Goodman, a member
of
the board and our employee that were valued at $2,760,000. The shares are
subject to a two-year lockup agreement.
During
2004, we issued 2,260,000 shares of our common stock to Mr. Freedman a member
of
the Board and our Secretary, that were valued at $4,972,000. The shares are
subject to a two-year lockup agreement.
During
2004, we issued 1,000,000 shares of our common stock to Mr. Berks,
Vice-President and Director, that were valued at $2,380,000. The shares are
subject to a three-year lockup agreement. In addition, we in 2004 issued Mr.
Berks 7,500 shares of our common stock that were valued at $24,000.
CHANGES
IN REGISTRANT’S CERTIFYING ACCOUNTANT
Gumbiner,
Savett, Finkel, Fingleson & Rose, Inc., Certified Public Accountants
(hereinafter "Gumbiner") was dismissed by us as our principal independent
accountant, effective June 3, 2004. Gumbiner's report on the financial
statements for the year ended December 31, 2003, contained a modification as
to
the uncertainity of us continuing as a going concern.
We
engaged Farber & Hass, LLP as the principal accountant to audit our
financial statements effective as of June 3, 2004. Farber & Hass, LLP
(hereinafter "Farber") was dismissed by us as our principal independent
accountant, effective January 20, 2005. Farber did not issue a report in either
of the last two years, as they were engaged only to perform reviews of the
our
interim financial statements for each of the three quarters in the period ended
September 30, 2004. The decision to change accountants was recommended and
approved by the Board of Directors. There were no disagreements with Farber
on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure from the time of their appointment as our
certifying accountant through January 20, 2005.
We
engaged Corbin & Company, LLP (hereinafter "Corbin") as the principal
accountants to audit our financial statements effective as of January 21, 2005.
We, during our most recent fiscal year and any subsequent interim period to
the
date hereof, did not have discussions nor have we consulted with Corbin
regarding the following: (i) the application of accounting principles to a
specified transaction, either completed or proposed or the type of audit opinion
to be rendered on our financial statements, and neither a written report was
provided to us nor oral advice was provided that Corbin concluded was an
important factor considered by us in reaching a decision as to the accounting,
auditing or financial reporting issue; or (ii) any matters that were the subject
of a "disagreement", as that term is defined in Item 304(a)(1)(iv) of Regulation
S-B and the related instructions to Item 304 of Regulation S-B, or a reportable
event.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding beneficial ownership
of
our common stock as of June 7, 2006
•
by
each
person who is known by us to beneficially own more than 5% of our common stock;
•
by
each
of our officers and directors; and
•
by
all
of our officers and directors as a group.
CLASS
OF STOCK
|
NAME
AND ADDRESS OF
|
AMOUNT
AND NATURE OF
|
|
PERCENT
OF
|
|
|
BENEFICIAL
OWNER
|
BENEFICIAL
OWNERSHIP
|
|
|
)
|
--------------------------
|
-------------------------------------
|
-------------------------------------
|
|
------------------
|
|
Class
A
|
|
|
|
|
|
|
Common
Stock
|
Robert
M. Bernstein, CEO
|
21,987,850
Shares
|
|
8.8
|
%
|
|
Suite 707
|
|
|
|
|
|
11661 San
Vicente Blvd.
|
|
|
|
|
|
Los
Angeles, CA 90049
|
|
|
|
|
|
|
|
|
|
|
|
Joel
R. Freedman, Director
|
2,603,000
Shares
|
|
1.0
|
%
|
|
1
Bala Plaza
|
|
|
|
|
|
Bala
Cynwyd, PA 19004
|
|
|
|
|
|
|
|
|
|
|
|
John
Goodman, Director
|
2,630,000
Shares
|
|
1.0
|
%
|
|
Suite 707
|
|
|
|
|
|
11661 San
Vicente Blvd.
|
|
|
|
|
|
Los
Angeles, CA 90049
|
|
|
|
|
|
|
|
|
|
|
|
William
Berks, Vice President
|
|
|
|
|
|
Government
Projects
|
|
|
|
|
|
Suite 707
|
|
|
|
|
|
11661 San
Vicente Blvd.
|
|
|
|
|
|
Los
Angeles, CA 90049
|
2,512,500
Shares
|
|
1.0
|
%
|
|
|
|
|
|
|
|
Birchington
Investments Ltd.
|
|
|
|
|
|
Suite
621(1/2)
|
|
|
|
|
|
Europort,
Gibraltar
|
11,850,000
Shares
|
|
4.7
|
%
|
|
|
|
|
|
|
Class
B
|
Robert
M. Bernstein
|
600,000
Shares(2)
|
|
100.00
|
%
|
Common
Stock
|
Suite 707
|
|
|
|
|
|
11661 San
Vicente Blvd.
|
|
|
|
|
|
Los
Angeles, CA 90049
|
|
|
|
|
|
|
|
|
|
|
|
Directors
and executive
|
29,733,350
Shares
|
|
11.9
|
%
|
|
officers
as a group
|
|
|
|
|
|
(4
persons)
|
|
|
|
|
(1)
Unless otherwise indicated, based on 250,089,077 shares of common stock
outstanding. Shares of common stock subject to options or warrants
currently exercisable, or exercisable within 60 days, are deemed outstanding
for
purposes of computing the percentage of the person holding such options or
warrants, but are not deemed outstanding for purposes of computing the
percentage of any other
person.
(2) Each
share of Class B common stock has 2,000 votes on any matter on which the common
shareholders vote. As a result, Mr. Bernstein holds 1.2 billion votes
represented by the Class B common stock, and 85.5% of the overall votes.
DESCRIPTION
OF SECURITIES BEING REGISTERED
COMMON
STOCK
We
are
authorized to issue up to 1,699,400,000 and 600,000 shares of Class A Common
Stock, par value $.001, and Class B Common Stock, par value $.001,
respectively. As of June 7, 2006, we had approximately 1,602 holders of
our common stock and 1 holder of our Class B common stock. Holders of the common
stock are entitled to one vote per share and holders of the Class B common
stock
are entitled to 2,000 votes per share on all matters to be voted upon by the
stockholders. The Class B common stock is convertible to common stock on a
one-for-one basis. Holders of common stock and Class B Common Stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefor. Upon the
liquidation, dissolution, or winding up of our company, the holders of common
stock and Class B Common Stock common stock are entitled to share ratably in
all
of our assets which are legally available for distribution after payment of
all
debts and other liabilities and liquidation preference of any outstanding common
stock or Class B Common Stock common stock. Holders of common stock and Class
B
Common Stock common stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of common stock and Class B Common
Stock common stock are validly issued, fully paid and nonassessable.
We
have
engaged Interwest Transfer Company, Inc., 1981 East 4800 South, Suite 100,
Salt
Lake City, Utah 84117, as independent transfer agent or registrar.
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our
Articles of Incorporation, as amended and restated, provide to the fullest
extent permitted by Section 145 of the General Corporation Law of the State
of
Delaware, that our directors or officers shall not be personally liable to
us or
our shareholders for damages for breach of such director's or officer's
fiduciary duty. The effect of this provision of our Articles of Incorporation,
as amended and restated, is to eliminate our rights and our shareholders
(through shareholders' derivative suits on behalf of our company) to recover
damages against a director or officer for breach of the fiduciary duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our Articles of Incorporation,
as
amended, are necessary to attract and retain qualified persons as directors
and
officers.
Our
By
Laws also provide that the Board of Directors may also authorize us to indemnify
our employees or agents, and to advance the reasonable expenses of such persons,
to the same extent, following the same determinations and upon the same
conditions as are required for the indemnification of and advancement of
expenses to our directors and officers. As of the date of this Registration
Statement, the Board of Directors has not extended indemnification rights to
persons other than directors and officers.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
(the
"Act" or "Securities Act") may be permitted to directors, officers or persons
controlling us pursuant to the foregoing provisions, or otherwise, we have
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.
PLAN
OF DISTRIBUTION
The
selling stockholder and any of its pledgees, donees, assignees and other
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which
the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholder may use any one or more of the
following methods when selling shares:
•
ordinary brokerage transactions and transactions in which the broker-dealer
solicits the purchaser;
•
block
trades in which the broker-dealer will attempt to sell the shares as agent
but
may position and resell a portion of the block as principal to facilitate the
transaction;
•
purchases by a broker-dealer as principal and resale by the broker-dealer for
its account;
•
an
exchange distribution in accordance with the rules of the applicable exchange;
•
privately-negotiated transactions;
•
broker-dealers may agree with the selling stockholder to sell a specified number
of such shares at a stipulated price per share;
•
through
the writing of options on the shares
•
a
combination of any such methods of sale; and
•
any
other method permitted pursuant to applicable law.
The
selling stockholder may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus. The selling stockholder
shall have the sole and absolute discretion not to accept any purchase offer
or
make any sale of shares if they deem the purchase price to be unsatisfactory
at
any particular time.
The
selling stockholder or its pledgees, donees, transferees or other successors
in
interest, may also sell the shares directly to market makers acting as
principals and/or broker-dealers acting as agents for themselves or their
customers. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling stockholder and/or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and
at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. The
selling stockholder cannot assure that all or any of the shares offered in
this
prospectus will be issued to, or sold by, the selling stockholder. The selling
stockholder and any brokers, dealers or agents, upon effecting the sale of
any
of the shares offered in this prospectus, may be deemed to be "underwriters"
as
that term is defined under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or the rules and regulations under
such acts. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
We
are
required to pay all fees and expenses incident to the registration of the
shares, including fees and disbursements of counsel to the selling stockholder,
but excluding brokerage commissions or underwriter discounts.
The
selling stockholder, alternatively, may sell all or any part of the shares
offered in this prospectus through an underwriter. No selling stockholder has
entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into.
The
selling stockholder may pledge its shares to their brokers under the margin
provisions of customer agreements. If a selling stockholder defaults on a margin
loan, the broker may, from time to time, offer and sell the pledged
shares. The selling stockholder and any other persons participating in the
sale or distribution of the shares will be subject to applicable provisions
of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
under such act, including, without limitation, Regulation M. These provisions
may restrict certain activities of, and limit the timing of purchases and sales
of any of the shares by, the selling stockholder or any other such person.
In the event that the selling stockholder are deemed affiliated purchasers
or
distribution participants within the meaning of Regulation M, then the selling
stockholder will not be permitted to engage in short sales of common stock.
Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions, subject to specified exceptions
or
exemptions. In regards to short sells, the selling stockholder is
contractually restricted from engaging in short sells. In addition, if a
such short sale is deemed to be a stabilizing activity, then the selling
stockholder will not be permitted to engage in a short sale of our common stock.
All of these limitations may affect the marketability of the shares.
We
have
agreed to indemnify the selling stockholder, or their transferees or assignees,
against certain liabilities, including liabilities under the Securities Act
of
1933, as amended, or to contribute to payments the selling stockholder or their
respective pledgees, donees, transferees or other successors in interest, may
be
required to make in respect of such liabilities.
If
the
selling stockholder notifies us that it has a material arrangement with a
broker-dealer for the resale of the common stock, then we would be required
to
amend the registration statement of which this prospectus is a part, and file
a
prospectus supplement to describe the agreements between the selling stockholder
and the broker-dealer.
PENNY
STOCK
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes
the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions.
For
any transaction involving a penny stock, unless exempt, the rules require:
•
|
that
a broker or dealer approve a person's account for transactions in
penny
stocks; and
|
•
|
the
broker or dealer receive from the investor a written agreement to
the
transaction, setting forth the identity and quantity of the penny
stock to
be purchased.
|
In
order
to approve a person's account for transactions in penny stocks, the broker
or
dealer must
•
|
obtain
financial information and investment experience objectives of the
person;
and
|
•
|
make
a reasonable determination that the transactions in penny stocks
are
suitable for that person and the person has sufficient knowledge
and
experience in financial matters to be capable of evaluating the risks
of
transactions in penny stocks.
|
The
broker or dealer must also deliver, prior to any transaction in a penny stock,
a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
•
|
sets
forth the basis on which the broker or dealer made the suitability
determination; and
|
•
|
that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
|
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both
the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account
and
information on the limited market in penny stocks.
SELLING
STOCKHOLDERS
The
table
below sets forth information concerning the resale of the shares of common
stock
by the selling stockholder. We will not receive any proceeds from the resale
of
the common stock by the selling stockholder. We will receive proceeds from
the
exercise of the warrants. Assuming all the shares registered below are sold
by
the selling stockholder, it will not continue to own any shares of our
common stock.
The
following table also sets forth the name of each person who is offering the
resale of shares of common stock by this prospectus, the number of shares of
common stock beneficially owned by each person, the number of shares of common
stock that may be sold in this offering and the number of shares of common
stock
each person will own after the offering, assuming they sell all of the shares
offered.
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Shares of
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
Common
Stock
|
|
of
Common
|
|
Shares
of
|
|
|
|
Beneficial
|
|
|
|
of
Common
|
|
|
|
Issuable
Upon
|
|
Stock,
|
|
Common
Stock
|
|
Beneficial
|
|
Percentage
of
|
|
Ownership
|
|
Stock
Owned
|
|
|
|
Conversion
of
|
|
Assuming
|
|
Included
in
|
|
Ownership
|
|
Common
Stock
|
|
After
the
|
|
After
|
|
Name
|
|
Debenture
|
|
Full
|
|
Prospectus
|
|
Before
the
|
|
Owned
Before
|
|
Offering
|
|
Offering
|
|
|
|
and/or
Warrants
|
|
Conversion
|
|
(1)
|
|
Offering*
|
|
Offering*
|
|
(4)
|
|
(4)
|
|
Golden
Gate Investors
|
|
68,518,519(3)
|
27.40%
|
|
Up
to
|
|
24,983,899
|
|
9.99%
|
|
--
|
|
--
|
|
Investors,
Inc. (2)
|
|
|
|
|
|
68,518,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
|
|
|
|
|
|
|
|
|
Lynx
Consulting (5)
|
|
735,747(6)
|
**
|
|
Up
to
|
|
735,747
|
|
**
|
|
--
|
|
--
|
|
|
|
|
|
|
|
735,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
|
|
|
|
|
|
|
|
|
*
These
columns represents the aggregate maximum number and percentage of shares that
the selling stockholder can own at one time (and therefore, offer for resale
at
any one time) due to their 9.9% limitation.
**Less
than 1%.
The
number and percentage of shares beneficially owned is determined in accordance
with Rule 13d-3 of the Securities Exchange Act of 1934, and the information
is
not necessarily indicative of beneficial ownership for any other purpose. Under
such rule, beneficial ownership includes any shares as to which the selling
stockholder has sole or shared voting power or investment power and also any
shares, which the selling stockholder has the right to acquire within 60 days.
The actual number of shares of common stock issuable upon the conversion of
the
convertible debenture is subject to adjustment depending on, among other
factors, the future market price of the common stock, and could be materially
less or more than the number estimated in the table.
(1)
Includes a good faith estimate of the shares issuable upon conversion of the
convertible debenture and exercise of warrants, based on current market prices.
Because the number of shares of common stock issuable upon conversion of the
convertible debenture is dependent in part upon the market price of the common
stock prior to a conversion, the actual number of shares of common stock that
will be issued upon conversion will fluctuate daily and cannot be determined
at
this time. Under the terms of the convertible debenture, if the
convertible debenture had actually been converted on June 8, 2006, the
conversion price would have been $.081. The actual number of shares of
common stock offered in this prospectus, and included in the registration
statement of which this prospectus is a part, includes such additional number
of
shares of common stock as may be issued or issuable upon conversion of the
convertible debenture and exercise of the related warrants by reason of any
stock split, stock dividend or similar transaction involving the common stock,
in accordance with Rule 416 under the Securities Act of 1933. However the
selling stockholder has contractually agreed to restrict their ability to
convert their convertible debenture or exercise their warrants and receive
shares of our common stock such that the number of shares of common stock held
by them in the aggregate and their affiliates after such conversion or exercise
does not exceed 9.99% of the then issued and outstanding shares of common stock
as determined in accordance with Section 13(d) of the Exchange Act.
Accordingly, the number of shares of common stock set forth in the table for
the
selling stockholder exceeds the number of shares of common stock that the
selling stockholder could own beneficially at any given time through their
ownership of the convertible debenture and the warrants. In that regard,
the beneficial ownership of the common stock by the selling stockholder set
forth in the table is not determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended.
(2)
The
selling stockholder is an unaffiliated third party. In accordance with
rule 13d-3 under the Securities Exchange Act of 1934, Norman Lizt may be deemed
a control person of the shares owned by the selling stockholder.
(3)
Includes 18,518,519 (150%) shares of common stock underlying our $1,000,000
convertible debenture and 50,000,000 shares of common stock underlying common
stock purchase warrants issued to Golden Gate Investors, Inc.
(4)
Assumes that all securities registered will be sold, which does not represent
all of the shares of common stock potentially issuable upon conversion of the
convertible debenture held by Golden Gate at current market prices.
(5)
The
selling stockholder is an unaffiliated third party. In accordance with
rule 13d-3 under the Securities Exchange Act of 1934, Michael Sobeck and Chris
Lipa may be deemed control persons of the shares owned by the selling
stockholder. The selling stockholder has notified us that they are not
broker-dealers or affiliates of broker-dealers and that they believe they are
not required to be broker-dealers.
(6)
Includes shares of common stock issued to the selling stockholder pursuant
to
that certain Investor Relations Services Agreements dated as of December 8,
2005
and February 7, 2006 as compensation for investor relations services performed
by the selling stockholder under said agreements.
Terms
of Convertible Debenture
To
obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with Golden Gate Investors, Inc. (“Golden Gate”) on December 16, 2005,
as amended by that certain Addendum to Convertible Debenture, Warrant to
Purchase Common Stock and Securities Purchase Agreement, and that certain
Addendum to Convertible Debenture and Warrant to Purchase Common Stock, each
dated as of December 16, 2005, and as further amended by that certain Addendum
to Convertible Debenture, Warrant to Purchase Common Stock and Securities
Purchase Agreement dated as of May 2, 2006 and Securities Purchase Agreement
dated as of May 30, 2006, and as further amended by that certain Addendum to
Convertible Debenture, Warrant to Purchase Common Stock and Securities Purchase
Agreement dated as of June 9, 2006, and as further amended bv that certain
Addendum to Warrant to Purchase Common Stock dated as of June 12, 2006, for
the
sale of (i) $1,000,000 in convertible debenture and (ii) warrants to buy
50,000,000 shares of our common stock. This prospectus relates to the
resale of the common stock underlying this convertible debenture and
warrants.
On
May 2,
2006, we entered into an Addendum to Convertible Debenture, Warrant to Purchase
Common Stock and Securities Purchase Agreement with Golden Gate pursuant to
which we increased the principal amount of the debenture to $1,000,000, provided
that previous amounts provided to us by Golden Gate ($75,000) were applied
to
the purchase price. Upon the filing of the registration statement we are
required to file registering shares of our common stock underlying the debenture
and the warrants, Golden Gate will provide us with $20,000. In addition, within
5 days of the effectiveness of the registration statement, we are required
to
issue 20,000,000 shares of common stock to be held in escrow and to be released
upon conversions of the debenture by Golden Gate. Upon receipt of the 20,000,000
shares, Golden Gate is required to immediately wire to us the
remainder of the purchase price ($1,000,000 less the sum of all amounts
previously advanced to us).
The
debenture bears interest at 5¼%, mature three years from the date of issuance,
and are convertible into our common stock, at the selling stockholder’s
option. The conversion price of the convertible debenture is the lesser of
(i) $0.70, (ii) eighty percent of the average of the three lowest volume
weighted average prices during the twenty (20) trading days prior to the
conversion or (iii) eighty percent of the volume weighted average price on
the
trading day prior to the conversion. Accordingly, there is in fact no
limit on the number of shares into which the debenture may be converted.
Golden Gate has agreed that, beginning in the first full calendar month after
the registration statement is declared effective, it shall convert at least
10%,
but no more than 40%, of the debenture per calendar month, provided that the
common stock is available, registered and freely tradable; provided that, we
may
reduce the monthly maximum conversion from 40% to 6% for any three calendar
months during the term of the debenture upon ten business days notice prior
to
the first day of the applicable calendar month. However, in the event that
our
volume weighted average price is less than $.05, we will have the option to
prepay the debenture at 108% rather than have the debenture converted. If
we elect to prepay the debenture, Golden Gate may withdraw its conversion
notice. Golden Gate has agreed that, beginning in the first full calendar
month after the registration statement is declared effective, it shall exercise
1,250,000 warrants per week until all warrants are exercised. The warrant is
exercisable into 50,000,000 shares of common stock at an exercise price of
$.01
per share, provided that, the exercise price shall be equal to the price at
which we sell common stock (through direct stock issuances, and/or conversions
or exercises of convertible securities, but not including common stock issued
as
compensation for services performed on our behalf) during the 30 days prior
to
the applicable exercise date.
The
selling stockholder has contractually agreed to restrict its ability to convert
its debenture or exercise its warrants and receive shares of our common stock
such that the number of shares of common stock held by them and their affiliates
after such conversion or exercise does not exceed 9.99% of the then issued
and
outstanding shares of common stock.
Sample
Conversion Calculation
The
convertible debentures are convertible into the number of our shares of common
stock equal to the dollar amount of the debentures being converted is divided
by
the lesser of (i) $0.70, (ii) eighty percent of the average of the three lowest
volume weighted average prices during the twenty (20) trading days prior to
the
conversion or (iii) eighty percent of the volume weighted average price on
the
trading day prior to the conversion. For example, assuming conversion of
$1,000,000 of debenture on June 8, 2006, a conversion price of $0.081 per share,
the number of shares issuable upon conversion would be:
$1,000,000/$.081
= 12,345,679
The
following is an example of the amount of shares of our common stock that are
issuable, upon conversion of the principal amount of our convertible debenture,
based on market prices 25%, 50% and 75% below the market price, as of June
7,
2006 of $0.10.
|
|
Effective
|
Number
|
%
of
|
%
Below
|
Price
Per
|
Conversion
|
of
Shares
|
Outstanding
|
Market
|
Share
|
Price
|
Issuable
|
Stock
|
25%
|
$.075
|
$.06
|
16,666,667
|
6.25%
|
50%
|
$.050
|
$.04
|
25,000,000
|
9.09%
|
75%
|
$.025
|
$.02
|
50,000,000
|
16.66%
|
LEGAL
MATTERS
Sichenzia
Ross Friedman Ference LLP, New York, New York will issue an opinion with respect
to the validity of the shares of common stock being offered hereby.
EXPERTS
Corbin
& Company, LLP have audited, as set forth in their report thereon appearing
elsewhere herein, our consolidated financial statements at December 31, 2005
and
for each of the years in the two-year period then ended that appear in the
prospectus. The financial statements referred to above are included in
this prospectus with reliance upon the auditors’ opinion based on their
expertise in accounting and auditing.
AVAILABLE
INFORMATION
We
have filed a registration statement on Form SB-2 under the Securities Act of
1933, as amended, relating to the shares of common stock being offered by this
prospectus, and reference is made to such registration statement. This
prospectus constitutes the prospectus of Material Technologies, Inc., filed
as
part of the registration statement, and it does not contain all information
in
the registration statement, as certain portions have been omitted in accordance
with the rules and regulations of the Securities and Exchange Commission.
We
are subject to the informational requirements of the Securities Exchange Act
of
1934 which requires us to file reports, proxy statements and other information
with the Securities and Exchange Commission. Such reports, proxy statements
and
other information may be inspected at public reference facilities of the SEC
at
Judiciary Plaza, 100 F Street N.E., Washington D.C. 20549. Copies of such
material can be obtained from the Public Reference Section of the SEC at
Judiciary Plaza, 100 F Street N.E., Washington, D.C. 20549 at prescribed rates.
Because we file documents electronically with the SEC, you may also obtain
this
information by visiting the SEC's Internet website at http://www.sec.gov.
INDEX
TO
FINANCIAL STATEMENTS
MATERIAL
TECHNOLOGIES, INC.
FINANCIAL
STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
(unaudited)
|
|
|
|
Consolidated
Balance
Sheet
|
F-1
|
Consolidated
Statements of
Operations
|
F-3
|
Consolidated
Statements of Comprehensive
Loss
|
F-4
|
Consolidated
Statements of Cash
Flows
|
F-5
|
Notes
to Financial
Statements
|
F-7
|
|
|
For
the Fiscal Year Ended December 31, 2005 and 2004
|
|
|
|
Report
of Independent Registered Public Accounting
Firm
|
F-31
|
Consolidated
Balance
Sheet
|
F-32
|
Consolidated
Statements of
Operations
|
F-34
|
Consolidated
Statements of Comprehensive
Loss
|
F-35
|
Consolidated
Statement of in Stockholders’
Deficit
|
F-36
|
Consolidated
Statements of Cash
Flows
|
F-41
|
Notes
to Financial
Statements
|
F-43
|
|
|
|
(A Development Stage
Company)
|
|
|
|
|
CONSOLIDATED BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
MARCH 31,
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
Current
assets: |
|
|
Cash
and cash equivalents |
$
|
22,695
|
Investments
in marketable securities held for trading |
|
130,392
|
Investments
in marketable securities available for sale |
|
174,435
|
Prepaid
expenses and other current assets |
|
2,206
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
329,728
|
|
|
|
|
Investments
in non-marketable securities |
|
3,582,600
|
Property
and equipment, net |
|
9,234
|
Intangible
assets, net |
|
5,275
|
Deposit |
|
2,348
|
|
|
|
|
|
|
|
|
|
|
$
|
3,929,185
|
|
|
|
=============
|
Continued . . .
See accompanying
notes to
consolidated financial statements
F-1
|
(A Development Stage
Company)
|
|
|
|
|
|
|
|
CONSOLIDATED BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' DEFICIT |
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
Accounts payable and accrued expenses |
$
|
299,337
|
|
|
Current portion of research and development
sponsorship payable |
|
25,000
|
|
|
Notes payable |
|
88,921
|
|
|
Investments deriviative liability |
|
662,646
|
|
|
Convertible debentures and accrued interest
payable, net of discount |
|
|
|
|
|
of $299,565 |
|
1,084,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
2,160,100
|
|
|
|
|
|
|
|
|
Research and development sponsorship payable,
net
of current portion |
|
741,890
|
|
Convertible debentures and accrued interest
payable, net of discount |
|
|
|
|
of $35,556 |
|
4,588
|
|
Derivative and warrant liabilities |
|
8,012,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
10,919,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest in consolidated subsidiary |
|
825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit: |
|
|
|
|
Class A preferred stock, $0.001 par value,
liquidation preference |
|
|
|
|
|
of $720 per share; 350,000 shares
authorized; 337 shares issued |
|
|
|
|
|
and outstanding |
|
-
|
|
|
Class B preferred stock, $0.001 par value,
liquidation preference of |
|
|
|
|
|
$10,000 per share; 15 shares authorized;
none issued and |
|
|
|
|
|
outstanding |
|
-
|
|
|
Class C preferred stock, $0.001 par value,
liquidation preference of |
|
|
|
|
|
$0.001 per share; 25,000,000 shares authorized;
1,517 shares issued |
|
|
|
|
|
and outstanding |
|
1
|
|
|
Class D preferred stock, $0.001 par value,
liquidation preference of |
|
|
|
|
|
$0.001 per share; 20,000,000 shares authorized;
0
shares issued |
|
|
|
|
|
and outstanding |
|
-
|
|
|
Class A Common Stock, $0.001 par value,
1,699,400,000 shares |
|
|
|
|
|
authorized; 235,710,445 shares
issued;
170,290,488 shares outstanding |
|
170,290
|
|
|
Class B Common Stock, $0.001 par value,
600,000
shares authorized, |
|
|
|
|
|
issued and outstanding |
|
600
|
|
|
Warrants subscribed |
|
10,000
|
|
|
Additional paid-in-capital |
|
57,816,148
|
|
|
Deficit accumulated during the development
stage |
|
(64,618,021)
|
|
|
Note receivable - common stock |
|
(226,059)
|
|
|
Treasury stock (138,800 shares at cost) |
|
(34,759)
|
|
|
Accumulated other comprehensive loss |
|
(108,975)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' deficit |
|
(6,990,775)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,929,185
|
|
|
|
|
|
|
=============
|
MATERIAL TECHNOLOGIES,
INC.
|
(A Development Stage
Company)
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS
OF
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From October 21, 1983
|
|
|
For the Three Months
Ended
|
|
(Inception)
|
|
|
March
31,
|
|
through
|
|
|
2006
|
|
2005
|
|
March 31, 2006
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
Research and
development |
$
|
28,846
|
$
|
18,308
|
$
|
5,381,485
|
Other |
|
-
|
|
-
|
|
274,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues |
|
28,846
|
|
18,308
|
|
5,655,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
Research and
development |
|
185,152
|
|
1,212,182
|
|
15,415,038
|
General and
administrative |
|
2,523,819
|
|
321,562
|
|
26,322,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and
expenses |
|
2,708,971
|
|
1,533,744
|
|
41,737,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations |
|
(2,680,125)
|
|
(1,515,436)
|
|
(36,081,477)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
Modification
of
research and development
sponsorship agreement |
|
-
|
|
-
|
|
(7,738,400)
|
Interest expense |
|
(149,938)
|
|
(165,353)
|
|
(7,890,486)
|
Other-than-temporary
impairment of marketable |
|
|
|
|
|
|
securities
available for sale |
|
-
|
|
-
|
|
(6,203,347)
|
Realized loss on sale of
marketable securities |
|
(23)
|
|
(3,499)
|
|
(3,672,462)
|
Unrealized loss on decrease
in market value of |
|
|
|
|
|
|
securities held
for trading |
|
-
|
|
-
|
|
(1,523,310)
|
Change in fair value of
derivative and warrant liabilities |
|
(930,369)
|
|
-
|
|
(1,516,104)
|
Change in fair value of
investment derivative liability |
|
(76,911)
|
|
-
|
|
(76,911)
|
Interest income |
|
3,891
|
|
5,023
|
|
376,466
|
Gain (loss) on settlement
of
indebtedness |
|
-
|
|
-
|
|
(244,790)
|
Other |
|
-
|
|
-
|
|
(33,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense,
net |
|
(1,153,350)
|
|
(163,829)
|
|
(28,522,344)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for
income
taxes |
|
(3,833,475)
|
|
(1,679,265)
|
|
(64,603,821)
|
|
|
|
|
|
|
|
Provision for income taxes |
|
(800)
|
|
(800)
|
|
(14,200)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
$
|
(3,834,275)
|
$
|
(1,680,065)
|
$
|
(64,618,021)
|
|
|
============= |
|
============ |
|
============== |
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
Basic and diluted net loss
per share |
$
|
(0.02)
|
$
|
(0.02)
|
|
|
|
|
============= |
|
============ |
|
|
Weighted average Class
A
common shares |
|
|
|
|
|
|
outstanding -
basic and diluted |
|
154,392,834
|
|
87,216,240
|
|
|
|
|
=============
|
|
============
|
|
|
See accompanying notes to consolidated financial
statements
F-3
MATERIAL TECHNOLOGIES, INC.
|
(A Development Stage
Company)
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From October 21, 1983
|
|
|
|
For the Three Months Ended
|
|
(Inception)
|
|
|
|
March
31,
|
|
through
|
|
|
|
2006
|
|
2005
|
|
March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
$
|
(3,834,275)
|
$
|
(1,680,065)
|
$
|
(64,618,021)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss: |
|
|
|
|
|
|
|
Temporary increase (decrease) in market |
|
|
|
|
|
|
|
value of securities available for sale |
|
12,242
|
|
(40,846)
|
|
(6,312,322)
|
|
Reclassification to other-than-temporary |
|
|
|
|
|
|
|
impairment of marketable securities |
|
|
|
|
|
|
|
available for sale |
|
-
|
|
-
|
|
6,203,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,242
|
|
(40,846)
|
|
(108,975)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net comprehensive loss |
$
|
(3,822,033)
|
$
|
(1,720,911)
|
$
|
(64,726,996)
|
|
|
|
============
|
|
============
|
|
=================
|
See accompanying notes to consolidated financial
statements
F-4
MATERIAL TECHNOLOGIES,
INC.
|
(A Development Stage
Company)
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS
OF
CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From October 21, 1983
|
|
|
|
|
For the Three Months Ended
|
|
(Inception)
|
|
|
|
|
March 31,
|
|
through
|
|
|
|
|
2006
|
|
2005
|
|
March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows
from operating
activities: |
|
|
|
|
|
|
Net loss |
|
$
|
(3,834,275)
|
$
|
(1,680,065)
|
$
|
(64,618,021)
|
Adjustments
to
reconcile net loss to net cash used in |
|
|
|
|
|
|
in
operating activities: |
|
|
|
|
|
|
|
Issuance of common stock
for
services |
|
1,952,645
|
|
1,225,000
|
|
26,504,858
|
|
Issuance of common stock
for
modification of |
|
|
|
|
|
|
|
research and development
sponsorship agreement |
|
-
|
|
-
|
|
7,738,400
|
|
Change in fair
value of
derivative and warrant liabilities |
|
1,007,280
|
|
-
|
|
6,924,468
|
|
Net realized and unrealized loss
on
marketable securities
|
|
|
|
held for trading |
|
24
|
|
3,499
|
|
5,195,773
|
|
Other-than-temporary impairment
of
marketable |
|
|
|
|
|
|
|
securities available for
sale |
|
-
|
|
-
|
|
6,203,347
|
|
Legal fees incurred for
note
payable |
|
-
|
|
-
|
|
1,456,142
|
|
Accrued interest expense
added to
principal |
|
44,554
|
|
41,986
|
|
1,022,957
|
|
Amortization of discount
on
convertible debentures |
|
104,298
|
|
99,854
|
|
829,879
|
|
Change in fair value of
investments
derivative liability |
|
-
|
|
-
|
|
585,735
|
|
Accrued interest income
added to
principal |
|
(1,116)
|
|
(1,045)
|
|
(304,937)
|
|
Gain (loss) on settlement
of
indebtedness |
|
-
|
|
-
|
|
244,790
|
|
Depreciation and
amortization |
|
2,163
|
|
2,066
|
|
214,146
|
|
Other non-cash adjustments |
|
-
|
|
-
|
|
(107,722)
|
|
(Increase) decrease in
receivables
due on research |
|
|
|
|
|
|
|
contract |
|
70,825
|
|
(718)
|
|
(50,328)
|
|
Decrease in prepaid expenses
and
other |
|
|
|
|
|
|
|
current
assets |
|
306,197
|
|
-
|
|
306,197
|
|
Increase in deposits |
|
-
|
|
-
|
|
(2,348)
|
|
(Decrease) increase in
accounts
payable and accrued |
|
|
|
|
|
|
|
expenses |
|
19,448
|
|
(47,338)
|
|
1,150,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating
activities |
|
(327,957)
|
|
(356,761)
|
|
(6,706,048)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows
from investing
activities: |
|
|
|
|
|
|
Proceeds from
the
sale of marketable securities |
|
174,988
|
|
802,498
|
|
3,253,784
|
Purchase of
marketable securities |
|
(2,563)
|
|
(203,655)
|
|
(1,899,597)
|
Payment received
on
officer loans |
|
-
|
|
-
|
|
876,255
|
Funds advanced
to
officers |
|
-
|
|
-
|
|
(549,379)
|
Purchase of
property and equipment |
|
-
|
|
(2,598)
|
|
(269,746)
|
Investment
in joint
ventures |
|
-
|
|
-
|
|
(102,069)
|
Proceeds from
foreclosure |
|
-
|
|
-
|
|
44,450
|
Proceeds from
the
sale of property and equipment |
|
-
|
|
-
|
|
10,250
|
Payment for
license
agreement |
|
-
|
|
-
|
|
(6,250)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing
activities |
|
172,425
|
|
596,245
|
|
1,357,698
|
|
|
|
|
|
|
|
|
|
Continued . . .
See accompanying notes to consolidated financial
statements
F-5
MATERIAL TECHNOLOGIES,
INC.
|
(A Development Stage
Company)
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS
OF CASH
FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From October 21, 1983
|
|
|
For the Three Months
Ended
|
|
(Inception)
|
|
|
March 31,
|
|
through
|
|
|
2006
|
|
2005
|
|
March 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing
activities: |
|
|
|
|
|
|
Proceeds from the sale
of common stock and warrants |
$
|
164,505
|
$
|
1,000
|
$
|
3,830,602
|
Proceeds from convertible
debentures and other |
|
|
|
|
|
|
notes
payable |
|
-
|
|
-
|
|
1,347,069
|
Proceeds from the sale
of
preferred stock |
|
-
|
|
-
|
|
473,005
|
Principal reduction on
notes
payable |
|
(25,000)
|
|
-
|
|
(25,000)
|
Costs incurred in
offerings |
|
-
|
|
-
|
|
(487,341)
|
Capital
contributions |
|
-
|
|
-
|
|
301,068
|
Purchase of treasury
stock |
|
(8,623)
|
|
-
|
|
(63,358)
|
Payment on proposed
reorganization |
|
-
|
|
-
|
|
(5,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities |
|
130,882
|
|
1,000
|
|
5,371,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and
cash
equivalents |
|
(24,650)
|
|
240,484
|
|
22,695
|
|
|
|
|
|
|
|
Cash and cash equivalents,
beginning
of period |
|
47,345
|
|
100,800
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents,
end of
period |
$
|
22,695
|
$
|
341,284
|
$
|
22,695
|
|
|
=========
|
|
=========
|
|
==============
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure
of cash flow
information: |
|
|
|
|
|
|
Interest paid during the
period |
$
|
1,085
|
$
|
688
|
|
|
|
|
=========
|
|
=========
|
|
|
|
Income taxes paid during
the
period |
$
|
800
|
$
|
800
|
|
|
|
|
=========
|
|
=========
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures
of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
During the
quarter, the
Company issued 15,729,084 shares of its Class A common stock for
consulting |
|
services valued at
$1,952,644. |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
issued
1,420,000 shares of its Class A common stock through the conversion
of
1,420,000 |
|
shares of Class D preferred
stock. |
|
|
|
|
|
|
|
|
|
|
|
|
|
In January 2006, the Company
issued
21,864,114 Class A common shares in connection with proposed
financing. |
The shares are being held
by the
Company until such time as the transaction is consumated. As of March
31,
2006, |
the 21,864,114 shares are
considered
issued but not outstanding. There is no assurance that the transaction
will |
be consummated or that
these shares
will be issued. |
|
|
|
|
|
|
|
|
|
|
|
|
|
Duirng the quarter, the
Company
issued 4,000,000 shares in exchange for promisory notes with face
values |
totaling $200,000.
The
notes bear interest at 6% per annum and are due in one
year. |
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company issued 975,750
shares of
its Class A common stock for consulting services valued at
$1,225,000. |
at $1,225,000. |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company
issued 500,000
shares of its Class A common stock through the conversion of
500,000 |
|
shares of Class D preferred
stock. |
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
to the
consolidated financial statements for additional non-cash investing
and
financing |
activities. |
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
1 - ORGANIZATION AND BASIS OF PRESENTATION
Organization
Material
Technologies, Inc. (the "Company") was organized on October 21, 1983, under
the
laws of the state of Delaware.
The
Company is in the development stage, as defined in Statement of Financial
Accounting Standards (“SFAS”) No. 7, “Accounting
and Reporting by Development Stage Enterprises,”
with
its principal activity being research and development in the area of metal
fatigue technology with the intent of future commercial
application.
On
January 22, 2003, the Company formed Matech International, Inc., a Nevada
corporation (“International”). International was formed as a wholly owned
subsidiary of the Company to advertise, market and sell the Company’s videoscope
technology which is presently utilized in the inspection of stress and crack
points in turbine engines on the wings of airplanes. At the present time there
is no activity in International and the Company does not anticipate nor
reasonably foresee any business activity in International in the near future.
On
March
13, 2003, the Company formed Matech Aerospace, Inc., a Nevada corporation
(“Aerospace”). Aerospace was formed as a wholly owned subsidiary of the Company
to advertise, market and sell all manufacturing and marketing rights to the
Company’s products and technologies in all commercial markets within the United
States. During 2003, Aerospace sold shares of its common stock to investors.
As
of March 31, 2006, the Company holds a 99% interest in Aerospace. At the present
time there is no activity in Aerospace and the Company does not anticipate
nor
reasonably foresee any business activity in Aerospace in the near future.
Unless
otherwise noted, common stock refers to the Company’s Class A common
stock.
Basis
of Presentation
The
accompanying interim consolidated financial statements have been prepared by
the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission (the “SEC”) for interim financial reporting. These interim
consolidated financial statements are unaudited and, in the opinion of
management, include all adjustments (consisting of normal recurring adjustments
and accruals) necessary to present fairly the consolidated balance sheet,
consolidated operating results and consolidated cash flows for the periods
presented in accordance with accounting principles generally accepted in the
United States of America (“GAAP”). Operating results for the three months
ended March 31, 2006 are not necessarily indicative of the results that may
be
expected for the year ending December 31, 2006 or for any other interim period
during such year. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with GAAP have been
omitted in accordance with the rules and regulations of the SEC. These
interim consolidated financial statements should be read in conjunction with
the
audited consolidated financial statements and notes thereto contained in the
Company’s Form 10-KSB for the year ended December 31, 2005.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
1 - ORGANIZATION AND BASIS OF PRESENTATION, continued
Going
Concern
The
Company's consolidated financial statements are prepared using the accrual
method of accounting in accordance with accounting principles generally accepted
in the United States of America and have been prepared on a going concern basis,
which contemplates the realization of assets and the settlement of liabilities
in the normal course of business. The Company has sustained operating losses
since its inception (October 21, 1983). In addition, the Company has used
substantial amounts of working capital in its operations. Further, at
March 31, 2006, the deficit accumulated during the development stage amounted
to
approximately $65 million.
In
view
of these matters, realization of a major portion of the assets in the
accompanying consolidated balance sheet is dependent upon the Company’s ability
to meet its financing requirements and the success of its future operations.
In
December 2005, the Company issued warrants to a note holder to purchase
4,000,000 shares of its common stock at price of $1.09 per share, which the
noteholder has agreed to convert at the rate of at least 5% per calendar month
(200,000 warrants for $218,000) once the related registration statement is
declared effective (see Note 6). Subsequent to March 31, 2006, the terms of
this
agreement were modified (see Note 11). The Company anticipates that the
registration statement will be declared effective by mid 2006. To date, the
Company has received $10,000 as an advance toward the future exercise of the
warrants. The Company also continues to raise funds through the sale of its
common stock through private offerings which management expects to continue
in
2006, and the Company continues its attempt to develop its technologies for
commercial application. Management believes that these sources of funds and
current liquid assets will allow the Company to continue as a going concern
at
least through the end of 2006. Management of the Company will need to raise
additional debt and/or equity capital to finance future activities beyond 2006.
However, no assurances can be made that current or anticipated future sources
of
funds will enable the Company to finance future periods’ operations. In light of
these circumstances, substantial doubt exists about the Company’s ability to
continue as a going concern. These consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded assets or liabilities that might be necessary should the Company be
unable to continue as a going concern.
NOTE
2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts and
transactions of Material Technologies, Inc. and its subsidiaries. Intercompany
transactions and balances have been eliminated in consolidation. The minority
owners’ interests in a subsidiary have been reflected as minority interest in
the accompanying consolidated balance sheet.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Use
of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Significant estimates include the fair value of marketable
and non-marketable securities, the recoverability of long-lived assets and
the
amount of the deferred tax valuation allowance. Accordingly, actual results
could differ from those estimates.
Cash
Equivalents
For
purposes of the statements of cash flows, the Company considers cash equivalents
to include highly liquid investments with original maturities of three months
or
less.
Investments
Marketable
securities purchased with the intent of selling them in the near term are
classified as trading securities. Trading securities are initially recorded
at
cost and are adjusted to their fair value, with the change in fair value during
the period included in earnings as unrealized gains or losses. Realized
gains or losses on dispositions are based upon the net proceeds and the adjusted
book value of the securities sold, using the specific identification method,
and
are recorded as realized gains or losses in the consolidated statements of
operations. Marketable securities that are not classified as trading securities
are classified as available-for-sale securities. Available-for-sale
securities are initially recorded at cost. Available-for-sale securities
with quoted market prices are adjusted to their fair value. Any change in fair
value during the period is excluded from earnings and recorded, net of tax,
as a
component of accumulated other comprehensive income (loss). Any decline in
value
of available-for-sale securities below cost that is considered to be “other than
temporary” is recorded as a reduction of the cost basis of the security and is
included in the statement of operations as an impairment loss.
Non-marketable
securities consist of equity securities for which there are no quoted market
prices. Such investments are initially recorded at their cost. In the case
of non-marketable securities acquired with the Company’s common stock, the
Company values the securities at a significant discount to the stated per share
cost based upon the Company’s historical experience with similar transactions as
to the amount ultimately realized from the sale of the shares. For the
Birchington shares (see Note 3), the Company has applied an 80% discount to
the
stated per share cost. Such investments will be reduced when the Company
has indications that a permanent decline in value has occurred. At such
time as quoted market prices become available, the net cost basis of these
securities will be reclassified to the appropriate category of marketable
securities. Until that time, the securities will be recorded at their net cost
basis, subject to an impairment analysis (see Note 3).
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
continued
Long-Lived
Assets
The
Company accounts for its long-lived assets in accordance with SFAS No. 144,
“Accounting
for the Impairment or Disposal of Long-Lived Assets.”
SFAS No. 144 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 or disposable value. As of March 31, 2006,
the Company does not believe there has been any impairment of its long-lived
assets.
Convertible
Debentures and Beneficial Conversion
If
the
conversion feature of conventional convertible debt provides for a rate of
conversion that is below market value, this feature is characterized as a
beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a
debt discount pursuant to EITF Issue No. 98-5 (“EITF 98-05”), “Accounting
for Convertible Securities with Beneficial Conversion Features or Contingency
Adjustable Conversion Ratio,”
and EITF
Issue No. 00-27, “Application
of EITF Issue No. 98-5 to Certain Convertible Instruments.”
In
those circumstances, the convertible debt will be recorded net of the discount
related to the BCF. The Company amortizes the discount to interest expense
over
the life of the debt using the effective interest method.
Derivative
Financial Instruments
In
the
case of non-conventional convertible debt, the Company bifurcates its embedded
derivative instruments and records them under the provisions of SFAS No. 133,
“Accounting
for Derivative Instruments and Hedging Activities,”
as amended, and EITF Issue No. 00-19, “Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in,
a
Company’s Own Stock.”
The
Company’s derivative financial instruments consist of embedded derivatives
related to the non-conventional notes (“Notes”) entered into with Golden Gate
Investors (“GGI”) on December 16, 2005 (see Note 6). These embedded derivatives
include the conversion feature, liquidated damages related to registration
rights and default provisions. The accounting treatment of derivative financial
instruments requires that the Company record the derivatives and related
warrants at their fair values as of the inception date of the agreement and
at
fair value as of each subsequent balance sheet date. Any change in fair value
will be recorded as non-operating, non-cash income or expense at each reporting
date. If the fair value of the derivatives is higher at the subsequent balance
sheet date, the Company will record a non-operating, non-cash charge. If the
fair value of the derivatives is lower at the subsequent balance sheet date,
the
Company will record non-operating, non-cash income. During the quarter ended
March 31, 2006, the Company recorded an increase to the fair value of the
derivatives and related warrants of approximately $930,000. As of March 31,
2006, derivatives were valued primarily using the Black-Scholes Option Pricing
Model with the following assumptions: dividend yield of 0%, annual volatility
of
200%, and risk free interest rate of 4.74%.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
In
addition, the Company has recorded the downside price protection feature of
its
Birchington agreements as a derivative and recorded an increase to the fair
value of approximately $77,000 during the quarter ended March 31, 2006 (see
Note
3).
Fair
Value of Financial Instruments
The
Company’s financial instruments consist of cash and cash equivalents,
investments, accounts receivable, accounts payable, accrued expenses, notes
payable, convertible debentures and derivative and warrant liabilities. Pursuant
to SFAS No. 107, “Disclosures
About Fair Value of Financial Instruments,”
the
Company is required to estimate the fair value of all financial instruments
at
the balance sheet date. The Company cannot determine the estimated fair value
of
the convertible debentures as instruments similar to the convertible debentures
could not be found. Other than these items, the Company considers the carrying
values of its financial instruments in the financial statements to approximate
their fair values.
Revenue
Recognition
The
Company recognizes revenue in accordance with Staff Accounting Bulletin (“SAB”)
No. 101, “Revenue
Recognition in Financial Statements,”
as
revised by SAB No. 104. As such, the Company recognizes revenue when persuasive
evidence of an arrangement exists, title transfer has occurred, the price is
fixed or readily determinable and collectibility is probable. Sales are recorded
net of sales discounts.
Substantially
all of the Company’s revenue is derived from the Company’s contracts relating to
the further development of the Electrochemical Fatigue Sensor (“EFS”). Revenue
on the contracts is recognized at the time services are rendered. The Company
bills monthly for services pursuant to these contracts at which time revenue
is
recognized for the period that the respective invoice relates. In October 2003,
the Company entered into a contract to provide research services to a third
party in connection with the application of the Company’s EFS to detect stress
on military vehicles. The contract has an approved budget of $215,281. The
Company was fully collected for services rendered through March 31, 2006 and
had
no balance owed under the contract.
In
the
past, the Company has received research and development funding from various
agencies of the U.S. government. U.S. government contracts are subject to
government audits. Such audits could lead to inquiries from the government
regarding the allowability of costs under U.S. government regulations and
potential adjustments of contract revenues. To date, the Company has not been
involved in any such audits.
Research
and Development
The
Company expenses research and development costs as incurred.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Net
Loss per Share
The
Company adopted the provisions of SFAS No. 128, “Earnings
Per Share”
(“EPS”).
SFAS No. 128 provides for the calculation of basic and diluted earnings per
share. Basic EPS includes no dilution and is computed by dividing income or
loss
available to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted EPS reflects the potential dilution
of
securities that could share in the earnings or losses of the entity. For the
three months ended March 31, 2006 and 2005, basic and diluted loss per share
are
the same, since the calculation of diluted per share amounts would result in
an
anti-dilutive calculation that is not permitted and therefore not included.
If
such shares were included in diluted EPS, they would have resulted in
weighted-average common shares of 197,447,177 and 140,453,819 for the quarters
ended March 31, 2006 and 2005, respectively. Such amounts include shares
potentially issuable pursuant to shares held in escrow (see Note 8), convertible
debentures (see Note 6), and outstanding “in-the-money” options and warrants
(see Notes 10).
Issuance
of Stock for Non-Cash Consideration
All
issuances of the Company's stock for non-cash consideration have been assigned
a
per share amount equaling either the market value of the shares issued or the
value of consideration received, whichever is more readily determinable. The
majority of the non-cash consideration received pertains to services rendered
by
consultants and others and has been valued at the market value of the shares
on
the dates issued. In certain instances, the Company has discounted the values
assigned to the issued shares for illiquidity and/or restrictions on resale
(see
Note 8).
The
Company's accounting policy for equity instruments issued to consultants and
vendors in exchange for goods and services follows the provisions of EITF 96-18,
"Accounting
for Equity Instruments That are Issued to Other Than Employees for Acquiring,
or
in Conjunction with Selling, Goods or Services"
and
EITF 00-18, "Accounting
Recognition for Certain Transactions Involving Equity Instruments Granted to
Other Than Employees."
The
measurement date for the fair value of the equity instruments issued is
determined at the earlier of (i) the date at which a commitment for performance
by the consultant or vendor is reached or (ii) the date at which the consultant
or vendor's performance is complete. In the case of equity instruments issued
to
consultants, the fair value of the equity instrument is recognized over the
term
of the consulting agreement. In accordance to EITF 00-18, an asset acquired
in
exchange for the issuance of fully vested, nonforfeitable equity instruments
should not be presented or classified as an offset to equity on the grantor's
balance sheet once the equity instrument is granted for accounting purposes.
Accordingly, the Company will record the fair value of the fully vested
non-forfeitable common stock issued for future consulting services as prepaid
services in its consolidated balance sheet.
Stock-Based
Compensation
Prior
to
January 1, 2006, the Company accounted for its stock-based compensation plan
under the recognition and measurement provisions of Accounting Principles Board
(“APB”) Opinion No. 25, Accounting
for Stock Issued to Employees,
and
related interpretations, as permitted by Statement of Financial Accounting
Standards (“SFAS”) No. 123, “Accounting
for Stock-Based Compensation”.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Effective
January 1, 2006, on the first day of the Company’s fiscal year 2006, the Company
adopted the fair value recognition provisions of SFAS No. 123(R), “Share-Based
Payments”,
using
the modified-prospective transition method. Under this transition method,
compensation cost recognized in the three months ended March 31, 2006 includes:
(a) compensation cost for all share-based payments granted and not yet vested
prior to January 1, 2006, based on the grant date fair value estimated in
accordance with the original provisions of SFAS No. 123, and (b) compensation
cost for all share-based payments granted subsequent to December 31, 2005 based
on the grant-date fair value estimated in accordance with the provisions of
SFAS
No. 123(R). SFAS No. 123(R) requires forfeitures to be estimated at the time
of
grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. As of March 31, 2006, the Company had no options
outstanding and therefore believes the adoption of SFAS 123(R) to have an
immaterial effect on the accompanying financial statements.
The
Company calculates stock-based compensation by estimating the fair value of
each
option using the Black-Scholes option pricing model. The Company’s determination
of the fair value of share-based payment awards are made as of their respective
dates of grant using the option pricing model and that determination is affected
by the Company’s stock price as well as assumptions regarding the number of
subjective variables. These variables include, but are not limited to, the
Company’s expected stock price volatility over the term of the awards, and
actual and projected employee stock option exercise behavior. The Black-Scholes
option pricing model was developed for use in estimating the value of traded
options that have no vesting or hedging restrictions and are fully transferable.
Because the Company’s employee stock options have certain characteristics that
are significantly different from traded options, the existing valuation models
may not provide an accurate measure of the fair value of the Company’s employee
stock options. Although the fair value of employee stock options is determined
in accordance with SFAS No. 123(R) using an option-pricing model, that value
may
not be indicative of the fair value observed in a willing buyer/willing seller
market transaction. The calculated compensation cost, net of estimated
forfeitures, is recognized on a straight-line basis over the vesting period
of
the option.
The
Company issues stock options to employees and outside directors whose only
condition for vesting, when applicable, are continued employment or service
during the related vesting period. Typically, vesting is immediate for employee
awards, although awards are sometimes granted with an extended vesting
period.
Concentrations
of Credit Risk
The
Company maintains its cash balances at financial institutions that are insured
by the Federal Deposit Insurance Corporation (“FDIC”) up to $100,000. From time
to time, the Company’s cash balances exceed the amount insured by the FDIC.
Management believes the risk of loss of cash balances in excess of the insured
limit to be low.
For
the
three months ended March 31, 2006 and 2005, the Company’s revenues were
generated from one customer.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Reclassifications
Certain
amounts in the March 31, 2005 financial statements have been reclassified to
conform to the March 31, 2006 presentation. Such reclassification had no effect
on net loss as previously reported.
NOTE
3 -
INVESTMENTS
Langley
On
October 1, 2004, the Company consummated a Stock Purchase Agreement (the
“Langley Agreement”) with Langley Park Investments, PLC (“Langley”), a
corporation organized under the laws of England and Wales. The Langley
shares are traded on the London Stock Exchange (“LSE”). Pursuant to the
Langley Agreement, the Company issued 8,666,666 shares of its common stock
in
exchange for 7,158,590 shares of Langley common stock. The number of
Langley shares issued was based on the Company’s shares having a value of $1.50
per share and the Langley shares having a value of one British Pound Sterling
per share and the conversion rate of the British Pound Sterling to the U.S.
Dollar in effect as of the close of business on the day preceding the closing
date. The Company initially recorded the Langley shares at
$12,973,513. This amount was determined by multiplying the number of
Langley shares issued by the market value of the Langley shares of one British
Pound Sterling and the applicable exchange rate. The Langley Agreement
further provides that of the Langley shares purchased, one half of the shares
(3,579,295) are immediately saleable and the remaining half, to which the
Company has legal title, will be held in an escrow account for a period of
two
years. For financial reporting purposes, the Company considers the
3,579,295 shares held in escrow as shares available for sale.
If,
at
the end of the two-year period, the shares of the Company do not have a market
price greater than or equal to the Company’s original closing price, as defined
in the Langley Agreement, the Company will be required to sell back some or
all
of its Langley shares held in escrow at a nominal price, based on a formula
as
defined in the Langley Agreement. However, if at the end of the two-year
period, the market value of the Company’s common stock exceeds the closing
price, the Langley shares will be released from escrow.
During
the year ended December 31, 2004, the Company sold 2,579,295 of its Langley
trading shares for net proceeds of $1,005,606 and recognized a loss on these
sales of $3,668,850, which was charged to operations. The Company
determined that $4,284,760 of the decline in the value of available-for-sale
investments in 2004 was other than temporary and therefore, included the decline
in 2004 operations as an impairment charge. The Company charged the remaining
$1,167,616 decline in market value of the Langley trading shares that was
considered temporary at December 31, 2004 to other comprehensive
loss.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
3 -
INVESTMENTS, continued
In
2005,
the Company sold its remaining currently saleable shares for $285,516 and
recognized a loss from the sale totaling $3,474. As of December 31, 2005,
the Company recognized an “other-than-temporary” impairment of $1,918,587. At
March 31, 2006, the Company’s common stock closing price was less than the
original closing price as defined in the agreement. Based upon the formula
in the Langley Agreement, the Company would be obligated to offer to sell back
approximately 3,030,000 of the escrow shares to Langley at a nominal price.
The
unrealized loss balance of $108,975 at March 31, 2006 relates to the temporary
decline in the market value of the Langley shares from the adjusted cost basis
of $283,410.
Birchington
In
2005,
the Company entered into two agreements (the “Birchington Agreements”) with
Birchington Investments Limited (“Birchington”), a corporation organized under
the laws of the British Virgin Islands. The Birchington shares are listed,
but not yet traded, on the Dublin Stock Exchange. On April 7, 2005, the
Company entered into an agreement (the “April Birchington Agreement”) to
purchase 8,307,000 shares of Birchington for 5,850,000 shares of its common
stock. Additionally, the Company reserved 1,755,000 shares of its common stock
in escrow (reflected as issued but not outstanding at March 31, 2006 - see
Note
8) as downside price protection, as defined in the April Birchington
Agreement.
On
September 27, 2005, the Company entered into another agreement (the “September
Birchington Agreement”) to purchase 9,606,000 shares of Birchington common stock
for 6,000,000 shares of its common stock. Additionally, the Company
reserved 1,800,000 shares of its common stock in escrow (reflected as issued
but
not outstanding at March 31, 2006 - see Note 8) as downside price protection,
as
defined in the September Birchington Agreement.
The
Company shares are restricted from sale by Birchington for a period of one
year. If the price of the Company’s common stock is below the closing
price (as defined) on the anniversary of the closing date of these transactions,
then Birchington shall be entitled to purchase out of escrow a percentage of
the
escrowed shares equal to the percentage of such decline for a price of $0.01
per
share. Any shares remaining in escrow will then be returned to the
Company. Based on the Company’s closing price at March 31, 2006,
Birchington would be entitled to purchase 3,012,151 shares out of escrow, if
the
requirement existed at March 31, 2006. The Company has bifurcated the downside
price protection feature of the Birchington Agreements and has valued this
feature at its fair value, totaling $662,646 at March 31, 2006. This value
is
recorded as investments derivative liability in current liabilities in the
accompanying consolidated balance sheet, and will be marked to market each
reporting period.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
3 -
INVESTMENTS, continued
The
Company valued the original purchase of the Birchington common shares at $0.20
per share, an 80% discount to the stated value of $1.00 per share. The per
share price was determined by the Company based upon the current
non-marketability of the Birchington shares and its experience with similar
transactions in the past. The Company has reviewed the recorded value of the
Birchington shares for impairment as of March 31, 2006. The Company does not
believe that there has been any permanent impairment to the value of the
Birchington shares as of March 31, 2006.
In
connection with the Birchington Agreements, the Company issued 1,185,000 shares
of its common stock to consultants. These shares were reflected as a dilution
to
the value per share recorded by the Company in the Birchington
transactions.
Mutual
Fund
As
of
March 31, 2006, the Company’s investment in an open-end mutual fund approximated
its cost of $130,392. The Company considers its investment in this account
as being held for trading. During the three months ended March 31, 2006,
the Company sold $174,988 of this investment and recognized a net loss on the
transactions totaling $24, which was charged to operations.
Investments
as of March 31, 2006 are as follows:
|
|
|
Adjusted
|
|
Unrealized
|
|
Fair
|
|
|
|
Cost
|
|
Loss
|
|
Value
|
|
|
|
|
|
|
|
|
Marketable
trading securities
|
$
|
130,392
|
$
|
-
|
$
|
130,392
|
Marketable
available-for-sale securities:
|
|
|
|
|
|
|
|
Langley
|
$
|
283,410
|
$
|
(108,975)
|
$
|
174,435
|
Non-marketable
securities:
|
|
|
|
|
|
|
|
Birchington
|
$
|
3,582,600
|
$
|
-
|
$
|
3,582,600
|
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
4 - LICENSE AGREEMENT
The
Company has entered into a license agreement with the University of Pennsylvania
(the “University”) for the development and marketing of EFS. EFS is
designed to measure electrochemically the state of fatigue damage in a metal
structural member. The Company is in the final stage of developing
EFS.
Under
the
terms of the agreement, the Company issued to the University 13 shares of its
common stock, and a 5% royalty on sales of the product. The Company valued
the license 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 the license agreement, the Company also agreed to sponsor the
development of EFS. Under the sponsorship agreement, the Company agreed to
reimburse the University development costs totaling approximately $200,000,
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 procurement and maintenance of its patents on EFS.
The
Company and the University agreed to modify the terms of the license and
sponsorship agreements and related obligation. The modification of the
license agreement increased the University's royalty to 7% of the sale of
related products and provided for 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 modification, subject to anti-dilution
adjustments. The modification of the sponsorship agreement included paying
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 September 30, 1997, the balance accrued compound interest at
a
rate of 1.5% per month (19.6% effective annual rate) until maturity on December
16, 2001, when the loan balance and accrued interest became fully due and
payable.
In
August
2005, the parties entered into an agreement (the “Workout Agreement”) that again
modified the terms of the Company’s obligation under the sponsorship
agreement. Pursuant to the Workout Agreement, retroactive to January 1,
2005, interest will be charged only on the December 31, 2004 balance of $760,831
(“Remaining Obligation”) at a monthly rate of 0.5% simple interest. The
Company is obligated to pay $25,000 annually due on the anniversary date of
the
Workout Agreement. Further, the Company is also obligated to pay within
ten days following the filing of the Company’s Forms 10-Q or 10-K an amount
equal to 10% of the Company’s net income before extraordinary items and income
taxes as reflected in the quarterly and annual filings. Under the revised
terms of the Workout Agreement, Mr. Bernstein’s, the Company’s president, annual
cash salary is capped at $250,000. The Company agreed to pay the
University an amount equal to any cash salary paid to Mr. Bernstein in excess
of
the $250,000, which will be credited against the Remaining Obligation. In
accordance with the terms of the Workout
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
4 - LICENSE AGREEMENT, continued
Agreement,
the Company issued 4,552,000 shares of its common stock to the University in
September 2005, representing 5.25% of the Company outstanding shares as of
the
date of the Workout Agreement. The University cannot sell the shares for
18 months. The Company valued the shares at $7,738,400, which was charged
to operations to other expense as a modification of its research and development
sponsorship agreement. The shares were valued at their quoted market price
on the date of issuance less a 15% discount for the sales restriction. During
the three months ended March 31, 2006, the Company paid the University the
required annual $25,000 payment.
Interest
expense charged to operations for the three months ended March 31, 2006 and
2005
amounted to $10,705 and $34,237, respectively. The balance of the obligation
(including accrued interest) at March 31, 2006 was $766,890 and is reflected
in
research and development sponsorship payable in the accompanying consolidated
balance sheet. The current portion represents the minimum annual payment under
the Workout Agreement, while the remaining balance is reflected as non-current
as the Company does not expect to be required to make additional payments during
2006.
NOTE
5 - NOTES PAYABLE
On
May
27, 1994, the Company borrowed $25,000 from a shareholder. The loan is evidenced
by a promissory note bearing interest at 6.5 percent. The note is secured by
the
Company’s patents and matured on May 31, 2002. The loan has not been paid and is
now in default. As additional consideration for the loan, the Company granted
to
the shareholder a 1% royalty interest in the Fatigue Fuse and a 0.5% royalty
interest in EFS (see Note 7). The balance due on this loan as of March 31,
2006
was $53,921. Interest charged to operations for both 2006 and 2005 was $406.
In
October 1996, the Company borrowed $25,000 from an unrelated third party. The
loan bears interest at an annual rate of 11% and matured on October 15, 2000.
The Company issued warrants to the lender for the purchase of 25 shares of
the
Company’s common stock at a price of $1.00 per share. The loan balance as of
March 31, 2006 was $25,000. Interest charged to operations on this loan during
the three months ended March 31, 2006 and 2005 was $625 and $688, respectively.
The Company did not pay any principal amounts due on this note when it matured
on October 15, 2000 and the note is in default. In 2004, the Company issued
the
noteholder 25,000 shares of its common stock as additional compensation for
the
failure to pay off the indebtedness. The shares are subject to a three-year
lock
up agreement and were valued at $59,500 and charged to interest expense in
2004.
On
April
28, 2003, the Company borrowed $10,000 from an unrelated third party. The loan
is unsecured, non-interest bearing and due on demand.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
6 - CONVERTIBLE DEBENTURES
Palisades
On
September 23, 2003, the Company entered into a Class A Secured Convertible
Debenture (the “Debentures”) with Palisades Capital, LLC or its registered
assigns (“Palisades”), pursuant to which Palisades agreed to loan the Company up
to $1,500,000. On December 1, 2003, after Palisades had funded $240,000 of
the original Debentures, the Company entered into additional Class A Secured
Convertible Debentures with two additional investors, pursuant to which such
investors would loan the Company up to $650,000 each, and the Company agreed
that Palisades would not make additional advances under the Debentures. As
of March 31, 2006, the Company received a total of $1,125,000 under the
Debentures.
Under
the
Debentures, each holder has the option to convert the principal amount of all
monies loaned under the Debentures, together with accrued interest, into common
stock of the Company at the lesser of (i) 50% of the average ten closing prices
for the Company’s common stock for the ten days immediately preceding the
conversion date or (ii) $0.10 (the lesser of the two being referred to as the
“Conversion Price.”) In addition, the Debentures provide that in the event
the conversion price is less than $0.10 per share when the holder elects to
convert, the Company would have the right, at any time during the 75 days
following the date of the holder’s notice of conversion, to prepay all or a
portion of the Debentures that have been requested to be converted and the
Company would therefore not be required to issue the conversion shares.
Since
the
Debentures allow the holders to convert the outstanding principal amount into
shares of the Company’s common stock at a discount to fair value, the Company
recorded the fair value of the conversion feature of $1,125,000 in 2004. The
amount was recorded as a debt discount and is being amortized as interest
expense over the life of the Debentures. Total interest expense related to
the amortization of the discount during each of the three months ended March
31,
2006 and 2005 was $99,855. There was no change in the fair value of the
conversion feature (included in derivative liabilities) during the three months
ended March 31, 2006 and 2005, respectively.
The
Company’s president entered into a voting agreement and irrevocable proxy, which
provides that as of September 23, 2006, if an event of default (as defined
in
the Debentures) continues for a period of not less than 30 days, all Class
B
common stock which Mr. Bernstein owns of record, or becomes the owner of record
in the future will be voted in accordance with the direction of a third party
named in the Debentures (an affiliate of Palisades) or his designated
successor. This loss of Mr. Bernstein’s voting rights would affect a
change in the voting control of the Company.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
6 - CONVERTIBLE DEBENTURES, continued
The
Debentures bear interest at an annual rate of 10%, are secured by substantially
all assets of the Company and mature on December 31, 2006, when all principal
and accrued interest becomes payable. The balance of the Debenture,
including accrued interest, at March 31, 2006 was $1,084,196 (net of unamortized
discount of $299,565). Interest expense on the Debentures for the three
months ended March 31, 2006 and 2005, excluding amortization of the discount,
was $33,299 and $30,167, respectively.
GGI
To
obtain
funding for ongoing operations, the Company entered into a Securities Purchase
Agreement (the “SPA”) and various amendments to the SPA with Golden Gate
Investors, Inc. (“GGI”) on December 16, 2005 for the sale of (i) $40,000 in
unsecured convertible debentures (the “Notes”) and (ii) warrants to purchase
4,000,000 shares of the Company’s common stock.
The
Notes
bear interest at 5.25% per annum, mature three years from the date of issuance
and are convertible into the number of shares of the Company’s common stock
equal to the dollar amount of the Notes being converted multiplied by 110,
less
the product of the conversion formula multiplied by 100 times the dollar amount
of the Notes being converted, which is divided by the conversion formula. The
conversion formula is the lesser of (i) $0.70, (ii) eighty percent (the
“Discount Multiplier”) of the average of the three lowest volume weighted
average prices during the twenty trading days prior to the conversion or (iii)
eighty percent of the volume weighted average price on the trading day prior
to
the conversion. Accordingly, there is no limit on the number of shares into
which the Notes may be converted. The Company has agreed to register the shares
that may be issued upon conversion of the Notes and exercise of the related
warrants.
Beginning
in the first full calendar month after the registration statement is declared
effective, GGI has agreed to convert at least 5%, but no more than 10% of the
face value of the Notes into shares of the Company’s common stock. If GGI
converts more than 5% of the Notes in any calendar month, the excess over 5%
shall be credited against the subsequent month’s minimum conversion amount. If
GGI fails to convert at least 5% of the face amount of the Notes in any given
calendar month, GGI will not be entitled to collect interest on the Notes for
that month. If the volume weighted average price of the Company’s common stock
is below $0.20, the Company shall have the right to prepay that portion of
the
Notes that GGI is required to convert, plus any accrued but unpaid interest
at
130% of such amount. If at any time during the calendar month, the volume
weighted average price is below $0.10, GGI shall not be obligated to convert
any
portion of the Notes during that month.
Beginning
in the first full month after the registration statement is declared effective,
GGI has agreed to exercise at least 5%, but no more than 10%, of the warrants
per calendar month at an exercise price of $1.09 per share. If GGI exercises
more than 5% of warrants in any calendar month, the excess over 5% shall be
credited against the subsequent month’s minimum exercise amount. If GGI fails to
exercise at least 5% of the warrants in any given calendar month, GGI will
not
be entitled to collect interest on the Notes for that month. The warrants are
exercisable through the maturity date of December 16, 2008.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
6 - CONVERTIBLE DEBENTURES, continued
At
any
time prior to the registration statement being declared effective, GGI may
demand repayment of 130% of the principal amount of the Notes, plus all accrued
and unpaid interest thereon, in cash within 10 days of such demand.
Additionally, the Company will be required to issue and pay to GGI 50,000 shares
of common stock and $15,000 in cash for each 30-day period, or portion thereof,
that the Registration Statement is not effective. The cash payment increases
to
$20,000 for each 30-day period, or portion thereof, after the first 90-day
period.
The
full
principal amount of the Notes is due upon a default under the terms of the
agreement. The Company plans to file a registration statement within 60 days
of
closing, which will include the common stock underlying the Notes and the
warrants. If the registration statement is not declared effective within 120
days from the date of filing, the Company will be required to pay a penalty
to
GGI (see above). In the event the Company breaches any representation or
warranty in the SPA, the Company is required to pay in cash, 130% of the then
outstanding principal balance of the Notes, plus accrued and unpaid interest.
For
a
period of one year after the effective date of the SPA, GGI has agreed to
restrict their ability to convert their Notes or exercise their warrants and
receive shares of the Company’s common stock such that the number of shares of
common stock held by them in the aggregate and their affiliates after such
conversion or exercise does not exceed 9.99% of the then issued and outstanding
shares of common stock.
The
Notes
include certain features that are considered embedded derivative financial
instruments, such as the conversion feature, events of default and a variable
liquidated damages clause. These features are described below, as follows:
· |
The
Notes’ conversion feature is identified as an embedded derivative and has
been bifurcated and recorded on the Company’s balance sheet at its fair
value;
|
· |
The
SPA includes a penalty provision based on any failure to meet registration
requirements for shares issuable under the conversion of the Notes
or
exercise of the warrants, which represents an embedded derivative,
but
such derivative has a de minimus value and has not been recorded
in the
accompanying consolidated financial statements;
and
|
· |
The
SPA contains certain events of default including not having adequate
shares registered to effectuate allowable conversions; in that event,
the
Company is required to pay a conversion default payment at 130% of
the
then outstanding principal balance on the Notes, which is identified
as an
embedded derivative, but such derivative has a de minimus value and
has
not been recorded in the accompanying consolidated financial
statements.
|
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
6 - CONVERTIBLE DEBENTURES, continued
In
conjunction with the Notes, the Company issued warrants to purchase 4,000,000
shares of common stock. The accounting treatment of the derivatives and warrants
requires that the Company record the warrants at their fair values as of the
inception date of the agreement, which totaled $326,600. Subsequent to March
31,
2006, the warrants were cancelled (see Note 11).
The
initial fair value assigned to the embedded derivatives and warrants was
$5,957,188. The Company recorded the first $40,000 of fair value of the
derivatives and warrants to debt discount (equal to the total proceeds received
as of December 31, 2005), which will be amortized to interest expense over
the
term of the Notes. Amortization expense charged to operations during the
three-months ended March 31, 2006 was $4,444.
The
market price of the Company’s common stock significantly impacts the extent to
which the Company may be required or may be permitted to convert the
unrestricted and restricted portions of the Notes into shares of the Company’s
common stock. The lower the market price of the Company’s common stock at the
respective times of conversion, the more shares the Company will need to issue
to convert the principal and interest payments then due on the Notes. If the
market price of the Company’s common stock falls below certain thresholds, the
Company will be unable to convert any such repayments of principal and interest
into equity, and the Company will be forced to make such repayments in cash.
The
Company’s operations could be materially adversely impacted if the Company is
forced to make repeated cash payments on the Notes.
The
balance of the Debenture, including accrued interest, at March 31, 2006 was
$4,588 (net of unamortized discount of $35,556). Interest expense on the
Debentures for the three months ended March 31, 2006 and 2005, excluding
amortization of the discount, was $541 and $0, respectively.
Subsequent
to March 31, 2006, the terms of this agreement were amended (see Note
11).
NOTE
7 - COMMITMENTS AND CONTINGENCIES
Royalties
On
December 24, 1985, to provide funding for research and development of the
Fatigue Fuse, the Company entered into various agreements with the Tensiodyne
1985-I R & D Partnership (the “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
of approximately $912,500 plus accrued interest.
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 sublicense revenue.
The royalty is limited to the $45,000 plus an 11%
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
7 - COMMITMENTS AND CONTINGENCIES, continued
annual
rate of return. At March 31, 2006, the future royalty commitment is
approximately $391,000. The payment of future royalties is secured by equipment
used by the Company in the development of technology as specified in the funding
agreement.
On
May 4,
1987, the Company entered into another 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 sublicense 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 March 31, 2006, the total future royalty commitments,
including the accumulated 26% annual rate of return, were approximately
$6,541,000. 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 that are related to the technology developed with the
funding.
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 shares of its common stock to Variety, Variety reduced
its
royalty interest to 20%. In 1998, in exchange for the Company issuing 733 shares
of its common stock to Variety, Variety reduced its royalty interest to
5%.
As
discussed in Note 5, the Company granted a 1% royalty interest in the Company's
Fatigue Fuse and a 0.5% royalty interest in EFS to a shareholder as partial
consideration on a $25,000 loan made by the shareholder to the
Company.
A
summary
of royalty interests that the Company has granted and are outstanding as of
March 31, 2006 follows:
|
Fatigue
Fuse
|
EFS
|
Tensiodyne
1985-1 R&D Partnership
|
10.00%
*
|
-
|
Advanced
Technology Center:
|
|
|
Future
gross sales
|
6.00%
*
|
-
|
Sublicensing
fees
|
12.00%
**
|
-
|
Variety
Investments, Ltd.
|
5.00%
|
-
|
University
of Pennsylvania (see Note 7)
|
|
|
Net
sales of licensed products
|
-
|
7.00%
|
Net
sales of services
|
-
|
2.50%
|
Shareholder
|
1.00%
|
0.50%
|
* Royalties
limited to specific rates of return as discussed above.
** The
Company granted 12% royalties on sales from sublicense. These royalties are
also
limited to specific rates of return as discussed above.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
7 - COMMITMENTS AND CONTINGENCIES, continued
Through
March 31, 2006, the Company owes no royalties under any agreements, as sales
of
the products have not yet begun.
Litigation
In
July
2002, the Company settled its pending lawsuit related to a contract dispute
with
Mr. Stephen Beck. During the three-months ended March 31, 2006, the
Company issued Mr. Beck 1,203,084 of its common stock related to ongoing
negotiations with Mr. Beck. The value of the shares issued to Mr. Beck during
the quarter ended March 31, 2006, was $173,244 and has been included in general
and administrative expenses in the accompanying statement of
operations.
In
March
2006, Mr. Beck filed a lawsuit against the Company. Mr. Beck alleges breach
of
contract and seeks approximately $135,000 in damages, plus the issuance of
3,896,620 shares of the Company’s Class A common stock to which he believes he
is entitled, plus interest. The Company has only recently been served with
the
lawsuit and does not have an opinion as to its validity at this
time.
The
Company has been named as a defendant in a lawsuit alleging breach of contract
due to the Company’s failure to pay certain amounts due to a consultant for
services. The Company asserts that the contract was unenforceable due to a
number of factors. Legal counsel has advised the Company that it is premature
to
estimate the outcome or the range of damages that may occur if the case is
not
settled in the Company’s favor.
In
the
ordinary course of business, The Company may be from time to time involved
in
various other pending or threatened legal actions. The litigation process is
inherently uncertain and it is possible that the resolution of such matters
might have a material adverse effect upon our financial condition and/or results
of operations. However, in the opinion of management, matters currently pending
or threatened against us are not expected to have a material adverse effect
on
the Company’s financial position or results of operations.
Indemnities
and Guarantees
During
the normal course of business, the Company has made certain indemnities and
guarantees under which it may be required to make payments in relation to
certain transactions. These indemnities include certain agreements with
the Company’s officers under which the Company may be required to indemnify such
person for liabilities arising out of their employment relationship. They also
include indemnities made to the holders of the convertible debentures and the
sellers of investments in securities. The duration of these indemnities
and guarantees varies, and in certain cases, is indefinite. The majority
of these indemnities and guarantees do not provide for any limitation of the
maximum potential future payments the Company would be obligated to make.
Historically, the Company has not been obligated to make significant payments
for these obligations and no liability has been recorded for these indemnities
and guarantees in the accompanying consolidated balance sheet.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
8 -
STOCKHOLDERS' DEFICIT
Class
A Preferred Stock
The
holders of the Class A convertible preferred stock have a liquidation preference
of $720 per share. Such amounts shall be paid on all outstanding Class A
preferred 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 $0.72 ("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.
Class
B Preferred Stock
The
Company has designated 15 shares of Class B preferred stock, of which no shares
have been issued. The holders of Class B preferred shares are entitled to
a liquidation preference of $10,000 per share. Such amounts shall be paid
on all outstanding Class B preferred shares before any payment shall be made
or
any assets distributed to the holders of common stock or of any other stock
of
any series or class junior to the shares as to dividends or assets, but junior
to Class A preferred shareholders. Holders of Class B preferred shares are
not entitled to any liquidation distributions in excess of $10,000 per
share.
The
shares are redeemable by the holder or the Company at $10,000 per share.
The holders of these shares shall have the right to vote at one vote per Class
B
preferred share and shall participate in all common stock dividends declared
and
paid according to a formula as defined in the series designation.
Class
C Preferred Stock
Each
shareholder of Class C preferred stock is entitled to receive a cumulative
dividend of 8% per annum for a period of two years. Dividends do not
accrue or are payable except out of earnings before interest, taxes,
depreciation and amortization. At December 31, 2005, no dividends are
payable to Class C preferred shareholders. Holders of the Class C
preferred stock are junior to holders of the Company’s Class A and B preferred
stock, but hold a higher position than common shareholders in terms of
liquidation rights. Holders of Class C preferred stock have no voting
rights. Holders of Class C preferred stock have the right to convert their
shares to common stock on a one-to-one basis.
The
Company requires an approval of at least two-thirds of the holders of Class
C
preferred shareholders to alter or change their rights or privileges by way
of a
reverse stock split, reclassification, merger, consolidation or otherwise,
so as
to adversely affect the manner by which the shares of Class C preferred stock
are converted into common shares.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
8 -
STOCKHOLDERS' DEFICIT, continued
Class
D Preferred Stock
Holders
of Class D preferred stock have a $0.001 liquidation preference, no voting
rights and are junior to holders of all classes of preferred stock but senior
to
common shareholders in terms of liquidation rights. Class D preferred
stockholders are entitled to dividends as declared by the Company’s Board of
Directors, which have not been declared as of December 31, 2005. Each
share of Class D preferred stock is convertible at the holder’s option into one
share of the Company’s common stock.
During
2005, 500,000 shares of Class D preferred stock were converted into 500,000
shares of the Company’s common stock.
During
the three months ended March 31, 2006, the Company converted the remaining
1,420,000 Class D preferred shares outstanding into 1,420,000 shares of the
Company’s Class A common stock.
Class
A Common Stock
The
holders of the Company's Class A common stock are entitled to one vote per
share
of common stock held.
During
the three months ended March 31, 2006, the Company issued 4,966,138 shares
of
its common stock for cash proceeds of $146,821, issued 4,000,000 shares of
its
common stock in to a consultant in consideration for promissory notes totaling
$200,000, and repurchased 62,000 shares of its common stock in the public market
for $8,623. It is the Company’s intention to cancel the 62,000 shares of common
stock repurchased during 2006.
The
promissory notes issued during 2006 are due in one year and are assessed
interest at an annual rate of 6%. During the three months ended March 31, 2006,
the Company received $34,142 of which $120, was applied to accrued interest.
In
July
2005, the Company entered into a Regulation S stock purchase agreement (the
“Ischian Agreement”) with Ischian Holdings, Ltd. (“Ischian”), a British Virgin
Islands company. Pursuant to teh Ischian Agreement, Ischian was able to purchase
up to 8.5 million shares of the Company’s common stock through November 2005 at
a stated discount to the bid price of the Company’s common stock. The shares
purchased under the terms of the Ischian Agreement have a one-year restriction
on resale within the United States. A commission of 15 percent of the net
proceeds from the sale of the Company’s common stock to Ischian, collectively,
will be paid to two consultants. During the quarter ended March 31, 2006, the
Company issued to Ischian a total of 3,691,339 shares of common stock. Of these
shares, 3,506,148 shares were issued for not additional consideration to reduce
the average per share price paid by this investor pursuant to the agreement.
The
remaining 185,191 shares were issued for cash consideration of
$17,684.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
8 -
STOCKHOLDERS' DEFICIT, continued
From
time
to time, the Company issues its common shares and holds the shares in escrow
on
behalf of another party until consummation of certain transactions. The
following is a reconciliation of shares issued and outstanding as of March
31,
2006:
Issued
shares
|
|
|
235,710,445
|
|
Less
shares held in escrow:
|
|
|
|
|
Shares
held in
escrow as downside price protection on the investment in Birchington
(see
Note 3)
|
|
|
(3,555,000
|
)
|
Shares
held as
collateral for contemplated debt financings
|
|
|
(61,864,114
|
)
|
Other
|
|
|
(843
|
)
|
|
|
|
(66,444,734
|
)
|
Outstanding
shares
|
|
|
170,290,488
|
|
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 2,000 votes for each
share of Class B common stock held.
Common
Shares Issued for Non Cash Consideration
The
value
assigned to shares issued for services were charged to operations in the period
issued.
2006
On
January 10, 2006, the Company issued 1,476,000 shares of its common stock to
three consultants for services valued at $236,200. On January 16, 2006, the
Company issued 250,000 shares of its common stock to a consultant for services
valued at $40,000. On January 25, 2006, the Company issued 4,000,000 shares
of
its common stock to a consultant for services valued at $512,000. On January
25,
2006, the Company issued 1,420,000 shares of its common stock in exchange for
the cancellation of 1,420,000 shares of Class D preferred stock. On February
1,
2006, the Company issued 1,000,000 shares of its common stock to a consultant
for services valued at $120,000. On February 8, 2006, the Company issued 500,000
shares to one of its advisors in connection to the development of its products
valued at $36,000. On February 8, 2006, the Company issued 600,000 shares of
its
common stock to a consultant for services valued at $72,000. On February 13,
2006, the Company issued 1,203,084 shares of its common stock to Mr. Stephen
Beck in connection with his lawsuit valued at $173,244 (see Note 7). On February
22, 2006, the Company issued 50,000 shares of its common stock for clerical
services valued at $5,600. On February 23, 2006, the Company issued 700,000
shares of its common stock to its attorney for services valued at $72,800.
On
March 1, 2006, the Company issued 50,000 shares of its common stock to a
consultant for services valued at $5,600. On March 14, 2006, the Company issued
3,900,000 shares
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
8 -
STOCKHOLDERS' DEFICIT, continued
valued
at
$343,200 and charged them to consultant expense. On March 23, 2006, the Company
issued 2,000,000 shares of its common stock to a consultant for services
rendered valued at $336,000. All common shares issued above for services
rendered are subject to a two year lockup agreement and were valued at 80%
of
the market price of the Company’s common stock on the respective date of
issuance. On March 29, 2006, 160,000 shares that were originally issued were
returned to the Company, as they were issued in error.
2005
On
January 14, 2005, the Company issued 500,000 shares through the conversion
of
500,000 shares of its Series D preferred stock. On February 7, 2005, the
Company issued 400,000 shares for consulting services. These shares are
subject to a 30-month lock-up agreement and were valued at $555,000. On
March 11, 2005, the Company issued 75,750 shares for consulting services.
These shares are subject to a two-year lock-up agreement and were valued at
$90,000. On March 24, 2005, the Company issued 500,000 shares for
consulting services. The shares are subject to a two-year lockup and were valued
at $580,000.
NOTE
9 - RELATED PARTY TRANSACTIONS
During
2003, the Company issued 5,000,000 shares of its common stock to the Company’s
president in consideration for a promissory note. The value assigned to shares
and the related promissory note was discounted for illiquidity and restrictions
on resale amounting to $50,000. The note bears interest at an annual rate of
6%
and matures on September 26, 2006, when the $50,000 plus accrued interest
becomes fully due. The balance of the note as of March 31, 2006 was $60,082.
Interest of $997 and $997 was credited to operations during the three months
ended March 31, 2006 and 2005, respectively.
As
of
March 31, 2006, the Company was owed $2,206 from its President. The loan is
assessed interest at an annual rate of 10%. Interest credited to operations
relating to this loan during the three months ended March 31, 2006 and 2005
amounted to $53 and $48, respectively.
NOTE
10 - STOCK-BASED COMPENSATION PLANS
Stock
Options
The
Company has three stock option plans: The 1998 Stock Plan (“the 1998 Plan”), the
2002 Stock Issuance/Stock Plan (“the 2002 Plan”) and the 2003 Stock Option, SAR
and Stock Bonus Consultant Plan (“the 2003 Plan”).
In
September 1998, the Company adopted the 1998 Plan and reserved 800,000 shares
of
its common stock for grant under the plan. Eligible participants include
employees, advisors, consultants and officers who provide services to the
Company. The option price is 100% of the fair market value of a share of common
stock at either the date of grant or such other day as the as the Board may
determine. The plan expires upon the earlier of all reserved shares being
granted or September 10, 2008.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
10 - STOCK-BASED COMPENSATION PLANS, continued
In
February 2002, the Company adopted the 2002 Plan and reserved 20,000,000 shares
of its common stock for grant under the plan. Eligible plan participants include
employees, advisors, consultants and officers who provide services to the
Company. The option price is 100% of the fair market value of a share of common
stock at either the date of grant or such other day as the Board may determine.
The plan expires upon the earlier of all reserved shares being awarded or
December 31, 2007.
In
September 2003, the Company adopted the 2003 Plan and reserved and 10,000,000
shares of its common stock for grant. Eligible plan participants include
independent consultants. The option price shall be no less than 85% of the
fair
market value of a share of common stock at date of grant. The plan expires
upon
the earlier of all reserved shares being granted or September 23, 2006.
The
Company also has agreements with two consultants whereby the Company will grant
options to purchase shares of its common stock upon the Company increasing
its
annual revenue by $5 million in any fiscal year over its revenues in 2002.
The
collective number of shares to be issued will give the two consultants a fifteen
percent interest in the outstanding shares of the Company’s common stock. No
grants have been made pursuant to these agreements as the Company has not
achieved the required revenues. There was no activity in any of the Company’s
stock option plans in 2006 or 2005 and no options were outstanding as of March
31, 2006.
Stock
Warrants
At
March
31, 2006, the Company’s only outstanding warrants are the 4,000,000 warrants
associated with GGI (see Note 6). The warrants were cancelled subsequent to
March 31, 2006 (see Note 11).
NOTE
11 -
SUBSEQUENT EVENTS
On
April
6, 2006, the Company borrowed $285,882 from two shareholders. The loans bear
interest at an annual rate of 6% and accrued interest and principal are due
on
April 6, 2007. The Company, at its sole discretion, may repay the loans and
accrued interest through the issuance of 7,650,000 shares of its common stock.
The shareholders further agreed to loan the Company additional amounts they
receive from the private sale of their common stock.
In
May
2006, the Company entered into an addendum to the GGI Notes (see Note 6). Per
the terms of the agreement, the debenture amount has been increased from $40,000
to $1,000,000, and upon notification that the registration statement for the
Conversion Shares (as defined in the agreement) has been filed with the SEC,
GGI
shall advance the Company an additional $100,000. Additionally, upon the
effective registration of the underlying shares, the Company shall issue
20,000,000 registered shares to be held in escrow and GGI shall transfer the
Company the remaining balance. The agreement modified the terms of the
conversion as follows:
· |
the
number of shares into which the Notes maybe converted is equal to
the
dollar amount of the Notes being converted divided by the conversion
formula;
|
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Three Months Ended March 31, 2006 and 2005
NOTE
11 -
SUBSEQUENT EVENTS, continued
· |
eliminates
the provision that if the volume weighted average price is less than
$0.10
that GGI shall not be obligated to convert any portion of the Notes
during
that month;
|
· |
if
GGI elects to convert a portion of the Notes and, on the day that
the
election is made, the volume weighted average price is below the
lesser of
: (i) $0.05, or (ii) the lowest price at which any of the 20,000,000
additional shares are issued or sold, the Company shall have the
option to
do one of the following: (a) redeem that portion of the Notes that
GGI
elected to convert, plus any accrued and unpaid interest, at 108%
of such
amount, or (b) increase the discount multiplier to 99% on that portion
of
Notes that GGI elected to convert, or (c) one time during any six
month
period, not permit any Notes conversion by GGI for a period of 60
days;
and
|
· |
If
GGI elects to convert a portion of the Notes and, on that day the
election
is made, the volume weighted average price is $0.32 or higher, the
Discount Multiplier shall be 72%.
|
The
original 4,000,000 warrants issued have been cancelled. Also, beginning in
the
first full calendar month after the registration of the underlying shares is
declared effective, GGI must convert at least 10%, but no more than 40%, of
the
face value of the Notes per calendar month into common shares of the Company,
provided that the common shares are available, registered and freely tradeable.
The Company may reduce the monthly maximum figure from 40% to 6% for any three
calendar months (but not two consecutive calendar months) during the term of
Notes by giving written notice at least 10 business days prior to the first
applicable month. GGI and the Company shall enter into three additional
$1,000,000 convertible debentures, each with the same terms as above. The
agreement also allows the Company to register up to an additional 20,000,000
shares for sale or issuance to parties other than GGI in the registration
statement.
As
a
result of the modification of the debt, the Company will recognize a gain or
loss on the debt extinguishment for the difference between the fair value of
the
Notes and warrant and derivative liabilities immediately before the modification
and after the modification.
In
April
2006, the Company issued a total of 5,695,901 shares of common stock for cash
consideration of approximately $230,000, 4,000,000 shares of common stock for
a
note receivable valued at $200,000, and 1,000,000 shares of common stock for
services rendered, valued at $184,000.
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors and Stockholders
Material
Technologies, Inc.
We
have
audited the accompanying consolidated balance sheet of Material Technologies,
Inc. (a development stage company) (the “Company”) as of December 31, 2005, and
the related consolidated statements of operations, comprehensive loss,
stockholders’ deficit and cash flows for each of the years in the two-year
period then ended. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We
did
not audit the cumulative data from October 21, 1983 (inception) to December
31,
2003 in the consolidated statements of operations, comprehensive loss,
stockholders’ deficit and cash flows, which were audited by other auditors whose
reports dated March 7, 2003 and March 16, 2004, which expressed unqualified
opinions (the March 16, 2004 report was modified related to the uncertainty
of
the Company’s ability to continue as a going concern) have been furnished to us.
Our opinion, insofar as it relates to the amounts included for the cumulative
period from October 21, 1983 (inception) to December 31, 2003 is based solely
on
the reports of the other auditors.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, audits of its internal control
over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinions. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, based on our audits and the reports of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Material Technologies, Inc. (a
development stage company) as of December 31, 2005 and the results of its
operations and its cash flows for each of the years in the two-year period
then
ended and for the period from October 21, 1983 (inception) through December
31,
2005 in conformity with accounting principles generally accepted in the United
States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has incurred recurring losses and has yet to be
successful in establishing profitable operations. These factors, among others,
raise substantial doubt about its ability to continue as a going concern.
Management’s plans regarding those matters are also described in Note 1. The
financial statements do not include any adjustments that might result from
the
outcome of this uncertainty.
CORBIN
& COMPANY, LLP
Irvine,
California
January
31, 2006
|
(A Development Stage
Company)
|
|
|
|
|
CONSOLIDATED BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
2005
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
Current
assets: |
|
|
Cash
and cash equivalents |
$
|
47,345
|
Investments
in marketable securities held for trading |
|
302,841
|
Investments
in marketable securities available for sale |
|
162,193
|
Receivable
due on research contracts |
|
70,825
|
Prepaid
services |
|
306,250
|
Prepaid
expenses and other current assets |
|
2,153
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
891,607
|
|
|
|
|
Investments
in non-marketable securities |
|
3,582,600
|
Property
and equipment, net |
|
10,900
|
Intangible
assets, net |
|
5,772
|
Deposit |
|
2,348
|
|
|
|
|
|
|
|
|
|
|
$
|
4,493,227
|
|
|
|
=============
|
|
(A Development Stage
Company)
|
|
|
|
CONSOLIDATED BALANCE SHEET
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
2005
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
DEFICIT |
|
|
|
|
|
Current
liabilities: |
|
|
Accounts
payable and accrued expenses |
$
|
279,889
|
Current
portion of research and development sponsorship payable |
|
25,000
|
Notes
payable |
|
88,515
|
Investments
deriviative liability |
|
585,735
|
Convertible
debentures and accrued interest payable, net of discount |
|
|
of
$399,420 |
|
951,043
|
|
|
|
|
|
|
Total
current liabilities |
|
1,930,182
|
|
|
|
Research and
development sponsorship payable, net of current portion |
|
756,185
|
Convertible
debentures and accrued interest payable, net of discount |
|
|
of
$40,000 |
|
-
|
Derivative and
warrant liabilities |
|
7,082,188
|
|
|
|
|
|
|
Total
liabilities |
|
9,768,555
|
|
|
|
|
|
|
Minority interest in
consolidated subsidiary |
|
825
|
|
|
|
|
|
|
Commitments and
contingencies |
|
|
|
|
|
Stockholders'
deficit: |
|
|
Class
A preferred stock , $0.001 par value, liquidation preference |
|
|
of
$720 per share; 350,000 shares authorized; 337 shares issued |
|
|
and
outstanding |
|
-
|
Class
B preferred stock , $0.001 par value, liquidation preference of |
|
|
$10,000
per share; 15 shares authorized; none issued and |
|
|
outstanding |
|
-
|
Class
C preferred stock , $0.001 par value, liquidation preference of |
|
|
$0.001
per share; 25,000,000 shares authorized; 1,517 shares issued |
|
|
and
outstanding |
|
1
|
Class
D preferred stock , $0.001 par value, liquidation preference of |
|
|
$0.001
per share; 20,000,000 shares authorized; 1,420,000 shares |
|
|
issued
and outstanding |
|
1,420
|
Class
A common stock, $0.001 par value, 1,699,400,000 shares |
|
|
authorized;
184,199,770 shares issued; 140,643,927 shares outstanding |
|
|
(including
30,135,172 shares committed but not issued) |
|
140,644
|
Class
B common stock, $0.001 par value, 600,000 shares authorized, |
|
|
issued
and outstanding |
|
600
|
Warrants
subscribed |
|
10,000
|
Additional
paid-in-capital |
|
55,561,366
|
Deficit
accumulated during the development stage |
|
(60,783,746)
|
Note
receivable - common stock |
|
(59,085)
|
Treasury
stock (76,800 shares at cost) |
|
(26,136)
|
Accumulated
other comprehensive loss |
|
(121,217)
|
|
|
|
|
|
|
Total stockholders' deficit |
|
(5,276,153)
|
|
|
|
|
|
|
|
$
|
4,493,227
|
|
|
=============
|
See report of independent registered public accounting firm
and
accompanying notes to the consolidated financial statements
F-33
MATERIAL
TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
From October 21, 1983
|
|
|
|
For the Year Ended
|
|
(Inception)
|
|
|
|
December
31,
|
|
through
|
|
|
|
2005
|
|
2004
|
|
December 31,
2005
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
Research and
development revenue |
$
|
139,346
|
$
|
146,932
|
$
|
5,352,639
|
Other |
|
|
-
|
|
-
|
|
274,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
139,346
|
|
146,932
|
|
5,626,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
Research and development |
|
|
2,364,059
|
|
7,605,747
|
|
15,229,886
|
General and administrative |
|
|
1,801,928
|
|
8,010,423
|
|
23,798,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and
expenses |
|
|
4,165,987
|
|
15,616,170
|
|
39,028,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations |
|
|
(4,026,641)
|
|
(15,469,238)
|
|
(33,401,352)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
Modification
of
research and
development sponsorship
agreement |
|
(7,738,400)
|
|
-
|
|
(7,738,400)
|
Interest expense |
|
|
(6,493,345)
|
|
(605,980)
|
|
(7,740,548)
|
Other-than-temporary impairment of marketable |
|
|
|
|
|
|
securities
available for sale |
|
|
(1,918,587)
|
|
(4,284,760)
|
|
(6,203,347)
|
Realized loss
on
sale of marketable securities |
|
(3,589)
|
|
(3,668,850)
|
|
(3,672,439)
|
Unrealized loss
on
decrease in market value of |
|
|
|
|
|
|
securities held
for trading |
|
|
-
|
|
(1,523,310)
|
|
(1,523,310)
|
Change in fair
value of investments derivative liability |
|
(585,735)
|
|
-
|
|
(585,735)
|
Interest income |
|
|
17,837
|
|
12,497
|
|
372,575
|
Gain (loss)
on
settlement of indebtedness |
|
-
|
|
45,150
|
|
(244,790)
|
Other |
|
|
-
|
|
-
|
|
(33,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense,
net |
|
|
(16,721,819)
|
|
(10,025,253)
|
|
(27,368,994)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before
provision for
income taxes |
|
(20,748,460)
|
|
(25,494,491)
|
|
(60,770,346)
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
(800)
|
|
(800)
|
|
(13,400)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
$
|
(20,749,260)
|
$
|
(25,495,291)
|
$
|
(60,783,746)
|
|
|
|
============ |
|
============ |
|
================= |
|
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
|
Basic and diluted
net loss per share |
$
|
(0.20)
|
$
|
(0.35)
|
|
|
|
|
|
============ |
|
============ |
|
|
Weighted average
Class A common shares |
|
|
|
|
|
|
outstanding - basic and diluted |
|
103,528,817
|
|
72,472,662
|
|
|
|
|
|
============
|
|
============
|
|
|
See report of independent registered public accounting firm
and
accompanying notes to the consolidated financial statements
F-34
MATERIAL TECHNOLOGIES, INC.
(A Development Stage
Company)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
LOSS
|
|
|
|
|
|
|
From October 21, 1983
|
|
|
|
|
For the Year Ended
|
|
|
(Inception)
|
|
|
|
|
December 31,
|
|
|
Through
|
|
|
|
2005
|
|
2004
|
|
December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
$
|
(20,749,260)
|
$
|
(25,495,291)
|
$
|
(60,783,746)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss: |
|
|
|
|
|
|
|
Temporary decrease in market value of |
|
|
|
|
|
|
|
securities available for sale |
|
(872,188)
|
|
(5,452,376)
|
|
(6,324,564)
|
|
Reclassification to other-than-temporary |
|
|
|
|
|
|
|
impairment of marketable securities |
|
|
|
|
|
|
|
available for sale |
|
1,918,587
|
|
4,284,760
|
|
6,203,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,046,399
|
|
(1,167,616)
|
|
(121,217)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net comprehensive loss |
$
|
(19,702,861)
|
$
|
(26,662,907)
|
$
|
(60,904,963)
|
|
|
|
===========
|
|
===========
|
|
=================
|
See report of independent registered public accounting firm
and
accompanying notes to the consolidated financial statements
F-35
MATERIAL TECHNOLOGIES, INC.
(A Development Stage
Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
|
Class A Preferred Stock
|
|
Class B Preferred Stock
|
|
Class C Preferred Stock
|
|
Class D Preferred Stock
|
|
Class A Common Stock
|
|
Class B Common Stock
|
|
Warrants Subscribed
|
|
Additional Paid-in Capital
|
|
Deficit Accumulated During
the Development Stage
|
|
Notes Receivable- Common Stock
|
|
Treasury Stock
|
|
Accumulated Other Comprehensive Loss
|
|
Total Stockholders' Equity
(Deficit)
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Shares
|
|
Amount
|
|
|
Initial issuance of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 21, 1983 |
-
|
$
|
-
|
|
-
|
$
|
-
|
|
-
|
$
|
-
|
|
-
|
$
|
-
|
|
2
|
$
|
-
|
|
-
|
$
|
-
|
$
|
-
|
$
|
2,500
|
$
|
-
|
$
|
-
|
|
-
|
$
|
-
|
$
|
-
|
$
|
2,500
|
Adjustment to give effect to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recapitailization on December 15, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1986 - cancellation of shares |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(2)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(4)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(4)
|
Balance, October 21, 1983 |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2,496
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued by Tensiodyne |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation in connection with |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pooling of interests |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
42
|
|
-
|
|
-
|
|
-
|
|
-
|
|
4,342
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
4,342
|
Net loss |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(4,317)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(4,317)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 1983 |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
42
|
|
-
|
|
-
|
|
-
|
|
-
|
|
6,838
|
|
(4,317)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contribution |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
21,755
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
21,755
|
Shares issued for cash |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
5
|
|
-
|
|
-
|
|
-
|
|
-
|
|
10,700
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
10,700
|
Offering costs |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(2,849)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(2,849)
|
Net loss |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(21,797)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(21,797)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 1984 |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
47
|
|
-
|
|
-
|
|
-
|
|
-
|
|
36,444
|
|
(26,114)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
10,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital contribution |
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of 12,166 warrants at $1.50 |
|
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
200,555
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
200,555
|
per warrant |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
18,250
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
18,250
|
Cancellation of shares |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(9)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Net loss |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(252,070)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(252,070)
|
Balance, December 31, 1985 |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
38
|
|
-
|
|
-
|
|
-
|
|
-
|
|
255,249
|
|
(278,184)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(22,935)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(10,365)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(10,365)
|
Balance, December 31, 1986 |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
38
|
|
-
|
|
-
|
|
-
|
|
-
|
|
255,249
|
|
(288,549)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(33,300)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock upon |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercise of warrants |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
27,082
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
27,082
|
Net loss |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(45,389)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(45,389)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 1987 |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
38
|
|
-
|
|
-
|
|
-
|
|
-
|
|
282,331
|
|
(333,938)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(51,607)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
3
|
|
-
|
|
-
|
|
-
|
|
-
|
|
101,752
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
101,752
|
Shares issued as compensation |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
3
|
|
-
|
|
-
|
|
-
|
|
-
|
|
70,600
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
70,600
|
Net loss |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(142,335)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(142,335)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 1988 |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
44
|
|
-
|
|
-
|
|
-
|
|
-
|
|
454,683
|
|
(476,273)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(21,590)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
4
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2,000
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2,000
|
Shares issued as compensation |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
36
|
|
-
|
|
-
|
|
-
|
|
-
|
|
18,000
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
18,000
|
Net loss |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(31,945)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(31,945)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 1989 |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
84
|
|
-
|
|
-
|
|
-
|
|
-
|
|
474,683
|
|
(508,218)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(33,535)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2
|
|
-
|
|
-
|
|
-
|
|
-
|
|
59,250
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
59,250
|
Shares issued as compensation |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
6
|
|
-
|
|
-
|
|
-
|
|
-
|
|
32,400
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
32,400
|
Net income |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
133,894
|
|
-
|
|
-
|
|
-
|
|
-
|
|
133,894
|
Balance, December 31, 1990 |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
92
|
|
-
|
|
-
|
|
-
|
|
-
|
|
566,333
|
|
(374,324)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
192,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash |
350
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1
|
|
-
|
|
-
|
|
-
|
|
-
|
|
273,686
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
273,686
|
Shares issued as compensation |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
4
|
|
-
|
|
-
|
|
-
|
|
-
|
|
64,884
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
64,884
|
Conversion of stock |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(6)
|
|
-
|
|
60,000
|
|
60
|
|
-
|
|
(6)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
54
|
Net loss |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(346,316)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(346,316)
|
Balance, December 31, 1991 |
350
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
91
|
|
-
|
|
60,000
|
|
60
|
|
-
|
|
904,897
|
|
(720,640)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
184,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
20
|
|
-
|
|
-
|
|
-
|
|
-
|
|
16,000
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
16,000
|
Shares issued as compensation |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
5
|
|
-
|
|
-
|
|
-
|
|
-
|
|
15,520
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
15,520
|
Conversion of warrants |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
6
|
|
-
|
|
-
|
|
-
|
|
-
|
|
15,000
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
15,000
|
See report of independent registered public accounting firm
and notes to
the consolidated financial statements.
F-36
MATERIAL TECHNOLOGIES, INC.
(A Development Stage
Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
|
Class A Preferred Stock
|
|
Class B Preferred Stock
|
|
Class C Preferred Stock
|
|
Class D Preferred Stock
|
|
Class A Common Stock
|
|
Class B Common Stock
|
|
Warrants Subscribed
|
|
Additional Paid-in Capital
|
|
Deficit Accumulated During
the Development Stage
|
|
Notes Receivable- Common Stock
|
|
Treasury Stock
|
|
Accumulated Other Comprehensive Loss
|
|
Total Stockholders' Equity
(Deficit)
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Shares
|
|
Amount
|
|
|
Sale of Class B common stock |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
60,000
|
|
-
|
|
-
|
|
14,940
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
14,940
|
Issuance of stock to |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
unconsolidated subsidiary |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
5
|
|
-
|
|
-
|
|
-
|
|
-
|
|
71,664
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
71,664
|
Conversion of stock |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
6
|
|
-
|
|
(60,000)
|
|
-
|
|
-
|
|
6
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
6
|
Cancellation of shares |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(7)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Net loss |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(154,986)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(154,986)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 1992 |
350
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
126
|
|
-
|
|
60,000
|
|
60
|
|
-
|
|
1,038,027
|
|
(875,626)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
162,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
-
|
Shares issued for license agreement |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
13
|
|
-
|
|
-
|
|
-
|
|
-
|
|
6,250
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
6,250
|
Shares issued as compensation |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
67
|
|
-
|
|
-
|
|
-
|
|
-
|
|
13,913
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
13,913
|
Warrant conversion |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
56
|
|
-
|
|
-
|
|
-
|
|
-
|
|
304,999
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
304,999
|
Cancellation of shares |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(32)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(7,569)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(7,569)
|
Net loss |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(929,900)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(929,900)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 1993 |
350
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
230
|
|
-
|
|
60,000
|
|
60
|
|
-
|
|
1,355,620
|
|
(1,805,526)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(449,846)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to give effect to |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recapitalization on February 1, 1994 |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
31
|
|
-
|
|
-
|
|
-
|
|
-
|
|
385,424
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
385,424
|
Shares issued for cash |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,486
|
|
2
|
|
-
|
|
-
|
|
-
|
|
24,784
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
24,786
|
Shares issued as compensation |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
223
|
|
-
|
|
-
|
|
-
|
|
-
|
|
223
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
223
|
Issuance of shares for the |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
modification of agreements |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
34
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Net loss |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(377,063)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(377,063)
|
Balance, December 31, 1994 |
350
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2,004
|
|
2
|
|
60,000
|
|
60
|
|
-
|
|
1,766,051
|
|
(2,182,589)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(416,476)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for the |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
modification of agreements |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
153
|
|
|
|
-
|
|
-
|
|
-
|
|
153
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
153
|
Net loss |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(197,546)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(197,546)
|
Balance, December 31, 1995 |
350
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2,157
|
|
2
|
|
60,000
|
|
60
|
|
-
|
|
1,766,204
|
|
(2,380,135)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(613,869)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued as compensation |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
165
|
|
-
|
|
-
|
|
-
|
|
-
|
|
16,466
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
16,466
|
Shares issued for cash |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
70
|
|
-
|
|
-
|
|
-
|
|
-
|
|
174,040
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
174,040
|
Issuance of shares for the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
modification of agreements |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
250
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Cancellation of shares held in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
treasury |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(62)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(154,600)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(154,600)
|
Net loss |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(450,734)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(450,734)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 1996 |
350
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2,580
|
|
2
|
|
60,000
|
|
60
|
|
-
|
|
1,802,110
|
|
(2,830,869)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(1,028,697)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
100
|
|
-
|
|
-
|
|
-
|
|
-
|
|
100,000
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
100,000
|
Conversion of indebtedness |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
800
|
|
1
|
|
-
|
|
-
|
|
-
|
|
165,999
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
166,000
|
Class A common stock issued for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cancellation of $372,000 accrued |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
wages due officer |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,500
|
|
2
|
|
-
|
|
-
|
|
-
|
|
371,998
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
372,000
|
Shares issued as compensation |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
247
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2,471
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2,471
|
Adjustment to give effect to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recapitalization on March 9, 1997 |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
560
|
|
1
|
|
-
|
|
-
|
|
-
|
|
(1)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Net loss |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(133,578)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(133,578)
|
Balance, December 31, 1997 |
350
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
5,787
|
|
6
|
|
60,000
|
|
60
|
|
-
|
|
2,442,577
|
|
(2,964,447)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(521,804)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cancellation of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
indebtedness |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2,430
|
|
2
|
|
-
|
|
-
|
|
-
|
|
169,998
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
170,000
|
Conversion of options |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
500
|
|
1
|
|
-
|
|
-
|
|
-
|
|
124,999
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
125,000
|
Shares issued as compensation |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,122
|
|
1
|
|
-
|
|
-
|
|
-
|
|
112,161
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
112,162
|
Shares issued for cancellation of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
redeemable preferred stock |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
50
|
|
-
|
|
-
|
|
-
|
|
-
|
|
150,000
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
150,000
|
Shares returned to treasury and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cancelled |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(560)
|
|
(1)
|
|
-
|
|
-
|
|
-
|
|
1
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
See report of independent registered public accounting firm
and notes to
the consolidated financial statements.
F-37
MATERIAL TECHNOLOGIES, INC.
(A Development Stage
Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
|
Class A Preferred Stock
|
|
Class B Preferred Stock
|
|
Class C Preferred Stock
|
|
Class D Preferred Stock
|
|
Class A Common Stock
|
|
Class B Common Stock
|
|
Warrants Subscribed
|
|
Additional Paid-in Capital
|
|
Deficit Accumulated During
the Development Stage
|
|
Notes Receivable- Common Stock
|
|
Treasury Stock
|
|
Accumulated Other Comprehensive Loss
|
|
Total Stockholders' Equity
(Deficit)
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Shares
|
|
Amount
|
|
|
Modification of royalty agreement |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
733
|
|
1
|
|
-
|
|
-
|
|
-
|
|
7,331
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
7,332
|
Issuance of warrants to officer |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
27,567
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
27,567
|
Net loss |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(549,187)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(549,187)
|
Balance, December 31, 1998 |
350
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
10,062
|
|
10
|
|
60,000
|
|
60
|
|
-
|
|
3,034,634
|
|
(3,513,634)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(478,930)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cancellation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of indebtedness |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2,175
|
|
2
|
|
-
|
|
-
|
|
-
|
|
166,665
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
166,667
|
Shares issued as compensation |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,255
|
|
1
|
|
-
|
|
-
|
|
-
|
|
95,098
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
95,099
|
Shares issued for modification of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
licensing agreement |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
672
|
|
1
|
|
-
|
|
-
|
|
-
|
|
(1)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Shares issued for cash |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
433
|
|
-
|
|
-
|
|
-
|
|
-
|
|
173,540
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
173,540
|
Net loss |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(539,283)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(539,283)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 1999 |
350
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
14,597
|
|
14
|
|
60,000
|
|
60
|
|
-
|
|
3,469,936
|
|
(4,052,917)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(582,907)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued as compensation- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as restated |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
700
|
|
1
|
|
-
|
|
-
|
|
-
|
|
824,515
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
824,516
|
Shares issued to investors pursuant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to settlement agreement |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
65
|
|
1
|
|
-
|
|
-
|
|
-
|
|
(1)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Shares issued for cash and non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
recourse promissory note |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
5,000
|
|
5
|
|
-
|
|
-
|
|
-
|
|
1,994,995
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,995,000
|
Shares issued for cash |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
400
|
|
-
|
|
-
|
|
-
|
|
-
|
|
281,694
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
281,694
|
Shares issued for cancellation of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
indebtedness |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
100
|
|
-
|
|
-
|
|
-
|
|
-
|
|
100,000
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
100,000
|
Shares issued as compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pursuant to escrow agreement |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
4,184
|
|
4
|
|
-
|
|
-
|
|
-
|
|
4,180
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
4,184
|
Shares returned from escrow |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(400)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Common shares converted into |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class B common shares |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(40)
|
|
-
|
|
40,000
|
|
40
|
|
-
|
|
(40)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Preferred shares converted into |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common shares |
(13)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
12
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Net loss |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(1,199,695)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(1,199,695)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2000 |
337
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
24,618
|
|
25
|
|
100,000
|
|
100
|
|
-
|
|
6,675,279
|
|
(5,252,612)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,422,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued as compensation |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
6,185
|
|
6
|
|
-
|
|
-
|
|
-
|
|
804,330
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
804,336
|
Shares issued for cash |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
4,932
|
|
5
|
|
-
|
|
-
|
|
-
|
|
286,562
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
286,567
|
Shares issued in connection with |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
private offering |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
698
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Shares issued to officer |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
6,000
|
|
6
|
|
-
|
|
-
|
|
-
|
|
1,127,994
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,128,000
|
Net loss |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(3,548,559)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(3,548,559)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2001 |
337
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
42,433
|
|
42
|
|
100,000
|
|
100
|
|
-
|
|
8,894,165
|
|
(8,801,171)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
93,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued as compensation |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
21,835
|
|
22
|
|
-
|
|
-
|
|
-
|
|
1,185,609
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,185,631
|
Issuance of shares to University |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Pennsylvania |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,096
|
|
1
|
|
-
|
|
-
|
|
-
|
|
(1)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Shares issued for settlement of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
lawsuit |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,397
|
|
1
|
|
-
|
|
-
|
|
-
|
|
39,999
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
40,000
|
Shares issued for cash |
-
|
|
-
|
|
-
|
|
-
|
|
143
|
|
-
|
|
-
|
|
-
|
|
28,048
|
|
28
|
|
-
|
|
-
|
|
-
|
|
1,153,708
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,153,736
|
Offering costs |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(200,412)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(200,412)
|
Shares issued for cancellation of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
president's interests in patents |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
200,000
|
|
200
|
|
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
200
|
Cancellation of shares |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(1,322)
|
|
(1)
|
|
-
|
|
-
|
|
-
|
|
1
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Shares issued to company's |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
president as past compensation |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
13,000
|
|
13
|
|
-
|
|
-
|
|
-
|
|
259,987
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
260,000
|
Shares issued in connection with |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
private offering |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2,741
|
|
3
|
|
-
|
|
-
|
|
-
|
|
(3)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Net loss |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(3,852,296)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(3,852,296)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2002 |
337
|
|
-
|
|
-
|
|
-
|
|
143
|
|
-
|
|
-
|
|
-
|
|
109,228
|
|
109
|
|
300,000
|
|
300
|
|
-
|
|
11,333,053
|
|
(12,653,467)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(1,320,005)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See report of independent registered public accounting firm
and notes to
the consolidated financial statements.
F-38
MATERIAL TECHNOLOGIES, INC.
(A Development Stage
Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
|
Class A Preferred Stock
|
|
Class B Preferred Stock
|
|
Class C Preferred Stock
|
|
Class D Preferred Stock
|
|
Class A Common Stock
|
|
Class B Common Stock
|
|
Warrants Subscribed
|
|
Additional Paid-in Capital
|
|
Deficit Accumulated During
the Development Stage
|
|
Notes Receivable- Common Stock
|
|
Treasury Stock
|
|
Accumulated Other Comprehensive Loss
|
|
Total Stockholders' Equity
(Deficit)
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Shares
|
|
Amount
|
|
|
Shares issued as compensation |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
7,780,333
|
|
7,780
|
|
-
|
|
-
|
|
-
|
|
476,554
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
484,334
|
Issuance of shares to University
of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pennsylvania |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
4,242
|
|
4
|
|
-
|
|
-
|
|
-
|
|
(4)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Shares purchased for cancellation |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(1,296)
|
|
(1)
|
|
-
|
|
-
|
|
-
|
|
(24,431)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(24,432)
|
Shares issued for settlement
of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
lawsuit |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
260
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Shares issued for cash |
-
|
|
-
|
|
-
|
|
-
|
|
4,074
|
|
4
|
|
-
|
|
-
|
|
34,030
|
|
33
|
|
-
|
|
-
|
|
-
|
|
235,161
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
235,198
|
Offering costs |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(81,975)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(81,975)
|
Shares issued for cancellation
of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
legal fee note payable |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
22,000,000
|
|
22,000
|
|
-
|
|
-
|
|
-
|
|
1,561,127
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,583,127
|
Shares issued to Company's |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
president for past compensation |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
32,000,000
|
|
32,000
|
|
-
|
|
-
|
|
-
|
|
288,000
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
320,000
|
Shares issued to Company's |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
president in consideration of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
note payable |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
5,000,000
|
|
5,000
|
|
-
|
|
-
|
|
-
|
|
45,000
|
|
-
|
|
(50,000)
|
|
-
|
|
-
|
|
-
|
|
-
|
Officers compensation relating
to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
cancellation of October 27,
2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
escrow agreement |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
19,617
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
19,617
|
Shares issued in cancellation
of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
indebtedness for legal fees |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,000
|
|
1
|
|
-
|
|
-
|
|
-
|
|
9,999
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
10,000
|
Shares returned to treasury
by |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company officers in consideration |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for the cancellation of note
due |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the Company by them on past |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock purchases |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(5,001)
|
|
(5)
|
|
-
|
|
-
|
|
-
|
|
(769,818)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(769,823)
|
Exchange of Class A common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock for Class B common stock |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(300)
|
|
-
|
|
300,000
|
|
300
|
|
|
|
(300)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Exchange of Class A common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for Class D preffered stock |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
5,440,000
|
|
5,440
|
|
(7,440,000)
|
|
(7,440)
|
|
-
|
|
-
|
|
-
|
|
2,000
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Shares issued in connection
with |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
private offering |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
7,006,479
|
|
7,007
|
|
-
|
|
-
|
|
-
|
|
(7,007)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Accrued interest on officer
loan |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(1,096)
|
|
-
|
|
-
|
|
-
|
|
(1,096)
|
Capital contribution by subsidiary |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
37,597
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
37,597
|
Net loss |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(1,885,728)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(1,885,728)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2003 |
337
|
|
-
|
|
-
|
|
-
|
|
4,217
|
|
4
|
|
5,440,000
|
|
5,440
|
|
66,488,975
|
|
66,488
|
|
600,000
|
|
600
|
|
-
|
|
13,124,573
|
|
(14,539,195)
|
|
(51,096)
|
|
-
|
|
-
|
|
-
|
|
(1,393,186)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,207,535
|
|
1,208
|
|
-
|
|
-
|
|
-
|
|
206,267
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
207,475
|
Shares issued for settlement
of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
legal and accounting fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
payable |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
75,000
|
|
75
|
|
-
|
|
-
|
|
-
|
|
64,392
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
64,467
|
Exercise of warrants |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
3,300
|
|
3
|
|
-
|
|
-
|
|
-
|
|
4,547
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
4,550
|
Conversion of Class C preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares to Class A common shares |
-
|
|
-
|
|
-
|
|
-
|
|
(2,700)
|
|
(3)
|
|
-
|
|
-
|
|
2,700
|
|
3
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Conversion of Class D preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares to Class A common shares |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(3,520,000)
|
|
(3,520)
|
|
3,520,000
|
|
3,520
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Shares issued as compensation
to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consultants |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
6,721,923
|
|
6,722
|
|
-
|
|
-
|
|
-
|
|
14,245,473
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
14,252,195
|
Shares issued in exchange for |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shares of Langley Investments, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLC |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
8,666,666
|
|
8,667
|
|
-
|
|
-
|
|
-
|
|
12,964,846
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
12,973,513
|
Benificial conversion feature
of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
convertible debentures |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,125,000
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,125,000
|
Repurchase of common stock |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(1,325)
|
|
(1)
|
|
-
|
|
-
|
|
-
|
|
(4,166)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(4,167)
|
Offering costs |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(13,713)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(13,713)
|
Interest income on notes receivable- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common stock |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(4,000)
|
|
-
|
|
-
|
|
-
|
|
(4,000)
|
Temporary decrease in market
value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of securities available for
sale |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(1,167,616)
|
|
(1,167,616)
|
See report of independent registered public accounting firm
and notes to
the consolidated financial statements.
F-39
MATERIAL TECHNOLOGIES, INC.
(A Development Stage
Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
|
Class A Preferred Stock
|
|
Class B Preferred Stock
|
|
Class C Preferred Stock
|
|
Class D Preferred Stock
|
|
Class A Common Stock
|
|
Class B Common Stock
|
|
Warrants Subscribed
|
|
Additional Paid-in Capital
|
|
Deficit Accumulated During
the Development Stage
|
|
Notes Receivable- Common Stock
|
|
Treasury Stock
|
|
Accumulated Other Comprehensive Loss
|
|
Total Stockholders' Equity
(Deficit)
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
Shares
|
|
Amount
|
|
|
Net loss |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(25,495,291)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(25,495,291)
|
Balance, December 31, 2004 |
337
|
|
-
|
|
-
|
|
-
|
|
1,517
|
|
1
|
|
1,920,000
|
|
1,920
|
|
86,684,774
|
|
86,685
|
|
600,000
|
|
600
|
|
-
|
|
41,717,219
|
|
(40,034,486)
|
|
(55,096)
|
|
-
|
|
-
|
|
(1,167,616)
|
|
549,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares and warrant subscription |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
issued for cash |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
2,298,630
|
|
2,299
|
|
-
|
|
-
|
|
10,000
|
|
312,940
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
325,239
|
Shares cancelled |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(2,084)
|
|
(2)
|
|
-
|
|
-
|
|
-
|
|
2
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Shares issued for compensation
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
modification of research and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
development sponsorship |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
agreement |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
7,992,435
|
|
7,992
|
|
-
|
|
-
|
|
-
|
|
11,135,915
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
11,143,907
|
Shares issued for shares of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Birchington Investments, Limited |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
13,035,000
|
|
13,035
|
|
-
|
|
-
|
|
-
|
|
3,569,565
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
3,582,600
|
Warrants committed to be issued
on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cashless exercise |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
30,135,172
|
|
30,135
|
|
-
|
|
-
|
|
-
|
|
(30,135)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Conversion of Series D preferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock to common shares |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(500,000)
|
|
(500)
|
|
500,000
|
|
500
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Value of derviatives recalssified
to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
liabilities |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(1,125,000)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(1,125,000)
|
Purchase of treasury stock |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
76,800
|
|
(26,136)
|
|
-
|
|
(26,136)
|
Offering costs |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(19,140)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(19,140)
|
Interest income on notes receivable- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common stock |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(3,989)
|
|
-
|
|
-
|
|
-
|
|
(3,989)
|
Temporary decrease in market |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
value of securities available
for sale |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,046,399
|
|
1,046,399
|
Net loss |
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(20,749,260)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(20,749,260)
|
Balance, December 31, 2005 |
337
|
$
|
-
|
|
-
|
$
|
-
|
|
1,517
|
$
|
1
|
|
1,420,000
|
$
|
1,420
|
|
140,643,927
|
$
|
140,644
|
|
600,000
|
$
|
600
|
$
|
10,000
|
$
|
55,561,366
|
$
|
(60,783,746)
|
$
|
(59,085)
|
|
76,800
|
$
|
(26,136)
|
$
|
(121,217)
|
$
|
(5,276,153)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See report of independent registered public accounting firm
and notes to
the consolidated financial statements.
F-40
MATERIAL TECHNOLOGIES, INC.
(A Development Stage
Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
From October 21, 1983
|
|
|
|
|
|
For the Year Ended
|
|
|
(Inception)
|
|
|
|
|
|
December 31,
|
|
|
through
|
|
|
|
|
2005
|
|
2004
|
|
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
operating activities: |
|
|
|
|
|
|
Net loss |
|
$
|
(20,749,260)
|
$
|
(25,495,291)
|
$
|
(60,783,746)
|
Adjustments to reconcile
net loss
to net cash used in |
|
|
|
|
|
|
in operating
activities: |
|
|
|
|
|
|
|
Issuance of common stock for
services |
|
3,099,257
|
|
14,252,195
|
|
24,552,213
|
|
Issuance of common stock for
modification of |
|
|
|
|
|
|
|
research and development sponsorship
agreement |
|
7,738,400
|
|
-
|
|
7,738,400
|
|
Fair value of derivative and
warrant
liabilities |
|
5,917,188
|
|
-
|
|
5,917,188
|
|
Net realized and unrealized loss on
marketable
securities
|
|
|
|
held for trading |
|
3,589
|
|
5,192,160
|
|
5,195,749
|
|
Other-than-temporary impairment
of
marketable |
|
|
|
|
|
|
|
securities available for sale |
|
1,918,587
|
|
4,284,760
|
|
6,203,347
|
|
Legal fees incurred for note
payable |
|
-
|
|
-
|
|
1,456,142
|
|
Accrued interest expense added
to principal |
|
173,987
|
|
216,713
|
|
978,403
|
|
Amortization of discount on
convertible
debentures |
|
399,420
|
|
326,161
|
|
725,581
|
|
Change in fair value of investments
derivative
liability |
|
585,735
|
|
-
|
|
585,735
|
|
Accrued interest income added
to principal |
|
(4,192)
|
|
(12,460)
|
|
(303,821)
|
|
Gain (loss) on settlement of
indebtedness |
|
-
|
|
(45,150)
|
|
244,790
|
|
Depreciation and amortization |
|
8,652
|
|
8,580
|
|
211,983
|
|
Other non-cash adjustments |
|
-
|
|
-
|
|
(107,722)
|
|
(Increase) decrease in receivable
due on
research |
|
|
|
|
|
|
|
contract |
|
(54,930)
|
|
12,109
|
|
(121,153)
|
|
Increase in prepaid expenses
and other current
assets |
|
-
|
|
5,690
|
|
-
|
|
Increase in deposits |
|
-
|
|
-
|
|
(2,348)
|
|
(Decrease) increase in accounts
payable and
accrued |
|
|
|
|
|
|
|
expenses |
|
(89,813)
|
|
(66,856)
|
|
1,131,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
(1,053,380)
|
|
(1,321,389)
|
|
(6,378,091)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
|
|
|
Proceeds from the
sale of
marketable securities |
|
1,589,588
|
|
1,205,611
|
|
3,078,796
|
Purchase of marketable
securities |
|
(907,028)
|
|
(900,006)
|
|
(1,897,034)
|
Payment received
on officer
loans |
|
-
|
|
97,450
|
|
876,255
|
Funds advanced to
officers |
|
-
|
|
(7,000)
|
|
(549,379)
|
Purchase of property
and
equipment |
|
(2,598)
|
|
(676)
|
|
(269,746)
|
Investment in joint
ventures |
|
-
|
|
-
|
|
(102,069)
|
Proceeds from foreclosure |
|
-
|
|
-
|
|
44,450
|
Proceeds from the
sale of
property and equipment |
|
-
|
|
-
|
|
10,250
|
Payment for license
agreement |
|
-
|
|
-
|
|
(6,250)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
679,962
|
|
395,379
|
|
1,185,273
|
|
|
|
|
|
|
|
|
|
MATERIAL TECHNOLOGIES, INC.
(A Development Stage
Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
From October 21, 1983
|
|
|
|
For the Year Ended
|
|
|
(Inception)
|
|
|
|
December 31,
|
|
|
through
|
|
|
2005
|
|
2004
|
|
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
Proceeds from the sale of common
stock and warrants |
$
|
325,239
|
$
|
212,025
|
$
|
3,666,097
|
Proceeds from convertible debentures
and
other |
|
|
|
|
|
|
notes payable |
|
40,000
|
|
785,000
|
|
1,347,069
|
Proceeds from the sale of preferred
stock |
|
-
|
|
-
|
|
473,005
|
Costs incurred in offerings |
|
(19,140)
|
|
(13,713)
|
|
(487,341)
|
Capital contributions |
|
-
|
|
-
|
|
301,068
|
Purchase of treasury stock |
|
(26,136)
|
|
(4,166)
|
|
(54,735)
|
Payment on proposed reorganization |
|
-
|
|
-
|
|
(5,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided
by financing activities |
|
319,963
|
|
979,146
|
|
5,240,163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash
equivalents |
|
(53,455)
|
|
53,136
|
|
47,345
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning
of period |
|
100,800
|
|
47,664
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end
of period |
$
|
47,345
|
$
|
100,800
|
$
|
47,345
|
|
|
========== |
|
========== |
|
================== |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash
flow
information: |
|
|
|
|
|
|
Interest paid during the period |
$
|
2,750
|
$
|
2,750
|
|
|
|
|
========== |
|
========== |
|
================== |
Income taxes paid during the
period |
$
|
800
|
$
|
800
|
|
|
|
|
========== |
|
========== |
|
================== |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See report of independent registered public accounting
firm
and
accompanying notes to the consolidated financial statements.
F-42
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
For
the Years Ended December 31, 2005 and 2004
NOTE
1 - ORGANIZATION AND BASIS OF PRESENTATION
Organization
Material
Technologies, Inc. (the "Company") was organized on October 21,
1983, under the
laws of the state of Delaware.
The
Company is in the development stage, as defined in Statement of
Financial
Accounting Standards (“SFAS”) No. 7, “ Accounting
and Reporting by Development Stage Enterprises ,”
with
its principal activity being research and development in the area
of metal
fatigue technology with the intent of future commercial application.
On
January 22, 2003, the Company formed Matech International, Inc.,
a Nevada
corporation (“International”). International was formed as a wholly owned
subsidiary of the Company to advertise, market and sell the Company’s videoscope
technology which is presently utilized in the inspection of stress
and crack
points in turbine engines on the wings of airplanes. At the present
time there
is no activity in International and the Company does not anticipate
nor
reasonably foresee any business activity in International in the
near future.
On
March
13, 2003, the Company formed Matech Aerospace, Inc., a Nevada corporation
(“Aerospace”). Aerospace was formed as a wholly owned subsidiary of the Company
to advertise, market and sell all manufacturing and marketing rights
to the
Company’s products and technologies in all commercial markets within the
United
States. During 2003, Aerospace sold shares of its common stock
to investors. As
of December 31, 2005, the Company holds a 99% interest in Aerospace.
At the
present time there is no activity in Aerospace and the Company
does not
anticipate nor reasonably foresee any business activity in Aerospace
in the near
future.
Unless
otherwise noted, common stock refers to the Company’s Class A common stock.
Basis
of Presentation
The
Company's consolidated financial statements are prepared using
the accrual
method of accounting in accordance with accounting principles generally
accepted
in the United States of America and have been prepared on a going
concern basis,
which contemplates the realization of assets and the settlement
of liabilities
in the normal course of business. The Company has sustained operating
losses
since its inception (October 21, 1983). In addition, the Company
has used
substantial amounts of working capital in its operations. Further,
at December
31, 2005, the deficit accumulated during the development stage
amounted to
approximately $61 million.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
1 - ORGANIZATION AND BASIS OF PRESENTATION, continued
In
view
of these matters, realization of a major portion of the assets
in the
accompanying consolidated balance sheet is dependent upon the Company’s ability
to meet its financing requirements and the success of its future
operations. The
Company has entered into a $215,000 contract to provide research
services, of
which approximately $67,000 remains to be billed and approximately
$71,000 was
owed as of December 31, 2005. During 2005, the Company netted approximately
$683,000 from sale of marketable securities and as of December
31, 2005 had
approximately $300,000 of marketable securities held for trading.
Additionally,
in December 2005, the Company issued warrants to a note holder
to purchase
4,000,000 shares of its common stock at price of $1.09 per share,
which the
noteholder has agreed to convert at the rate of at least 5% per
calendar month
(200,000 warrants for $218,000) once the related registration statement
is
declared effective (see Note 9). The Company anticipates that the
registration
statement will be declared effective by mid 2006. To date, the
Company has
received $10,000 as an advance toward the future exercise of the
warrants. The
Company also continues to raise funds through the sale of its common
stock
through private offerings which management expects to continue
in 2006, and the
Company continues its attempt to develop its technologies for commercial
application. Management believes that these sources of funds and
current liquid
assets will allow the Company to continue as a going concern through
the end of
2006. Management of the Company will need to raise additional debt
and/or equity
capital to finance future activities beyond 2006. However, no assurances
can be
made that current or anticipated future sources of funds will enable
the Company
to finance future periods’ operations. In light of these circumstances,
substantial doubt exists about the Company’s ability to continue as a going
concern. These consolidated financial statements do not include
any adjustments
relating to the recoverability and classification of recorded assets
or
liabilities that might be necessary should the Company be unable
to continue as
a going concern.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts
and
transactions of Material Technologies, Inc. and its subsidiaries.
Intercompany
transactions and balances have been eliminated in consolidation.
The minority
owners’ interests in a subsidiary have been reflected as minority interest
in
the accompanying consolidated balance sheet.
Use
of
Estimates
The
preparation of financial statements in conformity with accounting
principles
generally accepted in the United States of America requires management
to make
estimates and assumptions that affect the reported amounts of assets
and
liabilities, disclosure of contingent assets and liabilities at
the date of the
financial statements and the reported amounts of revenues and expenses
during
the reporting period. Significant estimates include the fair value
of marketable
and non-marketable securities, the recoverability of long-lived
assets and the
amount of the deferred tax valuation allowance. Accordingly, actual
results
could differ from those estimates.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Cash
Equivalents
For
purposes of the statements of cash flows, the Company considers
cash equivalents
to include highly liquid investments with original maturities of
three months or
less.
Investments
Marketable
securities purchased with the intent of selling them in the near
term are
classified as trading securities. Trading securities are initially
recorded at
cost and are adjusted to their fair value, with the change in fair
value during
the period included in earnings as unrealized gains or losses.
Realized gains or
losses on dispositions are based upon the net proceeds and the
adjusted book
value of the securities sold, using the specific identification
method, and are
recorded as realized gains or losses in the consolidated statements
of
operations. Marketable securities that are not classified as trading
securities
are classified as available-for-sale securities. Available-for-sale
securities
are initially recorded at cost. Available-for-sale securities with
quoted market
prices are adjusted to their fair value. Any change in fair value
during the
period is excluded from earnings and recorded, net of tax, as a
component of
accumulated other comprehensive income (loss). Any decline in value
of
available-for-sale securities below cost that is considered to
be “other than
temporary” is recorded as a reduction of the cost basis of the security and
is
included in the statement of operations as an impairment loss.
Non-marketable
securities consist of equity securities for which there are no
quoted market
prices. Such investments are initially recorded at their cost.
In the case of
non-marketable securities acquired with the Company’s common stock, the Company
values the securities at a significant discount to the stated per
share cost
based upon the Company’s historical experience with similar transactions as to
the amount ultimately realized from the sale of the shares. For
the investment
in Birchington shares (see Note 3), the Company has applied an
80% discount to
the stated per share cost. At such time as quoted market prices
become
available, the net cost basis of these securities will be reclassified
to the
appropriate category of marketable securities. Until that time,
the securities
will be recorded at their net cost basis, subject to an impairment
analysis (see
below). At December 31, 2005, the Company did not recognize any
impairment of
its non-marketable securities because there have been no identified
events or
changes in circumstances that may have a significant adverse effect
on the fair
value of the investment, and the Company determined that it is
not practicable
to estimate the fair value of the investment.
In
connection with the Birchington securities, the Company has placed
in escrow,
for a period of one year from the closing date of each transaction,
a total of
3,555,000 shares of its own common stock. If at the expiration
of the one-year
period, the market price of the Company’s common stock is below the Closing
Price, as defined in the Birchington Agreements, the Company is
required to sell
to Birchington, at a price of $0.01 per share, a portion of the
shares held in
escrow determined by the formula specified in the Birchington Agreements.
The
Company bifurcates the fair value of the shares it would be required
to sell to
Birchington at December 31, 2005, if such requirement existed,
and has reflected
the resulting amount in current liabilities in the accompanying
consolidated
balance sheet.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
In
accordance with the guidance of EITF 03-1, “The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments,” the Company assesses any
decline in value of available-for-sale securities and non-marketable
securities
below cost as to whether such decline is “other than temporary.” If a decline is
determined to be “other than temporary,” the decline is recorded as a reduction
of the cost basis of the security and is included in the statement
of operations
as an impairment write down of the investment. Since the Company
does not
reasonably foresee the price of its common stock increasing above
its year end
closing price by the time the Langley shares are released from
escrow, the
Company has recognized an “other-than-temporary” impairment charge of $1,918,587
as of December 31, 2005, representing the value of Langley shares
the Company
would be required to offer for sale back to Langley at a nominal
price. During
the year ended December 31, 2004, the Company recognized an “other than
temporary” impairment charge (related to the decline in market value of the
Langley shares) on its available-for-sale investments totaling
$4,284,760.
Receivable
Due on Research Contract
Accounts
receivable are reported at the customers’ outstanding balances less any
allowance for doubtful accounts. The Company does not accrue interest
on overdue
accounts receivable.
The
allowance for doubtful accounts 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. As of December 31, 2005, management
believes all accounts receivable are collectible. Accordingly,
no allowance for
doubtful accounts is included in the accompanying consolidated
balance sheet.
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
that 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.
The
Company depreciates its property and equipment using the straight-line
method
over the following estimated useful lives:
Computer
equipment 3-5
years
Office
equipment 5
years
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Intangible
Assets
Intangible
assets consist of patents, license agreements and website design
costs and are
recorded at cost. Patents and license agreements are amortized
over 17 years and
website design costs are amortized over five years.
Long-Lived
Assets
The
Company accounts for its long-lived assets in accordance with SFAS
No. 144, “
Accounting
for the Impairment or Disposal of Long-Lived Assets .”
SFAS
No. 144 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 or disposable value. As of December 31, 2005,
the Company
does not believe there has been any impairment of its long-lived
assets.
Income
Taxes
The
Company accounts for income taxes under the provisions of SFAS
No. 109, “
Accounting
for Income Taxes .”
Under
SFAS No. 109, deferred tax assets and liabilities are recognized
for future tax
benefits or consequences attributable to temporary differences
between the
financial statement carrying amounts of existing assets and liabilities
and
their respective tax bases. Deferred tax assets and liabilities
are measured
using enacted tax rates expected to apply to taxable income in
the years in
which those temporary differences are expected to be recovered
or settled. A
valuation allowance is provided for significant deferred tax assets
when it is
more likely than not that such assets will not be realized through
future
operations.
Convertible
Debentures
If
the
conversion feature of conventional convertible debt provides for
a rate of
conversion that is below market value, this feature is characterized
as a
beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a
debt discount pursuant to EITF Issue No. 98-5 (“EITF 98-05”), “ Accounting
for Convertible Securities with Beneficial Conversion Features
or Contingency
Adjustable Conversion Ratio ,”
and
EITF Issue No. 00-27, “ Application
of EITF Issue No. 98-5 to Certain Convertible Instruments .”
In
those circumstances, the convertible debt will be recorded net
of the discount
related to the BCF. The Company amortizes the discount to interest
expense over
the life of the debt using the effective interest method.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Derivative
Financial Instruments
In
the
case of non-conventional convertible debt, the Company bifurcates
its embedded
derivative instruments and records them under the provisions of
SFAS No. 133, “
Accounting
for Derivative Instruments and Hedging Activities,”
as amended, and EITF Issue No. 00-19, “ Accounting
for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a
Company’s Own Stock. ”
The Company’s derivative financial instruments consist of embedded derivatives
related to the non-conventional notes (“Notes”) entered into with Golden Gate
Investors (“GGI”) on December 16, 2005 (see Note 9). These
embedded derivatives include the conversion feature, liquidated
damages related
to registration rights and default provisions. The accounting treatment of
derivative financial instruments requires that the Company record
the
derivatives and related warrants at their fair values as of the
inception date
of the agreement ($5,917,188 recorded as interest expense and $40,000
recorded
as debt discount) and at fair value as of each subsequent balance
sheet
date. Any change in fair value will be recorded as non-operating, non-cash
income or expense at each reporting date. If the fair value of the
derivatives is higher at the subsequent balance sheet date, the
Company will
record a non-operating, non-cash charge. If the fair value of the
derivatives is lower at the subsequent balance sheet date, the
Company will
record non-operating, non-cash income. Derivatives were valued primarily
using the Black-Scholes Option Pricing Model with the following
assumptions:
dividend yield of 0%, annual volatility of 185%, and risk free
interest rate of
4.3%. As the Notes were entered into near the end of the year, the value
of the related derivative liabilities were not substantially different
from the
values derived at December 16, 2005. Hence the Company did not record any
changes in fair value as of December 31, 2005. The derivatives are
classified as long-term liabilities.
Fair
Value of Financial Instruments
The
Company’s financial instruments consist of cash and cash equivalents,
investments, accounts receivable, accounts payable, accrued expenses,
notes
payable, convertible debentures and derivative and warrant liabilities.
Pursuant
to SFAS No. 107, “ Disclosures
About Fair Value of Financial Instruments ,”
the
Company is required to estimate the fair value of all financial
instruments at
the balance sheet date. The Company cannot determine the estimated
fair value of
the convertible debentures as instruments similar to the convertible
debentures
could not be found. Other than these items, the Company considers
the carrying
values of its financial instruments in the financial statements
to approximate
their fair values.
Revenue
Recognition
The
Company recognizes revenue in accordance with Staff Accounting
Bulletin (“SAB”)
No. 101, “ Revenue
Recognition in Financial Statements ,”
as
revised by SAB No. 104. As such, the Company recognizes revenue
when persuasive
evidence of an arrangement exists, title transfer has occurred,
the price is
fixed or readily determinable and collectibility is probable. Sales
are recorded
net of sales discounts.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Substantially
all of the Company’s revenue is derived from the Company’s contracts relating to
the further development of the Electrochemical Fatigue Sensor (“EFS”). Revenue
on the contracts is recognized at the time services are rendered.
The Company
bills monthly for services pursuant to these contracts at which
time revenue is
recognized for the period that the respective invoice relates.
In October 2003,
the Company entered into a contract to provide research services
to a third
party in connection with the application of the Company’s EFS to detect stress
on military vehicles. The contract has an approved budget of $215,281.
The
balance due the Company on this contract at December 31, 2005 amounted
to
$70,825. This gross amount includes out-of pocket expenses relating
to third
party engineering and other related costs.
In
the
past, the Company has received research and development funding
from various
agencies of the U.S. government. U.S. government contracts are
subject to
government audits. Such audits could lead to inquiries from the
government
regarding the allowability of costs under U.S. government regulations
and
potential adjustments of contract revenues. To date, the Company
has not been
involved in any such audits.
Research
and Development
The
Company expenses research and development costs as incurred.
Net
Loss per Share
The
Company adopted the provisions of SFAS No. 128, “ Earnings
Per Share ”
(“EPS”). SFAS No. 128 provides for the calculation of basic and diluted
earnings
per share. Basic EPS includes no dilution and is computed by dividing
income or
loss available to common stockholders by the weighted average number
of common
shares outstanding during the period. Diluted EPS reflects the
potential
dilution of securities that could share in the earnings or losses
of the entity.
For the years ended December 31, 2005 and 2004, basic and diluted
loss per share
are the same, since the calculation of diluted per share amounts
would result in
an anti-dilutive calculation that is not permitted and therefore
not included.
If such shares were included in diluted EPS, they would have resulted
in
weighted-average common shares of 180,800,861 and 144,246,012,
in 2005 and 2004,
respectively. Such amounts include shares potentially issuable
pursuant to
shares held in escrow (see Note 12), convertible debentures (see
Note 9), and
outstanding “in-the-money” options and warrants (see Note 14).
Issuance
of Stock for Non-Cash Consideration
All
issuances of the Company's stock for non-cash consideration have
been assigned a
per share amount equaling either the market value of the shares
issued or the
value of consideration received, whichever is more readily determinable.
The
majority of the non-cash consideration received pertains to services
rendered by
consultants and others and has been valued at the market value
of the shares on
the dates issued. In certain instances, the Company has discounted
the values
assigned to the issued shares for illiquidity and/or restrictions
on resale (see
Note 12).
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
The
Company's accounting policy for equity instruments issued to consultants
and
vendors in exchange for goods and services follows the provisions
of EITF 96-18,
" Accounting
for Equity Instruments That are Issued to Other Than Employees
for Acquiring, or
in Conjunction with Selling, Goods or Services "
and
EITF 00-18, " Accounting
Recognition for Certain Transactions Involving Equity Instruments
Granted to
Other Than Employees ."
The
measurement date for the fair value of the equity instruments issued
is
determined at the earlier of (i) the date at which a commitment
for performance
by the consultant or vendor is reached or (ii) the date at which
the consultant
or vendor's performance is complete. In the case of equity instruments
issued to
consultants, the fair value of the equity instrument is recognized
over the term
of the consulting agreement. In accordance to EITF 00-18, an asset
acquired in
exchange for the issuance of fully vested, nonforfeitable equity
instruments
should not be presented or classified as an offset to equity on
the grantor's
balance sheet once the equity instrument is granted for accounting
purposes.
Accordingly, the Company recorded the fair value of the common
stock issued for
future consulting services as prepaid services in its consolidated
balance sheet
(see Note 4).
Stock-Based
Compensation
The
Company accounts for stock-based compensation under SFAS No. 123,
“ Accounting
for Stock-Based Compensation ”
and
SFAS No. 148, “ Accounting
for Stock-Based Compensation—Transition and Disclosure—An amendment to SFAS No.
123 .”
These
standards define a fair value based method of accounting for stock-based
compensation. In accordance with SFAS Nos. 123 and 148, the cost
of stock-based
employee compensation is measured at the grant date based on the
value of the
award and is recognized over the vesting period. The value of the
stock-based
award is determined using the Black-Scholes option-pricing model,
whereby
compensation cost is the excess of the fair value of the award
as determined by
the pricing model at the grant date or other measurement date over
the amount an
employee must pay to acquire the stock. The resulting amount is
charged to
expense on the straight-line basis over the period in which the
Company expects
to receive the benefit, which is generally the vesting period.
During the years
ended December 31, 2005 and 2004, the Company recognized no compensation
expense
under SFAS No. 123 as no options were issued to employees.
Concentrations
of Credit Risk
The
Company maintains its cash balances at financial institutions that
are insured
by the Federal Deposit Insurance Corporation (“FDIC”) up to $100,000. From time
to time, the Company’s cash balances exceed the amount insured by the FDIC.
Management believes the risk of loss of cash balances in excess
of the insured
limit to be low.
The
Company’s 2005 revenues were generated from one customer and its 2004 revenues
were generated by two customers.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Reclassifications
Certain
amounts in the December 31, 2004 financial statements have been
reclassified to
conform to the December 31, 2005 presentation. Such reclassification
had no
effect on net loss as previously reported.
Recent
Accounting Pronouncements
In
May
2005, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 154 “
Accounting
Changes and Error Corrections - A Replacement of APB Opinion No.
20 and FASB
Statement 3. ”
This
statement replaces Accounting Principles Board (“APB”) Opinion No. 20 (“APB No.
20”), Accounting
Changes ,
and
SFAS No. 3, “ Reporting
Accounting Changes in Interim Financial Reporting .”
APB
No. 20 required that most voluntary changes in an accounting principle
be
recognized by including in net income of the period of the change
the cumulative
effect of changing to the new accounting principle. SFAS No. 154
generally
requires retrospective application to prior period’s financial statements of
changes in accounting principle. SFAS No. 154 is effective in the
first
reporting period beginning after December 15, 2005. The adoption
of SFAS No. 154
did not have a material impact on the Company’s consolidated financial condition
or results of operations.
In
December 2003, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. (“FIN”) 46R, “ Consolidation
of Variable Interest Entities .”
This
statement requires that the assets, liabilities and results of
the activities of
variable interest entities be consolidated into the financial statements
of the
company that has a controlling financial interest. It also provides
the
framework for determining whether an entity should be consolidated
based on
voting interest or significant financial support provided to it.
In general, for
all entities that were previously considered special purpose entities,
FIN 46R
should be applied in periods ending after December 15, 2003. Otherwise,
FIN 46R
is applicable to all public entities for periods ending after March
15, 2004.
The adoption of FIN 46R did not have a material impact on the Company’s
consolidated financial condition or results of operations.
In
December 2004, the FASB issued SFAS No. 153, “ Exchanges
of Non-Monetary Assets, an amendment of APB Opinion 29, Accounting
for
Non-Monetary Transactions .”
The
amendments made by SFAS No. 153 are based on the principle that
exchanges of
non-monetary assets should be measured based on the fair value
of the assets
exchanged. Further, the amendments eliminate the narrow exception
for
non-monetary exchanges of similar productive assets and replace
it with a
broader exception for exchanges of non-monetary assets that do
not have
"commercial substance." The provisions in SFAS No. 153 are effective
for
non-monetary asset exchanges occurring in fiscal periods beginning
after June
15, 2005. Early application is permitted and companies must apply
the standard
prospectively. The Company adopted this statement on January 1,
2005. The
adoption of the statement did not cause a significant change in
the current
manner in which the Company accounts for its exchanges of non-monetary
assets.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
The
FASB
has issued SFAS No. 123R, “ Share-Based
Payment .”
The
new rule requires that the compensation cost relating to share-based
payment
transactions be recognized in the financial statements. That cost
will be
measured based on the fair value of the equity or liability instruments
issued.
This statement precludes the recognition of compensation expense
under APB
Opinion No. 25’s intrinsic value method. Public entities will be required to
apply Statement 123R in the first interim or annual reporting period
that begins
after December 15, 2005. Since the Company has been accounting
for its
share-based compensation under SFAS No. 123, management believes
SFAS No. 123R
should not have a significant impact on the way it accounts for
its stock-based
compensation.
NOTE
3 - INVESTMENTS
Langley
On
October 1, 2004, the Company consummated a Stock Purchase Agreement
(the
“Langley Agreement”) with Langley Park Investments, PLC (“Langley”), a
corporation organized under the laws of England and Wales. The
Langley shares
are traded on the London Stock Exchange (“LSE”). Pursuant to the Langley
Agreement, the Company issued 8,666,666 shares of its common stock
in exchange
for 7,158,590 shares of Langley common stock. The number of Langley
shares
issued was based on the Company’s shares having a value of $1.50 per share and
the Langley shares having a value of one British Pound Sterling
per share and
the conversion rate of the British Pound Sterling to the U.S. Dollar
in effect
as of the close of business on the day preceding the closing date.
The Company
initially recorded the Langley shares at $12,973,513. This amount
was determined
by multiplying the number of Langley shares issued by the market
value of the
Langley shares of one British Pound Sterling and the applicable
exchange rate.
The Langley Agreement further provides that of the Langley shares
purchased, one
half of the shares (3,579,295) are immediately saleable and the
remaining half,
to which the Company has legal title, will be held in an escrow
account for a
period of two years. For financial reporting purposes, the Company
considers the
3,579,295 shares held in escrow as shares available for sale.
If,
at
the end of the two-year period, the shares of the Company do not
have a market
price greater than or equal to the Company’s original closing price, as defined
in the Langley Agreement, the Company will be required to sell
back some or all
of its Langley shares held in escrow at a nominal price, based
on a formula as
defined in the Langley Agreement. However, if at the end of the
two-year period,
the market value of the Company’s common stock exceeds the closing price, the
Langley shares will be released from escrow.
During
the year ended December 31, 2004, the Company sold 2,579,295 of
its Langley
trading shares for net proceeds of $1,005,606 and recognized a
loss on these
sales of $3,668,850, which was charged to operations. The Company
determined
that $4,284,760 of the decline in the value of available-for-sale
investments in
2004 was other than temporary and therefore, included the decline
in 2004
operations as an impairment charge. The Company charged the remaining
$1,167,616
decline in market value of the Langley trading shares that was
considered
temporary at December 31, 2004 to other comprehensive loss.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
3 - INVESTMENTS, continued
In
2005,
the Company sold its remaining currently saleable shares for $285,516
and
recognized a loss from the sale totaling $3,474. At December 31, 2005, the
Company’s common stock closing price was less than the closing price.
Based upon the formula in the Langley Agreement, the Company would
be obligated
to offer to sell back approximately 3,100,000 of the escrow shares
to Langley at
a nominal price. The Company does not reasonably foresee the price of its
common stock increasing above its December 31, 2005 closing price
by the end of
the two-year period (October 1, 2006). Therefore, the Company has
recognized an “other-than-temporary” impairment of $1,918,587 during the year
ended December 31, 2005. The unrealized loss balance of $121,217 at
December 31, 2005 relates to the temporary decline in the market
value of the
Langley shares.
Birchington
In
2005,
the Company entered into two agreements (the “Birchington Agreements”) with
Birchington Investments Limited (“Birchington”), a corporation organized under
the laws of the British Virgin Islands. The Birchington shares
are listed, but
not yet traded, on the Dublin Stock Exchange. On April 7, 2005,
the Company
entered into an agreement (the “April Birchington Agreement”) to purchase
8,307,000 shares of Birchington for 5,850,000 shares of its common
stock.
Additionally, the Company reserved 1,755,000 shares of its common
stock in
escrow (reflected as issued but not outstanding at December 31,
2005 - see Note
12) as downside price protection, as defined in the April Birchington
Agreement.
On
September 27, 2005, the Company entered into another agreement
(the “September
Birchington Agreement”) to purchase 9,606,000 shares of Birchington common stock
for 6,000,000 shares of its common stock. Additionally, the Company
reserved
1,800,000 shares of its common stock in escrow (reflected as issued
but not
outstanding at December 31, 2005 - see Note 12) as downside price
protection, as
defined in the September Birchington Agreement.
The
Company shares are restricted from sale by Birchington for a period
of one year.
If the price of the Company’s common stock is below the closing price (as
defined) on the anniversary of the closing date of these transactions,
then
Birchington shall be entitled to purchase out of escrow a percentage
of the
escrowed shares equal to the percentage of such decline for a price
of $0.01 per
share. Any shares remaining in escrow will then be returned to
the Company.
Based on the Company’s closing price at December 31, 2005, Birchington would be
entitled to purchase 3,082,817 shares out of escrow, if the requirement
existed
at December 31, 2005. The Company has bifurcated the downside price
protection
feature of the Birchington Agreements and has valued this feature
at its fair
value, totaling $585,735 at December 31, 2005. This value is recorded
as
investments derivative liability in current liabilities in the
accompanying
consolidated balance sheet, and will be marked to market each reporting
period.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
3 - INVESTMENTS, continued
The
Company valued the original purchase of the Birchington common
shares at $0.20
per share, an 80% discount to the stated value of $1.00 per share.
The per share
price was determined by the Company based upon the current non-marketability
of
the Birchington shares and its experience with similar transactions
in the past.
The Company has reviewed the recorded value of the Birchington
shares for
impairment as of December 31, 2005, pursuant to EITF 03-1. The
Company does not
believe that there has been any permanent impairment to the value
of the
Birchington shares as of December 31, 2005.
In
connection with the Birchington Agreements, the Company issued
1,185,000 shares
of its common stock to consultants. These shares were reflected
as a dilution to
the value per share recorded by the Company in the Birchington
transactions.
As
of
December 31, 2005, the Company’s investment in an open-end mutual fund
approximated its cost of $302,841. The Company considers its investment
in this
account as being held for trading. During the year ended December
31, 2005, the
Company sold $1,304,062 of this investment and recognized a net
loss on the
transactions totaling $115, which was charged to operations.
Investments
as of December 31, 2005 are as follows:
|
|
Adjusted
|
|
Unrealized
|
|
Fair
|
|
|
|
Cost
|
|
Loss
|
|
Value
|
|
Marketable
trading securities
|
|
$
|
302,841
|
|
$
|
-
|
|
$
|
302,841
|
|
Marketable
available-for-sale securities:
|
|
|
|
|
|
|
|
|
|
|
Langley
|
|
$
|
283,410
|
|
$
|
(121,217
|
)
|
$
|
162,193
|
|
Non-marketable
securities:
|
|
|
|
|
|
|
|
|
|
|
Birchington
|
|
$
|
3,582,600
|
|
$
|
-
|
|
$
|
3,582,600
|
|
NOTE
4 - PREPAID SERVICES
In
August
2005, the Company entered into an agreement with a consultant.
The agreement has
a one-year term and provides for compensation of 250,000 nonforfeitable
shares
of the Company’s common stock. These shares were valued at their quoted market
price at the date of issuance totaling $525,000. As of December
31, 2005,
$306,250 of the unamortized compensation cost was included in prepaid
services
in the accompanying consolidated balance sheet and $218,750 of
amortized
compensation cost was included in general and administrative expenses
in the
accompanying consolidated statement of operations.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
The
following is a summary of property and equipment at December 31,
2005:
Office
and computer equipment
|
|
$
|
24,818
|
|
Manufacturing
equipment
|
|
|
132,273
|
|
|
|
|
157,091
|
|
Less
accumulated depreciation
|
|
|
(146,191
|
)
|
|
|
$
|
10,900
|
|
Depreciation
charged to operations was $6,536 and $6,464, for 2005 and 2004,
respectively.
The Company's equipment has been pledged as collateral on the agreement
with
Advanced Technology Center (see Note 11).
Intangible
assets consist of the following at December 31, 2005:
|
|
Period
of
Amortization
|
|
|
|
Patent
costs
|
|
|
17
years
|
|
$
|
28,494
|
|
License
agreement (see Note 7)
|
|
|
17
years
|
|
|
6,250
|
|
Website
|
|
|
5
years
|
|
|
5,200
|
|
|
|
|
|
|
|
39,944
|
|
Less
accumulated amortization
|
|
|
|
|
|
(34,172
|
)
|
|
|
|
|
|
$
|
5,772
|
|
Amortization
charged to operations for 2005 and 2004 was $2,116, and $2,116,
respectively.
Future
aggregate amortization of intangible assets is as follows:
|
|
$
|
1,856
|
|
2007
|
|
|
1,076
|
|
2008
|
|
|
1,076
|
|
2009
|
|
|
1,076
|
|
2010
|
|
|
688
|
|
|
|
|
|
|
|
|
$
|
5,772
|
|
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
7 - LICENSE AGREEMENT
The
Company has entered into a license agreement with the University
of Pennsylvania
(the “University”) for the development and marketing of EFS. EFS is designed to
measure electrochemically the state of fatigue damage in a metal
structural
member. The Company is in the final stage of developing EFS.
Under
the
terms of the agreement, the Company issued to the University 13
shares of its
common stock, and a 5% royalty on sales of the product. The Company
valued the
license 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 the license agreement, the Company also agreed to sponsor
the
development of EFS. Under the sponsorship agreement, the Company
agreed to
reimburse the University development costs totaling approximately
$200,000, 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
procurement and maintenance of its patents on EFS.
The
Company and the University agreed to modify the terms of the license
and
sponsorship agreements and related obligation. The modification
of the license
agreement increased the University's royalty to 7% of the sale
of related
products and provided for 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 modification, subject to anti-dilution adjustments.
The
modification of the sponsorship agreement included paying 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 September 30, 1997, the balance accrued compound
interest at a
rate of 1.5% per month (19.6% effective annual rate) until maturity
on December
16, 2001, when the loan balance and accrued interest became fully
due and
payable.
In
August
2005, the parties entered into an agreement (the “Workout Agreement”) that again
modified the terms of the Company’s obligation under the sponsorship agreement.
Pursuant to the Workout Agreement, retroactive to January 1, 2005,
interest will
be charged only on the December 31, 2004 balance of $760,831 (“Remaining
Obligation”) at a monthly rate of 0.5% simple interest. The Company is obligated
to pay $25,000 annually due on the anniversary date of the Workout
Agreement.
Further, the Company is also obligated to pay within ten days following
the
filing of the Company’s Forms 10-Q or 10-K an amount equal to 10% of the
Company’s net income before extraordinary items and income taxes as reflected
in
the quarterly and annual filings. Under the revised terms of the
Workout
Agreement, Mr. Bernstein’s, the Company’s president, annual cash salary is
capped at $250,000. The Company agreed to pay the University an
amount equal to
any cash salary paid to Mr. Bernstein in excess of the $250,000,
which will be
credited against the Remaining Obligation. In accordance with the
terms of the
Workout
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
7 - LICENSE AGREEMENT, continued
Agreement,
the Company issued 4,552,000 shares of its common stock to the
University in
September 2005, representing 5.25% of the Company's outstanding
shares as of the
date of the Workout Agreement. The University cannot sell the shares
for 18
months. The Company valued the shares at $7,738,400, which was
charged to
operations to other expense as a modification of its research and
development
sponsorship agreement. The shares were valued at their quoted market
price on
the date of issuance less a 15% discount for the sales restriction.
Interest
expense charged to operations for the years ended December 31,
2005 and 2004
amounted to $45,354 and $122,828, respectively. The balance of
the obligation
(including accrued interest) at December 31, 2005 was $781,185
and is reflected
in research and development sponsorship payable in the accompanying
consolidated
balance sheet. The current portion represents the minimum annual
payment under
the Workout Agreement, while the remaining balance is reflected
as non-current
as the Company does not expect to be required to make additional
payments during
2006.
NOTE
8 - NOTES PAYABLE
On
May
27, 1994, the Company borrowed $25,000 from a shareholder. The
loan is evidenced
by a promissory note bearing interest at 6.5 percent. The note
is secured by the
Company’s patents and matured on May 31, 2002. The loan has not been paid
and is
now in default. As additional consideration for the loan, the Company
granted to
the shareholder a 1% royalty interest in the Fatigue Fuse and a
0.5% royalty
interest in EFS (see Note 11). The balance due on this loan as
of December 31,
2005 was $53,515. Interest charged to operations for both 2005
and 2004 was
$1,623.
In
October 1996, the Company borrowed $25,000 from an unrelated third
party. The
loan bears interest at an annual rate of 11% and matured on October
15, 2000.
The Company issued warrants to the lender for the purchase of 25
shares of the
Company’s common stock at a price of $1.00 per share. The loan balance
as of
December 31, 2005 was $25,000. Interest charged to operations on
this loan was
$2,750 in both 2005 and 2004. The Company did not pay any principal
amounts due
on this note when it matured on October 15, 2000 and the note is
in default. In
2004, the Company issued the note holder 25,000 shares of its common
stock as
additional compensation for the failure to pay off the indebtedness.
The shares
are subject to a three-year lockup agreement and were valued at
$59,500 and
charged to interest expense (see Note 11).
On
April
28, 2003, the Company borrowed $10,000 from an unrelated third
party. The loan
is unsecured, non-interest bearing and due on demand.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
9 - CONVERTIBLE DEBENTURES
Palisades
On
September 23, 2003, the Company entered into a Class A Secured
Convertible
Debenture (the “Debentures”) with Palisades Capital, LLC or its registered
assigns (“Palisades”), pursuant to which Palisades agreed to loan the Company up
to $1,500,000. On December 1, 2003, after Palisades had funded
$240,000 of the
original Debentures, the Company entered into additional Class
A Secured
Convertible Debentures with two additional investors, pursuant
to which such
investors would loan the Company up to $650,000 each, and the Company
agreed
that Palisades would not make additional advances under the Debentures.
At
December 31, 2005, the Company has received a total of $1,125,000
under the
Debentures.
Under
the
Debentures, each holder has the option to convert the principal
amount of all
monies loaned under the Debentures, together with accrued interest,
into common
stock of the Company at the lesser of (i) 50% of the average ten
closing prices
for the Company’s common stock for the ten days immediately preceding the
conversion date or (ii) $0.10 (the lesser of the two being referred
to as the
“Conversion Price.”) In addition, the Debentures provide that in the event the
conversion price is less than $0.10 per share when the holder elects
to convert,
the Company would have the right, at any time during the 75 days
following the
date of the holder’s notice of conversion, to prepay all or a portion of the
Debentures that have been requested to be converted and the Company
would
therefore not be required to issue the conversion shares.
Since
the
Debentures allow the holders to convert the outstanding principal
amount into
shares of the Company’s common stock at a discount to fair value, the Company
recorded the fair value of the conversion feature of $1,125,000
in 2004. The
amount was recorded as a debt discount and is being amortized as
interest
expense over the life of the Debentures. Total interest expense
related to the
amortization of the discount was $399,420 and $326,161 for the
years ended
December 31, 2005 and 2004, respectively. There was no change in
the fair value
of the conversion feature (included in derivative liabilities)
during 2005 and
2004.
The
Company’s president entered into a voting agreement and irrevocable proxy,
which
provides that as of September 23, 2006, if an event of default
(as defined in
the Debentures) continues for a period of not less than 30 days,
all Class B
common stock which Mr. Bernstein owns of record, or becomes the
owner of record
in the future will be voted in accordance with the direction of
a third party
named in the Debentures (an affiliate of Palisades) or his designated
successor.
This loss of Mr. Bernstein’s voting rights would affect a change in the voting
control of the Company.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
9 - CONVERTIBLE DEBENTURES, continued
The
Debentures bear interest at an annual rate of 10%, are secured
by substantially
all assets of the Company and mature on September 23, 2006, when
all principal
and accrued interest becomes payable. Advances to the Company totaled
$0 and
$785,000 during the years ended December 31, 2005, and 2004, respectively.
The
balance of the Debentures, including accrued interest, at December
31, 2005 was
$951,043 (net of unamortized discount of $399,420). Interest expense
on the
Debentures, excluding amortization of the discount, was $127,010
and $93,119
during the years ended December 31, 2005 and 2004, respectively.
GGI
To
obtain
funding for ongoing operations, the Company entered into a Securities
Purchase
Agreement (the “SPA”) and various amendments to the SPA with Golden Gate
Investors, Inc. (“GGI”) on December 16, 2005 for the sale of (i) $40,000 in
unsecured convertible debentures (the “Notes”) and (ii) warrants to purchase
4,000,000 shares of the Company’s common stock.
The
Notes
bear interest at 5.25% per annum, mature three years from the date
of issuance
and are convertible into the number of shares of the Company’s common stock
equal to the dollar amount of the Notes being converted multiplied
by 110, less
the product of the conversion formula multiplied by 100 times the
dollar amount
of the Notes being converted, which is divided by the conversion
formula. The
conversion formula is the lesser of (i) $0.70, (ii) eighty percent
of the
average of the three lowest volume weighted average prices during
the twenty
trading days prior to the conversion or (iii) eighty percent of
the volume
weighted average price on the trading day prior to the conversion.
Accordingly,
there is no limit on the number of shares into which the Notes
may be converted.
The Company has agreed to register the shares that may be issued
upon conversion
of the Notes and exercise of the related warrants.
Beginning
in the first full calendar month after the registration statement
is declared
effective, GGI has agreed to convert at least 5%, but no more than
10% of the
face value of the Notes into shares of the Company’s common stock. If GGI
converts more than 5% of the Notes in any calendar month, the excess
over 5%
shall be credited against the subsequent month’s minimum conversion amount. If
GGI fails to convert at least 5% of the face amount of the Notes
in any given
calendar month, GGI will not be entitled to collect interest on
the Notes for
that month. If the volume weighted average price of the Company’s common stock
is below $0.20, the Company shall have the right to prepay that
portion of the
Notes that GGI is required to convert, plus any accrued but unpaid
interest at
130% of such amount. If at any time during the calendar month,
the volume
weighted average price is below $0.10, GGI shall not be obligated
to convert any
portion of the Notes during that month.
Beginning
in the first full month after the registration statement is declared
effective,
GGI has agreed to exercise at least 5%, but no more than 10%, of
the warrants
per calendar month at an exercise price of $1.09 per share. If
GGI exercises
more than 5% of warrants in any calendar month, the excess over
5% shall be
credited against the subsequent month’s minimum exercise amount. If GGI fails to
exercise at least 5% of the warrants in any given calendar month,
GGI will not
be entitled to collect interest on the Notes for that month. The
warrants are
exercisable through the maturity date of December 16, 2008.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
9 - CONVERTIBLE DEBENTURES, continued
At
any
time prior to the registration statement being declared effective,
GGI may
demand repayment of 130% of the principal amount of the Notes,
plus all accrued
and unpaid interest thereon, in cash within 10 days of such demand.
Additionally, the Company will be required to issue and pay to
GGI 50,000 shares
of common stock and $15,000 in cash for each 30-day period, or
portion thereof,
that the Registration Statement is not effective. The cash payment
increases to
$20,000 for each 30-day period, or portion thereof, after the first
90-day
period.
The
full
principal amount of the Notes is due upon a default under the terms
of the
agreement. The Company plans to file a registration statement within
60 days of
closing, which will include the common stock underlying the Notes
and the
warrants. If the registration statement is not declared effective
within 120
days from the date of filing, the Company will be required to pay
a penalty to
GGI (see above). In the event the Company breaches any representation
or
warranty in the SPA, the Company is required to pay in cash, 130%
of the then
outstanding principal balance of the Notes, plus accrued and unpaid
interest.
For
a
period of one year after the effective date of the SPA, GGI has
agreed to
restrict their ability to convert their Notes or exercise their
warrants and
receive shares of the Company’s common stock such that the number of shares of
common stock held by them in the aggregate and their affiliates
after such
conversion or exercise does not exceed 9.99% of the then issued
and outstanding
shares of common stock.
The
Notes
include certain features that are considered embedded derivative
financial
instruments, such as the conversion feature, events of default
and a variable
liquidated damages clause. These features are described below,
as follows:
•
The
Notes’ conversion feature is identified as an embedded derivative and
has been
bifurcated and recorded on the Company’s balance sheet at its fair value;
•
The
SPA
includes a penalty provision based on any failure to meet registration
requirements for shares issuable under the conversion of the Notes
or exercise
of the warrants, which represents an embedded derivative, but such
derivative
has a de minimus value and has not been recorded in the accompanying
consolidated financial statements; and
•
The
SPA
contains certain events of default including not having adequate
shares
registered to effectuate allowable conversions; in that event,
the Company is
required to pay a conversion default payment at 130% of the then
outstanding
principal balance on the Notes, which is identified as an embedded
derivative,
but such derivative has a de minimus value and has not been recorded
in the
accompanying consolidated financial statements.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
9 - CONVERTIBLE DEBENTURES, continued
In
conjunction with the Notes, the Company issued warrants to purchase
4,000,000
shares of common stock. The accounting treatment of the derivatives
and warrants
requires that the Company record the warrants at their fair values
as of the
inception date of the agreement, which totaled $326,600.
The
initial fair value assigned to the embedded derivatives and warrants
was
$5,957,188. The Company recorded the first $40,000 of fair value of the
derivatives and warrants to debt discount (equal to the total proceeds
received
as of December 31, 2005), which will be amortized to interest expense
over the
term of the Notes. No amortization was recorded for the year ended
December 31, 2005. The remaining balance of $5,917,188 was recorded as
interest expense for the year ended December 31, 2005.
The
market price of the Company’s common stock significantly impacts the extent to
which the Company may be required or may be permitted to convert
the
unrestricted and restricted portions of the Notes into shares of
the Company’s
common stock. The lower the market price of the Company’s common stock at the
respective times of conversion, the more shares the Company will
need to issue
to convert the principal and interest payments then due on the
Notes. If the
market price of the Company’s common stock falls below certain thresholds, the
Company will be unable to convert any such repayments of principal
and interest
into equity, and the Company will be forced to make such repayments
in cash. The
Company’s operations could be materially adversely impacted if the Company
is
forced to make repeated cash payments on the Notes.
Future
minimum principal payments are as follows under the Debentures
and Notes for the
years ending December 31:
|
|
$
|
1,350,463
|
|
2007
|
|
|
-
|
|
2008
|
|
|
40,000
|
|
|
|
$
|
1,390,463
|
|
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
The
provision for income taxes consists of the following for the years
ended
December 31:
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
$
|
-
|
|
State
|
|
|
800
|
|
|
800
|
|
|
|
|
800
|
|
|
800
|
|
Deferred:
|
|
|
|
|
|
|
|
Federal
|
|
|
7,055,000
|
|
|
7,944,000
|
|
State
|
|
|
1,245,000
|
|
|
2,254,000
|
|
Less
change in valuation allowance
|
|
|
(8,300,000
|
)
|
|
(10,198,000
|
)
|
-
|
|
|
|
|
|
-
|
|
|
|
$
|
800
|
|
$
|
800
|
|
Deferred
income taxes are provided for the tax effects of temporary differences
in the
reporting of income for financial statement and income tax reporting
purposes
and arise principally from net operating loss carryforwards and
unrealized and
“other than temporary” losses on marketable securities.
The
components of the net deferred tax asset as of December 31, 2005
are as
follows:
Deferred
tax asset
|
|
$
|
24,249,000
|
|
Less
valuation allowance
|
|
|
(24,249,000
|
)
|
|
|
$ |
- |
|
The
Company’s effective tax rate differs from the federal and state statutory
rates
due to warrant and derivative deductions not being deductible for
income tax
purposes and the valuation allowance recorded for the deferred
tax asset due to
unused net operating loss carryforwards. An allowance has been
provided for by
the Company which reduced the tax benefits accrued by the Company
for its net
operating losses to zero, as it cannot be determined when, or if,
the tax
benefits derived from these operating losses will materialize.
As
of
December 31, 2005, the Company has available net operating loss
carryforwards of
approximately $47,000,000 for federal and state purposes which
expire in various
years through 2025 and 2019 for federal and California purposes,
respectively.
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.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
11 - COMMITMENTS AND CONTINGENCIES
Royalties
On
December 24, 1985, to provide funding for research and development
of the
Fatigue Fuse, the Company entered into various agreements with
the Tensiodyne
1985-I R & D Partnership (the “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
of approximately $912,500 plus accrued interest.
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 sublicense
revenue.
The royalty is limited to the $45,000 plus an 11% annual rate of
return. At
December 31, 2005, the future royalty commitment is approximately
$344,000. The
payment of future royalties is secured by equipment used by the
Company in the
development of technology as specified in the funding agreement.
On
May 4,
1987, the Company entered into another 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 sublicense 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, 2005, the total future royalty
commitments,
including the accumulated 26% annual rate of return, were approximately
$6,142,000. 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 that are related to the technology developed
with the
funding.
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 shares of its common stock to Variety, Variety
reduced its
royalty interest to 20%. In 1998, in exchange for the Company issuing
733 shares
of its common stock to Variety, Variety reduced its royalty interest
to 5%.
As
discussed in Note 8, the Company granted a 1% royalty interest
in the Company's
Fatigue Fuse and a 0.5% royalty interest in EFS to a shareholder
as partial
consideration on a $25,000 loan made by the shareholder to the
Company.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
A
summary
of royalty interests that the Company has granted and are outstanding
as of
December 31, 2005 follows:
|
Fatigue
Fuse
|
EFS
|
Tensiodyne
1985-1 R&D Partnership
|
10.00%
*
|
-
|
Advanced
Technology Center:
|
|
|
Future
gross sales
|
6.00%
*
|
-
|
Sublicensing
fees
|
12.00%
**
|
-
|
Variety
Investments, Ltd.
|
5.00%
|
-
|
University
of Pennsylvania (see Note 7)
|
|
|
Net
sales of licensed products
|
-
|
7.00%
|
Net
sales of services
|
-
|
2.50%
|
Shareholder
|
1.00%
|
0.50%
|
* Royalties
limited to specific rates of return as discussed above.
** The
Company granted 12% royalties on sales from sublicense. These royalties
are also
limited to specific rates of return as discussed above.
Through
December 31, 2005, the Company owes no royalties under any agreements,
as sales
of the products have not yet begun.
Operating
Leases
The
Company leases its existing office on a month-to-month basis. Rental
expense
charged to operations for the years ended December 31, 2005 and
2004 was $28,176
and $28,171, respectively, which consisted solely of minimum rental
payments.
Litigation
In
July
2002, the Company settled its pending lawsuit related to a contract
dispute with
Mr. Stephen Beck. Mr. Beck has recently contacted the Company concerning
an
alleged breach of the above settlement. No lawsuit has been filed
and
negotiations regarding these matters are ongoing.
The
Company has been named as a defendant in a lawsuit alleging breach
of contract
due to the Company’s failure to pay certain amounts due to a consultant for
services. The Company asserts that the contract was unenforceable
due to a
number of factors. The lawsuit is in the early stages and no discovery
has yet
occurred. Legal counsel has advised the Company that it is premature
to estimate
the outcome or the range of damages that may occur if the case
is not settled in
the Company’s favor.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
11 - COMMITMENTS AND CONTINGENCIES, continued
In
the
ordinary course of business, The Company may be from time to time
involved in
various pending or threatened legal actions. The litigation process is
inherently uncertain and it is possible that the resolution of
such matters
might have a material adverse effect upon our financial condition
and/or results
of operations. However, in the opinion of our management, matters
currently pending or threatened against us are not expected to
have a material
adverse effect on the Company’s financial position or results of operations.
Indemnities
and Guarantees
During
the normal course of business, the Company has made certain indemnities
and
guarantees under which it may be required to make payments in relation
to
certain transactions. These indemnities include certain agreements
with the
Company’s officers under which the Company may be required to indemnify
such
person for liabilities arising out of their employment relationship.
They also
include indemnities made to the holders of the convertible debentures
and the
sellers of investments in securities. The duration of these indemnities
and
guarantees varies, and in certain cases, is indefinite. The majority
of these
indemnities and guarantees do not provide for any limitation of
the maximum
potential future payments the Company would be obligated to make.
Historically,
the Company has not been obligated to make significant payments
for these
obligations and no liability has been recorded for these indemnities
and
guarantees in the accompanying consolidated balance sheet.
NOTE
12 - STOCKHOLDERS' DEFICIT
Class
A Preferred Stock
The
holders of the Class A convertible preferred stock have a liquidation
preference
of $720 per share. Such amounts shall be paid on all outstanding
Class A
preferred 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 $0.72 ("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.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
12 - STOCKHOLDERS' DEFICIT, continued
Class
B Preferred Stock
The
Company has designated 15 shares of Class B preferred stock, of
which no shares
have been issued. The holders of Class B preferred shares are entitled to
a liquidation preference of $10,000 per share. Such amounts shall be paid
on all outstanding Class B preferred shares before any payment
shall be made or
any assets distributed to the holders of common stock or of any
other stock of
any series or class junior to the shares as to dividends or assets,
but junior
to Class A preferred shareholders. Holders of Class B preferred shares are
not entitled to any liquidation distributions in excess of $10,000
per share.
The
shares are redeemable by the holder or the Company at $10,000 per
share. The
holders of these shares shall have the right to vote at one vote
per Class B
preferred share and shall participate in all common stock dividends
declared and
paid according to a formula as defined in the series designation.
Class
C Preferred Stock
Each
shareholder of Class C preferred stock is entitled to receive a
cumulative
dividend of 8% per annum for a period of two years. Dividends do
not accrue or
are payable except out of earnings before interest, taxes, depreciation
and
amortization. At December 31, 2005, no dividends are payable to
Class C
preferred shareholders. Holders of the Class C preferred stock
are junior to
holders of the Company’s Class A and B preferred stock, but hold a higher
position than common shareholders in terms of liquidation rights.
Holders of
Class C preferred stock have no voting rights. Holders of Class
C preferred
stock have the right to convert their shares to common stock on
a one-to-one
basis.
The
Company requires an approval of at least two-thirds of the holders
of Class C
preferred shareholders to alter or change their rights or privileges
by way of a
reverse stock split, reclassification, merger, consolidation or
otherwise, so as
to adversely affect the manner by which the shares of Class C preferred
stock
are converted into common shares.
During
2004, 2,700 shares of Class C preferred stock were converted into
2,700 shares
of common stock.
Class
D Preferred Stock
Holders
of Class D preferred stock have a $0.001 liquidation preference,
no voting
rights and are junior to holders of all classes of preferred stock
but senior to
common shareholders in terms of liquidation rights. Class D preferred
stockholders are entitled to dividends as declared by the Company’s Board of
Directors, which have not been declared as of December 31, 2005.
Each share of
Class D preferred stock is convertible at the holder’s option into one share of
the Company’s common stock.
During
2005, 500,000 shares of Class D preferred stock were converted
into 500,000
shares of the Company’s common stock. During 2004, 3,520,000 shares of Class D
preferred stock were converted into 3,520,000 shares of the Company’s common
stock.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
12 - STOCKHOLDERS' DEFICIT, continued
Class
A Common Stock
The
holders of the Company's Class A common stock are entitled to one
vote per share
of common stock held. During the year ended December 31, 2005,
the Company
issued 718,500 shares of its common stock for cash proceeds of
$161,550,
received $10,000 for warrant subscriptions, cancelled 2,084 shares
of its common
stock for no consideration and repurchased 76,800 shares of its
common stock in
the public market for $26,136. These shares are being held in treasury
for
cancellation. During the year ended December 31, 2004, the Company
issued
1,210,835 shares of its common stock for cash proceeds of $212,025
and
repurchased 1,325 shares of its common stock in the public market
for $3,194.
These shares were cancelled in 2004.
In
July
2005, the Company entered into a Regulation S stock purchase agreement
(the
“Ischian Agreement”) with Ischian Holdings, Ltd. (“Ischian”), a British Virgin
Islands company. Pursuant to the Ischian Agreement, Ischian was
able purchase up
to 8.5 million shares of the Company’s common stock through November 2005 at a
stated discount to the bid price of the Company’s common stock. The shares
purchased under the terms of the Ischian Agreement have a one-year
restriction
on resale within the United States. A commission of 15 percent
of the net
proceeds from the sale of the Company’s common stock to Ischian, collectively,
will be paid to two consultants. The Company sold to Ischian 1,580,130
shares of
its common stock for cash proceeds of $153,689 during the year
ended December
31, 2005.
From
time
to time, the Company issues its common shares and holds the shares
in escrow on
behalf of another party until consummation of certain transactions.
The
following is a reconciliation of shares issued and outstanding
as of December
31, 2005:
Issued
shares (including shares committed)
|
|
|
184,199,770
|
|
Less
shares held in escrow:
|
|
|
|
|
Shares
held in escrow as downside price protection on the investment
in Birchington (see Note 3)
|
|
|
(3,555,000
|
)
|
Shares
held as collateral for contemplated debt financing
|
|
|
(40,000,000
|
)
|
Other
|
|
|
(843
|
)
|
|
|
|
(43,555,843
|
)
|
Outstanding
shares (including shares committed)
|
|
|
140,643,927
|
|
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 2,000 votes
for each share
of Class B common stock held.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
12 - STOCKHOLDERS' DEFICIT, continued
Common
Shares Issued for Non Cash Consideration
The
value
assigned to shares issued for services were charged to operations
in the period
issued.
2005
On
January 14, 2005, the Company issued 500,000 shares through the
conversion of
500,000 shares of its Series D preferred stock. On February 7,
2005, the Company
issued 400,000 shares for consulting services. These shares are
subject to a
30-month lock-up agreement and were valued at $555,000. On March
11, 2005, the
Company issued 75,750 shares for consulting services. These shares
are subject
to a two-year lock-up agreement and were valued at $90,000. On
March 24, 2005,
the Company issued 500,000 shares for consulting services. The
shares are
subject to a two-year lockup and were valued at $580,000.
On
April
4, 2005 the Company issued 5,000 shares for consulting services. These
shares are subject to a two-year lock-up agreement and were valued
at
$4,800. On April 13, 2005, the Company issued 50,000 shares to an employee
for compensation. These shares are subject to a two-year lock-up agreement
and were valued at $54,000. On April 20, 2005, the Company issued 10,000
shares of its common stock to a shareholder pursuant to an agreement
whereby all
Company shares held by him are locked up for one year. The Company valued
these shares at $11,700. On April 26, 2005, the Company issued 125,000
shares for research consulting services. These shares are subject to a
two-year lock-up agreement and were valued at $130,000. On May 17, 2005,
the Company issued 5,850,000 shares of its common stock in exchange
for
8,307,000 shares of common stock of Birchington (see Note 3). These shares
are subject to a one-year lock-up agreement and were valued at
$1,661,400.
Additionally, the Company issued 885,000 shares to consultants
in connection
with the transaction (300,000 of which were issued for $300 in
addition to
services rendered), which were reflected as a reduction of the
per share value
of the Company shares issued.
On
August
3, 2005, the Company issued 250,000 shares for prepaid consulting
services
valued at $525,000. The value of the shares is being amortized to expense
over the one-year term of the consulting agreement. As of December 31,
2005, $306,250 is reflected as prepaid consulting in the accompanying
consolidated balance sheet (see Note 4). On September 14, 2005, the
Company issued 4,552,000 shares to the University of Pennsylvania
pursuant to
the terms of the Workout Agreement (see Note 8). The shares are subject to
an 18-month sales restriction and were valued at $7,738,400. On September
26, 2005, the Company issued its corporate secretary 200,000 shares
for services
and issued 700,000 shares to two directors for services rendered
in connection
with the Company’s research and development efforts. The 900,000 shares
are subject to a two-year sales restriction and have been valued
at
$1,080,000. On September 27, 2005, the Company issued 6,000,000 shares in
exchange for 9,606,000 shares of Birchington valued at $1,921,200
(see Note 3)
and subject to a one-year sales restriction. In addition, the Company also
issued 600,000 shares to consultants in connection with the Birchington
transaction, which were reflected as a reduction of the per share
value of the
Company shares issued.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
12 - STOCKHOLDERS' DEFICIT, continued
On
October 4, 2005, the Company issued 50,000 shares of its common
stock to a
consultant valued at $67,500. On October 4, 2005, the Company committed to
issue 30,135,172 shares to warrant holders in connection with their
cashless
exercise of 31,000,000 warrants. These shares were not issued until
January 2006 (see Note 15), but are reflected as outstanding at
December 31,
2005 as the Company was contractually committed to issue the shares. On
October 27, 2005, the Company issued 410,000 shares of its common
stock to a
consultant for public relations services valued at $123,000. On October
28, 2005, the Company issued 86,000 shares of its common stock
for legal
services valued at $34,400. On October 31, 2005, the Company issued
192,938 shares of its common stock to minority shareholders of
one of its
subsidiaries as compensation for the subsidiary’s on-going inactive
status. These shares were valued at $67,528. On December 15, 2005
the Company issued 135,747 shares of its common stock for investor
relations
services to a consultant valued at $32,579. On December 30, 2005, the
Company issued 250,000 shares of its common stock for consulting
services valued
at $50,000.
2004
On
January 7, 2004, the Company issued its administrative assistant
25,000 shares
of its common stock for services rendered. These shares are subject
to a
three-year lockup agreement and were valued at 70% of their quoted
market price
at date of issuance amounting to $48,125. On February 11, 2004,
the Company
issued 250,000 shares of its common stock for the conversion of
500,000 shares
of its Class D preferred stock. On February 12, 2004, the Company
issued to two
consultants a total of 550,000 shares of its common stock for services
rendered.
These shares are subject to a three-year lockup agreement and were
valued at 70%
of their quoted market price at date of issuance amounting to $1,135,750.
On
February 12, 2004, the Company issued its outside accountant 25,000
shares of
its common stock as payment on past due invoices. These shares
are subject to a
three-year lockup agreement and were valued at the amount of indebtedness
cancelled of $25,000. On March 8, 2004, the Company issued 200,000
shares of its
common stock for the conversion of 200,000 shares of its Class
D preferred
stock. On March 16, 2004, the Company issued to a consultant 25,000
shares of
its common stock for services rendered. These shares are subject
to a three-year
lockup agreement and were valued at 70% of their quoted market
price at date of
issuance amounting to $53,550. On March 26, 2004, the Company issued
to a
consultant 25,000 shares of its common stock for services rendered.
These shares
are subject to a three-year lockup agreement and were valued at
70% of their
quoted market price at date of issuance amounting to $55,125.
On
April
23, 2004, the Company issued 250,000 shares of its common stock
for the
conversion of 250,000 shares of its Class D preferred stock. On
May 12, 2004,
the Company issued 25,000 shares of its common stock to a note
holder as
additional consideration for its delay in paying off the principal
balance owed
(see Note 8). These shares are subject to a three-year lockup agreement
and were
valued at 70% of their quoted market price at date of issuance
amounting to
$59,500. On May 13, 2004, the Company issued 250,000 shares of
its common stock
for the conversion of 250,000 shares of its Class D preferred stock.
On May 25,
2004, the Company issued to a consultant 10,000 shares of its common
stock for
services rendered. These shares are subject to a three-year lockup
agreement and
were valued at 70% of their quoted market price at date of issuance
amounting to
$24,150.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
12 - STOCKHOLDERS' DEFICIT, continued
On
June
1, 2004, the Company issued 2,700 shares of its common stock for
the conversion
of 2,700 shares of its Class C preferred stock. On June 18, 2004,
the Company
issued to a consultant 120,000 shares of its common stock for services
rendered.
These shares are subject to a three-year lockup agreement and were
valued at 70%
of their quoted market price at date of issuance amounting to $285,600.
On June
30, 2004, the Company issued an attorney 50,000 shares of its common
stock as
payment on past due invoices. The shares issued are subject to
a three-year
lockup agreement and were valued at the amount of indebtedness
cancelled of
$39,467. On June 30, 2004, the Company issued to a consultant 3,000
shares of
its common stock for services rendered. These shares were valued
at their quoted
market price at date of issuance amounting to $10,200. On July
27, 2004, the
Company issued 1,000,000 of its common stock to Mr. William Berks,
the Company’s
vice-president, for services rendered. These shares are subject
to a three-year
lockup agreement and were valued at 70% of their quoted market
price at date of
issuance amounting to $2,380,000.
On
July
27, 2004, the Company issued to a consultant 300 shares of its
common stock for
services rendered. These shares were valued at their quoted market
price at date
of issuance amounting to $1,020. On August 9, 2004, the Company
issued to a
consultant 1,800 shares of its common stock for services rendered.
These shares
were valued at their quoted market price at date of issuance amounting
to
$6,120. On August 16, 2004, the Company issued 1,000 shares of
its common stock
in connection with its Regulation S offering. These shares were
valued at their
quoted market price at date of issuance amounting to $3,400. On
August 16, 2004,
the Company issued three consultants a total of 599,000 shares
of its common
stock for services rendered. These shares are subject to a three-year
lockup
agreement and were valued at 70% of their quoted market price at
date of
issuance amounting to $1,341,760. On August 24, 2004, the Company
issued to two
consultants a total of 5,600 shares of its common stock for services
rendered.
These shares were valued at their quoted market price at date of
issuance
amounting to $18,200. On September 2, 2004, the Company issued
7,500 shares of
its common stock to Mr. William Berks, the Company’s vice-president, for
services rendered. These shares were valued at their quoted market
price at date
of issuance amounting to $24,000. On September 28, 2004, the Company
issued a
consultant 1,000 shares of its common stock for services rendered.
These shares
were valued at their quoted market price at date of issuance amounting
to
$3,020.
On
October 1, 2004, the Company issued 8,666,666 shares of its common
stock in
exchange for 7,158,590 shares of Langley. The shares issued were
valued at the
market price of the shares received of $12,973,513. On October
1, 2004, the
Company issued to a consultant 36,923 shares of its common stock
for services
rendered. These shares are subject to a three-year lockup agreement
and were
valued at 70% of their quoted market price at date of issuance
amounting to
$78,572. On October 1, 2004, the Company issued to a consultant
1,000 shares of
its common stock for services rendered. These shares were valued
at their quoted
market price at date of issuance amounting to $2,128. On October
6, 2004, the
Company issued to a consultant 200,000 shares of its common stock
for services
rendered. These shares are subject to a three-year lockup agreement
and were
valued at 70% of their quoted market price at date of issuance
amounting to
$425,600. On October 13, 2004, the Company issued 2,570,000 shares
of its common
stock for the conversion of 2,570,000 shares of its Class D preferred
stock.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
12 - STOCKHOLDERS' DEFICIT, continued
On
October 15, 2004, the Company issued Joel Freedman, a director
and corporate
officer, 2,260,000 shares of its common stock for services rendered.
These
shares are subject to a two-year lockup agreement and were valued
at 80% of
their quoted market price at date of issuance amounting to $4,972,000.
On
October 15, 2004, the Company issued John Goodman, a director and
corporate
officer, 1,500,000 shares of its common stock for services rendered.
These
shares are subject to a two-year lockup agreement and were valued
at 80% of
their quoted market price at date of issuance amounting to $2,760,000.
On
October 25, 2004, the Company issued 100,000 shares of its common
stock to a
consultant for services rendered. These shares are subject to a
three-year
lockup agreement and were valued at 70% of their quoted market
price at date of
issuance amounting to $210,000. On November 22, 2004, the Company
issued its
administrative assistant 25,000 shares of its common stock for
services
rendered. These shares are subject to a three-year lockup agreement
and were
valued at 70% of their quoted market price at date of issuance
amounting to
$39,375. On November 29, 2004, the Company issued an additional
24,800 shares of
its common stock to certain shareholders in connection with its
Regulation S
Offering at no additional consideration than what these shareholders
previously
paid for the original shares issued. On December 17, 2004, the
Company issued to
two consultants a total of 175,000 shares of its common stock for
services
rendered. These shares are subject to a two-year lockup agreement
and were
valued at 80% of their quoted market price at date of issuance
amounting to
$315,000.
NOTE
13 - RELATED PARTY TRANSACTIONS
During
2003, the Company issued 5,000,000 shares of its common stock to
the Company’s
president in consideration for a promissory note. The value assigned
to shares
and the related promissory note was discounted for illiquidity
and restrictions
on resale amounting to $50,000. The note bears interest at an annual
rate of 6%
and matures on September 26, 2006, when the $50,000 plus accrued
interest
becomes fully due. The balance of the note as of December 31, 2005
and 2004 was
$59,085 and $55,096, respectively. Interest of $3,989 and $4,000
was credited to
operations during 2005 and 2004, respectively.
During
2004, the Company paid its president $196,000 of the accrued compensation
the
Company owed him. Mr. Bernstein paid down the net loan balance
he owed the
Company by $90,450. The remaining balance due from him at December
31, 2004 was
$1,950. Interest credited to operations on this loan for 2004 amounted
to
$8,460. In 2005, additional interest income of $203 was credited
to operations
and added to the balance of the note, increasing the note balance
to $2,153 at
December 31, 2005.
During
2005, the Company issued 900,000 shares of its common stock to
three directors
as compensation for services. The Company valued the shares at
the quoted market
price at date of issuance less discounts due to limitations on
the
transferability of the shares. The aggregate value was $1,080,000.
During 2004,
the Company issued 4,767,500 shares of its common stock to three
directors as
compensation for services. The Company valued the shares at the
quoted market
price at date of issuance less discounts due to limitations on
the
transferability of the shares. The aggregate value was $10,136,000.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
Stock
Options
The
Company has three stock option plans: The 1998 Stock Plan (“the 1998 Plan”), the
2002 Stock Issuance/Stock Plan (“the 2002 Plan”) and the 2003 Stock Option, SAR
and Stock Bonus Consultant Plan (“the 2003 Plan”).
In
September 1998, the Company adopted the 1998 Plan and reserved
800,000 shares of
its common stock for grant under the plan. Eligible participants
include
employees, advisors, consultants and officers who provide services
to the
Company. The option price is 100% of the fair market value of a
share of common
stock at either the date of grant or such other day as the as the
Board may
determine. The plan expires upon the earlier of all reserved shares
being
granted or September 10, 2008.
In
February 2002, the Company adopted the 2002 Plan and reserved 20,000,000
shares
of its common stock for grant under the plan. Eligible plan participants
include
employees, advisors, consultants and officers who provide services
to the
Company. The option price is 100% of the fair market value of a
share of common
stock at either the date of grant or such other day as the Board
may determine.
The plan expires upon the earlier of all reserved shares being
awarded or
December 31, 2007.
In
September 2003, the Company adopted the 2003 Plan and reserved
and 10,000,000
shares of its common stock for grant. Eligible plan participants
include
independent consultants. The option price shall be no less than
85% of the fair
market value of a share of common stock at date of grant. The plan
expires upon
the earlier of all reserved shares being granted or September 23,
2006.
The
Company also has agreements with two consultants whereby the Company
will grant
options to purchase shares of its common stock upon the Company
increasing its
annual revenue by $5 million in any fiscal year over its revenues
in 2002. The
collective number of shares to be issued will give the two consultants
a fifteen
percent interest in the outstanding shares of the Company’s common stock. No
grants have been made pursuant to these agreements as the Company
has not
achieved the required revenues. There was no activity in any of
the Company’s
stock option plans in 2005 or 2004 and no options were outstanding
as of
December 31, 2005.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
14 - STOCK-BASED COMPENSATION PLANS, continued
Stock
Warrants
As
a
condition to enter into the Debentures (see Note 9), Palisades
required the
Company to settle a legal obligation of $1,583,128 to two attorneys. In
2003, the Company issued 22,000,000 shares of common stock and
warrants to
acquire up to 31,000,000 shares of common stock for $0.10 per share
to eight
investors in settlement of the obligation. Neither the warrants nor the
shares underlying the warrants have been registered with the SEC
pursuant to the
Securities Act of 1933, as amended, or with the securities commission
of any
state. The warrants contain a provision limiting the exercise of the
warrants to a number of shares that do not exceed an amount that
would cause the
holder of each such warrant to beneficially own 4.99% of the outstanding
common
stock of the Company. The warrants may be exercised by paying the exercise
price or they may be exercised on a cashless basis at the option
of the warrant
holder. At December 31, 2005, all of these warrants have been exercised.
A
schedule of activity for the years ended December 31 2005 and 2004
is as
follows:
|
|
Number
of
Warrants
|
|
Weighted
Average
Exercise
Price
|
|
Remaining
Contractual
Life
|
|
Outstanding,
January 1, 2004
|
|
|
31,010,025
|
|
$
|
0.10
|
|
|
7.0
years
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
|
|
Exercised
|
|
|
(3,300
|
)
|
|
(0.50
|
)
|
|
|
|
Cancelled/Expired
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2004
|
|
|
31,006,725
|
|
|
0.10
|
|
|
6.0
years
|
|
Granted
|
|
|
4,000,000
|
|
|
1.09
|
|
|
|
|
Exercised
|
|
|
(31,002,000
|
)
|
|
(0.10
|
)
|
|
|
|
Cancelled/Expired
|
|
|
(4,725
|
)
|
|
(0.50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2005
|
|
|
4,000,000
|
|
$
|
1.09
|
|
|
3.0
years
|
|
NOTE
15 - SUBSEQUENT EVENTS
On
January 3, 2006, the Company entered into two stock purchase agreements,
whereby
the Company issued 10,932,057 shares of its common stock under
each agreement at
a price equal to the lesser of 50% of the market value or $0.0875
per share for
total proceeds that have not been determined.
On
January 4, 2006, the Company sold 285,000 shares of its common
stock for
$14,450.
MATERIAL
TECHNOLOGIES, INC.
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Years Ended December 31, 2005 and 2004
NOTE
15 - SUBSEQUENT EVENTS, continued
On
January 9, 2006, the Company issued 1,476,000 shares of its common
stock to
three consultants for services to be rendered. These shares are
subject to a
two-year lockup agreement and were valued at $236,200.
On
January 12, 2006, the Company issued 250,000 shares of its common
stock for
marketing services to be rendered valued at $42,500.
On
January 16, 2006, the Company issued 3,691,339 shares of its common
stock to
certain shareholders in connection with its Regulation S Offering
for no
additional consideration than what these shareholders previously
paid for the
original shares issued.
On
January 17, 2006, the Company issued 625,000 shares of its common
stock for
$31,250.
On
January 19, 2006, the Company issued 100,000 shares of its common
stock for
$5,500.
On
January 20, 2006, the Company issued 1,420,000 shares of its common
stock for
the conversion of 1,420,000 shares of Class D preferred stock.
On
January 20, 2006, the Company issued 30,135,172 shares of its common
stock for
the cashless exercise of 31,000,000 warrants (see Notes 12 and
14).
On
January 24, 2006, the Company issued 4,000,000 shares of its common
stock
pursuant to a consulting agreement valued at $560,000.
On
January 30, 2006, the Company issued 1,000,000 shares pursuant
to a consulting
agreement valued at $130,000.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our
Articles of Incorporation, as amended and restated, provide to
the fullest
extent permitted by Section 145 of the General Corporation Law
of the State of
Delaware, that our directors or officers shall not be personally
liable to us or
our shareholders for damages for breach of such director's or officer's
fiduciary duty. The effect of this provision of our Articles of
Incorporation,
as amended and restated, is to eliminate our rights and our shareholders
(through shareholders' derivative suits on behalf of our company)
to recover
damages against a director or officer for breach of the fiduciary
duty of care
as a director or officer (including breaches resulting from negligent
or grossly
negligent behavior), except under certain situations defined by
statute. We
believe that the indemnification provisions in our Articles of
Incorporation, as
amended, are necessary to attract and retain qualified persons
as directors and
officers.
Our
By
Laws also provide that the Board of Directors may also authorize
us to indemnify
our employees or agents, and to advance the reasonable expenses
of such persons,
to the same extent, following the same determinations and upon
the same
conditions as are required for the indemnification of and advancement
of
expenses to our directors and officers. As of the date of this
Registration
Statement, the Board of Directors has not extended indemnification
rights to
persons other than directors and officers.
Insofar
as indemnification for liabilities arising under the Securities
Act of 1933 may
be permitted to directors, officers and controlling persons of
the registrant
pursuant to the foregoing provisions, or otherwise, the registrant
has been
advised that in the opinion of the Securities and Exchange Commission
such
indemnification is against public policy as expressed in the Securities
Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant
of expenses
incurred or paid by a director, officer or controlling person of
the registrant
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 registrant will, unless in the opinion of its counsel
the 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 Securities Act and will be governed
by the final
adjudication of such issue.
The
following table sets forth an itemization of all estimated expenses,
all of
which we will pay, in connection with the issuance and distribution
of the
securities being registered:
SEC
Registration fee
|
|
$
|
259.52
|
|
Accounting
fees and expenses
|
|
|
10,000.00
|
* |
Legal
fees and
expenses
|
|
|
35,000.00
|
* |
Miscellaneous
|
|
|
740.48
|
|
TOTAL
|
|
$
|
46,000.00
|
* |
|
|
|
|
|
*
Estimated.
ITEM
26. RECENT SALES OF UNREGISTERED SECURITIES.
Following
is a summary of unregistered securities issued during the period
January 2003
through March 2006. The number of shares of common stock issued
by us as
discussed below have been restated to reflect our September 23,
2003, 1,000:1
reverse stock split as if the stock split took place at the beginning
of each
period presented.
2006
On
January 5, 2006, we issued a total of 285,000 shares of our common
stock,
restricted in accordance with Rule 144, to two individuals for
cash
consideration of $14,450.
On
January 10, 2006, we issued a total of 1,476,000 shares of our
common stock,
restricted in accordance with Rule 144, to three individuals for
services valued
at $236,200.
On
January 16, 2006, we issued a total of 250,000 shares of our common
stock,
restricted in accordance with Rule 144, to one investor for services
valued at
$40,000.
On
January 16, 2006, we issued a total of 3,691,339 shares of our
common stock,
restricted in accordance with Rule 144, to one foreign investor
in an offshore
transaction. Of these shares, 3,506,148 were issued for no additional
consideration to reduce the average per-share price paid by this
investor
pursuant to an agreement. The remaining 185,191 shares were issued
for cash
consideration of $17,684. The issuances were exempt from registration
pursuant
to Regulation S of the Securities Act of 1933, and the shareholders
are
sophisticated, foreign investors who are familiar with our
operations.
On
January 17, 2006, we issued a total of 625,000 shares of our common
stock,
restricted in accordance with Rule 144, to one individual for cash
consideration
of $31,250. .
On
January 18, 2006, we issued a total of 14,088,936 shares of our
common stock,
without restrictive legend pursuant to Rule 144(k) of the Securities
Act of
1933, to five investors upon the cashless exercise of warrants.
On
January 20, 2006, we issued a total of 100,000 shares of our common
stock,
restricted in accordance with Rule 144, to one foreign investor
in an offshore
transaction for cash consideration of $5,480. The issuance was
exempt from
registration pursuant to Regulation S of the Securities Act of
1933, and the
shareholder is a sophisticated, foreign investor who is familiar
with our
operations.
On
January 25, 2006, we issued a total of 4,000,000 shares of our
common stock,
restricted in accordance with Rule 144, to one investor for services
valued at
$512,000.
On
January 25, 2006, we converted 1,420,000 shares of Series D preferred
stock to
1,420,000 shares of Class A common stock.
On
February 1, 2006, we issued a total of 1,000,000 shares of our
common stock,
restricted in accordance with Rule 144, to one investor for services
valued at
$120,000.
On
February 8, 2006, we issued a total of 1,100,000 shares of our
common stock,
restricted in accordance with Rule 144, to two investors for services
valued at
$108,000.
On
February 13, 2006, we issued a total of 1,203,084 shares of our
common stock,
restricted in accordance with Rule 144, to one individual for services
valued at
$173,000.
On
February 21, 2006, we issued a total of 50,000 shares of our common
stock,
restricted in accordance with Rule 144, to one foreign investor
in an offshore
transaction for cash consideration of $2,500. The issuance was
exempt from
registration pursuant to Regulation S of the Securities Act of
1933, and the
shareholder is a sophisticated, foreign investor who is familiar
with our
operations.
On
February 22, 2006, we issued a total of 50,000 shares of our common
stock,
restricted in accordance with Rule 144, to one individual for services
valued at
$5,600.
On
February 23 and 24, 2006, we issued a total of 700,000 shares of
our common
stock, restricted in accordance with Rule 144, to one individual
for services
valued at $72,800.
On
February 24, 2006, we issued a total of 1,705,741 shares of our
common stock,
restricted in accordance with Rule 144, to one foreign investor
in an offshore
transaction for cash consideration of $13,502. The issuance was
exempt from
registration pursuant to Regulation S of the Securities Act of
1933, and the
shareholder is a sophisticated, foreign investor who is familiar
with our
operations.
On
March
1, 2006, we issued a total of 50,000 shares of our common stock,
restricted in
accordance with Rule 144, to one individual for services valued
at
$5,600.
On
March
7, 2006, we issued a total of 2,010,397 shares of our common stock,
restricted
in accordance with Rule 144, to one foreign investor in an offshore
transaction
for cash consideration of $38,200. The issuance was exempt from
registration
pursuant to Regulation S of the Securities Act of 1933, and the
shareholder is a
sophisticated, foreign investor who is familiar with our
operations.
On
March
10, 2006, we issued a total of 3,900,000 shares of our common stock,
restricted
in accordance with Rule 144, to one investor for services valued
at $343,200.
On
March
23, 2006, we issued a total of 2,000,000 shares of our common stock,
restricted
in accordance with Rule 144, to one investor for services valued
at $336,000.
On
March
24, 2006, we issued a total of 190,000 shares of our common stock,
restricted in
accordance with Rule 144, to two foreign investors in an offshore
transaction
for cash consideration of $9,458. The issuances were exempt from
registration
pursuant to Regulation S of the Securities Act of 1933, and the
shareholders are
sophisticated, foreign investors who are familiar with our
operations.
On
March
24, 2006, we issued a total of 2,000,000 shares of our common stock,
restricted
in accordance with Rule 144, to one individual for a note receivable
valued at
$100,000.
On
March
30, 2006, we issued a total of 2,000,000 shares of our common stock,
restricted
in accordance with Rule 144, to one individual for a note receivable
valued at
$100,000.
2005
On
January 14, 2005, we issued 500,000 shares through the conversion
of 500,000
shares of our Series D preferred stock.
On
February 7, 2005, we issued 400,000 shares for consulting services.
These shares
are subject to a thirty-month lock-up agreement and were valued
at $555,000.
On
March
11, 2005, we issued 2,000 shares of our common stock through an
exercise of
warrants and received proceeds of $1,000.
On
March
11, 2005, we issued 75,750 shares for consulting services. These
shares are
subject to a 2-year lock-up agreement and were valued at $90,000.
On
March
24, 2005, we issued 500,000 shares for consulting services. These
shares are
subject to a 2-year lock-up agreement and were valued at $580,000.
On
April
4, 2005 we issued 5,000 shares of our common stock to a consultant
valued at
$4,800. The shares are subject to a two-year lock-up agreement.
On
April
13, 2005 we issued 50,000 shares of our common stock to an employee
valued at
$54,000. The shares are subject to a two-year lock-up agreement.
On
April
20, 2005, we issued 10,000 shares of our common stock to a shareholder
pursuant
to an agreement whereby all company shares held by him are locked
up for one
year. We valued the 10,000 shares at $11,700, which was charged to
operations.
On
April
26, 2005, we issued 125,000 shares of our common stock to a consultant
in
connection with our research projects, which were valued at $130,000. The
shares are subject to a two-year lock-up agreement.
On
May
17, 2005, we issued 8,190,000 shares of our common stock in exchange
for
purchasing 8,307,000 shares in Birchington Investments Limited. Of the
8,190,000 shares issued, 5,850,000 were issued to Birchington subject
to a
one-year lock up agreement, 1,755,000 shares are being held in
escrow and
585,000 shares were issued to a consultant in connection with the
transaction.
On
June
23, 2005, we issued 300,000 shares of our common stock to another
consultant in
connection with the Birchington transaction. The recipient of the
300,000 shares
issued a check for $300 in addition to providing services. We valued the
6,735,000 shares issued in connection with the Birchington purchase
(excluding
the 1,755,000 shares held in escrow) at $1,661,400.
On
June
21, 2005, we returned to treasury 20,832,000 shares of our common
stock that
were previously held in escrow. These shares were subsequently
cancelled.
On
June
27, 2005, we issued 40,000,000 shares to be held in escrow in connection
with a
proposed loan transaction. If the transaction is consummated, the
40,000,000 shares will be pledged as collateral against the loan. The
negotiations on the loan are ongoing and there is no assurance
that the loan
will be consummated.
On
August
3, 2005, we issued 250,000 shares of our common stock for prepaid
consulting
services valued at $525,000.
On
September 7, 2005, we issued a total of 9,539 shares of our Class
A common stock
to four foreign investors in offshore transactions, for cash totaling
$2,246,
pursuant to the terms of stock purchase agreements. The issuance was
exempt from registration pursuant to Regulation S of the Securities
Act of 1933,
and the shareholders are sophisticated, foreign investors who are
familiar with
our operations.
On
September 14, 2005, we issued 4,552,000 shares of our Class A common
stock,
subject to an eighteen month resale restriction, to the University
of
Pennsylvania (“Penn”), in exchange for Penn’s waiver, valued at $7,733,848, of
potential legal remedies under that certain License Agreement dated
August 26,
1993, as amended by Amendment 1 dated December 17, 1997 (collectively,
the
“License Agreement”) and that certain Sponsored Research Agreement dated August
26, 1993, as amended by the Repayment Agreement dated December
17, 1997
(collectively, the “SRA/Repayment Agreement”), pursuant to the terms of that
certain Workout Agreement dated August 31, 2005.
On
September 20, 2005, we issued a total of 6,233 shares of our Class
A common
stock to two foreign investors in offshore transactions, for cash
totaling
$1,468, pursuant to the terms of stock purchase agreements. The issuance
was exempt from registration pursuant to Regulation S of the Securities
Act of
1933, and the shareholders are sophisticated, foreign investors
who are familiar
with our operations.
On
September 22, 2005, we issued a total of 149,701 shares of our
Class A common
stock to sixteen foreign investors in offshore transactions, for
cash totaling
$26,971, pursuant to the terms of stock purchase agreements. The issuance
was exempt from registration pursuant to Regulation S of the Securities
Act of
1933, and the shareholders are sophisticated, foreign investors
who are familiar
with our operations.
On
September 26, 2005, we issued a total of 900,000 shares of our
Class A common
stock to three officers and directors for services rendered as
follows:
Bill Berks (500,000), John Goodman (200,000), and Joel Freedman
(200,000).
On
September 27, 2005, we issued a total of 7,800,000 shares of our
Class A common
stock to Birchington, in an offshore transaction, in exchange for
9,606,000
Ordinary Shares of Birchington, pursuant to the terms of that certain
Stock
Purchase Agreement dated September 27, 2005 (the “Stock Purchase
Agreement”). Of the shares of our Class A common stock issued to
Birchington, 1,800,000 are held in escrow to be sold or returned
to us pursuant
to the terms of the Stock Purchase Agreement. The issuance was exempt from
registration pursuant to Regulation S of the Securities Act of
1933, and the
shareholder is a sophisticated, foreign investor who is familiar
with our
operations.
On
September 27, 2005, we issued a total of 600,000 shares of our
Class A common
stock to an individual who provided us with consulting services
in connection
with the Birchington transaction set forth in that certain Stock
Purchase
Agreement dated September 27, 2005. We valued the 6,600,000 shares issued
in connection with the Birchington purchase (excluding the 1,800,000
shares held
in escrow) at $1,921,200.
On
September 28, 2005, we issued a total of 89,935 shares of our Class
A common
stock to seven foreign investors in offshore transactions, for
cash totaling
$13,129, pursuant to the terms of stock purchase agreements. The issuance
was exempt from registration pursuant to Regulation S of the Securities
Act of
1933, and the shareholders are sophisticated, foreign investors
who are familiar
with our operations.
On
October 1, 2005, we cancelled 2,084 outstanding shares for no
consideration.
On
October 3, 2005, we issued 312,500 shares of our common stock to
for cash
proceeds of $156,250.
On
October 4, 2005, we committed to issue 30,135,172 shares to warrant
holders in
connection with their cashless exercise of 31,000,000 warrants. Such
shares were issued in January 2006.
On
October 4, 2005, we issued 50,000 shares of our common stock to
a consultant for
services rendered valued at $67,500.
On
October 5, 2005, we issued 62,467 shares of our common stock pursuant
to a
Regulation S offering for $11,302.
On
October 11, 2005, we issued 4,000 shares of our common stock for
cash proceeds
of $2,000.
On
October 14, 2005, we issued 70,072 shares of our common stock pursuant
to a
Regulation S offering for $12,565.
On
October 27, 2005, we issued 410,000 shares of our common stock
to a consultant
for media services valued at $123,000.
On
October 28, 2005, we issued 86,000 shares of our common stock for
legal services
valued at $34,400.
On
October 31, 2005, we issued 192,938 shares of our common stock
to various
shareholders of Matech Aerospace (a majority owned subsidiary of
our company) as
compensation for the subsidiary’s inactive status, valued at $67,528.
On
November 9, 2005, we issued 295,545 shares of our common stock
pursuant to a
Regulation S offering for $35,207.
On
November 15, 2005, we issued 173,577 shares of our common stock
pursuant to a
Regulation S offering for $14,353.
On
November 28, 2005, we issued 90,513 shares of our common stock
pursuant to a
Regulation S offering for $4,900.
On
December 2, 2005, we issued 101,353 shares of our common stock
pursuant to a
Regulation S offering for $6,196.
On
December 8, 2005, we issued 100,000 shares of our common stock
for $2,000.
On
December 12, 2005, we issued 531,195 shares of our common stock
pursuant to a
Regulation S offering for $25,352.
On
December 15, 2005, we issued an aggregate of 135,747 shares of
our common stock
to Lynx Consulting as compensation for investor relations services
performed on
behalf of our company pursuant that certain Investor Relations
Services
Agreement valued at $32,579.
To
obtain
funding for our ongoing operations, we entered into a Securities
Purchase
Agreement with Golden Gate Investors, Inc. (“Golden Gate”) on December 16, 2005,
as amended by that certain Addendum to Convertible Debenture, Warrant
to
Purchase Common Stock and Securities Purchase Agreement, and that
certain
Addendum to Convertible Debenture and Warrant to Purchase Common
Stock, each
dated as of December 16, 2005, for the sale of (i) $40,000 in convertible
debentures and (ii) warrants to buy 4,000,000 shares of our common
stock.
This prospectus relates to the resale of the common stock underlying
these
convertible debentures and warrants. The investors provided us with an
aggregate of $40,000 upon the execution of final definitive agreements.
The
debentures bear interest at 5¼%, mature three years from the date of issuance,
and are convertible into our common stock, at the selling stockholder’s
option. The convertible debentures are convertible into the number of our
shares of common stock equal to the dollar amount of the debentures
being
converted multiplied by 110, less the product of the conversion
formula
multiplied by 100 times the dollar amount of the debenture being
converted,
which is divided by the conversion formula. The conversion formula for the
convertible debentures is the lesser of (i) $0.70, (ii) eighty
percent of the
average of the three lowest volume weighted average prices during
the twenty
(20) trading days prior to the conversion or (iii) eighty percent
of the volume
weighted average price on the trading day prior to the conversion.
Accordingly, there is in fact no limit on the number of shares
into which the
debenture may be converted. Golden Gate has agreed that, beginning in the
first full calendar month after the registration statement is declared
effective, it shall convert at least 5%, but no more than 10%,
of the debentures
per calendar month, provided that the common stock is available,
registered and
freely tradable; provided that, if, at any time during the applicable
month, the
volume weighted average price is below $.10, Golden Gate is not
obligated to
convert any portion of the debenture during that month. However,
in the event
that our volume weighted average price is less than $.20, we will
have the
option to prepay the debenture at 130% rather than have the debenture
converted. If we elect to prepay the debenture, Golden Gate may withdraw
its conversion notice. In addition, the selling stockholder is obligated
to exercise no less than 5%, and no more than 10%, of the outstanding
warrant
beginning in the first full month after the Securities and Exchange
Commission
declares this prospectus effective; provided that, if, at any time
during the
applicable month, the volume weighted average price is below $.10,
Golden Gate
is not obligated to exercise any portion of the warrant during
that month.
The warrant is exercisable into 4,000,000 shares of common stock
at an exercise
price of $1.09 per share.
The
selling stockholder has contractually agreed to restrict its ability
to convert
or exercise its warrants and receive shares of our common stock
such that the
number of shares of common stock held by them and their affiliates
after such
conversion or exercise does not exceed 9.9% of the then issued
and outstanding
shares of common stock.
On
December 30, 2005, we issued 250,000 Class A common shares for
consulting
services valued at $50,000.
2004
On
January 7, 2004, we issued 25,000 Class A common shares to our
executive
secretary. The shares are subject to a three-year lock up agreement
and were
valued at $48,125.
On
February 11, 2004, we issued 250,000 Class A common shares of our
common stock
through the conversion of 250,000 shares of Class D preferred stock.
On
February 12, 2004, we issued 500,000 Class A common shares to a
consultant for
services rendered in connection with Matech Aerospace and for the
overseeing the
design, utilization, and marketing of the Videoscope. The shares are
subject to a three-year lock up agreement and were valued at $1,032,500.
On
February 12, 2004, we issued 50,000 Class A common shares to a
consultant for
services rendered in connection with Matech Aerospace and the design
and
utilization of the Videoscope. The shares are subject to a three-year lock
up agreement and were valued at $103,250.
On
February 12, 2004, we issued 25,000 Class A common shares to a
consultant for
services rendered in connection with accounting assistance. The
shares are
subject to a three-year lock up agreement and were valued at $25,000.
On
March
8, 2004, we issued 200,000 Class A common shares of our common
stock through the
conversion of 200,000 shares of Class D preferred stock.
On
March
16, 2004, we issued 25,000 shares of our Class A common stock to
a consultant
for services rendered in connection with the development of the
Electrochemical
Fatigue Sensor for use on bridges. The shares are subject to a
three-year lock
up agreement and were valued at $53,550.
On
March
26, 2004, we issued to a consultant 25,000 shares of our Class
A common stock
for services rendered. These shares are subject to a three-year
lockup agreement
and were valued at $55,125.
On
April
1, 2004, certain shareholders exercised 3,300 warrants to purchase
6,200 shares
of our Class A common stock for $4,550.
On
April
23, 2004, we cancelled 250,000 shares of our Class D preferred
stock in exchange
for issuing 250,000 shares of our common stock.
On
May
12, 2004, we issued 25,000 shares of our common stock to a note
holder as
additional consideration for our delay in paying off the principal
balance owed.
These shares are subject to a three-year lockup agreement and were
valued at
$59,500.
On
May
13, 2004, we cancelled 250,000 shares of our Class D preferred
stock in exchange
for issuing 250,000 shares of our common stock.
On
May
25, 2004, we issued to a consultant 10,000 shares of our common
stock for
services rendered. These shares are subject to a three-year lockup
agreement and were valued at $24,150.
On
June
1, 2004, we cancelled 2,700 shares of our Class C preferred stock
in exchange
for issuing 2,700 shares of our common stock.
On
June
8, 2004, we issued 1,900 shares of our Class A common stock for
$3,600.
On
June
16, 2004, we purchased 260 shares of our Class A common stock from
S. Beck for
$974, which were subsequently cancelled.
On
June
18, 2004, we issued to a consultant 120,000 shares of our Class
A common stock
for services rendered. These shares are subject to a three-year lockup
agreement and were valued at $285,600.
On
June
25, 2004, we issued 11,875 shares of our common stock for cash
proceeds of
$8,906.
On
June
30, 2004, we issued an attorney 50,000 shares of our Class A common
stock as
payment on past due invoices. The shares issued are subject to
a three-year
lockup agreement and were valued of the indebtedness cancelled
totaling $39,467.
On
June
30, 2004, we issued to a consultant 3,000 shares of our Class A
common stock for
services rendered valued at $10,200.
On
July
16, 2004, we issued 1,047,000 of our Class A common stock for cash
proceeds of
$123,500.
On
July
27, 2004, we issued 1,000,000 of our Class A common stock to Mr.
William Berks,
our Vice-President, for services rendered. These shares are subject to a
three-year lockup agreement and were valued at $2,380,000.
On
July
27, 2004, we issued to a consultant 300 shares of our Class A common
stock for
services rendered valued at $1,020.
On
August
9, 2004, we issued to a consultant 1,800 shares of our Class A
common stock for
services rendered valued at $6,120.
On
August
16, 2004, we issued 1,000 shares of our Class A common in connection
with our
Regulation S offering valued at $3,400.
On
August
16, 2004, we issued three consultants a total of 599,000 shares
of our Class A
common stock for services rendered. These shares are subject to
a three-year
lockup agreement and were valued at $1,341,760.
On
August
24, 2004, we issued to two consultants a total of 5,600 shares
of our Class A
common stock for services rendered valued at $18,200.
On
September 2, 2004, we issued 7,500 of our Class A common stock
to Mr. William
Berks, our vice-president, for services rendered valued at $24,000.
On
September 13, 2004, we issued 14,760 shares of our Class A common
stock for cash
proceeds of $14,500.
On
September 14, 2004, we purchased 1,066 shares of our common stock
for $3,194.
These shares were subsequently cancelled.
On
September 28, 2004, we issued a consultant 1,000 shares of our
common stock for
services rendered valued at $3,020.
On
October 1, 2004, we issued 8,666,666 shares of our common stock
in exchange for
7,158,590 shares of Langley Park Investments PLC valued at $12,973,513.
On
October 1, 2004, we issued to a consultant 36,923 shares of our
Class A common
stock for services rendered. These shares are subject to a three-year
lockup agreement and were valued at $78,572.
On
October 1, 2004, we issued to a consultant 1,000 shares of our
Class A common
stock for services rendered valued at $2,128.
On
October 6, 2004, we issued to a consultant 200,000 shares of our
common stock
for services rendered. These shares are subject to a three-year
lockup agreement
and were valued at $425,600.
On
October 13, 2004, we cancelled 2,570,000 shares of our Class D
preferred stock
in exchange for issuing 2,570,000 shares of our Class A common
stock.
On
October 14, 2004, we issued 130,000 shares of our Class A common
stock cash
proceeds of for $10,000.
On
October 15, 2004, we issued Joel Freedman, a Director and Corporate
officer,
2,260,000 shares of our Class A common stock for services rendered.
These shares
are subject to a two-year lockup agreement and were valued at $4,972,000.
On
October 15, 2004, we issued John Goodman, a Director and Corporate
officer,
1,500,000 shares of our Class A common stock for services rendered. These
shares are subject to a three-year lockup agreement and were valued
at
$2,760,000.
On
October 25, 2004, we issued 100,000 shares of our common stock
to a consultant
for services rendered. These shares are subject to a two-year lockup
agreement and were valued at $210,000.
On
November 22, 2004, we issued our administrative assistant 25,000
shares of our
Class A common stock for services rendered. These shares are subject
to a
three-year lockup agreement and were valued at $39,375.
On
November 29, 2004, we issued an additional 24,800 shares of our
Class A common
stock to certain shareholders in connection with our Regulation
S Offering for
no additional consideration than what these shareholders previously
paid for the
original shares issued.
On
December 17, 2004, we issued to two of our advisory board members
a total of
175,000 shares of our Class A common stock for services rendered. These
shares are subject to a two-year lockup agreement and were valued
at $315,000.
2003
On
January 6, 2003, we issued 500 shares of our Class A common stock
for financial
consulting services including searching on behalf of us for additional
equity
capital.
On
January 8, 2003, we issued 3,000 shares of our Class A common stock
for legal
services in connection with our aborted SB-2 registration statement.
On
January 24, 2003, we issued 313 shares of our Class A common stock
for
consulting services in connection with Company public relations.
On
February 4, 2003, we issued 787 shares of our Class A common stock
through our
Regulation S offering.
On
February 12, 2003, we issued 2,550 shares of our Class A common
stock for
services rendered in connection with our Regulation S offering.
On
March
4, 2003, we issued 1,500 shares of our Class A common stock for
legal services
in connection with our aborted SB-2 registration statement.
On
March
10, 2003, we issued 500 shares of our Class A common stock through
our
Regulation S offering.
On
March
11, 2003, we issued 260 shares of our Class A common stock to Mr.
Stephen Beck
pursuant to the anti-dilution provisions of his settlement agreement.
On
March
11, 2003, we issued 1,500 shares of our Class A common stock for
legal services
in connection with our aborted SB-2 registration statement.
On
March
11, 2003, we issued 300 shares of our Class A common stock for
financial
consulting services in connection with seeking potential funding
for us.
On
March
26, 2003, we issued 250 shares of our Class A common stock for
consulting
services in connection with our research and development efforts.
On
March
28, 2003, we issued 8,261 shares of our Class A common stock through
our
Regulation S offering.
On
April
11, 2003, we issued 4,242 shares if our Class A common stock to
the University
of Pennsylvania pursuant to the anti-dilution provision in our
license
agreement.
On
April
15, 2003, we issued 250 shares of our Class A common stock for
marketing
services relating to the EFS.
On
April
15, 2003, we issued 1,000 shares of our Class A common stock each
to Messrs.
Goodman and Berks for consulting services in connection with our
research and
development efforts.
On
April
21, 2003, we issued 500 shares of our Class A common stock to one
of our
advisory board members for services rendered in connection with
proposed
marketing of the Videoscope in overseas markets.
On
April
21, 2003, we issued 171 shares of our Class A common stock for
consulting
services rendered in connection with our research and development
efforts.
On
April
21, 2003, we issued 1,180 shares of our Class A common stock for
services
rendered in connection with our Regulation S offering.
On
April
29, 2003, we issued 3,000 shares of our Class A common stock through
our
Regulation S offering.
On
May 8,
2003, we issued 250 shares of our Class A common stock through
our Regulation S
offering.
On
May
20, 2003, we issued 150 shares of our Class A common stock for
advising us as to
potential sources of government research and development contracts
and/or grants
in regards to our technologies.
On
May
27, 2003, we issued 2,000 shares of our Class A common stock for
consulting
services relating to research and development on the EFS.
On
May
30, 2003, we issued 500 shares of our Class A common stock to an
advisory member
for consulting services in connection with seeking potential bridge
projects.
*
Unless
otherwise noted, all of the above offerings and sales were deemed
to be exempt
under rule 506 of Regulation D and Section 4(2) of the Securities
Act of 1933,
as amended. No advertising or general solicitation was employed
in offering the
securities. The offerings and sales were made to a limited number
of persons,
all of whom were accredited investors, business associates of our
company or
executive officers of our company, and transfer was restricted
by us in
accordance with the requirements of the Securities Act of 1933.
In addition to
representations by the above-referenced persons, we have made independent
determinations that all of the above-referenced persons were accredited
or
sophisticated investors, and that they were capable of analyzing
the merits and
risks of their investment, and that they understood the speculative
nature of
their investment. Furthermore, all of the above-referenced persons
were provided
with access to our Securities and Exchange Commission filings.
The
following exhibits are included as part of this Form SB-2. References
to "the
Company" in this Exhibit List mean Material Technologies, Inc.,
a Delaware
corporation.
Exhibit
#
Exhibit
Name
3.1
Certificate of Incorporation of Material
Technologies, Inc. (Previously Filed in connection with our S-1
Registration
Statement that was filed on April 30, 1997).
3.2
Certificate of Amendment to Certificate of
Incorporation of Material Technologies, Inc. dated as of February
16, 2000
(Previously Filed in connection with our Annual Report on Form
10-K that was
filed on March 30, 2001).
3.3
Certificate of Amendment to Certificate of
Incorporation of Material Technologies, Inc. dated as of July 12,
2000
(Previously Filed in connection with our Annual Report on Form
10-K that was
filed on March 30, 2001).
3.4
Certificate of Amendment to Certificate of
Incorporation of Material Technologies, Inc. dated as of July 31,
2000
(Previously Filed in connection with our Annual Report on Form
10-K that was
filed on March 30, 2001).
3.5
Amended and Restated Certificate of Incorporation
of Material Technologies, Inc. dated as of September 12, 2003 (Previously
Filed
in connection with our Annual Report on Form 10-K that was filed
on April 9,
2004).
3.6
Bylaws of Material Technologies, Inc. (Previously
Filed in connection our S-1 Registration Statement that was filed
on April 30,
1997).
4.1
Class A Convertible Preferred Stock Certificate of
Designations (Previously Filed in connection with our S-1 Registration
Statement
that was filed on April 30, 1997).
4.2
Class B Convertible Preferred Stock Certificate of
Designations (Previously Filed in connection our S-1 Registration
Statement that
was filed on April 30, 1997).
10.1
License Agreement between Tensiodyne Scientific
Corporation and the Trustees of the University of Pennsylvania
(Previously Filed
in connection with S-1 Registration Statement that was filed on
April 30,
1997).
10.2
Sponsored Research Agreement between Tensiodyne
Scientific Corporation and the Trustees of the University of Pennsylvania
(Previously Filed in connection with S-1 Registration Statement
that was filed
on April 30,
1997).
10.3
Amendment No. 1 to the License Agreement between
Tensiodyne Scientific Corporation and the Trustees of the University
of
Pennsylvania (Previously Filed in connection with S-1 Registration
Statement
that was filed on April 30, 1997).
10.4
Repayment Agreement between Tensiodyne Scientific
Corporation and the Trustees of the University of Pennsylvania
(Previously Filed
in connection with S-1 Registration Statement that was filed on
April 30, 1997).
10.5
Teaming Agreement between Tensiodyne Scientific
Corporation and Southwest Research Institute (Previously Filed
in connection
with S-1 Registration Statement that was filed on April 30, 1997).
10.6
Letter Agreement between Tensiodyne Scientific
Corporation, Robert M. Bernstein, and Stephen Forrest Beck and
Handwritten
modification (Previously Filed in connection with S-1 Registration
Statement
that was filed on April 30, 1997).
10.7
Agreement between Tensiodyne Corporation and
Tensiodyne 1985-1 R&D Partnership, is incorporated by reference from Exhibit
10.3 of Material Technology, Inc.'s S-1 Registration Statement,
File No.
33-83526, which became effective on January 19,
1996).
10.8
Amendment to Agreement between Material
Technologies, Inc. and Tensiodyne 1985-1 R&D Partnership, is incorporated by
reference from Exhibit 10.6 of Material Technologies, Inc.'s S-1
Registration
Statement, File No. 33-83526, which became effective on January
19,
1996).
10.9
Agreement between Advanced Technology Center of
Southeastern Pennsylvania and Material Technologies, Inc. is incorporated
by
reference from Exhibit 10.4 of Material Technologies, Inc.'s S-1
Registration
Statement, File No. 33-8352, which became effective on January
19, 1996).
10.10
Addendum to Agreement between Advanced Technology
Center of Southeastern Pennsylvania and Material Technologies,
Inc. is
incorporated by reference from Exhibit 10.5 of Material Technologies,
Inc.'s S-1
Registration Statement, File No. 33-83526, which became effective
on January 19,
1996).
10.11
Class A senior preferred convertible debenture of
Material Technologies, Inc. issued to Palisades Capital, LLC(Incorporated
by
reference to Annual Report on Form 10-K that was filed on April
9, 2004).
10.12
Stock Purchase Agreement dated as of April 7, 2005
by and between Material Technologies, Inc. and Birchington Investments
Ltd. is
incorporated by reference from Exhibit 10.1 of Material Technologies,
Inc.'s
Quarterly Report on Form 10-Q which was filed on November 14, 2005.
10.13
Escrow Agreement by and between Material
Technologies, Inc. and Birchington Investments Ltd dated as of
September 27,
2005 is incorporated by reference from Exhibit 10.2 of Material
Technologies,
Inc.'s Quarterly Report on Form 10-Q which was filed on November
14, 2005.
10.14
Master Agreement with Barclay Asset Management,
LLC dated as of June 28, 2005 is incorporated by reference from
Exhibit 10.3 of
Material Technologies, Inc.'s Quarterly Report on Form 10-Q which
was filed on
November 14, 2005.
10.15
Stock Purchase Agreement of Material Technologies,
Inc. dated as of June 29, 2005 is incorporated by reference from
Exhibit 10.4 of
Material Technologies, Inc.'s Quarterly Report on Form 10-Q which
was filed on
November 14, 2005.
10.16
Consulting Services Agreement with Mark Theriot
dated as of June 28, 2005 is incorporated by reference from Exhibit
10.5 of
Material Technologies, Inc.'s Quarterly Report on Form 10-Q which
was filed on
November 14, 2005.
10.17
Workout Agreement the with the Trustees of the
University of Pennsylvania dated as of August 15, 2005 is incorporated
by
reference from Exhibit 10.6 of Material Technologies, Inc.'s Quarterly
Report on
Form 10-Q which was filed on November 14, 2005.
10.18
Securities Purchase Agreement by and between
Material Technologies, Inc. and Golden Gate Investors, Inc. is
incorporated by
reference from Exhibit 10.1 of Material Technologies, Inc.'s Current
Report on
Form 8-K/A which was filed on January 5, 2006.
10.19
Convertible Debenture of Material Technologies,
Inc. issued to Golden Gate Investors, Inc. is incorporated by reference
from
Exhibit 10.2 of Material Technologies, Inc.'s Current Report on
Form 8-K/A which
was filed on January 5, 2006.
10.20
Common Stock Purchase Warrant of Material
Technologies, Inc. issued to Golden Gate Investors, Inc. is incorporated
by
reference from Exhibit 10.3 of Material Technologies, Inc.'s Current
Report on
Form 8-K/A which was filed on January 5, 2006.
10.21
Registration Rights Agreement by and between
Material Technologies, Inc. and Golden Gate Investors, Inc. is
incorporated by
reference from Exhibit 10.4 of Material Technologies, Inc.'s Current
Report on
Form 8-K/A which was filed on January 5, 2006.
10.22
Letter Agreement by and between Material
Technologies, Inc. and Golden Gate Investors, Inc. is incorporated
by reference
from Exhibit 10.5 of Material Technologies, Inc.'s Current Report
on Form 8-K/A
which was filed on January 5, 2006.
10.23
Letter Agreement by and between Material Technologies, Inc. and
Golden
Gate Investors, Inc. is incorporated by reference from Exhibit
10.6 of Material
Technologies, Inc.'s Current Report on Form 8-K/A which was filed
on January 5,
2006.
10.24
Addendum to Convertible Debenture, Warrant to Purchase Common
Stock and Securities Purchase Agreement by and between Material
Technologies,
Inc. and Golden Gate Investors, Inc. is incorporated by reference
from Exhibit
10.7 of Material Technologies, Inc.'s Current Report on Form 8-K/A
which was
filed on January 5, 2006.
10.25
Addendum to Convertible Debenture and Warrant to Purchase
Common Stock by and between Material Technologies, Inc. and Golden
Gate
Investors, Inc. is incorporated by reference from Exhibit 10.8
of Material
Technologies, Inc.'s Current Report on Form 8-K/A which was filed
on January 5,
2006.
10.26
Addendum
to Convertible Debenture, Warrant to Purchase Common Stock and
Securities
Purchase Agreement dated as of May 2, 2006 by and between Material
Technologies,
Inc. and Golden Gate Investors, Inc. (filed herewith)
10.27
Securities
Purchase Agreement dated as of May 30, 2006 by and between Material
Technologies, Inc. and Golden Gate Investors, Inc. (filed
herewith)
10.28
Warrant
to Purchase Common Stock of Material Technologies, Inc. (filed
herewith)
10.29
Addendum
to Warrant to Purchase Common Stock dated as of June 12, 2006 (filed
herewith)
10.30
Addendum
to Convertible Debenture, Warrant to Purchase Common Stock and
Securities
Purchase Agreement dated as of June 9, 2006 (filed herewith)
23.1
Consent of Corbin & Company, LLP (filed
herewith)
23.2
Consent of Sichenzia Ross Friedman Ference LLP
(filed herewith)
The
undersigned registrant hereby undertakes to:
(1) File, during any
period in which offers or sales are being made, a post-effective
amendment to
this registration statement to:
(i) Include
any prospectus required by Section 10(a)(3) of the Securities Act
of 1933, as
amended (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.
Notwithstanding the foregoing, any increase or decrease in volume
of securities
offered (if the total dollar value of the securities offered would
not exceed
that which was registered) and any deviation from the low or high
end of the
estimated maximum offering range may be reflected in the form of
a prospectus
filed with the Commission pursuant to Rule 424(b) under the Securities
Act if,
in the aggregate, the changes in volume and price represent no
more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of
Registration Fee" table in the effective registration statement,
and
(iii) Include any
additional or changed material information on the plan of distribution.
(2) For determining
liability under the Securities Act, treat each post-effective amendment
as a new
registration statement of the securities offered, and the offering
of the
securities at that time to be the initial bona fide offering.
(3) File a
post-effective amendment to remove from registration any of the
securities that
remain unsold at the end of the offering.
(4) For determining
liability of the undersigned small business issuer under the Securities
Act to
any purchaser in the initial distribution of the securities, the
undersigned
undertakes that in a primary offering of securities of the undersigned
small
business issuer pursuant to this registration statement, regardless
of the
underwriting method used to sell the securities to the purchaser,
if the
securities are offered or sold to such purchaser by means of any
of the
following communications, the undersigned small business issuer
will be a seller
to the purchaser and will be considered to offer or sell such securities
to such
purchaser:
(i) Any preliminary
prospectus or prospectus of the undersigned small business issuer
relating to
the offering required to be filed pursuant to Rule 424;
(ii)
Any free writing prospectus relating to the offering prepared by
or on behalf of
the undersigned small business issuer or used or referred to by
the undersigned
small business issuer;
(iii)
The portion of any other free writing prospectus relating to the
offering
containing material information about the undersigned small business
issuer or
its securities provided by or on behalf of the undersigned small
business
issuer; and
(iv)
Any other communication that is an offer in the offering made by
the undersigned
small business issuer to the purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may
be permitted to directors, officers and controlling persons of
the registrant
pursuant to the foregoing provisions, or otherwise, the registrant
has been
advised that in the opinion of the Securities and Exchange Commission
such
indemnification is against public policy as expressed in the Securities
Act and
is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other
than the payment by the registrant of expenses incurred or paid
by a director,
officer or controlling person of the registrant 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
registrant will,
unless in the opinion of its counsel the 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
Securities Act and will be governed by the final adjudication of
such issue.
Each prospectus filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration statements
relying on
Rule 430B or other than prospectuses filed in reliance on Rule
430A, shall be
deemed to be part of and included in the registration statement
as of the date
it is first used after effectiveness. Provided, however, that no
statement made
in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated
by reference
into the registration statement or prospectus that is part of the
registration
statement will, as to a purchaser with a time of contract of sale
prior to such
first use, supersede or modify any statement that was made in the
registration
statement or prospectus that was part of the registration statement
or made in
any such document immediately prior to such date of first use.
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 of filing on Form SB-2 and authorizes this registration
statement
to be signed on its behalf by the undersigned, in the City of Los
Angeles, State
of California, on June 15, 2006.
MATERIAL
TECHNOLOGIES, INC.
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|
|
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By: |
/s/
Robert M. Bernstein |
|
Robert
M. Bernstein, President, CEO (Principal Executive
Officer),
Chief Financial Officer (Principal Accounting Officer)
and
Chairman
|
In
accordance with the requirements of the Securities Act of 1933,
this
registration statement was signed by the following persons in the
capacities and
on the dates stated.
SIGNATURE
|
TITLE
|
DATE
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|
|
|
/s/
|
Robert
M. Bernstein
|
President,
Chief Executive Officer,
|
June
15, 2006
|
Robert
M. Bernstein
|
Chief
Financial Officer and Chairman
|
|
|
|
|
/s/
|
JoelR
Freedman
|
Secretary
and Director
|
June
15, 2006
|
Joel
R. Freedman
|
|
|
|
|
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/s/
|
John
W. Goodman
|
Director
|
June
15, 2006
|
Dr.
John W. Goodman
|
|
|
|
|
|
/s/
|
Dr.
William Berks
|
Vice
President and Director
|
June
15, 2006
|
Dr.
William Berks
|
|
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