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Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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.

The number of shares outstanding of each of the issuer's classes of common equity; as of July 9, 2002 - 58,662,623 shares of common stock outstanding.

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

BALANCE SHEETS

BALANCE SHEETS

STATEMENTS OF OPERATIONS

STATEMENTS OF CASH FLOWS

STATEMENTS OF CASH FLOWS

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, 2001 and 2002 and the results of operations and cash flows for the three month and six-month periods then ended. The operating results of the Company on a quarterly or semi-annual basis may not be indicative of operating results for the full year.

Note 2.

In May 2000, 4,650,000 shares of the Company’s common stock were issued to its President and 350,000 shares were issued to a director. In exchange for the 5,000,000 shares issued, the Company received $5,000 cash and non-recourse promissory notes with face values totaling $1,995,000. The notes mature in May 2005, and bear interest at an annual rate of 8%.

In June 2001, the Company’s board of directors authorized the reduction in the amount owed by the President and the director on these promissory notes to $460,350 and $34,650, respectively. The reduction was due to continuing negative market conditions and the substantial reduction in the market value of the Company’s common stock. The $1,500,000 reduction in the notes was charged to general and administrative expenses.

Note 3.

In June 2002, the Company issued 50,000 shares of preferred stock for $48,750. These preferred shares are convertible into 100,000 shares of the Company’s common stock.

Note 4.

In July 2002, the Company settled its pending lawsuit with Stephen Beck. Under the terms of the settlement, Mr. Beck will receive 1,000,000 shares of the Company common stock. The shares to be issued are non-dilutive.

In addition, pursuant to the agreement that the Company had with the attorneys who represented it in this matter, a contingent fee of $1,481,895 became due them upon the settlement of the case. This fee, however, is payable out of the Company’s earnings derived before interest, taxes, depreciation and amortization (EBIDA), limited each year to 25% of EBIDA. Unpaid amounts owed towards the fee accrue interest at a rate of 6% per annum until paid in full.

Material Technologies, Inc.

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

Results of Operations

For the six months ended June 30, 2002 and 2001

The Company had no sales during the six-month period ended June 30, 2002 or during the six month period ended June 30, 2001.

The Company generated $461,323 under its research and development contracts during the first two quarters of 2002, as compared to $611,055 that was generated during the same period in 2001.

Interest earned during the first two quarters in 2002 totaled $24,110, which mostly consisted of accrued interest earned on promissory notes due from the Company’s President and a director on stock purchased during the second quarter of 2000. Interest earned in 2001 amounted to $78,445 (See Note 2 to the financial statements).

During the six month period ended June 30, 2002, the Company incurred $384,263 in development costs of which $345,621 relates to subcontract costs.

During the same six month period in the prior year, the Company incurred $471,619 in development costs of which $416,476 relates to subcontract costs.

General and administrative costs were $608, 282 and $2,143,435, respectively, for the six-month periods ended June 30, 2002 and 2001.

The major costs incurred during 2002, included officer’s salary of $60,000 of which $30,000 was accrued, office salaries of $18,979, professional fees of $176,197, consulting fees of $260,940, travel of $16,309, telephone expense of $14,344, rent of $14,088, and office expense of $17,659.

Of the $176,197 in professional fees, $43,237 was paid in cash and the remaining $132,960 was paid through the issuance of 2,067,100 shares of the Company’s common stock. Of the $260,940 incurred in consulting fees, $53,493 was paid in cash and $207,447 was paid through the width="100%" size=2>

Material Technologies, Inc.

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

(continuation)

The major costs incurred during the three-month period in 2002, consisted of officer’s compensation of $30,000 of which $20,000 was accrued. Other expenses incurred during the three-months ended June 30, 2002 included professional fees of $133,853, consulting fees of $62,655, travel expenses of $7,686, telephone expense of $5,672, office expense of $9,084, and rent of $7,044.

Of the $133,853 in professional fees, $18,393 was paid in cash and the remaining $115,460 was paid through the issuance of 1,892,100 shares of the Company’s common stock. Of the $62,655 incurred in consulting fees, $9,162 was paid in cash and $38,547 was paid through the issuance of 1,119,918 shares of the Company’s common stock.

The major costs incurred during the three-month period in 2001, consisted of officer’s compensation of $1,425,000 of which $1,395,000 relates to the reduction on the amount due on a promissory note (see Note 2 to the financial statements) and $30,000 of accrued wages. Other expenses incurred during the three-months ended June 30, 2001, included consulting fees of $133,505, travel expenses of $2,770, telephone expense of $2,770, office expense of $2,495, and rent of $7,255.

Interest expense for the three-months ended June 30, 2002, totaled $20,356 as compared to $17,420 incurred during the same period in 2001.

Liquidity and Capital Resources

Cash and cash equivalents as of June 30, 2002 and 2001 were $386,078 and $5,719, respectively. During the first two quarters of 2002, the Company received a total of $1,312,816, which consisted of $681,382 from its research and development contracts, $581,830 through the sale of 8,100,484 shares of its common stock, $48,750 through the issuance of 100,000 shares of convertible preferred stock, and $854 in interest income. Of the $1,312,816 received, $920,849 was used in operations, $120,196 was paid in the offering of the shares of common stock, $29,608 was paid as partial payment towards the purchase of equipment used in the Company’s development of the Electrochemical Fatigue Sensor, and $29,700 was advanced to the Company's President. As of June 30, 2002, total amounts owed by the Company to its President for accrued wages of $100,000 were charged against the loans due from him amounting to $66,885, leaving a balance due him in the amount of $33,115.

During 2001, the Company generated net cash from operations of $3,738, During the period, the Company made advances of $18,800 to its officer and was repaid $14,300.

As indicated, as of June 30, 2002, the Company has available funds of $386,078. At its current rate of overhead, the Company has sufficient cash resources to fund approximately 7 months of current operating expenses. Without an infusion of capital through the sale of additional shares of its stock, the Company may not be able to continue operating after its current cash is depleted.

Material Technologies, Inc.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 2. Change in Securities and Use of Proceeds

During second quarter of 2002, the Company issued a total of 8,001,565 shares of its common stock, of which 3,761,804 were sold through a Regulation S offering from which the Company received a total of $147,129. 3,291,018 shares were issued to consultants, professionals and others for services rendered, valued at a total of $171,417. 250,000 shares of common stock were returned to treasury by a consultant, which were subsequently cancelled. 674,267 additional shares were issued in connection with the Regulation S offering. 524,476 shares were issued to the University of Pennsylvania pursuant to the terms of a prior agreement with the University. Also during the second quarter of 2002, the Company issued 50,000 shares of its preferred stock for $48,750. These Preferred shares are convertible, at the option of the holder, into 100,000 shares of the Company’s common stock.

Item 6. Exhibits and Reports on Form 8-K

Reports on Form 8-K

No filings were made during the period covered by this report.

Material Technologies, Inc.

SIGNATURES

Pursuant to the requirements of the 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.

Date: July 31, 2002