UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-Q/A
                                   -----------


(Mark One)

[X]  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
     For the quarterly period ended March 31, 2005

[_]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
     For the transition period from         to
                                   --------   --------

33-23617
--------
(Commission file number)

Material Technologies, Inc.
---------------------------
(Exact name of issuer as specified in its charter)

Delaware
--------
(State or other jurisdiction
of incorporation or organization)

95-4622822
----------
(IRS Employer
Identification No.)

11661 San Vicente Boulevard
Suite 707
Los Angeles, California 90049
-----------------------------
(Address of principal executive offices)

(310) 208-5589
--------------
(Issuer's telephone number)


(Former name, former address and former fiscal year, if changed since last
report)

[X] 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.

                      APPLICABLE ONLY TO CORPORATE ISSUERS

The  number of shares  outstanding  of each of the  issuer's  classes  of common
equity as of March 31, 2005:
Class A Common Stock - 88,162,524 shares outstanding
Class B Common Stock - 600,000 shares outstanding




<PAGE>






                                      INDEX
                                      -----




                                                                          Page
                                                                         ------

Part 1. Financial Information

     Item 1. Financial Statements

          Consolidated Balance Sheets as of March 31, 2005
          (Unaudited) and December 31, 2004                            F-1 - F-2

          Consolidated Statements of Operations for the Three
          Months Ended March 31, 2005 and 2004 and From The
          Company's Inception (October 21, 1983) Through March
          31, 2005 (Unaudited)                                               F-3

          Consolidated Statements of Comprehensive Loss for the
          Three Months Ended March 31, 2005 and 2004 and From The
          Company's Inception (October 21, 1983) Through March
          31, 2005 (Unaudited)                                               F-4

          Consolidated Statements of Cash Flows for the Three
          Months Ended March 31, 2005 and 2004 and From The
          Company's Inception (October 21, 1983) Through March
          31, 2005 (Unaudited)                                         F-5 - F-6

          Notes to Consolidated Financial Statements                  F-7 - F-26

     Item 2. Management's Discussion and Analysis                              1

     Item 3. Quantitative and Qualitative Disclosures about
     Market Risk                                                               3

     Item 4. Controls and Procedures                                           3

Part 2. Other Information

     Item 2. Changes in Securities                                             4





<PAGE>






Part 1.  Financial Information
------------------------------


Item 1.  Financial Statements
-----------------------------








<PAGE>



<TABLE>
<CAPTION>
                                                                                        MATERIAL TECHNOLOGIES, INC.
                                                                                      (A DEVELOPMENT STAGE COMPANY)

                                                                                        CONSOLIDATED BALANCE SHEETS

===================================================================================================================

                                                                                  March 31,          December 31,
ASSETS                                                                               2005                2004
                                                                               ----------------    ----------------
                                                                                 (Unaudited)
<S>                                                                            <C>                 <C>
Current assets:
   Cash and cash equivalents                                                   $       364,109     $       100,800
   Investments in marketable securities held for trading                               186,400             988,990
   Certificates of deposit                                                             200,248                   -
   Receivable due on research contract                                                  16,613              15,895
   Receivable from officer                                                               1,998               1,950
                                                                               ----------------    ----------------

      Total current assets                                                             769,368           1,107,635
                                                                               ----------------    ----------------

Investments in marketable securities available for sale                                993,534           1,034,380
Property and equipment, net                                                             15,899              14,838
Intangible assets, net                                                                   7,359               7,888
Deposit                                                                                  2,348               2,348
                                                                               ----------------    ----------------

      Total Assets                                                             $     1,788,508     $     2,167,089
                                                                               ================    ================





































Continued...
                                                                             F-1
<PAGE>



<CAPTION>
                                                                                        MATERIAL TECHNOLOGIES, INC.
                                                                                      (A DEVELOPMENT STAGE COMPANY)

                                                                            CONSOLIDATED BALANCE SHEETS - CONTINUED

===================================================================================================================

                                                                                  March 31,          December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY                                                 2005                2004
                                                                               ----------------    ----------------
                                                                                 (Unaudited)
<S>                                                                            <C>                 <C>
Current liabilities:
   Accounts payable and accrued expenses                                       $       297,364     $       344,702
   Research and development sponsorship payable                                        795,068             760,831
   Notes payable                                                                        87,298              86,892
                                                                               ----------------    ----------------

      Total current liabilities                                                      1,179,730           1,192,425

Convertible debentures, net of discount of $698,985 and $798,839,
   respectively                                                                        554,634             424,612
                                                                               ----------------    ----------------

      Total liabilities                                                              1,734,364           1,617,037
                                                                               ----------------    ----------------

Minority interest in consolidated subsidiary                                               825                 825
                                                                               ----------------    ----------------

Commitments and contingencies

Stockholders' equity:
   Class A preferred stock - $.001 par value; liquidation preference
     of $720 per share; 350,000 shares authorized; 337 shares issued
     and outstanding at March 31, 2005 and December 31, 2004                                 -                   -
   Class B preferred stock - $.001 par value; liquidation preference of
     $10,000 per share; 15 shares authorized; 0 shares issued and
     outstanding at March 31, 2005 and December 31, 2004                                     -                   -
   Class C preferred stock - $.001 par value; liquidation preference of
     $0.001 per share; 25,000,000 shares authorized; 1,517
     shares issued and outstanding at March 31, 2005 and December 31, 2004                   1                   1
   Class D preferred stock - $.001 par value; liquidation preference of
     $0.001 per share; 20,000,000 shares authorized; 1,420,000 and
     1,920,000 shares issued and outstanding at March 31, 2005 and
     December 31, 2004, respectively                                                     1,420               1,920
   Class A common stock - $.001 par value; 1,699,400,000 shares authorized;
     108,995,367 and 107,517,617 shares issued, 88,162,524 and 86,684,774
     shares outstanding at March 31, 2005 and December 31, 2004, respectively           88,163              86,685
   Class B common stock - $.001 par value; 600,000 shares authorized, issued
     and outstanding at March 31, 2005 and December 31, 2004                               600                 600
   Additional paid-in capital                                                       42,942,241          41,717,219
   Deficit accumulated during the development stage                                (41,714,551)        (40,034,486)
   Notes receivable - common stock                                                     (56,093)            (55,096)
   Accumulated other comprehensive loss                                             (1,208,462)         (1,167,616)
                                                                               ----------------    ----------------

      Total stockholders' equity                                                        53,319             549,227
                                                                               ----------------    ----------------

      Total Liabilities and Stockholder's Equity                               $     1,788,508     $     2,167,089
                                                                               ================    ================
</TABLE>









                 See accompanying notes to the consolidated financial statements
                                                                             F-2
<PAGE>



<TABLE>
<CAPTION>
                                                                                      MATERIAL TECHNOLOGIES, INC.
                                                                                    (A DEVELOPMENT STAGE COMPANY)

                                                                            CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                                                      (UNAUDITED)
=================================================================================================================


                                                                                                  From Inception
                                                                                                (October 21, 1983)
                                                             Three Months Ended March 31,            Through
                                                          -----------------------------------       March 31,
                                                                2005               2004                2005
                                                          ----------------   ----------------    ----------------
                                                                                (Restated)
<S>                                                       <C>                <C>                 <C>
Revenues:
   Research and development                               $        18,308    $        67,270     $     5,231,601
   Other                                                                -                  -             274,125
                                                          ----------------   ----------------    ----------------

      Total revenues                                               18,308             67,270           5,505,726
                                                          ----------------   ----------------    ----------------

Costs and expenses:
   Research and development                                     1,212,182            161,586          14,078,009
   General and administrative                                     321,562          1,523,769          22,317,864
                                                          ----------------   ----------------    ----------------

      Total costs and expenses                                  1,533,744          1,685,355          36,395,873
                                                          ----------------   ----------------    ----------------

      Loss from operations                                     (1,515,436)        (1,618,085)        (30,890,147)
                                                          ----------------   ----------------    ----------------

Other income (expense):
   Net realized and unrealized losses on
     marketable securities held for trading                        (3,499)                 -          (5,195,659)
   Other-than-temporary write-down of marketable
     securities available for sale                                      -                  -          (4,284,760)
   Interest expense                                              (165,353)           (83,225)         (1,412,556)
   Interest income                                                  5,023              3,090             359,761
   Loss on settlement of indebtedness                                   -                  -            (244,790)
   Loss on abandonment of interest in joint venture                     -                  -             (33,000)
                                                          ----------------   ----------------    ----------------

      Other expense, net                                         (163,829)           (80,135)        (10,811,004)
                                                          ----------------   ----------------    ----------------

Loss before provision for income taxes                         (1,679,265)        (1,698,220)        (41,701,151)

Provision for income taxes                                            800                800              13,400
                                                          ----------------   ----------------    ----------------

      Net loss                                            $    (1,680,065)   $    (1,699,020)    $   (41,714,551)
                                                          ================   ================    ================

Per share data:
   Basic and diluted net loss per share                   $         (0.02)   $         (0.03)
                                                          ================   ================
   Weighted average Class A common shares
     outstanding (basic and diluted)                           87,216,240         67,006,008
                                                          ================   ================
</TABLE>









                 See accompanying notes to the consolidated financial statements
                                                                             F-3
<PAGE>



<TABLE>
<CAPTION>
                                                                                      MATERIAL TECHNOLOGIES, INC.
                                                                                    (A DEVELOPMENT STAGE COMPANY)

                                                                    CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
                                                                                                      (UNAUDITED)
==================================================================================================================


                                                                                                  From Inception
                                                                                                (October 21, 1983)
                                                             Three Months Ended March 31,            Through
                                                          -----------------------------------       March 31,
                                                                2005               2004                2005
                                                          ----------------   ----------------    ----------------
                                                                                (Restated)

<S>                                                       <C>                <C>                 <C>
Net loss                                                  $    (1,680,065)   $    (1,699,020)    $   (41,714,551)

Other comprehensive loss:
   Decrease in market value of securities
     available for sale                                           (40,846)                 -          (1,208,462)
                                                          ----------------   ----------------    ----------------

Net comprehensive loss                                    $    (1,720,911)   $    (1,699,020)    $   (42,923,013)
                                                          ================   ================    ================
</TABLE>









































                 See accompanying notes to the consolidated financial statements
                                                                             F-4
<PAGE>



<TABLE>
<CAPTION>
                                                                                            MATERIAL TECHNOLOGIES, INC.
                                                                                          (A DEVELOPMENT STAGE COMPANY)

                                                                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                                                            (UNAUDITED)
=======================================================================================================================


                                                                                                        From Inception
                                                                                                      (October 21, 1983)
                                                                   Three Months Ended March 31,            Through
                                                                -----------------------------------       March 31,
                                                                      2005               2004                2005
                                                                ----------------   ----------------    ----------------
                                                                                      (Restated)

<S>                                                             <C>                <C>                 <C>
Cash flows from operating activities:
   Net loss                                                     $    (1,680,065)   $    (1,699,020)    $   (41,714,551)
   Adjustments to reconcile net loss to net cash
     used in operating activities:
      Issuance of common stock for services                           1,225,000          1,292,550          22,677,956
      Net realized and unrealized losses on marketable
       securities held for trading                                        3,499                  -           5,195,659
      Other-than-temporary write-down of marketable
        securities available for sale                                         -                  -           4,284,760
      Legal fees incurred for note payable                                    -                  -           1,456,142
      Accrued interest expense added to principal                        64,811             44,966             869,227
      Amortization of discount on convertible debentures                 99,854             37,572             426,015
      Accrued interest income added to principal                         (1,045)            (3,090)           (300,674)
      Loss on settlement of indebtedness                                      -                  -             244,790
      Depreciation and amortization                                       2,066              2,107             205,397
      Other non-cash adjustments                                              -                  -            (107,722)
      Increase in receivable due on research contract                      (718)            (6,303)            (66,941)
      Decrease in prepaid expenses and other current assets                   -              1,188                   -
      Increase in deposits                                                    -                  -              (2,348)
      (Decrease) increase in accounts payable and
        accrued expenses                                                (47,338)           (64,501)          1,173,643
                                                                ----------------   ----------------    ----------------

   Net cash used in operating activities                               (333,936)          (394,531)         (5,658,647)
                                                                ----------------   ----------------    ----------------

Cash flows from investing activities:
   Proceeds from sale of securities                                     802,498                  -           2,291,706
   Purchase of securities                                              (203,655)                 -          (1,193,661)
   Payment received on officer loans                                          -                  -             876,255
   Funds advanced to officers                                                 -                  -            (549,379)
   Purchase of property and equipment                                    (2,598)                 -            (269,746)
   Investment in joint ventures                                               -                  -            (102,069)
   Proceeds from foreclosure                                                  -                  -              44,450
   Proceeds from sale of equipment                                            -                  -              10,250
   Payment for license agreement                                              -                  -              (6,250)
                                                                ----------------   ----------------    ----------------

   Net cash provided by investing activities                            596,245                  -           1,101,556
                                                                ----------------   ----------------    ----------------












Continued ...
                                                                             F-5
<PAGE>



<CAPTION>
                                                                                            MATERIAL TECHNOLOGIES, INC.
                                                                                          (A DEVELOPMENT STAGE COMPANY)

                                                                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                                                            (UNAUDITED)
=======================================================================================================================


                                                                                                        From Inception
                                                                                                      (October 21, 1983)
                                                                   Three Months Ended March 31,            Through
                                                                -----------------------------------       March 31,
                                                                      2005               2004                2005
                                                                ----------------   ----------------    ----------------
                                                                                      (Restated)

<S>                                                             <C>                <C>                 <C>
Cash flows from financing activities:
   Proceeds from sale of common stock                                     1,000                  -           3,341,858
   Proceeds from convertible debentures and other
     notes payable                                                            -            375,000           1,307,069
   Proceeds from sale of preferred stock                                      -                  -             473,005
   Costs incurred in offerings                                                -                  -            (468,201)
   Capital contributions                                                      -                  -             301,068
   Repurchase of common stock for
     cancellation                                                             -                  -             (28,599)
   Payment on proposed reorganization                                         -                  -              (5,000)
                                                                ----------------   ----------------    ----------------

   Net cash provided by financing activities                              1,000            375,000           4,921,200
                                                                ----------------   ----------------    ----------------

Net change in cash and cash equivalents                                 263,309            (19,531)            364,109

Cash and cash equivalents, beginning of period                          100,800             47,664                   -
                                                                ----------------   ----------------    ----------------

Cash and cash equivalents, end of period                        $       364,109    $        28,133     $       364,109
                                                                ================   ================    ================


Supplemental disclosure of cash flow information:

   Interest paid during the period                              $           688    $           688
                                                                ================   ================
   Income taxes paid during the period                          $           800    $           800
                                                                ================   ================
</TABLE>

Supplemental disclosure of non-cash investing and financing activities:

2005
----

The Company issued  975,750  shares of its Class A common stock as  compensation
valued at $1,225,000.

The  Company  issued  500,000  shares of its Class A common  stock  through  the
conversion of 500,000 shares of Class D preferred stock.

2004
----

The  Company  issued  450,000  shares of its Class A common  stock  through  the
conversion of 450,000 shares of its Class D preferred stock.

The Company issued 625,000 shares of its Class A common stock in as compensation
valued at $1,292,550.

The Company  issued  25,000  shares of its Class A common stock in settlement of
accounting fees payable of $25,000.

See accompanying notes to the consolidated  financial  statements for additional
non-cash investing and financing activities.






                 See accompanying notes to the consolidated financial statements
                                                                             F-6
<PAGE>



                                                     MATERIAL TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              For The Three Months Ended March 31, 2005 and 2004

================================================================================


NOTE 1 - BASIS OF PRESENTATION AND ORGANIZATION
-----------------------------------------------

Basis of Presentation
---------------------

The accompanying interim consolidated financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission  (the  "SEC")  for  interim   financial   reporting.   These  interim
consolidated   financial  statements  are  unaudited  and,  in  the  opinion  of
management,  include all adjustments (consisting of normal recurring adjustments
and  accruals)  necessary to present  fairly the  consolidated  balance  sheets,
consolidated  operating  results  and  consolidated  cash flows for the  periods
presented in accordance with  accounting  principles  generally  accepted in the
United States of America ("GAAP").  Operating results for the three months ended
March  31,  2005  are not  necessarily  indicative  of the  results  that may be
expected for the year ending  December 31, 2005 or for any other interim  period
during such year. Certain information and footnote disclosures normally included
in financial  statements  prepared in accordance  with GAAP have been omitted in
accordance with the rules and regulations of the SEC. These interim consolidated
financial statements should be read in conjunction with the audited consolidated
financial  statements and notes thereto contained in the Company's Form 10-K for
the year ended December 31, 2004.

Restatement of March 31, 2004 Net Loss
--------------------------------------

The  accompanying  statement of operations  for the three months ended March 31,
2004 has been restated to reflect  amortization of the discount on the Company's
convertible  debenture  as of  December  31,  2004 (see Note 6) and to  properly
reflect  the value of certain  shares  granted to  consultants  during the three
months ended March 31, 2004.

A  reconciliation  of the restated net loss for the three months ended March 31,
2004 is as follows:

     Net loss as originally reported                             $     (922,098)
     Issuance of common stock for services                             (739,350)
     Amortization of discount on convertible debenture                  (37,572)
                                                                 ---------------

         Net loss as restated                                    $   (1,699,020)
                                                                 ===============

      Net loss per share:
         As originally reported                                  $        (0.01)
         Adjustment for increased expense                                 (0.02)
                                                                 ---------------

         As restated                                             $        (0.03)
                                                                 ===============

In addition, the accompanying statement of cash flows for the three months ended
March 31, 2004 has been restated to reflect the above adjustments.







                                                                             F-7
<PAGE>



                                                     MATERIAL TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              For The Three Months Ended March 31, 2005 and 2004

================================================================================


NOTE 1 - BASIS OF PRESENTATION AND ORGANIZATION, continued
----------------------------------------------------------

Organization
------------

Material  Technologies,  Inc. (the "Company") was organized on October 21, 1983,
under the laws of the state of Delaware.

The Company is in the  development  stage,  as defined in Statement of Financial
Accounting  Standards  ("SFAS") No. 7,  "Accounting and Reporting by Development
Stage  Enterprises,"  with its principal activity being research and development
in the area of metal  fatigue  technology  with the intent of future  commercial
application.  The Company has not paid any dividends,  and dividends that may be
paid in the future will depend on the financial  requirements of the Company and
other relevant factors.

On September 23, 2003, the Company's  Board of Directors  affected a 1,000 for 1
reverse stock split of its Class A common stock and all classes of its preferred
stock. The financial  statements  presented herein have been restated to reflect
the reverse  stock split as if it had  occurred at the  beginning of each period
presented. Unless otherwise noted, common stock refers to Class A common stock.

Going Concern
-------------

The Company's  consolidated  financial statements are prepared using the accrual
method of accounting in accordance with accounting principles generally accepted
in the United States of America and have been prepared on a going concern basis,
which  contemplates  the realization of assets and the settlement of liabilities
in the normal  course of business.  The Company has sustained  operating  losses
since its  inception  (October  21,  1983).  In  addition,  the Company has used
substantial amounts of working capital in its operations.  Further, at March 31,
2005, current  liabilities  exceed current assets by approximately  $410,000 and
the deficit  accumulated  during the development stage amounted to approximately
$42,000,000.

In view of these  matters,  realization  of a major portion of the assets in the
accompanying  consolidated balance sheet is dependent upon the Company's ability
to meet its financing requirements and the success of its future operations. The
Company has entered into a $215,000 contract to provide research services over a
two-year  period,  of which  approximately  $138,000  is still  available  to be
collected.  During 2005, the Company netted approximately  $600,000 from sale of
marketable securities. At March 31, 2005, the Company has approximately $364,000
of cash and cash  equivalents  and $387,000 of  marketable  securities  held for
trading and certificates of deposit.  Management  believes that these sources of
funds and  current  liquid  assets will allow the Company to continue as a going
concern  through the end of 2005.  Management  of the Company will need to raise
additional debt and/or equity capital to finance future  activities beyond 2005.
However, no assurances can be made that current or anticipated future sources of
funds will  enable the  Company to finance  future  periods'  operations.  These
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.





                                                                             F-8
<PAGE>



                                                     MATERIAL TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              For The Three Months Ended March 31, 2005 and 2004

================================================================================


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------

Principles of Consolidation
---------------------------

The accompanying  financial  statements include the accounts and transactions of
Material Technologies, Inc. and its subsidiaries.  Intercompany transactions and
balances have been eliminated in  consolidation.  The minority owners' interests
in a subsidiary  have been  reflected as minority  interest in the  accompanying
consolidated balance sheets.

Use of Estimates
----------------

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities,  disclosure of contingent assets and liabilities at the date of the
financial  statements and the reported  amounts of revenues and expenses  during
the reporting period. Significant estimates include the fair value of marketable
securities. Accordingly, actual results could differ from those estimates.

Marketable Securities
---------------------

Marketable securities purchased with the intent of selling them in the near term
are classified as trading securities.  Trading securities are initially recorded
at cost and are  adjusted  to their  fair  value,  with the change in fair value
during the period included in earnings as unrealized  gains or losses.  Realized
gains or losses on dispositions are based upon the net proceeds and the adjusted
book value of the securities sold, using the specific identification method, and
are  recorded  as  realized  gains or losses in the  consolidated  statement  of
operations.  Securities  that  are not  classified  as  trading  securities  are
classified as available-for-sale  securities.  Available-for-sale securities are
initially  recorded at cost and adjusted to their fair value. Any change in fair
value during the period is excluded from earnings and recorded, net of tax, as a
component of accumulated other comprehensive income (loss). Any decline in value
of available-for-sale securities below cost that is considered to be "other than
temporary"  is recorded as a reduction  of the cost basis of the security and is
included in the statement of operations as a write down of the market value.

Long-Lived Assets
-----------------

The Company accounts for its long-lived  assets in accordance with SFAS No. 144,
"Accounting  for the Impairment or Disposal of Long-Lived  Assets." SFAS No. 144
requires that  long-lived  assets be reviewed for impairment  whenever events or
changes in circumstances  indicate that the historical cost carrying value of an
asset may no longer be appropriate.  The Company assesses  recoverability of the
carrying  value of an asset by estimating  the future net cash flows expected to
result from the asset,  including eventual  disposition.  If the future net cash
flows are less than the  carrying  value of the  asset,  an  impairment  loss is
recorded  equal to the  difference  between the asset's  carrying value and fair
value or disposable  value.  As of March 31, 2005,  the Company does not believe
there has been any impairment of its long-lived assets.




                                                                             F-9
<PAGE>



                                                     MATERIAL TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              For The Three Months Ended March 31, 2005 and 2004

================================================================================


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------

Intangible Assets
-----------------

Intangible  assets  consist of patents,  license  agreements  and website design
costs and are recorded at cost.  Patents and license  agreements  are  amortized
over 17 years and website design costs are amortized over 5 years. In accordance
with SFAS No. 142,  "Goodwill and Other Intangible  Assets," the carrying values
of intangible assets are evaluated for impairment annually or whenever events or
changes in circumstances indicate that the historical cost carrying value may no
longer be appropriate.  As of March 31, 2005, the Company does not believe there
has been any impairment of its intangible assets.

Beneficial Conversion Feature
-----------------------------

The  convertible  feature of the Debentures  (see Note 6) provides for a rate of
conversion that is below market value. This feature is normally characterized as
a  beneficial  conversion  feature  ("BCF"),  which is  recorded  by the Company
pursuant to Emerging  Issues Task Forces ("EITF") Issue No. 98-5 ("EITF 98-05"),
"Accounting for Convertible  Securities with Beneficial  Conversion  Features or
Contingently   Adjustable   Conversion   Ratios,"  and  EITF  Issue  No.  00-27,
"Application of EITF Issue No. 98-5 to Certain Convertible Instruments."

Convertible Debentures
----------------------

The  Company's  convertible  debentures  are recorded  net of the debt  discount
related  to the BCF (see Note 6).  The  Company  records  the debt  discount  in
proportion to principal  advances and amortizes the discount to interest expense
over the life of the debentures on a straight-line basis, which approximates the
effective interest method.

Fair Value of Financial Instruments
-----------------------------------

The  Company's  financial  instruments  consist  of cash and  cash  equivalents,
investments  in  certificate  of deposits  with terms longer then  three-months,
marketable securities,  accounts receivable,  receivable from officer,  accounts
payable and accrued expenses, notes payable and convertible debentures. Pursuant
to SFAS No. 107,  "Disclosures  About Fair Value of Financial  Instruments," the
Company is required to estimate the fair value of all financial  instruments  at
the balance sheet date. The Company cannot determine the estimated fair value of
receivable from officer as the  transaction  originated with a related party and
instruments similar to the convertible debentures could not be found. Other than
these  items,  the  Company  considers  the  carrying  values  of its  financial
instruments in the financial statements to approximate their fair values.










                                                                            F-10
<PAGE>



                                                     MATERIAL TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              For The Three Months Ended March 31, 2005 and 2004

================================================================================


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------

Revenue Recognition
-------------------

The Company  recognizes  revenue in accordance  with Staff  Accounting  Bulletin
("SAB") No. 101,  "Revenue  Recognition in Financial  Statements," as revised by
SAB No. 104. As such, the Company recognizes revenue when persuasive evidence of
an  arrangement  exists,  title  transfer  has  occurred,  the price is fixed or
readily  determinable and collectibility is probable.  Sales are recorded net of
sales discounts.

Substantially  all of the  Company's  revenue  is  derived  from  the  Company's
contracts  relating to the further  development of the  Electrochemical  Fatigue
Sensor ("EFS").  Revenue on the contracts is recognized at the time services are
rendered.  The Company bills monthly for services pursuant to these contracts at
which time  revenue is  recognized  for the period that the  respective  invoice
relates.  In October  2003,  the  Company  entered  into a  contract  to provide
research  services to a third party in connection  with the  application  of the
Company's EFS to detect  stress on military  vehicles.  The contract  expires in
September  2005 and has an approved  budget of  $215,281.  As of March 31, 2005,
$93,244  has  been  billed  on  this  contract.   This  gross  amount   includes
out-of-pocket  expenses  relating to third party  engineering  and other related
costs.

All other revenue is reported in the period that the income is earned.

In the past,  the Company has  received  research and  development  funding from
various agencies of the U.S.  government.  U.S. government contracts are subject
to government  audits.  Such audits could lead to inquiries  from the government
regarding  the  allowability  of costs  under U.S.  government  regulations  and
potential  adjustments of contract  revenues.  To date, the Company has not been
involved in any such audits.

Net Loss per Share
------------------

The  Company  adopted  the  provisions  of SFAS No.  128,  "Earnings  Per Share"
("EPS"). SFAS No. 128 provides for the calculation of basic and diluted earnings
per share.  Basic EPS includes no dilution and is computed by dividing income or
loss available to common  shareholders by the weighted  average number of common
shares  outstanding for the period.  Diluted EPS reflects the potential dilution
of securities that could share in the earnings or losses of the entity.  For the
quarters ended March 31, 2005 and 2004, basic and diluted loss per share are the
same,  since the  calculation  of diluted per share  amounts  would result in an
anti-dilutive  calculation that is not permitted and therefore not included.  If
such  shares  were  included  in  diluted  EPS,  they  would  have  resulted  in
weighted-average  common shares of 140,453,819  and 80,638,323 in 2005 and 2004,
respectively.  Such amounts  include  shares  potentially  issuable  pursuant to
shares  held in  escrow  (see  Note 8),  convertible  debentures  (see  Note 6),
convertible preferred stock (see Note 8) and outstanding options and warrants.






                                                                            F-11
<PAGE>



                                                     MATERIAL TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              For The Three Months Ended March 31, 2005 and 2004

================================================================================


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------

Issuance of Stock for Non-Cash Consideration
--------------------------------------------

All  issuances  of the  Company's  stock for  non-cash  consideration  have been
assigned a per share  amount  equaling  either  the  market  value of the shares
issued  or the  value  of  consideration  received,  whichever  is more  readily
determinable.  The majority of the non-cash  consideration  received pertains to
services  rendered by  consultants  and others and has been valued at the market
value of the shares on the dates issued. In certain  instances,  the Company has
discounted  the values  assigned  to the issued  shares for  illiquidity  and/or
restrictions on resale (see Note 8).

Stock-Based Compensation
------------------------

The  Company  accounts  for  stock-based   compensation   under  SFAS  No.  123,
"Accounting  for  Stock-Based  Compensation"  and SFAS No. 148,  "Accounting for
Stock-Based  Compensation--Transition  and Disclosure--An  amendment to SFAS No.
123."  These  standards  define a fair  value  based  method of  accounting  for
stock-based compensation.  In accordance with SFAS Nos. 123 and 148, the cost of
stock-based  employee  compensation  is  measured at the grant date based on the
value of the award and is recognized over the vesting  period.  The value of the
stock-based  award is determined using the Black-Scholes  option-pricing  model,
whereby  compensation  cost is the  excess  of the fair  value  of the  award as
determined by the pricing model at the grant date or other measurement date over
the amount an employee must pay to acquire the stock.  The  resulting  amount is
charged  to  expense  on the  straight-line  basis  over the period in which the
Company  expects to receive the benefit,  which is generally the vesting period.
During the quarters  ended March 31, 2005 and 2004,  the Company  recognized  no
compensation  expense  under SFAS No. 123 for options  issued to employees as no
options were granted to employees during these periods.

Concentrations of Credit Risk
-----------------------------

The Company  maintains  its cash  balances at  financial  institutions  that are
insured by the Federal Deposit  Insurance  Corporation  ("FDIC") up to $100,000.
From time-to-time,  the Company's cash balances exceed the amount insured by the
FDIC.  Management  believes  the risk of loss of cash  balances in excess of the
insured limit to be low.

The Company's  2005 and 2004 revenues were generated from one and two customers,
respectively.

Reclassifications
-----------------

Certain   amounts  in  the  March  31,  2004  financial   statements  have  been
reclassified   to  conform   with  the  March  31,   2005   presentation.   Such
reclassifications  had no effect on net loss as previously  reported,  except as
disclosed in Note 1 above.







                                                                            F-12
<PAGE>



                                                     MATERIAL TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              For The Three Months Ended March 31, 2005 and 2004

================================================================================


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
--------------------------------------------------------------

Recent Accounting Pronouncements
--------------------------------

In December 2003, the Financial  Accounting Standards Board ("FASB") issued FASB
Interpretation No. ("FIN") 46R,  "Consolidation of Variable Interest  Entities."
This  statement  requires  that  the  assets,  liabilities  and  results  of the
activities  of variable  interest  entities be  consolidated  into the financial
statements of the company that has a  controlling  financial  interest.  It also
provides the framework for determining  whether an entity should be consolidated
based on voting  interest or significant  financial  support  provided to it. In
general,  for all  entities  that were  previously  considered  special  purpose
entities,  FIN 46R should be applied in periods  ending after December 15, 2003.
Otherwise, FIN 46R is applicable to all public entities for periods ending after
March 15, 2004.  The  adoption of FIN 46R did not have a material  impact on the
Company's financial condition or results of operations.

In December  2004,  the FASB issued SFAS No.  153,  "Exchanges  of  Non-Monetary
Assets,   an  amendment  of  APB  Opinion  29,   Accounting   for   Non-Monetary
Transactions."  The  amendments  made by SFAS No. 153 are based on the principle
that exchanges of non-monetary assets should be measured based on the fair value
of the assets exchanged.  Further, the amendments eliminate the narrow exception
for non-monetary  exchanges of similar  productive  assets and replace it with a
broader  exception  for  exchanges  of  non-monetary  assets  that  do not  have
"commercial  substance."  The  provisions  in SFAS  No.  153 are  effective  for
non-monetary  asset exchanges  occurring in fiscal periods  beginning after June
15, 2005.  Early  application is permitted and companies must apply the standard
prospectively.  The  Company  adopted  this  statement  on January 1, 2005.  The
adoption  of the  statement  did result in a  significant  change in the current
manner in which the Company accounts for its exchanges of non-monetary assets.

The FASB has issued SFAS No. 123R,  "Share-Based Payment." The new rule requires
that the  compensation  cost relating to  share-based  payment  transactions  be
recognized in the financial statements.  That cost will be measured based on the
fair  value of the  equity  or  liability  instruments  issued.  This  statement
precludes the  recognition  of  compensation  expense under APB Opinion No. 25's
intrinsic value method. Public entities will be required to apply Statement 123R
in the first annual  reporting period that begins after June 15, 2005. Since the
Company has been accounting for its share-based compensation under SFAS No. 123,
management  believes SFAS No. 123R should not have a  significant  impact on the
way it accounts for its stock-based compensation.
















                                                                            F-13
<PAGE>



                                                     MATERIAL TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              For The Three Months Ended March 31, 2005 and 2004

================================================================================


NOTE 3 - INVESTMENTS
--------------------


On October 1, 2004,  the Company  consummated a Stock  Purchase  Agreement  (the
"Agreement")  with Langley Park  Investments,  PLC  ("Langley"),  a  corporation
organized under the laws of England and Wales.  The Langley shares are traded on
the London Stock Exchange ("LSE"). Pursuant to the Agreement, the Company issued
8,666,666 shares of its common stock in exchange for 7,158,590 shares of Langley
common  stock.  The number of Langley  shares  issued was based on the Company's
shares  having a value of $1.50 per share and the Langley  shares having a value
of one British Pound Sterling per share and the  conversion  rate of the British
Pound  Sterling to the U.S.  Dollar in effect as of the close of business on the
day  preceding  the closing  date.  The Company  initially  recorded the Langley
shares at  $12,973,513.  This amount was determined by multiplying the number of
Langley  shares issued by the market value of the Langley  shares of one British
Pound Sterling and the applicable  exchange rate. The Agreement further provides
that of the Langley shares  purchased,  one half of the shares  (3,579,295)  are
immediately  saleable  and  the  remaining  half, to which the Company has legal
title,  will  be held in  an escrow  account  for a  period  of two  years.  For
financial reporting purposes, the Company considers the 3,579,295 shares held in
escrow as shares available for sale.  If, at the end of the two-year period, the
shares of the Company do not have a market price greater than or equal to $1.50,
the Company  will be required to sell back some or all  of the Langley shares it
owns in escrow, based on a formula as  defined in the Agreement.  However, if at
the end of the two-year  period, the market value  of the Company's common stock
equals or exceeds $1.50,  the  Langley shares  will be released from escrow.  At
March 31, 2005, the Company's  common stock  closing price was  less than $1.50.
Based  upon the  formula in  the Agreement, the  Company  would  be obligated to
offer to sell  back approximately  119,000 of  the escrow shares to Langley at a
nominal price.  As of March 31, 2005, the  Company  recorded an  unrealized loss
related to these shares of $40,846 in other comprehensive loss.


During 2004,  the Company sold  2,579,295 of its Langley  trading shares for net
proceeds of $1,005,606 and recognized a loss on these sales of $3,668,850, which
was charged to operations.  The Company has also  determined  that $4,284,760 of
the  decline  in the  value of  available-for-sale  investments  is  other  than
temporary and therefore, included the decline in operations as a write-down. The
Company  charged the $1,167,616  decline in market value of the Langley  trading
shares that was considered temporary at December 31, 2004 to other comprehensive
loss.

During the quarter ended March 31, 2005, the Company sold its currently saleable
shares for $281,861 and recognized a loss from the sale totaling $3,474.

As of March 31,  2005,  the  Company's  investment  in an  open-end  mutual fund
approximated its cost of $186,400.  The Company considers its investment in this
account as being held for trading.  During the quarter ended March 31, 2005, the
Company  sold  516,982  shares for  $516,982  and  recognized  a net loss on the
transaction  totaling $25,  which was charged to operations  and paid $3,655 for
new investments.









                                                                            F-14
<PAGE>



                                                     MATERIAL TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              For The Three Months Ended March 31, 2005 and 2004

================================================================================


NOTE 3 - INVESTMENTS, continued
-------------------------------

Investments in marketable securities as of March 31, 2005 are as follows:

     Trading securities:
         Cost                                                   $      186,400
         Unrealized loss                                                     -
                                                                ---------------

         Fair value                                             $      186,400
                                                                ===============

     Available-for-sale securities:
         Adjusted cost                                          $    2,201,996
         Unrealized loss                                            (1,208,462)
                                                                ---------------

         Fair value                                             $      993,534
                                                                ===============

In addition,  during the three-months ended March 31, 2005, the Company invested
$200,000 in certificates of deposits with two different financial  institutions.
The  certificates  of deposit  mature in September  2005 and bear  interest at 3
percent per annum. The balance of these  investments  including accrued interest
at March 31, 2005 totaled $200,248.

NOTE 4 - LICENSE AGREEMENT
--------------------------

The  Company  has  entered  into a  license  agreement  with the  University  of
Pennsylvania ("the University") for the development and marketing of EFS. EFS is
designed  to measure  electrochemically  the state of fatigue  damage in a metal
structural member. The Company is in the final stage of developing EFS.

Under the terms of the agreement, the Company issued to the University 13 shares
of its  common  stock,  and a 5% royalty on sales of the  product.  The  Company
valued  the  license  agreement  at  $6,250.  The  license  terminates  upon the
expiration of the underlying  patents,  unless sooner  terminated as provided in
the agreement. The Company is amortizing the license over 17 years.

In  addition to the license  agreement,  the Company  also agreed to sponsor the
development  of EFS.  Under the  sponsorship  agreement,  the Company  agreed to
reimburse the University development costs totaling  approximately  $200,000, to
be paid in 18 monthly installments of $11,112. Under the agreement,  the Company
reimbursed  the  University  $10,000  in 1996  for the cost it  incurred  in the
procurement and maintenance of its patents on EFS.











                                                                            F-15
<PAGE>



                                                     MATERIAL TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              For The Three Months Ended March 31, 2005 and 2004

================================================================================


NOTE 4 - LICENSE AGREEMENT, continued
-------------------------------------

The  Company  and the  University  agreed to modify the terms of the license and
sponsorship  agreements and related obligation.  The modification of the license
agreement  increased  the  University's  royalty  to 7% of the  sale of  related
products and provided for the  issuance of  additional  shares of the  Company's
common  stock to  equal 5% of the  outstanding  stock of the  Company  as of the
effective date of the modification,  subject to anti-dilution  adjustments.  The
modification of the sponsorship  agreement included paying the University 30% of
any  amounts  raised by the  Company in excess of  $150,000  (excluding  amounts
received  on  government  grants or  contracts)  up to the  amount  owing to the
University.

The parties  agreed  that the  balance  owed on the  sponsorship  agreement  was
$200,000 and commencing June 30, 1997, the balance will accrue compound interest
at a rate of 1.5% per month  (19.6%  effective  annual  rate) until  maturity on
December 16, 2001,  when the loan balance and accrued  interest became fully due
and  payable.  In  addition,   the  Company's  president  agreed  to  limit  his
compensation  from the Company to  $150,000  per year until the loan and accrued
interest was fully paid.  The  obligation  is currently in default.  The Company
continues to accrue interest under the terms of the agreement.  Interest charged
to  operations  for the  three-months  ended March 31, 2005 and 2004 relating to
this  obligation  was  $34,237  and  $28,710,  respectively.  The balance of the
obligation  (including accrued interest) at March 31, 2005 and December 31, 2004
was  $795,068  and  $760,831,  respectively,  and is  reflected  in Research and
Development Sponsorship Payable in the accompanying consolidated balance sheets.

Pursuant  to the  anti-dilution  provision  of the  sponsorship  agreement,  the
Company  was  required to issue an  additional  5,338  shares to the  University
through December 31, 2003. The Company has made no additional issuance of shares
in 2005 or 2004.  The Company is currently in  negotiations  with the University
regarding the default and other related matters.

NOTE 5 - NOTES PAYABLE
----------------------

On May 27, 1994, the Company  borrowed  $25,000 from a shareholder.  The loan is
evidenced by a promissory  note bearing  interest at major bank prime rate.  The
note is secured by the Company's  patents and matured on May 31, 2002.  The loan
has not been paid and is now in default.  As  additional  consideration  for the
loan,  the  Company  granted to the  shareholder  a 1% royalty  interest  in the
Fatigue Fuse and a 0.5% royalty interest in EFS (see Note 7). The balance due on
this loan as of March 31, 2005 and  December  31, 2004 was $52,298 and  $51,892,
respectively.  Interest  charged to operations  for the quarters ended March 31,
2005 and 2004 was $406.












                                                                            F-16
<PAGE>



                                                     MATERIAL TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              For The Three Months Ended March 31, 2005 and 2004

================================================================================


NOTE 5 - NOTES PAYABLE, continued
---------------------------------

In October 1996, the Company borrowed $25,000 from an unrelated third party. The
loan bears  interest at an annual  rate of 11% and matured on October 15,  2000.
The Company  issued  warrants to the lender for the purchase of 25 shares of the
Company's  common  stock at a price of $1.00 per share.  The loan  balance as of
March 31, 2005 and  December  31, 2004 was  $25,000 and  $25,000,  respectively.
Interest  charged to operations on this loan was $688 for the three months ended
March 31, 2005 and 2004.  The Company did not pay any  principal  amounts due on
this note when it matured on October  15,  2000 and the note is in  default.  In
2004,  the Company  issued the note holder  25,000 shares of its common stock as
additional  compensation for the failure to payoff the indebtedness.  The shares
are  subject to a  three-year  lockup  agreement  and were valued at $59,500 and
charged to interest expense in 2004.

On April 28, 2003, the Company  borrowed  $10,000 from an unrelated third party.
The loan is unsecured, non-interest bearing and due on demand.

NOTE 6 - CONVERTIBLE DEBENTURES
-------------------------------

On September 23, 2003,  the Company  entered into a Class A Secured  Convertible
Debenture  (the  "Debentures")  with  Palisades  Capital,  LLC or its registered
assigns  ("Palisades"),  pursuant  to which  Palisades  has  agreed  to loan the
Company up to  $1,500,000.  On  December  1, 2003,  after  Palisades  had funded
$240,000 of the original Debenture,  the Company entered into additional Class A
Secured Convertible Debentures with two additional investors,  pursuant to which
such  investors  would loan the  Company up to  $650,000  each,  and the Company
agreed with Palisades that Palisades  would not make  additional  advances under
the Debenture. At March 31, 2005, the Company has received a total of $1,125,000
under the Debentures.

Under the Debentures,  each holder has to option to convert the principal amount
of all monies loaned under the Debenture,  together with accrued interest,  into
common  stock of the Company at the lesser of (i) 50% of the average ten closing
prices for the Company's common stock for the ten days immediately preceding the
conversion  date or (ii) $0.10 (the  lesser of the two being  referred to as the
"Conversion  Price.") In the event the holders of the three  Debentures  loan at
least $1,500,000 to the Company and  subsequently  elect to exercise their right
to convert the  Debentures  into the  Company's  common stock at a time when the
conversion  price is less than six  cents per  share,  the three  holders  would
receive at least 50 million  shares of common  stock,  resulting  in a change in
control of the Company.  However, Mr. Bernstein, the Company's president,  would
still  retain  voting  control  as a result of his  holding  100  percent of the
Company's Class B common stock. In addition,  the Debentures provide that in the
event the  conversion  price is less than $0.10 per share when the holder elects
to  convert,  the Company  would have the right,  at any time during the 75 days
following  the date of the  holder's  notice of  conversion,  to prepay all or a
portion of the Debenture that has been requested to be converted and the Company
would therefore not be required to issue the conversion shares.








                                                                            F-17
<PAGE>



                                                     MATERIAL TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              For The Three Months Ended March 31, 2005 and 2004

================================================================================


NOTE 6 - CONVERTIBLE DEBENTURES, continued
------------------------------------------

Since the  Debentures  allow the  holders to convert the  outstanding  principal
amount into shares of the  Company's  common  stock at a discount to fair value,
the Company has  recorded a BCF in the amount of  $1,125,000  during  2004.  The
amount was  recorded  as a debt  discount  and is being  amortized  as  interest
expense over the life of the Debentures.  Total interest  expense related to the
amortization  of the  discount  was $99,855 and $37,572 for the  quarters  ended
March 31, 2005 and 2004, respectively.

The Company's  president entered into a voting agreement and irrevocable  proxy,
which provides that as of September 23, 2006, if an event of default (as defined
in the Debentures)  continues for a period of not less than 30 days, all Class B
common stock which Mr. Bernstein owns of record,  or becomes the owner of record
in the  future  will be voted in  accordance  with the  direction  of Mr.  Monty
Freedman or his designated successor. This loss of Mr. Bernstein's voting rights
would affect a change in the voting control of the Company.

The  Debentures  bear  interest  at an  annual  rate  of  10%,  are  secured  by
substantially  all assets of the Company and mature on December 31,  2006,  when
all  principal and accrued  interest  becomes  payable.  Advances to the Company
totaled $0 and $375,000 during the  three-months  ended March 31, 2005 and 2004,
respectively.  The balance of the Debentures,  including  accrued  interest,  at
March  31,  2005  and  December  31,  2004 was  $554,634  and  $424,612  (net of
unamortized discount of $698,985 and $798,839,  respectively).  Interest expense
on the  Debentures,  excluding  amortization  of the  discount,  was $30,167 and
$11,918 during the three months ended March 31, 2005 and 2004, respectively.

NOTE 7 - COMMITMENTS AND CONTINGENCIES
--------------------------------------

Royalties
---------

On December 24, 1985,  to provide  funding for research and  development  of the
Fatigue Fuse, the Company  entered into various  agreements  with the Tensiodyne
1985-I R & D Partnership (the  "Partnership.")  These agreements were amended on
October 9, 1989, and under the revised  terms,  obligated the Company to pay the
Partnership a royalty of 10% of future gross sales. The Company's  obligation to
the  Partnership is limited to the capital  contributed to it by its partners of
approximately $912,500 plus accrued interest.

On August 30,  1986,  the  Company  entered  into a funding  agreement  with the
Advanced Technology Center ("ATC"),  whereby ATC paid $45,000 to the Company for
the  purchase  of a royalty  of 3% of future  gross  sales and 6% of  sublicense
revenue.  The  royalty  is  limited to the  $45,000  plus an 11% annual  rate of
return.  At December 31, 2004,  the future royalty  commitment was approximately
$310,000.  The payment of future  royalties is secured by equipment  used by the
Company in the development of technology as specified in the funding agreement.








                                                                            F-18
<PAGE>



                                                     MATERIAL TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              For The Three Months Ended March 31, 2005 and 2004

================================================================================


NOTE 7 - COMMITMENTS AND CONTINGENCIES, continued
-------------------------------------------------

On May 4, 1987,  the Company  entered into another  funding  agreement with ATC,
whereby ATC provided  $63,775 to the Company for the purchase of a royalty of 3%
of future gross sales and 6% of sublicense  revenues.  The agreement was amended
August 28, 1987, and as amended, the royalty cannot exceed the lesser of (1) the
amount of the advance  plus a 26% annual rate of return or, (2) total  royalties
earned for a term of 17 years.  At December 31, 2004,  the total future  royalty
commitments,   including  the  accumulated  26%  annual  rate  of  return,  were
approximately  $4,875,000.  If the Company  defaults on the agreement,  then the
obligation  relating to this agreement becomes secured by the Company's patents,
products,  and accounts receivable that are related to the technology  developed
with the funding.

In 1994, the Company issued to Variety  Investments,  Ltd. of Vancouver,  Canada
("Variety") a 22.5% royalty  interest on the Fatigue Fuse in  consideration  for
the cash advances made to the Company by Variety.  In December 1996, in exchange
for the  Company  issuing  250 shares of its common  stock to  Variety,  Variety
reduced its  royalty  interest  to 20%.  In 1998,  in  exchange  for the Company
issuing 733 shares of its common stock to Variety,  Variety  reduced its royalty
interest to 5%.

As  discussed  in Note 5, the  Company  granted  a 1%  royalty  interest  in the
Company's  Fatigue Fuse and a 0.5% royalty  interest in EFS to a shareholder  as
partial consideration on a $25,000 loan made by the shareholder to the Company.

A summary of royalty  interests that the Company has granted and are outstanding
as of March 31, 2005 follows:

                                                   Fatigue Fuse          EFS
                                                 ----------------     ---------

     Tensiodyne 1985-1 R&D Partnership                10.00% *             -
     Advanced Technology Center:
          Future gross sales                           6.00% *             -
          Sublicensing fees                           12.00% **            -
     Variety Investments, Ltd.                         5.00%               -
     University of Pennsylvania (see Note 7)
          Net sales of licensed products                 -               7.00%
          Net sales of services                          -               2.50%
     Shareholder                                       1.00%             0.50%

* Royalties limited to specific rates of return as discussed above.
** The Company granted 12% royalties on sales from  sublicense.  These royalties
are also limited to specific rates of return as discussed above.

Through March 31, 2005,  the Company owes no royalties  under any  agreements as
sales of the products have not yet begun.





                                                                            F-19
<PAGE>



                                                     MATERIAL TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              For The Three Months Ended March 31, 2005 and 2004

================================================================================


NOTE 7 - COMMITMENTS AND CONTINGENCIES, continued
-------------------------------------------------

Litigation
----------

In July 2002,  the Company  settled its  pending  lawsuit  related to a contract
dispute  with Mr.  Stephen  Beck.  Under the terms of the  settlement,  Mr. Beck
received 1,000 shares of the Company's common stock. The shares to be issued are
subject  to  anti-dilution  provisions  for a period of 18 months.  The  Company
valued the shares issued to Mr. Beck at $40,000,  the quoted price of the shares
on date of issuance  and charged the cost to  operations.  During 2002 and 2003,
the Company issued Mr. Beck an additional 657 shares of common stock pursuant to
the anti-dilutive  provision of the settlement  agreement.  No additional shares
were issued in 2004 or 2005.

Mr. Beck has recently  contacted the Company concerning an alleged breach of the
above  settlement.  The Company believes that it has a counter claim against Mr.
Beck for a breach of a consulting agreement.  Currently  negotiations  regarding
these matters are ongoing.

Stock Purchase Agreement
------------------------


In August 2004, the Company entered into a Stock Purchase Agreement with Seaside
Investments, PLC ("Seaside").  Once the  agreement  is closed, the  Company will
issue and sell 10,332,000 shares of its common  stock to  Seaside for a purchase
price of $0.55 per share. The purchase price for the shares will be the issuance
to the Company of 4,920,000  shares of Seaside, net of a 9.1% finder's fee.  The
agreement  provides that 1,623,600  shares will be held in an escrow account and
the balance of  3,296,400  shares will be saleable on the LSE. The shares of the
Company  will be  restricted  stock  for a period  of one year  from the date of
issuance.  If the shares of the  Company do not have a market  price of at least
$0.55  per  share  at the end of the  restricted  period,  the  Company  will be
required  to return  some or all of the  Seaside  shares  based on a formula  as
defined in the agreement.

The agreement is subject to a number of material conditions precedent before the
obligation of any of the parties under the  agreement  matures.  As of March 31,
2005, none  of the conditions  precedent were satisfied. As a result, the shares
in escrow are reflected as issued but not outstanding  at December 31, 2004 (see
Note 8).


Indemnities and Guarantees
--------------------------

During the normal course of business,  the Company has made certain  indemnities
and  guarantees  under which it may be required to make  payments in relation to
certain  transactions.  These  indemnities  include certain  agreements with the
Company's  officers  under which the Company may be required to  indemnify  such
person  for  liabilities  arising  out of  their  employment  relationship.  The
duration of these  indemnities and guarantees  varies,  and in certain cases, is
indefinite.  The majority of these indemnities and guarantees do not provide for
any  limitation of the maximum  potential  future  payments the Company would be
obligated  to make.  Historically,  the Company has not been  obligated  to make
significant  payments for these  obligations  and no liability has been recorded
for these  indemnities and guarantees in the accompanying  consolidated  balance
sheet.





                                                                            F-20
<PAGE>



                                                     MATERIAL TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              For The Three Months Ended March 31, 2005 and 2004

================================================================================


NOTE 8 - STOCKHOLDERS' EQUITY
-----------------------------

Class A Common Stock
--------------------

The holders of the  Company's  Class A common stock are entitled to one vote per
share of common stock held.

Class B Common Stock
--------------------

The holders of the Company's Class B common stock are not entitled to dividends,
nor  are  they  entitled  to  participate  in any  proceeds  in the  event  of a
liquidation of the Company. However, the holders are entitled to 2,000 votes for
each share of Class B common stock held.

Class A Preferred Stock
-----------------------

The  holders  of the Class A  convertible  preferred  stock  have a  liquidation
preference  of $720 per share.  Such  amounts  shall be paid on all  outstanding
Class A  preferred  shares  before  any  payment  shall  be  made or any  assets
distributed  to the holders of the common  stock or any other stock of any other
series or class ranking junior to the shares as to dividends or assets.

These shares are  convertible to shares of the Company's Class A common stock at
a conversion  price of $0.72 ("initial  conversion  price") per share of Class A
preferred  stock that will be adjusted  depending upon the occurrence of certain
events.  The holders of these preferred  shares shall have the right to vote and
cast that number of votes which the holder would have been  entitled to cast had
such holder converted the shares  immediately  prior to the record date for such
vote. The holders of these shares shall  participate  in all dividends  declared
and paid with  respect to the common  stock to the same  extent had such  holder
converted the shares immediately prior to the record date for such dividend.

Class B Preferred Stock
-----------------------

The Company has  designated  15 shares of Class B preferred  stock,  of which no
shares have been issued.  Holders of Class B preferred  shares are entitled to a
liquidation  preference of $10,000 per share.  Such amounts shall be paid on all
outstanding  Class B preferred  shares  before any payment  shall be made or any
assets  distributed  to the holders of common stock or of any other stock of any
series or class junior to the shares as to  dividends  or assets,  but junior to
Class A  preferred  shareholders.  Holders of Class B  preferred  shares are not
entitled to any liquidation distributions in excess of $10,000 per share.

The shares are redeemable by the holder or the Company at $10,000 per share. The
holders  of these  shares  shall  have the right to vote at one vote per Class B
preferred share and shall participate in all common stock dividends declared and
paid according to a formula as defined in the series designation.








                                                                            F-21
<PAGE>



                                                     MATERIAL TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              For The Three Months Ended March 31, 2005 and 2004

================================================================================


NOTE 8 - STOCKHOLDERS' EQUITY, continued
----------------------------------------

Class C Preferred Stock
-----------------------

The Class C preferred  stock was offered as a unit.  Each unit  consisted of one
share of the  Company's  Class C  preferred  stock,  one Class A warrant and one
Class B warrant.  Each warrant  entitles the holder to purchase one share of the
Company's Class A common stock. Class A warrants expired one year after issuance
and entitled the warrant holder the right to purchase one share of the Company's
Class A common stock at a price set forth in the respective  warrant,  which was
dependent on the date on which the unit was purchased.  Exercise  prices for the
Class A common  stock  warrants  ranged  from $0.05 per share to the  greater of
$0.35 or 1.5 times the  average  bid price.  Class B  warrants  expire two years
after issuance and entitle the warrant holder the right to purchase one share of
the  Company's  Class A common  stock  at a price  set  forth in the  respective
warrant,  which  is  dependent  on the date on  which  the  unit was  purchased.
Exercise  prices  for the Class B  warrants  range  from  $0.10 per share to the
greater of $0.35 per share or 1.5 times the average bid price.

Each  shareholder of Class C preferred stock is entitled to receive a cumulative
dividend of 8% per annum for a period of two years.  Dividends  do not accrue or
are payable except out of Earnings  Before  Interest,  Taxes,  Depreciation  and
Amortization ("EBITDA").  At March 31, 2005, no dividends are payable to Class C
preferred  shareholders.  Holders of the Class C  preferred  stock are junior to
holders  of the  Company's  Class A and B  preferred  stock,  but  hold a higher
position than common  shareholders  in terms of liquidation  rights.  Holders of
Class C  preferred  stock have no voting  rights.  Holders of Class C  preferred
stock  have the  right to  convert  their  shares  to Class A common  stock on a
one-to-one basis.

The Company  requires an approval of at least two-thirds of the holders of Class
C preferred shareholders to alter or change their rights or privileges by way of
a reverse stock split, reclassification,  merger, consolidation or otherwise, so
as to adversely affect the manner by which the shares of Class C preferred stock
are converted into common shares.

Class D Preferred Stock
-----------------------

On December 29, 2003, certain shareholders  exchanged 7,440,000 shares of common
stock  for  5,440,000  shares of Class D  preferred  stock.  Holders  of Class D
preferred stock have a $0.001 liquidation  preference,  no voting rights and are
junior to  holders  of all  classes  of  preferred  stock  but  senior to common
shareholders in terms of liquidation rights. Class D preferred  stockholders are
entitled to dividends as declared by the  Company's  Board of  Directors,  which
have not been  declared  as of March 31,  2005.  Each share of Class D preferred
stock is  convertible  at the  holder's  option into one share of the  Company's
Class A common stock.

During  the  three  months  ended  March  31,  2005,  500,000  shares of Class D
preferred  stock were  converted  into 500,000  shares of the  Company's  common
stock.






                                                                            F-22
<PAGE>



                                                     MATERIAL TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              For The Three Months Ended March 31, 2005 and 2004

================================================================================


NOTE 8 - STOCKHOLDERS' EQUITY, continued
----------------------------------------

Issued and Outstanding Common Shares
------------------------------------

From time to time,  the Company  issues its Class A common  shares and holds the
shares in  escrow on behalf of  another  party  until  consummation  of  certain
transactions. The following is a reconciliation of shares issued and outstanding
as of March 31, 2005:

<TABLE>
<CAPTION>
<S>                                                                                <C>
Issued shares                                                                         108,995,367
Less shares held in escrow:
  Shares held for Seaside stock purchase agreement (see Note 7)                        (9,840,000)
  Shares held as finders' fee for Seaside stock purchase agreement (see Note 7)          (492,000)
  Shares held as consideration for contemplated debt financing                         (6,300,000)
  Shares held as collateral for contemplated debt financing                            (4,200,000)
  Other                                                                                      (843)
                                                                                   ---------------

                                                                                      (20,832,843)
                                                                                   ---------------

Outstanding shares                                                                     88,162,524
                                                                                   ===============
</TABLE>

Class A Common Stock Issuances Involving Non-cash Consideration
---------------------------------------------------------------

The value  assigned to shares  issued for services were charged to operations in
the period issued.

2005
----

On January 14, 2005, the Company issued 500,000 shares through the conversion of
500,000 shares of its Series D preferred stock. On February 7, 2005, the Company
issued  400,000 shares for  consulting  services.  These shares are subject to a
30-month lock-up  agreement and were valued at $555,000.  On March 11, 2005, the
Company issued 75,750 shares for consulting  services.  These shares are subject
to a 2-year lock-up agreement and were valued at $90,000. On March 24, 2005, the
Company issued 500,000 shares for consulting services.  These shares are subject
to a 2-year lock-up agreement and were valued at $580,000.
















                                                                            F-23
<PAGE>



                                                     MATERIAL TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              For The Three Months Ended March 31, 2005 and 2004

================================================================================


NOTE 8 - STOCKHOLDERS' EQUITY, continued
----------------------------------------

2004
----

On January 7, 2004,  the  Company  issued its  administrative  assistant  25,000
shares of its common stock for services rendered.  These shares are subject to a
three-year  lockup agreement and were valued at 70% of their quoted market price
at date of issuance  amounting to $48,125.  On February  11,  2004,  the Company
cancelled  250,000 shares of its Class D preferred stock in exchange for issuing
250,000 shares of its common stock.  On February 12, 2004, the Company issued to
two  consultants  a total of  550,000  shares of its common  stock for  services
rendered.  These shares are subject to a three-year  lockup  agreement  and were
valued at 70% of their  quoted  market  price at date of issuance  amounting  to
$1,135,750.  On February 12,  2004,  the Company  issued its outside  accountant
25,000 shares of its common stock as payment on past due invoices.  These shares
are subject to a three-year  lockup  agreement  and were valued at the amount of
indebtedness  cancelled  of $25,000.  On March 8, 2004,  the  Company  cancelled
200,000 shares of its Class D preferred  stock in exchange for 200,000 shares of
its common stock.  On March 16, 2004, the Company issued to a consultant  25,000
shares of its common stock for services rendered.  These shares are subject to a
three-year  lockup agreement and were valued at 70% of their quoted market price
at date of issuance amounting to $53,550.  On March 26, 2004, the Company issued
to a consultant 25,000 shares of its common stock for services  rendered.  These
shares are subject to a three-year  lockup  agreement  and were valued at 70% of
their quoted market price at date of issuance amounting to $55,125.

NOTE 9 - RELATED PARTY TRANSACTIONS
-----------------------------------

During the three months ended March 31, 2005 and 2004,  the Company  credited to
operations interest accrued on the balance due it from its president (accrued at
an  annual  rate  of  8  percent  per  annum)   amounting  to  $48  and  $2,093,
respectively.  The balance owed the Company  from its  president as of March 31,
2005 and December 31, 2004 was $1,998 and $1,950, respectively.

The balance on the stock subscription due from the Company's  president at March
31, 2005 and December 31, 2004 were $56,093 and $55,096, respectively.  Interest
credited to operations (at a rate of 8 percent per annum) on this receivable for
the three-months ended March 31, 2005 and 2004 amounted to $997.

NOTE 10 - STOCK-BASED COMPENSATION PLANS
----------------------------------------

Stock Options
-------------

The Company has three stock option plans: The 1998 Stock Plan ("the 1998 Plan"),
the 2002 Stock  Issuance/Stock Plan ("the 2002 Plan") and the 2003 Stock Option,
SAR and Stock Bonus Consultant Plan ("the 2003 Plan").







                                                                            F-24
<PAGE>



                                                     MATERIAL TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              For The Three Months Ended March 31, 2005 and 2004

================================================================================


NOTE 10 - STOCK-BASED COMPENSATION PLANS, continued
---------------------------------------------------

In September 1998, the Company adopted the 1998 Plan and reserved 800,000 shares
of its common  stock for grant  under the plan.  Eligible  participants  include
employees,  advisors,  consultants,  and  officers  who provide  services to the
Company.  The option price is 100% of the fair market value of a share of common
stock at  either  the date of grant or such  other  day as the as the  Board may
determine.  During 2005 and 2004,  there were no options  granted under the 1998
Plan.  The 1998 Plan  expires  upon the  earlier of all  reserved  shares  being
granted or September 10, 2008.

In February  2002,  the Company  adopted the 2002 Plan and  reserved  20,000,000
shares of its common stock for grant under the plan.  Eligible plan participants
include employees,  advisors,  consultants, and officers who provide services to
the  Company.  The option  price is 100% of the fair market  value of a share of
common  stock at  either  the date of grant or such  other  day as the Board may
determine.  There were no options  granted  under the 2002 Plan in 2005 or 2004.
The 2002 Plan expires upon the earlier of all reserved  shares being  awarded or
December 31, 2007.

In September 2003, the Company adopted the 2003 Plan and reserved and 10,000,000
shares of its  common  stock  for  grant.  Eligible  plan  participants  include
independent consultants.  The option price shall be no less than 85% of the fair
market value of a share of common stock at date of grant.  During 2005 and 2004,
there were no options  granted  under the 2003 Plan.  The 2003 Plan expires upon
the earlier of all reserved shares being granted or September 23, 2006.

The Company also has agreements  with two  consultants  whereby the Company will
grant options to purchase shares of its common stock upon the Company increasing
its annual  revenue by $5 million in any fiscal year over its  revenues in 2002.
The  collective  number of shares to be issued will give the two  consultants  a
fifteen  percent  interest in the  outstanding  shares of the  Company's  common
stock. No grants have been made pursuant to these  agreements as the Company has
not achieved the required revenues. The agreements expire in March 2008.

In  determining  the fair value of the  options  granted  during the  respective
years,  the  Black-Scholes  Option  Pricing  Model was used  with the  following
assumptions determined:

                                           2005        2004
                                           ----        ----

Risk free interest rate                     n/a         n/a
Expected life                               n/a         n/a
Expected volatility                         n/a         n/a











                                                                            F-25
<PAGE>



                                                     MATERIAL TECHNOLOGIES, INC.
                                                   (A DEVELOPMENT STAGE COMPANY)

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              For The Three Months Ended March 31, 2005 and 2004

================================================================================


NOTE 10 - STOCK-BASED COMPENSATION PLANS, continued
---------------------------------------------------

Stock Warrants
--------------

As a condition to enter into the Debentures (see Note 6), Palisades required the
Company to settle its legal obligation of $1,583,128 to two attorneys.  In 2003,
the Company issued  22,000,000 shares of common stock and warrants to acquire up
to 30,000,000  shares of common stock for $0.10 per share to seven  investors in
settlement of the  $1,583,128  obligation  (see Note 6). The warrants  contain a
provision  limiting  the  exercise of the warrants to a number of shares that do
not  exceed an  amount  that  would  cause the  holder of each such  warrant  to
beneficially  own  4.99% of the  outstanding  common  stock of the  Company.  In
addition,  the warrants are granted only in proportion to the amount  ultimately
funded  under the  Debenture as a percentage  of the  $1,500,000  face value and
expire  December 31, 2010. At March 31, 2005,  22,500,000 of these warrants have
been granted and are exercisable.  During the three months ended March 31, 2005,
warrants to purchase  2,000 shares of common  stock were  exercised at $0.50 per
share.

NOTE 11 - SUBSEQUENT EVENTS
---------------------------

On April 1, 2005,  the Company  granted 5,000 shares of its Class A common stock
to a consultant as  compensation.  The shares are subject to a two-year  lock-up
and were valued at their market  price at date of issuance,  less a discount for
restrictions on transfer, amounting to $5,800.

On April 19, 2005, the Company granted 10,000 shares of its Class A common stock
with a one-year lock-up to a consultant as additional  consideration to hold the
shares he already  owned and the newly  issued  shares for a period of one year.
The  shares  were  valued  at their  market  price at date of  issuance,  less a
discount for restrictions on transfer, amounting to $12,150.

On April 12, 2005, the Company granted 50,000 shares of its Class A common stock
to an employee as compensation. The shares are subject to a two-year lock-up and
a two-year  employment  term and were  valued at their  market  price at date of
issuance, less a discount for restrictions on transfer, amounting to $54,000.

On April 26,  2005,  the Company  granted  125,000  shares of its Class A common
stock to a  consultant  as  compensation.  The shares are  subject to a two-year
lock-up  and were  valued  at their  market  price at date of  issuance,  less a
discount for restrictions on transfer, amounting to $130,000.














                                                                            F-26
<PAGE>






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

     Critical Accounting Policies
     ----------------------------

     The  discussion  and  analysis of the  Company's  financial  condition  and
     results of operations are based upon its consolidated financial statements,
     which have been prepared in accordance with accounting principles generally
     accepted  in the  United  States  of  America.  The  preparation  of  these
     financial  statements  requires the Company to make estimates and judgments
     that  affect the  reported  amounts of assets,  liabilities,  revenues  and
     expenses.  In  consultation  with its Board of  Directors,  the Company has
     identified  four  accounting  policies  that  it  believes  are  key  to an
     understanding of its financial  statements.  These are important accounting
     policies that require management's most difficult, subjective judgments.

     The first critical accounting policy relates to revenue recognition. Income
     from the Company's research is recognized at the time services are rendered
     and billed for.

     The second critical  accounting  policy relates to research and development
     expense. Costs incurred in the development of the Company's Electrochemical
     Fatigue Sensor and Videoscope are expensed as incurred.

     The  third  critical   accounting   policy  relates  to  the  valuation  of
     non-monetary consideration issued for services rendered. The Company values
     all services  rendered in exchange for its common stock at the quoted price
     of the  shares at date of  issuance  or at the fair  value of the  services
     rendered, whichever is more readily determinable. In certain issuances, the
     Company may discount the value assigned to the shares for  illiquidity  and
     restrictions on resale.  All other services  provided in exchange for other
     non-monetary  consideration  are  valued  at either  the fair  value of the
     services  received  or the fair  value of the  consideration  relinquished,
     whichever is more readily determinable.

     The fourth critical  accounting policy is the Company's  accounting for the
     beneficial  conversion  feature ("BCF") of its convertible  debenture.  The
     Company  accounts  for its BCF  pursuant  to  Emerging  Issues  Task  Force
     ("EITF")  98-5 and 00-27,  whereas  the  beneficial  conversion  feature is
     calculated  at its  intrinsic  value at the  commitment  date (that is, the
     difference  between the  conversion  price and the fair value of the common
     stock  into  which the debt is  convertible,  multiplied  by the  number of
     shares into which the debt is convertible).  A portion of the proceeds from
     issuance of the  convertible  debt,  equal to the intrinsic  value, is then
     allocated to additional  paid-in  capital.  The Company  amortizes the debt
     discount to interest expense over the life of the conversion period,  which
     equals the remaining term of the debenture.













                                                                               1
<PAGE>






     Results of Operations for the Three Months Ended March 31, 2005 and 2004
     ------------------------------------------------------------------------

     Revenue  generated by the Company  during the quarter  ended March 31, 2005
     came from its research contracts with Northrop-Gruman amounting to $18,308.
     In addition,  interest  income  during the same quarter  totaled  $5,023 of
     which  $1,045 was accrued on amounts due it from its  president  and $3,978
     was earned on its investments.

     Revenue  generated by the Company  during the quarter  ended March 31, 2004
     came from its research contracts with Northrop-Gruman  amounting to $25,715
     and URS Corporation amounting to $41,555. In addition,  the Company accrued
     interest  income  during  the  same  quarter  on  amounts  due it from  its
     president in the amount of $3,090.

     During the  three-month  periods ended March 31, 2005 and 2004, the Company
     incurred development costs of $1,212,182 and $161,586, respectively. Of the
     $1,212,182  incurred in 2005,  $1,135,000  was  related to the  issuance of
     900,000 shares of the Company's common stock for services provided.

     General   and   administrative   costs  were   $321,562   and   $1,523,769,
     respectively, for the three-month periods ended March 31, 2005 and 2004.

     The major  expenses  incurred  during 2005  consisted of  consulting in the
     amount of  $126,602,  officer's  salary of $54,000,  secretarial  salary of
     $10,574,   professional  fees  of  $64,508,  travel  expenses  of  $16,226,
     telephone expense of $7,886,  rent of $7,044,  franchise and other taxes of
     $8,243 and payroll taxes of $9,491. Of the $126,602 incurred for consulting
     expense,  $90,000 related to the issuance of 75,750 shares of the Company's
     common stock. The shares are subject to a two-year lock up agreement.

     The major  expenses  incurred  during 2004  consisted of  consulting in the
     amount of $1,330,769,  officer's salary of $48,000,  secretarial  salary of
     $11,658,  professional  fees of $81,863,  travel  expenses  of $9,913,  and
     telephone  expense of $3,736.  Of the  $1,330,769  incurred for  consulting
     expense,  $1,292,550  was related to the issuance of 625,000  shares of the
     Company's  common stock.  Included in the 675,000  shares is 550,000 shares
     issued to two consultants  for services  rendered in connection with Matech
     Aerospace and for the overseeing the design,  utilization  and marketing of
     the Company's  Videoscope.  The shares are subject to a three-year  lock up
     agreement  and  were  valued  at  $1,135,750,  which is based on 70% of the
     quoted market value of the shares on the date of issuance.

     Interest  charged to  operations  for the  quarter  ended March 31, 2005 of
     $165,353  consists  of  accrued  interest  due  on  the  Company's  various
     obligations  totaling  $65,498 and the  amortization of the discount on its
     convertible debenture totaling $99,855.  Interest charged to operations for
     the quarter  ended March 31, 2004 of $83,225  consists of accrued  interest
     due  on  the  Company's  various  obligations   totaling  $45,653  and  the
     amortization of the discount on its convertible debenture totaling $37,572.

     Liquidity and Capital Resources
     -------------------------------

     Cash and cash  equivalents  as of March 31, 2005 and 2004 were $364,109 and
     $28,133, respectively.

     During the quarter  ended March 31, 2005,  the Company  received a total of
     $10,583 on services  rendered on its research  contract,  $802,498 from the
     sale of marketable securities and $1,000 from the sale of its common stock.
     During the quarter,  the Company  spent  $344,519 in its  operations,  paid
     $3,655 to acquire shares in its mutual fund investment,  invested  $200,000
     in  certificate  of  deposits  with  terms  longer  than  three-months  and
     purchased equipment totaling $2,598.



                                                                               2
<PAGE>






     During the quarter  ended March 31, 2004,  the Company  received a total of
     $435,967  in cash.  $60,967 was  received  on services  rendered on its two
     research  contracts  and  $375,000  was  advanced  on its  Class  A  Senior
     Convertible  Debenture.  During the quarter,  the Company spent $455,498 in
     its operations.

Item 3. Quantitative and Qualitative Disclosures about Market Risk
------------------------------------------------------------------

     n/a.

Item 4. Controls and Procedures
-------------------------------

     As of March 31, 2005, an evaluation  was carried out under the  supervision
     and with the participation of the Company's management, including our Chief
     Executive Officer,  of the effectiveness of the design and operation of our
     disclosure  controls  and  procedures  (as  defined in Rule  13a-15(e)  and
     15d-15(e)  under the  Securities  Exchange  Act of 1934).  Based  upon that
     evaluation,  the Chief  Executive  Officer  concluded  that the  design and
     operation of these  disclosure  controls and procedures were effective.  No
     significant  changes were made in our internal controls or in other factors
     that could  significantly  affect these  controls  subsequent  to March 31,
     2005.

     (a) Evaluation of Disclosure  Controls and Procedures.  The Company carried
     out an evaluation  under the supervision and with the  participation of the
     Company's  management,  including the  Company's  Chief  Executive  Officer
     ("CEO") of the  effectiveness  of the  Company's  disclosure  controls  and
     procedures.  Based upon that evaluation, the CEO concluded that as of March
     31, 2005 our disclosure  controls and  procedures  were effective in timely
     alerting them to the material  information  relating to the Company (or the
     Company's  consolidated  subsidiaries)  required  to  be  included  in  the
     Company's periodic filings with the SEC, subject to the various limitations
     on  effectiveness  set forth below under the heading,  "LIMITATIONS  ON THE
     EFFECTIVENESS OF INTERNAL CONTROLS," such that the information  relating to
     the  Company,  required to be  disclosed  in SEC  reports (i) is  recorded,
     processed, summarized and reported within the time periods specified in SEC
     rules and forms,  and (ii) is accumulated and communicated to the Company's
     management,  including our CEO, as  appropriate  to allow timely  decisions
     regarding required disclosure.

     (b) Changes in internal control over financial reporting. There has been no
     change in the Company's  internal  control over  financial  reporting  that
     occurred during the fiscal quarter ended March 31, 2005 that has materially
     affected,  or is  reasonably  likely to  materially  affect,  the Company's
     internal control over financial reporting.

     LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL CONTROLS
     -----------------------------------------------------

     The  Company's  management,  including  the CEO,  does not expect  that our
     disclosure  controls and procedures or our internal  control over financial
     reporting  will  necessarily  prevent  all fraud  and  material  error.  An
     internal  control  system,  no matter how well conceived and operated,  can
     provide only reasonable, not absolute, assurance that the objectives of the
     control  system are met.  Further,  the design of the  control  system must
     reflect the fact that there are  resource  constraints  and the benefits of
     controls  must be  considered  relative  to  their  costs.  Because  of the
     inherent  limitations in all control systems, no evaluation of controls can
     provide absolute  assurance that all control issues and instances of fraud,
     if any, within the Company have been detected.  These inherent  limitations
     include the realities that judgments in  decision-making  can be faulty and
     that breakdowns can occur because of simple error or mistake. Additionally,
     controls can be  circumvented  by the individual  acts of some persons,  by
     collusion of two or more people, or by management  override of the internal
     control.  The design of any system of  controls  also is based in part upon
     certain assumptions about the likelihood of future events, and there can be
     no assurance  that any design will  succeed in  achieving  its stated goals
     under all  potential  future  conditions.  Over  time,  control  may become
     inadequate  because  of  changes  in  conditions,   and/or  the  degree  of
     compliance with the policies or procedures may deteriorate.

                                                                               3
<PAGE>






Part II. Other Information
--------------------------

Item 2. Changes in Securities
-----------------------------

     On January  14,  2005,  the  Company  issued  500,000  shares  through  the
     conversion of 500,000 shares of its Series D preferred  stock.  On February
     7, 2005, the Company issued 400,000 shares for consulting  services.  These
     shares are subject to a thirty-month  lock-up  agreement and were valued at
     $555,000.  On  March  11,  2005,  the  Company  issued  75,750  shares  for
     consulting services. These shares are subject to a 2-year lock-up agreement
     and were valued at $90,000.  On March 24, 2005,  the Company issued 500,000
     shares  for  consulting  services.  These  shares  are  subject to a 2-year
     lock-up agreement and were valued at $580,000.

     The above  issuances were  unregistered,  as the Company was relying on the
     exemptions  from  registration  contained in Section 4(2) of the Securities
     Act,  and  Regulation  D  promulgated  thereunder,  on the basis  that such
     transactions did not involve public offerings of securities.






































                                                                               4
<PAGE>






Pursuant to the requirements of Securities  Exchange Act of 1934, the registrant
has duly  caused  this  report  to be signed  on its  behalf by the  undersigned
thereunto duly authorized.


                           Material Technologies, Inc.
                           ---------------------------
                                   Registrant

                             /s/ Robert M. Bernstein
                             -----------------------
                    Robert M. Bernstein, President and Chief
                                Financial Officer


















































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