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: June 30, 1998 Commission file number: 33-23617
MATERIAL TECHNOLOGIES, INC.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-4622822
------------- --------------
(State or other (IRS Employer
jurisdiction of incorporation identification No.)
or organization)
11661 San Vicente Boulevard
Suite 707
Los Angeles, California 90049
----------------------------------
(address of principal executive offices)
(Zip Code)
(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 July 22, 1998 was $3,601,514
Documents incorporated by reference-None.
<PAGE>
INDEX
PAGE
-------
Part 1. Financial Statements
Balance Sheets 3 - 4
Statements of Operations -
Second Quarter Ended June 30, 1997 and 1998 and from
the Company's inception (October 21, 1983) through
June 30, 1998 5
Statements of Cash Flows
Second Quarter Ended June 30, 1997 and 1998 and from
the Company's inception (October 21, 1983) through
June 30, 1998 6 - 7
Statements of Comprehensive Income
Second Quarter Ended June 30, 1997 and 1998 and from
the Company's inception (October 21, 1983) through
June 30, 1998 8
Notes to Financial Statements 9
Management's Discussion and Analysis 10 - 11
<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 June 30, 1998 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.
NOTE 2. During the second quarter of 1998, the Company entered into an
agreement with Variety Investments, Inc., whereby Variety reduced its royalty
interest in the fatigue fuse from 20% to 5% in consideration for receiving
$5,000 and 7.5% of the total common stock of the Company outstanding as of the
agreement date. In connection with the agreement, the Company issued to Variety
733,280 shares of its Class A Common Stock. The Company valued the shares issued
at $7,332.
Also during the second quarter of 1998, the Company issued an additional
561,617 shares of its Class A Common Stock of which 302,190 was issued to Joel
Freedman, a director and officer of the Company. The remaining 259,427 shares
were issued to unrelated third parties for consulting services. The Company
valued the shares issued at $5,617.
<PAGE>
MATERIAL TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
- -----------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
The Company had no sales during the six month periods ended June 30, 1998, or
during the six month periods ended June 30, 1997. The Company generated $145,722
under its research and development contract with Southwest Research Institute,
Inc. during the first two quarters of 1998, as compared to $104,722 which was
earned during the same period in 1997. The Company realized a $53,880 gain from
the sale of marketable securities during the six months ended June 30, 1998.
During the six month period ended June 30, 1997, the Company realized a gain
from the sale of marketable securites of $13,901, a gain of $16,014 on the
foreclosure of real property and rental income of $3,843.
During the six month period ended June 30, 1998, the Company incurred
approximately $94,070 in development costs all of which related to the above
indicated contract. Development costs incurred during the six months ended June
30, 1997, for same contract amounted to $31,385.
Under the terms of the arrangement with Southwest Research Institute, Inc., the
Company invoices the expenses it incurrs thereunder, which include direct labor
and other direct costs, and related general and administrative overhead
expenses. It is not intended that the the Company will make any significant
profit from this arrangement.
General and administration costs were $317,083 and $277,288 respectively, for
the six-month periods ended June 30, 1998 and 1997. The major costs incurred
during 1998, consisted of professional fees of approximately $104,894,
consulting fees of $72,231, officer's salary of $45,000, telephone expense of
approximately $11,562, interest expense of $24,318, rent of $8,487, and office
expense of $7,156. The major costs incurred during 1997 consisted of officer's
salary of approximately $75,000, legal and professional fees of approximately
$74,477, consulting fees of approximately $55,316, travel expense of
approximately $10,848, telephone expense of approximately $8,368, rent of
$9,615, and interest expense of $15,947.
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
The Company had no sales during the three month period ended June 30, 1998 or
during the three month period ended June 30, 1997. During the three month period
ending June 30, 1998, the Company earned only $48,849 from its research contract
as compared to $100,166 earned during the same period in 1997. As indicated
above, this contract will not generate any substantial profit. During the three
months ended June 30, 1998, the Company realized a gain from the sale of
marketable securities of $53,880. Other income earned during the three months
ended June 30, 1997, consisted of a gain of approximately $16,014 on the
foreclosure of real property secured by a note the Company held, $13,901 on the
sale of securities, and rental income of $2,708.
During the three month period ended June 30, 1998, the Company incurred
approximately $63,617 in development costs all of which related to the above
indicated contract. The Company incured $26,829 relating to product development
during the three months ended June 30, 1997.
General and administration costs were $209,722 and $194,194, respectively, for
the three-month periods ended June 30, 1998 and 1997. The major costs incurred
during 1998, consisted of professional fees of approximately $83,625, consulting
fees of $52,599, officer's salary of $22,500, interest expense of $9,625, and
telephone expense of approximately $5,686. The major costs incurred during 1997
consisted of officer's salary of approximately $30,000, legal and professional
fees of approximately $54,832, consulting fees of approximately $53,317, travel
expense of approximately $10,246, telephone expense of approximately $5,568,
rent of $4,917, and interest expense of $15,322.
LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------
Cash and cash equivalents as of June 30, 1998 and 1997 were $1,640, and $3,076,
respectively. During 1998, the Company received $116,680 through the sale of
marketable securities, and $106,500 from officer advances. Of the $223,180
received in 1998, $134,191 was used in operations, and $90,000 was used to
purchase marketable securities. During 1997, the Company received $113,902
through the sale of 100,000 of its common stock pursuant to the Company's Stock
Option Plan, $64,103 through its product development contract, and $71,750 from
Officer advances. Of the $249,755 received in 1997, $193,929 was used in
operations, $6,328 was used in purchasing computer equipment, and $44,000 was
repaid on officer advances.
<PAGE>
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. Berstein
-------------------------
ROBERT M. BERNSTEIN, PRESIDENT AND CHIEF
FINANCIAL OFFICER
DATE: AUGUST 3, 1998
<PAGE>
PART 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
ASSETS
December 31, June 30,
1997 1998
------------- ----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 2,451 $ 1,640
Accounts Receivable 62,332 9,594
Employee Advance 1,500 2,347
------------- --------------
TOTAL CURRENT ASSETS 66,283 13,581
------------- --------------
FIXED ASSETS
Property and Equipment, Net
of Accumulated Depreciation 95,227 93,831
------------- --------------
OTHER ASSETS
Note Receivable 50,000 50,000
Intangible Assets, Net of
Accumulated Amortization 18,679 17,685
Investment in Marketable Securities 55,200 163,200
Refundable Deposit 1,868 1,868
------------- --------------
TOTAL OTHER ASSETS 125,747 232,753
------------- --------------
TOTAL ASSETS 287,257 340,165
============= ==============
</TABLE>
<TABLE>
<CAPTION>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
----------------------------------------
December 31, June 30,
1997 1998
-------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Legal Fees Payable $ 103,757 138,765
Consulting Fees Payable 67,778 67,067
Other Accounts Payable 17,108 28,629
Accrued Wages - 6,573
Accrued Payroll Taxes 24,269 24,653
Loan Payable - Officer 118,863 61,058
Loan Payable-Others 68,807 68,807
-------------- ------------
TOTAL CURRENT LIABILITIES 400,582 395,552
Payable on Research and
Development Sponsorship 218,000 236,000
-------------- ------------
TOTAL LIABILITIES 618,582 631,552
-------------- ------------
REDEEMABLE PREFERRED STOCK
Class B Preferred Stock, $.001 Par Value
Authorized 510 Shares, Outstanding 15 Shares at December
31, 1997 and June 30, 1998; 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 20,000,000
Shares, Outstanding 5,787,000, at December 31, 1997, and
9,511,987 Shares at June 30, 1998 5,787 9,512
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 2,436,445 2,615,669
Less Notes Receivable - Common Stock (14,720) (14,720)
------------
Deficit Accumulated During the Development Stage (2,964,447) (3,188,458)
------------
Unrealized Holding Gain on Investment Securities 55,200 136,200
-------------- ------------
TOTAL STOCKHOLDERS' (DEFICIT) (481,325) (441,387)
-------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
(DEFICIT) $ 287,257 $ 340,165
============== ============
</TABLE>
See accompanying notes
----------------------
4
<PAGE>
<TABLE>
<CAPTION>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
From Inception
For the Three Months Ended For the Six Months Ended (October 21, 1983)
June 30, June 30, Through
1997 1998 1997 1998 June 30, 1998
------------ ------------ ------------ ------------ ------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES
Sale of Fatigue Fuses $ - $ - $ - $ - $ 64,505
Sale of Royalty Interests - -- - - 198,750
Income from Research and Development Contract 100,166 48,849 104,722 145,594 1,194,584
Test Services - - - - 10,870
------------ ------------ ------------ ------------ ------------------
TOTAL REVENUES 100,166 48,849 104,722 145,594 1,468,709
------------ ------------ ------------ ------------ ------------------
COSTS AND EXPENSES
Research and Development 26,829 63,617 31,385 94,070 1,680,775
General and Administrative 194,194 209,722 277,288 317,083 2,902,813
------------ ------------ ------------ ------------ ------------------
TOTAL COSTS AND EXPENSES 221,023 273,339 308,673 411,153 4,583,588
------------ ------------ ------------ ------------ ------------------
INCOME (LOSS) FROM OPERATIONS (221,023) (273,339) (203,951) (265,559) (3,114,879)
------------ ------------ ------------ ------------ ------------------
OTHER INCOME (EXPENSE)
Rental Income 2,708 - 3,843 - -
Expense Reimbursed - - - - 4,510
Interest Income - - - - 39,495
Gain on Sale of Securities 13,901 53,880 13,901 53,880 85,531
Gain on Foreclosure 16,014 - 16,014 - 18,697
Miscellaneous Income - - - - 25,145
Loss on Sale of Equipment - - - - (12,780)
Settlement of Teaming Agreement - - - - 50,000
Cancellation of Royalty - (12,332) - (12,332) (12,332)
Litigation Settlement - - - - 18,095
------------ ------------ ------------ ------------ ------------------
TOTAL OTHER INCOME 32,623 41,548 33,758 41,548 216,361
------------ ------------ ------------ ------------ ------------------
NET INCOME (LOSS) BEFORE EXTRAORDINARY
ITEMS AND PROVISION FOR INCOME TAXES (88,234) (182,942) (170,193) (224,011) (2,898,518)
PROVISION FOR INCOME TAXES - - - - (7,000)
------------ ------------ ------------ ------------ ------------------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS (88,234) (182,942) (170,193) (224,011) (2,905,518)
EXTRAORDINARY ITEMS
Forgiveness of Debt -- - -- -- (289,940)
Utilization of Operating Loss Carry forward -- - -- -- 7,000
NET (LOSS) $ (88,234) $ (182,942) $ (170,193) $ (224,011) (3,188,458)
============ ============ ============ ============ ==================
PER SHARE DATA
Income (Loss) Before Extraordinary Item $ (0.019) $ (0.024)
Extraordinary Items - -
------------ ------------ ------------ ------------ ------------------
NET INCOME (LOSS) $ (0.019) $ (0.024)
============ ============ ============ ============ ==================
COMMON SHARES OUTSTANDING 9,511,897 9,511,897
============ ============ ============ ============ ==================
</TABLE>
See accompanying notes
----------------------
5
<PAGE>
<TABLE>
<CAPTION>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
From Inception
For the Three Months Ended For the Six Months Ended (October 21, 1983)
June 30, June 30, Through
1997 1998 1997 1998 June 30, 1998
---- ---- ---- ---- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (88,234) (182,942) $ (170,193) $ (224,011) $ (3,188,458)
------------ --------- -------------- ------------ --------------------
Adjustments to Reconcile Net Income
(Loss) to Net Cash Provided
(Used) by Operating Activities
Depreciation and Amortization 1,195 1,195 2,390 2,391 166,885
Gain on Sale of Securities (13,901) (53,880) (13,901) (53,880) (71,630)
Gain on Foreclosure (21,249) - (21,249) - (18,697)
Charge off of Deferred Offering Costs - - - - 36,480
Loss on Sale of Equipment - - - - 12,780
Issuance of Common Stock for Services - 5,617 2,000 5,617 304,052
Issuance of Stock for Agreement Modification - 7,332 - 7,332 7,484
Forgiveness of Indebtedness - - - - 165,000
(Increase) Decrease in Accounts Receivable (40,619) 27,346 (45,174) 52,738 (61,094)
(Increase) in Employee Advances - - - (848) (848)
(Increase) Decrease in Prepaid Expense 625 - 1,250 - 321
Increase (Decrease) in Accounts
Payable and Accrued Expenses 46,711 75,223 100,353 53,411 638,322
Interest Accrued on Note Payable 14,698 9,000 14,698 23,059 62,876
Increase in Research and Development
Sponsorship Payable - - - - 218,000
(Increase) in Note for Litigation Settlement - - - - (25,753)
(Increase) in Deposits - - - - (2,189)
------------ --------- -------------- ------------ --------------------
TOTAL ADJUSTMENTS (12,540) 71,833 40,367 89,820 1,431,989
------------ --------- -------------- ------------ --------------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (100,774) (111,109) (129,826) (134,191) (1,756,469)
------------ --------- -------------- ------------ --------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds From Sale of Equipment - - - - 10,250
Proceeds from Sale of Common Stock - 116,880 - 116,880 134,630
Purchase of Common Stock (90,000) - (90,000) (90,000)
Purchase of Property and Equipment (6,328) - (6,328) - (226,109)
Proceeds from Foreclosure - - - - 44,450
(Increase) in Other Assets - - - - (69,069)
Payment for License Agreement - - - - (6,250)
------------ --------- -------------- ------------ --------------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (6,328) 26,880 (6,328) 26,880 (202,098)
------------ --------- -------------- ------------ --------------------
</TABLE>
See accompanying notes
----------------------
6
<PAGE>
<TABLE>
<CAPTION>
MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
From Inception
For the Three Months Ended For the Six Months Ended (October 21, 1983)
June 30, June 30, Through
1997 1998 1997 1998 June 30, 1998
----- ----- ----- ----- --------------
(Unaudited) (Unaudited) Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Common Stock
Net of Offering Costs $ 35,645 $ - $ 113,902 $ - $ 832,319
Costs incurred in Offering - - -- - (31,480)
Sale of Common Stock Warrants - - -- - 18,250
Payment on Proposed Reoganization - - -- - (5,000)
Sale of Preferred Stock - - -- - 258,500
Sale of Redeemable Preferred Stock - - -- - 150,000
Capital Contributions - - -- - 301,068
Loans From Officers 71,750 57,500 71,750 106,500 581,807
Repayments to Officer - - (44,000) - (309,921)
( Increase) Decrease in Loans - Other - - -- - 164,664
------------- -------------- ---------------- --------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES: 107,395 57,500 141,652 106,500 1,960,207
------------- -------------- ---------------- --------------- ----------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 293 (26,729) 5,498 (811) 1,640
BEGINNING BALANCE CASH AND
CASH EQUIVALENTS 2,783 28,369 (2,422) 2,451 -
------------- -------------- ---------------- --------------- ----------------
ENDING BALANCE CASH AND CASH
EQUIVALENTS $ 3,076 $ 1,640 $ 3,076 $ 1,640 1,640
============= ============== ================ =============== ================
</TABLE>
See accompanying notes
----------------------
7
<PAGE>
<TABLE>
<CAPTION>
MATERIAL TECHNOLOGIES, INC.
---------------------------
(Formerly Tensiodyne Scientific Corporation)
(A Development Stage Company)
STATEMENTS OF COMPREHENSIVE INCOME
For the Three For the Six From Inception
Months Ended Months Ended (October 21, 1983)
June 30, June 30, Through
-------- -------- -------
1997 1998 1997 1998 June30,1998
--------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
NET (LOSS) $(88,234) $(182,942) $(170,193) $(224,011) $ (3,188,458)
- -------------------------------------------- --------- ---------- ---------- ---------- -------------
OTHER COMPREHENSIVE INCOME,
NET OF TAX
Unrealized Gains (Losses) on Securities - 81,000 (41,400) 81,000 136,200
- -------------------------------------------- --------- ---------- ---------- ---------- ------------
TOTAL COMPREHENSIVE INCOME $(88,234) $(101,942) $(211,593) $(143,011) $ (3,052,258)
- -------------------------------------------- ========= ========== ========== ========== =============
</TABLE>
See accompanying notes
----------------------
8
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1640
<SECURITIES> 163200
<RECEIVABLES> 9594
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 135810
<PP&E> 93831
<DEPRECIATION> 166885
<TOTAL-ASSETS> 340165
<CURRENT-LIABILITIES> 395552
<BONDS> 0
<COMMON> 9572
350
0
<OTHER-SE> 723709
<TOTAL-LIABILITY-AND-EQUITY> 340165
<SALES> 0
<TOTAL-REVENUES> 48849
<CGS> 0
<TOTAL-COSTS> 273339
<OTHER-EXPENSES> 41548
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9625
<INCOME-PRETAX> (182942)
<INCOME-TAX> 0
<INCOME-CONTINUING> (182942)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (182942)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
