As filed with the Securities and Exchange Commission on July 31, 2006

An Exhibit List can be found on page II-11.

Registration No. 333-135051

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

_____________________________

AMENDMENT NO. 1 TO

FORM SB-2

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

_____________________________

MATERIAL TECHNOLOGIES, INC.

(Name of small business issuer in its charter)

Delaware	3823	95-4622822
(State or other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)

11661 San Vicente Boulevard, Suite 707

Los Angeles, California 90049

(310) 208-5589

(Address and telephone number of principal executive offices and principal place of business)

Robert M. Bernstein, Chief Executive Officer

MATERIAL TECHNOLOGIES, INC.

11661 San Vicente Boulevard, Suite 707

Los Angeles, California 90049

(310) 208-5589

(Name, address and telephone number of agent for service)

Copies to:

Gregory Sichenzia, Esq. Eric A. Pinero, Esq. Sichenzia Ross Friedman Ference LLP 1065 Avenue of the Americas, 21st Flr. New York, New York 10018 (212) 930-9700 (212) 930-9725 (fax)

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: From time to time after this Registration Statement becomes effective.

If any securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: [X]

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ]

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CALCULATION OF REGISTRATION FEE

Title of each class of securities  to be registered	Amount to be registered (1)	Proposed maximum offering price per share	Proposed maximum aggregate  offering price	Amount of registration fee
Class A common stock issuable upon conversion of debenture	18,518,519 (2)	$0.10(3)	$1,851,851.85	$198.15
Class A common Stock issuable upon exercise of warrants	50,000,000(4)	$0.10(3)	$5,000,000.00	$535.00
Class A common Stock, par value $0.001 per share	735,747(5)	$0.10(3)	$110,362.05	$7.87
Total	69,254,266			$741.07*

 

(1) Includes shares of our Class A common stock, par value $0.001 per share, which may be offered pursuant to this registration statement, which shares are issuable upon conversion of a convertible debenture and the exercise of warrants held by the selling stockholders. In addition to the shares set forth in the table, the amount to be registered also includes shares of Class A common stock issuable upon conversion of the debenture and exercise of the warrants, as such number may be adjusted as a result of stock splits, stock dividends and similar transactions in accordance with Rule 416.  Should the conversion ratio of our convertible debenture result in our having insufficient shares, we will not rely upon Rule 416, but will file a new registration statement to cover the resale of such additional shares should that become necessary.  In addition, should a decrease in the exercise price as a result of an issuance or sale of shares below the then current market price, result in our having insufficient shares, we will not rely upon Rule 416, but will file a new registration statement to cover the resale of such additional shares should that become necessary.

(2) Includes a good faith estimate of the shares (150%) underlying convertible debenture to account for market fluctuations.

(3) Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(c) under the Securities Act of 1933, using the average of the high and low price as reported on the Over-The-Counter Bulletin Board on June 7, 2006, which was $0.10 per share.

(4) Includes shares underlying warrants exercisable at $0.01 per share, subject to adjustment as set forth therein.

 

(5) Includes shares of Class A common stock issued to one of the selling stockholders pursuant to certain Investor Relations Service Agreements dated as of December 8, 2005 and February 7, 2006 as compensation for investor relations services performed by the selling stockholder under the Agreements. 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

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PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED JULY 31, 2006

MATERIAL TECHNOLOGIES, INC.

69,254,266 SHARES OF

CLASS A COMMON STOCK

         

This prospectus relates to the resale by the selling stockholders of up to 69,254,266 shares of our Class A common stock, including up to 18,518,519 shares of Class A common stock underlying convertible debentures, up to 50,000,000 issuable upon the exercise of Class A common stock purchase warrants and 735,747 shares of Class A common stock issued to one of the selling stockholders.  The convertible debentures are convertible into the number of our shares of Class A common stock equal to the dollar amount of the debentures being converted, divided by the lesser of (i) $0.70, (ii) eighty percent of the average of the three lowest volume weighted average prices during the twenty (20) trading days prior to the conversion or (iii) eighty percent of the volume weighted average price on the trading day prior to the conversion.  The warrant is exercisable into 50,000,000 shares of Class A common stock for a period of three years at an exercise price of $0.01 per share, provided that, the exercise price shall be equal to the price at which we sell Class A common stock (through direct stock issuances, and/or conversions or exercises of convertible securities, but not including Class A common stock issued as compensation for services performed on our behalf) during the 30 days prior to the exercise date.  The selling stockholders may sell Class A common stock from time to time in the principal market on which the stock is traded at the prevailing market price or in negotiated transactions. The selling stockholders may be deemed underwriters of the shares of Class A common stock, which they are offering.  We will pay the expenses of registering these shares.

 

Our Class A common stock is listed on the Over-The-Counter Bulletin Board under the symbol "MTNA".  The last reported sales price per share of our Class A common stock as reported by the Over-The-Counter Bulletin Board on June 7, 2006, was $0.10.

Investing in these securities involves significant risks.   See "Risk Factors" beginning on page 4.

         Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is _______, 2006.

         The information in this Prospectus is not complete and may be changed.  This Prospectus is included in the Registration Statement that was filed by Material Technologies, Inc., with the Securities and Exchange Commission.  The selling stockholder may not sell these securities until the registration statement becomes effective.  This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the sale is not permitted.

 

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Table Of Contents

Prospectus Summary	3
Risk Factors	5
Use of Proceeds	12
Market for Common Equity and Related Stockholder Matters	12
Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Description of Business	19
Description of Property	23
Legal Proceedings	23
Directors, Executive Officers, Promoters and Control Persons	24
Executive Compensation	25
Certain Relationships and Related Transactions	28
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	28
Security Ownership of Certain Beneficial Owners and Management	30
Description of Securities Being Registered	31
Indemnification for Securities Act Liabilities	31
Plan of Distribution	31
Selling Stockholders	34
Legal Matters	36
Experts	36
Available Information	36
Financial Statements	37

 

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PROSPECTUS SUMMARY

         The following summary highlights selected information contained in this prospectus. This summary does not contain all the information you should consider before investing in the securities. Before making an investment decision, you should read the entire prospectus carefully, including the "risk factors" section, the financial statements and the notes to the financial statements.

MATERIAL TECHNOLOGIES, INC.

         We are engaged in research and development of metal fatigue detection, measurement, and monitoring technologies.  As such, we are developing several monitoring devices for metal fatigue detection and measurement.  We are a development stage company doing business as Tensiodyne Scientific Corporation.

         Our efforts are dedicated to developing devices and systems that indicate the true fatigue status of a metal component.  We have developed two products.  The first is a small, extremely simple device that continuously integrates the effect of fatigue loading in a structural member, called a Fatigue Fuse.  The second is an instrument that detects very small cracks in metals, The Electrochemical Fatigue Sensor.  It has demonstrated that it can detect cracks, in the laboratory, as small as 10 microns (0.0004 inches), which is smaller than any other practical crack detection technology, as acknowledged by the United States Air Force and confirmed by Rockwell Scientific Corporation.  We hold the patents on the Fatigue Fuse and license the technology on the Electrochemical Fatigue Sensor from the University of Pennsylvania.  

         For the three months ended March 31, 2006 and 2005, we generated revenue in the amount of $28,846 and $18,308, respectively, and a net loss of $3,834,275 and $1,680,065, respectively. For the years ended December 31, 2005 and 2004, we generated revenue in the amount of $139,346 and $146,932, respectively, and a net loss of $20,749,260 and $25,495,291, respectively. As a result of our substantial need for working capital and other factors, our auditors in their report dated January 31, 2006, have expressed substantial doubt about our ability to continue as going concern.  

         Our principal offices are located at 11661 San Vicente Boulevard, Suite 707, Los Angeles, California 90049 and our telephone number is (310) 208-5589. We are a Delaware corporation.

 

The Offering
Class A common stock offered by selling stockholders	Up to 69,254,266 shares, including up to 18,518,519 shares of Class A common stock underlying convertible debenture in the amount of $1,000,000 and up to 50,000,000 shares issuable upon the exercise of common stock purchase warrants at an exercise price of $0.01 per share, based on current market prices and assuming full conversion of the convertible debenture and the full exercise of the warrants (includes a good faith estimate of the shares underlying convertible debenture and shares underlying warrants). In addition, this prospectus includes 735,747 shares of Class A common stock issued to one of the selling stockholders pursuant to certain Investor Relations Service Agreements dated as of December 8, 2005 and February 7, 2006 as compensation for investor relations services performed by the selling stockholder under the Agreements. This number represents 27.69% of our then current outstanding stock.
Class A Common stock to be outstanding after the offering	Up to 318,607,596 shares assuming the full exercise of our warrants and conversion of our convertible debenture.
Use of proceeds	We will not receive any proceeds from the sale of the Class A common stock However, we will receive at least $500,000 upon exercise of the warrants by one of the selling stockholders. We expect to use the proceeds received from the exercise of the warrants, if any, for general working capital purposes.
Over-The-Counter Bulletin Board Symbol	MTNA

 

The above information regarding Class A common stock to be outstanding after the offering is based on 250,089,077 shares of Class A common stock outstanding as of June 7, 2006 and assumes the subsequent conversion of our issued convertible debenture and exercise of warrants by the selling stockholders.

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To obtain funding for our ongoing operations, we entered into a Securities Purchase Agreement with Golden Gate Investors, Inc. (“Golden Gate”) on December 16, 2005, as amended by that certain Addendum to Convertible Debenture, Warrant to Purchase Common Stock and Securities Purchase Agreement, and as further amended that certain Addendum to Convertible Debenture and Warrant to Purchase Common Stock, each dated as of December 16, 2005, and as further amended by that certain Addendum to Convertible Debenture, Warrant to Purchase Common Stock and Securities Purchase Agreement dated as of May 2, 2006, for the sale of $1,000,000 in convertible debentures.  This prospectus relates to the resale of the Class A common stock underlying this convertible debenture. 

        

On May 2, 2006, we entered into an Addendum to Convertible Debenture, Warrant to Purchase Common Stock and Securities Purchase Agreement with Golden Gate pursuant to which we increased the principal amount of the debenture to $1,000,000, provided that previous amounts provided to us by Golden Gate ($75,000) were applied to the purchase price. Upon filing of the registration statement we are required to file registering shares of our Class A common stock underlying the debenture, Golden Gate will provide us with $20,000. In addition, within 5 days of the effectiveness of the registration statement, we are required to issue 20,000,000 shares of Class A common stock and deliver to Alan Atlas, Esq., in-house counsel to Golden Gate, as joint escrow agent on our and Golden Gate’s behalf, to be held in escrow and to be released upon conversions of the debenture by Golden Gate. Golden Gate is required to immediately wire to us the remainder of the purchase price ($1,000,000 less the sum of all amounts previously advanced to us) upon receipt of the 20,000,000 shares in escrow from us (not upon subsequent conversions by Golden Gate and the shares being released from escrow) which is to occur no later than 5 days of the effectiveness of the registration statement. The escrow agent may only issue shares of Class A common stock from escrow to Golden Gate upon receipt of valid conversion notices in accordance with the terms of the debenture. There are no escrow agent fees payable by either party. Further, under the May 2006 addendum Golden Gate and we agreed to terminate the warrants issued to Golden Gate on December 16, 2005.

The debenture bears interest at 5¼%, matures three years from the date of issuance, and is convertible into our Class A common stock, at the selling stockholder’s option.  The conversion price of the convertible debenture is the lesser of (i) $0.70, (ii) eighty percent of the average of the three lowest volume weighted average prices during the twenty (20) trading days prior to the conversion or (iii) eighty percent of the volume weighted average price on the trading day prior to the conversion.  Accordingly, there is in fact no limit on the number of shares into which the debenture may be converted.  Golden Gate has agreed that, beginning in the first full calendar month after the registration statement is declared effective, it shall convert at least 10%, but no more than 40%, of the debenture per calendar month, provided that the common stock is available, registered and freely tradable; provided that, we may reduce the monthly maximum conversion from 40% to 6% for any three calendar months during the term of the debenture upon ten business days notice prior to the first day of the applicable calendar month. However, in the event that our volume weighted average price is less than (i) $0.05 or (ii) the lowest price at which any of the 20,000,000 additional shares which the investor has permitted us to register in this prospectus (of which we are registering 735,747 shares for Lynx Consulting) are issued or sold, the Company shall have the option to do one of the following: (x) redeem that portion of the Debenture that Holder elected to convert, plus any accrued and unpaid interest, at 108% of such amount, or (y) increase the Discount Multiplier to 99% on that portion of the Debenture that Holder elected to convert, or (z) one time during any six month period, not permit any Debenture conversions by Holder for a period of 60 days .  If we elect to prepay the debenture, Golden Gate may withdraw its conversion notice. 

On June 9, 2006, we and Golden Gate entered into an Addendum to Convertible Debenture, Warrant to Purchase Common Stock and Securities Purchase Agreement pursuant to which Golden Gate agreed to purchase, and we agreed to sell, three additional convertible debentures, each in the principal amount of $1,000,000, on the same terms and conditions set forth above. Each additional debenture will be issued no later than 60 days after the remaining unconverted principal amount of the prior debenture issued to Golden Gate is less than $600,000. Golden Gate will pay $100,000 for each additional convertible debenture on the day of issuance of such debenture, with the remaining balance to be funded upon the effectiveness of the registration statements we are obligated to file covering the shares underlying each debenture. In the event that Golden Gate fails to purchase any of the three additional debentures, it shall pay liquidated damages to us in the amount of $100,000.

We are not registering any shares of Class A common stock underlying the three additional debentures in this prospectus. In addition, we will register shares of Class A common stock underlying each of the three additional convertible debentures on separate registration statements.

We entered into Securities Purchase Agreement with La Jolla Cove Investors, Inc., an affiliate of Golden Gate (“La Jolla”), dated as of May 30, 2006, as amended bv that certain Addendum to Warrant to Purchase Common Stock dated as of June 12, 2006, for the purchase of warrants to purchase 50,000,000 shares of Class A common stock for a prepayment of $50,000. La Jolla has agreed that, beginning in the first full calendar month after the registration statement is declared effective, it shall exercise 1,250,000 warrants per week for 16 consecutive weeks until all warrants are exercised. This mandatory exercise feature was agreed to between the parties because we believe that we require weekly funding in the amount of $12,500 over the 16 weeks following the effectiveness of this registration statement, in addition to the aggregate of $1,000,000 in proceeds for the purchase price of the Debentures which will all be funded within 5 days of effectiveness, for our operations. The warrant is exercisable into 50,000,000 shares of Class A common stock at an exercise price of $.01 per share, provided that, the exercise price shall be equal to the price at which we sell common stock (through direct stock issuances, and/or conversions or exercises of convertible securities, but not including Class A common stock issued as compensation for services performed on our behalf) during the 30 days prior to the applicable exercise date. This prospectus also relates to the resale of the Class A common stock underlying the warrants. 

 

The selling stockholders have contractually agreed to restrict its ability to convert its debenture or exercise its warrants and receive shares of our Class A common stock such that the number of shares of common stock held by them and their affiliates after such conversion or exercise does not exceed 9.99% of the then issued and outstanding shares of Class A common stock.  

On December 8, 2005 and February 7, 2006, we entered into Investor Relations Services Agreements with Lynx Consulting (“Lynx”), in which we engaged Lynx as our consultant to provide investor relations services to our company.  In accordance with the Investor Relations Services Agreements, Lynx was provided with piggyback registration rights for 735,747 shares of Class A common stock it received as compensation for services performed by Lynx under the Agreements.  Accordingly, we are registering 735,747 shares of Class A common stock issued to Lynx pursuant to this prospectus.

 

         See the "Selling Stockholders" and "Risk Factors" sections for a complete description of the convertible debenture.

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RISK FACTORS

         This investment has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below and the other information in this prospectus. If any of the following risks actually occur, our business, operating results and financial condition could be harmed and the value of our stock could go down. This means you could lose all or a part of your investment.

Risks Relating to Our Business:

We have a history of losses which may continue, requiring us to seek additional sources of capital which may not be available, requiring us to curtail or cease operations.

         We incurred net losses of $20,749,260 for the year ended December 31, 2005 and $25,495,291 for the year ended December 31, 2004. In addition, we incurred net losses of $3,834,275 for the three months ended March 31, 2006 and $1,680,065 for the three months ended March 31, 2005. Our monthly burn rate is approximately $100,000 per month and, accordingly, we will need to raise approximately $1,200,000 over the next 12 months in order to sustain our current operations.  We cannot assure you that we can achieve or sustain profitability on a quarterly or annual basis in the future.  If revenues grow more slowly than we anticipate, or if operating expenses exceed our expectations or cannot be adjusted accordingly, we will continue to incur losses.  We will continue to incur losses until we are able to market and sell our products. Our possible success is dependent upon the successful development and marketing of our products, as to which there is no assurance. Any future success that we might enjoy will depend upon many factors, including factors out of our control or which cannot be predicted at this time. These factors may include changes in or increased levels of competition, including the entry of additional competitors and increased success by existing competitors, changes in general economic conditions, increases in operating costs, including costs of supplies, personnel and equipment, reduced margins caused by competitive pressures and other factors. These conditions may have a materially adverse effect upon us or may force us to reduce or curtail operations.  In addition, we will require additional funds to sustain and expand our sales and marketing activities, particularly if a well-financed competitor emerges.  Based on our current funding arrangement with Golden Gate, upon the effectiveness of this prospectus, which will require Golden Gate to fund the balance of the debenture, we do not anticipate that we will require additional funds to continue our operations for the next 6 months.  In the event that our financing arrangement with Golden Gate is terminated or if we need additional financing, there can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all.  The inability to obtain sufficient funds from operations or external sources would require us to curtail or cease operations. Any additional equity financing may involve substantial dilution to our then existing shareholders.

Our Independent Registered Public Accounting Firm have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.

         In their report dated January 31, 2006, our independent registered public accounting firm stated that our financial statements for the year ended December 31, 2005 were prepared assuming that we would continue as a going concern. Our ability to continue as a going concern is an issue raised as a result of cash flow constraint, an accumulated deficit of $60,783,746 at December 31, 2005 and recurring losses from operations.  We continue to experience net losses. Our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, increasing sales or obtaining loans and grants from various financial institutions where possible. Our continued net losses and stockholders’ deficit increases the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.

Our products are in the final development stage and there can be no assurance that we will ever bring any of our products into the commercial marketplace.

         Our products are in the final development stage. Unexpected problems, technological or specifications changes: (i) may make our technologies obsolete; (ii) may affect our products' overall feasibility; or (iii) may delay completion and increase costs of development and testing. The time required to bring our products to market is uncertain. Market acceptance of our products cannot be determined until product development is complete. There can be no assurance that we will ever bring any of our products into the commercial marketplace.

Since our products are not yet distributed to a commercial market, we do not have a sales force or distribution network to bring our products to market and it may be difficult for us to establish a sales and distribution network in the future.

         Since our products are in the development our future operating results will depend on our ability to market our products. We have not yet established a direct sales force or distribution network. Failure to put into place an experienced and skillful marketing infrastructure, in a timely manner, could have a materially adverse impact upon our ability to bring our products to market and continue operating.

We have generated revenues to date from our government and research contracts. We cannot give any assurances that we will be able to generate any significant revenues from our products if and when they become commercialized, nor can we provide assurances that our contract revenue will continue to any extent.

         Our revenue generated to date has been limited to revenue received from our government and research contracts. We have not yet developed our products for distribution or sale to multiple customers. Our operating results will depend on our ability to increase and replace our sources of contract revenue through product sales and to market our products to a variety of potential customers rather than relying in large measure on contract revenues. We cannot give any assurances that we will be able to generate any significant revenues from our products if and when they become commercialized, nor can we provide assurances that our contract revenue will continue to any extent.

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We currently have a limited number of employees to develop and market our products.

         We currently only have four employees, Robert M. Bernstein, president, a part-time engineer, a part-time vice president and a secretary. There is a substantial risk that we may not have funds to hire additional employees that may be needed to complete the development and marketing of our products. Without the ability to market products we have developed, our business and financial condition will be materially adversely affected.

We rely heavily on our President and CEO, management consultants and outside advisors.  Our business and prospects may be adversely affected if we are unable to retain the services of our President and CEO, and our consultants and advisors.

 

         Our success largely depends on the performance of our president and chief executive officer, Robert M. Bernstein, and the various independent consultants, and advisors we rely on for consulting services. Our consultants provide us with technological advice and guidance, product development expertise and financial advice and services. During the fiscal year ended December 31, 2005 and the three months ended March 31, 2006, we issued 3,440,435 and 14,526,000 shares of our Class A common stock, respectively, valued at $3,405,507 and $1,779,400, respectively, to compensate these consultants for their services since we are unable to compensate them in any other manner. Loss of these consultants or our inability to continue compensating these consultants by issuing shares of our Class A common stock to them could seriously impair our ability to develop and market our products. Moreover, failure to attract and retain key consultants, advisors, and employees with necessary skills could have a materially adverse impact on our ability to bring our products to market and continue operating. We believe that additional dilution to existing shareholders will occur in the future since we plan to continue to issue our common stock to our officers and consultants as compensation for their services.

 

Our products and technologies may not be as competitive as other fatigue measuring processes that have been in use for up to 40 years and offer advantages of being accepted in the marketplace.

         The metal fatigue measuring industry has significant competition. Other technologies exist which indicate the presence of metal fatigue damage. Single cracks larger than a certain minimum size can be found by non-destructive inspection methods such as dye penetrant, radiography, eddy current, acoustic emission, and ultrasonics. Tracking of load and strain history, for subsequent estimation of fatigue damage by computer processing, is possible with recording instruments such as strain gauges and counting accelerometers. These methods have been in use for up to 40 years and offer the advantage that they have been accepted in the marketplace, whereas our products will remain largely unproven for some currently indeterminable time. Other companies with greater financial and technical resources and larger marketing organizations than ours pose a potential threat if they commence competing in our market segment. We are unaware of any other companies developing technology similar to our technology and our patents protect our unique technologies. On the other hand, companies marketing alternative technologies addressing the same market needs as our products, include Magnaflux Corporation, Kraut-Kremer-Branson, Dunegan-Endevco, and MicroMeasurements. These companies have more substantial assets, greater experience, more human and other resources than ours, including but not limited to established distribution channels and an established customer base.

Our patents covering our fatigue fuse products and technologies have been encumbered as security to certain of our lenders.  We may lose our patent protection, as we have defaulted on one of our lending commitments.

         We hold patents on our fatigue fuse technology. Our patents are encumbered by certain liabilities as described under the heading of this prospectus, "Business." A first priority security interest in our patents is held by one of our lenders and a shareholder. If we fail to pay obligations to our lenders when they become due that are secured by a pledge of our patents, including the debt obligation, we may lose the interests in our patents, resulting in a loss of patent protection covering our technologies and products, or certain rights to exploit our technology. Presently, we are in default on the debt obligations we owe, but the shareholder has not taken any action as a result of our default.

 

         No assurances can be given that we will not be in default on some or all of our other debt obligations in the future, which could then result in loss of our patents and our patent protection. No assurances can be given that the shareholder that is holding the note that we are in default on will not seek to foreclose on his interest held in our patents as collateral for his loan.

We cannot be certain that our proprietary rights in our products and technologies are adequately protected from infringement by competitors or other third parties.

         We rely on a combination of patent and trade secret protection, non-disclosure agreements, licensing arrangements and new patent filings to establish and protect our proprietary rights. We have in the past and intend in the future to file applications as appropriate for patents covering our products. Due to the increasing number of patent applications filed with the United States Patent and Trademark Office, we are uncertain as to if or when patents will issue from any of our pending applications or, if patents do issue, that claims allowed will be sufficiently broad to protect our technology and products. In addition, there is a possibility that any patents that may be issued could be challenged, invalidated or circumvented, or that the rights granted to us as owners of the patents will not provide proprietary protection to us. Since U.S. patent applications are maintained in secrecy until patents issue, and since publication of inventions in the technical or patent literature tend to lag behind such inventions by several months, there is a possibility that we may not be the first creator of inventions covered by such patents or pending patent applications or that we may not be the first to file patent applications for such inventions. Despite our efforts to safeguard and maintain our proprietary rights, we are uncertain as to whether we will be successful in doing so or that our competitors will not independently develop or patent technologies that are substantially equivalent or superior to our technologies.

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Since the technologies we have developed for our products are subject to rapid technological changes, we may need to make significant capital investments in newer technologies and equipment.

         The technologies we expect to use in our manufacturing and marketing of our products are subject to rapid technological change and could cause us to make significant capital investment in new technologies and equipment. Our market is characterized by rapid technological changes. Newer technologies, techniques or products for determining metal fatigue could be developed with better performance and results than our products. Developing new technologies for manufacture is frequently subject to unforeseen expenses, difficulties, and complications and, in some cases, such development cannot be accomplished. The availability of new and better metal fatigue testing technologies or other products could require us to make significant investments in technology, render our current technology obsolete and have a significant negative impact on our business and results of operations.

If we do not obtain additional financing to continue our development activities, we will not be able to complete our product development.

         If we fail to raise additional funds necessary for development from either government grants, sales of securities, borrowings, or other sources, we will not have a product for a potential market and shareholders will have no possibility of any financial return or economic benefit from their ownership of our shares. We are likely to have negative cash flow through at least 6 months, although we have sufficient cash to continue our development efforts for the next 6 months. Over the next 12 months, we anticipate that approximately $3,000,000 will be required to complete development of our products and market them. Even if the necessary $3,000,000 is raised and development is completed, no assurance can be given that the results will establish that our products will be marketable. Moreover, no assurance can be given that our products can be produced at a cost that will make it possible to market them at a commercially feasible price.

Our royalty and license agreements will also reduce our revenue generated from our future products sales.

         In order to finance development of the Fatigue Fuse and Electrochemical Sensor, our corporate predecessors sold substantial royalty rights to the Advanced Technology Center, which is affiliated with the University of Pennsylvania. As of the date of this prospectus, we are obligated to pay royalties totaling 12% of revenues from sales of our Fatigue Fuse and 10% of revenues from sales of EFS. If these products are manufactured and sold, these royalty obligations will reduce our revenue from the sale of these products.

Risks Relating to Our Current Financing Arrangement:

There are a large number of shares underlying our convertible debenture, and warrants that may be available for future sale and the sale of these shares may depress the market price of our common stock.

 

         As of June 7, 2006, we had 250,089,077 and 600,000 shares of Class A and Class B common stock issued and outstanding, respectively, and a convertible debenture outstanding that may be converted into an estimated 12,345,679 shares of Class A common stock at current market prices, and outstanding warrants to purchase 50,000,000 shares of Class A common stock.    In addition, the number of shares of Class A common stock issuable upon conversion of the outstanding convertible debenture may increase if the market price of our stock declines.  All of the shares, including all of the shares issuable upon conversion of the debenture and upon exercise of our warrants, may be sold without restriction. The sale of these shares may adversely affect the market price of our common stock.

 

The continuously adjustable conversion price feature of our convertible debenture could require us to issue a substantially greater number of shares, which will cause dilution to our existing stockholders.

 

LEGAL MATTERS

         Sichenzia Ross Friedman Ference LLP, New York, New York will issue an opinion with respect to the validity of the shares of common stock being offered hereby.

 

EXPERTS

         Corbin & Company, LLP have audited, as set forth in their report thereon appearing elsewhere herein, our consolidated financial statements at December 31, 2005 and for each of the years in the two-year period then ended that appear in the prospectus.  The financial statements referred to above are included in this prospectus with reliance upon the auditors’ opinion based on their expertise in accounting and auditing.

 

AVAILABLE INFORMATION

         We have filed a registration statement on Form SB-2 under the Securities Act of 1933, as amended, relating to the shares of Class A common stock being offered by this prospectus, and reference is made to such registration statement. This prospectus constitutes the prospectus of Material Technologies, Inc., filed as part of the registration statement, and it does not contain all information in the registration statement, as certain portions have been omitted in accordance with the rules and regulations of the Securities and Exchange Commission.

         We are subject to the informational requirements of the Securities Exchange Act of 1934 which requires us to file reports, proxy statements and other information with the Securities and Exchange Commission. Such reports, proxy statements and other information may be inspected at public reference facilities of the SEC at Judiciary Plaza, 100 F Street N.E., Washington D.C. 20549. Copies of such material can be obtained from the Public Reference Section of the SEC at Judiciary Plaza, 100 F Street N.E., Washington, D.C. 20549 at prescribed rates. Because we file documents electronically with the SEC, you may also obtain this information by visiting the SEC's Internet website at http://www.sec.gov.

 

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INDEX TO FINANCIAL STATEMENTS

MATERIAL TECHNOLOGIES, INC.

FINANCIAL STATEMENTS

 

For the Three Months Ended March 31, 2006 and 2005 (unaudited)
Consolidated Balance Sheet	F-1
Consolidated Statements of Operations	F-3
Consolidated Statements of Comprehensive Loss	F-4
Consolidated Statements of Cash Flows	F-5
Notes to Financial Statements	F-7
For the Fiscal Year Ended December 31, 2005 and 2004
Report of Independent Registered Public Accounting Firm	F-31
Consolidated Balance Sheet	F-32
Consolidated Statements of Operations	F-34
Consolidated Statements of Comprehensive Loss	F-35
Consolidated Statement of in Stockholders’ Deficit	F-36
Consolidated Statements of Cash Flows	F-41
Notes to Financial Statements	F-43

 

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MATERIAL TECHNOLOGIES, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
			MARCH 31,
			2006
ASSETS
Current assets:
Cash and cash equivalents		$	22,695
Investments in marketable securities held for trading			130,392
Investments in marketable securities available for sale			174,435
Prepaid expenses and other current assets			2,206
	Total current assets		329,728
Investments in non-marketable securities			3,582,600
Property and equipment, net			9,234
Intangible assets, net			5,275
Deposit			2,348
		$	3,929,185
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