UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 2004
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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33-23617
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(Commission file number)
Material Technologies, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware
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(State or other jurisdiction
of incorporation or organization)
95-4622822
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(IRS Employer
Identification No.)
11661 San Vicente Boulevard
Suite 707
Los Angeles, California 90049
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(Address of principal executive offices)
(310) 208-5589
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(Issuer's telephone number)
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(Former name, former address and former fiscal year, if changed since last
report)
[X] 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.
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's classes of common
equity; as of June 30, 2004
Class A Common Stock - 72, 789,818 shares issued, 66,488,975 shares outstanding
Class B Common Stock - 600,000 shares issued and outstanding
Class A Preferred - 337 shares issued and outstanding
Class B Preferred - 167 shares issued and outstanding
Class C Preferred - 1,350 shares issued and outstanding
Class D Preferred -4,490,000 shares issued and outstanding
1
INDEX
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Page
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Part 1. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3 - 4
Consolidated Statements of Operations -
Second Quarter Ended June 30, 2003 and 2004 and
from the Company's inception (October 21, 1983)
through June 30, 2004 5
Consolidated Statements of Cash Flows
Second Quarter Ended June 30, 2003 and 2004 and
from the Company's inception (October 21, 1983)
through June 30, 2004 6 - 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis 14
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 16
Part 2. Other Information 16
2
Part 1. Financial Information
-------------------------------
Item 1. Financial Statements
------------------------------
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
================================================================================
December 31, June 30,
2003 2004
---------------- ----------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 47,664 $ 119,449
Receivable due in research contracts 28,004 3,027
Receivable from officer 83,940 88,192
Employee receivable 1,350 2,689
Receivable from tax authorities 161 -
Prepaid expenses 4,179 3,000
---------------- ----------------
TOTAL CURRENT ASSETS 165,298 216,357
---------------- ----------------
FIXED ASSETS
Property and equipment, net
of accumulated depreciation 20,626 18,147
---------------- ----------------
OTHER ASSETS
Intangible assets, net of
accumulated amortization 10,004 8,946
Refundable deposit 2,348 2,348
---------------- ----------------
TOTAL OTHER ASSETS 12,352 11,294
---------------- ----------------
TOTAL ASSETS $ 198,276 $ 245,798
================ ================
See accompanying notes
3
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
=====================================================================================================================
December 31, June 30,
2003 2004
---------------- ----------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Legal fees payable $ 219,154 $ 138,403
Fees payable to R&D subcontractors 25,000 -
Accounting fees payable 37,984 20,938
Other accounts payable 78,671 13,528
Accrued expenses 17,920 15,145
Accrued officer wages 142,446 178,446
Notes payable - current portion 25,688 25,688
Payable on research and
development sponsorship 638,003 696,716
Loans payable - others 60,438 61,250
---------------- ----------------
TOTAL CURRENT LIABILITIES 1,245,304 1,150,114
SECURED CONVERTIBLE DEBENTURE 345,333 1,065,457
---------------- ----------------
TOTAL LIABILITIES 1,590,637 2,215,571
---------------- ----------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 38,422 38,422
---------------- ----------------
STOCKHOLDERS' (DEFICIT)
Class A preferred stock, $.001 par value, authorized 350,000 Shares,
issued and outstanding 337 shares at December 31, 2003 and
June 30, 2004 - -
Class B preferred stock, $.001 par value, authorized 200,000 Shares,
issued and outstanding 167 shares at December 31, 2003 and
June 30, 2004 - -
Class C preferred stock, $.001 par value, authorized 25,000,000
shares, issued and outstanding 4,050 at December 31, 2003
and 1,350 shares at June 30, 2004 4 1
Class D preferred stock, $.001 par value, authorized 20,000,000 Shares,
issued and outstanding 5,440,000 shares at December 31, 2003 and
4,490,000 shares at June 30, 2004 5,440 4,490
Class A Common Stock, $.001 par value, authorized 549,400,000
shares, issued and outstanding 66,488,975 at December 31, 2003 and
74,617,991 shares issued and 68,317,991 shares outstanding at June 30,
2004, in reserve 843 shares at December 31, 2003 and June 30, 2004 66,488 68,317
Class B Common Stock, $.001 par value, authorized 600,000 Shares,
issued and outstanding 600,000 shares at December 31, 2003,
and June 30, 2004 600 600
Additional paid in capital 13,086,976 13,889,191
Less notes receivable - common stock (51,096) (53,090)
Deficit accumulated during the development stage (14,539,195) (15,917,704)
---------------- ----------------
TOTAL STOCKHOLDERS' (DEFICIT) (1,430,783) (2,008,195)
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIT) $ 198,276 $ 245,798
================ ================
See accompanying notes
4
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
=======================================================================================================================
From Inception
For the Three Months Ended For the Six Months Ended (October 21, 1983)
June 30, June 30, Through
2003 2004 2003 2004 June 30, 2004
-------------- -------------- -------------- -------------- --------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES
Sale of fatigue fuses $ - $ - $ - $ - $ 64,505
Sale of royalty interests - - - - 198,750
Research and development revenue - 3,066 - 70,335 5,136,696
Test services - - - - 10,870
TOTAL REVENUES - 3,066 - 70,335 5,410,821
COSTS AND EXPENSES
Research and development 70,478 241,656 101,714 403,242 5,663,322
General and administrative 198,041 145,857 536,479 930,275 14,916,154
-------------- -------------- -------------- -------------- --------------
TOTAL COSTS AND EXPENSES 268,519 387,513 638,193 1,333,517 20,579,476
-------------- -------------- -------------- -------------- --------------
INCOME (LOSS) FROM OPERATIONS (268,519) (384,447) (638,193) (1,263,182) (15,168,655)
-------------- -------------- -------------- -------------- --------------
OTHER INCOME (EXPENSE)
Interest income 13,198 3,156 26,384 6,246 348,487
Interest expense (46,261) (75,119) (92,522) (120,773) (761,996)
Forgiveness of indebtedness - - - (289,940)
Loss on abandonment of joint venture - - - - (33,000)
-------------- -------------- -------------- -------------- --------------
TOTAL OTHER INCOME (33,063) (71,963) (66,138) (114,527) (736,449)
-------------- -------------- -------------- -------------- --------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS AND PROVISION FOR INCOME TAXES (301,582) (456,410) (704,331) (1,377,709) (15,905,104)
PROVISION FOR INCOME TAXES - - (800) (800) (12,600)
-------------- -------------- -------------- -------------- --------------
NET INCOME (LOSS) $ (301,582) $ (456,410) $ (705,131) $ (1,378,509) $ (15,917,704)
============== ============== ============== ============== ==============
PER SHARE DATA
Basic income (loss) before
extraordinary item
BASIC NET (LOSS) PER SHARE $ (2.14) $ (0.01) $ (5.49) $ (0.02)
============== ============== ============== ==============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 141,110 67,006,008 128,439 67,006,008
============== ============== ============== ==============
See accompanying notes
5
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
==================================================================================================================================
From Inception
For the Three Months Ended For the Six Months Ended (October 21, 1983)
June 30, June 30, Through
2003 2004 2003 2004 June 30, 2004
-------------- -------------- -------------- -------------- --------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (301,582) $ (456,410) $ (705,131) $ (1,378,509) $ (15,917,704)
Adjustments to reconcile net income
(loss) to net cash provided
(used) in operating activities
Depreciation and amortization 2,285 2,107 4,570 4,214 198,965
Accrued interest income (13,198) (3,156) (25,205) (6,246) (293,415)
Gain on sale of securities - - - - (196,596)
Charge off of investment in joint venture - - - - 33,000
Officers' and directors compensation on stock
subscription modification - - - - 1,500,000
Issuance of common stock to officer for past
services - - - - 1,727,617
Charge off of deferred offering costs - - - - 36,480
Charge off of long-lived assets due to
impairment - - - - 92,919
Modification of royalty agreement - - - - 7,332
Gain on foreclosure - - - - (18,697)
(Increase) decrease in accounts receivable - 31,280 - 24,977 (53,355)
(Increase) decrease in employee advances - (1,339) 1,433 (1,339) (2,850)
(Increase) decrease in prepaid expense - 152 - 1,340 (2,998)
Loss on sale of equipment - - - - 12,780
Issuance of common stock for services 102,211 170,627 234,461 723,827 4,696,819
Issuance of stock for agreement modification - - - - 152
Forgiveness of Indebtedness - - - - 215,000
Increase (decrease) in accounts -
payable and accrued expenses 25,867 (25,748) 35,966 (90,248) 979,589
Increase in legal fees secured by note payable - - 1,481,895
Interest accrued on note payables 45,574 49,683 91,147 94,649 682,352
Increase in research and development -
sponsorship payable - - - - 218,000
(Increase) in note for litigation settlement - - - - (25,753)
(Increase) in Deposits - - - - (2,189)
-------------- -------------- -------------- -------------- --------------
TOTAL ADJUSTMENTS 162,739 223,606 342,372 751,174 11,287,047
-------------- -------------- -------------- -------------- --------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (138,843) (232,804) (362,759) (627,335) (4,630,657)
-------------- -------------- -------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From sale of equipment - - - - 10,250
Purchase of property and equipment - (677) - (677) (267,149)
Proceeds from sale of securities - - - - 283,596
Purchase of securities - - - - (90,000)
Proceeds from foreclosure - - - - 44,450
Investment in joint ventures - - - - (102,069)
Payment for license agreement - - - - (6,250)
-------------- -------------- -------------- -------------- --------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES - (677) - (677) (127,172)
See accompanying notes
6
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
==================================================================================================================================
From Inception
For the Three Months Ended For the Six Months Ended (October 21, 1983)
June 30, June 30, Through
2003 2004 2003 2004 June 30, 2004
-------------- -------------- -------------- -------------- --------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock $ 29,988 $ 18,556 $ 140,342 $ 18,556 $ 3,129,139
Costs incurred in offerings (10,312) (2,785) (33,358) (2,785) (457,273)
Purchase of Company's common stock for
cancellation (7,788) (974) (23,508) (974) (25,406)
Sale of common stock warrants - - - - 18,250
Sale of preferred stock 33,900 - 64,500 - 323,005
Sale of redeemable preferred stock - - - - 150,000
Capital contributions - - - - 301,068
Payment on proposed reorganization - - - - (5,000)
Loans to officer - 3,000 - 3,000 781,805
Repayments from officer - (3,000) - (3,000) (545,379)
Increase in loan payable-others 10,000 310,000 10,000 685,000 1,207,069
-------------- -------------- -------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES: 55,788 324,797 157,976 699,797 4,877,278
-------------- -------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (83,055) 91,316 (204,783) 71,785 119,449
BEGINNING BALANCE CASH AND
CASH EQUIVALENTS 130,054 28,133 251,782 47,664 -
-------------- -------------- -------------- -------------- --------------
ENDING BALANCE CASH AND CASH
EQUIVALENTS $ 46,999 $ 119,449 $ 46,999 119,449 $ 119,449
============== ============== ============== ============== ==============
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
consolidated financial statements contain all adjustments (consisting
of normal recurring accruals) necessary to present fairly the
financial position of the Company as of June 30, 2004, and the results
of its operations and cash flows for the six-month periods and
three-month periods ended June 30, 2004 and 2003. The operating
results of the Company on a semi-annual and quarterly basis may not be
indicative of operating results for the full year.
On September 23, 2003, the Company's Board of Directors declared a
1,000 for 1 reverse stock split of its Class A Common Stock and all
classes of its Preferred Stock. The financial statements have been
retroactively restated as if the reverse stock split occurred at the
beginning of each period presented.
Note 2. Summary of Significant Accounting Policies
a. Principles of consolidation
The accompanying financial statements include the accounts and
transactions of Material Technologies, Inc. and its wholly owned
subsidiaries, Matech International, Inc and Matech Aerospace, Inc.
Intercompany transactions and balances have been eliminated in
consolidation.
b. Accounts Receivable
Accounts receivable are reported at the customers' outstanding
balances less any allowance for doubtful accounts. Interest is not
accrued on overdue accounts receivable.
c. Allowance for Doubtful Accounts
The allowance for doubtful accounts on accounts receivable is charged
to income in amounts sufficient to maintain the allowance for
uncollectible accounts at a level management believes is adequate to
cover any probable losses. Management determines the adequacy of the
allowance based on historical write-off percentages and information
collected from individual customers
d. Property and Equipment
Property and equipment are stated at cost. Major renewals and
improvements are charged to the asset accounts while replacements,
maintenance and repairs, which do not improve or extend the lives of
the respective assets, are expensed. At the time property and
equipment are retired or otherwise disposed of, the asset and related
accumulated depreciation accounts are relieved of the applicable
8
amounts. Gains or losses from retirements or sales are credited or
charged to income.
Material Technologies, Inc. depreciates its property and equipment as
follows:
Financial statement reporting - straight line method as follows:
Machinery 5 years
Computer equipment 3-5 years
Office equipment 5 years
Long-Lived Assets
As of January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets," which requires that long-lived assets
be reviewed for impairment whenever events or changes in circumstances
indicate that the historical cost-carrying value of an asset may no
longer be appropriate. The Company assesses recoverability of the
carrying value of an asset by estimating the future net cash flows
expected to result from the asset, including eventual disposition. If
the future net cash flows are less than the carrying value of the
asset, an impairment loss is recorded equal to the difference between
the asset's carrying value and fair value or disposable value.
e. Net Loss Per Share
The Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share" ("EPS")
that established standards for the computation, presentation and
disclosure of earnings per share, replacing the presentation of
Primary EPS with a presentation of Basic and diluted EPS. Basic and
diluted EPS is calculated by dividing net loss by the weighted average
shares number of shares outstanding during the year.
f. Accounting Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management
to make estimates and assumptions that affect certain reported amounts
and disclosures. Accordingly, actual results could differ from those
estimates.
g. Fair Value of Financial Instruments
The Company estimates the fair value of its financial instruments at
their current carrying amounts since the assets and liabilities
approximate their respective fair values.
h. Stock Based Compensation
For 1998 and subsequent years, the Company has adopted FASB Statement
123 which establishes a fair value method of accounting for its
stock-based compensation plans. Prior to 1998, the Company used APB
Opinion 25.
9
i. Revenue Recognition
Significantly all of the Company's revenue is derived from the
Company's contracts relating to the further development of the
Electrochemical Fatigue Sensor (EFS). Revenue on the contracts is
recognized at the time services are rendered.
All other revenue is reported in the period that the income was
earned.
j. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers
cash and cash equivalents to include all stable, highly liquid
investments with maturities of three months or less.
k. Income Taxes
The Company accounts for its income taxes under the provisions of
Statement of Financial Accounting Standards 109 ("SFAS 109"). The
method of accounting for income taxes under SFAS 109 is an asset and
liability method. The asset and liability method requires the
recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between tax bases and
financial reporting bases of other assets and liabilities.
Note 3. Receivable from officer
As of June 30, 2004, the Company is owed by its President, Mr. Robert
M. Bernstein, $88,192 for various advances made to him including
accrued interest. Advances are assessed interest at a rate of 10% per
annum, are unsecured, and due on demand. Accrued interest recognized
as income for the three-months ended June 30, 2003 and 2004 were
$2,524 and $2,159.. Accrued interest recognized as income for the
six-months ended June 30, 2003 and 2004 were $3,816 and $4,252.
Note 4. Intangibles
Intangible assets consist of the following:
Period of June 30,
Amortization 2003 2004
------------ ------- -------
Patent Costs 17 Years $ 28,494 $ 28,494
License Agreement 17 Years 6,250 6,250
(See Note 5)
Website 5 Years 5,200 5,200
--------- ---------
39,944 39,944
Less Accumulated Amortization (28,882) (30,998)
--------- ---------
$ 11,062 $ 8,946
========= =========
10
Amortization charged to operations for the three-months ended June 30,
2003 and 2004 were $529, and $529, respectively. Amortization charged
to operations for the six-months ended June 30, 2003 and 2004 were
$1,058, and $1,058, respectively.
Estimated amortization expense for the next five years is as follows:
2005 $2,116
2006 $1,596
2007 $1,076
2008 $1,076
2009 $1,076
Note 5. Convertible Debentures
On September 23, 2003, the Company entered into a Class A Senior
Secured Convertible Debenture (the "Debenture") with Palisades
Capital, LLC or its registered assigns ("Palisades"), pursuant to
which Palisades has agreed to loan to the Company up to $1,500,000, of
which a total of $1,025,000 has been funded through June 30, 2004.
Under the Debenture, Palisades has the option, after March 30, 2004,
to convert the principal amount of all moneys loaned under the
Debenture, together with accrued interest, into Common Stock of the
Company at the lesser of (i) 50% of the average ten closing prices for
the Company's Common Stock for the ten (10) trading days immediately
preceding the Conversion Date or (ii) $0.10 (the lesser of the two
being referred to as the "Conversion Price"). In the event Palisades
loans the full $1,500,000 face amount of the Debenture to the Company
and subsequently elects to exercise its right to convert the Debenture
into the Company's Common Stock at a time when the Conversion Price is
less than four cents per share Palisades would receive at least fifty
million (50,000,000) shares of Common Stock resulting in a change in
control of the Common Stock of the Company. However, Mr. Bernstein,
the Company's President and Chief Financial Officer would still retain
voting control as a result of his holding of one hundred percent
(100%) of the Class B Common Stock.
In connection with the financing, the Company's President entered into
a voting agreement and irrevocable proxy, which provides that until
September 23, 2006, if an Event of Default, as defined in the
Debenture in favor of Palisades and continues for a period of not less
than 30 days, all Class B Common Stock which Mr. Bernstein owns of
record, or becomes the owner of record in the future will be voted in
accordance with the directions of Mr. Monty Freedman, an affiliate of
Palisades, or his designated successor. This loss of voting rights
would create a change in the voting control of the Company.
The debenture bears interest at an annual rate of 10% and matures on
December 31, 2006 when the principal and accrued interest becomes
11
fully due. During the three-month period ended June 30, 2004, the
Company was advanced $310,000 from Palisades. The balance of the
debenture at June 30, 2004 was $1,065,457 including accrued interest.
Interest charged to operations for the three-months ended June 30,
2003 and 2004 pertaining to this obligation were $0 and $19,274
respectively. Interest charged to operations for the six-months ended
June 30, 2003 and 2004 pertaining to this obligation were $0 and
$35,124, respectively.
Note 6. Stock Activity
On April 23, 2004, the Company amended its Certificate of
Incorporation increasing the number of authorized common shares to
1,750,000,000 and number of authorized preferred shares to 50,000,000.
During the quarter ended June 30, 2004, the Company issued 729,276
shares of its common stock. Of the common shares issued, 500,000
shares were issued through the conversion of 500,000 shares of the
Company's Class D Preferred, 2,700 shares were issued through the
conversion of 2,700 shares of the Company's Class C Preferred, 50,000
shares were issued to a former attorney of the Company in settlement
of fees due him totaling $39,467, 18,576 shares were issued for cash
totaling $18,556, 133,000 shares were issued for consulting services
valued at $145,875, and 25,000 shares were issued to note holder of
the Company for no consideration.
Of the 133,000 shares issued for services, 130,000 shares were issued
subject to a three-year restriction to sale or transfer the shares
from date of issuance. As theses share cannot be sold or transferred
for three years, the Company valued the shares at 30% of the market
price of the shares on date of issuance. The same three-year
restriction exists for the 25,000 shares issued to a note holder that
is owed $25,688 by the Company and is past due. The 25,000 shares were
valued at $24,750 (30% of market value at date of issuance and this
amount was charged to operations as an expense.
Also during the quarter, the Company entered into negotiations with
Gisbex Holding for possible funding, the terms of which are currently
under discussion. As part of the negotiations, the Company delivered
two stock certificates, one certificate is for 5,300,000 shares and
the other one is for 1,000,000 shares. Each certificate bears a legend
that the shares were issued without consideration and are restricted
from being transferred, sold or have any voting rights. If Gisbex
consummates the transaction and funds are received, then these two
certificates will be replaced with new ones bearing no restrictive
legends. If a transaction with Gisbex is not consummated, the
6,300,000 shares will returned to the Company for cancellation. Due to
the lack of consideration and the restrictions placed on these shares,
the Company does not consider the 6,300,000 shares issued to Gibex to
be outstanding.
Also during the quarter ended June 30, 2004, the Company purchased 260
shares of common stock from a shareholder for $974. These shares were
returned to treasury and canceled.
12
On February 15, 2004, the Company authorized a modification to the
exercise price of certain outstanding warrants which were issued in
2003 as part of the Company's offering of Class C-Series A Convertible
Preferred Stock and Class A and Class B Common Stock Purchase
Warrants. The modification reduced the conversion price under the
Warrants to purchase Class A Common Stock from $50 per share to $1 per
share and reduced purchase price under the Class B Warrants to
purchase Class A Common Stock from $100 per share to $2 per share.
During the quarter ended June 30, 2003, the Company received $63,888
net of offering costs in exchange for the issuance of 3,500 shares of
its Class A common stock and 3,400 shares of its Class C convertible
preferred stock. Each share of Class C preferred is convertible into
one share of Class A common. In addition, during the quarter, the
Company issued 2,650 shares of its Class A common stock for legal
services valued at $26,500, 7,571 shares of Class A common for
consulting services valued at $75,711, and 1,180 shares of Class A
common in connection with its Regulation S offering valued at $11,803.
The shares issued for non-cash consideration were valued at their
respective quoted market price at date of issuance. Also during the
quarter, the Company issued 4,242 shares of its Class A common stock
to the University of Pennsylvania pursuant to the anti-dilution
provision of the Company's agreement with the University.
Also during the quarter ended June 30, 2003, the Company purchased 185
shares of its Class A common stock from various shareholders on the
open market for $7,788 which were subsequently cancelled. Also during
the quarter, the 100,000 shares held in reserve pertaining to the
Straight Documentary Credit with Allied Boston were return to the
Company's treasury and cancelled.
13
Item 2. Management's discussion and analysis of financial conditions and
--------------------------------------------------------------------------------
results of operations
---------------------
Results of Operations for the Six Months Ended June 30, 2004 and 2003
---------------------------------------------------------------------
The Company generated $70,335 of revenue under its two research and
development contracts during the six-months ended June 30, 2004.
During the six-months ended June 30, 2003, the Company did not
generate any revenue with the exception of interest income.
During the six month period ended June 30, 2004, the Company incurred
$403,242 in development costs compared to $101,714 during the same
period last year. Of the $403,242 incurred in 2004, $61,127 pertains
to salaries, $34,206 was incurred in the purchase of supplies and
materials, and $307,909 was incurred for outside services of which
$125,100 was paid through the issuance of 120,000 shares of the
Company's restricted common stock. Of the $101,714 incurred in 2003,
$50,714 pertains to salaries and $40,000 relates to fees paid for
services through the issuance of 4,250 shares of the Company's common
stock.
General and administrative costs were $930,275 and $536,479,
respectively, for the six-month periods ended June 30, 2004 and 2003.
Major costs incurred during 2004, included officer's salary of $96,000
of which $36,000 was accrued, office salaries of $21,445, professional
fees of $93,001, consulting fees of $625,630, travel of $16,821,
telephone expense of $8,336, rent of $11,735, and office expense of
$18,884.
Of the $625,630 in professional fees, $51,655 was paid in cash or
accrued and the remaining $573,975 was paid through the issuance of
638,000 shares of the Company's common stock.
Major costs incurred during 2003, included officer's salary of $60,000
of which $29,000 was accrued, office salaries of $24,573, professional
fees of $227,117, consulting fees of $125,282, travel of $12,386,
telephone expense of $8,441, rent of $14,088, and office expense of
$12,460.
Of the $227,117 in professional fees, $95,617 was paid in cash or
accrued and the remaining $131,500 was paid through the issuance of
8,650 shares of the Company's common stock. Of the $125,282 incurred
in consulting fees, $67,321 was paid in cash or accrued and $57,961
was paid through the issuance of 3,821 shares of the Company's common
stock.
Interest earned during the six-months ended June 30, 2004 and 2003 of
$6,246 and $26,384, respectively, consists primarily of accrued
interest earned on promissory notes due from the Company's President
and a Director on stock purchases and advances. The decrease in
interest income for 2004 as compared to 2003 pertain to the December
2003 cancellation of interest-bearing promissory notes due from the
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Company's President and Secretary totaling $465,000 for the return to
the Company of the shares purchased for the respective promissory
notes.
Interest expense for the six-months ended June 30, 2004 and 2003
totaled $120,733 and $95,522, respectively. Significantly all of
interest expenses during these periods pertain to interest accrued on
promissory notes due by the Company.
Results of Operations for the Three Months Ended June 30, 2004 and
----------------------------------------------------------------------
2003
----
During the three-month period ending June 30, 2004, the Company
generated $3,066 of revenue from its research contract. Interest
earned during the three months ended June 30, 2004 and 2003 totaled
$3,156 and $13,198, respectively. Interest earned primarily consists
of accrued interest earned on promissory notes due from the Company's
President and a Director on stock purchases.
During the three-month period ended June 30, 2004, the Company
incurred $241,656 in development costs. Development costs incurred
during the same three-month period of 2003 amounted to $70,478. Of the
$241,656 incurred in 2004, $30,677 pertains to salaries, $1,470 was
incurred in the purchase of supplies and materials, and $209,509 was
incurred for outside services of which $125,100 was paid through the
issuance of 120,000 shares of the Company's restricted common stock.
General and administration costs were $145,857 and $198,041,
respectively, for the three-month periods ended June 30, 2004 and
2003.
The major costs incurred during the three-month period in 2004,
consisted of officer's compensation of $48,000 of which $18,000 was
accrued. Other expenses incurred during the three-months ended June
30, 2004 included professional fees of $11,137, consulting fees of
$34,211, travel expenses of $6,908, telephone expense of $4,631,
office expense of $8,765, and rent of $8,765.
Of the $34,211 in consulting fees, $13,436 was paid in cash or accrued
and the remaining $20,775 was paid through the issuance of 13,000
shares of the Company's common stock.
The major costs incurred during the three-month period in 2003,
consisted of officer's compensation of $30,000 of which $29,000 was
accrued. Other expenses incurred during the three-months ended June
30, 2003 included professional fees of $65,345, consulting fees of
$58,127, travel expenses of $5,810, telephone expense of $4,124,
office expense of $8,663, and rent of $7,044.
Of the $65,345 in professional fees, $38,845 was paid in cash or
accrued and the remaining $26,500 was paid through the issuance of
2,650 shares of the Company's common stock. Of the $58,127 incurred in
consulting fees, $22,416 was paid in cash or accrued and $35,711 was
paid through the issuance of 3,571 shares of the Company's common
stock.
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Interest expense for the three-months ended June 30, 2004, totaled
$75,119 as compared to $46,261 incurred during the same period in
2003.
Liquidity and Capital Resources
-------------------------------
Cash and cash equivalents as of June 30, 2004 and 2003 were $119,449
and $46,999, respectively. During the six-months ended June 30, 2004,
the Company received a total of $801,868, which consisted of $95,312
from its two research and development contracts, $18,556 through the
sale of 18,576 shares of its common stock, $685,000 in advances on the
Company's convertible debenture, and a $3,000 repayment from the
Company's President. During the same six-months, the Company used
$722,647 in its operations, purchased office equipment for $677, used
$2,785 in its Regulation S offering, made a $3,000 advance to its
President and used $974 to purchase its 260 shares of common stock
from a shareholder.
During the six-months ended June 30, 2003, the Company received a
total of $214,841, which consisted of $204,841 through the sale of
14,049 shares of its common stock and 4,074 shares of its preferred
stock, and a loan from a third party of $10,000. During the six month
period, the Company used $362,759 in its operations, used $33,358 in
its Regulation S offering, and used $23,508 to purchase its 997 shares
of common stock from the open market.
As of July 16, 2004, the Company has sufficient cash resources to fund
approximately 3 to 4 months of current operating expenses. Without an
infusion of capital through the sale of additional shares of its
stock, the Company may not be able to continue operating after its
current cash is depleted.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
--------------------------------------------------------------------
n/a.
Part II. Other Information
---------------------------
Item 2. Changes in Securities
-------------------------------
During the quarter ended June 30, 2004, the Company issued 7,029,016
shares of its common stock. Of the common shares issued, 500,000
shares were issued through the conversion of 500,000 shares of the
Company's Class D Preferred, 2,700 shares were issued through the
conversion of 2,700 shares of the Company's Class C Preferred, 50,000
shares were issued to a former attorney of the Company in settlement
of fees due him totaling $39,467, 18,576 shares were issued cash
totaling $18,556, 133,000 shares were issued for consulting services
valued at $145,875, and 25,000 shares were issued to note holder of
the Company for no further consideration. As part of the negotiations,
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with Gisbex Holding, the Company delivered 6,300,000 common shares.
These 6,300,000 shares are not transferable, have no voting rights,
and are not considered part of the 68,317,991 shares outstanding as of
June 30, 2004. Also during the quarter the Company purchased from a
shareholder 260 shares of its common stock which was subsequently
cancelled.
For the period from July 1, 2004 through July 16, 2004, the Company
issued 1,047,000 shares of its common stock for $123,500.
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.
---------------------------
Registrant
/s/ Robert M. Bernstein
----------------------------------------
Robert M. Bernstein, President and Chief
Financial Officer
17