<PAGE>
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, 1997 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)
(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 November 7, 1997 was approximately $1,350,000.
Documents incorporated by reference-None.
1
<PAGE>
INDEX
PAGE
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Part 1. Financial Statements
Balance Sheets 3 - 4
Statements of Operations -
Third Quarter Ended September 30, 1996 and 1997 and from
the Company's inception (October 21, 1983) through
September 30, 1997 5
Statements of Cash Flows
Third Quarter Ended September 30, 1996 and 1997 and from
the Company's inception (October 21, 1983) through
September 30, 1997 6 - 7
Notes to Financial Stateme 8
Management's Discussion and Analysis 9 - 10
Part 2. Other Information 11
2
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MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
December 31, September 30,
1996 1997
------------ ------------
(Unaudited)
CURRENT ASSETS
Cash and Cash Equivalents $ -- $ --
Accounts Receivable -- 93,229
Recievable on Reimbursed Expenses -- 50,000
Prepaid Expenses 6,472 --
--------- ----------
TOTAL CURRENT ASSETS 6,472 143,229
--------- ----------
FIXED ASSETS
Property and Equipment, Net
of Accumulated Depreciation 98,016 102,251
--------- ----------
OTHER ASSETS
Intangible Assets, Net of
Accumulated Amortization 20,669 19,177
Investment in Tensiodyne Corporation 55,200 13,800
Note Receivable (Including
Accrued Interest) 25,753 --
Refundable Deposit 2,189 2,189
--------- ----------
TOTAL OTHER ASSETS 103,811 35,166
--------- ----------
TOTAL ASSETS $ 208,299 $ 280,646
--------- ----------
--------- ----------
See accompanying notes
3
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------ -------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Bank Overdraft $ 2,422 $ 195
Legal Fees Payable 128,191 105,382
Accounts Payable - Other 33,221 95,835
Accrued Officers Salary 372,000 530,500
Accrued Employee Salaries -- 1,250
Accrued Payroll Taxes 19,124 33,694
Loan Payable - Officer 56,846 90,793
Loan Payable-Others 32,627 33,030
Payable on Research and
Development Sponsorship 188,495 188,495
--------- ----------
TOTAL CURRENT LIABILITIES 832,926 1,079,174
Loans Payable - Officer 122,698 --
Loans Payable - Other 90,893 25,000
--------- ----------
TOTAL LIABILITIES 1,046,517 1,104,174
--------- ----------
REDEEMABLE PREFERRED STOCK
Class B Preferred Stock, $.001 Par Value
Authorized 510 Shares, Outstanding 15 Shares at December
31, 1996 and September 30, 1997; Redeemable at $10,000
Per Share After January 31, 2004 150,000 150,000
--------- ----------
STOCKHOLDERS' EQUITY (DEFICIT)
Class A Common Stock, $.001 Par Value, Authorized 10,000,000
Shares, Outstanding 2,580,546, at December 31, 1996, and
5,560,000 Shares at September 30, 1997 2,580 5,560
Class B Common Stock, $.001 Par Value, Authorized 300,000
Shares, Outstanding 60,000 Shares 60 60
Class A Preferred, $.001 Par Value, Authorized 10,000,000 Shares
Outstanding 350,000 Shares 350 350
Additional Paid in Capital 1,799,181 2,458,793
Less Notes Receivable - Common Stock (14,720) (14,720)
Deficit Accumulated During the Development Stage (2,830,869) (3,437,371)
Unrealized Holding Gain on Investments in Securities 55,200 13,800
--------- ----------
--------- ----------
TOTAL STOCKHOLDERS' (DEFICIT) (988,218) (973,528)
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' 208,299 280,646
--------- ----------
--------- ----------
</TABLE>
See accompanying notes
4
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From Inception
For the Three Months Ended For the Nine Months Ended (October 21, 1983)
September 30, September 30, Through
1996 1997 1996 1997 September 30, 1997
---------- ----------- ----------- ----------- ------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES
Sale of Fatigue Fuses $ -- $ -- $ -- $ -- $ 64,505
Sale of Royalty Interests -- -- -- -- 198,750
Research and Development Revenue -- 91,348 -- 196,070 908,650
Test Services -- -- -- -- 10,870
--------- ---------- ---------- --------- ----------
TOTAL REVENUES -- 91,348 -- 196,070 1,182,775
--------- ---------- ---------- --------- ----------
COSTS AND EXPENSES
Research and Development -- 10,505 -- 41,889 1,550,187
General and Administrative 163,772 639,310 367,198 916,598 3,067,106
--------- ---------- ---------- --------- ----------
TOTAL COSTS AND EXPENSES 163,772 649,815 367,198 958,487 4,617,293
--------- ---------- ---------- --------- ----------
INCOME (LOSS) FROM OPERATIONS (163,772) (649,815) (367,198) (958,487) (3,434,518)
--------- ---------- ---------- --------- ----------
OTHER INCOME (EXPENSE)
Expense Reimbursed 120,558 -- 120,558 114,032
Rental Income -- -- -- 3,843 3,843
Interest Income 500 -- 1,524 -- 39,487
Gain on Sale of Tensiodyne Corporation Common Stock -- -- 9,656 13,901 31,651
Gain on Sale of Real Estate 1,600 1,600 1,600
Gain on Foreclosure of Real Estate -- -- -- 16,014 16,014
Miscellaneous Income -- -- -- -- 25,145
Loss on Sale of Equipment -- -- -- -- (12,780)
Settlement of Teaming Agreement -- -- -- -- 50,000
Litigation Settlement -- -- -- -- 18,095
--------- ---------- ---------- --------- ----------
TOTAL OTHER INCOME 500 122,158 11,180 155,916 287,087
--------- ---------- ---------- --------- ----------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS AND PROVISION FOR INCOME TAXES (163,272) (436,309) (356,018) (606,501) (3,147,431)
PROVISION FOR INCOME TAXES -- -- -- -- (7,000)
--------- ---------- ---------- --------- ----------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS (163,272) (436,309) (356,018) (606,501) (3,154,431)
EXTRAORDINARY ITEMS
Forgiveness of Debt -- -- -- -- (289,940)
Utilization of Operating Loss Carry forward -- -- -- -- 7,000
--------- ---------- ---------- --------- ----------
NET INCOME (LOSS) $ (163,272) $ (436,309) $ (356,018) $ (606,501) $ (3,437,371)
--------- ---------- ---------- --------- ----------
--------- ---------- ---------- --------- ----------
PER SHARE DATA
Income (Loss) Before Extraordinary Item (0.08) (0.11)
---------- ---------
---------- ---------
Extraordinary Items
NET INCOME (LOSS)
COMMON SHARES OUTSTANDING 5,560,000 5,560,000
---------- ---------
---------- ---------
</TABLE>
See accompanying notes
5
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From Inception
For the Three Months Ended For the Nine Months Ended (October 21, 1983)
September 30, September 30, Through
1996 1997 1996 1997 September 30, 1997
---------- ----------- ----------- ----------- ------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (163,272) $ (436,309) $ (356,018) $ (606,501) $ (3,437,371)
----------- ----------- ----------- ----------- -------------
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided
(Used) by Operating Activities
Depreciation and Amortization 1,885 1,194 4,661 3,585 163,300
Gain on Sale of Tensiodyne Corporation
Common Stock -- -- (9,656) (13,901) (13,901)
Gain on Real Estate Foreclosure -- 4,045 -- (17,202) (17,202)
Gain on Sale of Real Estate -- (1,600) -- (1,600) (1,600)
Charge off of Deferred Offering Costs -- -- -- -- 31,480
Loss on Sale of Equipment -- -- -- -- 12,780
Issuance of Common Stock for Services -- -- -- 2,000 297,965
Issuance of Stock for Agreement Modification -- -- -- -- 152
Forgiveness of Indebtedness -- -- -- -- 165,000
(Increase) in Accounts Receivable -- (48,055) -- (93,229) (93,229)
(Increase) in Receivable on Reimbursed Expenses -- (50,000) -- (50,000) (50,000)
Decrease in Prepaid Expenses -- 5,223 -- 6,472 5,001
Increase (Decrease) in Accounts
Payable and Accrued Expenses 112,500 485,968 212,286 583,897 1,138,853
Interest Accrued on Note Payable 3,919 403 11,755 15,100 43,652
Increase in Research and Development
Sponsorship Payable -- -- -- 188,495
(Increase) in Note for Litigation Settlement (500) -- (1,523) (25,753)
(Increase) in Deposits -- -- -- (2,189)
-------- --------- --------- --------- -----------
TOTAL ADJUSTMENTS 117,804 397,178 217,523 435,122 1,842,804
-------- --------- --------- --------- -----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (45,468) (39,131) (138,495) (171,379) (1,594,567)
-------- --------- --------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From Sale of Equipment -- -- -- -- 10,250
Proceeds from Sale of Tensiodyne Corporation -- --
Common Stock -- -- 9,656 -- --
Net Proceeds from Sale of Real Estate -- 44,555 44,555 44,555
Purchase of Property and Equipment -- -- -- (6,328) (232,437)
(Increase) in Other Assets -- -- -- -- (69,069)
Payment for License Agreement -- -- -- -- (6,250)
-------- --------- --------- --------- -----------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES -- 44,555 9,656 38,227 (252,951)
-------- --------- --------- --------- -----------
</TABLE>
See accompanying notes
6
<PAGE>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From Inception
For the Three Months Ended For the Nine Months Ended (October 21, 1983)
September 30, September 30, Through
1996 1997 1996 1997 September 30, 1997
---------- ----------- ----------- ----------- ------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Common Stock
Net of Offering Costs $ 36,540 $ -- 174,040 113,902 846,221
Costs incurred in Offering -- -- -- -- (36,480)
Sale of Common Stock Warrants -- -- -- -- 18,250
Sale of Preferred Stock -- -- -- -- 258,500
Sale of Redeemable Preferred Stock -- -- -- -- 150,000
Capital Contributions -- -- -- -- 301,068
Loans From Officers -- -- 34,324 71,750 428,057
Repayments to Officer (25,200) (8,500) (55,800) (52,500) (282,762)
(Increase) in Loans - Other -- -- (1,786) -- 164,664
-------- --------- --------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES: 11,340 (8,500) 150,778 133,152 1,847,518
-------- --------- --------- --------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (34,128) (3,076) 21,939 -- --
BEGINNING BALANCE CASH AND
CASH EQUIVALENTS 57,293 3,076 1,226 -- --
-------- --------- --------- --------- -----------
ENDING BALANCE CASH AND CASH
EQUIVALENTS $ 23,165 $ -- $ 23,165 $ -- --
-------- --------- --------- --------- -----------
-------- --------- --------- --------- -----------
</TABLE>
See accompanying notes
7
<PAGE>
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, 1996 and 1997 and the
results of operations and cash flows for the three 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
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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, 1996 AND 1997
The Company had no sales during the nine month periods ended September 30,
1996, and 1997. Revenue generated during the nine months ended September
30, 1996, consisted of interest of $1,524 which accrued on a note due the
Company and $9,656 on the sale common stock of Tensiodyne Corporation which
the Company received on settlement of past claims which it had against
Tensiodyne.
During the nine month period ended September 30, 1997, the Company
generated approximately $351,986 which consisted of $196,070 under its
research and development contract with Southwest Research, Inc., rental
income of $2,655 from the sublease of its offices, rental income of $1,188
from the short term lease of a residence on which the Company foreclosed
upon, $13,901 from the sale of Tensiodyne common stock, net gain of
$17,614 from the sale of the above indicated residence, and reimbursed
expenses in the amount $120,558.
During the nine month period ended September 30, 1997, the Company incurred
approximately $41,889 in development costs all of which related to the
above indicated contract with Southwest Research Institute, Inc.
Under the terms of the arrangement with Southwest Research Institute,
Inc. the Company invoices the expenses it incurs under the agreement which
includes direct labor and other direct costs, and related general and
administrative overhead expenses. It is not intended that the Company earn
any significant profit under the agreement.
General and administration costs were $357,198 and $916,598, respectively,
for the nine-month periods ended September 30, 1996 and 1997.. The major
expenses incurred during 1996, consisted of officer's salary of $217,500,
professional fees of approximately $54,259, telephone expense of
approximately $16,231, office expense of $6,717, rent of $16,307, interest
expense of $11,757, and filing fees of $3,050. The major expenses incurred
during the nine month period ended September 30, 1997, consisted of
officer's salary of $550,500 of which $475,500 was accrued for past
services, professional fees of $118,365, consulting services of $71,396,
salaries of $38,500, payroll taxes of $28,708, travel expenses of $17,428,
outside services of $21,102, interest expense of $16,572, and telephone of
$12,062.
9
<PAGE>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
The Company had no sales during the three month periods ended September
30, 1996. The only revenue generated during the third quarter of 1996 was
interest in the amounts of $500. The interest income consisted of interest
which accrued on a note due the Company.
During the three month period ended September 30, 1997, the Company
generated approximately $213,506 which consisted of $91,348 under its
research and development contract with Southwest Research Institute, Inc.,
net gain of $1,600 from the sale of the above indicated residence, and
reimbursed expenses in the amount $120,558.
During the three month period ended September 30, 1997, the Company
incurred approximately $10,505 in development costs all of which related to
the above indicated contract with Southwest Research Institute, Inc..
General and administration costs were $163,772 and $639,310, respectively,
for the three-month periods ended September 30, 1996 and 1997. The major
expenses incurred during 1996, consisted of professional fees of
approximately $19,811, telephone expense of approximately $5,522, travel
of $5,846, rent of $5,435, interest expense of $3,919, and officer's salary
of $112,500. The major expenses incurred in 1997, consisted of officer's
salaries of $505,500 of which $475,500 was accrued for past services,
professional fees of $43,887, office salaries of $7,672, consulting of
$16,080, contractual services of $21,000, rent of $5,638, and office
expense of $4,951.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents as of September 30, 1996 and 1997 $23,165 and
$.00, respectively. During 1996, the Company received $174,040 through
the issuance of 64,000 shares of its common stock pursuant to the Company's
Stock Option Plan, $34,324 from Officer advances, and $9,656 from the
sale of Tensiodyne Corporation common stock. Of the $218,020 received in
1996, $138,495 was used in operations, $55,800 was repaid on officer
advances, and $1,786 was repaid on third party loans.
During 1997, the Company received $113,902 through the issuance of its
common stock, $71,750 through advances made by its President, $44,555
from the sale of a residence which was foreclosed on by the Company,
$102,841 from its arrangement with Southwest Research Institute, Inc., and
$3,843 in rental income. Of the $336,891 received in 1997, $278,063 was
used in operations, $6,328 was used to purchase a computer system, and
$52,500 was used to pay down loans made by the Company's President.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LITIGATION
In September 1997, the Corporation and Robert M. Bernstein filed a
declaratory judgment action in the Superior Court of Suffolk County
Massachusetts naming Mr. Sherman Baker and his associates as defendants.
The Corporation and Mr. Bernstein are asking the Court to declare that
the 1994 agreement between the Corporation and the Baker Group does not
and cannot require the Corporation or Mr. Bernstein to transfer stock to
that group without consideration. In October 1997, the Baker Group
answered the Complaint and filed counterclaims against Mr. Bernstein
only, not the Corporation, seeking declaratory judgment in their favor
and claiming breach of contract.
Just prior to and on July 31, 1997, Sherman Baker and certain
shareholders associated with Mr. Baker claimed that they should receive
35% of all shares issued to Robert M. Bernstein without consideration
and claimed that the Agreement the Baker Group entered into in March
1997 to exchange their Preferred Stock in SecurFone for Preferred Stock
in the Corporation should be rescinded. As a result of Mr. Baker's
claims and demand, SecurFone America, Inc., was hesitant to enter into the
July 31 transactions with the Corporation and its shareholders. To secure
any claims of indemnity against the Corporation that SecurFone may have
related to these claims, the Corporation was required to forego receipt
of $50,000 in the transaction with SecurFone until these claims are
resolved. In addition, Robert M. Bernstein was required to escrow 150,000
of his personal shares of SecurFone to secure the claims of Mr. Baker and
his associates. Accordingly, the law suit was filed to obtain a resolution
of the dispute.
ITEM 2. CHANGES IN SECURITIES
During the six month period ended June 30, 1997, the Company received
$113,902 through the issuance of 100,000 shares of its common stock
pursuant to the Company's Stock Option Plan. The Company also issued
800,000 shares of its common stock through the conversion of $188,593 of
indebtedness, 1,499,454 shares of its common stock to its President for the
cancellation of $372,000 of accrued wages, 20,000 shares of its common
stock to a third party for consulting services, and issued 560,000 shares
in the March 9, 1997 recapitilization.
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
DATE: NOVEMBER 8, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 13,800
<RECEIVABLES> 143,229
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 143,229
<PP&E> 217,900
<DEPRECIATION> 115,649
<TOTAL-ASSETS> 280,646
<CURRENT-LIABILITIES> 1,079,174
<BONDS> 0
150,000
0
<COMMON> 5560
<OTHER-SE> (979,088)
<TOTAL-LIABILITY-AND-EQUITY> 280,646
<SALES> 0
<TOTAL-REVENUES> 196,070
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 958,487
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,572
<INCOME-PRETAX> (606,501)
<INCOME-TAX> 0
<INCOME-CONTINUING> (606,501)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (606,501)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> 0
</TABLE>
