UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
33-23617
(Commission file number)
MATERIAL TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE
(State or other jurisdiction
of incorporation or organization)
95-4622822
(IRS Employer
Identification No.)
11661 SAN VICENTE BOULEVARD
SUITE 707
LOS ANGELES, CALIFORNIA 90049
(Address of principal executive offices)
(310) 208-5589
(Issuer's telephone number)
(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 September 30, 2002:
Class A Common Stock - 76,194,623 shares outstanding, 102,000,000 shares
held in reserve
Class B Common Stock - 100,000 shares outstanding
Class A Preferred - 487,471 shares outstanding
MATERIAL TECHNOLOGIES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX
Page
Number
Item 1. Financial Statements
Independent Accountant's Review Report 3
Balance Sheets 4
Statements of Operations 6
Third Quarter Ended September 30, 2001 and 2002 and from the
Company's inception (October 21, 1983) through September 30, 2002
Statement of Cash Flows 7
Third Quarter Ended September 30, 2001 and 2002 and from the
Company's inception (October 21, 1983) through September 30, 2002
Notes to Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Change in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
INDEPENDENT ACCOUNT'S REVIEW REPORT
To the Board of Directors
Material Technologies, Inc.
We have reviewed the accompanying balance sheet of Material Technologies, Inc(a
development stage company) as of September 30, 2002, and the related statements
of operations and cash flows for the three-month and nine-month periods ended
September 30, 2001 and 2002 and from the Company's inception (October 21, 1983)
through September 30, 2002. These financial statements are the responsibility of
the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
the financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
s/ Jonathon P. Reuben CPA
Jonathon P. Reuben,
Certified Public Accountant
October 31, 2002
3
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 2001 SEPTEMBER 30, 2002
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 174,469 $ 243,438
Receivable due on research contract 285,677 8,362
Receivable from officer 35,880 -
Prepaid expenses - -
TOTAL CURRENT ASSETS 496,026 251,800
FIXED ASSETS
Property and equipment,
net of accumulated depreciation 2,708 28,816
OTHER ASSETS
Intangible assets,
net of accumulated amortization 15,663 13,395
Refundable deposit 2,348 2,348
TOTAL OTHER ASSETS 18,011 15,743
TOTAL ASSETS $ 516,745 $ 296,359
The accompanying notes are an integral part of the financial statements.
4
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 2001 SEPTEMBER 30, 2002
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Legal fees payable $ 282,950 $ 1,758,113
Fees payable to R&D subcontractor 196,043 -
Consulting fees payable 5,525 -
Accounting fees payable 42,417 28,305
Other accounts payable 8,801 9,818
Accrued expenses 43,213 40,269
Accrued officer wages 70,000 36,115
Notes payable - current portion 25,688 25,688
Payable on research and development sponsorship 422,653 479,712
Loans payable - others 57,406 59,353
TOTAL CURRENT LIABILITIES 1,154,696 2,437,373
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 178,194,623 shares issued, 76,194,623 shares
outstanding, and 102,000,000 shares held in reserve
at September 30, 2002 42,433 76,195
Class B Common Stock, $.001 par value, authorized
100,000 shares, outstanding 100,000 shares at
December 31, 2001 and September 30, 2002 100 100
Class A Preferred, $.001 par value, authorized 50,000,000
outstanding 337,471 shares at December 31, 2001, and
487,471 shares at September 30, 2002 337 487
Additional paid-in capital 6,995,412 8,364,504
Less notes receivable - common stock (731,549) (764,413)
Deficit accumulated during development stage (6,944,684) (9,817,887)
TOTAL STOCKHOLDERS' (DEFICIT) (637,951) (2,141,014)
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 516,745 $ 296,359
The accompanying notes are an integral part of the financial statements.
5
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FROM INCEPTION
(OCTOBER 21,
1983)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2002 2001 2002 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
REVENUES
Sale of fatigue fuses $ - $ - $ - $ - $ 64,505
Sale of royalty interests - - - - 198,750
Research and development revenue 427,004 - 1,038,060 461,323 5,024,812
Test services - - - - 10,870
TOTAL REVENUES 427,004 0 1,038,060 461,323 5,298,937
COSTS AND EXPENSES
Research and development 356,706 123,932 828,326 508,195 4,664,823
General and administrative 258,597 2,190,699 2,402,032 2,799,781 10,334,974
TOTAL COSTS AND EXPENSES 615,303 2,314,631 3,230,358 3,307,976 14,999,797
INCOME (LOSS) FROM OPERATIONS (188,299) (2,314,631) (2,192,298) (2,846,653) (9,700,860)
OTHER INCOME (EXPENSE)
Expense reimbursed - - - - 4,510
Interest income 11,487 11,947 89,933 36,057 283,875
Interest expense (17,617) (21,095) (52,851) (61,807) (377,794)
Gain on sale of stock - - - - 207,497
Loss on abandonment of 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
Utilization of Operating Loss
Carryforward - - - - 7,000
TOTAL OTHER INCOME (6,130) (9,148) 37,082 (25,750) 183,913
NET INCOME (LOSS) BEFORE
EXTRAORDINARY
ITEMS AND PROVISION FOR INCOME
TAXES (194,429) (2,323,779) (2,155,216) (2,872,403) (9,516,947)
PROVISION FOR INCOME TAXES - (800) (800) (800) (11,000)
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS (194,429) (2,324,579) (2,156,016) (2,873,203) (9,527,947)
EXTRAORDINARY ITEMS
Forgiveness of debt - - - - (289,940)
NET (LOSS) $ (194,429) $(2,324,579) $(2,156,016) $(2,873,203) $(9,817,887)
PER SHARE DATA
Income (Loss) Before
Extraordinary Item $ (0.05) $ (0.06) $ (0.07) $ (0.05)
Extraordinary Items - - - -
NET INCOME (LOSS) $ (0.05) $ (0.06) $ (0.07) $ (0.05)
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 39,032,997 31,272,062 54,377,617
The accompanying notes are an integral part of the financial statements
6
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FROM INCEPTION
(OCTOBER 21, 1931)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30 SEPTEMBER 30,
2001 2002 2001 2002 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (194,429) $(2,324,579) $(2,156,016) $(2,873,203) $(9,817,887)
Adjustments to reconcile net income
(loss) to net cash provided
(used) by operating activities
Depreciation and amortization 738 3,650 2,211 5,768 183,633
Accrued interest income (11,488) (10,960) (89,932) (32,864) (231,151)
Gain on sale of stocks - (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 120,250 419,850 596,500 761,417 2,199,692
Issuance of stock for agreement modification - 152
Forgiveness of indebtedness - 215,000
(Increase) decrease in accounts receivable 81,108 57,244 (152,251) 277,315 (58,690)
Charge off of investment in joint venture - - 33,000
Officers' and directors' compensation
on stock subscriptions modification 1,500,000 1,500,000
(Increase) decrease in prepaid expenses - (109,166) - - (159)
Increase (decrease) in accounts payable
and accrued expenses (85,145) 1,445,505 184,928 1,283,944 2,471,558
Interest accrued on notes payable 811 649 2,434 642 273,397
Increase in research and development
sponsorship payable 16,118 19,020 - 57,059 275,059
(Increase) in note for litigation settlement 48,354 - (25,753)
(Increase) in deposits - - (2,189)
TOTAL ADJUSTMENTS 122,392 2,044,124 2,092,244 2,353,281 6,767,767
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (72,037) (280,455) (63,772) (519,922) (3,050,120)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment - - - - 10,250
Purchase of property and equipment (5,600) - (5,600) (29,608) (266,472)
Proceeds from sale of stocks - - - - 283,596
Purchase of stocks - - - - (90,000)
Investment in joint ventures - - - - (102,069)
Proceeds from foreclosure - - - - 44,450
Payment for license agreement - - - - (6,250)
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (5,600) - (5,600) (29,608) (126,495)
The accompanying notes are an integral part of the financial statements
7
MATERIAL TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
FROM INCEPTION
(OCTOBER 21, 1983)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2002 2001 2002 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock $ 230,309 $ 166,850 $ 230,309 $ 797,430 $ 2,545,163
Costs incurred in Offering (47,281) (29,035) (47,281) (149,231) (260,270)
Sale of common stock
warrants - - - - 18,250
Sale of preferred stocks - - - - 258,500
Sale of redeemable
preferred stock - - - - 150,000
Capital contributions - - - - 301,068
Payment on proposed
reorganization - - - - (5,000)
Loans from officers 500 - 14,800 - 778,805
Repayments to officer (10,000) - (28,800) (29,700) (538,532)
Increase (decrease) in
loans - other - - - - 172,069
CASH FLOWS FROM FINANCING ACTIVITIES 173,528 137,815 169,028 618,499 3,420,053
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS 95,891 (142,640) 99,656 68,969 243,438
BEGINNING BALANCE CASH
AND CASH EQUIVALENTS 5,719 386,078 1,954 174,469 -
ENDING BALANCE CASH
AND CASH EQUIVALENTS $ 101,610 $ 243,438 $ 101,610 $ 243,438 $ 243,438
The accompanying notes are an integral part of the financial statements.
8
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
September 30, 2001 and 2002 and the results of operations and cash flows for the
three-month and nine-month periods then ended. The operating results of the
Company on a quarterly basis may not be indicative of operating results for the
full year.
Note 2.
In July 2002, the Company settled its pending lawsuit with Stephen Beck. Under
the terms of the settlement, Mr. Beck received 1,000,000 shares of the Company
common stock. The shares issued are non-dilutive for a period of eighteen
months. Pursuant to the terms of the settlement, the Company placed 2,000,000
shares of its common stock in escrow from which shares will be withdrawn and
issued to him in order that his interest in the Company will remain constant
during the eighteen-month period. Upon expiration of the eighteen month, the
remaining shares held in escrow will be returned to the Company's treasury.
In addition, pursuant to the agreement that the Company had with the attorneys
who represented it in this matter, a contingent fee of $1,481,895 became due
them upon settlement of the case. This fee, however, is payable out of the
Company's earnings derived before interest, taxes, depreciation and amortization
(EBIDA), limited each year to 25% of EBIDA. Unpaid amounts owed towards the fee
accrue interest at a rate of 6% per annum until paid in full.
Note 3.
In the third quarter of 2002, the Company issued 50,000 shares of preferred
stock for $47,500. These preferred shares are convertible into 100,000 shares of
the Company's common stock.
9
MATERIAL TECHNOLOGIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2002
The Company had no sales during the nine-month period ended September 30, 2002
or during the nine month period ended September 30, 2001.
The Company generated $461,323 under its research and development contracts
during the first three-quarters of 2002, as compared to $1,038,060 that was
generated during the same period in 2001.
Interest earned during the first three quarters in 2002 totaled $36,057, 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 2001 amounted to $89,933.
During the nine month period ended September 30, 2002, the Company incurred
$508,195 in development costs of which $440,201 relates to subcontract costs.
The Company earned the full amount of its grant from the U.S. Air Force in the
prior quarter, but continued its product development during the third quarter.
During the same nine-month period in the prior year, the Company incurred
$828,326 in development costs of which $744,659 related to subcontract costs.
General and administrative costs were $2,799,781 and $2,402,032, respectively,
for the nine-month periods ended September 30, 2002 and 2001.
The major costs incurred during 2002, included officer's salary of $90,000 of
which $33,000 was accrued, office salaries of $29,597, professional fees of
$1,916,125, consulting fees of $582,798, travel of $38,290, telephone expense of
$18,919, rent of $21,132, and office expense of $25,343.
Of the $1,916,125 in professional fees, $1,481,895 is accrued and due to two
attorneys in the settlement of the Beck matter. The Company's obligation to pay
this fee is contingent upon the Company's earnings (See Note 2 to the financial
statements). Also included are legal fees of $367,110 that were paid through the
issuance of 9,872,100 shares of the Company's common stock.
Of the $582,798 incurred in consulting fees, $363,147 was paid through the
issuance of 7,998,918 shares of the Company's common stock. Also included in
consulting fees were the 1,000,000 shares of the Company's common stock that
were issued in full settlement to Stephen Beck. The 1,000,000 shares were valued
at $30,000.
The major expenses incurred during the nine-month period ended September 30,
2001, consisted of $1,500,000 relating to the modification of the amount owed to
the Company by its President and a Director on non-recourse stock subscriptions,
$420,000 of prior years' compensation due its President that was paid in stock
in 2001, $147,569 in consulting fees, $90,000 in officer's salary, $97,695 in
professional fees, $16,454 in rent, $11,706 in telephone expense, that were paid
through the issuance of 7,805,000 shares of the Company's common stock.
Of the $351,858 incurred in consulting fees, $155,700 was paid through the
issuance of 5,190,000 shares of the Company's common stock. Also included in
consulting fees were the 1,000,000 shares of the Company's common stock that was
issued in full settlement to Stephen Beck. The 1,000,000 shares were valued at
$30,000.
The major expenses incurred in 2001, consisted of officer's salaries of $30,000,
office salaries of $10,617, consulting fees of $113,066, professional services
of $46,486, rent of $6,833, office expense of $13,129, telephone expense of
$6,875, and travel expense of $16,674.
Interest expense for the three-months ended September 30, 2002 totaled $21,095
as compared to $17,617 incurred during the first nine-months of 2001.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents as of September 30, 2002 and 2001 were $243,438, and
$101,610, respectively. During 2002, the Company received $738,638 through its
research contracts, $797,430 through the issuance of Company's common stock,
$1,555 from interest earned on savings. Of the $1,537,623 received, $1,258,560
was used in operations, $29,608 was used in the purchase of equipment, $149,231
was used to pay offering expenses, and $29,700 was repaid to its President. The
Company's revenues from research and development contracts ended during the
third quarter. In order to meet operational expenses with the loss of contract
revenue, the Company is seeking additional financing through the sales of its
equity securities, pending the receipt of any additional contract revenue in the
future.
During 2001, the Company received $885,808 through its research contracts,
$14,800 through advances from its President, and $230,309 through the issuance
of Company's common stock. Of the $1,130,917 received, $949,580 was used in
operations, $5,600 was used in the development of the Company's website, $47,281
was used in the selling of the stock and $28,800 was advanced to its President.
11
MATERIAL TECHNOLOGIES, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the nine month period ended September 30, 2002, we settled the lawsuits
involving Stephen Beck by agreement dated July 15, 2002. Pursuant to our
settlement agreement, we issued to Mr. Beck 1,000,000 shares of our restricted
common stock with anti-dilution protection for 18 months after the date of the
agreement. The anti-dilution provision requires us to issue additional shares of
common stock, options or warrants to Mr. Beck in order to maintain his relative
ownership of our outstanding common stock, during the 18 month period after the
date of the agreement. As of the date of this prospectus, we have issued
1,000,000 shares of our restricted common stock to Mr. Beck, with a market value
of approximately $45,000 as of the date of settlement. We valued these shares of
restricted stock at $30,000. Pursuant to the settlement, we have also issued
into escrow 2,000,000 shares of restricted common stock to cover the
anti-dilution provisions of the settlement. In addition to the settlement with
Mr. Beck, we agreed to compensate our attorneys handling that case by issuing
them 1,000,000 shares of our restricted common stock and up to $1,500,000 in
cash fees payable only by the delivery to our counsel of 25% of our earnings
before interest, depreciation, taxes and administrative expenses. When we issued
these shares to our attorneys, the shares had a market value of approximately
$45,000, but we discounted the value of these shares due to their restrictions
on resale or transfer.
None
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
During the third quarter of 2002, the Company issued a total of 21,766,640
shares of its common stock, of which 4,394,560 were sold through a Regulation S
offering from which the Company received a total of $166,850. 12,995,000 shares
were issued to consultants, professionals and others for services rendered,
valued at a total of $419,850. 750,000 shares of common stock were returned to
treasury from the grant issued to the Company's President, which were
subsequently cancelled. Also during the quarter, 1,542,080 additional shares
were issued in connection with the Regulation S offering and 1,000,000 shares
were issued to Mr. Stephen Beck as settlement. In addition, 2,000,000 shares of
the Company's common stock were placed in escrow pursuant to the terms of the
settlement with Mr. Beck.
On June 27, 2002, we issued 50,000 shares of our class A preferred stock, par
value $.001 per share, to our legal counsel, Gregory Bartko, in exchange for his
investment of $47,000. On August 12 and 29, 2002, we issued 25,000 shares each
for a total of 50,000 additional shares of our class A preferred stock to Mr.
Bartko, in exchange for his investment of $50,000. The shares received by Mr.
Bartko are convertible at his election into 200,000 shares of our class A common
stock, par value $.001 per share. Mr. Bartko is an accredited investor as
defined in Rule 501 of Regulation D promulgated under the Securities Act of
1933, had a pre-existing relationship with us as our legal counsel, and had
access to all information needed for him to make an informed investment
decision. The offers and sale of our class A preferred stock to Mr. Bartko was
exempt from registration under Rule 506 of Regulation D and Section 4(1) of the
Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
Number Description
99.1 Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
302(a) of the Sarbanes-Oxley Act of 2002.
REPORTS ON FORM 8-K
No filings were made during the period covered by this report.
12
MATERIAL TECHNOLOGIES, INC.
SIGNATURES
Pursuant to the requirements of the 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.
By: /s/ Robert M. Bernstein
Robert M. Bernstein, President and Chief Financial Officer
Date: January 30, 2003
13