Edgar Filing: MATECH Corp.

matech10qa063008.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q/A

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________.

Commission file number: 33-23617

Matech Corp

Formerly Material Technologies, Inc.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of

incorporation or organization)

95-4622822

(I.R.S. Employer

Identification No.)

11661 San Vicente Boulevard, Suite 707, Los Angeles, CA 90049

(Address of principal executive offices)

(310) 208-5589

(Issuer’s telephone number)

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 R No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer,” accelerated filer” and smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o		Accelerated filer	o
Non-accelerated filer	o		Smaller reporting company	R

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No R

As of August 15, 2008, there were 194,459,421 shares of our Class A common stock issued and outstanding.

MATERIAL TECHNOLOGIES, INC.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION	1

Item 1. Financial Statements (unaudited)	1

Consolidated Balance Sheet – June 30, 2008	1

Consolidated Statements of Operations – For the three and six months ended June 30, 2008 and 2007	3

Consolidated Statements of Cash Flows – For the six months ended June 30, 2008 and 2007	4

Consolidated Notes to Financial Statements	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	34

Item 3. Quantitative and Qualitative Disclosures about Market Risk	41

Item 4. Controls and Procedures	41

Item 4T. Controls and Procedures	43

PART II – OTHER INFORMATION	44

Item 1. Legal Proceedings	44

Item 1A. Risk Factors	45

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 3. Defaults Upon Senior Securities	46

Item 4. Submission of Matters to a Vote of Security Holders	46

Item 5. Other Information	46

Item 6. Exhibits	46

SIGNATURES	47

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)

CONDENSED CONSOLIDATED BALANCE SHEET

	June 30,
	2008
	(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	530,045
Inventories		148,964
Prepaid expenses and other current assets		62,941

Total current assets		741,950

Property and equipment, net		89,632
Intangible assets, net		2,302
Deposit		2,348

	$	836,232

Continued .. . .

Table of Contents

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)

CONDENSED CONSOLIDATED BALANCE SHEET - Continued

	June 30,
	2008
	(Unaudited)
	(Restated)
LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
Accounts payable and accrued expenses	$	470,017
Current portion of research and development sponsorship payable		25,000
Notes payable		67,573
Total current liabilities		562,590

Accrued legal settlement		250,000
Research and development sponsorship payable, net of current portion		784,100
Convertible debentures and accrued interest payable, net of discount		270,973
Notes payable, long-term		222,110
Derivative and warrant liabilities		75,760,425
		77,287,608

Total liabilities		77,850,198

Minority interest in consolidated subsidiary		825

Commitments and contingencies

Stockholders' deficit:
Class A preferred stock, $0.001 par value, liquidation preference
of $720 per share; 350,000 shares authorized; 337 shares issued
and outstanding as of June 30, 2008		-
Class B preferred stock, $0.001 par value, liquidation preference of
$10,000 per share; 15 shares authorized; none issued and
outstanding as of June 30, 2008		-
Class C preferred stock, $0.001 par value, liquidation preference of
$0.001 per share; 25,000,000 shares authorized; 1,517 shares issued
and outstanding as of June 30,2008		1
Class D preferred stock, $0.001 par value, liquidation preference of
$0.001 per share; 20,000,000 shares authorized; none shares issued
and outstanding as of June 30,2008		-
Class E convertible preferred stock, $0.001 par value, no liquidation
preference; 60,000 shares authorized; 53,700 shares issued and
outstanding as of June 30,2008		54
Class A Common Stock, $0.001 par value, 600,000,000 shares
authorized; 168,499 shares issued and 149,330 shares outstanding
at June 30,2008		149
Class B Common Stock, $0.001 par value, 600,000 shares authorized,
issued and outstanding as of June 30,2008		600
Warrants subscribed		10,000
Additional paid-in-capital		326,904,859
Deficit accumulated during the development stage		(403,834,055	)
Treasury stock ( 293 shares at cost at June 30, 2008)		(96,399	)

Total stockholders' deficit		(77,014,791	)

	$	836,232

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

													From October 21, 1983
	For the Three Months Ended						For the Six Months Ended						(Inception)
	June 30,						June 30,						through
	2007			2008			2007			2008			June 30, 2008
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
				(Restated)						(Restated)			(Restated)
Revenues:
Research and development	$	-		$	-		$	-		$	-		$	5,392,085
Revenue from bridge testing		22,778						66,745			1,090			319,714
Other		-			-			-			-			274,125

Total revenues		22,778			-			66,745			1,090			5,985,924

Costs and expenses:
Research and development		3,294,575			150,847			3,512,076			309,840			20,872,829
General and administrative		41,016,474			5,517,443			62,475,638			25,845,768			329,341,009
Modification of research and development sponsorship agreement		-			-			-			-			5,963,120
Loss on settlement of lawsuits		-			-			-			-			1,267,244

Total costs and expenses		44,311,049			5,668,290			65,987,714			26,155,608			357,444,202

Loss from operations		(44,288,271	)		(5,668,290	)		(65,920,969	)		(26,154,518	)		(351,458,278	)

Other income (expense):
Loss on modification of convertible debt		-			(964,730	)		-			(964,730	)		(378,485	)
Loss on subcription receivables														(1,368,555	)
Interest expense		(612,416	)		(606,028	)		(1,590,651	)		(977,019	)		(12,717,212	)
Other-than-temporary impairment of marketable securities available for sale					-									(9,785,947	)
Net unrealized and realized loss of marketable securities		(8,556,211	)					(8,556,219	)		(8	)		(9,398,226	)
Change in fair value of investments derivative liability		-			-			-			-			(210,953	)
Change in fair value of derivative and warrant liabilities		6,942,597			(71,103,676	)		22,920,017			(62,544,101	)		(18,957,012	)
Interest income		12,594			3,080			15,966			15,523			482,405
Other		-			-			-			-			(25,992	)

Other income (expense), net		(2,213,436	)		(72,671,354	)		12,789,113			(64,470,335	)		(52,359,977	)

Loss before provision for income taxes		(46,501,707	)		(78,339,644	)		(53,131,856	)		(90,624,853	)		(403,818,255	)

Provision for income taxes		-			-			(800	)		(800	)		(15,800	)

Net loss	$	(46,501,707	)	$	(78,339,644	)	$	(53,132,656	)	$	(90,625,653	)	$	(403,834,055	)

Per share data:
Basic and diluted net loss per share	$	(448.38	)	$	(500.20	)	$	(580.45	)	$	(614.04	)
Weighted average Class A common shares outstanding - basic and diluted		103,710			156,617			91,538			147,589

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

							From October 21, 1983
	For the Six Months Ended						(Inception)
	June 30,						through
	2007			2008			June 30, 2008
	(Unaudited)			(Unaudited)			(Unaudited)
				(Restated)			(Restated)

Cash flows from operating activities:
Net loss	$	(53,132,656	)	$	(90,625,653	)	$	(403,834,055	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on modification of convertible debt		-			964,730			378,485
Impairment loss		19,255,875			-			21,391,528
Loss on charge off of subscription receivables		-						1,368,555
Issuance of common stock for services		15,558,944			3,625,200			210,110,040
Increase in debt for services and fees		-			1,100,000			5,556,625
Officer's stock based compensation		30,000,000			19,885,333			86,460,675
Issuance of common stock for modification of research and development sponsorship agreement		-						7,738,400
Change in fair value of derivative and warrant liabilities								(41,351,889	)
Net realized and unrealized loss on marketable securities		8,556,200						7,895,705
Other-than-temporary impairment of marketable securities available for sale		-						9,785,946
Legal fees incurred for note payable								1,456,142
Accrued interest expense added to principal		156,901			135,816			1,630,821
Amortization of discount on convertible debentures		1,431,081			824,072			10,930,350
Change in fair value of investments derivative liability		(22,920,017	)		62,544,101			65,767,423
Accrued interest income added to principal		(5,428	)		25,433			(279,565	)
Depreciation and amortization		1,951			10,621			238,405
Other non-cash adjustments		-						(114,730	)
(Increase) decrease in trade receivables		91,787			108,661			(50,328	)
(Increase) decrease in inventories		-			(86,748	)		(148,964	)
(Increase) decrease in prepaid expenses and other current assets		(22,500	)		(17,257	)		225,316
Increase in deposits		-						(2,348	)
(Decrease) increase in accounts payable and accrued expenses		(141,766	)		(130,968	)		2,377,927

Net cash used in operating activities		(1,169,628	)		(1,636,659	)		(12,469,536	)


Cash flows from investing activities:
Proceeds from the sale of marketable securities		95,006			300,000			3,758,476
Purchase of marketable securities		(302,038	)		-			(2,206,379	)
Investment in certificate of deposits and commerical paper		(700,177	)		(565,000	)		(1,965,000	)
Maturities of certificate of deposits and commercial paper		-			1,565,000			1,965,000
Payment received on officer loans		-			3,803			880,058
Funds advanced to officers		-			-			(549,379	)
Proceeds received in acquisition of consolidated subsidiaries								600,000
Purchase of property and equipment		-			(17,167	)		(373,419	)
Investment in joint ventures		-			-			(102,069	)
Proceeds from foreclosure		-			-			44,450
Proceeds from the sale of property and equipment		-			-			19,250
Payment for license agreement		-			-			(6,250	)

Net cash provided by (used in) investing activities		(907,209	)		1,286,636			2,064,738

Continued .. . .

Table of Contents

MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

							From October 21, 1983
	For the Six Months Ended						(Inception)
	June 30,						through
	2007			2008			June 30, 2008
	(Unaudited)			(Unaudited)			(Unaudited)
				(Restated)			(Restated)

Cash flow from financing activities:
Proceeds from the sale of common stock and warrants	$	2,850,000		$	18,624		$	9,464,577
Proceeds from convertible debentures and other notes payable		200,000			55,000			2,102,766
Proceeds from the sale of preferred stock		100,000			-			473,005
Costs incurred in offerings		(773,779	)		-			(1,130,932	)
Capital contributions		-			-			301,068
Purchase of treasury stock		(17,381	)		(3,266	)		(170,641	)
Principal reduction on notes payable		(26,671	)					(100,000	)
Payment on proposed reorganization		-			-			(5,000	)

Net cash provided by (used in) financing activities		2,332,169			70,358			10,934,843

Net change in cash and cash equivalents		255,332			(279,665	)		530,045

Cash and cash equivalents, beginning of period		129,296			809,710			-

Cash and cash equivalents, end of period	$	384,628		$	530,045		$	530,045

Supplemental disclosure of cash flow information:
Interest paid during the period	$	2,669		$	281
Income taxes paid during the period	$	800		$	800

Supplemental disclosures of non-cash investing and financing activities:

2008

During the six months ended June 30, 2008, the Company issued 4,230 shares of its Class A common shares in
the conversion of $491,132 of convertible debt.

During the six months ended June 30, 2008, the Company issued 13,207 shares of its Class A common stock
for consulting services valued at $3,668,400.

During the six months ended June 30, 2008, the Company issued 378 shares of its Class A common stock
pursuant to the anti-dilution provisions of a settlement agreement.

During the six months ended June 30, 2008. a former employee returned 450 shares of the Company's Class A
common stock to treasury which were subsequently cancelled.

During the six months ended June 30, 2008. the Company's president returned 30,000 shares of the Company's
Class A common stock to treasury which were subsequently cancelled.

During the six months ended June 30, 2008, the Company issued 34,500 shares of its Class A common stock
in consideration of the exercise of cashless warrants. The Company accrued derivative liability in connection with the
granting of the warrants, which had a balance of $1,151,900 on the date of exercise. The liability balance was credited to equity.

During the six months ended June 30, 2008, the Company issued 78 shares of its Class A common stock for $18,624.

During the six months ended June 30, 2008, the Company issued 1,040 shares of the Company's common stock
was issued through the conversion of 1,300 shares of the Company's Class E preferred shares.

During the six months ended June 30, 2008, the Company contingent obligation to Mr. Beck under a settlement agreement
was reduced to $0, therefore the Company reduced its legal settlement liability by the remaining accrued provision of $230,000,
which was credited to equity.

During the six months ended June 30, 2008, the Company obtained $55,000 through the issuance of convertible debt. In connection
with this debt, the Company recognized a beneficial conversion feature of $28,140 that was credited to equity.

Continued .. . .

Table of Contents

During the six months ended June 30, 2008, the Company recognized compensation expense of $8,800 on the grant of
options to its employees and officers for the purchase of 800.000 shares of Class A common stock. In addition, during the six months
the Company granted options to its President for the purchase of 400,000,000 shares of its Class A common stock and granted options
to a consultant to purchase 15,390,546 shares of its Class A common stock. The Company recognized a derivative liability of $6,400,000
on the granting of these options.

2007

During the six months ended June 30, 2007, the Company issued 2,839 shares of its Class A common stock
for consulting services valued at $13,158,944.

During the six months ended June 30, 2007, the Company received $1,000,000 in consideration of issuing 2,500 units.
Each unit consists of one share of the Company's Class A common stock and a warrant to purchase
one share of the Company's common stock at a price of $.60 per share. In connection with the private offering
the Company paid $239,065 in fees and issued warrants to purchase 2,118 shares of the Company's
common stock at a price of $1.20 per share.

During the six months ended June 30, 2007, the Company issued 50,000 shares its Class E Series convertible
preferred stock in exchange for receiving all of the outstanding shares of Stress Analysis Technologies, Inc. ("SATI").
The Company valued the acquisition at $19,355,875 of which $19,255,875 was allocated to the acquired license.
Durng the six months ended June 30, 2007, the Company deemed the license to be impaired and charged of the
$19,255,875 to operation. In connection with this transaction, the Company issued an additional 5,000 preferred
shares valued at $2,400,000 for fees in connection with the purchase. The $2,400,000 was charged to operations.

During the six months ended June 30, 2007, the Company issued 10,800 shares in escrow pursuant to an agreement it has with
with its convertible debenture holders. During 2007, 5,800 shares of Class A common stock was issued to certain
debenture holders in the conversion of $580,000 of indebtedness. In addition, for the redemption of 1,000 shares by certain debenture
holders, the balance due on the debentures was increased by $600,000.

During the six months ended June 30, 2007, the Company received 50 shares of prior issued common stock
which was subsequently cancelled.

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

MATERIAL TECHNOLOGIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months and six months ended June 30, 2008 and 2007

NOTE 1 - BASIS OF PRESENTATION

1. BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations.

In the opinion of management, all adjustments, consisting of normal and recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the periods presented have been included. The operating results of the Company on a quarterly basis may not be indicative of operating results for the full year. For further information, refer to the financial statements and notes included in Material Technologies, Inc.’s (the Company’s) Form 10-KSB for the year ended December 31, 2007.

Reverse Stock Split

Effective on October 3, 2008, the Company declared a 1-for-1,000 reverse split of the Company’s Class A common stock. All share amounts and per share amounts have been adjusted throughout these financial statements for the reverse stock split.

Restatement of Financial Statements

The Company entered into an agreement with the Palisades convertible note holders to modify the terms of the convertible notes with an effective date of June 16, 2008 (See Note 9). In addition, effective on October 3, 2008, the Company declared a 1-for-1,000 reverse split of the Company’s Class A common stock. All share amounts and per share amounts have been adjusted throughout the financial statements for the reverse stock split. Based upon these two reansactions. the Company has restated its financial statements for the three and six months ended June 30, 2008 as follows:

Statements of operations:

For the Three Months Ended

June 30, 2008

As Originally Stated

Adjustments

As Corrected

Revenues:

Research and development

Revenue from bridge testing

Other

Table of Contents

MATERIAL TECHNOLOGIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months and six months ended June 30, 2008 and 2007

Total revenues		-					-			-

Costs and expenses:
Research and development		150,847								150,847
General and administrative		5,517,443								5,517,443

Total costs and expenses		5,668,290					-			5,668,290

Loss from operations		(5,668,290	)				-			(5,668,290	)

Other income (expense):
Interest expense		(397,973	)	1	)		(208,055	)		(606,028	)
Loss on modification of convertible debt		-		2	)		(964,730	)		(964,730	)
Change in fair value of derivative liabilities		(6,036,711	)	3	)		(65,066,965	)		(71,103,676	)
Interest income		3,080								3,080
Other expense, net		(6,431,604	)				(66,239,750	)		(72,671,354	)

Loss before provision for income taxes		(12,099,894	)				(66,239,750	)		(78,339,644	)

Provision for income taxes		-					-			-

Net loss	$	(12,099,894	)			$	(66,239,750	)	$	(78,339,644	)

Per share data:
Basic and diluted net loss per share	$	(77.26	)			$	(422.94	)	$	(500.20	)

Weighted average Class A common shares outstanding - basic and diluted		156,617					156,617			156,617

1) To record additional interest of $16,597 on the increased balance of debt and amortization of increased discount totalling $191,458.

2) To record loss on modification of convertible debt.

3) To expense increase in derivative liability due to the reduction in conversion price of convertible debt and granting of warrants to purchase 35M shares of common stock.

Table of Contents

MATERIAL TECHNOLOGIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months and six months ended June 30, 2008 and 2007

	For the Six Months Ended
	June 30, 2008
	As Originally Stated					Adjustments			As Corrected
Revenues:
Research and development	$	-					-		$	-
Revenue from bridge testing		1,090					-			1,090
Other		-					-			-

Total revenues		1,090					-			1,090

Costs and expenses:
Research and development		309,840								309,840
General and administrative		25,845,768								25,845,768

Total costs and expenses		26,155,608					-			26,155,608

Loss from operations		(26,154,518	)				-			(26,154,518	)

Other income (expense):
Interest expense		(768,964	)	1	)		(208,055	)		(977,019	)
Loss on modification of convertible debt		-		2	)		(964,730	)		(964,730	)
Change in fair value of derivative liabilities
Interest income										-
Other expense, net		-								-
Net unrealized and realized loss of marketable securities		(8	)							(8	)
Change in fair value of derivative liabilities		2,522,864		3	)		(65,066,965	)		(62,544,101	)
Interest income		15,523								15,523
		1,769,415					(66,239,750	)		(64,470,335	)

Loss before provision for income taxes		(24,385,103	)				(66,239,750	)		(90,624,853	)

Provision for income taxes		(800	)				-			(800	)

Net loss	$	(28,200,501	)			$	(66,239,750	)	$	(90,625,653	)

Per share data:
Basic and diluted net loss per share	$	(0.31	)			$	(723.63	)	$	(990.04	)

Weighted average Class A common shares outstanding - basic and diluted		91,538					91,538			91,538

1) To record additional interest of $16,597 on the increased balance of debt and amortization of increased discount totaling $191,458.

2) To record loss on modification of convertible debt.

3) To expense increase in derivative liability due to the reduction in conversion price of convertible debt and granting of warrants to purchase 35M shares of common stock.

Table of Contents

MATERIAL TECHNOLOGIES, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months and six months ended June 30, 2008 and 2007

Balance sheet: