matech10q063009.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q
 
 (Mark One)
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE   SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2009
 
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: 333-23617
 
Matech Corp.
(Exact name of registrant as specified in its charter)
 
Delaware
95-4622822
(State or other jurisdiction of
 (I.R.S. Employer
 incorporation or organization)
Identification No.)
 
11661 San Vicente Boulevard, Suite 707, Los Angeles, CA 90049
(Address of principal executive offices)
 
(310) 208-5589
(Registrant’s telephone number, including area code)

n/a
(Former name, former address and former fiscal year, if changed since last report)
 
 
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  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  x      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.
 
Large accelerated filer
o
  
Accelerated filer
o
Non-accelerated filer
o
  
Smaller reporting company
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  o      No  x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes  o     No  o
 
APPLICABLE ONLY TO CORPORATE ISSUERS
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:  as of August 17, 2009, there were 73,965,739 shares of our Class A common stock issued and 72,396,570 common shares outstanding, and 600,000 shares of Class B common stock issued and outstanding.
 
Transitional Small Business Disclosure Format (Check one):     Yes  o     No  x
 
 
 
 
 
 
 
 
 

 
2
 
 
MATECH CORP.
 
TABLE OF CONTENTS
 
   
   
4
   
6
   
7
   
10
   
33
   
39
   
39
   
40
 
 
40
   
40
   
40
   
41
   
41
   
42
   
42
   
 
 
 
 




PART I – FINANCIAL INFORMATION
 
Item 1.     Financial Statements

 
MATECH CORP
            
(Formerly known as Material Technologies, Inc.)
            
(A Development Stage Company)
            
CONDENSED CONSOLIDATED BALANCE SHEETS
  
             
   
December 31,
    
June 30,
  
   
2008
    
2009
  
         
(Unaudited)
  
ASSETS
            
             
Current assets:
            
Cash and cash equivalents
   $ 176,345     $ 114,474  
Accounts receivable
     41,961       40,434  
Inventories
     141,341       74,319  
Prepaid expenses and other current assets
     359,227       62,000  
                 
Total current assets
     718,874       291,227  
                 
Property and equipment, net
     78,601       105,570  
Loan fee, net
     -       131,710  
Intangible assets, net
     1,764       1,226  
Deposit
     2,348       2,348  
                 
    $ 801,587     $ 532,081  
 
 
 
 
 
 
 
 
 
 
 
See notes to consolidated financial statements.
 
4

MATECH CORP
            
(Formerly known as Material Technologies, Inc.)
            
(A Development Stage Company)
            
CONDENSED CONSOLIDATED BALANCE SHEETS
  
             
   
December 31,
    
June 30,
  
   
2008
    
2009
  
         
(Unaudited)
  
             
LIABILITIES AND STOCKHOLDERS'  DEFICIT
            
             
Current liabilities:
            
Accounts payable and accrued expenses
   $ 670,207     $ 865,936  
Deferred revenue - related party
     90,000       -  
Loans payable - related party
     -       2,611  
Current portion of payable due on legal settlement
     54,033       55,523  
Current portion of research and development sponsorship payable
     25,000       25,000  
Current portion of Convertible debentures and accrued interest payable, net of discount
     1,859,325       3,440,861  
Notes payable
     299,542       309,614  
Total current liabilities
     2,998,107       4,699,545  
                 
Legal settlement  payable
     155,978       130,338  
Research and development sponsorship payable, net of current portion
     778,549       797,468  
Convertible debentures and accrued interest payable, net of discount
     335,834       606,697  
Derivative and warrant liabilities
     210,497,575       304,973,847  
      211,767,936       306,508,350  
                 
Total liabilities
     214,766,043       311,207,895  
                 
Minority interest in consolidated subsidiary
     825       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  December 31, 2008 and  June 30, 2009
     -       -  
Class B preferred stock, $0.001 par value, liquidation preference of
                
$10,000 per share; 15 shares authorized;  0 shares issued and
                
outstanding as of December 31, 2008 and June 30, 2009
     -       -  
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 December 31, 2008 and June 30, 2009
     1       1  
Class D preferred stock, $0.001 par value, liquidation preference of
                
$0.001 per share; 20,000,000 shares authorized; 0 shares issued
                
and outstanding as of  December 31, 2008 and June 30, 2009
     -       -  
Class E convertible preferred stock, $0.001 par value, no liquidation
                
preference; 60,000 shares authorized; 49,250 shares issued and
                
outstanding as of  December 31, 2008 and 0 shares issued and
                
outstanding as of June 30, 2009
     49       -  
Class A Common Stock, $0.001 par value, 1,699,400,000 shares
                
authorized; 99,408,963 shares issued and 24,389,794 shares
                
outstanding as of December 31, 2008;  107,416,290 shares issued
                
and 31,934,351  shares outstanding as of June 30, 2009
     24,390       31,935  
Class B Common Stock, $0.001 par value, 600,000 shares authorized,
                
issued and outstanding as of  December 31, 2008 and  June 30, 2009
     600       600  
Warrants subscribed
     10,000       10,000  
Additional paid-in-capital
     367,125,759       369,583,095  
Deficit accumulated during the development stage
     (581,117,806 )     (680,292,371 )
Treasury stock ( 24,635 shares at cost at December 31,2008 and
                
25,448 shares at cost at June 30, 2009)
     (8,274 )     (9,899 )
                 
Total stockholders' deficit
     (213,965,281 )     (310,676,639 )
                 
    $ 801,587     $ 532,081  
 
See notes to consolidated financial statements.
 
 
MATECH CORP
                              
(Formerly known as 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
  
   
2008
    
2009
    
2008
    
2009
    
June 30, 2009
  
   
(Unaudited)
    
(Unaudited)
    
(Unaudited)
    
(Unaudited)
    
(Unaudited)
  
                               
Revenues:
                              
Research and development
   $ -     $ -     $ -     $ -     $ 5,392,085  
Revenue from bridge testing
     -       1,543       1,090       65,724       476,970  
Other
     -       50,000       -       140,000       424,125  
                                         
Total revenues
     -       51,543       1,090       205,724       6,293,180  
                                         
Costs and expenses:
                                        
Bridge testing costs
     -       625       -       109,252       182,509  
Research and development
     150,847       126,897       309,840       211,463       21,302,285  
General and administrative
     5,517,443       1,602,077       25,845,768       2,648,153       333,726,110  
Modification of research and development sponsorship agreement
     -       -       -       -       5,963,120  
(Gain) loss on settlement of lawsuits
     -       (45,223 )     -       (45,223 )     1,222,021  
                                         
Total costs and expenses
     5,668,290       1,684,376       26,155,608       2,923,645       362,396,045  
                                         
Loss from operations
     (5,668,290 )     (1,632,833 )     (26,154,518 )     (2,717,921 )     (356,102,865 )
                                         
Other income (expense):
                                        
Gain (Loss) on modification of convertible debt
     (964,730 )     2,722,195       (964,730 )     2,722,195       2,343,710  
 Loss on subscription receivable
             -               -       (1,368,555 )
 Interest expense
     (606,028 )     (811,591 )     (977,019 )     (1,977,779 )     (16,623,656 )
Other-than-temporary impairment of marketable securities available for sale
     -       -       -       -       (9,785,947 )
Loss on shareholder settlement relating to failure to register common shares
     -       -       -       -       (39,407,195 )
Net unrealized and realized loss of marketable securities
     -       (22 )     (8 )     (1,825 )     (9,400,043 )
Change in fair value of investments derivative liability
             -       -       -       (210,953 )
Change in fair value of derivative and warrant liabilities
     (71,103,676 )     21,746,506       (62,544,101 )     (97,198,467 )     (250,177,363 )
Interest income
     3,080       32       15,523       32       483,088  
Other
     -       -       -       -       (25,992 )
                                         
Other income (expense), net
     (72,671,354 )     23,657,120       (64,470,335 )     (96,455,844 )     (324,172,906 )
                                         
Loss before provision for income taxes
     (78,339,644 )     22,024,287       (90,624,853 )     (99,173,765 )     (680,275,771 )
                                         
Provision for income taxes
     -       -       (800 )     (800 )     (16,600 )
                                         
Net loss
   $ (78,339,644 )   $ 22,024,287     $ (90,625,653 )   $ (99,174,565 )   $ (680,292,371 )
                                         
Per share data:
                                        
Basic and diluted net loss per share
   $ (500.20 )   $ 0.70     $ (614.04 )   $ (3.36 )        
Weighted average Class A common shares
                                        
   outstanding - basic and diluted
     156,617       31,465,322       147,589       29,532,376          
 
 
See notes to consolidated financial statements.
 
 
MATECH CORP
                  
(Formerly known as Material Technologies, Inc.)
                  
(A Development Stage Company)
                  
CONSOLIDATED STATEMENTS OF CASH FLOWS
  
                   
               
From October 21, 1983
  
   
For the Six Months Ended
    
(Inception)
  
   
June 30,
    
through
  
   
2008
    
2009
    
June 30, 2009
  
   
(Unaudited)
    
(Unaudited)
    
(Unaudited)
  
                   
Cash flows from operating activities:
                  
Net loss
   $ (90,625,653 )   $ (99,174,565 )   $ (680,292,371 )
Adjustments to reconcile net loss to net cash used in in operating activities:
                        
Loss (gain) on modification of convertible debt
     964,730       (2,722,195 )     (2,343,710 )
Impairment loss
     -       -       21,391,528  
Loss on charge off of subscription receivables
                     1,368,555  
Stock based compensation
     3,625,200       1,745,247       212,223,628  
Increase in debt for services and fees
     1,100,000       120,000       5,796,625  
Officer's stock based compensation
     19,885,333       -       86,460,675  
Issuance of common stock for modification of
                        
   research and development sponsorship agreement
     -       -       7,738,400  
Issuance of common stock in settlement for failure to
                        
   register common shares
     -       -       39,407,195  
Change in fair value of derivative and warrant liabilities
     -               155,214,096  
   Net realized and unrealized loss on marketable securities
     -       1,825       7,897,530  
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
     135,816       286,978       2,204,472  
Amortization of discount on convertible debentures
     824,072       1,582,392       14,105,423  
Change in fair value of investments derivative liability
     62,544,101       97,198,467       100,421,790  
Accrued interest income added to principal
     25,433       -       (305,885 )
Depreciation and amortization
     10,621       25,230       275,201  
Other non-cash adjustments
     -       (45,224 )     (159,954 )
(Increase) decrease in trade receivables
     108,661       1,527       (90,761 )
(Increase) decrease in inventories
     (86,748 )     67,023       (74,318 )
(Increase) decrease in prepaid expenses and other
                     -  
   current assets
     (17,257 )     197,559       511,403  
(Decrease) increase in accounts payable and accrued
                     -  
   expenses
     (130,968 )     240,952       2,780,447  
(Decrease) Increase in deferred revenue - related party
     -       (90,000 )     -  
                         
  Net cash used in operating activities
     (1,636,659 )     (564,784 )     (14,227,943 )
                         
Cash flows from investing activities:
                  
Proceeds from the sale of marketable securities
     300,000       848       3,759,324  
Purchase of marketable securities
     -       -       (2,206,379 )
Investment in certificate of deposits and commercial paper
     (565,000 )     -       (1,965,000 )
Redemptions of certificate of deposits and commercial paper
     1,565,000       -       1,965,000  
Payment received on officer loans
     3,803       -       876,255  
Funds advanced to officers
     -       -       (549,379 )
Proceeds received in acquisition of consolidated subsidiaries
     -       -       600,000  
Purchase of property and equipment
     (17,167 )     (51,660 )     (425,080 )
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
     1,286,636       (50,812 )     2,010,122  
 
 
 
See notes to consolidated financial statements.
 
 
MATECH CORP
                  
(Formerly known as Material Technologies, Inc.)
      
(A Development Stage Company)
                  
CONSOLIDATED STATEMENTS OF CASH FLOWS
  
                   
               
From October 21, 1983
  
   
For the Three Months Ended
  
(Inception)
  
   
June 30,
    
through
  
   
2008
    
2009
    
June 30, 2009
  
   
(Unaudited)
  
(Unaudited)
  
(Unaudited)
  
                   
Cash flow from financing activities:
                  
Proceeds from the sale of  common stock and warrants
     18,624     $ -     $ 9,464,577  
Proceeds from convertible debentures and other notes payable
     55,000       600,000       3,952,766  
Proceeds from the sale of preferred stock
     -       -       473,005  
Fees incurred in debt financing
     -       -       (1,505,932 )
Capital contributions
     -       -       301,068  
Purchase of treasury stock
     (3,266 )     (4,298 )     (181,212 )
Principal reduction on notes payable
     -       (41,977 )     (166,977 )
Payment on proposed reorganization
     -       -       (5,000 )
                         
Net cash provided by (used in) financing activities
     70,358       553,725        12,332,295   
                         
Net change in cash and cash equivalents
     (279,665 )     (61,871 )     114,474  
                         
Cash and cash equivalents, beginning of period     809,710       176,345        -   
                         
Cash and cash equivalents, end of period
   $ 530,045     $ 114,474     $ 114,474  
                         
                         
Supplemental disclosure of cash flow information:
        
  Interest paid during the period
   $ 281     $ -          
  Income taxes paid during the period
   $ 800     $ 800          
                   
Supplemental disclosures of non-cash investing and financing activities:
                   
2009
                  
                   
In January 2009, the Company issued its President 274,000 shares of its common stock in a cashless
exercise of 274,347 options.
              
                   
In February 2009, the Company issued 6,000,000 shares of its common stock in a  conversion of
$600,000 of convertible debt.
              
                   
In April 2009, the Company issued 100,000 shares of its common stock in conversion of $57,584
of indebtedness. Under the original terms of the loan, the lender had the right to convert the amount
due into 3.5% of the total number of Company shares outstanding on the date of conversion. The Company
considered the shares that would have been issued under the original terms of the loan and the actual
100,000 shares issued as a modification of a loan and recognized a gain on the transaction of
$2,722,195.
                  
                   
In May 2009, the Company settled a fee dispute with its former legal counsel and recognized a
$45,224 gain on the settlement that was credited to operations.
                   
In May 2009, the Company issued 449,730 shares of its common stock in conversion of 49,250
shares of its Class E Convertible Preferred Stock.
    
                   
During the six months ended June 30, 2009, the Company issued 720,828 shares of its common
stock for consulting services valued at $1,807,247 of which $62,000 has been recorded as prepaid
as of June 30, 2009.
              
                   
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.
 
 
 
 
See notes to consolidated financial statements.
 
 
                   
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.
                   
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.
              
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See notes to consolidated financial statements.

9
MATECH CORP
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three  and six months ended June 30, 2009 and 2008
 
 
NOTE 1 – BASIS OF PRESENTATION
 
The accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position of the Company as of June 30, 2009, and the results of its operations for the three and six months ended June 30, 2009 and 2008, and for the period from October 21, 1983 (inception) to June 30, 2009, and its cash flows for the six months ended June 30,  2009 and 2008, and for the period from October 21, 1983 (inception) to June 30, 2009. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to rules and regulations of the U.S. Securities and Exchange Commission (the “Commission”). The Company believes that the disclosures in the financial statements are adequate to make the information presented not misleading. However, the financial statements included herein should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Commission on April 15, 2009.
 
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company is in the development stage and, at June 30, 2009, has an accumulated deficit of $680,292,371, continues to sustain operating losses on a monthly basis, and expects to incur operating losses for the foreseeable future.  Management of the Company will need to raise additional debt and/or equity capital to finance future activities.  However, no assurances can be made that current or anticipated future sources of funds will enable the Company to finance future periods’ operations.  In light of these circumstances, substantial doubt exists about the Company’s ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or liabilities that might be necessary should the Company be unable to continue as a going concern.
 
NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS
 
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
 
SFAS No. 161 - In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133. This Statement changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its