matech10ka123107.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-KSB/A
(AMENDMENT
NO. 2 )
x ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended December 31, 2007
o TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from _______________ to _______________.
Commission
file number: 33-23617
Material Technologies,
Inc.
(Name of
small business issuer in its charter)
Delaware
(State
or other jurisdiction of
incorporation
or organization)
|
95-4622822
(I.R.S.
Employer
Identification
No.)
|
|
|
11661
San Vicente Boulevard, Suite 707
Los Angeles,
California
(Address
of principal executive offices)
|
90049
(Zip
Code)
|
Issuer’s
telephone number: (310)
208-5589
Securities
registered under Section 12(g) of the Exchange Act:
Common stock, par value
$0.001
(Title of
class)
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes x No o
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o
No x
For the
year ended December 31, 2007, our revenue was $201,917.
As of
July 22, 2008, the number of shares of Class A common stock outstanding was
186,828,995. As of July 21, 2008, the aggregate market value of our
common stock held by non-affiliates was approximately $1,568,784.97 (based upon
156,878,497 shares at $0.01 per share).
DOCUMENTS
INCORPORATED BY REFERENCE
The
following documents are incorporated herein by reference: (i) Registration
Statement on Form S-1, filed April 30, 1997; (ii) Annual Report on Form 10-KSB
for the fiscal year December 31, 2000, filed March 30, 2001; (iii) Annual Report
on Form 10-KSB for the fiscal year December 31, 2003, filed April 9, 2004; (iv)
Current Report on Form 8-K, filed August 24, 2006; (v) Current Report on
Form 8-K, filed November 8, 2006; (vi) Current Report on Form 8-K, filed
February 6, 2007; (vii) Registration Statement on Form S-1, filed January 19,
1996; (viii) Quarterly Report on Form 10-QSB for the quarterly period ended
September 30, 2005, filed November 14, 2005; (ix) Current Report on Form 8-K/A,
filed January 5, 2006; (x) Current Report on Form 8-K, filed May 17, 2006; (xi)
Current Report on Form 8-K, filed June 8, 2006; (xii) Current Report on Form
8-K/A, filed June 15, 2006; (xiii) Registration Statement on Form SB-2, filed
June 15, 2006; (xiv) Current Report on Form 8-K, filed June 9, 2006; (xv)
Current Report on Form 8-K, filed November 2, 2006; (xvi) Current Report on Form
8-K, filed November 28, 2006; (xvii) Current Report on Form 8-K, filed January
3, 2007; and (xviii) Annual Report on Form 10-KSB for the fiscal year December
31, 2006, filed April 3, 2007, are incorporated in Part III, Item
13.
Transitional
Small Business Disclosure Format (check one): Yes o No x
EXPLANATORY
NOTE
This
Amendment No. 2 on Form 10-K/A (the “Amendment”) amends the annual report of
Material Technology, Inc. (the “Company”) for the year ended December 31, 2007
as filed with the Securities and Exchange Commission on April 14, 2008 and as
amended on July 29, 2008 (the “Original Filing”). This Amendment corrects
clerical errors in the financial statements of our Original Filing and adds a
discussion concerning the restatement of our 2005 and 2006 financial statements
in the notes to our consolidated financial statements. In addition,
as required by Rule 12b-15 under the Exchange Act, new certifications by the
Company’s principal executive officer and principal financial officer are filed
as exhibits to this Amendment.
For
the convenience of the reader, this Amendment sets forth the Original Filing in
its entirety. This Amendment does not reflect events occurring after
the date of the Original Filing or modify or update any disclosures that may
have been affected by subsequent events. Except as described above,
all other information included in the Original Filing remains
unchanged.
Development
of Business
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 our Fatigue
Fuse and, beginning in 1993, developing our Electrochemical Fatigue
Sensor.
Our
Business
Over the
last several years, we were engaged in research and development of metal fatigue
detection, measurement, and monitoring technologies. We have now developed
several monitoring devices for metal fatigue detection and measurement. We
are currently marketing our technology.
Our
efforts have been dedicated to developing devices and systems that indicate the
true status of fatigue damage in a metal component. We have developed two
products. The first is a small, 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 growing fatigue
cracks in metals, the Electrochemical Fatigue Sensor. The
Electrochemical Fatigue Sensor has demonstrated in the laboratory that it can
detect cracks as small as 10 microns (0.0004 inches), which we believe is
smaller than any other practical crack detection technology. The
Company holds the patents on the Fatigue Fuse and the license on the technology
on the Electrochemical Fatigue Sensor from the University of Pennsylvania and
licenses both of those technologies to us.
We have
completed the technology to the point where we are now performing real world
bridge inspections.
On
September 25, 2007, the Federal Highway Administration (FHA) has signed a
$347,500 contract with us to purchase equipment and training as part of their
Steel Bridge Testing Program. They will use our EFS system in the
laboratory and on actual bridges to find growing fatigue
cracks. Following the completion of this program, the FHA will
recommend technologies for use on bridges for specific bridge
problems.
Our
on-call contract with the Pennsylvania Department of Transportation (PennDOT) is
continuing to produce good results. Since May 2007, we have used the
EFS on 12 bridges in Pennsylvania, totaling over $100,000 so far. We
anticipate further work orders to be issued for the next inspection
season. We have also received interest from several inspection
companies in Pennsylvania to purchase EFS equipment, as well as training and
licensing, in order to execute these further work orders, with licensing fees
payable to us for each bridge inspected. One such company
has
already
been trained at their cost to help us execute on-call contracts in
2008.
We
completed a contract with Massachusetts (MassHighway) for $24,290. We
then met with MassHighway representatives who hired us to conduct additional
bridge inspections during 2008.
New York
State contracted with us to provide EFS inspection services on a high profile
fracture critical bridge for $9,630. As a result of this initial
inspection for the New York State Department of Transportation, we will be
performing a follow up inspection. Additionally, they are evaluating
purchase of equipment, training for their engineers, and licensing in
2008.
We have
completed an inspection of a fracture critical bridge in West Sacramento,
California, and are also in the process of analyzing and reporting the
results. At the same time we have met with several high-ranking state
and national officials in California, with more meetings planned, all discussing
the use of EFS across the state.
We have
also formed a strategic alignment with a California-based independent testing
laboratory called Smith Emery Company. Smith Emery Company is over
100 years old and has over 400 employees in California as well as an office in
China. They perform weld testing, building façade testing, and
metallurgical failure analysis. Engineers and technicians have
already been trained at their cost to execute contracts in the western U.S.
region.
We have
signed a contract with the Canadian National Railway to inspect a bridge in
Wisconsin. The Canadian National Railway owns a number of bridges in
the United States.
We have
completed and sent PennDOT a report on the nine bridges we inspected in
Pennsylvania. We hope to meet with PennDOT in the near future to
discuss the use of EFS on their remaining steel bridges.
We met
with the U.S. Army Corps of Engineers to present at the U.S. Secretary of
Defense’s office on May 1 and 2, 2008. The U.S. Army Corps of
Engineers owns all of the bridges over U.S. federal waterways.
We have
scheduled inspections in 2008 for the following entities so far:
·
|
Virginia
Department of Transportation
|
·
|
Canadian
National Railway
|
·
|
Alabama
Department of Transportation
|
·
|
New
York Department of Transportation
|
We have
been hired to perform inspections with the following entities which have not yet
been scheduled:
·
|
New
Jersey Department of Transportation
|
Our
Technologies
The Fatigue
Fuse
The
Fatigue Fuse is designed to be affixed to a structure to give warnings at
pre-selected percentages of the fatigue life that have been used up (i.e., how
close 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 and fracture mechanics 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 notch 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. Little 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
of
metals
under repeated loading to find growing 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 we believe is smaller than any other practical technology. We
believe that nothing comparable to this instrument currently exists in materials
technology. We have inspected approximately 33 bridges to date using this
technology.
The EFS
functions by treating the location of interest (the target) associated with the
structural member as an electrode of an electrochemical cell (similar to a
battery). 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, such 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., growing fatigue
cracks.
Status
of our Technologies
Currently,
our primary focus is on the commercialization of the EFS.
Status of the
EFS
From May
2007 through June 2008, we have successfully used EFS on 23 highway
and railroad bridges. We are now actively marketing the EFS for
bridges.
Status of the Fatigue
Fuse
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. At the
present time, we are applying Fatigue Fuses to several portable aluminum bridges
for the U.S. Army.
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.
Commercial
Markets for our Products and Technologies
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 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 have completed several
contracts to install our fatigue detection products on bridge structures within
the United States, and are in negotiations for several others.
Our
Patent Protections
We are
the owner and/or assignee of eight patents as follows:
Title
|
|
USPTO
No.
|
|
|
|
Devise
for Monitoring Fatigue Life
|
|
4,590,804
|
|
|
|
Method
of Making a Device
for
Monitoring Fatigue Life
|
|
4,639,997
|
|
|
|
Metal
Fatigue Detector
|
|
5,237,875
|
|
|
|
Device
for Monitoring the
Fatigue
Life of a Structural
Member
and a Method of
Making
Same
|
|
5,319,982
|
|
|
|
Device
for Monitoring the
Fatigue
Life of a Structural
Member
and a Method of
Making
Same
|
|
5,425,274
|
|
|
|
Methods
and Devices for
Electro
Chemically
Determining
Metal Fatigue
Status
|
|
5,419,201
|
|
|
|
Apparatus
for and Method for
Interrogating
a Fatigue Fuse
|
|
Provisional
|
|
|
|
Indicator
for Fatigue Fuse
|
|
Provisional
|
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. The payment of future royalties was secured by equipment we used
in the development of technology as specified in the funding agreement, however,
no lien against our equipment or our patents in favor of ATC vested until we
generated 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 an additional 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, vested in favor of ATC
until we generated royalties from product sales.
On
September 28, 2006, we entered into an agreement with Ben Franklin Technology,
the successor to ATC, to give Ben Franklin 3,334 shares of our common stock,
valued at $40,000, in exchange for a general release of the above
liabilities.
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 December 31,
2007, 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, 2007, we owe Mr. Baker $56,761 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 have and continue to exhibit the Electrochemical
Fatigue Sensor, and to a lesser extent the Fatigue Fuse, 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.
Competition
Other
technologies exist which identify cracks which may be the result of fatigue
damage. Single cracks larger than a minimum size can be found by
nondestructive inspection methods such as dye penetrant, radiography, eddy
current, acoustic emission, and ultrasonics. Tracking of load and strain
history, to subsequently estimate fatigue damage by computer processing, is
possible with recording instruments such as strain gauges and counting
accelerometers. These methods have been used for over 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-Kramer-Branson, Dunegan-Endevco, and Micro
Measurements. These companies have more substantial assets, greater
experience, and more resources than us, including, but not limited to,
established distribution channels and an established customer base. The
familiarity and loyalty to these technologies may be difficult to
dislodge. Because we are still in the development stage, we are unable to
predict whether our technologies will be successfully developed and commercially
attractive in potential markets.
Employees
We have
six full-time employees. In addition, we retain consultants on an
independent contractor basis for specialized work.
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 $2,582 per month on a
month-to-month basis. Either party may cancel the lease on 30 days
notice.
Stephen
Beck
In July
2002, we settled a lawsuit related to a contract dispute with Mr. Stephen Beck.
In March 2006, Mr. Beck filed a lawsuit against us alleging breach of
contract related to the lawsuit settlement and sought approximately $135,000 in
damages, plus the issuance of 12,989 shares of our common stock plus interest.
In
December 2006, we entered into a settlement and release agreement, as well as
irrevocable escrow instructions, to settle the lawsuit Mr. Beck filed in March
2006. As consideration under
the
settlement, we issued 5,000,000 shares of our common stock to Mr. Beck, with the
shares to be held by an escrow agent and distributed to Mr. Beck monthly with a
trading limit equal to 8% of the previous month’s trading volume of our common
stock, until Mr. Beck has received a total of $800,000. As we have
guaranteed this debt to Mr. Beck in the amount of $800,000, we have recorded a
liability as of December 31, 2007 for this amount. As Mr. Beck receives
proceeds from the sale of his shares into the market and 7.5% (net of any
expenses incurred by us) of any cash raised by us from the sale of equity, we
will reduce our guarantee by that amount. We have paid a total of $285,182 to
Mr. Beck in cash as part of the settlement. Mr. Beck also had
anti-dilution rights on those shares to maintain his percentage ownership
through September 27, 2008. We issued another 5,000,000 shares to Mr. Beck
to be held in escrow until the conditions are met with respect to the
anti-dilution shares. As of the date of this Report, we have issued a
total of 1,393,617 shares of common stock to Mr. Beck pursuant to the
anti-dilution provision in the settlement arrangement. In or about
February 2008, Mr. Beck reached the $800,000 guarantee from the sale of our
common stock and the cash received from us for 7.5% of the capital we
raised. Therefore, as of the date of this Report, we have no further
liability to Mr. Beck.
On
September 12, 2007, we filed a complaint for declaratory relief against Mr. Beck
in the Superior Court of the State of California, County of Los Angeles, Central
Judicial District, seeking a judicial determination as to the respective rights
and duties of us and Mr. Beck with respect to certain terms and conditions of
the settlement agreement and escrow instructions.
On
October 1, 2007, Mr. Beck served us with a Motion for Enforcement of Settlement
and Entry of Judgment (Motion”). Mr. Beck’s motion was
denied.
On
February 7, 2008, we filed a first amended complaint in our action against Mr.
Beck for declaratory relief which now also seeks to have the settlement
agreement and escrow instructions rescinded. On March 6, 2008, Mr.
Beck filed a cross-complaint against us and Robert M. Bernstein, our President
and a Director, for breach of contract, specific performance, declaratory
relief, conversion, intentional interference with contract (against Mr.
Bernstein only) and, in the alternative, equitable restitution.
Gem
Advisors, Inc., GEM Global Emerging Markets, and Global Emerging Markets of
North America, Inc.
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. In September 2006, this case was dismissed as
to all parties because the parties thought they could agree on the terms of a
written settlement agreement. However, the parties failed to reach a
settlement and no formal settlement agreement was ever executed.
On
November 30, 2007, Gem Advisors, Inc. filed a lawsuit
against us, Robert M. Bernstein, and Lawrence I. Washor (who
represented us in the lawsuit against Gem Advisors, Inc. filed on June
15, 2005), for breach of contract (settlement), breach of contract (for transfer
to Gem Advisors, Inc. of 585,000 shares we held in another company), breach of
covenant of good faith and fair dealing, and fraud and deceit – promise made
without intention to perform (the only cause of action asserted against Robert
M. Bernstein and Lawrence I. Washor). Gem Advisors, Inc. is seeking
damages in excess of $250,000. On April 10, 2008, the Court dismissed
Lawrence I. Washor from the lawsuit.
None.
PART
II
Market
Information
Our
common stock is quoted on the OTC Bulletin Board under the symbol
MTTG. The following table sets forth the high and low bid prices per
share of common stock for the last two fiscal years. These prices
represent inter-dealer quotations without retail markup, markdown, or commission
and may not necessarily represent actual transactions.
|
High
|
|
Low
|
|
|
|
|
Fiscal
year ended December 31, 2006:
|
|
|
|
First
quarter
|
$0.29
|
|
$0.09
|
Second
quarter
|
$0.35
|
|
$0.08
|
Third
quarter
|
$0.10
|
|
$0.03
|
Fourth
quarter
|
$13.80
|
|
$0.03
|
|
|
|
|
Fiscal
year ended December 31, 2007:
|
|
|
|
First
quarter
|
$3.70
|
|
$0.41
|
Second
quarter
|
$1.65
|
|
$1.01
|
Third
quarter
|
$1.97
|
|
$0.55
|
Fourth
quarter
|
$0.75
|
|
$0.40
|
The
closing price of our common stock on July 21, 2008 was $0.01.
Holders
As of the
date of this Report, we had 186,828,995 shares of our Class A common stock
issued and outstanding and held by approximately 1,727 holders of
record. 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 for our Class A common
stock is Interwest Transfer Company, Inc., 1981 East 4800 South, Suite 100, Salt
Lake City, Utah 84117.
Dividends
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.
Securities
Authorized for Issuance under Equity Compensation Plans
On April
18, 2006, our Board of Directors approved the 2006 Non-Qualified Stock Grant and
Option Plan (the 2006 Plan”) with 100,000 shares of our common stock available
for issuance under the plan. The plan offers selected employees,
directors, and consultants an opportunity to acquire our common stock, and
serves to encourage such persons to remain employed by us and to attract new
employees. As of the date of this Report, we have issued all 100,000
shares of common stock under the plan.
On
December 1, 2006, our Board of Directors approved the 2006/2007 Non-Qualified
Company Stock Grant and Option Plan (the 2006/2007 Plan”) with 3,000,000 shares
of our common stock available for issuance under the plan. The plan offers
selected employees, directors, and consultants an opportunity to acquire our
common stock, and serves to encourage such persons to remain employed by us and
to attract new employees. As of the date of this Report, we have not
issued any options or shares of common stock under the 2006/2007
Plan.
On April
22, 2008, our Board of Directors approved the 2008 Incentive and Nonstatutory
Stock Option Plan (the “2008 Plan”) with 100,000,000 shares of our common stock
available for issuance under the plan. On May 23, 2008, our Board of
Directors amended the 2008 Plan increasing the number of shares of our common
stock available for issuance under the plan to 400,000,000. The 2008
Plan offers selected employees, directors, and consultants an opportunity to
acquire our common stock, and serves to encourage such persons to remain
employed by us and to attract new employees. As of the date of this
Report, we have issued all 400,000,000 stock options to employees under the 2008
Plan.
Recent
Sales of Unregistered Securities
On
September 28, 2007, we issued 400,000 shares of common stock to an employee
subject to vesting, which were ultimately forfeited due to the employee’s
termination.
On
October 2, 2007, we issued 76,300 shares of common stock to one entity in
consideration for services.
On
October 8, 2007, we issued 1,430,400 shares of common stock to three entities
and one individual under Regulation S in consideration for prior
investments.
On
October 8, 2007, we sold 770,000 shares of common stock to one entity at $0.65
per share for total
gross proceeds of $505,000 under Regulation S.
On
October 12, 2007, we issued 4,000,000 shares of common stock to an entity in
exchange for certain of their shares. However, the exchange was
cancelled and each side returned the other’s shares.
On
December 3, 2007, we sold 2,027,900 shares of common stock to 42 individuals and
entities at $0.24 per share for total gross proceeds of $486,696.
On
December 6, 2007, we sold 62,500 shares of common stock to one entity at $0.40
per share for total gross proceeds of $25,000 under Regulation S.
On
December 10, 2007, we issued 250,000 shares to one individual in exchange for
services.
On
January 9, 2008, we issued 425,000 shares of common stock to one individual in
exchange for consulting services.
On
January 14, 2008, we issued a total of 7,000,000 shares of common stock to two
entities for investor relations services.
On
January 21, 2008, we issued 425,000 shares of common stock to one individual in
exchange for services.
On
February 19, 2008, we issued 200,000 shares of common stock to one individual in
exchange for services.
On
February 25, 2008, we issued 150,000 shares of common stock to one individual in
exchange for consulting services.
On
February 27, 2008, we issued 150,000 shares of common stock to one individual in
exchange for consulting services.
On
February 27, 2008, we issued 200,000 shares of common stock to one individual in
exchange for consulting services.
On
February 27, 2008, we issued 25,000 shares of common stock to one individual in
exchange for consulting services.
On April
9, 2008, we issued options to purchase a total of 15,390,546 shares of Class A
common stock to two individuals at an exercise price of $0.025 per
share.
On April
9, 2008, we issued options to purchase a total of 48,000 shares of Class B
common stock to two individuals at an exercise price of $0.50 per
share.
On April
11, 2008, we issued 77,600 shares of common stock to four individuals under
Regulation S for total gross proceeds of $18,624.
On July
11, 2008, we issued a total of 8,577,907 shares of common stock to two entities
pursuant to their conversion of Series E Convertible Preferred
Stock.
Unless
otherwise indicated, we relied on the exemption from registration relating to
offerings that do not involve any public offering pursuant to Section 4(2) under
the Securities Act of 1933 (the “Act”) and/or Rule 506 of Regulation D of the
Act. We believe that each investor had adequate access to information
about us through the investor’s relationship with us.
Disclaimer
Regarding Forward Looking Statements
Our
Management’s Discussion and Analysis contains not only statements that are
historical facts, but also statements that are forward-looking (within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934). Forward-looking statements are, by their
very nature, uncertain and risky. These risks and uncertainties include
international, national and local general economic and market conditions;
demographic changes; our ability to sustain, manage, or forecast growth; our
ability to successfully make and integrate acquisitions; raw material costs and
availability; new product development and introduction; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; the loss of significant customers
or suppliers; fluctuations and difficulty in forecasting operating results;
changes in business strategy or development plans; business disruptions; the
ability to attract and retain qualified personnel; the ability to protect
technology; and other risks that might be detailed from time to time in our
filings with the Securities and Exchange Commission.
Although
the forward-looking statements in this Annual Report reflect the good faith
judgment of our management, such statements can only be based on facts and
factors currently known by them. Consequently, and because forward-looking
statements are inherently subject to risks and uncertainties, the actual results
and outcomes may differ materially from the results and outcomes discussed in
the forward-looking statements. You are urged to carefully review and
consider the various disclosures made by us in this Report and in our other
reports as we attempt to advise interested parties of the risks and factors that
may affect our business, financial condition, and results of operations and
prospects.
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 generate very little revenue from the
sale and licensing of our products, and thus we are a development stage
company.
Our
biggest challenge is funding the continued research and development and
commercialization of our products until we can 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 financing to fund operations. For the foreseeable
future, we will continue to raise capital in this manner.
Our
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. We have sustained operating losses since
our inception (October 21, 1983). In addition, we have used substantial
amounts of working capital in our operations. Further, at December 31,
2007, the deficit accumulated during the development stage amounted to
approximately $313,208,402.
In view
of these matters, realization of a major portion of the assets in the
accompanying consolidated balance sheet is dependent upon our ability to meet
our financing requirements and the success of our future operations.
During 2007, we received approximately $4,000,000 in private financing,
primarily from the sale of equity and debt securities. We plan to
continue to raise funds through the sale of our securities for the foreseeable
future. In addition in 2007, we received contracts to inspect certain
bridges with nine states which generated gross revenue of approximately
$201,917. We have begun marketing our current technologies while
continuing to develop new methods and applications. We will need to raise
additional capital to finance future activities and no assurances can be made
that current or anticipated future sources of funds will enable us to finance
future operations. In light of these circumstances, substantial doubt
exists about our ability to continue as a going concern. The consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets or liabilities that might
be necessary should we be unable to continue as a going concern.
Results
of Operations for the Year Ended December 31, 2007 as Compared to the Year Ended
December 31, 2006
Introduction
In 2007,
we had revenues from bridge testing. Our revenues for 2007 totaled
$201,917. 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 in our operations was
approximately $2,664,630 in 2007 compared to approximately $1,779,256 in
2006. We anticipate that we will continue to fund a substantial portion of
our operations through the sale of our securities until such time as we can
begin to generate substantial revenue from the sale of our products, and we do
not have an estimate of when such revenues will begin.
Revenues and Loss from
Operations
Our
revenue, research and development costs, general and administrative expenses,
and loss from operations for the year ended December 31, 2007 as compared to the
year ended December 31, 2006 are as follows:
|
|
Year
Ended
December
31,
2007
|
|
|
Year
Ended
December
31,
2006
|
|
|
Percentage
Change
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
201,917 |
|
|
$ |
39,446 |
|
|
|
411.89 |
% |
Research
and development costs
|
|
|
3,701,966 |
|
|
|
902,446 |
|
|
|
310.21 |
% |
General
and administrative expenses
|
|
|
98,557,941 |
|
|
|
138,892,926 |
|
|
|
(29.04 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
$ |
102,057,990 |
|
|
$ |
139,755,926 |
|
|
|
(26.74 |
)% |
Our
revenues for both 2007 and 2006 were derived exclusively from bridge
testing.
Of the
$3,701,966 in research and development costs for 2007, $197,005 was incurred in
salaries to our in-house engineering staff which included an officer and
director, $359,861 was paid to outside consultants and for related expense
reimbursements, and we valued the issuance of 2,116,000 shares of our common
stock that were issued to various consultants at $3,145,100. Of the
$1,013,969 in research and development costs for 2006, $111,523 was incurred in
salaries to our in-house engineering staff which included an officer and
director, $ 271,279 was paid to outside consultants and for related expense
reimbursements, and we valued the issuance of 36,028 shares of our common stock
that were issued to various consultants at $631,167.
General
and administrative expenses were $98,557,941 and $138,781,403, respectively, for
the years ended December 31, 2007 and 2006. The major expenses incurred
during each of the years were:
|
Year
Ended
December
31,
2007
|
|
Year
Ended
December
31,
2006
|
|
|
|
|
|
|
Consulting
services
|
$ |
16,855,747 |
|
$ |
125,332,072 |
|
Officer’s
salary
|
|
284,916 |
|
|
211,574 |
|
Officer’s
stock based compensation
|
|
60,048,000 |
|
|
6,575,342 |
|
Secretarial
salaries
|
|
132,754 |
|
|
114,561 |
|
Professional
Fees
|
|
1,053,280 |
|
|
974,704 |
|
Office
expense
|
|
97,459 |
|
|
52,855 |
|
Rent
|
|
139,173 |
|
|
28,176 |
|
Impairment
loss
|
|
19,294,875 |
|
|
1,913,445 |
|
Payroll
taxes
|
|
42,334 |
|
|
28,255 |
|
Telephone
|
|
27,929 |
|
|
17,375 |
|
Of the
$16,855,747 in consulting expense for the year ended December 31, 2007,
$12,394,888 was related to the issuance of 8,926,724 shares of common
stock. In addition, we charged
$1,100,000
in consulting fees through an increase in convertible debt of $1,100,000 and
charged $2,845.000 to consulting in connection with the acquisition of shares of
Rocket City Automotive. Of the $125,332,072 in consulting expense for the year
ended December 31, 2006, $124,543,689 was related to the issuance of 35,021,248
shares of common stock.
Other Income and Expenses
and Net Loss
Our gain
on modification of convertible debt, modification of research and development
sponsorship agreement, loss on subscription receivables, interest expense,
other-than-temporary impairment of marketable securities, change in fair value
of derivative and warrant liabilities, loss on settlement of lawsuits, and net
loss for the year ended December 31, 2007 as compared to the year ended December
31, 2006 are as follows:
|
|
Year
Ended
December
31,
2007
|
|
|
Year
Ended
December
31,
2006
|
|
|
Percentage
Change
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on modification of convertible debt
|
|
$ |
-0- |
|
|
$ |
1,033,479 |
|
|
|
(100 |
)% |
Interest
expense
|
|
|
(2,374,032 |
) |
|
|
(1,625,592 |
) |
|
|
46.04 |
% |
Net
unrealized and realized loss of marketable securities
|
|
|
(3,986,553 |
) |
|
|
(3,798,516 |
) |
|
|
4.95 |
% |
Change
in fair value of derivative and warrant liabilities
|
|
|
34,962,617 |
|
|
|
(33,780,874 |
) |
|
|
(196.5 |
)% |
Interest
income
|
|
|
60,179 |
|
|
|
37,120 |
|
|
|
62.12 |
% |
Other
|
|
|
-0- |
|
|
|
7,008 |
|
|
|
(100 |
)% |
Provision
for income taxes
|
|
|
(800 |
) |
|
|
(800 |
) |
|
|
|
|
Net
loss
|
|
$ |
(73,396,579 |
) |
|
$ |
(177,884,101 |
) |
|
|
(58.74 |
)% |
Our loss
of the gain on modification of convertible debt of $1,033,479 from 2006 is
related to our modification of the Palisades debt and removal of associated
derivative liability. Our interest expense includes amortization of
debt discounts totaling $2,041,213 in 2007 and $968,716 in 2006. The
change in fair value of derivative and warrant liabilities represents the change
in derivative values related to warrants and convertible debt with Palisades and
Golden Gate.
Liquidity
and Capital Resources
Introduction
During
the year ended December 31, 2007, as with 2006, we did not generate positive
cash flow. As a result, we funded our operations through the private sale
of equity and debt securities, the
issuance of our securities in exchange for services, and
loans.
Our cash,
investments in marketable securities held for trading, investments in marketable
securities available for sale, accounts receivable, prepaid services, prepaid
expenses and other current assets, total current assets, total assets, total
current liabilities, and total liabilities as of December 31, 2007, as compared
to December 31, 2006, were as follows:
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$ |
809,710 |
|
|
$ |
129,296 |
|
Marketable
securities – trading
|
|
|
300,000 |
|
|
|
135,136 |
|
Marketable
securities – available-for-sale
|
|
|
1,009,267 |
|
|
|
-0- |
|
Accounts
receivable
|
|
|
108,661 |
|
|
|
116,707 |
|
Inventories
|
|
|
62,216 |
|
|
|
-0- |
|
Prepaid
expenses and other
|
|
|
47,962 |
|
|
|
40,006 |
|
Total
current assets
|
|
|
2,337,546 |
|
|
|
421,145 |
|
Total
assets
|
|
|
2,425,280 |
|
|
|
432,780 |
|
Total
current liabilities
|
|
|
691,380 |
|
|
|
542,802 |
|
Total
liabilities
|
|
|
14,240,655 |
|
|
|
46,986,215 |
|
Cash
Requirements
For the
year ended December 31, 2007, our net cash used in operations was $(2,664,630)
compared to $(1,779,256) for the year ended December 31,
2006.
Negative
operating cash flows during the year ended December 31, 2007 were primarily
created by a net loss from operations of $(73,396,579), offset by impairment
losses of $19,257,375 incurred in connection with the acquisition of three
subsidiaries, the issuance of stock for services of $16,195,289,
other-than-temporary impairment of marketable securities available for sale of
amortization of discount on convertible debentures of $3,986,200 and an increase
in officer stock based compensation of $60,000,000. There was also an
increase in the fair value of derivative and warrant liabilities of
$34,962,617.
Negative
operating cash flows during the year ended December 31, 2006 were primarily
created by a net loss from operations of $(177,884,101), offset by impairment
losses of $1,913,445 incurred in connection with the acquisition of a
subsidiary, a loss on write off of subscription receivables of $1,346,010, the
issuance of stock for services of $126,199,122, other-than-temporary impairment
of marketable securities available for sale of $3,798,516, amortization of
discount on convertible debentures of $968,716, a increase in the fair value of
derivative and warrant liabilities of $33,780,874 and an increase in accounts
payable and accrued expenses of $1,197,776, and an increase in officer stock
based compensation 6,575,342. There was also a gain on modification of
convertible debt of $1,033,479.
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.
Sources and Uses of
Cash
Net cash
provided by (used in) investing activities for the years ended December 31, 2007
and 2006, were $(648,543) and $236,372, respectively. For the years ended
December 31, 2007 and 2006, the net cash came primarily from the sale of
securities in the amount of $537,174 and $242,506, respectively, offset by the
amount for purchase of securities of $(1,702,038) and $(7,307),
respectively. Net cash from investment activities in 2007 was further
increased by the $600,000 cash we received in connection with the acquisition of
three subsidiaries, and $400,000 in redemptions of certificate of
deposits.
Net cash
provided by financing activities for the years ended December 31, 2007 and 2006,
were $3,993,588 and $1,630,734, respectively. For the year ended December
31, 2007, the net cash came primarily from the sale of common stock and warrants
of $4,566,631 and proceeds from convertible debentures and other notes payable
of $20,000. For the year ended December 31, 2006, the net cash came
primarily from the sale of common stock and warrants of $1,680,553 and proceeds
from convertible debentures and other notes payable of $50,000.
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 securities. If we are unsuccessful in raising the required
capital, we may have to curtail operations.
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 the following accounting policies that it believes are key to an
understanding of its financial statements. These are important accounting
policies that require management’s most difficult, subjective
judgments.
The first
critical accounting policy relates to revenue recognition. Income
from our research is recognized at the time services are rendered and
billed.
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”). We record a BCF
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 Instrument(s).” In those circumstances, the
convertible debt will be recorded 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.
The
financial statements required to be filed pursuant to this Item 7 begin on page
F-1 of this Report.
Effective
September 11, 2007, KMJ/Corbin and Company, LLP (“KMJ”) resigned as our
independent registered public accounting firm for the fiscal year ended December
31, 2007.
We
engaged KMJ on January 21, 2005. For the last two fiscal years, KMJ’s
reports on our financial statements did not contain an adverse opinion or a
disclaimer of opinion, nor were the reports qualified or modified as to audit
scope, or accounting principles, but they were modified as to uncertainty about
our ability to continue as a going concern. For the last two fiscal
years and any subsequent interim period preceding the dismissal, there were no
disagreements with KMJ on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure which, if not
resolved to the satisfaction of KMJ would have caused KMJ to make reference to
the matter in their reports.
We
engaged Weinberg & Company, P.A. (hereinafter “Weinberg”) as our principal
accountants to audit our financial statements effective as of September 11,
2007. Effective November 5, 2007, we dismissed Weinberg as our independent
registered public accounting firm for the fiscal year ended December 31,
2007. Weinberg never issued a report on our financial
statements. During their engagement, there were no disagreements with
Weinberg on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
the satisfaction of Weinberg would have caused Weinberg to make reference to the
matter in their reports.
We
engaged Kabani & Company, Inc. (hereinafter “Kabani”) as our principal
accountants to audit our financial statements effective as of November 5, 2007.
Effective March 13, 2008, we dismissed Kabani as our independent
registered public accounting firm for the fiscal year ended December 31,
2008. Kabani’s services were limited to a review of our Quarterly
Report on Form 10-QSB for the quarter ended September 30,
2007. During their engagement, there were no disagreements with
Kabani on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to the
satisfaction of Kabani would have caused Kabani to make reference to the matter
in their reports.
We
engaged Gruber & Co. LLC (hereinafter “Gruber”) as the principal accountants
to audit our financial statements effective as of March 13, 2008. 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 Gruber 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 the our financial statements, and neither a written report was
provided to us nor oral advice was provided that Gruber 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.
Evaluation
of Disclosure Controls and Procedures
Our
President and Chief Financial Officer (the “Certifying Officers”) are
responsible for establishing and maintaining our disclosure controls and
procedures. The Certifying Officers have designed such disclosure
controls and procedures to ensure that material information is made known to
them, particularly during the period in which this report was
prepared. The
Certifying
Officers have evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this Report. Based
on that evaluation, the Certifying Officers have concluded that our disclosure
controls and procedures were not effective at the reasonable assurance level due
to the material weaknesses described below.
Management’s
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a- l5(f) under the
Exchange Act) and for assessing the effectiveness of our internal control over
financial reporting. Our internal control system is designed to provide
reasonable assurance to our management and board of directors regarding the
preparation and fair presentation of published financial statements in
accordance with United States’ generally accepted accounting
principles.
Our
internal control over financial reporting is supported by written policies and
procedures that pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of our
assets; provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally
accepted accounting principles and that our receipts and expenditures are being
made only in accordance with authorizations of our management and our board of
directors; and provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our assets that
could have a material effect on our financial statements.
Our
management has assessed the effectiveness of our internal control over financial
reporting as of the end of our most recent fiscal year. Management’s
assessment included an evaluation of the design of our internal control over
financial reporting and testing of the operational effectiveness of our internal
control over financial reporting. Based on this assessment, our management has
concluded that our internal control over financial reporting was not effective
at the reasonable assurance level due to the material weaknesses described
below.
In light
of the material weaknesses described below, we performed additional analysis and
other post-closing procedures to ensure our consolidated financial statements
were prepared in accordance with generally accepted accounting principles.
Accordingly, we believe that the consolidated financial statements
included in this Report fairly present, in all material respects, our financial
condition, results of operations and cash flows for the periods
presented.
A
material weakness is a control deficiency (within the meaning of the Public
Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 2) or
combination of control deficiencies, that result in more than a remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. The Certifying Officers have
identified the following three material weaknesses which have caused the
Certifying Officers to conclude that our disclosure controls and procedures were
not effective at the reasonable assurance level:
1. We
do not yet have written documentation of our internal control policies and
procedures. Written documentation of key internal controls over financial
reporting is a
requirement
of Section 404 of the Sarbanes-Oxley Act and will be applicable to us for the
year ending December 31, 2008. The Certifying Officers evaluated the
impact of our failure to have written documentation of our internal controls and
procedures on our assessment of our disclosure controls and procedures and has
concluded that the control deficiency that resulted represented a material
weakness.
2. We
do not have sufficient segregation of duties within accounting functions, which
is a basic internal control. Due to our size and nature, segregation of
all conflicting duties may not always be possible and may not be economically
feasible. However, to the extent possible, the initiation of transactions,
the custody of assets and the recording of transactions should be performed by
separate individuals. The Certifying Officers evaluated the impact of our
failure to have segregation of duties on our assessment of our disclosure
controls and procedures and has concluded that the control deficiency that
resulted represented a material weakness.
3. We
had a significant number of audit adjustments last fiscal year. Audit
adjustments are the result of a failure of the internal controls to prevent or
detect misstatements of accounting information. The failure could be due
to inadequate design of the internal controls or to a misapplication or override
of controls. The Certifying Officers evaluated the impact of our
significant number of audit adjustments last year and have concluded that the
control deficiency that resulted represented a material weakness.
On
November 27, 2007, the Certifying Officers concluded that in valuing previous
periods’ non-cash security transactions, we utilized discounts to the respective
share’s trading prices as well as its derivative liabilities which they have
determined are without foundation.
As a
result of this evaluation and conclusion, the Certifying Officers in conjunction
with our Board of Directors, concluded that previously issued consolidated
financial statements included in our Annual Report on Form 10-KSB for the fiscal
years ended December 31, 2005 and December 31, 2006, as well as all of our
quarterly reports on Form 10-QSB during the 2005 and 2006 fiscal years, can no
longer be relied upon. In this regard, we will amend and restate our
financial statements to eliminate all discounts and will refile our Annual
Report on Form 10-KSB for the fiscal year ended December 31, 2006 and its Form
10-QSB for the quarters ended March 31, 2007 and June 30, 2007. The net
effect of the restatements will be to increase the accumulated deficit at June
30, 2007 from $100,909,477 to $292,944,478.
The
Certifying Officers have discussed this matter with our current independent
registered public accounting firm.
To
remediate the material weaknesses in our disclosure controls and procedures
identified above, in addition to working with our independent auditors, we have
continued to refine our internal procedures to begin to implement segregation of
duties and to reduce the number of audit adjustments.
This
Report does not include an attestation report of our independent registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by our
independent registered public accounting firm pursuant to temporary
rules of the SEC that permit the Company to provide only management’s report in
this Annual Report.
Changes
in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting that occurred
during our most recent fiscal quarter that have materially affected, or
reasonably likely to materially affect, our internal control over financial
reporting.
None.
PART
III
Directors
and Executive Officers
The
following table sets forth the names, positions, and ages of our current
directors and executive officers. Our executive officers are appointed by
the Board of Directors. The directors serve one-year terms until their
successors are elected. The executive officers serve until their death,
resignation or removal by the Board of Directors. Unless described below,
there are no family relationships among any of the directors and officers, and
none of our officers or directors serves as a director of another reporting
issuer.
Name
|
Age
|
Position(s)
|
|
|
|
Robert
M. Bernstein
|
74
|
Chief
Executive Officer, President, Chief
Financial
Officer, Director
|
Marybeth
Miceli Newton
|
31
|
Chief
Operating Officer
|
Joel
R. Freedman
|
47
|
Secretary
and Director
|
William
I. Berks
|
77
|
Vice
President and Director
|
Brent
Phares
|
36
|
Chief
Engineer
|
Robert M. Bernstein, President, CEO,
Chief Financial Officer, and Director. Mr. Bernstein received a
Bachelor of Science degree from the Wharton School of the University of
Pennsylvania in 1956. From August 1959 until his certification expired in
August 1972, he was a Certified Public Accountant licensed in Pennsylvania.
From 1961 to 1981, he was a consultant specializing in mergers,
acquisitions, and financing. From 1981 to 1986, Mr. Bernstein was Chairman
and Chief Executive Officer of Blue Jay Enterprises, Inc. of Philadelphia,
Pennsylvania, an oil and gas exploration company. In December 1985, Mr.
Bernstein formed a research and development partnership for our company, funding
approximately $750,000 for research on the Fatigue Fuse. In October 1988,
Mr. Bernstein became our President, CEO, and Chief Financial
Officer.
Joel R. Freedman, Secretary and
Director. From October 1989 and continuing through the present, Mr.
Freedmen has been our Secretary and a Director. From 1983 through 1999,
Mr. Freedmen was President of Genesis Advisors, Inc., an investment advisory
firm in Bala Cynwyd, Pennsylvania. From January 2000 through December
2002, Mr. Freedmen was a Senior Vice President of PMG Capital Corp., a
securities brokerage and investment advisory firm in West Conshohocken,
Pennsylvania. From December 2002 and continuing through the present, Mr.
Freedmen has been Senior Vice President of Wachovia Securities, LLC, a
securities brokerage and investment advisory firm in Conshohocken,
Pennsylvania.
William Berks, Vice President and
Director. Mr. Berks joined us as our Vice President and Director in
June 1997. Mr. Berks holds six patents and has over 30 years experience in
spacecraft mechanical systems engineering. Mr. Berks has a Bachelor of
Science in
Aeronautical Engineering and a Master of Science in Applied Mechanics from
Polytechnic Institute of New York, as well as a Master of Science in Industrial
Engineering from Stevens Institute of Technology. Prior to joining us, Mr.
Berks was with TRW Incorporated for 26 years in a variety of management
positions, where his duties included flight hardware fabrication and testing and
where he was responsible for overseeing 350 employees.
Marybeth Miceli, Chief Operating Officer.
Ms. Miceli has over 12 years experience in nondestructive evaluation and
testing of civil infrastructure. Ms. Miceli joined us as our Chief
Operating Officer in July 2007. From June 2005 through August 2007, Ms.
Miceli was Director of Marketing for Sam Schwartz, LLC, Engineering and Planning
Consultants, New York, in the areas of infrastructure management,
non-destructive testing, and fatigue testing. From January 2001 through
May 2005, Ms. Miceli was with Lucius Pitkin, Inc., Engineering Consultants,
where Ms. Miceli’s responsibilities included Quality Assurance Manager, and
Assistant Radiation Safety Officer. Among Ms. Miceli’s duties was the
supervision and performance of failure analysis investigations, fatigue testing
investigations, and interfacing with government agencies on testing,
regulations, and safety. Ms. Miceli is currently in the first year of a
three year term serving as a director of the American Society of Non-destructive
Testing, and Chairman in 2003 of the Metropolitan New York Chapter. Ms.
Miceli is a graduate of Johns Hopkins University and has a Master of
Science in Materials Science and Engineering, from Virginia Polytechnic
Institute. Ms. Miceli is a member of the American Society of Metals and
has published several papers on non-destructive testing of bridge components and
other related subjects.
Brent M. Phares, Chief
Engineer. Dr. Phares has over 15 years of management, inspection,
research, and testing experience related to bridge structures. From
October 2001 and continuing through the present, Dr. Phares has been 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. From June 2001 through October 2004, Dr. Phares
served as President and CEO of MGPS, Inc., an engineering firm specializing in
the evaluation of civil infrastructure based on innovative sensors and
monitoring strategies. Dr. Phares has served as a consulting Research
Engineer at the Federal Highway Administration’s
Nondestructive Evaluation Validation Center where he led the
execution of
several
validation and developmental studies. Dr. Phares is a registered
professional engineer and serves as a voting member of many national and
international technical committees. Dr. Phares joined us in June
2007.
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.
Advisory
Board
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 our 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:
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.
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, he was the Chief Engineer/First Deputy Commissioner, New
York City Department of Transportation and from April 1990 to the present acted
as a director of the Infrastructure Institute at the Cooper Union College, New
York City, New York. From April 1990 to 1994 he was a Senior Vice
President of Hayden Wegman Consulting Engineers, and is a columnist for the New
York Daily News.
Compliance
with Section 16(a) of the Securities Exchange Act of 1934
Section
16(a) of the Securities Exchange Act of 1934 requires the Company’s directors
and executive officers and persons who own more than ten percent of a registered
class of the Company’s equity securities to file with the SEC initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Officers, directors and greater than ten
percent shareholders are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file.
During
the most recent fiscal year, to the Company’s knowledge, the following
delinquencies occurred:
Name
|
No.
of Late
Reports
|
No.
of
Transactions
Reported
Late
|
No.
of
Failures
to
File
|
Robert
M. Bernstein
|
3
|
3
|
-0-
|
William
Berks
|
1
|
1
|
-0-
|
Brent
Phares
|
2
|
2
|
-0-
|
Marybeth
Miceli
|
1
|
1
|
-0-
|
Code
of Ethics
We have
adopted a corporate code of ethics. We believe our code of ethics is reasonably
designed to deter wrongdoing and promote honest and ethical conduct; provide
full, fair, accurate, timely and understandable disclosure in public reports;
comply with applicable laws; ensure prompt internal reporting of code
violations; and provide accountability for adherence to the code. A copy of the
Code of Ethics is attached hereto.
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.
On
November 17, 2006, we entered into an indemnification agreement with each of our
directors. Under the terms of the indemnification agreements, we agreed to
indemnify each director to the fullest extent permitted by law if the director
was or is a party or threatened to be made a party to any action or lawsuit by
reason of the fact that he is or was a director. The indemnification shall
cover all expenses, penalties, fines and amounts paid in settlement, including
attorneys’ fees. A director will not be indemnified for intentional
misconduct for the primary purpose of his own personal benefit.
Summary
Compensation Table
Set forth
below is a summary of compensation for our principal executive officer and our
two most highly compensated officers other than our principal executive officer
(collectively, the “named executive officers”) for our last two fiscal years.
There have been no annuity, pension or retirement benefits ever paid to our
officers, directors or employees.
With the
exception of reimbursement of expenses incurred by our named executive officers
during the scope of their employment and unless expressly stated otherwise in a
footnote below, none of the named executive officers received other
compensation, perquisites and/or personal benefits in excess of
$10,000.
Name
and Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards ($)
|
|
|
Option
Awards ($)
|
|
|
Non-equity
Incentive Plan Compensation ($)
|
|
|
All
Other Compensation ($)
|
|
|
Total
($)
|
|
Robert
M. Bernstein, CEO,
|
|
2007
|
|
|
$ |
250,000 |
|
|
$ |
-0- |
|
|
$ |
-0- |
|
|
$ |
-0- |
|
|
$ |
-0- |
|
|
$ |
-0- |
|
|
$ |
250,000 |
|
President,
CFO |
|
2006
|
|
|
$ |
206,500 |
|
|
$ |
-0- |
|
|
$ |
180,000,000 |
|
|
$ |
-0- |
|
|
$ |
-0- |
|
|
$ |
-0- |
|
|
$ |
180,206,500 |
|
Marybeth
Miceli Newton, COO
|
|
|
2007
|
1 |
|
$ |
52,083.33 |
|
|
$ |
-0- |
|
|
$ |
-0- |
|
|
$ |
-0- |
|
|
$ |
-0- |
|
|
$ |
-0- |
|
|
$ |
52,083.33 |
|
Brent
Phares, Chief Engineer
|
|
|
2007
|
2 |
|
$ |
65,625 |
|
|
$ |
-0- |
|
|
$ |
-0- |
|
|
$ |
-0- |
|
|
$ |
-0- |
|
|
$ |
-0- |
|
|
$ |
65,625 |
|
Employment
Agreements
On
October 1, 2006, we entered into an Employment Agreement with Robert M.
Bernstein, our Chief Executive Officer, President and Chief Financial Officer,
which provides certain terms and conditions with respect to Mr. Bernstein’s
employment. The Employment Agreement is for a three year term. Under
the Employment Agreement, Mr. Bernstein will be paid an annual salary of
$250,000, with one year of paid severance if he is terminated without good cause
prior to the expiration of the employment term.
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, 2007 provided
for or contributed to by our company.
Director
Compensation
Our
directors are not compensated for their services, but are entitled for
reimbursement of expenses incurred in attending board of directors
meetings.
Grants
of Plan Based Awards
There
were no grants of plan based awards made in 2007.
1 Joined us July 6, 2007.
2 Joined us June 1, 2007.
Outstanding
Equity Awards at Fiscal Year-End
There
were no outstanding equity awards as of December 31, 2007.
The
following table sets forth certain information regarding our shares of
outstanding common stock beneficially owned as of the date hereof by (i) each of
our directors and executive officers, (ii) all directors and executive officers
as a group, and (iii) each other person who is known by us to own beneficially
more than 5% of our common stock based upon 186,828,995 shares of Class A common
stock outstanding.
|
|
Class A Common
Stock
|
|
|
Class B Common
Stock
|
|
Name
and Address of
|
|
Amount
and Nature of Beneficial Ownership
|
|
|
Percent
Ownership
|
|
|
Amount
and Nature of Beneficial Ownership
|
|
|
Percent
Ownership of Class
|
|
Robert
M. Bernstein, President, CEO, CFO, and Director
|
|
|
400,767,177 |
3 |
|
|
68.29 |
% |
|
|
597,000 |
4 |
|
|
99.5 |
% |
William
Berks, Vice President and Director
|
|
|
2,710,048 |
5 |
|
|
1.45 |
% |
|
|
0 |
|
|
|
0 |
% |
Joel
R. Freedman, Secretary and Director
|
|
|
3,700,501 |
6 |
|
|
1.98 |
% |
|
|
0 |
|
|
|
0 |
% |
Marybeth
Miceli, Chief Operating Officer
|
|
|
2,237,501 |
7 |
|
|
1.19 |
% |
|
|
0 |
|
|
|
0 |
% |
1 C/o our address, 11661 San Vicente Blvd.,
Suite 707, Los Angeles, CA 90049, unless otherwise noted.
2 Except as otherwise indicated, we believe that
the beneficial owners of common stock listed above, based on information
furnished by such owners, have sole investment and voting power with respect to
such shares, subject to community property laws where
applicable. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. 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.
3 Includes 30,000,000 options to purchase shares
of Class A common stock at $0.011 per share expiring on April 22, 2018;
70,000,000 options to purchase shares of Class A common stock at $0.007 per
share expiring on May 6, 2018; and 300,000,000 options to purchase shares of
Class A common stock at $0.00462 per share expiring on May 23,
2008.
4 Each share of Class B common stock has 2,000
votes on any matter which is brought for shareholders vote. As a result,
Mr. Bernstein holds 1,194,000,000 votes represented by the Class B common stock,
and 89.25% of the overall votes.
5 Includes 200,000 options to purchase shares of
Class A common stock at $0.011 per share expiring on April 30,
2016.
6 Includes 200,000 options to purchase shares of
Class A common stock at $0.011 per share expiring on April 30,
2016.
7 Includes 200,000 options to purchase shares of
Class A common stock at $0.011 per share expiring on April 30,
2016.
Brent
Phares, Chief Engineer
|
|
|
3,513,334 |
8 |
|
|
1.89 |
% |
|
|
0 |
|
|
|
0 |
% |
All
executive officers and directors as a group (five persons)
|
|
|
412,928,561 |
|
|
|
70.27 |
% |
|
|
597,000 |
|
|
|
99.5 |
% |
UTEK
Corporation
2109
Palm Avenue
Tampa,
FL 33605
|
|
|
17,821,937 |
|
|
|
9.54 |
% |
|
|
0 |
|
|
|
0 |
% |
None.
8 Includes 200,000 options to purchase shares of
Class A common stock at $0.011 per share expiring on April 30,
2016.
3.1
|
Certificate
of Incorporation of Material Technologies, Inc., dated March 4, 19971
|
|
|
3.2
|
Certificate
of Amendment to Articles of Incorporation, dated February 16, 20002
|
|
|
3.3
|
Certificate
of Amendment to Articles of Incorporation, dated July 12, 20002
|
|
|
3.4
|
Certificate
of Amendment to Articles of Incorporation, dated July 31, 20002
|
|
|
3.5
|
Amended
and Restated Certificate of Incorporation, dated September 12, 20033
|
|
|
3.6
|
Certificate
of Amendment to Certificate of Incorporation of Material Technologies,
Inc., dated May 31, 20064
|
|
|
3.7
|
Certificate
of Amendment to Certificate of Incorporation of Material Technologies,
Inc., dated October 25, 20064
|
|
|
3.8
|
Bylaws of Material Technologies, Inc. 1
|
|
|
4.1
|
Class
A Convertible Preferred Stock Certificate of Designation1
|
|
|
4.2
|
Class
B Convertible Preferred Stock Certificate of Designation1
|
|
|
4.3
|
Class
E Convertible Preferred Stock Certificate of Designation5
|
|
|
10.1
|
License
Agreement between Tensiodyne Scientific Corporation and the Trustees of
the University of Pennsylvania, dated August 26, 19931
|
|
|
10.2
|
Sponsored
Research Agreement between Tensiodyne Scientific Corporation and the
Trustees of the University of Pennsylvania, dated August 31, 19931
|
|
|
10.3
|
Amendment
No. 1 to the License Agreement between Tensiodyne Scientific Corporation
and the Trustees of the University of Pennsylvania, dated October 15,
19931
|
|
|
10.4
|
Repayment
Agreement between Tensiodyne Scientific Corporation and the Trustees of
the University of Pennsylvania, dated October 15, 19931
|
1Incorporated by reference from our registration statement
on Form S-1 filed with the Commission on April 30, 1997.
2Incorporated by reference from our Annual Report on Form
10-KSB filed with the Commission on March 30, 2001.
3Incorporated by reference from our Annual Report on Form
10-KSB filed with the Commission on April 9, 2004.
4Incorporated by reference from our Current Report on Form
8-K filed with the Commission on November 8, 2006.
5Incorporated by reference from our Current Report on Form
8-K filed with the Commission on February 6, 2007.
|
|
10.5
|
Teaming
Agreement between Tensiodyne Scientific Corporation and Southwest Research
Institute, dated August 23, 19961
|
|
|
10.6
|
Letter
Agreement between Tensiodyne Scientific Corporation, Robert M. Bernstein,
and Stephen Forrest Beck and Handwritten modification, dated February 8,
19951
|
|
|
10.7
|
Agreement
between Tensiodyne Corporation and Tensiodyne 1985-1 R&D
Partnership6
|
|
|
10.8
|
Amendment
to Agreement between Material Technologies, Inc. and Tensiodyne 1985-1
R&D Partnership6
|
|
|
10.9
|
Agreement
between Advanced Technology Center of Southeastern Pennsylvania and
Material Technologies6
|
|
|
10.10
|
Addendum
to Agreement between Advanced Technology Center of Southeastern
Pennsylvania and Material Technologies, Inc. 6
|
|
|
10.11
|
Class
A Senior Preferred Convertible Debenture issued to Palisades Capital, LLC,
dated September 23, 20033
|
|
|
10.12
|
Stock
Purchase Agreement, dated April 7, 2005, with Birchington Investments
Ltd. 7
|
|
|
10.13
|
Escrow
Agreement with Birchington Investments Ltd, dated April 7, 20057
|
|
|
10.14
|
Workout
Agreement with the Trustees of the University of Pennsylvania, dated
August 15, 20057
|
|
|
10.15
|
Securities
Purchase Agreement with Golden Gate Investors, Inc., dated December 16,
20058
|
|
|
10.16
|
Convertible
Debenture issued to Golden Gate Investors, Inc., dated December 16,
20058
|
|
|
10.17
|
Common
Stock Purchase Warrant issued to Golden Gate Investors, Inc., dated
December 16, 20058
|
|
|
10.18
|
Registration
Rights Agreement for Golden Gate Investors, Inc., dated December 16,
20058
|
6Incorporated by reference from our registration statement
on Form S-1 which became effective on January 19, 1996.
7Incorporated by reference from our Quarterly Report on
Form 10-QSB filed with the Commission on November 14, 2005.
8Incorporated by reference from our Current Report on Form
8-K/A filed with the Commission on January 5, 2006.
|
|
10.19
|
Letter
Agreement with Golden Gate Investors, Inc., dated December 16, 20058
|
|
|
10.20
|
Letter
Agreement with Golden Gate Investors, Inc., dated December 16, 20058
|
|
|
10.21
|
Addendum
to Convertible Debenture, Warrant to Purchase Common Stock and Securities
Purchase Agreement with Golden Gate Investors, Inc., dated December 16,
20058
|
|
|
10.22
|
Addendum
to Convertible Debenture and Warrant to Purchase Common Stock with Golden
Gate Investors, Inc., dated December 16, 20058
|
|
|
10.23
|
Addendum
to Convertible Debenture, Warrant to Purchase Common Stock and Securities
Purchase Agreement, dated May 2, 2006, with Golden Gate Investors,
Inc.9
|
|
|
10.24
|
Securities
Purchase Agreement, dated May 30, 2006, with La Jolla Cove Investors,
Inc.10
|
|
|
10.25
|
Warrant
to Purchase Common Stock issued to La Jolla Cove Investors, Inc., dated
May 30, 200610
|
|
|
10.26
|
Addendum
to Warrant to Purchase Common Stock, dated as of June 12, 2006, issued to
La Jolla Cove Investors, Inc. 11
|
|
|
10.27
|
Addendum
to Convertible Debenture, Warrant to Purchase Common Stock and Securities
Purchase Agreement dated as of May 2, 200612
|
|
|
10.28
|
Regulation
S Distribution Agreement and Instruction of Escrow, dated May 31,
200613
|
|
|
10.29
|
Acquisition
Agreement with UTEK Corporation and Materials Monitoring Technologies,
Inc., dated August 18, 200614
|
|
|
10.30
|
License
Agreement between Material Monitoring Technologies, Inc. and North
Carolina A&T State University, dated August 18,
200614
|
|
|
10.31
|
Consulting
Agreement with Mannur J. Sundaresan, PhD, dated August 18, 200614
|
9Incorporated by reference from our Current Report on Form
8-K filed with the Commission on May 17, 2006.
10Incorporated by reference from our Current Report on
Form 8-K filed with the Commission on June 8, 2006
11Incorporated by reference from our Current Report on
Form 8-K/A filed with the Commission on June 15, 2006.
12Incorporated by reference from our registration
statement on Form SB-2 filed with the Commission on June 15, 2006.
13Incorporated by reference from our Current Report on
Form 8-K filed with the Commission on June 9, 2006.
14Incorporated by reference from our Current Report on
Form 8-K filed with the Commission on August 24, 2006.
|
|
10.32
|
Settlement
Agreement and General Release, dated August 23, 2006, with Ben Franklin
Technology Partners of Southeastern Pennsylvania15
|
|
|
10.33
|
Settlement
Agreement and General Release, dated October 27, 200616
|
|
|
10.34
|
Warrant
Agreement, dated October 27, 2006, with Palisades Capital, LLC16
|
|
|
10.35
|
Warrant
Agreement, dated October 27, 2006, with Hyde Investments, Ltd. 16
|
|
|
10.36
|
Warrant
Agreement, dated October 27, 2006, with Livingston Investments, Ltd. 16
|
|
|
10.37
|
Warrant
Agreement, dated October 27, 2006, with Palisades Capital, LLC16
|
|
|
10.38
|
Warrant
Agreement, dated October 27, 2006, with GCH Capital, Ltd. 16
|
|
|
10.39
|
Amendment
to Class A Senior Secured Convertible Debenture, dated October 27, 2006,
with Palisades Capital, LLC16
|
|
|
10.40
|
Amendment
to Class A Senior Secured Convertible Debenture, dated October 27, 2006,
with Hyde Investments, Ltd. 16
|
|
|
10.41
|
Amendment
to Class A Senior Secured Convertible Debenture, dated October 27, 2006,
with Livingston Investments, Ltd. 16
|
|
|
10.42
|
Stockholder
Lockup Agreement, dated October 27, 2006 with Robert M. Bernstein16
|
|
|
10.43
|
Escrow
Agreement, dated October 27, 200616
|
|
|
10.44
|
Employment
Agreement with Robert M. Bernstein, dated October 1, 200617
|
|
|
10.45
|
Stock
Grant and General Release Agreement with Robert M. Bernstein, dated
November 21, 200617
|
|
|
10.46
|
Settlement
Agreement and Release with Stephen F. Beck, dated as of December 27,
200618
|
|
|
10.47
|
Irrevocable
Escrow Instructions with Stephen F. Beck, dated as of December 27,
200618
|
15Incorporated by reference from our Quarterly Report on
Form 10-QSB filed with the Commission on November 14, 2006.
16Incorporated by reference from our Current Report on
Form 8-K filed with the Commission on November 2, 2006.
17Incorporated by reference from our Current Report on
Form 8-K filed with the Commission on November 28, 2006
18Incorporated by reference from our Current Report on
Form 8-K filed with the Commission on January 3, 2007.
|
|
10.48
|
Promissory
Note, dated March 30, 2007, with Nathan J. Esformes19
|
|
|
10.49
|
Acquisition
Agreement with UTEK Corporation and Damage Assessment Technologies, Inc.,
dated May 3, 200720
|
|
|
10.50
|
Acquisition
Agreement with UTEK Corporation and Non-Destructive Assessment
Technologies, Inc., dated June 28, 200721
|
|
|
10.51
|
Agreement
with Livingston Investments, Ltd., dated as of July 3, 200722
|
|
|
10.52
|
Amendment
No. 2 to Class A Senior Secured Convertible Debenture, dated October 11,
2007, with Palisades Capital, LLC22
|
|
|
10.53
|
Acquisition
Agreement with Brent Phares and Bridge Testing Concepts, Inc., dated
September 28, 200723
|
|
|
10.54
|
Amendment
to Consulting Agreement with Strategic Advisors, Ltd., dated April 9,
200822
|
|
|
10.55
|
Consulting
Agreement with Bud Shuster, dated April 9, 200822
|
|
|
10.56
|
Consulting
Agreement with Kelly Shuster, dated April 9, 200822
|
|
|
10.57
|
Class
A Common Stock Option Agreement with Bud Shuster, dated April 9, 200822
|
|
|
10.58
|
Class
A Common Stock Option Agreement with Kelly Shuster, dated April 9,
200822
|
|
|
10.59
|
Class
B Common Stock Option Agreement with Bud Shuster, dated April 9, 200822
|
|
|
10.60
|
Class
B Common Stock Option Agreement with Kelly Shuster, dated April 9,
200822
|
|
|
14.1
|
Code
of Ethics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32 |
|
19Incorporated by reference from our Annual Report on
Form 10-KSB filed with the Commission on April 3, 2007.
20Incorporated by reference from our Current Report on
Form 8-K filed with the Commission on May 4, 2007.
21Incorporated by reference from our Current Report on
Form 8-K filed with the Commission on July 3, 2007.
22Incorporated by reference from our Annual Report on
Form 10-KSB filed with the Commission on April 14, 2008.
23Incorporated by reference from our Current Report on
Form 8-K filed with the Commission on October 29, 2007.
KMJ/Corbin
and Company, LLP, Weinberg & Company, P.A., and Kabani & Company, Inc.
(the “Independent Auditors”) were each, at various times, our independent
auditor and examined our financial statements for the years ended December 31,
2007 and 2006. The Independent Auditors performed the services listed
below and were as paid the aggregate fees listed below for the years ended
December 31, 2007 and 2006.
Audit
Fees
The
Independent Auditors were paid aggregate fees of approximately $40,000 for the
fiscal year ended December 31, 2007 and approximately $106,750 for the fiscal
year ended December 31, 2006 for professional services rendered for the audit of
our annual financial statements and for the reviews of the financial statements
included in our quarterly reports on Form 10-QSB during these
periods.
Audit
Related Fees
The
Independent Auditors were not paid additional fees for either the year ended
December 31, 2007 or the fiscal year ended December 31, 2006 for assurance and
related services reasonably related to the performance of the audit or review of
our financial statements.
Tax
Fees
The
Independent Auditors were not paid fees for the year ended December 31, 2007 or
the fiscal year ended December 31, 2006 for professional services rendered for
tax compliance, tax advice and tax planning during this fiscal year
period.
All
Other Fees
The
Independent Auditors were not paid any other fees for professional services
during the year ended December 31, 2007 or the fiscal year ended December 31,
2006.
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated:
August 19 , 2008 |
Material
Technologies, Inc. |
|
|
|
/s/
Robert M. Bernstein |
|
By:
Robert M. Bernstein
|
|
Its:
Chief Executive Officer, President, and Chief Financial
Officer
(Principal
Executive Officer, Principal Financial Officer and Principal Accounting
Officer)
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Material Technologies, Inc.
We have
audited the accompanying balance sheets of Material Technologies, Inc.(A
Development Stage Company) as of December 31, 2007 and 2006 and the related
statements of operations, stockholders deficit and cash flows for the years
then ended and for the period of inception October 21, 1983 to December 31,
2007. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
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 our 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, an audit 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 opinion. An audit includes examining
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provides a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as at December
31, 2007 and 2006 and the results of its’ operations and its’
stockholders deficit and cash flows for the years then ended and for
the period of inception October 21, 1983 to December 31, 2007 in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As discussed in the notes to these financial
statements the Company has incurred losses. This raises substantial doubt about
its ability to continue as a going concern. These financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Gruber &
Company LLC
Gruber
& Company LLC
Lake
Saint Louis, Missouri
July
24, 2008
MATERIAL
TECHNOLOGIES, INC.
|
(A
Development Stage Company)
|
|
|
|
|
|
|
|
CONSOLIDATED
BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
DECEMBER
31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(Restated)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
129,296 |
|
|
$ |
809,710 |
|
Investments
in marketable securities held for trading
|
|
|
135,136 |
|
|
|
300,000 |
|
Investment in certificate of deposits and commercial paper
|
|
|
- |
|
|
|
1,009,267 |
|
Accounts
receivable
|
|
|
116,707 |
|
|
|
108,661 |
|
Inventories
|
|
|
- |
|
|
|
62,216 |
|
Prepaid
expenses and other current assets
|
|
|
40,006 |
|
|
|
47,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
421,145 |
|
|
|
2,337,546 |
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
5,371 |
|
|
|
82,546 |
|
Intangible
assets, net
|
|
|
3,916 |
|
|
|
2,840 |
|
Deposit
|
|
|
2,348 |
|
|
|
2,348 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
432,780 |
|
|
$ |
2,425,280 |
|
|
|
|
|
|
|
|
|
|
MATERIAL
TECHNOLOGIES, INC.
|
|
(A
Development Stage Company)
|
|
|
|
|
|
|
|
|
CONSOLIDATED
BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
2006
|
|
|
2007
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$ |
427,664 |
|
|
$ |
599,619 |
|
Current portion of research and development sponsorship
payable
|
|
|
25,000 |
|
|
|
25,000 |
|
Notes payable
|
|
|
90,138 |
|
|
|
66,761 |
|
Total current liabilities
|
|
|
542,802 |
|
|
|
691,380 |
|
|
|
|
|
|
|
|
|
|
Accrued legal settlenent
|
|
|
1,050,000 |
|
|
|
480,000 |
|
Research and development sponsorship payable, net of current
portion
|
|
|
747,713 |
|
|
|
760,650 |
|
Notes payable, long-term
|
|
|
- |
|
|
|
213,508 |
|
Convertible debentures and accrued interest payable, net of
discount
|
|
|
169,160 |
|
|
|
1,981,194 |
|
Derivative and warrant liabilities
|
|
|
44,476,540 |
|
|
|
10,113,923 |
|
|
|
|
46,443,413 |
|
|
|
13,549,275 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
46,986,215 |
|
|
|
14,240,655 |
|
|
|
|
|
|
|
|
|
|
Minority interest in consolidated subsidiary
|
|
|
825 |
|
|
|
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 as of December 31, 2006 and 2007
|
|
|
- |
|
|
|
- |
|
Class B preferred stock, $0.001 par value, liquidation preference
of
|
|
|
|
|
|
|
|
|
$10,000 per share; 15 shares authorized; none issued
and
|
|
|
|
|
|
|
|
|
outstanding as of December 31, 2006 and 2007
|
|
|
- |
|
|
|
- |
|
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 as of December 31, 2006 and 2007
|
|
|
1 |
|
|
|
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 as of December 31, 2006 and 2007
|
|
|
- |
|
|
|
- |
|
Class E convertible preferred stock, $0.001 par value, no
liquidation
|
|
|
|
|
|
|
|
|
preference; 60,000 shares authorized; 55,000 shares issued
and
|
|
|
|
|
|
|
|
|
outstanding
as of December 31, 2007
|
|
|
- |
|
|
|
55 |
|
Class
A Common Stock, $0.001 par value, 1,699,400,000 shares
|
|
|
|
|
|
|
|
|
authorized;
99,785,276 shares issued and 72,425,587 shares
|
|
|
|
|
|
|
|
|
outstanding as of December 31, 2006; 546,173,718 shares
issued
|
|
|
|
|
|
|
|
|
and
126,347,453 outstanding as of December 31, 2007
|
|
|
72,426 |
|
|
|
126,348 |
|
Class B Common Stock, $0.001 par value, 600,000 shares
authorized,
|
|
|
|
|
|
|
|
|
issued
and outstanding as of December 31, 2006 and 2007
|
|
|
600 |
|
|
|
600 |
|
Warrants
subscribed
|
|
|
10,000 |
|
|
|
10,000 |
|
Additional
paid-in-capital
|
|
|
193,188,217 |
|
|
|
301,348,331 |
|
Deficit
accumulated during the development stage
|
|
|
(239,811,823 |
) |
|
|
(313,208,402 |
) |
Treasury
stock ( 2,076 shares at cost at December 31,2006 and
|
|
|
|
|
|
|
|
|
85,977
shares at cost at December 31, 2007
|
|
|
(13,681 |
) |
|
|
(93,133 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders' deficit
|
|
|
(46,554,260 |
) |
|
|
(11,816,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
432,780 |
|
|
$ |
2,425,280 |
|
See report
of independent registered public accounting firm
and
accompanying notes to the consolidated financial statement
F-3
MATERIAL
TECHNOLOGIES, INC.
|
|
(A
Development Stage Company)
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
October 21, 1983
|
|
|
|
For
the Year
|
|
|
(Inception)
|
|
|
|
Ended
|
|
|
through
|
|
|
|
2006
|
|
|
2007
|
|
|
December
31, 2007
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
5,392,085 |
|
Revenue
from bridge testing
|
|
|
39,446 |
|
|
|
201,917 |
|
|
|
318,624 |
|
Other
|
|
|
- |
|
|
|
- |
|
|
|
274,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
39,446 |
|
|
|
201,917 |
|
|
|
5,984,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
1,013,969 |
|
|
|
3,701,966 |
|
|
|
20,562,989 |
|
General
and administrative
|
|
|
138,781,403 |
|
|
|
98,557,941 |
|
|
|
303,495,241 |
|
Modification
of research and development sponsorship agreement
|
|
|
- |
|
|
|
- |
|
|
|
5,963,120 |
|
Loss
on settlement of lawsuits
|
|
|
- |
|
|
|
- |
|
|
|
1,267,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
costs and expenses
|
|
|
139,795,372 |
|
|
|
102,259,907 |
|
|
|
331,288,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(139,755,926 |
) |
|
|
(102,057,990 |
) |
|
|
(325,303,760 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on modification of convertible debt
|
|
|
1,033,479 |
|
|
|
- |
|
|
|
586,245 |
|
Loss
on subcription receivable
|
|
|
|
|
|
|
|
|
|
|
(1,368,555 |
) |
Interest
expense
|
|
|
(1,625,592 |
) |
|
|
(2,374,032 |
) |
|
|
(11,740,193 |
) |
Other-than-temporary
impairment of marketable
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
available for sale
|
|
|
|
|
|
|
- |
|
|
|
(9,785,947 |
) |
Net
unrealized and realized loss of marketable securities
|
|
|
(3,798,516 |
) |
|
|
(3,986,553 |
) |
|
|
(9,398,218 |
) |
Change
in fair value of investments derivative liability
|
|
|
- |
|
|
|
- |
|
|
|
(210,953 |
) |
Change
in fair value of derivative and warrant liabilities
|
|
|
(33,780,874 |
) |
|
|
34,962,617 |
|
|
|
43,587,089 |
|
Interest
income
|
|
|
37,120 |
|
|
|
60,179 |
|
|
|
466,882 |
|
Other
|
|
|
7,008 |
|
|
|
- |
|
|
|
(25,992 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expense, net
|
|
|
(38,127,375 |
) |
|
|
28,662,211 |
|
|
|
12,110,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before provision for income taxes
|
|
|
(177,883,301 |
) |
|
|
(73,395,779 |
) |
|
|
(313,193,402 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
(800 |
) |
|
|
(800 |
) |
|
|
(15,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(177,884,101 |
) |
|
$ |
(73,396,579 |
) |
|
$ |
(313,208,402 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
$ |
(40.10 |
) |
|
$ |
(0.68 |
) |
|
|
|
|
Weighted
average Class A common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
- basic and diluted
|
|
|
4,435,708 |
|
|
|
107,708,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See report
of independent registered public accounting firm
and
accompanying notes to the consolidated financial
statement
F-4
MATERIAL
TECHNOLOGIES, INC.
|
|
(A
Development Stage Company)
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
October 21, 1983
|
|
|
|
For
the Year Ended
|
|
|
(Inception)
|
|
|
|
December
31,
|
|
|
through
|
|
|
|
2006
|
|
|
2007
|
|
|
December
31, 2007
|
|
|
|
(Restated)
|
|
|
(Restated)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
(Restated)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(177,884,101 |
) |
|
$ |
(73,396,579 |
) |
|
$ |
(313,208,402 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary
increase (decrease) in market
|
|
|
|
|
|
|
|
|
|
|
|
|
value
of securities available for sale
|
|
|
- |
|
|
|
|
|
|
|
- |
|
Reclassification
to other-than-temporary
|
|
|
|
|
|
|
|
|
|
|
|
|
impairment
of marketable securities
|
|
|
|
|
|
|
|
|
|
|
|
|
available
for sale
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
comprehensive loss
|
|
$ |
(177,884,101 |
) |
|
$ |
(73,396,579 |
) |
|
$ |
(313,208,402 |
) |
See report
of independent registered public accounting firm
and
accompanying notes to the consolidated financial
statement
F-5
MATERIAL
TECHNOLOGIES, INC.
|
(A
Development Stage Company)
|
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' (DEFICIT))
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
Class
A Common
|
|
|
Class
B Common
|
|
|
Class
A Preferred Stock
|
|
|
Class
B Preferred Stock
|
|
|
Class
C Preferred Stock
|
|
|
Class
D Preferred Stock
|
|
|
Class
E Preferred Stock
|
|
|
Additional
|
|
|
During
the
|
|
|
|
Shares
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Paid-in
|
|
|
Development
|
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
Issuance of Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
21, 1983
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
- |
|
|
|
2,500 |
|
|
$ |
- |
|
Adjustment
to give effect
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
recapitalization on
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
15, 1986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation
of shares
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,496 |
|
|
|
- |
|
Balance
- October 21, 1983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued By Tensiodyne
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporation
in connection
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with
pooling of interests
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,342 |
|
|
|
- |
|
Net
(loss), year ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 1983
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,317 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 1983
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,838 |
|
|
|
(4,317 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
contribution
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
21,755 |
|
|
|
- |
|
Issuance
of common stock
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10,700 |
|
|
|
- |
|
Costs
incurred in connection
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|