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: March 31, 2002 Commission file number: 33-23617
MATERIAL TECHNOLOGIES, INC.
----------------------------
(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
----------------------------------------
(address of principal executive offices)
(Zip Code) 90064
(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 May 1, 2002 was $ 3,263,402
Documents incorporated by reference-None.
INDEX
PAGE
------
Part 1. Financial Statements
Balance Sheets 3 - 4
Statements of Operations -
First Quarter Ended March 31, 2001 and 2002 and from
the Company's inception (October 21, 1983) through
March 31, 2002 5
Statements of Cash Flows
First Quarter Ended March 31, 2001 and 2002 and from
the Company's inception (October 21, 1983) through
March 31, 2002 6 - 7
Notes to Financial Statements 8
Management's Discussion and Analysis 9
Part 2. Other Information 10
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
==================================================================================
December 31, March 31.
2001 2002
----------------- --------------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 174,469 $ 302,716
Receivable due on research contract 285,677 257,743
Receivable from officer 35,880 60,185
Prepaid expenses - 79,166
----------------- --------------------
TOTAL CURRENT ASSETS 496,026 699,810
----------------- --------------------
FIXED ASSETS
Property and equipment, net
of accumulated depreciation 2,708 2,405
----------------- --------------------
OTHER ASSETS
Intangible assets, net of
accumulated amortization 15,663 14,907
Refundable deposit 2,348 2,348
----------------- --------------------
TOTAL OTHER ASSETS 18,011 17,255
----------------- --------------------
TOTAL ASSETS $ 516,745 $ 719,470
================= ====================
See accompanying notes
3
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
====================================================================================================================
December 31, March 31.
2001 2,002
------------------ ---------------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Legal fees payable $ 282,950 $ 281,114
Fees payable to R&D subcontractor 196,043 135,117
Consulting fees payable 5,525 -
Accounting fees payable 42,417 34,278
Other accounts payable 8,801 5,892
Accrued expenses 43,213 34,636
Accrued officer wages 70,000 80,000
Notes payable - current portion 25,688 25,688
Loans payable - others 57,406 58,055
------------------ ---------------------
TOTAL CURRENT LIABILITIES 732,043 654,780
Payable on research and
development sponsorship 422,653 441,673
------------------ ---------------------
TOTAL LIABILITIES 1,154,696 1,096,453
------------------ ---------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Class A Common Stock, $.001 par value, authorized 200,000,000
shares, 102,433,378 shares issued , 42,433,378 shares outstanding
and 60,000,000 Shares Held in Reserve at December 31, 2001,
and 149,125,389 shares issued, 49,125,389 shares outstanding
and 100,000,000 shares held in reserve at March 31, 2002 42,433 49,125
Class B Common Stock, $.001 par value, authorized 100,000
Shares, outstanding 100, 000 shares at December 31, 2001, and
March 31, 2002 100 100
Class A Preferred, $.001 par value, authorized 50,000,000 Shares
outstanding 337,471 shares at December 31, 2001 and March
31, 2002 337 337
Additional paid in capital 6,995,412 7,521,486
Less notes receivable - common stock (731,549) (742,491)
Deficit accumulated during the development stage (6,944,684) (7,205,540)
------------------ ---------------------
TOTAL STOCKHOLDERS' (DEFICIT) (637,951) (376,983)
------------------ ---------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIT) $ 516,745 $ 719,470
================== =====================
See accompanying notes
4
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
===================================================================================================
From Inception
For the Three Months Ended (October 21, 1983)
March 31, Through
2001 2002 March 31, 2002
------------ ------------ -------------------
(Unaudited) (Unaudited) (Unaudited)
REVENUES
Sale of fatigue fuses $ - $ - $ 64,505
Sale of royalty interests - - 198,750
Research and development revenue 264,760 330,809 4,894,298
Test services - - 10,870
------------ ------------ -------------------
TOTAL REVENUES 264,760 330,809 5,168,423
------------ ------------ -------------------
COSTS AND EXPENSES
Research and development 210,616 252,346 4,408,974
General and administrative 540,664 330,779 7,865,972
------------ ------------ -------------------
TOTAL COSTS AND EXPENSES 751,280 583,125 12,274,946
------------ ------------ -------------------
INCOME (LOSS) FROM OPERATIONS (486,520) (252,316) (7,106,523)
------------ ------------ -------------------
OTHER INCOME (EXPENSE)
Expense reimbursed - - 4,510
Interest income 41,150 12,616 260,434
Interest expense (17,814) (20,356) (336,343)
Gain on sale of stock - - 207,497
Loss on abandonment of interest in joint venture - - (33,000)
Miscellaneous income - - 25,145
Loss on sale of equipment - - (12,780)
Gain on foreclosure - - 18,697
Modification of royalty agreement - - (7,332)
Settlement of teaming agreement - - 50,000
Litigation settlement - - 18,095
------------ ------------ -------------------
TOTAL OTHER INCOME 23,336 (7,740) 194,923
------------ ------------ -------------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS AND PROVISION FOR INCOME TAXES (463,184) (260,056) (6,911,600)
PROVISION FOR INCOME TAXES (800) (800) (11,000)
------------ ------------ -------------------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS (463,984) (260,856) (6,922,600)
EXTRAORDINARY ITEMS
Forgiveness of indebtness - - (289,940)
Utilization of operating loss carryforward - - 7,000
------------ ------------ -------------------
NET INCOME (LOSS) $ (463,984) $ (260,856) $ (7,205,540)
============ ============ ===================
PER SHARE DATA
Basic income (loss) before extraordinary item $ (0.02) $ (0.01)
Basic extraordinary items - -
------------ ------------
BASIC NET INCOME (LOSS) PER SHARE $ (0.02) $ (0.01)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 27,685,389 44,819,027
============ ============
See accompanying notes
5
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
========================================================================================================================
From Inception
For the Three Months Ended (October 21, 1983)
March 31, Through
2001 2002 March 31, 2002
------------ ------------ ----------------
(Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (463,984) $ (260,856) $ (7,205,540)
------------ ------------ ----------------
Adjustments to reconcile net income
(loss) to net cash provided
(used) in operating activities
Depreciation and amortization 737 1,059 178,924
Accrued interest income (41,150) (12,247) (210,534)
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
Charge off of deferred offering costs - - 36,480
Charge off of long-lived assets due to impairmant - - 92,919
Modification of royalty agreement - - 7,332
Gain on foreclosure - - (18,697)
(Increase) decrease in accounts receivable (123,985) 27,934 (308,071)
(Increase) decrease in prepaid expense - (79,166) (79,325)
Loss on sale of equipment - - 12,780
Issuance of common stock for services 442,500 186,400 1,624,675
Issuance of stock for agreement modification - - 152
Forgiveness of Indebtedness - - 215,000
Increase (decrease) in accounts
payable and accrued expenses 173,282 (77,912) 1,109,702
Interest accrued on note payables 17,127 19,669 292,424
Increase in research and development
sponsorship payable - - 218,000
(Increase) in note for litigation settlement - - (25,753)
(Increase) in Deposits - - (2,189)
------------ ------------ ----------------
TOTAL ADJUSTMENTS 468,511 65,737 4,480,223
------------ ------------ ----------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 4,527 (195,119) (2,725,317)
------------ ------------ ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From sale of equipment - - 10,250
Purchase of property and equipment - - (236,864)
Proceeds from sale of securities - - 283,596
Purchase of securirties - - (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 - - (96,887)
------------ ------------ ----------------
See accompanying notes
6
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
=================================================================================================
From Inception
For the Three Months Ended (October 21, 1983)
March 31, Through
2001 2002 March 31, 2002
------------ ------------ -------------------
(Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock net of offering costs $ - $ 434,700 $ 2,182,433
Costs incurred in offerings - (88,334) (199,373)
Sale of common stock warrants - - 18,250
Sale of preferred stock - - 258,500
Sale of redeemable preferred stock - - 150,000
Capital contributions - - 301,068
Payment on proposed reorganization - - (5,000)
Loans From officer 1,600 - 778,805
Repayments to officer (7,300) (23,000) (531,832)
Increase in loan payable-others - - 172,069
------------ ------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES: (5,700) 323,366 3,124,920
------------ ------------ -------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,173) 128,247 302,716
BEGINNING BALANCE CASH AND
CASH EQUIVALENTS 1,954 174,469 -
------------ ------------ -------------------
ENDING BALANCE CASH AND CASH
EQUIVALENTS $ 781 $ 302,716 $ 302,716
============ ============ ===================
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 March 31, 2002, and the results of its operations
and cash flows for the three-month periods ended March 31, 2001 and
2002. The operating results of the Company on a quarterly basis may
not be indicative of operating results for the full year.
8
MATERIAL TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
--------------------------------------------------------------------------------
During the three-month period ended March 31, 2002, the Company generated
approximately $330,809 under its research and development contracts as
compared to $264,760 generated during the three-month period ended March
31, 2001.
During the three-month periods ended March 31, 2002 and 2001, the Company
incurred approximately $252,346 and $210,616, respectively, in development
costs all of which related to the above-indicated contracts.
General and administration costs were $330,779 and $540,664, respectively,
for the three-month periods ended March 31, 2002 and 2001. The major
expenses incurred during 2002 consisted of consulting in the amount of
$198,285, officer's salary of $30,000, secretarial salary of $10,315,
professional fees of $42,343, travel expenses of $8,622, and telephone
expense of $8,671. Of the $198,285 incurred for consulting expense,
$168,900 was through the issuance of 1,689,000 shares of the Company's
common stock. Of the $42,343 incurred in professional fees, $17,500 was
through the issuance of 175,000 shares of the Company's common stock.
The major expenses incurred during the three-month period ended March 31,
2001 consisted of officer's salary of $450,000, office salaries of $9,903,
consulting of $5,998, professional fees of $43,636, telephone of $2,060,
and travel of $5,009. Officer's salary consists of $30,000 of accrued wages
and the issuance of 6,000,000 shares of common stock valued at $420,000 for
the amount of accrued compensation for the years 1991 through 1995.
Interest credited to operations for 2002 and 2001 were $41,150 and $12,616,
respectively. Significantly all interest income credited to operations has
been accrued on non-recourse notes from the Company's president and a
director totaling $495,000.
LIQUIDITY AND CAPITAL RESOURCES
----------------------------------
Cash and cash equivalents as of March 31, 2002 and 2001 were $302,716 and $781,
respectively.
During the first quarter of 2002, the Company received a total of $793,800,
which consisted of $358,744 from its research and development contracts,
$434,700 through the sale of 5,003,011 shares of its common stock and $356 in
interest income. Of the $793,800 received, $554,219 was used in operations,
$88,334 was incurred in the offering of the shares of common stock, and $23,000
was advanced to the Company's President.
9
During the first quarter of 2001, the Company received a total of $141,669,
which consisted of $140,069 from its research and development contracts, and
advances from its President totaling $1,600. Of the $141,669 received, $137,142
was used in operations and $7,300 was advanced to the Company's President.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the first quarter of 2002, the Company issued a total of
46,692,011 of its common stock, of which 40,000,000 shares were issued
in connection with the Company's $12,500,000 straight documentary
credit. These shares are held in reserve as collateral under the terms
of the credit and are not available for sale. Of the remaining
6,692,011 shares issued, 5,003,011 were sold through Regulation S from
which the Company received a total of $434,700, and 1,864,000 shares
were issued to consultants and professionals for services rendered.
The services rendered for these 1,864,000 shares were valued at
$186,400.
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.
10
Material Technologies, Inc.
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Registrant
s/s/ Robert M. Bernstein
------------------------
Robert M. Bernstein, President and Chief
Financial Officer