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, 2001 Commission file number: 33-23617 MATERIAL TECHNOLOGIES, INC. ---------------------------- (Exact name of registrant as specified in its charter) Delaware 95-4622822 -------------------------------------------- -------------------- (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 --------------------------------------------------- (Registrant's telephone number including area code) Securities Registered pursuant to Section 12(g) of the Act: Common ------ 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 10, 2001 was $952,593. Documents incorporated by reference-None. 1 INDEX PAGE ------ Part 1. Financial Statements Balance Sheets 3 - 4 Statements of Operations - First Quarter Ended March 31, 2000 and 2001 and from the Company's inception (October 21, 1983) through March 31, 2001 5 Statements of Cash Flows First Quarter Ended March 31, 2000 and 2001 and from the Company's inception (October 21, 1983) through March 31, 2001 6 - 7 Notes to Financial Statements 8 Management's Discussion and Analysis 9 Part 2. Other Information 10 2 MATERIAL TECHNOLOGIES, INC. (A Development Stage Company) BALANCE SHEETS ================================================================================ December 31, March 31. 2000 2001 ----------------- -------------------- (Unaudited) ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 1,954 $ 781 Receivable Due on Research Contract 33,932 157,917 Receivable from Officer 22,052 28,422 ----------------- -------------------- TOTAL CURRENT ASSETS 57,938 187,120 ----------------- -------------------- FIXED ASSETS Property and Equipment, Net of Accumulated Depreciation 2,990 2,750 ----------------- -------------------- OTHER ASSETS Intangible Assets, Net of Accumulated Amortization 12,712 12,215 Investments 33,000 33,000 Refundable Deposit 2,136 2,136 ----------------- -------------------- TOTAL OTHER ASSETS 47,848 47,351 ----------------- -------------------- TOTAL ASSETS $ 108,776 $ 237,221 ================= ==================== See accompanying notes 3 MATERIAL TECHNOLOGIES, INC. (A Development Stage Company) BALANCE SHEETS ============================================================================================================== December 31, March 31. 2000 2001 ------------------ -------------------- (Unaudited) LIABILITIES AND STOCKHOLDERS' (DEFICIT) CURRENT LIABILITIES Legal Fees Payable $ 209,306 $ 233,548 Fees Payable to R&D Subcontractor 20,474 117,920 Consulting Fees Payable 50,000 50,000 Accounting Fees Payable 26,288 35,508 Other Accounts Payable 10,157 10,718 Accrued Expenses 24,982 36,795 Accrued Officer Wages 40,000 70,000 Notes Payable - Current Portion 25,688 25,688 Loans Payable - Others 54,160 55,169 ------------------ --------------------- TOTAL CURRENT LIABILITIES 461,055 635,346 Payable on Research and Development Sponsorship 358,181 374,299 ------------------ --------------------- TOTAL LIABILITIES 819,236 1,009,645 ------------------ --------------------- STOCKHOLDERS' EQUITY (DEFICIT) Class A Common Stock, $.001 Par Value, Authorized 100,000,000 Shares, Outstanding 24,618,167 at December 31, 2000, and 31,068,167 shares at March 31, 2001 24,618 31,068 Class B Common Stock, $.001 Par Value, Authorized 100,000 Shares, Outstanding 100, 000 Shares at December 31, 2000, and March 31, 2001 100 100 Class A Preferred, $.001 Par Value, Authorized 900,000 Shares Outstanding 337,471 Shares at December 31, 2000 and March 31, 2001 337 337 Additional Paid in Capital 5,909,782 6,345,832 Less Notes Receivable - Common Stock (2,133,251) (2,173,731) Deficit Accumulated During the Development Stage (4,512,046) (4,976,030) ------------------ --------------------- TOTAL STOCKHOLDERS' (DEFICIT) (710,460) (772,424) ------------------ --------------------- TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 108,776 $ 237,221 ================== ===================== 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 2000 2001 March 31, 2001 ----------------- ------------------- --------------------- (Unaudited) (Unaudited) (Unaudited) REVENUES Sale of Fatigue Fuses $ - $ - $ 64,505 Sale of Royalty Interests - - 198,750 Research and Development Revenue 180,847 264,760 3,248,426 Test Services - - 10,870 ----------------- ------------------- ---------------------- TOTAL REVENUES 180,847 264,760 3,522,551 ----------------- ------------------- ---------------------- COSTS AND EXPENSES Research and Development 90,617 210,616 3,082,316 General and Administrative (Note 2) 198,809 540,664 5,350,309 ----------------- ------------------- ---------------------- TOTAL COSTS AND EXPENSES 289,426 751,280 8,432,625 ----------------- ------------------- ---------------------- INCOME (LOSS) FROM OPERATIONS (108,579) (486,520) (4,910,074) ----------------- ------------------- ---------------------- OTHER INCOME (EXPENSE) Expense Reimbursed - - 4,510 Interest Income 1,038 41,150 186,685 Interest Expense (15,220) (17,814) (263,333) Gain on Sale of Stock 251,798 - 207,497 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 237,616 23,336 227,184 ----------------- ------------------- ---------------------- NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS AND PROVISION FOR INCOME TAXES 129,037 (463,184) (4,682,890) PROVISION FOR INCOME TAXES (800) (800) (10,200) ----------------- ------------------- ---------------------- NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS 128,237 (463,984) (4,693,090) EXTRAORDINARY ITEMS Forgiveness of Debt - - (289,940) Utilization of Operating Loss Carry forward - - 7,000 ----------------- ------------------- ---------------------- NET INCOME (LOSS) $ 128,237 $ (463,984) (4,976,030) ================= =================== ====================== PER SHARE DATA Basic Income (Loss) Before Extraordinary Item $ n/a $ n/a Basic Extraordinary Items - - ----------------- ------------------- BASIC NET INCOME (LOSS) PER SHARE $ n/a $ n/a ================= =================== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 14,791,730 27,685,389 ================= =================== 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 2000 2001 March 31, 2001 ----------------- -------------- ---------------------- (Unaudited) (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ 128,237 $ (463,984) (4,976,030) ----------------- -------------- ---------------------- Adjustments to Reconcile Net Income (Loss) to Net Cash Provided (Used) by Operating Activities Depreciation and Amortization 737 737 175,310 Interest Income Accrued on Stock Subscription Receivable (954) (41,150) (141,139) Bad Debts - - 50,000 Gain on Sale of Securities (251,798) - (196,596) Charge off of Deferred Offering Costs - - 36,480 Charge off of Long-lived Assets due to Impairment - - 92,919 Modification of Royalty Agreement - - 7,332 Gain on Foreclosure - - (18,697) (Increase) Decrease in Accounts Receivable 70,846 (123,985) (204,917) (Increase) Decrease in Prepaid Expense - - 53 Loss on Sale of Equipment - - 12,780 Issuance of Common Stock for Services 48,950 442,500 1,063,897 Issuance of Stock for Agreement Modification - - 152 Forgiveness of Indebtedness - - 165,000 Increase (Decrease) in Accounts Payable and Accrued Expenses (98,540) 173,282 1,093,154 Interest Accrued on Note Payable 14,532 17,127 222,164 Increase in Research and Development Sponsorship Payable - - 218,000 (Increase) in Note for Litigation Settlement - - (25,753) (Increase) in Deposits - - (2,189) ----------------- -------------- ---------------------- TOTAL ADJUSTMENTS (216,227) 468,511 2,547,950 ----------------- -------------- ---------------------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (87,990) 4,527 (2,428,080) ----------------- -------------- ---------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds From Sale of Equipment - - 10,250 Purchase of Property and Equipment - - (230,903) Proceeds from Sale of Securities 251,798 - 283,596 Purchase of Securities - - (90,000) Proceeds from Foreclosure - - 44,450 Investment in Joint Venture - - (102,069) Payment for License Agreement - - (6,250) ----------------- -------------- ---------------------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 251,798 - (90,926) ----------------- -------------- ---------------------- 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 2000 2001 March 31, 2001 ---------------- ------------------ ---------------------- (Unaudited) (Unaudited) (Unaudited) CASH FLOWS FROM FINANCING ACTIVITIES Issuance of Common Stock Net of Offering Costs $ - $ - $ 1,381,607 Costs incurred in Offering - - (31,480) 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 Officers - 1,600 737,605 Repayments to Officer (10,500) (7,300) (462,832) Increase in Loan Payable-Others - - 172,069 ---------------- ------------------ ---------------------- CASH FLOWS FROM FINANCING ACTIVITIES: (10,500) (5,700) 2,519,787 ---------------- ------------------ ---------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 153,308 (1,173) 781 BEGINNING BALANCE CASH AND CASH EQUIVALENTS 62,904 1,954 - ---------------- ------------------ ---------------------- ENDING BALANCE CASH AND CASH EQUIVALENTS $ 216,212 $ 781 781 ================ ================== ====================== 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, 2001, and the results of its operations and cash flows for the three-month periods ended March 31, 2001 and 2000. The operating results of the Company on a quarterly basis may not be indicative of operating results for the full year. NOTE 2. During the first quarter of 2001, the Company issued its President 6,000,000 shares of its common stock in lieu of cash payment of accrued salary owed him for the years 1991 through 1995. According to the Board resolution that authorized the retroactive accrual of this compensation, the payment was contingent on the Company's financial position and its ability to pay such amounts. The shares were valued at $420,000. 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, 2001 AND 2000 -------------------------------------------------------------------------------- During the three-month period ended March 31, 2001, the Company generated approximately $264,760 under its research and development contracts as compared to $180,847 generated during the three-month period ended March 31, 2000. During the three-month periods ended March 31, 2001 and 2000, the Company incurred approximately $210,616 and $90,617, respectively, in development costs all of which related to the above-indicated contracts. General and administration costs were $540,664 and $198,809, respectively, for the three-month periods ended March 31, 2001 and 2000. The major expenses incurred during 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. The major expenses incurred during 2000, consisted of consulting fees of $64,521, professional fees of $71,333, officer's compensation of $30,000, travel expenses of $14,800, rent expense of $6,033 and office expense of $8,285. Interest credited to operations for 2001 and 2000 were $41,150 and $1,038, respectively. Significantly all interest income credited to operations has been accrued on non-recourse notes due from the Company's president and a director amounting to $1,995,000. LIQUIDITY AND CAPITAL RESOURCES ---------------------------------- Cash and cash equivalents as of March 31, 2001 and 2000 were $781 and $216,212, respectively. 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 paid to the Company's President. During the first quarter of 2000, the Company received a total of $503,491, which consisted of $251,693 from its research and development contracts, and net proceeds from the sale of investment securities totaling $251,798. Of the $503,491 received, $339,683 was used in operations and $10,500 was repaid to the Company's President. 9 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES In January 2001, the Company issued 250,000 shares of its common stock to consultants for services rendered, 100,000 shares of common stock to Mr. John Goodman, a Director, for services rendered, and 100,000 shares to an attorney for legal services. Under a 1998 resolution, the Board of Directors retroactively adjusted its President's salary to $150,000 a year commencing in 1991. Under the resolution, the payment of the amount accrued each year was contingent on the Company's financial position and its ability to pay such amounts without causing undue hardship to the Company. In March 2001, the Company issued 6,000,000 shares of its common stock to its President as payment for the amount of accrued compensation for the years 1991 through 1995. The shares issued have certain restrictions that must lapse prior to the President being able to sell or transfer the shares. The shares issued were valued at $420,000. 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/s/ Robert M. Bernstein ---------------------------------------- Robert M. Bernstein, President and Chief Financial Officer 10