UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
Commission File Number 0-14910
MPM TECHNOLOGIES, INC.
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(Exact Name of Registrant as specified in its Charter)
WASHINGTON 81-0436060
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
222 W. MISSION AVENUE, SUITE 30, SPOKANE, WASHINGTON 99201
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(Address of principal executive offices)
Registrant's telephone number, including area code: 509-326-3443
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: None
SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:
COMMON STOCK, PAR VALUE OF $0.001
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 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___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for the most recent fiscal year: $19,414,593
The aggregate market value of the voting and non-voting equity held by non-
affiliates computed by reference to the closing price of $6.125 at which the
common equity was sold as of March 22, 2000 was $11,649,000.
The number of shares outstanding of the registrant's common stock as of March
22, 2000 was 2,641,961.
Transitional Small Business Disclosure Format
Yes __ No X
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PART I
Item 1. Business
MPM Technologies, Inc. ("MPM" or "the Company") has four wholly-owned
subsidiaries: Huntington Environmental Systems, Inc. ("HES"), AirPol, Inc.
("AirPol"), Nupower, Inc. ("Nupower") and MPM Mining ("Mining"). MPM was
incorporated in 1983. For the year ended December 31, 1999, HES and AirPol
were the only revenue generating entities.
HES and AirPol operate in the air pollution control industry. They sell air
pollution control systems to Fortune 500 and other large industrial companies.
MPM continues its efforts in the development of a waste-to-energy process
known as "Skygas". These efforts are largely through MPM's participation in
Nupower Partnership in which MPM has a 58.21% interest through its ownership of
Nupower. Mining operations have been discontinued at the direction of MPM's
board of directors and will be sold.
HUNTINGTON ENVIRONMENTAL SYSTEMS, INC.
Effective April 1, 1997, MPM acquired certain of the assets and assumed certain
of the liabilities of part of a division of United States Filter Corporation in
exchange for 146,666 shares of the Company's common stock. The transaction was
accounted for as a purchase. In connection with the acquisition, MPM formed a
wholly-owned subsidiary, HES, which assumed the assets and liabilities
acquired. HES designs, engineers, supplies, and services high temperature and
chemical air pollution control systems for Fortune 500 and other environmental
and industrial companies around the world.
HES has been in the business for over 25 years, and has over 300 installations
worldwide. HES's engineering staff is uniquely prepared to address the full
scope of customers' process problems. HES's policy of handling clients'
individual concerns includes in-depth analysis and evaluation, followed by
complete engineering and design services leading to application-specific
engineered solutions.
HES was the first acquisition in MPM's revised plans to change its focus and
direction toward environmental concerns generally, and pollution issues
specifically.
AIRPOL, INC.
Effective July 1, 1998, the Company acquired certain of the assets and assumed
certain of the liabilities of part of a division of FLS miljo, Inc. The
agreement called for the Company to pay $300,000 stock and $234,610 in cash.
The transaction was accounted for as a purchase.
AirPol, like HES, designs, engineers, supplies and services air pollution
control systems for Fortune 500 and other environmental and industrial
companies. The technologies used by AirPol differ from those used by HES, and
the companies are in no way competitors. On certain specific applications,
they may complement each other in that a customer may require both types of
pollution control systems.
The technologies of AirPol utilize wet and dry scrubbers, wet electrostatic
precipitators and venturi absorbers to control air pollution. AirPol brings
over 30 years experience to MPM through its technologies and employees.
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NUPOWER, INC.
The Company holds a 58.21% interest in Nupower Partnership through its
ownership of Nupower. No other operations were conducted through Nupower.
Nupower Partnership is engaged in the development and commercialization of a
waste-to-energy process. This is an innovative technology for the disposal and
gasification of carbonaceous wastes such as municipal solid waste, municipal
sewage sludge, pulp and paper mill sludge, auto fluff, medical waste and used
tires. The process converts solid and semi-solid wastes into a clean-burning
medium BTU gas that can be used for steam production for electric power
generation. The gas may also be a useful building block for downstream
conversion into valuable chemicals. Nupower Partnership owns 70% of the Skygas
Venture. MPM separately owns 15% of the Skygas venture and USF Smogless,
Milan, Italy (a subsidiary of United States Filter Corp.) owns the remaining
15% of the venture.
MPM MINING, INC.
Mining controls 32 claims on approximately 1,000 acres in the historical Emery
Mining District in Montana. It also owns a 200 ton per day floatation mill on
site. Extensive exploration has been conducted in the area by companies such
as Exxon Corporation, Freeport McMoran Gold Company and Hecla Mining Company in
addition to the efforts of Mining. In accordance with the Board of Director's
mandates in 1998, MPM's management is actively seeking out mining companies and
other businesses to purchase its mining properties and equipment, and in
January 2000 received a letter of intent from a prospective buyer. Subject to
the buyer's due diligence work and completion of negotiations, it is
anticipated that the properties will be sold in the second quarter of 2000.
FACTORS MANAGEMENT USED TO IDENTIFY REPORTABLE SEGMENTS
MPM's reportable segments are business units that offer different products.
The reportable segments are each managed separately because they design and
engineer distinct products with different applications in the air pollution
control field. MPM's other segments are essentially non-operational at the
present time, and, accordingly have been aggregated for reporting purposes.
For the years ended December 31, 1999 and 1998, the Company operated in two
segments. Data for segment reporting is shown in the notes to the consolidated
financial statements in Item 7.
BACKLOG
MPM had a backlog of orders and work in progress aggregating approximately
$5,000,000 at December 31, 1999. This is comprised of approximately $2,400,000
at AirPol and approximately $2,600,000 at HES. It is anticipated that
operations will consume these backorders in the first two quarters of 2000.
Subsequent to year-end, AirPol was notified that it would be awarded a contract
for approximately $5,800,000 which will begin in the second quarter of 2000.
It is anticipated that this contract will be partially completed in 2000, and
fully completed in 2001. There is currently no other backlog of orders for any
of MPM's other businesses. Backlog at December 31, 1998 was $16,400,000.
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WASTE-TO-ENERGY
MPM's waste-to-energy process consists of an innovative technology known as
"Skygas". The process is used in the disposal and gasification of various
forms of non-metallic wastes. MPM continues to negotiate with interested
entities for the manufacture and operation of Skygas units. These negotiations
are ongoing, and MPM management is hopeful that there will be formal agreements
in place in the second quarter of 2000. It is anticipated that construction of
the initial units will begin before the end of the second quarter.
COMPETITIVE CONDITIONS
Both HES and AirPol operate in extremely competitive environments. There are a
number of potential competitors for every job the companies bid on. The number
of bidders ranges from two or three to as many as seven or eight depending on
the potential customer and the work to be performed. The parts and service
side of the business tends to be somewhat less competitive since the parts and
service work are generally for units that have previously been sold and/or
installed by the companies.
There are a significant number of persons and companies developing or that have
developed any number of waste-to-energy systems. Management of MPM believes
that its development of Skygas as a non-polluting and energy efficient system
will give it the necessary competitive edge in this area.
Due to the large number of persons and companies engaged in exploration for and
production of mineralized material, there is a great degree of competition in
the mining part of the business. Since management has decided to sell its
mining holdings and equipment, it will no longer need to compete in this area.
SEASONAL VARIATIONS
The impact of seasonal changes is minimal on the air pollution control
businesses of HES and AirPol. There may be some limitations on the
installation of the air pollution control units when the weather is more severe
in the winter months in those areas of the world where the weather is
significantly colder in that season. There have been, however, no discernible
variations to date to indicate that the business is subject to seasonal
variations.
There are currently no seasonal influences on the ongoing development of the
Skygas process. It is also not expected that there will be any seasonal
variations when the Skygas units are produced.
EMPLOYEES
At December 31, 2000, MPM employed twenty-two full-time employees at HES, and
seventeen full-time employees at AirPol. MPM believe that its relations with
its employees are good.
Item 2. Properties
HES presently owns no property related to its air pollution control business.
It leases its office space under a lease expiring in September of 2003, with an
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option for an additional five years. AirPol leases its office space under a
sublease that expires in August of 2000. MPM has no property related to its
waste-to-energy operations. MPM believes that its existing facilities are
adequate for the current level of operations.
The principal properties of MPM's mining interests consist of the following
claims under control:
Owned by MPM:
Eight Patented Claims
Sixteen Unpatented Claims
Leased by MPM:
Eight Patented Claims
These claims amount to approximately 1,000 acres of land in Montana. MPM
controls eighteen former mine sites that have been inactive since 1930. Each
of these has old adits, tunnels and dump piles of known mineralized material.
All testing and metallurgical work has been completed. Management has directed
MPM to sell these interests as previously discussed.
Item 3. Legal Proceedings
MPM's management knows of no litigation present, threatened, or contemplated,
or unsatisfied judgments against MPM or its subsidiaries, officers or
directors, or any proceedings in which MPM or its subsidiaries or officers or
directors are a party.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the shareholders during the fourth
quarter of 1999.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
a) Market Information
MPM's common stock trades on The Nasdaq SmallCap Market under the symbol MPML.
The following table shows quarterly high and low bid prices for 1999 as
reported by the National Quotations Bureau Incorporated. These prices reflect
interdealer quotations without adjustments for retail markup, markdown or
commission and do not necessarily represent actual transactions. All prices
reflect 1 for 9 reverse stock split effective June 18,1998.
High Bid Low Bid
1999
First Quarter $ 4.25 $ 2.25
Second Quarter 3.50 2.00
Third Quarter 9.63 5.13
Fourth Quarter 7.25 3.00
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1998
First Quarter $ 10.69 $ 4.78
Second Quarter 7.87 3.43
Third Quarter 4.25 .88
Fourth Quarter 4.37 1.37
b) Holders
As of March 14, 2000, there were approximately 2,400 holders of record of the
Registrant's common stock.
c) Dividends
MPM has not paid dividends in the past. It is not anticipated that MPM will
distribute dividends for the foreseeable future. Earnings of MPM are expected
to be retained to enhance its capital and expand its operations.
d) Recent Sales of Unregistered Securities
During 1999, MPM entered into the following transactions involving securities
not registered under the Securities Act:
1. Under the terms of an agreement with Michael J. Luciano, Chairman and CEO in
April 1999, MPM issued 150,000 shares of its common stock at the then current
market price of $2.00 in exchange for $300,000. MPM also issued convertible
debentures aggregating $400,000 which were convertible to common stock at a
discount. These debentures were converted concurrently with the stock issue
with an issue of an additional 333,333 shares of common stock.
2. Options to purchase 731,000 shares of common stock at a share price of $2.00
were issued to employees, officers and directors.
3. Options to purchase 126,667 shares of common stock at a share price of $3.00
were issued to employees, officers and directors.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
In addition to reading this section, you should read the consolidated financial
statements that begin on page F-1. That section contains all detailed
financial information including our results of operations.
a) Results of Operations
MPM acquired certain of the assets and assumed certain of the liabilities of a
part of a division of FLS miljo, Inc. as of July 1, 1998. MPM formed AirPol to
run this air pollution control business. As of April 1, 1997, MPM acquired
certain of the assets and assumed certain of the liabilities of a portion of a
division of United States Filter Corporation, and formed HES to operate this
air pollution control business. The results of operations for the year ended
December 31, 1999 include the operations of HES and AirPol for the entire year.
The results of operations for the year ended December 31, 1998 include the
operations of AirPol for the six months from July 1 through December 31 and the
operations of HES for the entire year.
The acquisition of HES changed MPM from a development stage company to an
operating company. Prior to that acquisition, there had been no revenues
reported since 1994. A full year of operations from HES and the acquisition of
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AirPol in 1998 increased revenues to $10,056,054 for the year ended December
31, 1998. A full year of operations of both entities increased revenues to
$19,414,593 for the year ended December 31, 1999.
For 1998 and 1999, MPM included all assets related to its mining and related
properties as being held for sale pursuant to the directive of the Board of
Directors that the properties should be sold. Losses from mining and related
activities have been included as discontinued operations in the consolidated
statements of operations in the financial statements. For more information
regarding these matters, see the financial statements included as Item 7 in
this filing.
During 1999, HES management increased its efforts in sales and marketing with
the addition of two highly experienced sales people. In November 1998, HES had
added another sales person. Other steps to improve market awareness have
included preparation of new product literature, presentations of technical
papers and continued participation and attendance at strategic industry trade
shows.
Management of HES believes that the recent reorganization of its sales and
marketing efforts puts HES in a position to significantly increase its
revenues, with a corresponding improvement on the bottom line. Requests for
quotations are at strong levels both for firm quotations and for budget
quotations. Firm quotations are requests to quote on projects that the
customer is currently planning to implement, and budget quotations are for
customers who are in the process of doing their capital budgeting, and may be
planning to include an HES unit, upgrade or service. Quotations for repeat
customers are higher than in the previous year for both new and replacement
equipment. Quotations for new projects abroad include installations in Taiwan,
Korea, Canada, India, Australia, Mexico and the United Kingdom. Sales of the
relatively new two chamber units have been strong. HES is currently developing
a new rotary regenerative thermal oxidizer ("RTO"). It is anticipated that the
first commercial sales of these units will be in the fourth quarter of 2000.
HES management is anticipating improvements in all areas during 2000. The goal
is to produce at least $1,000,000 in orders booked each month. Sales for 2000
are projected to be in excess of $12,000,000 which would be a 34% increase over
1999. This projection is based on the 1999 year end backlog, anticipated
reinstatement of a significant order that was postponed in 1999, and on the
levels of sales activity that are currently being experienced. These increased
levels of activity are attributed to the reorganization and strengthening of
the capabilities of the sales and marketing team, and to other efforts by HES
personnel to increase market share.
AirPol's sales performance for 1999 exceeded management's expectations due to
the successful sale of a large order early in the year. Sales fell off toward
the end of the year due largely to the postponement of some air quality
legislation enforcement. Early in 2000, AirPol was informed that it would be
awarded a contract for approximately $5,800,000 in the second quarter. With
its current backlog, and new and anticipated orders, AirPol is projected to
have revenues of approximately $10,000,000 for 2000.
AirPol management is optimistic for the year 2000 because the air quality
legislation enforcement which was postponed will now impact significantly the
level of sales activity in the current year. This is being reflected currently
in the increased levels of activity for both firm quotations and budget
quotations. AirPol has also bolstered its sales force with a key strategic
addition.
7
At December 31, 1999, MPM had deferred tax assets of approximately $2,000,000,
and has provided a valuation allowance in an equal amount since, in the opinion
of management, it cannot be determined that it is more likely than not that MPM
will realize the benefits of the assets.
1999 COMPARED TO 1998
Revenues increased $9,358,539, or 93.1%, from $10,056,054 in 1998 to
$19,414,593 in 1999. This was due in part to the results from AirPol being
included for the entire year 1999 compared to six months in 1998. It was also
due to increased sales for both AirPol and HES. The loss from continuing
operations for 1999 was $945,406, or $0.41 per share, compared to $699,322, or
$0.36 per share for 1998. MPM's results for 1999 included some nonrecurring
charges. These were related to MPM's aborted preferred stock offering and
registration filing, beneficial interest expense arising from borrowings from a
director of MPM, and expenses recognized related to the exercise of options by
two directors. These one-time charges aggregated approximately $430,000.
Without these charges, MPM would have had a loss per share from continuing
operations of $0.22. MPM's results for 1999 were also hurt by the postponement
of a large contract at HES with a corresponding loss of revenue and profit.
The net loss for 1999 was $945,406, or $0.41 per share compared to a net loss
for 1998 of $1,135,003, or $0.58 per share.
MPM's gross margin for 1999 increased $1,600,624 to $3,786,726. This was a
73.2% increase over 1998's gross margin of $2,186,102. This was due largely to
revenue increases at both HES and AirPol, and to the inclusion of a full year's
results of AirPol in 1999 compared to six months in 1998. MPM's gross margin
percentage decreased 3% from 22% in 1998 to 19% in 1999. This was due to
higher than anticipated costs related to two larger jobs.
Selling, general and administrative expenses increased $1,428,683, or 49.8%,
from $2,869,846 in 1998 to $4,358,529 in 1999. Of this amount, approximately
$430,000 was due to the aforementioned nonrecurring expenses. The balance was
due to the inclusion of a full year's operations of AirPol in 1999 compared to
six months in 1998.
LIQUIDITY AND CAPITAL RESOURCES
During 1999, funds for operations were provided principally by cash generated
subsequent to the acquisitions of HES and AirPol, their continuing operations,
and a capital contribution by a director (through the conversion of convertible
debt). In December 1998, MPM filed a registration statement with the
Securities and Exchange Commission, and received funds pending the completion
of the registration statement. Pursuant to an agreement in April, a director
invested $1,100,000 in cash which was used to repay the funds received in
anticipation of the registration and the related expenses. MPM then formally
withdrew its registration statement. Under the terms of the agreement with the
director, MPM issued 150,000 shares of its common stock at its market price for
$300,000, and convertible debentures for the issue of additional shares of
common stock at a discount for $400,000. The debentures were converted
concurrently with the issue of the original shares, and resulted in an
additional 333,333 shares of common stock being issued. The amount of the
discount is treated as a current period expense with the offset being credited
to additional paid-in capital. The effect on MPM's results for the year ended
December 31, 1999 was to decrease net income by approximately $267,000. The
balance of $400,000 from the director was in the form of an 8% note payable to
the director with payments of interest only due monthly through March 2004, and
the principal balance due in April 2004.
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Current cash reserves and continuing operations of HES and AirPol are believed
to be adequate to fund MPM's and its subsidiaries operations for the
foreseeable future. MPM is also considering alternative sources of capital
such as private placements, stock offerings and loans from shareholders and
officers to fund its current business and expand in other related areas through
more acquisitions.
Following is a summary from MPM's consolidated statements of cash flows:
Year ended
December 31,
1999 1998
---------------- ------------
Net cash (used in) provided by
operating activities ($ 2,714,535) $784,491
Net cash used in investing activities (56,254) (428,640)
Net cash provided by financing activities 330,618 268,123
Net (decrease) increase in cash and
cash equivalents (2,440,171) 623,974
The net cash used in operating activities in 1999 of $2,714,535 was due
primarily to decreases in billings in excess of costs and estimated earnings,
and increases in costs and estimated earnings in excess of billings. This was
caused by a dramatic decrease in orders booked in the fourth quarter, the
cancellation of a significant job at HES and decreased levels of activity in
the fourth quarter. The net cash provided by operating activities in 1998 of
$784,491 was due primarily to increases in billings in excess of costs and
estimated earnings on contracts in progress.
The net cash used in investing activities of $56,254 in 1999 was entirely due
to acquisitions of property and equipment. The net cash used in investing
activities of $428,640 in 1998 was due primarily to the acquisition of AirPol
and to purchases of property and equipment.
The net cash provided by financing activities in 1999 of $330,618 was due
primarily to the capital infusion from an officer/director of $1,100,000 net of
repayment of prior proceeds raised of approximately $760,000. In 1998, the net
cash provided by financing activities was due to approximately $760,000
received from a preferred stock subscription which was partly offset offering
costs related to the preferred stock subscription, by repayments of debt and
the repurchase of MPM's common stock. MPM completed its private offering of
preferred stock in early 1999. Net proceeds raised were $975,000. Prior to
the issuance of the preferred shares, the agreement was rescinded and MPM
refunded the monies advanced. MPM eliminated its bank debt in 1998. MPM is
contemplating the filing of a registration statement in connection with the
registration and sale of additional stock in the second quarter of 2000.
Management believes its present sources of working capital are sufficient for
both its short and long-term purposes.
SUBSEQUENT EVENTS
In January 2000, MPM received a letter of intent from a potential buyer of its
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mining properties. The buyer is currently doing its due diligence reviews.
The agreement calls for a cash purchase in an amount not to exceed $1,250,000.
Terms and other details have not yet been finalized.
On March 17, 2000 MPM announced that it had entered into a Letter of
Understanding to purchase certain of the assets of Environmental Consulting and
Characterization, Inc. ("EC&C") of Clifton Park, New York. EC&C is an air
pollution control company that designs and manufactures a unique fluidized
carbon adsorption concentrator system which utilizes a number of patented and
patent pending features. This system has a large number of potential
applications including semiconductor, paint finishing and printing. Using the
unique and patented features, the EC&C system outperforms competing systems by
a concentration factor of over 1,000 to 1, while maintaining a competitive
price structure.
The EC&C technology fits extremely well with the existing product lines of HES,
and gives HES a powerful new product line to enhance its sales. Management
believes that it gives HES a significant competitive edge and that the EC&C
system will be the concentrator of choice in this market segment estimated at
$200 million. With the sales and marketing prowess at HES, management is
projecting revenues generated by the EC&C systems to be $16 million by 2002.
It is expected that this transaction will close on or before April 30, 2000.
The terms of the agreement, while not finalized, will involve a combination of
MPM stock and cash.
IMPACT OF YEAR 2000
MPM experienced no problems or disruptions or miscalculations related to the
Year 2000 Issue. MPM management had determined that its basic computer systems
were year 2000 compliant, and would properly utilize dates beyond December 31,
1999. MPM also identified other areas where minor modifications would be
required for some of its less critical software to make it year 2000 compliant,
and took steps to make sure that these modifications were completed in a timely
manner. Accordingly, the Year 2000 Issue did not have an impact on MPM's
operations. At this time, management cannot provide assurances that there will
not be any future impact on the Company's operations due to this issue.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in all
fiscal quarters of fiscal years beginning after June 15, 2000. The Statement
requires companies to recognize all derivative contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized as income in
the period of change. Based on its current and planned future activities
relative to derivative instruments, MPM believes that the adoption of the
Statement on January 1, 2001 will not have a significant effect on its
financial statements.
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IMPACT OF INFLATION
Although inflation has slowed in recent years, it is still a factor in our
economy and MPM continually seeks ways to mitigate its impact. To the extent
permitted by competition, HES and AirPol pass increased costs on to their
customers by increasing prices over time. Management estimates that the impact
of inflation on the revenues for 1999 was negligible.
Since MPM did not engage in any mining operations, sales of metals or metal
bearing ores, and was in the development stage of the waste-to-energy process,
inflation did not materially impact the financial performance of those segments
of the MPM's business. Management estimates that the operations of MPM were
only nominally impacted by inflation.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Forward-looking statements in this report, including without limitation,
statements relating to MPM's plans, strategies, objectives, expectations,
intentions and adequacy of resources, are made pursuant to the safe harbor
provisions of the Private Securities Reform Act of 1995. Investors are
cautioned that such forward-looking statements involve risks and uncertainties
including without limitation the following: (i) MPM's loans, strategies,
objectives, expectations and intentions are subject to change at any time at
the discretion of MPM's management; (ii) MPM's plans and results of operations
will be affected by its ability to manage its growth and (iii) other risks and
uncertainties indicated from time to time in MPM's filings with the Securities
and Exchange Commission.
Item 7. Financial Statements
The financial statements follow on the next page.
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Item 8. Changes in and disagreements with accountants on Accounting and
Financial Disclosure.
Not applicable
PART III
Item 9. Directors and Executive Officers of the Registrant
a) Identification of Directors
FIRST ELECTED
NAME AGE POSITION DIRECTOR
- -------------------- ----- ---------- -----------------
Michael J. Luciano 46 Director 2/16/1998
Richard E. Appleby 61 Director 4/25/1985
Myron Katz 70 Director 4/25/1985
Daniel D. Smozanek 75 Director 4/25/1985
L. Craig Cary Smith 50 Director 4/25/1985
Anthony L. Lee 65 Director 2/16/1998
Glen Hjort 47 Director 2/16/1998
Richard Kao 61 Director 6/28/1999
The directors will serve until the next meeting of shareholders or until their
successors are elected and qualified.
b) Identification of Executive Officers.
NAME AGE POSITION OFFICER SINCE
- -------------------- ------- --------------------------- --------------
Michael J. Luciano 46 Chairman & CEO 2/16/1998
Glen Hjort 47 Chief Financial Officer 6/28/1999
Richard E. Appleby 60 Vice President 4/25/1985
Myron Katz 69 Vice President 4/25/1985
Daniel D. Smozanek 74 Treasurer 4/25/1985
Robert D. Little 50 Secretary 1/03/1991
The officers will serve until the next meeting of shareholders or until their
successors are elected and qualified.
c) Identification of Certain Significant Employees.
As of December 31, 1999, MPM was dependent upon the services of its principal
officers and directors. In the event that one of these persons should leave
the Company, there is no assurance that the Company can employ a suitable
replacement.
d) Family Relations
Michael J. Luciano, Chairman of the Board of Directors and Chief Executive
Officer is the nephew of Richard E. Appleby, Vice President and Director.
There are no other family relationships, whether by blood, marriage, or
adoption, between any executives and/or directors.
e) Business Experience
Background
Michael J. Luciano was elected Chairman and Chief Executive Officer on June
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28, 1999. On February 16, 1998, Mr. Luciano was named Senior Vice President
and elected a director. His continuing responsibilities included negotiating
joint ventures in the U.S. and Asia, and the development of the Skygas
technology. Mr. Luciano was a co-owner of Morris County Sanitation Services,
Inc. in East Hanover, New Jersey where he was responsible for acquisitions,
governmental regulatory permitting and compliance. He is also the owner of
MJL & Associates involved in consulting services specializing in solid waste
facilities, permitting, construction and operations. Mr. Luciano resides in
Mt. Arlington, New Jersey.
Glen Hjort was elected Chief Financial Officer on June 28, 1999. He has been a
Director since September 14, 1998. Mr. Hjort is a certified public accountant
with over twenty years experience providing services to numerous corporate
clients in a wide variety of industries. He is a past Chief Financial Officer
for a public company where he had responsibility for all accounting, personnel
and administrative functions, and for SEC reporting. Mr. Hjort resides in
Palatine, Illinois.
Richard E. Appleby is Vice President and a Director of the Company. He
attended postgraduate courses at Rutgers in Landscape Design, Landscape
Maintenance, Landscape Construction and Pesticide Application. From 1957 to
1973, Mr. Appleby was Superintendent and Manager of A-L Services and for Farm
Harvesting Co., constructing all types of site development and landscape
construction projects. From 1973 to 1980, he was Vice President of A-L
Services and since 1980, has been President of that company. Mr. Appleby
resides in Mendham, New Jersey.
Myron Katz is Vice President and a Director of the Company. He received his
Bachelor of Science Degree in Merchandising from Fairleigh Dickinson University
in 1952 and graduated from Lewis Hotel School in 1953. Mr. Katz has over 30
years diversified administrative and managerial experience. He is the past
President of Central Credit Clearing Bureau in Newark and East Orange, New
Jersey. Mr. Katz is currently a private consultant facilitating various
business ventures. Mr. Katz resides in Lake Hopatcong, New Jersey.
Daniel D. Smozanek is Treasurer and a Director of the Company. From 1947 to
1972, Mr. Smozanek was owner and President of Spring House Tree Service in
Summit, New Jersey. He has been involved in extensive real estate and land
development in New Jersey, Montana and Florida. From 1972 to 1980, he was a
partner in land development and real estate sales in the Eureka, Montana area.
During this time, he was also a partner in the exploration of 29 silver and
copper mining claims in the Flathead National Forest. Mr. Smozanek resides in
Port St. Lucie, Florida.
Robert D. Little is Secretary of the Company. He is a graduate of Central
Washington University with a Bachelor of Arts Degree in Sociology; graduate
studies at the University of Washington in Education and completed Teacher
Certification at Seattle University. From 1985 to the present, Mr. Little as
been Operations Manager for MPM and became Secretary of MPM in 1991. Mr.
Little is the owner of R.D. Little Company which specializes in assisting small
public companies with shareholder and investor relations from 1985 to the
present. Mr. Little resides in Spokane, Washington.
L. Craig Cary Smith is a Director. Mr. Smith graduated from Gonzaga Law School
in 1981 and was admitted to the Washington State Bar that same year. From 1981
to the present, Mr. Smith has been a partner in general practice at Smith and
Hemingway in Spokane, Washington. Mr. Smith resides in Spokane, Washington.
Anthony L. Lee is a Director, having been elected on September 14, 1998. Mr.
13
Lee is Managing Director, Gas Processing Technology at the Institute of Gas
Technology in Des Plaines, Illinois. He manages projects on hydrogenation and
dehydrogenation, reforming hydrodesulfurization, hydrocracking, membrane
technology, dehydration and acid gas removal. He holds eleven patents and has
published sixty-four articles within his scope of expertise. Mr. Lee resides
in Glen Ellyn, Illinois.
Dr. Richard Kao is a Director, having been elected on September 14, 1998. Dr.
Kao earned a master's degree in chemical engineering at Tunghai Christian
University in Taiwan and a doctoral degree in chemical engineering from the
Illinois Institute of Technology. He was a chemical engineer for the Institute
of Gas Technology from 1968 to 1982, and the Director of Technology for Xytel
Corporation from 1988 to 1996. Dr. Kao current responsibilities for Unitel
Technologies, Inc. include research and development of new technologies for
commercial applications for chemical, petroleum, synthetic fuels, food, pulp
and paper and solid waste industries. Dr. is Kao resides in Northbrook,
Illinois.
(2) Directorships
None of the directors of the Company are directors of other companies with
securities registered pursuant to section 12 of the Exchange Act or subject to
the requirements of section 15(d) of such act or any company registered under
the Investment Company Act of 1940.
f) Involvement in Certain Legal Proceedings.
Not Applicable
g) Promoter and Control Persons.
Not Applicable
Item 10. Executive Compensation
The following table shows the remuneration of officers and directors in excess
of $100,000 in 1999 and 1998.
14
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
<S> <C> <C> <C> <C>
Name and
Principal
Position Year Salary Bonus(s) Compensation Awards(s)($)SARs($)Payout(s)($) Compensation
- ------------ ------------ --------- ------------- ---------------------------------------------
Michael J.
Luciano 1999 $ 60,000 301,667 options granted at market
CEO 1998 None
1997 None
Charles A.
Romberg 1999 None 210,000 options granted at market
President 1998 50,872
1997 None
Robert D.
Little 1999 132,196
Secretary 1998 67,841
1997 45,600
<CAPTION>
1) Mr. Luciano devotes time to MPM on an as needed basis. He received no salary in 1999, but an amount of $60,000 was
provided as an estimate for compensation for time spent.
2) Mr. Romberg devoted time to MPM on a part-time basis prior to 1999. He received options to purchase 70,778 shares of
MPM's common stock. The value of these options was recorded at $50,872. Mr. Romberg resigned in 1999.
3) MPM contracts with Mr. Little for its shareholder relations services. Expenses related to this were $89,246 and
$67,841 for 1999and 1998, respectively. Additionally, Mr. Little exercised options in 1999 that resulted in expense recognized
by MPM in the amount of $50,000.
Option Grants In 1999 Fiscal Year Individual Grants
Individual Grants
<S> <C> <C> <C> <C>
% of Total Market Price
Options Options Granted Exercise or on Date of Expiration
Name Granted in Fiscal Year Base Price Grant Date
- ------------- -------- -------------------- ----------------- -------------
Michael J.
Luciano 245,000 $2.00 $2.00 4/19/09
56,667 35.17% $3.00 $3.00 5/18/09
Charles A.
Romberg 190,000 $2.00 $2.00 4/19/09
20,000 24.48% $3.00 $3.00 5/18/09
<CAPTION>
Aggregated Option/SAR Exercises in Last Fiscal Year and FYE 1999 Option/SAR Values
<S> <C> <C> <C> <C>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-TheMoney
Options/SARs Options/SARs
Shares at FY-End (#) at FY-End
Acquired on Value Exercisable/ Exercisable/
Name Exercise Realized ($) Unexercisable Unexercisable
- ---------------- ----------------- ------------- --------------- -------------
Michael J.
Luciano 333,333 $666,666 321,890 $1,414,587
Exercisable
Charles A.
Romberg 315,422 $1,517,883
Exercisable
</TABLE>
15
a) Current Remuneration.
None of the officers or directors is compensated for their services as an
officer or director. Each is reimbursed for out-of-pocket expenses incurred on
MPM business.
b) Proposed Remuneration.
It is not contemplated that any salaries will be paid unless, and until such
time as, MPM may require full time commitments from any officer or director.
c) Incentive and Compensation Plans and Arrangements.
MPM has no retirement, profit sharing, pension, or insurance plans covering its
officers and directors. No advances have been made, nor are any contemplated,
by MPM to any of its officers or directors.
The shareholders of MPM, at the Annual Shareholders Meeting on May 22, 1989,
voted to approve a stock option plan for selected employees, officers and
directors of MPM. The purpose of the option plan is to promote the interests
of MPM and its stockholders by attracting, retaining and stimulating the
performance of selected employees, officers and directors and giving such
employees the opportunity to acquire a proprietary interest in MPM's business
and an increased personal interest in this continued success and progress. At
the Annual Meeting of Shareholders held on June 28, 1999 the shareholders
approved an amendment to the stock option plan therefore increasing the number
of shares in the plan by 250,000.
Item 11. Security Ownership of Certain Beneficial Owners and Management
a) Security Ownership of Certain Beneficial Owners.
In addition as set forth in Part b. of this Item, Security Ownership of
Management, United States Filter Corporation owns 146,666 or 6.83% of MPM's
outstanding shares. Unitel Technologies, Inc. owns 133,333 or 6.21% of MPM's
outstanding common stock. No other person or group was known by the Registrant
to own more than five percent of its common stock at December 31, 1999.
b) Security Ownership of Management as of March 22, 2000.
The following table sets forth, as of March 22, 2000 the amount and percentage
of the Common Stock of MPM, which according to the information supplied to MPM,
is beneficially owned by management, including officers and directors of MPM.
Except as otherwise specified, the persons named in the table have sole voting
power and investment power with respect to all shares of Common Stock
beneficially owned by them.
Title of Name of Amount and Nature of Percent
Class Beneficial Owner Beneficial Ownership [1] of Class
- ---------- -------------------------- ------------------------ ----------
Common Michael J. Luciano 573,910 [2] 16.8
Common Richard E. Appleby 231,155 6.8
Common Daniel D. Smozanek 170,257 5.0
Common L. Craig Cary Smith 159,070 4.7
Common Myron Katz 132,179 3.9
Common Robert D. Little 121,771 3.6
Common Glen Hjort 51,833 1.5
16
Common Anthony Lee 24,000 *
Common Richard Kao 1,000 *
Common As A Group 1,465,175 43.0
[*] Less than one percent
[1] Includes options available for exercise aggregating 768,924 shares for the
entire group.
[2] Does not include 327,426 shares and 105,000 options available for exercise
(12.7%) of the Company's outstanding stock and options available for exercise
owned by two trusts for which Mr. Luciano is the executor.
c.) Changes in Control.
There are no contractual arrangements of any kind, known to MPM, which may at a
subsequent date result in a change in control of MPM.
Item 12. Certain Relationships and Related Transactions
a.) Transactions with Management and Others.
No Officers or Directors of MPM, or nominees for election as Director, or
beneficial owners of more than five percent of MPM's voting stock, or members
of their immediate families had any material transactions with MPM other than
as set forth in part b. of this item.
b.) Certain Business Relationships.
Under the terms of an agreement with Michael J. Luciano, Chairman and Chief
Executive Officer, in April 1999, MPM issued 150,000 shares of its common stock
at the then current market price of $2.00 in exchange for $300,000 cash. MPM
also issued convertible debentures aggregating $400,000 which were convertible
to common stock at the discounted price of $1.20 per share. These debentures
were converted concurrently with the stock issue and resulted in an additional
333,333 shares being issued. The discount of $266,666 was treated as a
financing charge against MPM's income for 1999. At the same time, MPM issued a
note payable to Mr. Luciano in the amount of $400,000 with interest only
payments monthly through March 2004 and the entire principal balance due in
April 2004.
At December 31, 1999 and 1998, Richard Appleby was owed $65,000 and $210,000,
respectively, pursuant to unsecured demand notes. At December 31, 1999,
Michael J. Luciano had advanced $75,000 to MPM pursuant to two unsecured demand
notes.
MPM has a contract with R.D. Little Co. to provide shareholder and investor
relations services. Robert D. Little, Secretary of MPM owns R.D. Little Co..
For the year ended December 31, 1999, MPM paid $82,196 for these services.
It is the opinion of management that the amount and terms for leases and
services from affiliates are comparable to those which might be obtained from
unaffiliated parties.
c) Other Information
None
17
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(A) Exhibits and Financial Statements have been previously reported or are being
shown as an exhibit in this Form 10-KSB.
(B) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended December 31,
1999.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized
MPM Technologies, Inc.
By: /s/ Michael J. Luciano
-----------------------------
Title: Chariman and Chief Executive Officer
Date: March 22, 2000
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
/s/ Michael J. Luciano /s/ Glen Hjort
- ---------------------------- ---------------------------------
Michael J. Luciano Glen Hjort
Chairman & Chief Executive Officer Chief Financial Officer & Director
Dated: March 22, 2000 Dated: March 22, 2000
/s/ Myron Katz /s/ Daniel D. Smozanek
- ---------------------------- ---------------------------------
Myron Katz Daniel D. Smozanek
Vice President & Director Treasurer & Director
Dated: March 22, 2000 Dated: March 22, 2000
/s/ Richard E. Appleby /s/ L. Craig Cary Smith
- ---------------------------- ---------------------------------
Richard E. Appleby L. Craig Cary Smith
Vice President & Director Director
Dated: March 22, 2000 Dated: March 22, 2000
/s/ Richard Kao
- ----------------------------
Richard Kao
Director
Dated: March 22, 2000
19
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
MPM Technologies, Inc. and Subsidiaries
Report of Independent Certified Public Accountants..............F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998....F-3
Consolidated Statements of Operations for the years ended
December 31, 1999
and 1998 ......................................................F-4
Consolidated Statements of Stockholders' Equity for the years
ended December 31,
1999 and 1998 .................................................F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999
and 1998 .....................................................F-6 to F-7
Summary of Accounting Policies..................................F-8 to F-11
Notes to Consolidated Financial Statements......................F-12 to F-23
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
MPM Technologies, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of MPM
Technologies, Inc. and Subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of MPM Technologies,
Inc. and Subsidiaries as of December 31, 1999 and 1998, and the consolidated
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
BDO Seidman, LLP
Spokane, Washington
February 4, 2000
F-2
<TABLE>
<CAPTION>
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
<S> <C> <C>
1999 1998
Current assets: --------------- --------------
Cash and cash equivalents $ 194,399 $ 2,634,570
Accounts receivable, less allowance for doubtful accounts of $25,000 and
$90,000 (Notes 11 and 14) 1,993,792 1,630,630
Inventories (Note 3) 313,298 496,964
Costs and estimated earnings in excess of billings (Notes 1 and 2) 535,252 1,571,833
Other current assets 168,516 66,999
--------------- --------------
Total current assets 3,205,257 6,400,996
Property, plant and equipment, net (Notes 1 and 4) 302,150 320,026
Mineral properties held for sale (Note 12) 1,086,346 1,086,346
Goodwill, net of accumulated amortization of $114,080 and $38,027 (Note 1) 646,452 722,505
Prepaid royalty (Note 13) 275,000 275,000
Purchased intangible, net of accumulated amortization of $202,500 and
$135,000 (Note 15) 472,500 540,000
Other assets, net 139,957 123,420
--------------- --------------
$ 6,127,662 $ 9,468,293
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable (Note 1) $ 1,412,097 $ 827,061
Accrued expenses (Note 1) 72,340 279,903
Billings in excess of costs and estimated earnings (Notes 1 and 2) 245,564 3,819,204
Accrued expenses _ related party (Note 14) 167,284 63,116
Related party debt (Note 7) 665,000 270,000
Current portion of long-term debt (Note 6) 225,000 150,000
Preferred stock deposit (Note 10) - 760,035
--------------- --------------
Total current liabilities 2,787,285 6,169,319
Long-term debt, less current portion (Note 6) 537,054 561,518
Negative goodwill, net of accumulated amortization of $259,844 and
$165,356 (Note 1) 685,045 779,533
--------------- --------------
Total liabilities 4,009,384 7,510,370
Commitments and contingencies (Notes 8 and 12)
Stockholders' equity (Note 10):
Common stock, $0.001 par value; 100,000,000 shares authorized;
2,641,961 and 2,146,128 shares issued and outstanding 2,642 2,146
Additional paid-in capital 9,950,148 8,844,883
Accumulated deficit (7,834,512) (6,889,106)
--------------- --------------
Total stockholders' equity 2,118,278 1,957,923
--------------- --------------
$ 6,127,662 $ 9,468,293
=============== ==============
</TABLE>
See accompanying summary of accounting policies and notes
to the consolidated financial statements.
F-3
<TABLE>
<CAPTION>
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
<S> <C> <C>
1999 1998
--------------- --------------
Revenues (Notes 2 and 16) $ 19,414,593 $ 10,056,054
Cost of sales (15,627,867) (7,869,952)
--------------- --------------
Gross margin 3,786,726 2,186,102
Selling, general and administrative expenses (4,358,529) (2,869,846)
--------------- --------------
Loss from operations (571,803) (683,744)
Other income (expense):
Interest expense (Note 7) (404,390) (124,394)
Other income, net 30,787 108,816
--------------- --------------
Net other expense (373,603) (15,578)
--------------- --------------
Loss from continuing operations (945,406) (699,322)
Discontinued operations (Note 12):
Loss from discontinued mining operations - (435,681)
--------------- --------------
Net loss $ (945,406) $ (1,135,003)
Loss per share _ basic and diluted:
Loss from continuing operations $ (0.41) $ (0.36)
Loss from discontinued operations - (0.22)
--------------- --------------
Net loss $ (0.41) $ (0.58)
--------------- --------------
Weighted average shares of common stock outstanding -
basic and diluted 2,323,412 1,945,620
=============== ==============
</TABLE>
See accompanying summary of accounting policies and notes
to the consolidated financial statements.
F-4
<TABLE>
<CAPTION>
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C>
Additional Total
Common Stock Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
---------- --------- ------------ ------------ -------------
Balance, January 1, 1998 1,832,013 $ 1,832 $ 8,076,990 $(5,754,103) $ 2,324,719
Common stock issued for services 5,556 5 21,822 - 21,827
Common stock issued for acquisition of AirPol, Inc.
(Note 1) 96,884 97 299,903 - 300,000
Common stock retired (31,600) (32) (78,143) (78,175)
Common stock issued for debt and property (Note 7)
234,575 235 377,430 - 377,665
Common stock awarded to employees 8,700 9 14,694 - 14,703
Interest imputed on related party debt
(Note 7) - - 27,187 - 27,187
Compensatory stock options issued - - 105,000 - 105,000
Net loss - - - (1,135,003) (1,135,003)
---------- --------- ------------ ------------ -------------
Balance, December 31, 1998 2,146,128 2,146 8,844,883 (6,889,106) 1,957,923
Common stock issued for cash 150,000 150 299,850 - 300,000
Common stock purchased and retired (1,500) (1) (4,346) - (4,347)
Common stock issued on conversion of debt 333,333 333 399,667 - 400,000
Beneficial conversion feature of debt issued - - 266,666 - 266,666
Interest imputed on related party debt
(Note 7) - - 13,442 - 13,442
Common stock issued on cashless exercise of stock
options 14,000 14 69,986 - 70,000
Contributed services (Note 14) - - 60,000 - 60,000
Net loss - - - (945,406) (945,406)
---------- --------- ------------ ------------ -------------
Balance, December 31, 1999 2,641,961 $ 2,642 $ 9,950,148 $(7,834,512) $ 2,118,278
========== ========= ============ ============ =============
</TABLE>
See accompanying summary of accounting policies and notes
to the consolidated financial statements.
F-5
<TABLE>
<CAPTION>
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Year Ended December 31,
<S> <C> <C>
1999 1998
-------------- -------------
Cash flows from operating activities:
Net loss $ (945,406) $ (1,135,003)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 123,456 33,785
(Loss) gain on disposal of assets 741 (7,684)
(Recovery) provision for bad debts (43,138) 77,447
Finance charge on beneficial conversion 266,666 -
Cashless option exercise 70,000 -
Interest imputed on related party debt 13,442 27,187
Contributed services 60,000 -
Provision for obsolete inventory - 25,000
Stock issued for services - 21,827
Stock issued for compensation - 14,703
Compensatory stock options issued - 105,000
Write-down of mineral properties - 400,000
Change in assets and liabilities, net of effect of
acquisitions:
Accounts receivable (320,024) (951,143)
Costs and estimated earnings in excess of billings 1,036,581 (878,590)
Inventories 183,666 196,470
Other assets (119,056) (83,582)
Accounts payable and accrued expenses 532,177 427,842
Billings in excess of costs and estimated earnings (3,573,640) 2,511,232
-------------- -------------
Net cash provided by (used in) operating activities (2,714,535) 784,491
Cash flows from investing activities:
Proceeds from sale of mineral properties - 19,614
Acquisition of property, plant and equipment (56,254) (213,644)
Cash paid in business acquisition - (234,610)
-------------- -------------
Net cash used in investing activities (56,254) (428,640
-------------- -------------
Cash flows from financing activities:
Stock issued for cash 300,000 -
Proceeds from issuance of convertible debt 400,000 -
Repurchase and retirement of common stock (4,347) (78,175)
(Repayment) proceeds from preferred stock deposit (760,035) 760,250
Advances of related party debt 450,000 10,000
Repayments of related party debt (55,000) (100,000)
Repayments of notes payable - (276,908)
Repayments of long term debt - (47,044)
-------------- -------------
Net cash provided by financing activities 330,618 268,123
-------------- -------------
Net increase (decrease) in cash and cash equivalents (2,440,171) 623,974
Cash and cash equivalents, beginning of year 2,634,570 2,010,596
-------------- -------------
Cash and cash equivalents, end of year $ 194,399 $ 2,634,570
============== =============
</TABLE>
See accompanying summary of accounting policies and notes
to the consolidated financial statements.
F-6
<TABLE>
<CAPTION>
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Year Ended December 31,
<S> <C> <C>
1999 1998
------------ ------------
Supplemental Disclosures Of Cash Flow Information
Cash paid during the year for:
Interest $ 27,474 $ 99,596
Non-cash investing and financing activities:
Notes payable converted to shares of common stock $ 400,000 $ -
Common stock issued through non-cash exercise of options $ 70,000 $ -
Issuance of shares of common stock for acquisitions
of subsidiary $ - $ 300,000
Related party debt converted to and property exchanged for
shares of common stock $ - $ 377,665
Business acquisitions:
Fair value of assets acquired $ - $ 337,577
Purchase price in excess of net assets acquired . - 760,532
Liabilities assumed - (563,499
Net assets acquired in excess of purchase price . - -
Common stock issued - (300,000)
------------ ------------
Cash paid for acquisitions $ - $ 234,610
============ ============
</TABLE>
See accompanying summary of accounting policies and notes
to the consolidated financial statements.
F-7
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
Operations, Principles of Consolidation and Basis of Presentation
MPM Technologies, Inc. (the Company) was incorporated as Okanogan Development,
Inc. on July 18, 1983, under the laws of the State of Washington. It was
formed primarily for the purpose of investing in real estate and interests in
real estate. On April 25, 1985, the Company combined with MADD Exploration
(MADD), a Montana partnership, and changed its name to Montana Precision
Mining, Ltd. In August 1995, the Company changed its name to MPM Technologies,
Inc. As a result of the combination with MADD, the Company acquired mining
properties located in Powell County, Montana. The Company is no longer engaged
in exploration or developmental mining activities in regard to these
properties. (See Note 12.)
The accompanying consolidated financial statements include the accounts of the
Company and the following subsidiaries and other entities controlled by the
Company: Huntington Environmental Systems, Inc. (HES), AirPol, Inc. (AirPol),
MPM Mining, Inc., NuPower, Inc., NuPower (a General Partnership) and SkyGas.
Intercompany accounts and transactions among the companies have been
eliminated.
HES, a wholly owned subsidiary, was acquired on March 31, 1997 (See Note 1).
HES designs, engineers, supplies and services air pollution control systems for
Fortune 500 and other environmental and industrial companies worldwide. HES's
systems primarily utilize heat and chemicals to control air pollution.
AirPol, a wholly owned subsidiary, was acquired on July 2, 1998 (See Note 1).
AirPol, like HES, designs, engineers, supplies and services air pollution
control systems. AirPol's systems, however, utilize wet and dry scrubbers, wet
electrostatic precipitators and venturi absorbers to control air pollution.
NuPower, a 58.21% owned partnership, is engaged in the research and development
of an electrothermal gasification process which will be utilized primarily in
the waste-to-energy field, although the process is expected to have
applications in other areas. This partnership was formed in 1986.
SkyGas, an 85% directly and indirectly owned joint venture, was formed in 1990
for the purpose of commercializing the SkyGas technology, which is a
disposal/gasification process that converts solid and semi-solid wastes into
clean, medium BTU syntheses gas. As of December 31, 1999 and 1998,
participants and interests owned in the SkyGas venture included: NuPower (a
58.2% owned subsidiary of the Company), 70%, MPM Technologies, Inc., 15%, and
USF Smogless of Milan, Italy (a subsidiary of United States Filter Corporation
which also owns shares of the Company totaling 6.83% of the common stock
outstanding), 15%.
The Company currently operates within two reportable segments as disclosed in
Note 16.
Revenue Recognition
Contract revenue is recognized on the percentage-of-completion method in the
ratio that costs incurred bear to estimated costs at completion. Costs include
all direct material and labor costs, and indirect costs, such as supplies,
tools, repair and depreciation. Selling, general and administrative costs are
F-8
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
charged to expense as incurred. Other revenue is recorded on the basis of
shipment or performance of services or shipment of products. Provision for
estimated contract losses, if any, is made in the period that such losses are
determined. During 1999 and 1998, no amounts were recognized for estimated
contract losses.
The asset "costs and estimated earnings in excess of billings" represents
revenues recognized in excess of amounts invoiced. The liability "billings in
excess of costs and estimated earnings" represents invoices in excess of
revenues recognized.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated
depreciation. For financial reporting purposes, the costs of plant and
equipment are depreciated over the estimated useful lives of the assets, which
range from three to fifteen years, using the straight-line method.
Mineral Properties Held For Sale
Mineral properties held for sale are stated at estimated net realizable value
determined based on estimated undiscounted future cash flows from the
liquidation of the related asset.
Goodwill and Purchased Intangible
Goodwill and purchased intangible represents the excess of the purchase price
over the fair value of net assets acquired and are being amortized on a
straight-line basis over their estimated period of future benefit of ten years.
The Company periodically evaluates the recoverability of goodwill and purchased
intangible. The measurement of possible impairment is based primarily on the
Company's ability to recover the unamortized balance of the goodwill and
purchased intangible from expected future operating cash flows on an
undiscounted basis.
Asset Impairment
The Company evaluates its long-lived assets for financial impairment, and
continues to evaluate them as events or changes in circumstances indicate that
the carrying amount of such assets may not be fully recoverable. The Company
evaluates the recoverability of long-lived assets by measuring the carrying
amount of the assets against the estimated undiscounted future cash flows
associated with them. At the time such evaluations indicate that the future
undiscounted cash flows of certain long-lived assets are not sufficient to
recover the carrying value of such assets, the assets are adjusted to their
fair values.
Income Taxes
F-9
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
SFAS No. 109 uses the asset and liability method so that deferred taxes are
determined based on the estimated future tax effects of differences between the
financial statement and tax basis of assets and liabilities given the
provisions of enacted tax laws and tax rates. Deferred income tax expense or
benefit is based on the changes in the financial statement basis versus the tax
bases in the Company's assets or liabilities from period to period.
Research and Development Costs
Research and development costs are charged to expense as incurred.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
Those estimates and assumptions affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments, which potentially subject the Company to a concentration
of credit risk, consist of cash and cash equivalents. The Company places its
cash and cash equivalents with various high quality financial institutions;
these deposits may exceed federally insured limits at various times throughout
the year.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets as of December 31, 1999
and 1998 for cash equivalents, accounts payable and accrued expenses
approximate fair value because of the immediate or short-term maturity of
these financial instruments. The fair value of notes payable and long-term
debt approximates their carrying value as the stated or discounted rates of
the debt reflect recent market conditions.
Cash and Cash Equivalents
For purposes of balance sheet classification and the statements of cash flows,
the Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Warranty Reserve
The Company warranties its pollution control units for defects in design,
materials, and workmanship generally for a period of 18 months from date sold
or 12 months from date placed in service. Provision for estimated warranty
costs is recorded upon completion of the project and periodically adjusted to
reflect actual experience.
F-10
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
SUMMARY OF ACCOUNTING POLICIES
Earnings per share
SFAS No. 128 requires dual presentation of basic earnings per share and diluted
earnings per share on the face of all income statements issued after December
15, 1997 for all entities with complex capital structures. Basic earnings per
share includes no dilution and is calculated by dividing income available to
common shareholders by the average number of shares actually outstanding during
the period. Diluted earnings per share reflects the potential dilution of
securities (such as stock options, warrants and securities convertible into
common stock) that could share in the earnings of an entity. At December 31,
1999 and 1998, outstanding options to purchase 1,084,480 and 247,613 shares of
the Company's common stock were not included in the computation of diluted
earnings per share as their effect would have been antidilutive. As the
Company's stock options are antidilutive, basic and diluted earnings per share
are the same for all periods presented.
Reclassifications
Certain amounts in the 1998 consolidated financial statements have been
reclassified to conform to the 1999 consolidated financial statement
presentation.
Effect of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
requires companies to recognize all derivative contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are attributable to the hedged risk or (ii)
the earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized as income in
the period of change. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company believes that the
adoption of SFAS No. 133 on January 1, 2001 will not have a significant effect
on its financial statements.
F-11
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business Acquisitions
On March 31, 1997, the Company acquired an operating business from United
States Filter Corporation under the terms of an asset purchase agreement and
subsequently formed an Illinois corporation, Huntington Environmental Systems,
Inc., into which the acquired assets and liabilities were transferred. The
acquisition of HES was recorded under the purchase method of accounting;
accordingly, the results of operations of HES are included in the consolidated
statements of operations from the date of acquisition. The purchase price
consisted of the issuance of 146,667 shares of the Company's common stock
valued at $990,000. The excess of the fair value of the net assets acquired
over the purchase price was $944,889, which has been established as negative
goodwill and is being amortized over ten years.
On July 2, 1998, the Company acquired an operating business from FLS miljo,
Inc. under the terms of an asset purchase agreement and subsequently formed a
New Jersey corporation, AirPol, Inc., into which the acquired assets and
liabilities were transferred. The acquisition of AirPol was recorded under the
purchase method of accounting; accordingly, the results of operations of AirPol
are included in the consolidated statements of operations from the date of
acquisition. The total purchase price of AirPol was $534,610 and consisted of
$234,610 of cash and 96,884 shares of common stock of the Company valued at
$300,000. The excess of the purchase price over the fair value of the net
assets acquired was $760,532 and is being amortized over ten years.
As of July 2, 1998, the fair values of assets acquired and liabilities assumed
were as follows:
Costs and estimated earnings in excess of $ 248,038
billings
Plant, property and equipment 89,539
Goodwill 760,532
Accrued expenses (15,751)
Billings in excess of costs and estimated (547,748)
earnings
-------------
$ 534,610
=============
Unaudited pro forma consolidated results of operations assuming the acquisition
of AirPol had occurred as of January 1, 1998, have not been provided for 1998
as the results would not have been materially different than reported amounts.
Included in the December 31, 1999 accounts receivable balance is a total of
$583,000 which is the net outstanding amount from those jobs which were
acquired from FLS miljo, Inc. at the date of acquisition, and have since been
completed.
F-12
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Costs and Estimated Earnings on Contracts in Progress
Following is a summary of costs, billings, and estimated earnings on contracts
in progress:
December 31,
1999 1998
-------------- ------------
Costs incurred on contracts in progress $ 13,212,258 7,484,761
Estimated earnings 2,910,473 1,854,518
-------------- ------------
16,122,731 9,339,279
Less billings to date 15,833,043 11,586,650
-------------- ------------
$ 289,688 (2,247,371)
============== ============
The above accounts are shown in the accompanying consolidated balance sheets
under these captions:
December 31,
1999 1998
------------- -------------
Costs and estimated earnings in excess of
billings $ 535,252 $ 1,571,833
Billings in excess of costs and estimated
earnings (245,564) (3,819,204
------------- -------------
$ 289,688 $ (2,247,371)
============= =============
3. Inventories
Inventories consist of the following:
December 31,
1999 1998
------------- ---------
Equipment $ 223,748 237,062
Chemicals 55,324 162,356
Parts and supplies 34,226 97,546
------------- ---------
$ 313,298 496,964
============= =========
F-13
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 31,
1999 1998
------------- ------------
Equipment $ 268,727 $ 225,369
Furniture and fixtures 130,720 118,565
Leasehold improvements 14,708 14,708
------------- ------------
414,155 358,642
Less accumulated depreciation 112,005 38,616
------------- ------------
$ 302,150 $ 320,026
============= ============
5. Notes Payable
During 1999, the Company issued a $400,000 note payable for funds received,
which was immediately converted into shares of the Company's common stock at
$1.20 per share. This conversion rate was at a $0.80 discount from the trading
price of the debt at the date of issuance. The beneficial conversion feature
was therefore ascribed a fair value of $266,666, which has been recorded as a
financing charge associated with the transactions.
6. Long-Term Debt
In conjunction with the Company's acquisition of HES (See Note 1), the Company
assumed a long-term obligation totaling $1,200,000, which is payable in fifteen
annual installments of $75,000. As there was no stated interest rate on the
obligation, an imputed interest rate of 9%, which represented the Company's
estimated borrowing rate, was utilized. The $75,000 payment due in both 1999
and 1998 has not been made as the Company believes the note holder has breached
the agreement. Under the terms of the agreement, non-payment does not result
in the debt being callable. At December 31, 1999 and 1998, the carrying value
of the obligation, net of discount, was $604,552. At December 31, 1999 and
1998, current amounts owed under this obligation are $225,000 and $150,000,
respectively.
7. Related Party Debt
Related party debt consists of advances received from various directors and
related parties. At December 31, 1999 and 1998, amounts owed these related
parties totaled $665,000 and $270,000, respectively, and are due on demand.
Certain of the related party creditors voluntarily agreed to terminate their
current and future right to interest payments. As such, interest expense of
$13,442 and $27,187 has been imputed on this debt at 10% for 1999 and 1998 with
a corresponding offset to additional paid-in capital.
During 1998, the related party creditors entered into an agreement with the
Company to exchange notes payable and accrued interest thereon together with
F-14
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
property for shares of the Company's common stock. Under this agreement, the
Company issued 234,575 shares of common stock in exchange for notes payable and
accrued interest totaling approximately $285,000 and a contribution of property
with an estimated fair value of approximately $93,000.
8. Commitments and Contingencies
The Company leases office space and mineral properties under operating leases
that expire at various dates through 2003. Future minimum rental payments
required under operating leases that have initial and remaining noncancelable
terms in excess of one year are as follows:
Year Ending December 31, Amount
-------------------------------- -----------
2000 $ 313,50
2001 314,40
2002 249,50
2003 87,90
-----------
$ 965,30
===========
Rent expense for the year ended December 31, 1999 and 1998 was $249,559 and
$195,833, respectively.
The Company has entered into an exclusive license rights agreement for
technology to be utilized in its SkyGas venture. Pursuant to the terms of the
agreement, the Company has agreed to pay $72,000 annually through April 2007.
The agreement may be terminated by the Company at any time.
During 1999, AirPol executed a joint venture agreement with another U.S.
company to operate a business involved in environmental protection in China.
In connection therewith, the Company advanced $30,000 to this arrangement and
committed to invest an additional $80,000 through certain technology. This
advance is reported with other assets on the balance sheet.
9. Income Taxes
As of December 31, 1999 and 1998, the significant components of the Company's
net deferred tax asset is as follows:
Year Ended December 31
1999 1998
------------ -----------
Net operating loss carryforward $1,478,000 1,176,000
Differences between book and tax 264,000 234,000
depreciation
Goodwill and purchase asset adjustments 233,000 265,000
Writedown of mineral properties 136,000 136,000
Other (11,000) (111,000)
------------ -----------
2,100,000 1,700,000
Less: valuation allowance 2,100,000 1,700,000
------------ -----------
$ - -
============ ===========
F-15
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As management of the Company cannot determine that it is more likely than not
that the Company will realize the benefit of the net deferred tax asset, a
valuation allowance equal to the net deferred tax asset has been established at
both December 31, 1999 and 1998.
At December 31, 1999, the Company has net operating loss carryforwards totaling
approximately $4.4 million that expire in the years 2001 through 2012.
10. Stockholders' Equity
Reverse Stock Split
In June 1998, the Board of Directors authorized a 1 for 9 reverse stock split.
This reverse stock split was performed by the Company granting to all
stockholders as of the date of record one share of common stock to replace
every nine shares of stock currently outstanding. All references in the
consolidated financial statements referring to the number of shares, share
prices, per share amounts and options have been adjusted retroactively for the
effect of this reverse stock split.
Preferred Stock Deposit
During 1998, the Company entered into an agreement to obtain $1.2 million
through the issuance of shares of preferred stock. As of December 31, 1998,
the Company had received deposits of approximately $760,000 and incurred costs
of approximately $144,000 in connection with this offering. Subsequent to year
end, the Company received additional funds of approximately $440,000 and
incurred costs of approximately $81,000. Prior to the issuance of preferred
shares in 1999, the agreement was rescinded and the Company refunded $1.2
million raised and expensed the $225,000 of stock offering costs which had been
incurred.
Stock Option Plan
On May 22, 1989, the shareholders of the Company voted to approve a stock
option plan (the Plan) for selected key employees, officers and directors of
the Company. The Plan is administered by a Compensation Committee of the Board
of Directors (the "Committee") consisting of those directors of the Company and
individuals who are elected annually by the Board of Directors to the
Committee. The Board of Directors has chosen one of the Company's directors
and one outside individual to serve on the Committee. No director eligible to
receive options under the Plan may vote upon the granting of an option or Stock
Appreciation Rights (SAR) to himself or herself or upon any decision of the
Board of Directors or the Committee relating to the Plan. Under the Plan, a
maximum of 292,222 shares were approved to be granted, which in 1999 and 1998,
was increased by 250,000 and 250,000 respectively, to 792,222. Generally, the
Plan provides that the terms under which options may be granted are to be
determined by a Committee subject to certain requirements as follows: (1) the
exercise price will not be less than 100% of the market price per share of the
common stock of the Company at the time an Incentive Stock Option is granted,
or as established by the Committee for Non-qualified Stock Options or Stock
Appreciation Rights; and (2) the option purchased price will be paid in full on
the date of purchase.
F-16
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Qualified stock option activity under the Plan and non-qualified stock option
activity outside the Plan are summarized as follows:
Weighted
Average
Option
Options Price
---------- -----------
Outstanding at January 1, 1998 101,000 $ 0.90
Granted 146,613 0.88
Exercised - -
Expired - -
---------- -----------
Outstanding at December 31, 1998 247,613 0.89
Granted 857,667 2.15
Exercised (20,800) (2.00)
Expired - -
---------- -----------
Outstanding at December 31, 1999 1,084,480 $ 1.86
========== ===========
SFAS No. 123 requires the Company to provide pro forma information regarding
net loss and loss per share as if compensation cost for the Company's stock
option plan had been determined in accordance with the fair value based method
prescribed by SFAS No. 123. The Company estimates the fair value of each stock
option at the grant date by using the Black-Scholes option-pricing model with
the following weighted-average assumptions used: dividend yield of zero
percent; expected volatility of 23 percent; risk-free interest rate of 5.25
percent; and expected lives of five years. The weighted average fair value at
date of grant for options granted to employees in 1999 and 1998 was $1.09 and
$1.59, per option. Under the accounting provisions of SFAS No. 123, the
Company's net loss and loss per share for each of the two years in the period
ended December 31, 1999 and 1998 would have been adjusted to the pro forma
amounts indicated below:
Year Ended December 31
1999 1998
------------- -----------------
Net loss
As reported $ (945,406) $ (1,135,003)
Pro forma $ (1,532,385) $ (1,194,729)
Loss per share
As reported $ (0.41) $ (0.58)
Pro forma $ (0.66) $ (0.61)
F-17
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes information about stock options outstanding at
December 31, 1999:
Options
Number Weighted Outstanding and
Range of Outstanding Average Exercisable Weighted
Exercise and Exercise Average Remaining
Prices Exercisable Price Contractual Life
at 12/31/99 (Years)
--------------- -------------- ----------- --------------------
0.88 - $0.90 247,613 $ 0.89 6.6
2.00 710,200 $ 2.00 9.4
3.00 126,667 $ 3.00 9.5
-------------- --------------------
0.88 - $1.86 1,084,480 $ 1.86 8.8
============== ====================
11. Valuation and Qualifying Accounts
Allowance for doubtful account activity was as follows:
December 31,
1999 1998
-------------- -------------
Balance, beginning of year $ 90,000 $ 50,000
Charged to (deducted from) expense (43,138) 77,447
Write-offs, net of recoveries (21,862) (37,447)
-------------- -------------
Balance, end of year $ 25,000 $ 90,000
============== =============
12. Discontinued Operations and Fourth Quarter Adjustments
During 1998, the Board of Directors authorized a plan to dispose of the
Company's mineral properties and related mining assets. Accordingly, the
Company has classified these assets as mineral properties held for sale in its
balance sheet at December 31, 1999 and 1998. The Company is actively seeking
buyers for these assets. During the year ended 1998, the Company recognized a
loss from operations of discontinued mining operations of $435,681. The 1998
loss includes a fourth quarter adjustment of $400,000 to write-down the
carrying value of the Company's mineral properties to estimated net realizable
value. This write-down was the result of depressed gold prices and the impact
of the Montana Initiative I37, which limits the use of the cyanide heap leach
process and is currently being litigated in the Montana judicial system.
13. Prepaid Royalty
During 1994, the Company entered into an agreement to sell certain equipment
related to the SkyGas technology to the inventor of this technology in exchange
for a $275,000 note receivable. The note was collateralized by the equipment
sold. Under the agreement, the note was due in a balloon payment of $275,000
on December 1, 1995 or at such time the SkyGas process is placed into
sustainable commercial production. Additional renewals have not been
negotiated and the Company has recharacterized this former note receivable as
F-18
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
prepaid royalties, recoverable from future revenues resulting from the
operation of the equipment.
14. Related Party Transactions
The former President of the Company is also the president of another company
that provides general insurance coverage and various administrative and office
expenses for the Company. As of December 31, 1999 and 1998, the Company owed
$63,116 to this related party company. In 1999 and 1998, the Company incurred
expenses to this related party company of $119,000 and $105,100, respectively.
The Company contracts for its shareholder relations services with an officer of
the Company. The Company incurred expenses to this related party for services
in 1999 and 1998 of $82,196 and $67,841, respectively.
Included in accounts receivable at December 31, 1999 and 1998, are amounts owed
the Company by a partner in the SkyGas joint venture of $24,386 and $26,748,
respectively, for SkyGas related expenses.
As of December 31, 1999 and 1998, a business owned by the Company's President
owed the Company $19,614 from the sale of certain equipment. This amount is
included in accounts receivable for both periods presented. Additionally,
during the year ended December 31, 1999 the Company's President elected to not
receive a salary for services he performed for the Company. The estimated fair
value of these services of $60,000 has been recognized as compensation expense
and through additional paid-in capital.
15. Purchased Intangible
In 1996, the Company issued 133,333 shares of its common stock to acquire an
additional 15% interest in the SkyGas venture. The transaction was recorded at
$675,000 based on the then-fair value of the shares issued. In accordance with
FASB Technical Bulletin No. 84-1, the Company recorded an intangible asset
representing the additional interest purchased in SkyGas's patent and licensing
rights. The intangible asset is being amortized on a straight-line basis over
its estimated period of future benefit of ten years.
16. Segment Information
The Company's consolidated financial statements include certain reportable
segment information. These segments include HES, a wholly owned subsidiary
engaged in designing, engineering, supplying and servicing air pollution
control systems which primarily utilize heat and chemicals to control air
pollution, and AirPol, a wholly owned subsidiary engaged in designing,
engineering, supplying and servicing air pollution control systems which
utilize wet and dry scrubbers, wet electrostatic precipitators and venturi
absorbers to control air pollution. The Company evaluates the performance of
these segments based upon multiple variables including revenues and profit or
loss.
F-19
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The segments' profit and loss components and schedule of assets as of December
31, 1999 are as follows:
Air Air
Pollution Pollution
Control Control All
(Heat) (Scrubbers) Other Total
------------ ------------- ------------ ------------
Revenue external $ 8,201,508 $ 11,213,085 $ - $19,414,593
Interest income 62,555 21,593 4,460 88,608
Interest expense 53,363 18,316 365,946 437,625
Depreciation and (49,507) 103,641 69,322 123,456
amortization
Segment profit (loss) 298,264 (394,064) (849,606) (945,406)
Other significant non-
cash items:
Costs and estimated
earnings in excess of 535,252 - - 535,252
billings
Segment assets 2,661,018 1,977,515 3,942,794 8,581,327
Expenditures for long- 35,767 17,821 2,666 56,254
lived assets
Reconciliation of net income (loss), total assets, and other significant items
for the year ended December 31, 1999 are as follows:
Profit or Amount
loss
---------------------------------- ----------------
Total loss for reportable segments $ (95,800)
Other loss (849,606)
Discontinued operations -
----------------
Total consolidated profit or loss $ (945,406)
================
Assets
Total assets for reportable segments $ 4,638,533
Other assets 3,942,794
Assets of discontinued operation 1,086,346
Elimination of intersegment assets (3,540,011)
----------------
Total consolidated assets $ 6,127,662
================
F-20
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other significant items:
Segment Elimina- Consolidated
Totals tions Totals
------------ ---------- ------------
Interest income $ 88,608 $ (33,235) $ 55,373
Interest expense 437,625 (33,235) 404,390
Expenditures for long-lived assets 56,254 - 56,254
Depreciation and amortization 123,456 - 123,456
Costs and estimated earnings in excess of 535,252 - 535,252
billings
Adjustments to reconcile interest expense and interest income represent total
intercompany amounts.
The Company's revenues by geographic region for the year ended December 31,
1999 are as follows:
Geographic Revenue
Region
------------------------ ----------------
United States $ 16,483,71
United Kingdom 2,608,84
Other foreign countries 322,03
----------------
Total consolidated revenues $ 19,414,59
================
The Company attributes revenues to countries based on the location of the
customer.
The segments' profit and loss components and schedule of assets as of December
31, 1998 are as follows:
Air Air
Pollution Pollution
Control Control All
(Heat) (Scrubbers) Other Total
------------ ------------- ----------- -------------
Revenue external $ 6,233,363 $ 3,822,691 $ - $ 10,056,054
Revenue internal - - 114,000 114,000
Interest income 61,293 - 870 62,163
Interest expense 52,805 9,921 87,572 150,298
Depreciation and (88,877) 49,239 73,423 33,785
amortization
Segment profit (loss) (444,544) 198,765 (453,543) (699,322)
Other significant non-
cash items:
Costs and estimated
earnings in excess of 547,706 1,024,127 - 1,571,833
billings
Segment assets 4,322,897 3,589,824 3,790,335 11,703,056
Expenditures for long- 197,481 105,702 92,903 396,086
lived assets
F-21
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reconciliation of segment revenues, net income (loss), total assets, and other
significant items for the year ended December 31, 1998 are as follows:
Revenues Amount
-------------
Total revenues for reportable segments $ 10,056,054
Other revenues 114,000
Elimination of intersegment revenues (114,000)
-------------
Total consolidated revenues $ 10,056,054
=============
Profit or loss
Total loss for reportable segments $ (245,779)
Other loss (453,543)
Discontinued operations (435,681)
-------------
Total consolidated loss $ (1,135,003)
=============
Assets Amount
-------------
Total assets for reportable segments $ 7,912,721
Other assets 3,790,335
Assets of discontinued operation 1,086,346
Elimination of intersegment assets (3,321,109)
-------------
Total consolidated assets $ 9,468,293
=============
Other significant items:
Segment Elimina- Consolidated
Totals tions Totals
------------- ----------- ------------
Interest income $ 62,163 $ (25,904) $ 36,259
Interest expense 150,298 (25,904) 124,394
Expenditures for long-lived assets 396,086 - 396,086
Depreciation and amortization 33,785 - 33,785
Costs and estimated earnings in 1,571,833 - 1,571,833
excess of billings
Adjustments to reconcile interest expense and interest income represent total
intercompany amounts.
F-22
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's revenues by geographic region for the year ended December 31,
1998 are as follows:
Geographic Revenue
Region
---------------------------- --------------
United States $ 9,705,479
Canada 61,437
Other foreign countries 289,138
--------------
Total consolidated revenues $ 10,056,054
==============
The Company attributes revenues to countries based on the location of the
customer.
Revenues from one customer of MPM's air pollution control (heat) segment
represented approximately $1.3 million, or 13%, of the Company's consolidated
revenues for the year ended December 31, 1998.
F-23
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<INCOME-CONTINUING> (945406)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (945406)
<EPS-BASIC> (.41)
<EPS-DILUTED> (.41)
</TABLE>
