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: September 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 (IRS Employer
(incorporation or organization) 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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(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 October 18, 2001 was approximately $4,293,377.
Documents incorporated by reference-None.
1
INDEX
PAGE
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Part 1. Financial Statements
Balance Sheets 3-4
Statements of Operations -
Third Quarter Ended September 30, 2000 and 2001 and from
the Company's inception (October 21, 1983) through
September 30, 2001 5
Statements of Cash Flows -
Third Quarter Ended September 30, 2000 and 2001 and from
the Company's inception (October 21, 1983) through
September 30, 2001 6-7
Notes to Financial Statements 8
Management's Discussion and Analysis 9-10
Part 2. Other Information 11
2
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
==================================================================================
December 31, September 30,
2000 2001
----------------- --------------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 1,954 $ 101,610
Receivable Due on Research Contract 33,932 186,183
Receivable from Officer 22,052 38,328
----------------- --------------------
TOTAL CURRENT ASSETS 57,938 326,121
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FIXED ASSETS
Property and Equipment, Net
of Accumulated Depreciation 2,990 2,272
----------------- --------------------
OTHER ASSETS
Intangible Assets, Net of
Accumulated Amortization 12,712 16,821
Investments 33,000 33,000
Refundable Deposit 2,136 2,136
Deferred Offering Costs - 4,000
----------------- --------------------
TOTAL OTHER ASSETS 47,848 55,957
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TOTAL ASSETS $ 108,776 $ 384,350
================= ====================
3
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
=====================================================================================================
December 31, September 30,
2000 2001
-------------- ---------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Legal Fees Payable $ 209,306 $ 214,865
Fees Payable to R&D Subcontractor 20,474 133,572
Consulting Fees Payable 50,000 -
Accounting Fees Payable 26,288 29,416
Other Accounts Payable 10,157 2,480
Accrued Expenses 24,982 42,121
Accrued Officer Wages 40,000 80,000
Notes Payable - Current Portion 25,688 25,688
Loans Payable - Others 54,160 56,594
-------------- ---------------
TOTAL CURRENT LIABILITIES 461,055 584,736
Payable on Research and
Development Sponsorship 358,181 406,535
-------------- ---------------
TOTAL LIABILITIES 819,236 991,271
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STOCKHOLDERS' (DEFICIT)
Class A Common Stock, $.001 Par Value, Authorized 199,000,000
Shares, Outstanding 24,618,167 at December 31, 2000, and
37,239,214 shares at September 30, 2001 24,618 37,239
Class B Common Stock, $.001 Par Value, Authorized 100,000
Shares, Outstanding 100,000 Shares at December 31, 2000, and
September 30, 2001 100 100
Class A Preferred, $.001 Par Value, Authorized 50,000,000 Shares
Outstanding 337,471 Shares at December 31, 2000 and
September 30, 2001 337 337
Additional Paid in Capital 5,909,782 6,744,372
Less Notes Receivable - Common Stock (2,133,251) (720,907)
Deficit Accumulated During the Development Stage (4,512,046) (6,668,062)
-------------- ---------------
TOTAL STOCKHOLDERS' (DEFICIT) (710,460) (606,921)
-------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIT) 108,776 384,350
============== ===============
4
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
Statement of Operations
From Inception
(October 21,
For the Three Months For the Nine Months 1983)
Ended Ended Through
September 30, September 30, September
2000 2001 2000 2001 2001
------------ ------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES
Sale of Fatigue Fuses $ - $ - $ - $ - $ 64,505
Sale of Royalty Interests - - - - 198,750
Research and Development Revenue 143,781 427,004 601,936 1,038,060 4,021,726
Test Services - - - - 10,870
------------ ------------ ------------ ------------ ------------
TOTAL REVENUES 143,781 427,004 601,936 1,038,060 4,295,851
------------ ------------ ------------ ------------ ------------
COSTS AND EXPENSES
Research and Development 100,051 356,706 433,445 828,326 3,700,026
General and Administrative 117,477 258,597 443,777 2,402,032 7,211,677
------------ ------------ ------------ ------------ ------------
TOTAL COSTS AND EXPENSES 217,528 615,303 877,222 3,230,358 10,911,703
------------ ------------ ------------ ------------ ------------
(LOSS) FROM OPERATIONS (73,747) (188,299) (275,286) (2,192,298) (6,615,852)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Expense Reimbursed - - - - 4,510
Interest Income 39,128 11,487 61,606 89,933 235,468
Gain on Sale of Stock - - 251,798 - 207,497
Gain on Foreclosure - - - - 18,697
Miscellaneous Income - - - - 25,145
Modification of Royalty Agreement - - - - (7,332)
Loss on Sale of Equipment - - - - (12,780)
Interest Expense (15,158) (17,617) (45,537) (52,851) (298,370)
Settlement of Teaming Agreement - - - - 50,000
Litigation Settlement - - - - 18,095
------------ ------------ ------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) 23,970 (6,130) 267,867 37,082 240,930
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS AND PROVISION FOR INCOME TAXES (49,777) (194,429) (7,419) (2,155,216) (6,374,922)
PROVISION FOR INCOME TAXES - - (2,575) (800) (10,200)
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS (49,777) (194,429) (9,994) (2,156,016) (6,385,122)
EXTRAORDINARY ITEMS
Forgiveness of Debt - - - - (289,940)
Utilization of Operating Loss Carry forward - - - - 7,000
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (49,777) $ (194,429) $ (9,994) $(2,156,016) $(6,668,062)
============ ============ ============ ============ ============
PER SHARE DATA
Basic Income (Loss) Per Share Before Extraordinary Item (0.00) $ (0.01) (0.00) (0.07)
Extraordinary Items - - - -
------------ ------------ ------------ ------------
NET INCOME (LOSS) (0.00) $ (0.01) (0.00) (0.07)
============ ============ ============ ============
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 20,324,413 35,127,551 17,483,367 31,272,062
============ ============ ============ ============
See accompanying Notes
5
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
From Inception
(October 21,
For the Three Months Ended For the Nine Months Ended 1983) Through
September 30, September 30, September 30,
2000 2001 2000 2001 2001
------------ ------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) $ (49,777) $ (194,429) $ (9,994) $(2,156,016) $(6,668,062)
------------ ------------ ------------ ------------ ------------
Adjustments to Reconcile Net
(Loss) to Net Cash Provided
(Used) by Operating Activities
Depreciation and Amortization 737 738 2,211 2,211 176,784
Interest Income on Stock Subscriptions Receivable (39,790) (11,488) (57,459) (89,932) (189,921)
Officer's Compensation on Stock Subscription Modification - - - 1,500,000 1,500,000
Bad Debt - - - - 50,000
Gain on Sale of Marketable Securities - - - - (196,596)
Gain on Real Estate Foreclosure - - - - (18,697)
Charge off of Deferred Offering Costs - - - - 36,480
Charge off of Long-lived Assets Due Impairment - - - 92,919
Charge off of Deferred Offering Costs - - - - 12,780
Loss on Sale of Equipment - - - - 7,332
Issuance of Common Stock for Services 16,000 120,250 61,950 596,500 1,217,897
Issuance of Stock for Agreement Modification - - - - 152
Forgiveness of Indebtedness - - - - 165,000
(Increase) Decrease in Accounts Receivable 136,791 81,108 141,168 (152,251) (233,183)
(Increase) Decrease in Prepaid Expenses (50,000) - (50,000) - 53
Increase (Decrease) in Accounts - - -
Payable and Accrued Expenses (123,788) (85,145) (109,863) 184,928 1,104,800
Interest Accrued on Note Payable 703 811 2,388 2,434 207,471
Increase in Research and Development
Sponsorship Payable 13,659 16,118 40,978 48,354 266,354
(Increase) in Note for Litigation Settlement - - - - (25,753)
(Increase) in Deposits - - - - (2,189)
------------ ------------ ------------ ------------ -----------
TOTAL ADJUSTMENTS (45,688) 122,392 31,373 2,092,244 4,171,683
------------ ------------ ------------ ------------ ------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (95,465) (72,037) 21,379 (63,772) (2,496,379)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From Sale of Equipment - - - - 10,250
Proceeds from Sale of Marketable Securities - - - - 283,596
Purchase of Marketable Securities - - - - (90,000)
Investment in Joint Venture - - (15,000) - (102,069)
Purchase of Property and Equipment - (5,600) - (5,600) (236,503)
Net Proceeds from Sale of Real Estate - - - - 44,450
Payment for License Agreement - - - - (6,250)
------------ ------------ ------------ ------------ ------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES - (5,600) (15,000) (5,600) (96,526)
------------ ------------ ------------ ------------ ------------
See accompanying Notes
6
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
From Inception
For the Three Months Ended For the Nine Months Ended (October 21, 1983)
September 30, September 30, Through
2000 2001 2000 2001 September 30, 2001
------------ ------------ ------------ ------------ --------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Common Stock $ - $ 230,309 $ 5,000 $ 230,309 $ 1,611,916
Costs incurred in Offering - (47,281) - (47,281) (78,761)
Sale of Common Stock Warrants - - - - 18,250
Payment on Proposed Reorganization - - - - (5,000)
Sale of Preferred Stock - - - - 258,500
Sale of Redeemable Preferred Stock - - - - 150,000
Capital Contributions - - - - 301,068
Loans From Officers - 500 3,000 14,800 750,805
Repayments to Officer (11,000) (10,000) (22,500) (28,800) (484,332)
Increase in Loans - Other - - - - 172,069
------------ ------------ ------------ ------------ --------------------
CASH FLOWS FROM FINANCING ACTIVITIES: (11,000) 173,528 (14,500) 169,028 2,694,515
------------ ------------ ------------ ------------ --------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (106,465) 95,891 (8,121) 99,656 101,610
BEGINNING BALANCE CASH AND
CASH EQUIVALENTS 161,248 5,719 62,904 1,954 -
------------ ------------ ------------ ------------ --------------------
ENDING BALANCE CASH AND CASH
EQUIVALENTS $ 54,783 $ 101,610 $ 54,783 $ 101,610 $ 101,610
============ ============ ============ ============ ====================
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 September 30, 2000 and 2001 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.
8
MATERIAL TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
-----------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 2001
During the nine month period ended September 30, 2000, the Company
generated approximately $915,340 in revenue, which consisted of $601,936
under its research and development contracts, $251,798 from the sale of
marketable securities, and $61,606 in interest. Of the $61,606 in interest
earned, $55,572 relates to interest accrued on non-recourse stock
subscription receivables due from the Company's President and a Director.
During the nine month period ended September 30, 2001, the Company
generated approximately $1,127,993 in revenue, which consisted of
$1,038,060 under its research, and development contracts, and $89,933 in
interest. Of the total interest earned, $85,536 relates to interest accrued
on non-recourse stock subscription receivables due from the Company's
President and a Director.
During the nine month periods ended September 30, 2000 and 2001, the
Company incurred approximately $433,445, and $828,326, respectively, in
development costs all of which related to the above indicated contracts.
General and administration costs were $443,777, and $2,402,032,
respectively, for the nine-month periods ended September 30, 2000, and
2001. The major expenses incurred during the nine-month period ended
September 30, 2000, consisted of $84,101 in consulting fees, $90,000 in
officer's salary, $109,315 in professional fees, $18,855 in rent, $14,577
in telephone expense, $28,187 in salaries, office expense of $21,761, and
$22,491 in travel costs.
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, $26,200 in office salaries, office expense of
$16,454, and $25,643 in travel costs
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 2001
During the three-month period ended September 30, 2000, the Company
generated approximately $182,909 in revenue, which consisted of $143,781
under its research and development contracts, and interest earned of
$39,128 the majority of which relates to interest accrued on non-recourse
stock subscription receivables due from the Company's President and a
Director.
9
During the three-month period ended September 30, 2001, the Company
generated approximately $438,491 in revenue, which consisted of $427,004
under its research and development contracts, and interest earned of
$11,487, the majority of which relates to interest accrued on non-recourse
stock subscription receivables due from the Company's President and a
Director.
During the three-month periods ended September 30, 2000 and 2001, the
Company incurred approximately $100,051, and $356,706, respectively, in
development costs all of which related to the above-indicated contracts.
General and administration costs were $117,477 and $258,597, respectively,
for the three-month periods ended September 30, 2000 and 2001. The major
expenses incurred in 2000, consisted of officer's salaries of $30,000,
office salaries of $8,928, consulting fees of $8,591, professional services
of $34,498, rent of $6,411, office expense of $6,246, telephone expense of
$5,236, and travel expense of $3,672.
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.
LIQUIDITY AND CAPITAL RESOURCES
----------------------------------
Cash and cash equivalents as of September 30, 2000 and 2001 were $54,783,
and $101,610, respectively. During 2000, the Company received $841,647
through its research contracts, $3,000 through advances from its President,
$5,000 through the issuance of Company's common stock, $251,798 through the
sale of stock held for investment, $3,990 from interest earned on savings,
and other receipts totaling $3,053. Of the $1,108,488 received, $1,070,988
was used in operations, $15,000 was invested in a joint Venture, and
$22,500 was repaid to its President.
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.
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PART 2. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On October 12, 2001, the Company's Board of Directors approved an increase
in the number of the Company's authorized common shares to 200,000,000 and
approved an increase in the Company's authorized preferred shares to
50,000,000. The financial statements have been retroactively restated to
reflect the increased number of authorized shares.
In the third quarter 2001, the Company issued a total of 4,396,047 shares
of its common stock of which, 3,193,547 shares were issued for cash
totaling $187,028 (net of offering costs of $43,281), and 1,202,500 shares
were issued to various individual for legal and consulting services valued
at $120,250.
In October 2001, the Company issued a total of 5,829,307 shares of its
common stock of which, 1,461,307 shares were issued for $102,105, 300,000
shares were issued to a Director, 20,000 shares were issued to an employee,
350,000 shares were issued to consultants, 3,000,000 shares were issued
pursuant to the terms of the Commitment Letter in connection with a
$12,500,000 Straight Documentary Credit from Allied Boston Group, and
698,000 shares were issued for the assistance in raising the funds through
the Company's Regulation S offering.
Under the terms of the agreement with the University of Pennsylvania, the
University was issued 5% of the Company's outstanding stock. According to
the agreement, the shares issued are anti-dilutive. Currently, the Company
is required to issue 864,089 additional shares to the University. These
additional shares have not been issued.
ITEM 5. OTHER INFORMATION
On October 10, 2001, the Company entered into an arrangement whereby Allied
Boston Group will provide the Company with a Straight Documentary Credit
for $12,500,000. Under the terms of the commitment, the Company will pledge
sufficient shares of its common stock to equal 125% of the Straight
Documentary Credit. Under the initial terms, the shares are valued at $.27
per share, therefore the Company will pledge approximately 58 million
shares of its common stock against this instrument. If the Company's stock
price goes lower, then additional shares will be pledged. If the stock
price goes to a $1.00 per share, then Allied Boston is required to
liquidate a sufficient number of shares to pay off the amount funded
through this Straight Documentary Credit. After the amount is paid off,
Allied Boston will retain 25 million shares of the Company's common stock.
Any remaining shares will be returned to the Company;
On October 18, 2001, the Company issued 3,000,000 shares of its common
stock to Allied Boston as an issuance fee valued at $812,500. Upon funding
through the Straight Documentary Credit, the Company is required to pay a
Success Fee to Allied Boston in the amount of 8% of the amount funded of
11
which 50% will be paid in cash and the remainder of the fee will be paid
through the issuance of the Company's common stock to be valued currently
at $.27 per share. As long as the Documentary Credit is in force, Allied
Boston will have 2 voting seats on the Company's Board. All out-of-pocket
expenses pertaining to the issuance of the instrument will be borne by the
Company.
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
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ROBERT M. BERNSTEIN, PRESIDENT AND CHIEF
FINANCIAL OFFICER
DATE: OCTOBER 19, 2001
12