UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 2003
-------------------------------------------------
[ ] 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.
---------------------------
(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
----------
(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)
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. [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's classes of common
equity; as of October 15, 2003
Class A Common Stock - 73,930,715 shares outstanding, 1,342 shares held in
reserve
Class B Common Stock - 600,000 shares outstanding
Class A Preferred - 505 shares outstanding
Class C Convertible Preferred - 4,550 shares 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 -
For the three-months and nine-months ended
September 30, 2002 and 2003 and from the
Company's inception (October 21, 1983) through
September 30, 2003 5
Consolidated Statements of Cash Flows
For the three-months and nine-months ended
September 30, 2002 and 2003 and from the
Company's inception (October 21, 1983) through
September 30, 2003 6 - 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis 13
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 16
Part 2. Other Information 16
2
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
====================================================================================================================
December 31, September 30,
2002 2003
---------------- ----------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 251,782 $ 117,368
Accounts receivable - 4,850
Receivable from officer 76,109 81,877
Employee receivable 1,433 -
Prepaid expenses 1,179 4,179
---------------- ----------------
TOTAL CURRENT ASSETS 330,503 208,274
---------------- ----------------
FIXED ASSETS
Property and equipment, net
of accumulated depreciation 27,649 22,381
---------------- ----------------
OTHER ASSETS
Intangible assets subject to amortization, net of
accumulated amortization 12,120 10,533
Refundable deposit 2,348 2,348
---------------- ----------------
TOTAL OTHER ASSETS 14,468 12,881
---------------- ----------------
TOTAL ASSETS $ 372,620 $ 243,536
================ ================
See acompanying notes
3
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
====================================================================================================================
December 31, September 30,
2002 2003
---------------- ----------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES
Legal fees payable $ 216,783 $ 219,929
Accounting fees payable 22,443 33,011
Other accounts payable 15,736 39,639
Accrued expenses 33,880 23,877
Accrued officer wages 75,482 17,083
Notes payable - current portion 25,688 25,688
Payable on research and
development sponsorship 498,731 566,059
Loans payable - others 59,028 70,077
---------------- ----------------
TOTAL CURRENT LIABILITIES 947,771 995,363
LONG-TERM DEBT 1,519,166 120,099
---------------- ----------------
TOTAL LIABILITIES 2,466,937 1,115,462
---------------- ----------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY - 2,189
---------------- ----------------
STOCKHOLDERS' (DEFICIT)
Class A Common Stock, $.001 par value, authorized 549,400,000
shares, 109,228 shares issued at December 31, 2002 and
73,929,499 shares at September 30, 2003, shares held in reserve
101,603 at December 31, 2002 and 1,343 at September 30, 2003 109 73,929
Class B Common Stock, $.001 par value, authorized 600,000
shares, outstanding 300,000 shares at December 31, 2002, and
600,000 shares outstanding at September 30, 2003 300 600
Class A Preferred, $.001 par value, authorized 25,000,000 shares
outstanding 480 shares at December 31, 2002 and
505 shares at September 30, 2003 - -
Class C Convertible Preferred, $.001 par value, authorized 25,000,000
shares, outstanding 4,050 shares at September 30, 2003; each
share of Preferred Convertible into one share of common stock - 4
Additional paid-in capital 10,559,815 12,856,479
Deficit accumulated during the development stage (12,653,767) (13,767,309)
Less: Notes receivable - common stock (774) (37,818)
---------------- ----------------
TOTAL STOCKHOLDERS' (DEFICIT) (2,094,317) (874,115)
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 372,620 $ 243,536
================ ================
See acompanying notes
4
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
===================================================================================================================================
From Inception
For the Three Months Ended For the Nine Months Ended (October 21, 1983)
September 30, September 30, Through
2002 2003 2002 2003 September 30, 2003
-------------- -------------- -------------- -------------- ------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Restated Restated
REVENUES
Sale of fatigue fuses $ - $ - $ - $ - $ 64,505
Sale of royalty interests - - - - 198,750
Research and development revenue - - 461,323 - 5,024,812
Test services - - - - 10,870
TOTAL REVENUES - - 461,323 - 5,298,937
COSTS AND EXPENSES
Research and development 123,932 16,695 508,195 118,410 5,149,173
General and administrative 2,206,049 361,969 3,112,156 898,447 13,352,301
-------------- -------------- -------------- -------------- ------------------
TOTAL COSTS AND EXPENSES 2,329,981 378,664 3,620,351 1,016,857 18,501,474
-------------- -------------- -------------- -------------- ------------------
LOSS FROM OPERATIONS (2,329,981) (378,664) (3,159,028) (1,016,857) (13,202,537)
-------------- -------------- -------------- -------------- ------------------
OTHER INCOME (EXPENSE)
Interest income 11,947 12,101 36,057 38,485 339,085
Interest expense (21,095) (42,147) (61,807) (134,670) (569,117)
Forgiveness of indebtness - - - - (289,940)
Loss on abandonement of joint venture - - - - (33,000)
-------------- -------------- -------------- -------------- ------------------
TOTAL OTHER INCOME (EXPENSE) (9,148) (30,046) (25,750) (96,185) (552,972)
-------------- -------------- -------------- -------------- ------------------
NET LOSS BEFORE PROVISION FOR
INCOME TAXES (2,339,129) (408,710) (3,184,778) (1,113,042) (13,755,509)
PROVISION FOR INCOME TAXES (800) - (800) (800) (11,800)
-------------- -------------- -------------- -------------- ------------------
NET LOSS $ (2,339,929 $ (408,710) $ (3,185,578) $ (1,113,842) $ (13,767,309)
============== ============== ============== ============== ==================
PER SHARE DATA
Basic loss $ (59.95) $ (0.07) $ (58.58) $ (0.56)
-------------- -------------- -------------- --------------
BASIC NET LOSS PER SHARE $ (59.95) $ (0.07) $ (58.58) $ (0.56)
============== ============== ============== ==============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 39,033 5,497,249 54,378 1,991,047
============== ============== ============== ==============
See acompanying notes
5
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
====================================================================================================================================
From Inception
For the Three Months Ended For the Nine Months Ended (October 21, 1983)
September 30, September 30, Through
2002 2003 2002 2003 September 30, 2003
-------------- -------------- -------------- -------------- ------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Restated Restated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,339,929) $ (408,710) $ (3,185,578) $ (1,113,842) $ (13,767,309)
-------------- -------------- -------------- -------------- ------------------
Adjustments to reconcile net
loss to net cash used in operating
activities
Depreciation and amortization 3,650 2,285 5,768 6,854 192,466
Accrued interest income (10,960) (11,112) (32,864) (36,317) (284,048)
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 - - - - 260,000
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 57,244 (4,850) 277,315 (4,850) (55,178)
Decrease in employee advances - - - 1,433 -
(Increase) decrease in prepaid expense 109,166 (3,000) - (3,000) (4,338)
Loss on sale of equipment - - - - 12,780
Issuance of common stock for services 435,200 65,240 1,073,792 299,701 4,881,357
Issuance of stock for agreement modification - - - - 152
Forgiveness of Indebtedness - - - - 215,000
Increase in accounts payable - - - - -
and accrued expenses 1,445,505 250,522 1,283,944 264,047 1,167,036
Increase in legal fees secured by note payable - - - - 1,481,895
Increase interest accrued on notes payable 19,669 19,018 57,701 132,608 520,334
Increase in research and development
sponsorship payable - - - - 218,000
(Increase) in note for litigation settlement - - - - (25,753)
(Increase) in deposits - - - - (2,189)
-------------- -------------- -------------- -------------- ------------------
TOTAL ADJUSTMENTS 2,059,474 318,103 2,665,656 660,476 10,031,952
-------------- -------------- -------------- -------------- ------------------
NET CASH USED IN
OPERATING ACTIVITIES (280,455) (90,607) (519,922) (453,366) (3,735,357)
-------------- -------------- -------------- -------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment - - - - 10,250
Purchase of property and equipment - - (29,608) - (266,472)
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 USED IN
INVESTING ACTIVITIES - - (29,608) - (126,495)
-------------- -------------- -------------- -------------- ------------------
See acompanying notes
6
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
====================================================================================================================================
From Inception
For the Three Months Ended For the Nine Months Ended (October 21, 1983)
September 30, September 30, Through
2002 2003 2002 2003 September 30, 2003
-------------- -------------- -------------- -------------- ------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Restated Restated
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock $ 166,850 $ 44,610 $ 797,430 $ 184,951 $ 3,086,419
Issuance of stock in consolidated subsidiary - 2,189 - 2,189 2,189
Costs incurred in offerings (29,035) (5,823) (149,231) (38,356) (410,869)
Sale of common stock warrants - - - - 18,250
Sale of preferred stock - - - 64,500 323,000
Sale of redeemable preferred stock - - - - 150,000
Capital contributions - - - - 301,068
Purchase of treasury stock - - - (24,332) (24,332)
Payment on proposed reorganization - - - - (5,000)
Loans from officer - - - - 778,805
Repayments to officer - - (29,700) - (542,379)
Increase in notes and loans payable - 120,000 - 130,000 302,069
-------------- -------------- -------------- -------------- ------------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES: 137,815 160,976 618,499 318,952 3,979,220
-------------- -------------- -------------- -------------- ------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (142,640) 70,369 68,969 (134,414) 117,368
BEGINNING BALANCE CASH AND
CASH EQUIVALENTS 386,078 46,999 174,469 251,782 -
-------------- -------------- -------------- -------------- ------------------
ENDING BALANCE CASH AND CASH
EQUIVALENTS $ 243,438 $ 117,368 $ 243,438 $ 117,368 $ 117,368
============== ============== ============== ============== ==================
See accompanying notes
7
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
------------------------------------------
Note 1. The accompanying consolidated financials statements include those of
Material Technologies, Inc. and its wholly owned subsidiaries, Matech
Aerospace, Inc. and Matech International Corp. These subsidiaries were
formed in 2003 and had no activity since their inception.
On September 15, 2003, the Company filed an amendment to its Articles
of Incorporation increasing the number of Class A common stock it is
authorized to issue to 549,400,000 and the number of Class B common
shares it is authorized to issue to 600,000. Holders of Class A Common
are entitled to one vote for each share held. Holders of Class B
Common are entitled to 1000 votes for each share held.
On September 23, 2003, the Company effected a 1000 for 1 reverse stock
split of its Class A common stock and preferred stock. All equity
accounts and related transactions included in the accompanying
financial statements have been restated to reflect the reverse stock
split as if it occurred at the beginning of each period presented.
Note 2. 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, 2003, and the results of its
operations and cash flows for the three-month and nine-months periods
ended June September 30, 2002 and 2003. The operating results of the
Company on a quarterly basis may not be indicative of operating
results for the full year.
Note 3. Financial statements for the quarter ended September 30, 2002 have
been restated to reflect the value of shares issued for services at
the quoted price of the shares at the time of issuance and for the
1000:1 reverse stock split as discussed above.
Note 4. Accounting Policies
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
amounts. Gains or losses from retirements or sales are credited or
charged to income.
8
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
-----------------
The Company recognizes impairment losses on long-lived assets used in
operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. In such circumstances, those
assets are written down to estimated fair value. Long-lived assets
consist primarily of fixed assets.
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 EPS.
Accounting Estimates
--------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Fair Value of Financial Instruments
-----------------------------------
The Company estimates the fair value of its financial instruments at
their current carrying amounts.
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.
Revenue Recognition
-------------------
During 2002, significantly all of the Company's revenue was derived
from the Company's sub-contract with the United States Air Force
relating to the further development of the Electrochemical Fatigue
Sensor ("EFS"). Revenue on the sub-contract is recognized at the time
services are rendered. The Company billed monthly for services
pursuant to this sub-contract at which time revenue is recognized for
the period that the respective invoice relates.
9
All other income is reported in the period that the income was earned.
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.
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 5. Long-term Debt
On September 23, 2003, the Company issued 20,000,000 (post-split)
shares of its Class A common stock and warrants to purchase 30,000,000
(post-split) Class A common shares at $.10 per share to seven
investors in exchange for their assumption of indebtedness due by the
Company to two attorneys for legal services totaling $1,583,129. In
addition, on September 23, 2003 the Company issued 2,000,000 shares to
the Company's same two attorneys l for a release of any claims that
they might have against the Company for past services.
Also on September 23, 2003, the Company entered into a financing
agreement with Palisades Capital LLC, whereby Palisades agreed to loan
the Company up to $1,500,000. The loan will be evidenced by a Senior
Secured Convertible Debenture convertible at any time after March 30,
2004 into common stock at a rate of the lesser of $.10 per share or
50% of the average closing price of the common stock for the ten
trading days prior to the date of conversion. The debenture bears
interest at a rate of 10% per annum and matures on December 31, 2006,
when any and all outstanding principal and accrued interest becomes
due and payable. Accrued interest is paid out of, and only to the
extent of positive earnings before taxes, interest, amortization and
deprecation.
The warrants to purchase 30,000,000 shares of the Company's Class A
common vest in proportion to the amount of the debenture funded
divided by $1,500,000. If the Company elects not to accept any
additional advances prior to receiving $1,500,000, then all of the 30
million warrants automatically vest.
At September 30, 2003, the balance due on the debenture amounted to
$120,000 in principal and accrued interest of $98.
10
Note 6. Transactions with Management
On September 23, 2003, the Company issued to its President, Mr. Robert
Bernstein 37,000,000 (post-split) shares of its Class A common stock
and 300,000 shares of its Class B common shares in consideration for
releasing all claims he had against the Company through September 24,
2003, which included accrued wages due him amounting to $320,000. As
additional consideration for the shares received, Mr. Bernstein agreed
to pay the Company $37,000 as evidenced by an unsecured promissory
note, which is assessed interest at an annual rate of 6%. The $37,000
and accrued interest are due and payable on in September 23, 2006. The
37,000,000 shares received are subject to certain restrictions. During
the quarter, the Company recognized past accrued compensation due Mr.
Bernstein of $261,601, which was charged to operations, pursuant to a
previous year's board resolution which authorized the accrual of Mr.
Bernstein's salary at a rate of $150,000 a year. Pursuant to the
resolution, the $30,000 a year difference between the $150,000 and
amount of the $120,000 annual salary actually paid to Mr. Bernstein
was deferred and payable to Mr. Bernstein at the discretion of the
Board and was based upon the financial condition of the Company.
During the quarter ended September 30, 2003, the Board authorized the
payment of the deferred compensation through the issuance of the
Company's stock.
In connection with the $1,500,000 financing, Mr. Bernstein entered
into a voting agreement and irrevocable proxy with Palisades Capital
LLC. Under the terms of that agreement, in the event of a default, as
defined in the debenture, if such default continuesd for more than
thirty days after notice thereon, all Class B common shares that he
owns at the time of default will be voted by a representative of
Palisades, thus creating a change in control of the Company. The
voting rights of the Class B shares remain with Mr. Bernstein until
and during the occurrence of an event of default. So long as no event
of default occurs or is occurring, Mr. Bernstein remains in voting
control of the Company, and in all events, the Voting Agreement and
Irrevocable Proxy terminate upon payment in full of all principal and
accrued interest under the debenture.
All amounts due the Company from Mr. Bernstein and Mr. Joel Freedman,
a Director and corporate secretary, on subscriptions relating to prior
purchases of common stock have also been reduced pursuant to the 1000
to 1 reverse stock split. At the time of the split, total
subscriptions owed by them to the Company totaling $769,861 were
reduced to $769. The difference of $ 769,092 was charged against
additional paid-in capital.
Note 7. Stock Activity
During the quarter ended September 30, 2003, the Company received
$38,787 net of offering costs in exchange for the issuance of 19,069
(post split) shares of its Class A common stock. In addition, during
11
the quarter, the Company issued 5,760,000 (post split) shares of its
Class A common stock for consulting services valued at $30,240. As
discussed above, the Company also issued during the quarter,
20,000,000 (post split) shares in consideration for the assumption of
indebtedness owed by the Company for past legal services amounting to
$1,583,129 and issued 2,000,000 shares in consideration for the
release of any potential claims that may exist against the Company
for, among other things, past legal services. Also during the quarter,
the Company issued 7,002,749 (post split) shares of common stock in
connection with its Regulation S offering valued at $71,645, and
issued 2,000,000 (post split) shares in consideration for certain
capital-raising services on the Company's behalf. The shares issued
for non-cash consideration were valued at their respective quoted
market price at date of issuance.
On July 31, 2003, the Company issued stock options priced at $.01 per
share to two consultants for a number of shares equaling 15% of the
issued and outstanding shares at the time the Company has increased
its revenue by at least $5,000,000. The options expire in March 31,
2008.
Also during the quarter, the Company granted to certain consultants
and investors warrants to acquire up to 31,000,000 (post split) shares
in consideration for certain consulting services and investments made
to the Company.
Note 8. Subsequent Events
Effective October 1, 2003, the Company entered into an employment
agreement with its President, under which the Company will pay him a
monthly salary of $16,000, of which $6,000 is deferred. The deferred
compensation becomes fully due and payable on March 31, 2005, or the
date the Company reports at least $250,000 in earnings before
deprecation and amortization in one quarter, whichever occurs sooner.
Also effective October 1, 2003, the Company entered into a consulting
agreement whereby the Company issued 5,760,000 shares of the Company's
Class A common stock . The Company has the right to purchase such
shares from the consultant at a purchase price of $.10 per share;
provided, that the purchase right shall expire as to 160,000 shares on
October 1, 2003, and an additional 160,000 shares on the 1st day of
each month thereafter.
The consultant shall also receive, upon the successful closing or
acquisition by the Company of any business, corporation or division (a
"Target") in which the consultant assisted with the introduction,
consulting or advisory services, a fee of 10% of the total
consideration paid in the acquisition or sale of such Target for
consulting services. The Company, at its option, may pay these fees by
issuance of restricted common stock or freely tradeable, registered
common stock. Restricted common stock shall be issued at a rate equal
to the lessor of (i) fifty percent (50%) of the market price of the
Company common stock on the day prior to the closing date of a
12
transaction which entitles the consultant to receive such fees, or
(ii) $.50 per share. Freely tradable, registered common stock,
pursuant to an effective and current registration statement, shall be
issued at the rate equal to seventy percent (70%) of the market price
of the Company's common stock on the day prior to the closing date of
a transaction which entitles the consultant to receive such fees.
Finally, the Company also issued to consultant or its designees a
warrant to purchase up to an aggregate of 1,000,000 shares of common
stock at an exercise price of $.10 per share, which vested
immediately, and which may be exercised at any time.
Item 2. Management's Discussion and Analysis of Financial Conditions and
--------------------------------------------------------------------------------
Results of Operations
---------------------
For the nine-months ended September 30, 2003 and 2002
-----------------------------------------------------
The Company had no sales during the nine-month period ended September 30,
2003 or during the nine-month period ended September 30, 2002.
The Company did not generate any research and development revenue during
the nine-months ended September 30, 2003 as compared to $461,323 during the
first nine-months of 2002.
Interest earned during the nine-months ended September 30, 2003 totaled
$38,485 as compared to $36,057 earned during the same period in 2002.
Earned interest consists mostly 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.
During the nine-month period ended September 30, 2003 the Company incurred
research and development costs of $118,410 as compared to $508,195 incurred
in the same nine-month period in 2002. Of the $508,195 in development costs
incurred in 2002, $440,201 relates to subcontract costs. The Company earned
the full amount of its grant from the U.S. Air Force during the quarter
ended June 30, 2002, but continued its product development during the third
quarter of 2002. All of the research and development incurred in 2003
related to internal projects of Company.
General and administrative costs were $898,447 and $3,112,156,
respectively, for the nine-month periods ended September 30, 2003 and 2002.
The major costs incurred during 2003, included officer's salary of $278,199
of which only $31,000 was paid in cash. Other expenses incurred during the
nine-months ended September 30, 2003 included office salaries of $34,288,
professional fees of $256,351, consulting fees of $201,664, travel of
$17,257, telephone expense of $13,385, rent of $21,132, and office expense
of $20,287.
Of the $256,351 in professional fees, $ $124,851 was paid in cash or
accrued and the remaining $131,500 was paid through the issuance of
8,650,000 (pre-split) (8,650 shares post split) shares of the Company's
13
common stock. Of the $201,664 in consulting fees, $102,963 was paid in cash
or accrued, and the remaining $98,701 was paid through the issuance of
7,764,864 (post split) shares of the Company's common stock.
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 $1,986,488, consulting fees of $850,750, travel of $38,290, telephone
expense of $18,919, rent of $21,132, and office expense of $25,343.
Of the $ $1,986,488 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 was contingent upon the Company's earnings (See
Note 5 to the financial statements). Also included are legal fees of
$437,473 that were paid through the issuance of 9,072,100 (pre-split) (
9,072 post split) shares of the Company's common stock.
Of the $850,750 incurred in consulting fees, $631,099 was paid through the
issuance of 9,033,918 (pre split) shares ( 9,034 post split) shares of the
Company's common stock. Also included in consulting fees were the 1,000,000
(pre split) (1,000 post split) 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.
Interest expense for the nine-months ended September 30, 2003 totaled
$134,670 as compared to $61,807 incurred during the same nine-month period
of 2002. The majority of interest incurred during the nine months of 2003
and 2002 relate to interest accruing on the Company's obligation to the
University of Pennsylvania.
For the three months ended September 30, 2003 and 2002
------------------------------------------------------
The Company had no sales during the three-month period ended September 30,
2003 or during the three-month period ended September 30, 2002.
The Company generated no revenue from the development contract during the
three-months ended September 30, 2003; However during the quarter, the
Company received notification that it would receive $11,730 from prior
year's billing of which $6,880 was received during the three months.
Previously, the Company set up a bad debt reserve in full for the hold
back. The amounts receivable where offset against the charge off.
The Company received its full award through its agreement with the U.S. Air
Force during the quarter ended June 30, 2002 and had no revenue from the
contract during the quarter ended September 30, 2002.
During the three-month periods ended September 30, 2003 and 2002, the
Company incurred approximately $16,695, and $123,932, respectively, in
development costs. Of the $123,932 incurred in 2002, $54,580 was paid to
subcontractors.
General and administration costs were $361,969 and $2,206,049,
respectively, for the three-month periods ended September 30, 2003 and
2002. The major expenses incurred in 2003, consisted of officer's salaries
of $218,199 all of which was paid through the issuance of common shares.
Other expenses incurred during the three-month period included office
14
salaries of $9,715, consulting fees of $76,383, professional fees of
$29,235, rent of $7,044, office expense of $7,827, telephone expense of
$4,943, and travel expense of $4,871.
Of the $76,383 incurred in consulting fees, $40,740 was paid through the
issuance of 7,760,000 (post split) shares of the Company's common stock.
The major expenses incurred in 2002, consisted of officer's salaries of
$30,000, office salaries of $10,618, consulting fees of $392,658,
professional fees of $1,714,479, rent of $6,411, office expense of $6,246,
telephone expense of $5,236, and travel expense of $3,672.
Of the $1,714,479 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
$208,700 that were paid through the issuance of 7,005,000 (pre-split)
shares (7,005 shares post-split) of the Company's common stock.
Of the $392,658 incurred in consulting fees, $196,500 was paid through the
issuance of 5,750,000 (pre-split) (5,750 post-split) shares of the
Company's common stock. Also included in consulting fees were the 1,000,000
(pre-split) (1,000 shares post-split) shares of the Company's common stock
that was issued in full settlement to Stephen Beck. The 1,000,000 shares
were valued at $40,000.
Interest expense for the three-months ended September 30, 2003 totaled
$42,147 as compared to $21,095 incurred during the first nine-months of
2002.
Liquidity and Capital Resources
-------------------------------
Cash as of September 30, 2003 and 2002 were $117,368, and $243,438,
respectively. During 2003, the Company received $6,880 from the prior
year's development contract, $184,951 through the issuance of 33,117 shares
(post split) of Class A common stock, $24,100 through the issuance of 24
(post split) shares of the Company's Class A Preferred Shares, $40,400
through the issuance of the 4,050 (post split) shares of the Company's
Class C Convertible shares, and $2,189 through the issuance of 43,750
shares of common stock of Matech Aerospace, Inc., an inactive corporation
that was wholly owned by the Company prior to the issuance of the 43,750
shares. The Company holds 4,000,000 shares of the subsidiary's common
stock. Of the $258,520 received, $460,246 was used in operations, $38,356
was used to pay offering expenses, and $24,332 was used to repurchase 997
(post split) shares of its common stock from investors.
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.
15
Item 3. Quantitative and Qualitative Disclosures about Market Risk
n/a.
Part II. Other Information
---------------------------
Item 1. Legal Proceedings
---------------------------
None.
Item 2. Changes in Securities
-------------------------------
During the quarter ended September 30, 2003, the Company received $38,787
net of offering costs in exchange for the issuance of 19,069 shares (post
split) of Class A common stock. In addition, during the quarter the Company
issued 7,760,000 (post split) shares of Class A common for consulting
services valued at $40,740, and 7,002,749 (post split) shares of Class A
common were issued in connection with its Regulation S offering valued at
$61,145. The Company also during the quarter issued 37,000,000 (post split)
shares to its President for the cancellation of accrued compensation due
him of $320,000 and a $37,000 note due the company 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 20,000,000
(post split) shares of its Class A common stock in consideration of certain
investors for their assumption of the $1,583,129 obligation due to two
attorneys. In addition, the Company issued 2,000,000 (post split) shares of
its common stock to the same two attorneys in exchange for the release of
any claims which they might have against the Company. During the quarter,
the Company also issued 2,000,000 shares (post split) of its Class A common
stock for fees incurred relating to the $1,500,000 financing arrangement
with Palasides, LLC.
Item 3. Defaults Upon Senior Securities
-----------------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
-------------------------------------------------------------
Item 5. Other Information
---------------------------
Item 6. Exhibits and Reports on Form 8-K
------------------------------------------
16
Exhibits
--------
Number 31.1
-----------
Certifications Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Number 32.1
-----------
Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Reports on Form 8-K
-------------------
Item 7. Controls and Procedures
---------------------------------
Material Technologies, Inc. management, including the Principal Executive
Officer and Principal Financial Officer, have conducted an evaluation of
the effectiveness of disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14(c) and 15d-14(c). This evaluation was conducted
within 90 days prior to the filing of this report. Based on that
evaluation, the Principal Executive Officer and Principal Financial Officer
concluded that the disclosure controls and procedures are effective in
ensuring that all material information required to be filed in this annual
report has been made known to them in a timely fashion. There have been no
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date the Principal
Executive Officer and Principal Financial Officer completed their
evaluation
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