UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: June 30, 2001 Commission file number: 33-23617
MATERIAL TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-4622822
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(State or other jurisdiction of incorporation (IRS Employer
or organization) identification No.)
11661 San Vicente Boulevard
Suite 707
Los Angeles, California 90049
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(address of principal executive offices)
(Zip Code)
(310) 208-5589
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(Registrant's telephone number including area code)
Securities Registered pursuant to Section 12(g) of the Act:
Common
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 or Regulation S-K is not contained herein, and will not 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-K or any
amendment of this form 10-K. [ ]
The aggregate market value of the voting stock held by Non-affiliates of
the registrant at July 31, 2001 was $1,547,964.
Documents incorporated by reference-None.
1
INDEX
PAGE
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Part 1. Financial Statements
Balance Sheets 3 - 4
Statements of Operations
Second Quarter Ended June 30, 2000 and 2001 and from
the Company's inception (October 21, 1983) through
June 30, 2001 5
Statements of Cash Flows
Second Quarter Ended June 30, 2000 and 2001 and from
the Company's inception (October 21, 1983) through
June 30, 2001 6 - 7
Notes to Financial Statements 8
Management's Discussion and Analysis 9 - 10
Part 2 - Other Items 11
2
Part 1. Financial Statements
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
================================================================================
December 31, June 30,
2000 2001
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 1,954 $ 5,719
Receivable Due on Research Contract 33,932 267,291
Receivable from Officer 22,052 27,965
------------ ------------
TOTAL CURRENT ASSETS 57,938 300,975
------------ ------------
FIXED ASSETS
Property and Equipment, Net
of Accumulated Depreciation 2,990 2,511
------------ ------------
OTHER ASSETS
Intangible Assets, Net of
Accumulated Amortization 12,712 11,718
Investments 33,000 33,000
Refundable Deposit 2,136 2,136
------------ ------------
TOTAL OTHER ASSETS 47,848 46,854
------------ ------------
TOTAL ASSETS $ 108,776 $ 350,340
============ ============
See accompanying notes.
3
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
================================================================================================================
December 31, June 30, 2001
2000 2001
------------------ ---------------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Legal Fees Payable $ 209,306 $ 219,865
Fees Payable to R&D Subcontractor 20,474 188,019
Consulting Fees Payable 50,000 -
Accounting Fees Payable 26,288 31,840
Other Accounts Payable 10,157 8,518
Accrued Expenses 24,982 39,356
Accrued Officer Wages 40,000 100,000
Notes Payable - Current Portion 25,688 25,688
Loans Payable - Others 54,160 55,783
------------------ ---------------------
TOTAL CURRENT LIABILITIES 461,055 669,069
Payable on Research and
Development Sponsorship 358,181 390,417
------------------ ---------------------
TOTAL LIABILITIES 819,236 1,059,486
------------------ ---------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Class A Common Stock, $.001 Par Value, Authorized 100,000,000
Shares, Outstanding 24,618,167 at December 31, 2000, and
32,843,167 shares at June 30, 2001 24,618 32,843
Class B Common Stock, $.001 Par Value, Authorized 100,000
Shares, Outstanding 100, 000 Shares at December 31, 2000, and
June 30, 2001 100 100
Class A Preferred, $.001 Par Value, Authorized 900,000 Shares
Outstanding 337,471 Shares at December 31, 2000 and June
30, 2001 337 337
Additional Paid in Capital 5,909,782 6,441,490
Less Notes Receivable - Common Stock (2,133,251) (710,282)
Deficit Accumulated During the Development Stage (4,512,046) (6,473,634)
------------------ ---------------------
TOTAL STOCKHOLDERS' (DEFICIT) (710,460) (709,146)
------------------ ---------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIT) $ 108,776 $ 350,340
================== =====================
See accompanying notes.
4
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
From Inception
For the Three Months Ended For the Six Months Ended (October 21, 1983)
June 30, June 30, Through
2000 2001 2000 2001 June 30, 2001
------------ ------------ ------------ ------------ ---------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES
Sale of Fatigue Fuses $ - $ - $ - $ - $ 64,505
Sale of Royalty Interests - - - - 198,750
Income from Research Contracts 277,308 346,295 458,155 611,055 3,594,721
Test Services - - - - 10,870
------------ ------------ ------------ ------------ ---------------
TOTAL REVENUES 277,308 346,295 458,155 611,055 3,868,846
------------ ------------ ------------ ------------ ---------------
COSTS AND EXPENSES
Research and Development 260,469 261,003 351,087 471,619 3,343,319
General and Administrative 110,324 1,602,771 308,158 2,143,435 6,953,080
------------ ------------ ------------ ------------ ---------------
TOTAL COSTS AND EXPENSES 370,793 1,863,774 659,245 2,615,054 10,296,399
------------ ------------ ------------ ------------ ---------------
INCOME (LOSS) FROM OPERATIONS (93,485) (1,517,479) (201,090) (2,003,999) (6,427,553)
------------ ------------ ------------ ------------ ---------------
OTHER INCOME (EXPENSE)
Expense Reimbursed - - - - 4,510
Interest Income 21,440 37,295 22,478 78,445 223,980
Gain on Sale of Securities - - 251,798 - 207,497
Gain on Foreclosure - - - - 18,697
Miscellaneous Income - - - - 25,145
Loss on Sale of Equipment - - - - (12,780)
Settlement of Teaming Agreement - - - - 50,000
Modification of Royalty Agreement - - - - (7,332)
Interest Expense (15,158) (17,420) (30,378) (35,234) (280,753)
Litigation Settlement - - - - 18,095
------------ ------------ ------------ ------------ ---------------
TOTAL OTHER INCOME 6,282 19,875 243,898 43,211 247,059
------------ ------------ ------------ ------------ ---------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS AND PROVISION FOR INCOME TAXES (87,203) (1,497,604) 42,808 (1,960,788) (6,180,494)
PROVISION FOR INCOME TAXES (800) - (2,575) (800) (10,200)
------------ ------------ ------------ ------------ ---------------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS (88,003) (1,497,604) 40,233 (1,961,588) (6,190,694)
EXTRAORDINARY ITEMS
Forgiveness of Debt - - -- -- (289,940)
Utilization of Operating Loss Carry forward - - -- -- 7,000
------------ ------------ ------------ ------------ ---------------
NET (LOSS) $ (88,003) $(1,497,604) $ 40,233 $(1,961,588) $ (6,473,634)
============ ============ ============ ============ ===============
PER SHARE DATA
Income (Loss) Before Extraordinary Item (0.005) $ (0.047) 0.003 $ (0.067)
Extraordinary Items - - - -
------------ ------------ ------------ ------------
NET INCOME (LOSS) (0.005) (0.047) 0.003 $ (0.067)
============ ============ ============ ============
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 17,243,600 32,010,475 16,047,454 29,412,366
============ ============ ============ ============
See accompanying notes.
5
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(October 21,
For the Three Months Ended For the Six Months Ended 1983)
June 30, June 30, Through
2000 2001 2000 2001 June 30, 2001
------------ ------------ ------------ ------------ -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (88,003) (1,497,604) $ 40,233 $(1,961,588) (6,473,634)
------------ ------------ ------------ ------------ -------------
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided
(Used) by Operating Activities
Depreciation and Amortization 738 736 1,474 1,475 176,048
Interest Income Accrued on Stock Subscription Receivable (16,715) (37,294) (17,668) (78,444) (178,433)
Bad Debts - - 50,000
Gain on Sale of Securities - - - - (196,596)
Gain on Foreclosure - - - - (18,697)
Charge off of Deferred Offering Costs - - - - 36,480
Charge off of Long-lived Assets Due to Impairment - - 92,919
Loss on Sale of Equipment - - - - 12,780
Modification of Royalty Agreement - - 7,332
Issuance of Common Stock for Services (3,450) 1,533,750 45,500 1,976,250 2,597,647
Issuance of Stock for Agreement Modification - - - 152
Forgiveness of Indebtedness - - - 165,000
(Increase) Decrease in Accounts Receivable (66,469) (109,374) 4,377 (233,359) (314,291)
(Increase) in Employee Advances - - - - -
(Increase) Decrease in Prepaid Expense - - - - 53
Increase (Decrease) in Accounts -
Payable and Accrued Expenses 112,465 96,792 13,926 270,072 1,189,944
Interest Accrued on Notes Payable 14,470 16,732 29,002 33,859 238,896
Increase in Research and Development -
Sponsorship Payable - - - 218,000
(Increase) in Note for Litigation Settlement - - - (25,753)
(Increase) in Deposits - - - (2,189)
------------ ------------ ------------ ------------ -------------
TOTAL ADJUSTMENTS 41,039 1,501,342 76,611 1,969,853 4,049,292
------------ ------------ ------------ ------------ -------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (46,964) 3,738 116,844 8,265 (2,424,342)
------------ ------------ ------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From Sale of Equipment - - - - 10,250
Purchase of Property and Equipment - - - - (230,903)
Procceds from Sale of Securities - - - - 283,596
Purchase of Securities - - - - (90,000)
Investment in Joint Ventures (15,000) - (15,000) - (102,069)
Proceeds from Foreclosure - - - - 44,450
Payment for License Agreement - - (6,250)
------------ ------------ ------------ ------------ -------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (15,000) - (15,000) - (90,926)
------------ ------------ ------------ ------------ -------------
See accompanying notes.
6
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
From Inception
For the Three Months Ended For the Six Months Ended (October 21, 1983)
June 30, June 30, Through
2000 2001 2000 2001 June 30, 2001
------------ ------------ ------------ ------------ ---------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Common Stock
Net of Offering Costs $ 5,000 $ - $ 5,000 $ - $ 1,381,607
Costs incurred in Offering - - - - (31,480)
Sale of Common Stock Warrants - - - - 18,250
Sale of Preferred Stock - - - - 258,500
Sale of Redeemable Preferred Stock - - - - 150,000
Capital Contributions - - - - 301,068
Payment on Proposed Reorganization - - - - (5,000)
Loans From Officers 3,000 12,700 3,000 14,300 750,305
Repayments to Officer (1,000) (11,500) (11,500) (18,800) (474,332)
Increase (Decrease) in Loans - Other - - - - 172,069
------------ ------------ ------------ ------------ ---------------
CASH FLOWS FROM FINANCING ACTIVITIES: 7,000 1,200 (3,500) (4,500) 2,520,987
------------ ------------ ------------ ------------ ---------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (54,964) 4,938 98,344 3,765 5,719
BEGINNING BALANCE CASH AND
CASH EQUIVALENTS 216,212 781 62,904 1,954 -
------------ ------------ ------------ ------------ ---------------
ENDING BALANCE CASH AND CASH
EQUIVALENTS $ 161,248 $ 5,719 $ 161,248 $ 5,719 5,719
============ ============ ============ ============ ===============
See accompanying notes.
7
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. In the opinion of the Company's management, the accompanying unaudited
financial statements contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly the financial position
of the Company as of June 30, 2001 and 2000 and the results of
operations and cash flows for the three-month and six-month periods
then ended. The operating results of the Company on a quarterly or
semi-annual basis may not be indicative of operating results for the
full year.
NOTE 2. In May 2000, 4,650,000 shares of the Company's common stock were
issued to its President and 350,000 shares were issued to a Director.
In exchange for the 5,000,000 shares issued, the Company received
$5,000 cash and non-recourse promissory notes with face values
totaling $1,995,000. The notes mature in May 2005, and bear interest
at an annual rate of 8%.
In June 2001, the Company's board of directors authorized the
reduction in the amount owed by the President and Director on these
promissory notes to $460,350 and $34,650, respectively. The reduction
was due to continuing market conditions and the substantial reduction
in the market value of the Company's stock. The $1,500,000 reduction
was charged to general and administrative expenses.
8
MATERIAL TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
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FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
The Company had no sales during the six-month period ended June 30,
2001 or during the six-month period ended June 30, 2000.
The Company generated $611,055 under its research and development
contracts during the first two quarters of 2001, as compared to
$458,155 that was earned during the same period in 2000.
Interest earned during the first two quarters in 2001 totaled $78,445,
which mostly consisted of accrued interest earned on promissory notes
due from the Company's President and a Director on stock purchased
during the second quarter of 2000. Interest earned in 2000 amounted to
$22,478. The Company realized a $251,798 gain from the sale of
marketable securities during the first two quarters of 2000
During the six-month period ended June 30, 2001, the Company incurred
$471,619 in development costs of which $416,476 relates to subcontract
costs. Development costs incurred during the six months ended June 30,
2000, amounted to $351,087.
General and administrative costs were $2,143,435 and $308,608,
respectively, for the six-month periods ended June 30, 2001 and 2000.
The major costs incurred during 2001, consisted of a $1,500.000
reduction in promissory notes due from the Company's President and a
Director which were charged to operations (see Note 2 to the financial
statements), In addition, general and administration costs incurred
during the first six-months of 2001, included officer's salary of
$480,000 of which $60,000 was accrued and $420,000 was paid through
the issuance of 6,000,000 shares of restricted common stock. Other
expenses incurred during the six-month period included professional
fees of $51,208, consulting fees of $139,503, travel of $8,968,
telephone expense of $2,771, rent of $13,666, and office expense of
$3,325. The major costs incurred during 2000, consisted of
professional fees of $74,819, consulting fees of $75,510, officer's
salary of $60,000, travel of $18,819, telephone expense of $9,341,
rent of $12,444, and office expense of $15,515.
Interest expense for the six-months ended June 30, 2001 totaled
$35,234 as compared to $30,378 incurred during the first six-months of
2000.
9
FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000
The Company had no sales during the three-month period ended June 30,
2001 or during the three month period ended June 30, 2000. During the
three-month period ending June 30, 2001, the Company earned $346,295
from its research contract as compared to $277,308 earned during the
same period in 2000. Interest earned during the three-months ended
June 30, 2001 totaled $37,295, which mostly consisted of accrued
interest earned on promissory notes due from the Company's President
and a Director on stock purchased during the second quarter of 2000
(see Note 2 to the financial statements). Interest earned for the
period in 2000 amounted to $21,440.
During the three-month period ended June 30, 2001, the Company
incurred $261,003 in development costs. Development costs incurred
during the same three-month period of 2000 amounted to $260,469.
General and administration costs were $1,602,771 and $110,324,
respectively, for the three-month periods ended June 30, 2001 and
2000. The major costs incurred during the three-month period in 2001,
consisted of officer's compensation of $1,425,000 of which $1,395,000
relates to the reduction on the amount due on a promissory note (see
Note 2 to the financial statements) and $30,000 of accrued wages.
Other expenses incurred during the three-months ended June 30, 2001,
included consulting fees of $133,505, travel expenses of $2,770,
telephone expense of $2,770, office expense of $2,495, and rent of
$7,255. The major costs incurred during 2000, consisted of
professional fees of $28,484, consulting fees of $10,989, officer's
salary of $30,000, travel expenses of $4,018, telephone expense of
$4,551, office expense of $7,231, and rent of $6,411.
Interest expense for the three-months ended June 30, 2001, totaled
$17,420 as compared to $15,158 incurred during the same period in
2000.
LIQUIDITY AND CAPITAL RESOURCES
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Cash and cash equivalents as of June 30, 2001 and 2000 were $5,719,
and $161,248, respectively. During 2001, the Company generated net
cash from operations of $3,738, During the period, the Company made
advances of $18,800 to its officer and was repaid $14,300. During
2000, the Company generated net cash from operations of $116,844, and
received $3,000 from officer advances and $5,000 from the issuance of
shares to the Company's President and a Director. During 2000, the
Company invested $15,000 in a joint venture and repaid $11,500 in
officer advances.
10
ITEM 2. CHANGES IN SECURITIES
During the three months ended June 30, 2001, the Corporation issued
1,775,000 shares of its Class A Common Stock of which 525,000 shares were
issued to several consultants, 250,000 were issued in settlement of a
disputed matter, and 1,000,000 shares were issued in cancellation of fees
due for past consulting services.
PURSUANT TO THE REQUIREMENTS OF SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT
HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED
THEREUNTO DULY AUTHORIZED.
MATERIAL TECHNOLOGIES, INC.
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REGISTRANT
/s/ Robert M. Bernstein
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ROBERT M. BERNSTEIN, PRESIDENT AND CHIEF
FINANCIAL OFFICER
DATE: JULY 31, 2000
11