**UNITED STATES						SECURITIES AND EXCHANGE COMMISSION					Washington, D.C.  20549					Form 10-QSB**

(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, 2007**

[  ]           TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _______________ to _______________.**Commission file number 333-23617**

| **Material Technologies, Inc.**							 (Exact name of small business issuer as specified in its charter)           |
|-------------------------------------------------------------------------------------------------------------------------|
|                                                                                                          |  |
| **Delaware**							 (State or other jurisdiction of								incorporation or organization)                          | **95-4622822**							 (I.R.S.  Employer								Identification No.) |
|                                                                                                               |  |
| **11661 San Vicente Boulevard, Suite 707									Los Angeles, CA**							 (Address of principal executive offices) |  **90049**							 (Zip Code) |

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

**Applicable only to issuers involved in bankruptcy proceedings during the preceding five years**

          Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or				15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.  Yes    X    No        

**Applicable only to corporate issuers**

          State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.  As of May 15, 2007, there were 135,143,715 shares issued, and 106,226,052 shares outstanding, of our Series A common stock.  As of May 15, 2007, there were 600,000 shares of Series B common stock issued and outstanding.

----

**MATERIAL TECHNOLOGIES, INC.**				 **TABLE OF CONTENTS**

| **PART I – FINANCIAL INFORMATION..................................................................**                                    | 2  |
|----------------------------------------------------------------------------------------------------------------------------------------------|----|
|                                                                                                                                    |    |
| ITEM 1     Financial Statements.......................................................................................   | 2  |
|                                                                                                                                    |    |
| ITEM 2     Management’s Discussion and Analysis or Plan of Operation...........................                    | 34 |
|                                                                                                                                    |    |
| ITEM 3     Controls and Procedures................................................................................       | 40 |
|                                                                                                                                    |    |
| **PART II – OTHER INFORMATION........................................................................**                                 | 42 |
|                                                                                                                                    |    |
| ITEM 1     Legal Proceedings..........................................................................................        | 42 |
|                                                                                                                                    |    |
| ITEM 2     Unregistered Sales of Equity Securities and Use of Proceeds...........................                             | 43 |
|                                                                                                                                    |    |
| ITEM 3     Defaults Upon Senior Securities......................................................................              | 44 |
|                                                                                                                                    |    |
| ITEM 4     Submission of Matters to a Vote of Security Holders.......................................                         | 44 |
|                                                                                                                                    |    |
| ITEM 5     Other Information...........................................................................................       | 44 |
|                                                                                                                                    |    |
| ITEM 6     Exhibits.......................................................................................................... | 45 |

1

----

**PART I****– FINANCIAL INFORMATION**

          This Quarterly Report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”).  These statements are based on management’s beliefs and assumptions, and on information currently available to management.  Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading “Management’s Discussion and Analysis of Financial Condition or Plan of Operation.”  Forward-looking statements also include statements in which words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “consider” or similar expressions are used.				          Forward-looking statements are not guarantees of future performance.  They involve risks, uncertainties and assumptions.  Our future results and shareholder values may differ materially from those expressed in these forward-looking statements.  Readers are cautioned not to put undue reliance on any forward-looking statements.**ITEM 1.**       **Financial Statements**

2

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| **MATERIAL TECHNOLOGIES, INC.**   |
|-----------------------------------|
| **(A Development Stage Company)** |
| **  **                  |  |  |  |  |
| **CONSOLIDATED BALANCE SHEET**    |
|                                   |
|                         |  |  |  |  |
|                                   |  |  |  | **MARCH 31,** |
|                                   |  |  |  | **2007** |
|                                   |  |  |  |  |
|                         |  |  |  | (Unaudited) |
| **ASSETS**                        |  |  |
|                         |  |  |  |  |
|                                   | Current assets: |  |  |
|                                   |  | Cash and cash equivalents |  $  |          893,176 |
|                                   |  | Investments in marketable securities held for trading |  |            41,646 |
|                                   |  | Accounts receivable |  |            33,144 |
|                                   |  | Prepaid expenses and other current assets |  |              8,376 |
|                                   |  |  |  |  |
|                         |  |  |  |  |
|                                   |  |      Total current assets |  |          976,342 |
|                         |  |  |  |  |
|                                   |  | Property and equipment, net  |  |              4,666 |
|                                   |  | Intangible assets, net |  |              3,647 |
|                                   |  | Deposit |  |              2,348 |
|                                   |  |  |  |  |
|                         |  |  |  |  |
|                                   |  |  |  $  |          987,003 |
|                                   |  |  |  | ============ |

Continued . . .F-1

----

| **MATERIAL TECHNOLOGIES, INC.**                 |
|-------------------------------------------------|
| **(A Development Stage Company)**               |
|                                  |  |  |  |  |  |  |
| **CONSOLIDATED BALANCE SHEET**                  |
|                                                 |
|                                  |  |  |  |  |  |  |
|                                                 |  |  |  |                                                      |  | **March 31,** |
|                                                 |  |  |  |  |   | **2007** |
|                                                 |  |  |  |  |  |  |
|                                                 |  |  |  |  |  | (Unaudited) |
|                                       |  |  |  |  |  |  |
| **LIABILITIES AND STOCKHOLDERS'  DEFICIT** |  |  |
|                                       |  |  |  |  |  |  |
|                                                 | Current liabilities: |  |  |
|                                                 |  | Accounts payable and accrued expenses | $ |               393,868 |
|                                                 |  | Current portion of research and development sponsorship payable |  |                 25,000 |
|                                                 |  | Notes payable |  |                 91,232 |
|                                                 |  |  |  |  |  |  |
|                                       |  |  |  |  |  |  |
|                                                 |  |  |  | Total current liabilities |  |               510,100 |
|                                       |  |  |  |  |  |  |
|                                                 | Accrued legal settlement  |  |            1,050,000 |
|                                                 | Research and development sponsorship payable, net of current portion |  | 757,859 |
|                                                 | Notes payable, long-term |  | 201,140 |
|                                                 | Convertible debentures and accrued interest payable, net of discount  |  |  |
|                                                 |  | of $2,148,648 |  | 554,032 |
|                                                 | Derivative and warrant liabilities |  |            1,756,979 |
|                                                 |  |  |  |  |  |  |
|                                       |  |  |  |  |  |  |
|                                                 |  |  |  | Total liabilities |  |            4,830,110 |
|                                                 |  |  |  |  |  |  |
|                                       |  |  |  |  |  |  |
|                                                 | Minority interest in consolidated subsidiary |  |                      825 |
|                                                 |  |  |  |  |  |  |
|                                       |  |  |  |  |  |  |
|                                                 | Commitments and contingencies |  |  |
|                                       |  |  |  |  |  |  |
|                                                 | Stockholders' deficit: |  |  |
|                                                 |  | Class A preferred stock, $0.001 par value, liquidation preference |  |  |
|                                                 |  |  | of  $720 per share; 350,000 shares authorized; 337 shares issued |  |  |
|                                                 |  |  | and outstanding |  |                     - |
|                                                 |  | Class B preferred stock, $0.001 par value, liquidation preference of |  |  |
|                                                 |  |  | $10,000 per share; 15 shares authorized;  none issued and |  |  |
|                                                 |  |  | outstanding |  |                     - |
|                                                 |  | Class C preferred stock, $0.001 par value, liquidation preference of |  |  |
|                                                 |  |  | $0.001 per share; 25,000,000 shares authorized; 1,517 shares issued |  |  |
|                                                 |  |  | and outstanding |  |                          1 |
|                                                 |  | Class D preferred stock, $0.001 par value, liquidation preference of |  |  |
|                                                 |  |  | $0.001 per share; 20,000,000 shares authorized; 0 shares issued |  |  |
|                                                 |  |  | and outstanding |  |                     - |
|                                                 |  | Class E preferred stock, $0.001 par value, no liquidation  |  |  |
|                                                 |  |  | preference; 60,000 shares authorized; 55,000 shares issued and |  |  |
|                                                 |  |  | outstanding |  |                        55 |
|                                                 |  | Class A Common Stock, $0.001 par value, 600,000,000 shares |  |  |
|                                                 |  |  | authorized; 113,200,276 shares issued; 84,282,613 shares outstanding |  |                 84,283 |
|                                                 |  | Class B Common Stock, $0.001 par value, 600,000 shares authorized, |  |  |
|                                                 |  |  | issued and outstanding |  |                      600 |
|                                                 |  | Warrants subscribed |  |                 10,000 |
|                                                 |  | Additional paid-in-capital |  |          73,307,499 |
|                                                 |  | Deficit accumulated during the development stage |  |  (77,222,104) |
|                                                 |  | Treasury stock (9,467 shares at cost) |  |         (24,266) |
|                                                 |  |  |  |  |  |  |
|                                       |  |  |  |  |  |  |
|                                                 |  |  |  | Total stockholders' deficit |  |     (3,843,932) |
|                                                 |  |  |  |  |  |  |
|                                       |  |  |  |  |  |  |
|                                                 |  |  |  |  | $ |               987,003 |
|                                                 |  |  |  |  |  | ============ |

See accompanying notes to the consolidated financial statementsF-2

----

| **MATERIAL TECHNOLOGIES, INC.**                                                                                                                                                                                                            |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **(A Development Stage Company)**                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                  |  |  |  |  |  |  |
| **CONSOLIDATED STATEMENTS OF OPERATIONS**                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                            |
|                                                                                                                                                                                                                                  |  |  |  |  |  |  |
|                                                                                                                                                                                                                                            |  |  |  |  |  | From							October 21, 1983 |
|                                                                                                                                                                                                                                            |  | For the Three Months Ended  |  | (Inception) |
|                                                                                                                                                                                                                                            |  |                      March 31,                        |  | through |
|                                                                                                                                                                                                                                            |  | 2007 |  | 2006 |  | March 31, 2007 |
|                                                                                                                                                                                                                                            |  |  |  |  |  |  |
|                                                                                                                                                                                                                                            |  | (Unaudited) |  | (Unaudited) |  | (Unaudited) |
| Revenues:                                                                                                                                                                                                                                  |  |  |  |  |  |  |
|   Research and development                                                                                                                                                                                                            | $ |                    -   |  $  |           28,846 |  $  | 5,392,085 |
|   Revenue from bridge testing                                                                                                                                                                                                         |  |              43,967 |  |                   -   |  |                 160,674 |
|   Other                                                                                                                                                                                                                               |  |                       -   |  |                   -   |  |                  274,125 |
|                                                                                                                                                                                                                                            |  |  |  |  |  |  |
|                                                                                                                                                                                                                                  |  |  |  |  |  |  |
|     Total revenues                                                                                                                                                                                                          |  |               43,967 |  |            28,846 |  |               5,826,884 |
|                                                                                                                                                                                                                                            |  |  |  |  |  |  |
|                                                                                                                                                                                                                                  |  |  |  |  |  |  |
| Costs and expenses:                                                                                                                                                                                                                        |  |  |  |  |  |  |
|   Research and development                                                                                                                                                                                                            |  |          1,080,501 |  |          185,152 |  |              19,381,676 |
|   General and administrative                                                                                                                                                                                                          |  |          3,598,427 |  |       2,523,819 |  |              35,450,229 |
|                                                                                                                                                                                                                                            |  |  |  |  |  |  |
|                                                                                                                                                                                                                                  |  |  |  |  |  |  |
|     Total costs and expenses                                                                                                                                                                                                |  |          4,678,928 |  |       2,708,971 |  |             54,831,905 |
|                                                                                                                                                                                                                                            |  |  |  |  |  |  |
|                                                                                                                                                                                                                                  |  |  |  |  |  |  |
|       Loss from operations                                                                                                                                                                                        |  |        (4,634,961) |  |     (2,680,125) |  |           (49,005,021) |
|                                                                                                                                                                                                                                            |  |  |  |  |  |  |
|                                                                                                                                                                                                                                  |  |  |  |  |  |  |
| Other income (expense):                                                                                                                                                                                                                    |  |  |  |  |  |  |
|   Gain on modification of convertible debt                                                                                                                                                                                            |  |                         - |  |                     - |  |                  586,245 |
|   Modification of research and development sponsorship						    agreement                                                                                                                                              |  |                         - |  |                     - |  |       (7,738,400) |
|   Loss on subcription receivable                                                                                                                                                                                                      |  |                  - |  |             - |  |             (1,368,555) |
|   Interest expense                                                                                                                                                                                                                    |  |           (978,235) |  |       (149,938) |  |           (10,333,214) |
|   Other-than-temporary impairment of marketable                                                                                                                                                                                       |  |  |  |  |  |  |
|     securities available for sale                                                                                                                                                                                           |  |                         - |  |                    - |  |            (9,785,947) |
|   Net unrealized and realized loss of marketable securities                                                                                                                                                                           |  |                      (8) |  |                (23) |  |             (5,411,673) |
|   Change in fair value of investments derivative liability                                                                                                                                                                            |  |                         - |  |         (76,911) |  |             (403,650) |
|   Change in fair value of derivative and warrant liabilities                                                                                                                                                                          |  |            747,504 |  |       (930,369) |  |               7,136,776 |
|   Interest income                                                                                                                                                                                                                     |  |                 3,372 |  |             3,891 |  |                  409,571 |
|   Loss on settlement of lawsuits                                                                                                                                                                                                      |  |                         - |  |                    - |  |             (1,267,244) |
|   Other                                                                                                                                                                                                                               |  |                        - |  |                    - |  |                  (25,992) |
|                                                                                                                                                                                                                                            |  |  |  |  |  |  |
|                                                                                                                                                                                                                                  |  |  |  |  |  |  |
|     Other expense, net                                                                                                                                                                                                      |  |          (227,367) |  |    (1,153,350) |  |           (28,202,083) |
|                                                                                                                                                                                                                                            |  |  |  |  |  |  |
|                                                                                                                                                                                                                                  |  |  |  |  |  |  |
| Loss before provision for income taxes                                                                                                                                                                                                     |  |       (4,862,328) |  |    (3,833,475) |  |           (77,207,104) |
|                                                                                                                                                                                                                                  |  |  |  |  |  |  |
| Provision for income taxes                                                                                                                                                                                                                 |  |                 (800) |  |              (800) |  |                  (15,000) |
|                                                                                                                                                                                                                                            |  |  |  |  |  |  |
|                                                                                                                                                                                                                                  |  |  |  |  |  |  |
|       Net loss                                                                                                                                                                                                    | $ |       (4,863,128) | $ |    (3,834,275) | $ |      (77,222,104) |
|                                                                                                                                                                                                                                            |  | ============ |  | ============ |  | ============== |
|                                         |  |  |  |  |  |  |
| Per share data:                                                                                                                                                                                                                            |  |  |  |  |  |  |
|   Basic and diluted net loss per share                                                                                                                                                                                                | $ |                (0.06) | $ |             (7.45) |  |  |
|                                                                                                                                                                                                                                            |  | ============ |  | ============ |  |  |
|   Weighted average Class A common shares                                                                                                                                                                                              |  |  |  |  |  |  |
|     outstanding - basic and diluted                                                                                                                                                                                         |  |      79,013,719 |  |         514,643 |  |  |
|                                                                                                                                                                                                                                            |  | ============ |  | ============ |  |  |

See accompanying notes to the consolidated financial statementsF-3

----

| **MATERIAL TECHNOLOGIES, INC.**                   |
|---------------------------------------------------|
| **(A Development Stage Company)**                 |
| **  **                                  |  |  |  |  |  |  |  |
| **CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS** |
|                                                   |
|                                         |  |  |  |  |  |  |  |
|                                                   |  |  |  |  |  |  | From							October 21, 1983 |
|                                                   |  |  | For the Three Months Ended  |  | (Inception) |
|                                                   |  |   |                     March 31,                      |  | through |
|                                                   |  |  | 2007 |  | 2006 |  | March 31, 2007 |
|                                                   |  |  |  |  |  |  |  |
|                                                   |  |  | (Unaudited) |  | (Unaudited) |  | (Unaudited) |
|                                         |  |  |  |  |  |  |  |
| Net loss                                          | $ |  (4,863,128) |  $  | (3,834,275) |  $  | (77,222,104) |
|                                                   |  |  |  |  |  |  |  |
|                                         |  |  |  |  |  |  |  |
| Other comprehensive loss:                         |  |  |  |  |  |  |
|                                                   | Temporary increase (decrease) in market  |  |  |  |  |  |  |
|                                                   |    value of securities available for sale |  |                   - |  | 12,242 |  | - |
|                                                   | Reclassification to other-than-temporary |  |  |  |  |  |  |
|                                                   |    impairment of marketable securities |  |  |  |  |  |  |
|                                                   |    available for sale |  |                   - |  | - |  | - |
|                                                   |  |  |  |  |  |  |  |
|                                         |  |  |  |  |  |  |  |
|                                                   |  |  |                   - |  | 12,242 |  | - |
|                                                   |  |  |  |  |  |  |  |
|                                    |  |  |   |  |   |  |   |
| Net comprehensive loss                            | $ |   (4,863,128) |  $  | (3,822,033) |  $  | (77,222,104) |
|                                                   |  |  | =========== |  | =========== |  | ============== |

See accompanying notes to the consolidated financial statementsF-4

----

| **MATERIAL TECHNOLOGIES, INC.**                              |
|--------------------------------------------------------------|
| **(A Development Stage Company)**                            |
| **  **                                             |
| **CONSOLIDATED STATEMENTS OF CASH FLOWS**                    |
|                                                              |
|                                                    |  |  |  |  |  |  |  |  |
|                                                              |  |  |  |  |  |  |  | From							October 21, 1983 |
|                                                              |  |  |  | For the Three Months Ended  |  | (Inception) |
|                                                              |  |  |  |                   March 31,                    |  | through |
|                                                              |  |  |  | 2007 |  | 2006 |  | March 31, 2007 |
|                                                              |  |  |  |  |  |  |  |  |
|                                                              |  |  |  | (Unaudited) |  | (Unaudited) |  | (Unaudited) |
|                                                    |  |  |  |  |  |  |  |  |
| Cash flows from operating activities:                        |  |  |  |  |  |  |
|   Net loss                                              | $  | (4,863,128) |  $  |  (3,834,275) |  $ | (77,222,104) |
|   Adjustments to reconcile net loss to net cash used in |  |  |  |  |  |  |
|     in operating activities:                  |  |  |  |  |  |  |
|                                                              | Gain on modification of convertible debt |  |  - |  |                  - |  |             (586,245) |
|                                                              | Write off of in process research and development |  | 875,000 |  |                  - |  |            3,009,153 |
|                                                              | Loss on write off of subscription receivables |  |                      - |  |                  - |  |                1,368,555 |
|                                                              | Issuance of common stock for services |  |        3,328,278 |  |    1,952,645 |  |            34,520,664 |
|                                                              | Issuance of common stock for modification of |  |  |  |  |  |  |
|                                                              |   research and development sponsorship agreement |  |                      - |  |                  - |  |            7,738,400 |
|                                                              | Change in fair value of derivative and warrant liabilities |  | (747,504) |  | 1,007,280 |  | (7,136,776) |
|                                                              | Net realized and unrealized loss on marketable securities |  | - |  | 24 |  | 5,411,665 |
|                                                              | Other-than-temporary impairment of marketable  |  |  |  |  |  |  |
|                                                              |   securities available for sale |  |              - |  |             - |  |     9,785,947 |
|                                                              | Legal fees incurred for note payable |  |                - |  |           - |  |  1,456,142 |
|                                                              | Accrued interest expense added to principal |  |   78,122 |  |   44,554 |  |    1,244,236 |
|                                                              | Amortization of discount on convertible debentures |  |   899,130 |  | 104,298 |  |    8,964,194 |
|                                                              | Change in fair value of investments derivative liability |  |           - |  |                 - |  |                403,650 |
|                                                              | Accrued interest income added to principal |  |           (1,029) |  |        (1,116) |  |                 (304,850) |
|                                                              | Depreciation and amortization |  |               974 |  |          2,163 |  |                    221,177 |
|                                                              | Other non-cash adjustments |  |                   - |  |                 - |  |             (114,730) |
|                                                              | (Increase) decrease in trade receivables  |  |         83,563 |  |       70,825 |  |                (83,472) |
|                                                              | (Increase) decrease in prepaid expenses and other  |  |  |  |  |  |  |
|                                                              |     current assets |  |                     - |  |    306,197 |  |                233,348 |
|                                                              | Increase in deposits |  |                      - |  |                 - |  |                  (2,348) |
|                                                              | (Decrease) increase in accounts payable and accrued |  |  |  |  |  |  |
|                                                              |   expenses |  |          (33,796) |  |        19,448 |  |            2,544,758 |
|                                                              |  |  |  |  |  |  |  |  |
|                                                    |  |  |  |  |  |  |  |  |
|                                                              |  | Net cash used in operating activities |  | (380,390) |  | (327,957) |  | (8,548,636) |
|                                                              |  |  |  |  |  |  |  |  |
|                                                    |  |  |  |  |  |  |  |  |
| Cash flows from investing activities:                        |  |  |  |  |  |  |
|   Proceeds from the sale of marketable securities       |  |             95,007 |  | 174,988 |  | 3,416,309 |
|   Purchase of marketable securities                     |  |             (1,517) |  | (2,563) |  | (1,905,858) |
|   Payment received on officer loans                     |  |                    - |  |            - |  | 876,255 |
|   Funds advanced to officers                            |  |              - |  |          - |  | (549,379) |
|   Purchase of property and equipment                    |  |                  - |  |          - |  | (272,573) |
|   Investment in joint ventures                          |  |               - |  |            - |  | (102,069) |
|   Proceeds from foreclosure                             |  |                 - |  |          - |  | 44,450 |
|   Proceeds from the sale of property and equipment      |  |                - |  |             - |  | 19,250 |
|   Payment for license agreement                         |  |            - |  |         - |  | (6,250) |
|                                                              |  |  |  |  |  |  |  |  |
|                                               |  |  |  |  |  |  |  |  |
|                                                              |  | Net cash provided by investing activities |  | 93,490 |  | 172,425 |  | 1,520,135 |
|                                                              |  |  |  |  |  |  |  |  |

Continued . . . F-5

----

| **MATERIAL TECHNOLOGIES, INC.**                                                                                                                                                                            |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **(A Development Stage Company)**                                                                                                                                                                          |
|                                                                                                                                                                                                  |   |   | ** ** | ** ** | ** ** | ** ** |  |
| **CONSOLIDATED STATEMENTS OF CASH FLOWS**                                                                                                                                                                  |
|                                                                                                                                                                                                            |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                            |  |  |  |  |  |  | From							October 21, 1983 |
|                                                                                                                                                                                                            |  |  | For the Three Months Ended  |  | (Inception) |
|                                                                                                                                                                                                            |  |  |                   March 31,                    |  | through |
|                                                                                                                                                                                                            |  |  | 2007 |  | 2006 |  | March 31, 2007 |
|                                                                                                                                                                                                            |  |  |  |  |  |  |  |
|                                                                                                                                                                                                            |  |  | (Unaudited) |  | (Unaudited) |  | (Unaudited) |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
| Cash flow from financing activities:                                                                                                                                                                       |  |  |  |  |  |  |
|   Proceeds from the sale of common stock and warrants                                                                                                                                            |  $  | 761,365 |  $  | 164,505 |  $  | 5,640,687 |
|   Proceeds from convertible debentures and other                                                                                                                                                      |  |  |  |  |  |  |
|      notes payable                                                                                                                                                                     |  |    200,000 |  |                 - |  | 2,047,766 |
|   Proceeds from the sale of preferred stock                                                                                                                                                           |  |      100,000 |  |                  - |  | 573,005 |
|   Costs incurred in offerings                                                                                                                                                                         |  |                  - |  |                  - |  | (487,341) |
|   Capital contributions                                                                                                                                                                               |  |                  - |  |                  - |  | 301,068 |
|   Purchase of treasury stock                                                                                                                                                                          |  |      (10,585) |  |         (8,623) |  | (98,508) |
|   Principal reduction on notes payable                                                                                                                                                           |  |  |  |        (25,000) |  | (50,000) |
|   Payment on proposed reorganization                                                                                                                                                                  |  |                 - |  |                   - |  | (5,000) |
|                                                                                                                                                                                                            |  |  |  |  |  |  |  |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
|       Net cash provided by financing activities                                                                                                                                   |  |  1,050,780 |  |      130,882 |  | 7,921,677 |
|                                                                                                                                                                                                            |  |  |  |  |  |  |  |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
| Net change in cash and cash equivalents                                                                                                                                                                    |  |     763,880 |  |     (24,650) |  | 893,176 |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
| Cash and cash equivalents, beginning of period                                                                                                                                                             |  |      129,296 |  |        47,345 |  | - |
|                                                                                                                                                                                                            |  |  |  |  |  |  |  |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
| Cash and cash equivalents, end of period                                                                                                                                                                   |  $  |      893,176 |  $  |        22,695 |  $  | 893,176 |
|                                                                                                                                                                                                            |  |  | =========== |  | =========== |  | ============== |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
| Supplemental disclosure of cash flow information:                                                                                                                                                          |  |  |  |  |  |  |
|   Interest paid during the period                                                                                                                                                                     | $ | 1,017 |  $  | 1,085 |  |  |
|                                                                                                                                                                                                            |  |  | =========== |  | =========== |  |  |
|   Income taxes paid during the period                                                                                                                                                                 | $ | 800 |  $  | 800 |  |  |
|                                                                                                                                                                                                            |  |  | =========== |  | =========== |  |  |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
| Supplemental disclosures of non-cash investing and financing activities:                                                                                                                                   |  |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
| 2007                                                                                                                                                                                                       |  |  |  |  |  |  |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
| During the quarter, the Company issued 2,838,598 shares of its Class A common stock for consulting                                                                                                    |
| services valued at $3,328,278                                                                                                                                                                              |  |  |  |  |  |  |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
| Duirng 2007, the Company received $1,000,000 in consideration of issuing 2,500,000 units.                                                                                                                  |
| Each unit consists of one share of the Company's Class A common stock and a warrant to purchase                                                                                                            |
| one share of the Company's common stock at a price of $.60 per share. In connection with private offering                                                                                                  |
| the Company paid $238,635 in fees and issued 15,000 shares and warrants to purchase 2,118,334 shares of the Company's                                                                                 |
| common stock at a price of $.60 per share.                                                                                                                                                            |  |  |  |  |  |  |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
| During 2007, the Company issued 50,000 shares its Class E Series convertible preferred stock                                                                                                               |
| in exchange for $100,000 in cash and $875,000 in process research and development cost . In addition.                                                                                                      |
| the Company issued an additional 5,000 shares  for fees in connection with the transaction.                                                                                                           |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
| During the quarter, the Company issued 10,800,000 shares in escrow pursuant to an agreement it has with its Convertible                                                                                    |
| debenture holders. During 2007, 5,800,000 shares of Class A common stock were issued  to certain debenture holders in exchange                                                                        |
| for cancellation of $580,000 of indebtedness. In additon, for the redemption of 1,000,000 shares by certain debenture holders, the amount due on the debentures was increased by $600,000.  |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
| During the quarter, the Company received 50,000 shares of prior issued common stock which were subsequently cancelled.                                                                                     |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
| 2006                                                                                                                                                                                                       |  |  |  |  |  |  |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
| During the quarter, the Company issued 15,729,084 shares of its Class A common stock for consulting                                                                                                   |
| services valued at $1,952,644.                                                                                                                                                                             |  |  |  |  |  |  |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
| The Company issued 1,420,000 shares of its Class A common stock through the conversion of 1,420,000                                                                                                        |
| shares of Class D preferred stock.                                                                                                                                                                         |  |  |  |  |  |  |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
| During the quarter, the Company issued 4,000,000 shares in exchange for  promissory notes with face values                                                                                       |
| totaling $200,000. The notes bear interest at 6% per annum and are due in one year.                                                                                                                   |  |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
|                                                                                                                                                                                                  |  |  |  |  |  |  |  |
| 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

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**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**

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**NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION**
****

****

F-7

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**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**

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F-8

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**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**

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F-9

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**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**

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F-10

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**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**

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F-11

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**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**

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F-12

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**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**

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F-13

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**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**

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F-14

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**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**

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F-15

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**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**

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F-16

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**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**

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F-17

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**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**

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|                                                 | Adjusted Cost                                                                     | Unrealized Loss | Fair Value                                                |
|-----------------------------------------------------------|-----------------------------------------------------------------------------------|-----------------|-----------------------------------------------------------|
| Marketable trading securities                             | $    41,646                                                        | -               | $  41,646                                            |
| Non-marketable securities –							  Birchington | $              - | -     | $          - |

F-18

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**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**

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F-19

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**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**

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F-20

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**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**

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F-21

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**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**

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F-22

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**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**

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F-23

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**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**

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    - Release each of the debenture holders from all liability arising prior to October 27, 2006;   Effectuate a 1-for-300 reverse stock split of the Company’s Class A common stock;Issue warrants to purchase an aggregate of 35,000,000 post-split shares of the Company’s Class A common stock at an exercise price of $0.001 per share;
- Issue up to 30,000,000 post-split shares of the Company’s Class A common stock to the Company’s CEO, as consideration for the receipt of a general release from him and execution of a new employment agreement (Note 9);   Issue up to 40,000,000 post-split shares of the Company’s Class A common stock to certain third parties designated by the Company’s CEO; andExecute an amendment to each of the outstanding Debentures held by the Debenture holders to:			
- Extend the due date to December 31, 2008,   Increase the principal balance by 15%,Maintain the conversion price at the lower of $0.10 or 50% of the market price after the reverse stock split,
- Limit the number of shares the Company can issue pursuant to a registration statement on Form S-8,				          
F-24
  
**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**
**NOTE 6 – CONVERTIBLE DEBENTURES, continued**- Eliminate the 75-day waiting requirement between the time the Company receives a notice of conversion and the time the Company must deliver the applicable shares,   Confirm that a default under one of the Debentures will be considered a default under all of them,Deposit 9.9% of the Company’s issued and outstanding stock with an escrow agent to deliver upon a conversion by the Debenture holders, and to maintain that balance with the escrow agent,
- Limit the conversion so that no holder may own more that 4.99% of the Company’s outstanding Class A common stock at any one time, and   Add $60,000 to the principal balance owed.				
As a result of the settlement agreement and general release, the Company assessed the debt modification under EITF 96-19, *Debtor’s Accounting for a Modification or Exchange of Debt Instruments* and determined that the modification resulted in a debt extinguishment.  The Company recorded $831,035 as a gain on the modification of debt during 2006. 				Additionally in conjunction with the Palisades debt modification, the Company recorded a new derivative liability totaling $2,856,000 for the conversion feature of the new notes and the 35,000,000 warrants that were issued as part of the modification and a debt discount of $2,526,358 equal to the principal balance of the note. 				The new derivatives were valued primarily using a market capitalization method, as the number of warrants issued in the modification exceeded 20% of the then outstanding and trading shares of the Company’s common stock (see Note 1). 				During the three months ended March 31, 2007, $580,000 of indebtedness was cancelled in exchange for the issuance of 5,800,000 shares of the Company’s common stock. Related to this conversion, the Company wrote off $580,000 of the debt discount to interest expense during the three months ended March 31, 2007. 					In addition, the indebtedness was increased by $600,000 in exchange for the return of 1,000,000 shares held by the Debenture holders.. In this transaction, the Company recorded a $600,000 increase to the debenture and corresponding reduction to additional paid in capital, as well as a new derivative liability totaling $600,000 for the conversion feature of added principal and also increased the debt discount by the same amount.					The balance of the Debenture, including accrued interest, at March 31, 2007 was $486,618 (net of

F-25

**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**
**NOTE 6 – CONVERTIBLE DEBENTURES, continued**unamortized discount of $2,125,315).  Interest charged to operations on the face amount of the debentures was $65,554 and $33,299 for the three months ended March 31, 2007 and 2006.  Amortization expense of the discount charged to operations as interest expense during the three months ended March 31, 2007 and 2006 amounted to $895,797 and $99,855, respectively.GGITo obtain funding for ongoing operations, the Company entered into a Securities Purchase Agreement (the “SPA”) and various amendments to the SPA with Golden Gate Investors, Inc. (“GGI”) on December 16, 2005 for the sale of (i) $40,000 in unsecured convertible debentures (the “Notes”) and (ii) warrants to purchase 13,333 shares of the Company’s common stock.			The Notes bear interest at 5.25% per annum, mature three years from the date of issuance and are convertible into the number of shares of the Company’s common stock equal to the dollar amount of the Notes being converted multiplied by 110, less the product of the conversion formula multiplied by 100 times the dollar amount of the Notes being converted, which is divided by the conversion formula.  The conversion formula is the lesser of (i) $210, (ii) eighty percent (the “Discount Multiplier”) of the average of the three lowest volume weighted average prices during the twenty trading days prior to the conversion or (iii) eighty percent of the volume weighted average price on the trading day prior to the conversion.  Accordingly, there is no limit on the number of shares into which the Notes may be converted.  The Company has agreed to register the shares that may be issued upon conversion of the Notes and exercise of the related warrants.			Beginning in the first full calendar month after the registration statement is declared effective, GGI has agreed to convert at least 5%, but no more than 10% of the face value of the Notes into shares of the Company’s common stock.  If GGI converts more than 5% of the Notes in any calendar month, the excess over 5% shall be credited against the subsequent month’s minimum conversion amount.  If GGI fails to convert at least 5% of the face amount of the Notes in any given calendar month, GGI will not be entitled to collect interest on the Notes for that month.  If the volume weighted average price of the Company’s common stock is below $60, the Company shall have the right to prepay that portion of the Notes that GGI is required to convert, plus any accrued but unpaid interest at 130% of such amount.  If at any time during the calendar month, the volume weighted average price is below $30, GGI shall not be obligated to convert any portion of the Notes during that month.				Beginning in the first full month after the registration statement is declared effective, GGI has agreed to exercise at least 5%, but no more than 10%, of the warrants per calendar month at an
F-26

**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**
**NOTE 6 – CONVERTIBLE DEBENTURES, continued**exercise price of $327 per share.  If GGI exercises more than 5% of warrants in any calendar month, the excess over 5% shall be credited against the subsequent month’s minimum exercise amount.  If GGI fails to exercise at least 5% of the warrants in any given calendar month, GGI will not be entitled to collect interest on the Notes for that month.  The warrants are exercisable through the maturity date of December 16, 2008.			At any time prior to the registration statement being declared effective, GGI may demand repayment of 130% of the principal amount of the Notes, plus all accrued and unpaid interest thereon, in cash within 10 days of such demand.  Additionally, the Company will be required to issue and pay to GGI 167 shares of common stock and $15,000 in cash for each 30-day period, or portion thereof, that the Registration Statement is not effective.  The cash payment increases to $20,000 for each 30-day period, or portion thereof, after the first 90-day period. 			The full principal amount of the Notes is due upon a default under the terms of the agreement.  The Company filed a registration statement within 60 days of closing, which included the common stock underlying the Notes and the warrants.  If the registration statement is not declared effective within 120 days from the date of filing, the Company will be required to pay a penalty to GGI (see above).  In the event the Company breaches any representation or warranty in the SPA, the Company is required to pay in cash, 130% of the then outstanding principal balance of the Notes, plus accrued and unpaid interest.			For a period of one year after the effective date of the SPA, GGI has agreed to restrict its ability to convert its Notes or exercise its warrants and receive shares of the Company’s common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 9.99% of the then issued and outstanding shares of common stock.			The Notes include certain features that are considered embedded derivative financial instruments, such as the conversion feature, events of default and a variable liquidated damages clause.  These features are described below, as follows:			       The Notes’ conversion feature is identified as an embedded derivative and has been bifurcated and recorded on the Company’s balance sheet at its fair value;			       The SPA includes a penalty provision based on any failure to meet registration requirements for shares issuable under the conversion of the Notes or exercise of the warrants, which represents an embedded derivative, but such derivative has a de minimus value and has not been recorded in the accompanying consolidated financial statements; and
F-27

**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**
**NOTE 6 – CONVERTIBLE DEBENTURES, continued**
       The SPA contains certain events of default including not having adequate shares registered to effectuate allowable conversions; in that event, the Company is required to pay a conversion default payment at 130% of the then outstanding principal balance on the Notes, which is identified as an embedded derivative, but such derivative has a de minimus value and has not been recorded in the accompanying consolidated financial statements.					During 2006, the Company received an additional advance of $50,000.				In conjunction with the Notes, the Company issued warrants to purchase 13,333 shares of common stock.  The accounting treatment of the derivatives and warrants requires that the Company record the warrants at their fair values as of the inception date of the agreement, which totaled $326,600. 				The initial fair value assigned to the embedded derivatives and warrants was $5,957,188.  The Company recorded the first $40,000 of fair value of the derivatives and warrants to debt discount (equal to the total proceeds received as of December 31, 2005), which will be amortized to interest expense over the term of the Notes.  Amortization expense charged to operations during the three months ended March 31, 2007 and 2005 was $3,333 and $4,444.  The remaining balance of $5,917,188 was recorded as interest expense for the year ended December 31, 2005.				The market price of the Company’s common stock significantly impacts the extent to which the Company may be required or may be permitted to convert the unrestricted and restricted portions of the Notes into shares of the Company’s common stock.  The lower the market price of the Company’s common stock at the respective times of conversion, the more shares the Company will need to issue to convert the principal and interest payments then due on the Notes.  If the market price of the Company’s common stock falls below certain thresholds, the Company will be unable to convert any such repayments of principal and interest into equity, and the Company will be forced to make such repayments in cash.  The Company’s operations could be materially adversely impacted if the Company is forced to make repeated cash payments on the Notes.				In May 2006, the Company entered into an addendum to the GGI Notes.  Per the terms of the agreement, the debenture amount has been increased from $40,000 to $1,000,000, and upon notification that the registration statement for the Conversion Shares (as defined in the agreement) has been filed with the SEC, GGI shall advance the Company an additional $20,000.  Additionally, upon the effective registration of the underlying shares, the Company shall issue 66,667 registered shares to be held in escrow and GGI shall transfer the Company the remaining debenture balance.  The agreement modified the terms of the conversion as follows:

F-28

**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**
**NOTE 6 – CONVERTIBLE DEBENTURES, continued**       the number of shares into which the Notes maybe converted is equal to the dollar amount of the Notes being converted divided by the conversion formula;			       eliminates the provision that if the volume weighted average price is less than $30 that GGI shall not be obligated to convert any portion of the Notes during that month;			       if GGI elects to convert a portion of the Notes and, on the day that the election is made, the volume weighted average price is below the lesser of : (i) $15, or (ii) the lowest price at which any of the 66,667 additional shares are issued or sold, the Company shall have the option to do one of the following: (a) redeem that portion of the Notes that GGI elected to convert, plus any accrued and interest, at 108% of such amount, or (b) increase the discount multiplier to 99% on that portion of Notes that GGI elected to convert, or (c) one time during any six-month period, not permit any Notes conversion by GGI for a period of 60 days; and			       If GGI elects to convert a portion of the Notes and, on that day the election is made, the volume weighted average price is $96 or higher, the Discount Multiplier shall be 72%. 			The original 13,333 warrants issued have been cancelled.  In May 2006 and in connection with the modification of the GGI Notes, the Company issued to GGI 166,667 warrants to purchase common stock at a price of $3 per share, provided, however, in no event will the exercise price be lower or higher than the lowest price at which the Company sells any common stock (through direct issuance, conversion of debentures, etc, but not including stock issued for services) during the 30 days prior to the exercise date.  GGI has agreed to exercise the warrant shares at a rate of at least 4,167 shares per week once the registration statement has been declared effective.  Also, beginning in the first full calendar month after the registration of the underlying shares is declared effective, GGI must convert at least 10%, but no more than 40%, of the face value of the Notes per calendar month into common shares of the Company, provided that the common shares are available, registered and freely tradeable.  The Company may reduce the monthly maximum figure from 40% to 6% for any three calendar months (but not two consecutive calendar months) during the term of Notes by giving written notice at least 10 business days prior to the first applicable month.  GGI and the Company shall enter into three additional $1,000,000 convertible debentures, each with the same terms as above.  The agreement also allows the Company to register up to an additional 66,667 shares for sale or issuance to parties other than GGI in the registration statement.				As a result of the modification of the debt, the Company recognized a gain on the debt extinguishment for the difference between the fair value of the Notes and warrant and derivative liabilities immediately before the modification and after the modification as part of the change in fair value of derivative and warrant liabilities.
F-29

**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**
**NOTE 6 – CONVERTIBLE DEBENTURES, continued**The balance of the Debenture, including accrued interest, at March 31, 2007 was $67,414 (net of unamortized discount of $23,333).  Interest expense on the Debentures for the three months ended March 31, 2007 and 2006, excluding amortization of the discount, was $186 and $144, respectively. Amortization of the discount for the three months ended March 31, 2007 and 2006 which was charged to operations as interest expense amounted to $3,333 and $4,444, respectively,**NOTE 7 – COMMITMENTS AND CONTINGENCIES**RoyaltiesOn 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 was limited to the $45,000 plus an 11% annual rate of return. 			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.			During 2006, ATC and the Company entered into a settlement agreement whereby in consideration for 3,334 shares of common stock, ATC cancelled its rights to any and all royalties on future Company sales.  The 3,334 shares were valued at $40,000 (based on the market price of the underlying stock on the date of grant) and charged to other expense as royalty settlement expense.			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 1 share of its common stock to Variety, Variety reduced its royalty interest to 20%.  In 1998, in exchange for 
F-30

**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**
**NOTE 7 – COMMITMENTS AND CONTINGENCIES****, continued******the Company issuing 2 shares of its common stock to Variety, Variety reduced its royalty interest to 5%.				As discussed in Note 4, 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, 2007 follows:
  

**Fatigue Fuse**

**EFS**

**Server										Array											System**

**X-Ray Diffraction Method**

   

  

Tensiodyne 1985-1 R&D Partnership

  10.00% *

-

-

-

     Variety Investments, Ltd.

 5.00%

-

-

-

University of Pennsylvania (see Note 4)

  

  

  

  

     Net sales of licensed products

-

7.00%

-

-

     Net sales of services

-

2.50%

-

-

NCAT (see Note 4)

  

      

  

  

     Net sales of licensed products

-

-

3.50%

-

     Sublicensing income

-

-

25.00%

-

ISIS (see Note 4)

     

  

  

  

     Net sales of licensed products

-

-

-

2.5%

     Sublicensing income

-

-

-

25.00%

Shareholder

1.00%

0.50%

-

-
				*     Royalties limited to specific rates of return as discussed above.
As of March 31, 2007, the Company owes no royalties under any agreements, as sales of the products have not yet begun.Litigation				In July 2002, the Company settled its pending lawsuit related to a contract dispute with Mr. Stephen Beck.  In March 2006, Mr. Beck filed a lawsuit against the Company alleging breach of contract related to the lawsuit settlement and sought approximately $135,000 in damages, plus the issuance of 12,989 shares of the Company’s common stock to which he believed he was entitled, plus interest.  During the three months ended March 31, 2006, the Company issued Mr. Beck 4,011 shares of its common stock related to ongoing negotiations with Mr. Beck.  The value of the shares issued to Mr. Beck was $173,244 and has been included in other income and expenses in the accompanying statement of operations. 

F-31

**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**
**NOTE 7 – COMMITMENTS AND CONTINGENCIES, continued**In December 2006, the Company entered into a settlement agreement and release agreement, as well as irrevocable escrow instructions, to settle the lawsuit filed on March 8, 2006.  As consideration under the settlement, the Company issued 5,000,000 shares of its common stock to Mr. Beck, with the shares to be held by an escrow agent and distributed to Mr. Beck monthly with a trading limit equal to 8% of the previous month’s trading volume of the Company’s common stock, until Mr. Beck has received a total of $800,000.  As the Company has guaranteed this debt to Mr. Beck in the amount of $800,000, the Company has recorded a liability as of March 31, 2007 for this amount.  As Mr. Beck receives proceeds from the sale of his shares in to the market, the Company will reduce its guarantee by that amount.  Additionally during 2006, Mr. Beck was paid $44,000 in cash as part of the settlement.  Furthermore Mr. Beck will have anti-dilution rights on those shares to maintain his percentage ownership for an agreed-upon period of 21 months.  The Company issued another 5,000,000 shares to Mr. Beck to be held in escrow until the conditions are met with respect to the anti-dilution shares.  On December 27, 2006, the Company issued 751,193 shares pursuant to the anti-dilution provision in the Beck settlement arrangement.   On April 6, 2007, the Company issued Mr. Beck an additional 1,443,439 shares pursuant to the anti-dilution agreement. As of March 31, 2007, the Company’s liability of to Mr. Beck still remains at $800,000 as Mr. Beck has not received any proceeds from the sale of stock issued to him under the terms of the agreement (see Note 11).			The Company has also been named as a defendant in a lawsuit alleging breach of contract due to the Company’s failure to pay certain amounts due to a consultant for services.  The Company asserts that the contract was unenforceable due to a number of factors.  Legal counsel has advised the Company that it is premature to estimate the outcome or the range of damages that may occur if the case is not settled in the Company’s favor.			In the ordinary course of business, the Company may be from time to time involved in other various pending or threatened legal actions.  The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations.  However, in the opinion of our management, matters currently pending or threatened against us are not expected to have a material adverse effect on the Company’s financial position or results of operations.Indemnities and GuaranteesDuring 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.  They also include indemnities made to the holders of the convertible debentures,
F-32

****

**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**
**NOTE 7 – COMMITMENTS AND CONTINGENCIES, continued**Mr. Beck, with regards to his settlement with the Company, and the sellers of investments in securities.  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.**NOTE 8**–**STOCKHOLDERS' EQUITY**Class A Preferred StockThe 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 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.
F-33

****

**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**
**NOTE 8**–**STOCKHOLDERS' EQUITY, continued**Class B Preferred StockThe Company has designated 15 shares of Class B preferred stock, of which no shares have been issued.  The 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.Class C Preferred StockEach 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.  At March 31, 2007, 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 common stock on a 300-to-1 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 StockHolders 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, 2007.  Holders of Class D preferred stock have the right to convert their shares to common stock on a 300-to-1 basis. As of March 31, 2007, there were no Class D Preferred shares outstanding.
F-34

****

**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**
**NOTE 8**–**STOCKHOLDERS' EQUITY, continued**Class E Preferred StockOn January 26, 2007, the Company amended its certificate of incorporation by filing a certificate of designation of rights, preferences, privilege and restrictions of the Company’s newly created Class E preferred stock.  The Company authorized 60,000 shares of Class E preferred stock, each with an original issue price of $19.50 per share.  In each calendar quarter, the holders of the then outstanding Class E Convertible preferred stock shall be entitled to receive non-cumulative dividends in an amount equal to 5% of the original purchase price per annum. All dividends may be accrued by the Company until converted into common shares. After one year from the issuance date, the holders of Class E preferred stock have the right to convert the preferred shares held into shares of the Company’s common stock at the average closing bid price of the ten days prior to the date of conversion. The Class E preferred stock has no liquidation preference, and its shareholders are entitled to ten votes per share.				In connection with the acquisition of SATI, the Company issued 50,000 shares of Class E preferred stock which were valued at $19.50 per share. The Company also issued an additional 5,000 shares to a consultant in connection with the SATI acquisition.Class A Common StockThe holders of the Company's Class A common stock are entitled to one vote per share of common stock held.			During the three months ended March 31, 2007, the Company issued 2,500,000 units through a private offering at a price of $0.40 per unit.  Each unit consists of one share of the Company’s common stock and a warrant to purchase one share of the Company common stock at a price of $0.60 per share. The warrants expire in 2010.  In connection with the offering, the Company paid $238,065 and issued 15,000 shares and warrants to consultants to purchase 2,118,334 the Company’s common stock at a price of $0.60 per share which expire in 2010.				During the three months ended March 31, 2007, the Company issued 5,800,000 shares of its common stock in exchange for the cancellation of $580,000 in convertible debt.			During the three months ended March 31, 2007, Palisades returned 1,000,000 shares of its common stock to the Company in exchange for an increase to the related convertible Debenture of $600,000 (see Note 6).  These shares were then reissued to third parties for consulting services valued at $2,800,000 (based on the fair value of the Company’s stock on the date of grant).
F-35

**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**
**NOTE 8**–**STOCKHOLDERS' EQUITY, continued**From time to time, the Company issues its 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, 2007:			            Issued shares                                                                                                113,200,276            Less shares held in escrow:			                  Shares issued to the Company and held in escrow                                      (3,277,389)			                  Shares held in escrow pursuant to agreement witht Debenture			                     Holders (see Note 6)                                                                              (8,000,000) 			                  Shares held as collateral for potential debt financing                                    (8,385,467)			                  Contingent shares held related to the Beck settlement			                     for antidilution purposes (see Note 7)                                                     (9,248,807)			            Other                                                                                                                    (6,000) 			                                                                                                                                (28,917,663)			Outstanding shares (including shares committed)                                                         84,282,613			                                                                                                                                 ========
F-36

**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**
**NOTE 8** – **STOCKHOLDERS' DEFICIT, continued**Class B Common StockThe 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.Common Shares Issued for Non Cash ConsiderationThe value assigned to shares issued for services were charged to operations in the period issued.2007On January 1 2007, the Company issued 606,298 shares of its common stock to various consultants for services valued at 28,952. On January 9, 2007, the Company issued 20,000 shares of its common stock for services rendered in connection with its bridge testing which were valued at $46,000. On January 9, 2007, the Company issued 5,000 shares of its common stock for legal services valued at $11,500. On January 16, 2007, the Company issued 20,000 shares of its common stock to two consultants for services rendered valued at $45,000.  On January 22, 2007, the Company issued 30,000 shares of its common stock to two consultants for services rendered valued at $58,500. On February 1, 2007, the Company issued 10,000 shares of its common stock to a consultant for services rendered valued at $22,800. On February 14, 2007, the Company issued 20,000 shares of its common stock for services rendered in connection with its bridge testing which were valued at $32,000. On February 28, 2007, the Company issued 350,000 shares of its common stock to two consultants for services rendered subject to a two-year lock up agreement which were valued at $16,660. Also on February 28, 2007, the Company issued 300,000 shares of its common stock for accounting services subject to a two-year lockup agreement which were valued at $14,280. On March 2, 2007, the Company issued 26,000 shares of its common stock for services rendered in connection with its bridge testing which were valued at $41,600. On March 2, 2007, the Company issued 20,000 shares of its common stock to two consultants for services rendered valued at $32,000.  On March 6, 2007, the Company issued 1,002,000 shares of its common stock to two consultants subject to two-year lockup agreements for services rendered valued at $47,695.  On March 9, 2007, the Company issued 56,667 shares of its common stock to two consultants subject to a two-year lockup agreements for services rendered valued at $2,697. 
F-37

**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**
**NOTE 8** – **STOCKHOLDERS' DEFICIT, continued**On March 12, 2007, the Company issued 150,000 shares of its common stock to a consultant subject to a two-year lockup agreement for services rendered valued at $7,140.  On March 16, 2007, the Company issued 3,333 shares of its common stock to a consultant subject to a two-year lockup agreement for services rendered valued at $159. On March 19, 2007, 50,000 shares of common stock were returned and subsequently cancelled.  On March 19, 2007, the Company issued 50,000 shares of its common stock to a consultant subject to a two-year lockup agreement for services rendered valued at $2,380.  On March 27, 2007, the Company issued 169,300 shares of its common stock to two consultants subject to two-year lockup agreements for services rendered valued at $8,059.2006On January 10, 2006, the Company issued 4,920 shares of its common stock to three consultants for services valued at $236,200.  On January 16, 2006, the Company issued 834 shares of its common stock to a consultant for services valued at $40,000.  On January 25, 2006, the Company issued 13,334 shares of its common stock to a consultant for services valued at $512,000.  On February 1, 2006, the Company issued 3,334 shares of its common stock to a consultant for services valued at $120,000.  On February 8, 2006, the Company issued 1,667 shares to one of its advisors in connection to the development of its products valued at $36,000.  On February 8, 2006, the Company issued 2,000 shares of its common stock to a consultant for services valued at $72,000.  On February 13, 2006, the Company issued 4,011 shares of its common stock to Mr. Stephen Beck in connection with his lawsuit valued at $173,244 (see Note 7).  On February 22, 2006, the Company issued 167 shares of its common stock for clerical services valued at $5,600.  On February 23, 2006, the Company issued 2,334 shares of its common stock to its attorney for services valued at $72,800.  On March 1, 2006, the Company issued 167 shares of its common stock to a consultant for services valued at $5,600.  On March 10, 2006, the Company issued 13,000 shares of its common stock in connection with its private offerings.  The shares were valued $343,200 and charged to consultant expense.  On March 23, 2006, the Company issued 6,667 shares of its common stock to a consultant for services rendered valued at $336,000.  On March 29, 2006, 533 shares that were originally issued were returned to the Company, as they were issued in error.
F-38

**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**
**NOTE 9 – RELATED PARTY TRANSACTIONS**For additional related party transactions, see Note 7. 			As of March 31, 2007, the Company was owed $3,037 from its President.  The loan is assessed interest at an annual rate of 10%.  Interest credited to operations relating to this loan during the three months ended March 31, 2007 and 2006 amounted to $66 and $53, respectively. 			On October 1, 2006 the Company entered into an employment agreement with the Company’s CEO, which provides certain terms and conditions with respect to the CEO’s employment.  The agreement is for a 3-year term, and the CEO will be paid an annual salary of $250,000, with one year of paid severance if he is terminated without good cause prior to the expiration of the employment term.			On November 21, 2006, the Company entered into a stock grant and general release agreement with the Company’s CEO, for the purpose of showing the Company’s appreciation for the CEO’s work over the past several years.  Under the agreement, the CEO was issued 30,000,000 shares of the Company’s Class A common stock, restricted in accordance with Rule 144, and subject to forfeiture back to the Company in accordance with the terms of the agreement, if he is not employed by the Company for three years from the date of the agreement.  Additionally under the terms of the agreement, the CEO has released the Company from any and all claims he may have against the Company for any monies owed to him as of the date of the agreement.  The value assigned to the shares issued to the CEO has been determined to be $1,428,000 based on the Company’s market capitalization method of valuation (see Note 1).  The value will be recorded to additional compensation expense over the term of the agreement, 36 months.  During the three months ended March 31, 2007, the Company recorded $119,000 of compensation expense under the terms of the agreement, which is included in the accompanying statement of operations.
F-39

****

****

**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**
**NOTE 10 – STOCK-BASED COMPENSATION PLANS**Stock OptionsThe Company has the following stock option plans:  The 1998 Stock Plan (“the 1998 Plan”), the 2002 Stock Issuance/Stock Plan (“the 2002 Plan”), the 2003 Stock Option, SAR and Stock Bonus Consultant Plan (“the 2003 Plan”), the 2006 Non-Qualified Stock Grant and Option Plan (the “2006 Plan”), and the 2006/2007 Non-Qualified Stock Grant and Option Plan (the “2006/2007 Plan”).			In September 1998, the Company adopted the 1998 Plan and reserved 2,667 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.  The 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 66,667 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.  The 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 33,333 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.  The plan expires upon the earlier of all reserved shares being granted or September 23, 2006.			In April 2006, the Company adopted the 2006 Plan and reserved 100,000 shares of its common stock for grant.  Eligible plan participants include independent consultants, and the Company may issue shares of stock or options may be granted at any price.   The plan expires upon the earlier of all reserved shares being granted or April 18, 2016.			In December 2006, the Company adopted the 2006/2007 Plan and reserved 3,000,000 shares of its common stock for grant.  Eligible plan participants include independent consultants, and the Company may issue the shares of the stock or option may be granted at any price.  The plan expires upon the earlier of all reserved shares being granted or December 1, 2016.
F-40
**
****

**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**
**NOTE 10 – STOCK-BASED COMPENSATION PLANS, continued**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. 			There was no activity in any of the Company’s stock option plans in 2007 or 2006 and no options were outstanding as of March 31, 2007.Stock WarrantsDuring the year ended December 31, 2006 the Company issued 35,000,000 warrants to Palisades as part of the Company’s modification of Palisades’ convertible debentures (see Note 6).  The Company has valued these warrants using a market capitalization method in accordance with its established accounting policy (see Note 1).  The value of these warrants on the date of grant was $1,668,000 and was included as a component of the Company’s derivative liability balance (see Note 6).  The warrants are exercisable at a price of the lesser of: (a) $0.001 per share; (b) 50% of the market price on the date of exercise.			During the three months ended March 31, 2007, the Company issued warrants to purchase a total of 4,618,334 shares of the Company’s common stock. These warrants were issued in connection with the Company’s private stock offering (see Note 8).**NOTE 11 – SUBSEQUENT EVENTS**Pursuant to the terms of the settlement agreement, in April 2007, the Company paid $46,683 to Mr. Beck and issued him 1,443,439 shares of common stock pursuant to the anti-dilution provisions of  the settlement agreement (see Note 7).			On April 27, 2007, the Company entered into an agreement under which it issued 10,000,000 restricted shares of its common stock in exchange for 4,000,000 restricted shares of Rocket City Automotive Group Inc.’s (“Rocket City”) common stock. The transaction was treated as a stock swap as neither parties received a material number of the other party’s outstanding shares of common stock. On the date of the stock swap, the trading price per share on the pink sheets of Rocket City’s common stock was $4.27 per share. As of May 15, 2007, the trading price was $1.36 per share.
F-41
**
**MATERIAL TECHNOLOGIES, INC.****(A DEVELOPMENT STAGE COMPANY)****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****For The Three Months Ended March 31, 2007 and 2006**
**NOTE 11 – SUBSEQUENT EVENTS, continued**On April 30, 2007, the Company acquired 100% of the issued and outstanding shares of Damage Assessment Technologies, Inc. a Florida corporation (“DATI”) for 7,500,000 shares of the Company's common stock. At the time of the acquisition, DATI assets included $250,000 in cash and licensing rights to damage assessment technology. In connection with the DATI acquisition, the Company issued 750,000 shares of its common stock and paid $25,000 to a consultant.  As DATI has no current customers, expenses or operations, the acquisition of DATI will be treated as an acquisition of $225,000 in cash and $822,500 of in-process research and development costs.  The $822,500 of in-process research and development costs will be expensed during the three months ended June 30, 2007.				In May 2007, pursuant to the private placement of the Class A Common Stock which was completed on March 16, 2007, the investors exercised their warrants resulting in the issuance of 2,250,000 shares of the Class A Common Stock of the Company at the exercise price of $0.60 per share for a total of $1,350,000.
F-42
******ITEM 2       Management’s Discussion and Analysis or Plan of Operation**          Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).  Forward-looking statements are, by their very nature, uncertain and risky.  These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business  disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.		          Although the forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them.  Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements.  You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.**Overview**          We research and develop technologies that detect and measure metal fatigue.  We have developed two products, and we have a third product that is very close to final development.  Our two products are the Fatigue Fuse and the Electrochemical Fatigue Sensor.  We do not generate any revenue from the sale of our products, and thus we are a development stage company.  We do generate revenue from research and development services provided to third parties, primarily one defense contractor, however our revenues are minimal.		          Our biggest challenge is funding the continued research and development of our products, and then the marketing of our products, until they generate sufficient revenue to support our operations.  We try to keep our overhead low and utilize outside consultants as much as possible in order to reduce expenses, and thus far we have been successful in raising enough capital through loans and the sale of our common stock to fund operations.  For the foreseeable future, we will continue to raise capital in this manner.**Results of Operations for the Three Months Ended March 31, 2007 and 2006**		 Introduction		          Our revenues for the first quarter of 2007 pertained to services performed on contracts regarding the testing of metal fatigue on two bridges. Our revenues for the first quarter of 2006 were limited exclusively to our research contracts with Northrop Grumman.  Most of our research and development costs in both years are related to the recorded cost of stock issued to third party consultants.
34
Revenues and Loss from Operations			          Our revenue, research and development costs, general and administrative expenses, and loss from operations for the three months ended March 31, 2007, as compared to the three months ended March 31, 2006 and December 31, 2006, are as follows:
3 Months						Ended						March 31,							      2007      

3 Months						Ended						March 31,							      2006      

Percentage							    Change    

3 Months						Ended						December 31,							      2006      

  

Revenue

$

             43,967

28,846

70%

$

127,307

Research and Development						  Costs

1,080,501

185,152

484%

170,864

General & Administrative						  Expenses

             3,598,427

2,523,819

(43)%

4,119,599

Loss from Operations

$

(4,634,961)

(2,680,125)

(73)%

$

(4,163,156)

===========

===========

===========
		          During the three month periods ended March 31, 2007 and 2006, we incurred research and development costs $1,080,501 and $185,152, respectively.  Of the $1,080,501 incurred in 2007, $119,600 was related to the issuance of 66,000 shares of our common stock for services provided by consultants and $875,000 related to in process research and development costs acquired in connection with our purchase of Stress Analysis Technologies, Inc. Of the $185,152 incurred in 2006, $112,000 was related to the issuance of 3,250 shares of our common stock for services provided by employees. 		          General and administrative expenses were $3,598,427 and $2,523,819, respectively, for the three month periods ended March 31, 2007 and 2007.  The major expenses incurred during the three months ended March 31, 2007 and 2006, and December 31, 2006, were:
3 Months						Ended						March 31,						2007

3 Months						Ended						March 31,						2006

3 Months						Ended						December 31,						2006

  

Consulting Services

$

3,224,457

$

1,958,498

$

2,920,487

Officer’s Salary

181,500

48,000

62,500

Secretarial Salary

22,409

15,377

57,598

Professional Fees

55,659

341,230

363,842

Office Expense

20,988

10,444

16,351

Travel Expenses

32,483

20,632

44,080

Rent

7,512

7,044

7,044

Franchise and Other Taxes

1,852

5,813

2,150

Payroll Taxes

10,517

8,784

5,985

Telephone

5,864

4,852

4,572

35
			          Of the $3,224,457 incurred for consulting services for the first quarter of 2007, $3,072,042 relates to the issuance of 2,467,598 shares of our common stock. Of the $1,958,498 incurred for consulting services for the first quarter of 2006, $1,589,000 relates to the issuance of 42,670 shares of our common stock.   Of the $2,920,487 of consulting services for the fourth quarter of 2006, $2,932,880 relates to the issuance of 34,970,244 shares of our common stock. Included in officer’s salary for the three months ended March 31, 2007 is $119,000 of amortized deferred compensation on the 2006 employment agreement with the Company’s president.Other Income and Expenses and Net Loss          Our other income and expenses and net loss for the three months ended March 31, 2007 and 2006, as compared to the three months ended December 31, 2006 are as follows:
3 Months Ended						March 31,						         2007         

3 Months Ended						March 31,						         2006         

Percentage						   Change   

3 Months Ended						December 31,						        2006        

  

Loss on subscription						receivable

$

--

--

--

(1,368,555)

Interest expense

(978,235)

(149,938)

556%

$

(248,193)

Realized/unrealized loss on						securities

(8)

(23)

(65)%

(1,791,300)

Change in fair value of						investments derivative						liability

-

(76,911)

(100)%

54,000

Change in fair value of						warrant derivative liability

747,504

(930,369)

(180)%

3,145,438

Interest income

3,372

3,891

(13)%

2,926

Loss on settlement on						lawsuits

--

--

(1,267,244)

  

Net loss

$

(4,863,128)

(3,834,275)

128%

$

(4,980,838))

==

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

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

==

=============
		          During the three months ended March 31, 2007, the increase in other expenses relates to interest expense, of which $580,000 was due to the write off of the debt discount for principal amounts that were converted during the quarter. Additionally the Company increased the principal balance on the convertible debentures, which lead to a change in the fair value of the derivative liability.  During the three months ended March 31, 2006, the increase in other expenses related primarily to the change in derivative liability, which is mostly due to the change in the Company’s stock price during the quarter.**Liquidity and Capital Resources**Introduction          During the three months ended March 31, 2007, we did not generate positive cash flow.  As a result, we funded our operations through the sale of marketable securities that we obtained in a financing transaction, the sale of our common stock, and loans.		          Our cash, investments in marketable securities held for trading, investments in marketable securities available for sale, prepaid services, prepaid expenses and other current assets, total
36
				current assets, total assets, total current liabilities, and total liabilities as of March 31, 2007, as compared to March 31, 2006 and December 31, 2006, were as follows:
March 31,

March 31,

December 31,

      2007      

      2006      

      2006      

   

Cash

$

893,176

$

22,695

$

129,296

Marketable securities - trading

41,646

130,392

135,136

Marketable securities –						available-for-sale

174,435

-

Prepaid services

-

-

32,659

Prepaid expenses and other

8,376

2,206

7,347

Total current assets

976,342

329,728

421,145

Total assets

987,003

3,929,185

432,780

Total current liabilities

510,100

2,160,100

542,802

Total liabilities

4,830,110

10,919,135

4,414,158
Cash Requirements		          For the three months ended March 31, 2007, our net cash used in operations was $(380,390), compared to $(327,957) for the three months ended March 31, 2006.  Negative operating cash flows during the three months ended March 31, 2007, were primarily created by a net loss from operations of $4,863,128, offset by non-cash stock related expenses of $4,203,278, change in fair value of derivative and warrant, liabilities of $(747,504), amortization of discount on convertible debenture of $899,130, decrease in prepaid expenses and other current assets of $82,534, increase in accrued interest due on our obligations of $78,119 and a reduction of our payables and accrued expenses of $(33,796) .  Because of our need for cash to fund our continuing research and development, we do not have an opinion as to how indicative these results will be of future results.		          Negative operating cash flows during the three months ended March 31, 2006, were primarily created by a net loss from operations of $3,834,275, offset by non-cash stock related expenses of $1,952,645, change in fair value of derivative and warrant liabilities of $1,007,280, amortization of discount on convertible debenture of $104,298, and decrease in prepaid expenses and other current assets of $375,906. Sources and Uses of Cash		          Net cash provided by investing activities for the three months ended March 31, 2007 and 2006, were $93,489 and $172,425, respectively.  For the three months ended March 31, 2007 and 2006, the net cash came primarily from the sale of marketable securities in the amounts of $95,006 and $174,988,respectfully,  offset by the amount for purchase of securities of $(1,517) in 2007 and $(2,563) in 2006.		          Net cash provided by financing activities for the three months ended March 31, 2007 and 2006, were $1,050,781 and $130,882, respectively.  For the three months ended March 31, 2007, the net cash came primarily from the sale of common stock and warrants in the amount of $761,365, a $200,000 loan from a shareholder, $100,000 in the acquisition of Stress Analysis Technologies, Inc. offset by the purchase of treasury stock of $(10,585).		          For the three months ended March 31, 2006, the net cash came primarily from the sale of common stock and warrants in the amount of $164,505, offset by a principal reduction in notes payable of $(25,000) and the purchase of treasury stock of $(8,623).
37
		          We are not generating sufficient cash flow from operations to fund growth.  We cannot predict when we will begin to generate revenue from the sale of our products, and until that time, we will need to raise additional capital through the sale of our equity securities.  If we are unsuccessful in raising the required capital, we may have to curtail operations.		          Our financial statements have been prepared assuming we will continue as a going concern.  Because we have generated very limited revenues, and have minimal capital resources, our Certified Public Accountants included an explanatory paragraph in their report raising substantial doubt about our ability to continue as a going concern.**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 the following 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 products 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 issued at date of issuance or at the fair value of the services rendered, which ever is more readily determinable.  All other services provided in exchange for other non-monetary consideration is valued at either the fair value of the services received or the fair value of the consideration relinquished, whichever is more readily determinable.		          The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of EITF 96-18, “ *Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services* ” and EITF 00-18, “ *Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees* .” The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete.  In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. In accordance to EITF 00-18, an asset acquired in exchange for the issuance of fully vested, nonforfeitable equity instruments should not be presented or classified as an offset to equity on the grantor’s balance sheet once the equity instrument is granted for accounting purposes. Accordingly, the Company records the fair value of nonforfeitable common stock issued for future consulting services as prepaid services in its consolidated balance sheet.
38
		          The fourth critical accounting policy is the Company’s accounting for conventional convertible debt.  When the convertible feature of the conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”).  A BCF is recorded by the Company as a debt discount pursuant to EITF Issue No. 98-5 (“EITF 98-05”), “ *Accounting for Convertible Securities with Beneficial Conversion Features or Contingency Adjustable Conversion Ratio,”* and EITF Issue No. 00-27, “ *Application of EITF Issue No. 98-5 to Certain Convertible Instruments* .”  In those circumstances, the convertible debt will be record net of the discount related to the BCF.  The Company amortizes the discount to interest expense over the life of the debt using the effective interest method.		          The fifth critical account policy relates to the accounting for non-conventional convertible debt and the related stock purchase warrants.  In the case of non-conventional convertible debt, the Company bifurcates its embedded derivative instruments and records them under the provisions of SFAS No. 133, “ *Accounting for Derivative Instruments and Hedging* Activities,” as amended, and EITF Issue No. 00-19, “ *Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.* ”  These embedded derivatives include the conversion feature, liquidated damages related to registration rights and default provisions.  The accounting treatment of derivative financial instruments requires that the Company record the derivatives and related warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date.  In addition, under the provisions of EITF Issue No. 00-19, as a result of entering into the non-conventional convertible debenture, the Company is required to value and classify all other non-employee stock options and warrants as derivative liabilities at that date and mark them to market at each reporting date thereafter.  Any change in fair value will be recorded as non-operating, non-cash income or expense at each reporting date.  If the fair value of the derivatives is higher at the subsequent balance sheet date, the Company will record a non-operating, non-cash charge.  If the fair value of the derivatives is lower at the subsequent balance sheet date, the Company will record non-operating, non-cash income.  The Company values its derivatives primarily using the Black-Scholes Option Pricing Model.  The derivatives are classified as long-term liabilities.		          The sixth critical accounting policy relates to the recording of marketable securities held for trading and available-for-sale.  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 statements of operations.  Marketable securities that are not classified as trading securities are classified as available-for-sale securities.  Available-for-sale securities are initially recorded at cost.  Available-for-sale securities with quoted market prices are adjusted to their fair value, subject to an impairment analysis (see below).  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 (see below).		          The seventh critical accounting policy is our accounting for the fair market value of non-marketable securities we have acquired.  Non-marketable securities are originally recorded at cost.   In the case of non-marketable securities we acquired with our common stock, we value the securities at a significant discount to the stated per share cost based upon our historical experience
39
		with similar transactions as to the amount ultimately realized from the sale of the shares.  Such investments are reduced when we have indications that a permanent decline in value has occurred.  At such time as quoted market prices become available, the net cost basis of these securities will be reclassified to the appropriate category of marketable securities.  Until that time, the securities will be recorded at their net cost basis, subject to an impairment analysis (see below).		          Beginning in 2006, the Company values issuances of large blocks of stock and stock rights (representing more that 20% of the then fully diluted shares of the Company’s common stock) using a market capitalization method.  Under this method, the value of the issuance is based on the value of the Company’s pre-issuance market capitalization multiplied by the percentage of the Company’s common stock issued on a fully diluted basis.		          In accordance with the guidance of EITF 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” the Company assesses any decline in value of available-for-sale securities and non-marketable securities below cost as to whether such decline is “other than temporary.”  If a decline is determined to be “other than temporary,” the decline is recorded as a reduction of the cost basis of the security and is included in the statement of operations as an impairment write down of the investment. **ITEM 3**       **Controls and Procedures**Evaluation of Disclosure Controls and Procedures		          We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of March 31, 2007, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission's rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of March 31, 2007, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.		          In light of the material weaknesses described below, we performed additional analysis and other post-closing procedures to ensure our consolidated financial statements were prepared in accordance with generally accepted accounting principles.  Accordingly, we believe that the consolidated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.		          A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.  Management has identified the following three material weaknesses which have caused management to conclude that, as of March 31, 2007, our disclosure controls and procedures were not effective at the reasonable assurance level:		          1.       We do not have written documentation of our internal control policies and procedures.  Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act and will be applicable to us for the year ending December 31, 2007.  Management evaluated the impact of our failure to have written
40
			documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.		          2.       We do not have sufficient segregation of duties within accounting functions, which is a basic internal control.  Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible.  However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals.  Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.		          3.       We had a significant number of audit adjustments last fiscal year.  Audit adjustments are the result of a failure of the internal controls to prevent or detect misstatements of accounting information.  The failure could be due to inadequate design of the internal controls or to a misapplication or override of controls.  Management evaluated the impact of our significant number of audit adjustments last year and has concluded that the control deficiency that resulted represented a material weakness.		          To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.			Remediation of Material Weaknesses		          To remediate the material weaknesses in our disclosure controls and procedures identified above, in addition to working with our independent auditors, we have continued to refine our internal procedures to begin to implement segregation of duties and to reduce the number of audit adjustments.			Changes in Internal Control over Financial Reporting		          Except as noted above, there were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
41

**PART II – OTHER INFORMATION**

**ITEM 1**       **Legal Proceedings**				          In July 2002, the Company settled its pending lawsuit related to a contract dispute with Mr. Stephen Beck.  In March 2006, Mr. Beck filed a lawsuit against the Company alleging breach of contract related to the lawsuit settlement and sought approximately $135,000 in damages, plus the issuance of 12,989 shares of the Company’s common stock to which he believed he was entitled, plus interest.  During the three months ended March 31, 2006, the Company issued Mr. Beck 4,011 shares of its common stock related to ongoing negotiations with Mr. Beck.  The value of the shares issued to Mr. Beck was $173,244 and has been included in other income and expenses in the accompanying statement of operations. 				          In December 2006, the Company entered into a settlement agreement and release agreement, as well as irrevocable escrow instructions, to settle the lawsuit filed on March 8, 2006.  As consideration under the settlement, the Company issued 5,000,000 shares of its common stock to Mr. Beck, with the shares to be held by an escrow agent and distributed to Mr. Beck monthly with a trading limit equal to 8% of the previous month’s trading volume of the Company’s common stock, until Mr. Beck has received a total of $800,000.  As the Company has guaranteed this debt to Mr. Beck in the amount of $800,000, the Company has recorded a liability as of March 31, 2007 for this amount.  As Mr. Beck receives proceeds from the sale of his shares in to the market, the Company will reduce its guarantee by that amount.  Additionally during 2006, Mr. Beck was paid $44,000 in cash as part of the settlement.  Furthermore Mr. Beck will have anti-dilution rights on those shares to maintain his percentage ownership for an agreed-upon period of 21 months.  The Company issued another 5,000,000 shares to Mr. Beck to be held in escrow until the conditions are met with respect to the anti-dilution shares.  On December 27, 2006, the Company issued 751,193 shares pursuant to the anti-dilution provision in the Beck settlement arrangement.   On April 6, 2007, the Company issued Mr. Beck additional 1,443,439 shares pursuant to the anti-dilution agreement. As of March 31, 2007, the Company’s liability of to Mr. Beck still remains at $800,000 as Mr. Beck has not received any proceeds from the sale of stock issued to him under the terms of the agreement.				          The Company has also been named as a defendant in a lawsuit alleging breach of contract due to the Company’s failure to pay certain amounts due to a consultant for services.  The Company asserts that the contract was unenforceable due to a number of factors.  Legal counsel has advised the Company that it is premature to estimate the outcome or the range of damages that may occur if the case is not settled in the Company’s favor.

42
			          In the ordinary course of business, we may from time to time be involved in various pending or threatened legal actions.  The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations.  However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.**ITEM 2**       **Unregistered Sales of Equity Securities and Use of Proceeds**          On January 1 2007, the Company issued 606,298 shares of its common stock, restricted in accordance with Rule 144, to various consultants restricted in accordance with Rule 144, for services valued at $28,952. The issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the shareholders are sophisticated investors who are familiar with our operations.			          On January 10, 2007, the Company issued 1,800,000 shares of its common stock, restricted in accordance with Rule 144, in consideration for the cancellation of $180,000 of convertible debt. The issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the shareholders are sophisticated investors who are familiar with our operations.			          On February 2, 2007, the Company issued 4,000,000 shares of its common stock, restricted in accordance with Rule 144, in consideration for the cancellation of $400,000 of convertible debt. The issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the shareholders are sophisticated investors who are familiar with our operations.			          On February 28, 2007, the Company issued 350,000 shares of its common stock, restricted in accordance with Rule 144, to two consultants for services rendered subject to two year lock up agreement which were valued at $16.660. The issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the shareholders are sophisticated investors who are familiar with our operations.			          Also on February 28, 2007, the Company issued 300,000 shares of its common stock, restricted in accordance with Rule 144, for accounting services subject to a two year lockup agreement which were valued at $14,280. The issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the shareholders are sophisticated investors who are familiar with our operations.
43
			          On March 6, 2007, the Company issued 1,002,000 shares of its common stock, restricted in accordance with Rule 144, to two consultants subject to two year lockup agreements for services rendered valued at $47,695.  The issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the shareholders are sophisticated investors who are familiar with our operations.			          On March 9, 2007, the Company issued 56,667 shares of its common stock,   restricted in accordance with Rule 144, to two consultants subject to two year lockup agreements for services rendered valued at $2,697.  The issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the shareholders are sophisticated investors who are familiar with our operations.			          On March 15, 2007, the Company issued 2,500,000 shares of its common stock,   restricted in accordance with Rule 144, to investors subject to two year lockup agreements for net proceeds of $761,365.  In connection with this offering, the Company also issued 2,500,000 warrants to purchase shares of common stock at an exercise price of $0.60.  The issuances were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, and the shareholders are sophisticated investors who are familiar with our operations.**ITEM 3**       **Defaults Upon Senior Securities**			          There have been no events which are required to be reported under this Item.**ITEM 4**       **Submission of Matters to a Vote of Security Holders					           ** There have been no events which are required to be reported under this Item.**ITEM 5**       **Other Information**			          None.
****

****

44
**ITEM 6**       **Exhibits**
(a)       

Exhibits          

   

3.1 (1)

Certificate of Incorporation of Material Technologies, Inc.

   

3.2 (2)

Certificate of Amendment to Articles of Incorporation dated February 16, 2000

   

 

3.3 (2)

Certificate of Amendment to Articles of Incorporation dated July 12, 2000

   

 

3.4 (2)

Certificate of Amendment to Articles of Incorporation dated July 31, 2000

   

 

3.5 (3)

Amended and Restated Certificate of Incorporation dated September 12, 2003

  

3.6 (5)

Certificate of Amendment to Certificate of Incorporation of Material Technologies, Inc. dated May 31, 2006

   

3.7 (5)

Certificate of Amendment to Certificate of Incorporation of Material Technologies, Inc. dated October 25, 2006

  

 

3.6 (1)

Bylaws of Material Technologies, Inc.

   

4.1 (1)

Class A Convertible Preferred Stock Certificate of Designations

   

 

4.2 (1)

Class B Convertible Preferred Stock Certificate of Designations

  

  

10.1 (4)

Acquisition Agreement with UTEK Corporation and Material Monitoring Technologies, Inc.

  

10.2 (4)

License Agreement between Material Monitoring Technologies, Inc. and North Carolina A&T University

  

10.3 (4)

Consulting Agreement with Mannur J. Sundaresan, PhD.

  

10.4

Settlement Agreement and General Release dated August 23, 2006 with Ben Franklin Technology Partners of Southeastern Pennsylvania

  

31.1

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

   

31.2

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

   

32.1

Chief Executive Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

   

32.2

Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
		           (1)    Incorporated by reference from our registration statement on Form S-1 filed with		                    the Commission on April 30, 1997.		           (2)    Incorporated by reference from our Annual Report on Form 10-K filed with the		                    Commission on March 30, 2001.		           (3)    Incorporated by reference from our Annual Report on Form 10-K filed with the		                     Commission on April 9, 2004.		           (4)    Incorporated by reference from our Current Report on Form 8-K filed with the Commission on August 24, 2006.		           (3)    Incorporated by reference from our Current Report on Form 8-K filed with the Commission on November 8, 2006.
45

**SIGNATURES**

          In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated:  May 21, 2007

     /s/ Robert M. Bernstein                   

   By:

Robert M. Bernstein

   Its:

President, Chief Executive						Officer, Chief Financial						Officer, Chief Accounting						Officer, and Director

46