-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BLCGhekP9oEs53PhFXbT6tjSkKLECvX/QO+ioLpy5pWYNlMuvxXm2Hc8ljt+Wlmx rD6vNWmgglCoOszvzwuqmA== 0001004522-00-000006.txt : 20000403 0001004522-00-000006.hdr.sgml : 20000403 ACCESSION NUMBER: 0001004522-00-000006 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MPM TECHNOLOGIES INC CENTRAL INDEX KEY: 0000799268 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 810436060 STATE OF INCORPORATION: WA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-14910 FILM NUMBER: 590528 BUSINESS ADDRESS: STREET 1: 222 W MISSION AVE STREET 2: STE 30 CITY: SPOKANE STATE: WA ZIP: 99201 BUSINESS PHONE: 5093263443 MAIL ADDRESS: STREET 1: 908 N HOWARD SUITE 100 STREET 2: 908 N HOWARD SUITE 100 CITY: SPOKANE STATE: WA ZIP: 99201 FORMER COMPANY: FORMER CONFORMED NAME: MONTANA PRECISION MINING LTD DATE OF NAME CHANGE: 19920703 10KSB 1 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. ------------------------------------------------------- (Exact Name of Registrant as specified in its Charter) WASHINGTON 81-0436060 - ------------------------------------ ------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 222 W. MISSION AVENUE, SUITE 30, SPOKANE, WASHINGTON 99201 ----------------------------------------------------------------- (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 1 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. 2 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. 3 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 4 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 5 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 6 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 $400,000 from the director was in the form of an 8% note payable to the director with payments of interest only due monthly through March 2004, and the principal balance due in April 2004. 8 Current cash reserves and continuing operations of HES and AirPol are believed to be adequate to fund MPM's and its subsidiaries operations for the foreseeable future. MPM is also considering alternative sources of capital such as private placements, stock offerings and loans from shareholders and officers to fund its current business and expand in other related areas through more acquisitions. Following is a summary from MPM's consolidated statements of cash flows: Year ended December 31, 1999 1998 ---------------- ------------ Net cash (used in) provided by operating activities ($ 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 9 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. 10 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. 11 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 12 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 $100,000 in 1999 and 1998. 14
Summary Compensation Table Annual Compensation Name and Principal Position Year Salary Bonus(s) Compensation Awards(s)($)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 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 % 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 $3.00 5/18/09 Aggregated Option/SAR Exercises in Last Fiscal Year and FYE 1999 Option/SAR Values Number of Securities Value of Underlying Unexercised Unexercised In-TheMoney Options/SARs Options/SARs Shares at FY-End (#) at FY-End Acquired on Value Exercisable/ Exercisable/ Name Exercise Realized ($) Unexercisable Unexercisable - ---------------- ----------------- ------------- --------------- ------------- Michael J. Luciano 333,333 $666,666 321,890 $1,414,587 Exercisable Charles A. Romberg 315,422 $1,517,883 Exercisable
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
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS December 31, 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 =============== ==============
See accompanying summary of accounting policies and notes to the consolidated financial statements. F-3
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 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 =============== ==============
See accompanying summary of accounting policies and notes to the consolidated financial statements. F-4
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 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 ========== ========= ============ ============ =============
See accompanying summary of accounting policies and notes to the consolidated financial statements. F-5
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents Year Ended December 31, 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 ============== =============
See accompanying summary of accounting policies and notes to the consolidated financial statements. F-6
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents Year Ended December 31, 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 ============ ============
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 EX-27 2
5 YEAR DEC-31-1999 DEC-31-1999 194399 0 2018792 25000 313298 3205257 414155 112005 6127662 2787285 0 0 0 2642 2115636 6127662 19414593 19414593 15627867 0 0 33455 404390 (945406) 0 (945406) 0 0 0 (945406) (.41) (.41)
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