10QSB 1 doc1.txt MPM TECHNOLOGIES INC SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 Form 10-QSB Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange act of 1934 For the quarter ended September 30, 2002 Commission File Number 0-14910 MPM TECHNOLOGIES, INC. (Exact Name of Small Business Issuer as specified in its Charter) Washington 81-0436060 ---------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 199 Pomeroy Road Parsippany, NJ 07054 -------------------------- ----- (Address of principal (Zip Code) executive offices) Issuers's telephone number, including area code: 973-428-5009 As of November 7, 2002, the registrant had outstanding 3,021,917 shares of common stock and no outstanding shares of preferred stock, which are the registrant's only classes of stock. PART I - FINANCIAL INFORMATION Item 1. Financial Statements Financial Statements follow on the next page.
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER DECEMBER 30, 2002 31, 2001 ------------- ------------- (UNAUDITED) Current assets: Cash and cash equivalents $ 4,082 $ 601,131 Accounts receivable, net of allowance for doubtful accounts of $833,000 and $1,013,000 1,789,330 2,075,399 Inventories 37,859 37,859 Costs and estimated earnings in excess of billings 693,379 895,437 Other current assets 149,807 232,784 ------------- ------------- Total current assets 2,674,457 3,842,610 ------------- ------------- Property, plant and equipment, net 1,501,245 1,298,522 Mineral properties held for investment 1,086,346 1,086,346 Note receivable 273,000 273,000 Purchased intangible, net of accumulated amortization of $388,125 and $337,500 286,875 337,500 Investments - at equity 151,856 151,856 Other assets, net 620,798 710,575 ------------- ------------- $ 6,594,577 $ 7,700,409 ============= ============= Current liabilities: Accounts payable $ 3,928,554 $ 3,661,428 Accrued expenses 463,193 1,426,652 Billings in excess of costs and estimated earnings 656,595 641,435 Related party debt 190,000 190,000 Current portion of long-term debt 450,000 375,000 ------------- ------------- Total current liabilities 5,688,342 6,294,515 ------------- ------------- Related party debt 1,629,119 592,343 Long-term debt, less current portion 406,324 481,324 ------------- ------------- Total liabilities 7,723,785 7,368,182 ------------- ------------- Commitments and contingencies Stockholders' (deficit) equity: Common stock, $.001 par value, 100,000,000 shares authorized, 2,953,295 and 2,641,961 shares issued and outstanding 3,021 3,012 Additional paid-in capital 11,266,148 11,254,939 Accumulated deficit (12,398,377) (10,925,724) ------------- ------------- Total stockholders' (deficit) equity (1,129,208) 332,227 ------------- ------------- $ 6,594,577 $ 7,700,409 ============= =============
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Quarter Ended Nine Months Ended September 30, September 30, ------------------------ --------------------------- 2002 2001 2002 2001 ----------- ----------- ------------- ------------ Revenues $2,168,879 $4,654,907 $ 5,725,880 $15,241,642 Cost of sales 1,680,891 3,188,998 4,458,292 11,683,585 ----------- ----------- ------------- ------------ Gross margin 487,988 1,465,909 1,267,588 3,558,057 Selling, general and administrative expenses 1,198,225 1,435,307 2,647,859 3,437,164 ----------- ----------- ------------- ------------ Income from operations (710,237) 30,602 (1,380,271) 120,893 ----------- ----------- ------------- ------------ Other income (expense): Interest expense (40,192) (35,276) (95,963) (71,546) Other income, net 0 26,691 3,580 29,226 ----------- ----------- ------------- ------------ Net other income (expense) (40,192) (8,585) (92,383) (42,320) ----------- ----------- ------------- ------------ Net income (loss) ($750,429) $ 22,017 ($1,472,654) $ 78,573 =========== =========== ============= ============ Basic earnings per share: Net income (loss) ($0.25) $ 0.01 ($0.49) $ 0.03 =========== =========== ============= ============ Diluted earnings per share: Net income (loss) ($0.25) $ 0.01 ($0.49) $ 0.02 =========== =========== ============= ============ Weighted average shares of common stock outstanding - basic 3,021,917 2,950,507 3,020,745 2,935,065 =========== =========== ============= ============ Weighted average shares of common stock outstanding - diluted 4,186,105 3,994,801 4,186,105 3,941,448 =========== =========== ============= ============
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, --------------------------- 2002 2001 ------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income ($1,472,654) $ 78,574 Adjustments to reconcile net (loss) income to net cash used in operating activities: Depreciation and amortization 180,282 90,868 Interest imputed on related party debt 2,219 6,731 Change in assets and liabilities: Accounts receivable 286,069 717,289 Costs and estimated earnings in excess of billings 202,058 (364,041) Inventories 0 (748,664) Other assets 172,754 (233,686) Accounts payable and accrued expenses (972,714) 1,112,079 Billings in excess of costs and estimated earnings 15,160 (1,034,643) ------------- ------------ Net cash used in operating activities (1,586,826) (375,493) ------------- ------------ Cash flows from investing activities: Acquisition of property, plant and equipment (55,999) (58,526) ------------- ------------ Net cash used in investing activities (55,999) (58,526) ------------- ------------ Cash flows from financing activities: Repayment of related party debt - - Repayment of note receivable - - Proceeds from stock issues 9,000 17,796 Proceeds from related party debt 1,036,776 560,180 Net cash provided by financing activities 1,045,776 577,976 ------------- ------------ Net (decrease) increase in cash and cash equivalents (597,049) 143,957 Cash and cash equivalents, beginning of period 601,131 573,974 ------------- ------------ Cash and cash equivalents, end of period $ 4,082 $ 717,931 ============= ============ Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 73,875 $ 36,897 Income taxes $ - $ -
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 1. UNAUDITED FINANCIAL STATEMENTS These consolidated financial statements should be read in conjunction with the audited financial statements included in the Annual Report on Form 10-KSB for the year ended December 31, 2001. Since certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting standards have been omitted pursuant to the instructions to Form 10-QSB of Regulation S-X as promulgated by the Securities and Exchange Commission, these consolidated financial statements specifically refer to the footnotes to the consolidated financial statements of the Company as of December 31, 2001. In the opinion of management, these unaudited interim consolidated financial statements reflect all adjustments and disclosures necessary for a fair statement of the financial position and results of operations and cash flows of the Company for the interim period presented. Such adjustments consisted only of those of a normal recurring nature. Results of operations for the three and nine months ended September 30, 2002 should not necessarily be taken as indicative of the results of operations that may be expected for the entire year 2002. 2. EARNINGS PER SHARE Earnings per share ("EPS") is computed by dividing net income by the weighted average number of common shares outstanding in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share". The following table reconciles the number of common shares used in the basic and diluted EPS calculations: FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 -------------------------------------------- WEIGHTED- NET AVERAGE PER-SHARE LOSS SHARES AMOUNT ------------ ---------- ----------- BASIC EPS Income available to common Stockholders $(1,472,654) 3,020,745 $ (0.49) EFFECT OF DILUTIVE SECURITIES Common stock options - 1,165,360 - ------------ ---------- ----------- DILUTED EPS Income available to common stockholders - assumed conversions $(1,472,654) 4,186,105 $ (0.49) ============ ========== =========== FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002 --------------------------------------------- WEIGHTED- NET AVERAGE PER-SHARE LOSS SHARES AMOUNT ---------- ------------ ----------- BASIC EPS Income available to common Stockholders $(750,429) 3,021,917 $ (0.25) EFFECT OF DILUTIVE SECURITIES Common stock options - 1,164,188 - ---------- ------------ ----------- DILUTED EPS Income available to common stockholders - assumed conversions $(750,429) 4,186,105 $ (0.25) ========== ============ =========== FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 -------------------------------------------- WEIGHTED- NET AVERAGE PER-SHARE INCOME SHARES AMOUNT ------------- ----------- ----------- BASIC EPS Income available to common Stockholders $ 78,573 2,953,065 $ 0.03 EFFECT OF DILUTIVE SECURITIES Common stock options - 988,383 ( 0.01) ------------- ----------- ----------- DILUTED EPS Income available to common stockholders - assumed conversions $ 78,573 3,941,448 $ 0.02 ============= =========== =========== FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 --------------------------------------------- WEIGHTED- NET AVERAGE PER-SHARE INCOME SHARES AMOUNT ----------- ----------- ---------- BASIC EPS Income available to common Stockholders $ 22,017 2,950,507 $ 0.01 EFFECT OF DILUTIVE SECURITIES Common stock options - 1,044,294 - ----------- ----------- ---------- DILUTED EPS Income available to common stockholders - assumed conversions $ 22,017 3,994,801 $ 0.01 =========== =========== ========== 3. SEGMENT INFORMATION The Company's consolidated financial statements include certain reportable segment information. These segments include Huntington Environmental Systems, Inc., 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, Inc., 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. The segments' profit and loss components and schedule of assets as of September 30, 2002 are as follows: AIR AIR POLLUTION POLLUTION CONTROL CONTROL ALL (HEAT) (SCRUBBERS) OTHERS TOTAL --------------- ------------ ---------- ----------- Revenue external. . . . $1,591,172 $ 4,134,708 $ - 5,725,880 Revenue internal. . . . - - - - Segment profit (loss) . (590,921) (319,427) (562,306) (1,472,654) Segment assets. . . . . 1,902,692 4,261,795 430,091 6,594,577 Reconciliation of segment revenues, net income, total assets and other significant items for the nine and three months ended September 30, 2002 are as follows:
NINE MONTHS THREE MONTHS ENDED ENDED SEPTEMBER 30, 2002 SEPTEMBER 30, 2002 REVENUES -------- Total revenues for reportable segments . . . $ 5,725,880 $ 2,168,879 Other revenues . . . . . . . . . . . . . . . - - -------------------- -------------------- Total consolidated revenues. . . . . . . . . $ 5,725,880 $ 2,168,879 ==================== ==================== PROFIT OR LOSS -------------- Total profit or loss for reportable segments $ (910,348) $ (494,931) Other profit or loss . . . . . . . . . . . . (562,306) (255,498) -------------------- -------------------- Total consolidated profit or loss. . . . . . $ (1,472,654) $ (750,429) ==================== ==================== AT SEPTEMBER 30, 2002 ASSETS ------ Total assets for reportable segments . . . $ 6,164,487 Other assets . . . . . . . . . . . . . . . 866,292 Elimination of intersegment assets . . . . (436,202) -------------------- Total consolidated assets. . . . . . . . . $ 6,594,577 ====================
The segments' profit and loss components and schedule of assets as of September 30, 2001 are as follows: AIR AIR POLLUTION POLLUTION CONTROL CONTROL ALL (HEAT) (SCRUBBERS) OTHERS TOTAL ------------ ------------ ---------- ---------- Revenue external. . . $ 6,483,112 $ 8,758,530 $ - 15,241,642 Revenue internal. . . - - - - Segment profit (loss) (429,746) 1,460,638 (952,319) 78,573 Segment assets . . . 3,922,479 5,802,774 618,053 10,343,306 Reconciliation of segment revenues, net income, total assets and other significant items for the nine and three months ended September 30, 2001 are as follows:
NINE MONTHS THREE MONTHS ENDED ENDED SEPTEMBER 30, 2001 SEPTEMBER 30, 2001 REVENUES -------- Total revenues for reportable segments . . . $ 15,241,642 $ 4,654,907 Other revenues . . . . . . . . . . . . . . . - - -------------------- -------------------- Total consolidated revenues. . . . . . . . . $ 15,241,642 $ 4,654,907 ==================== ==================== PROFIT OR LOSS -------------- Total profit or loss for reportable segments $ 1,030,892 $ 525,530 Other profit or loss . . . . . . . . . . . . (952,319) (503,514) -------------------- -------------------- Total consolidated profit or loss. . . . . . $ 78,573 $ 22,016 ==================== ==================== AT SEPTEMBER 30, 2001 ASSETS ------ Total assets for reportable segments . . . $ 9,725,253 Other assets . . . . . . . . . . . . . . . 6,685,191 Elimination of intersegment assets . . . . (6,067,138) -------------------- Total consolidated assets. . . . . . . . . . . $ 10,343,306 ====================
PART I Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations --------------------- This Quarterly Report on Form 10-QSB, including the information incorporated by reference herein, includes "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All of the statements contained in this Quarterly Report on Form 10-QSB, other than statements of historical fact, should be considered forward looking statements, including, but not limited to, those concerning the Company's strategies, ability to generate sufficient cash flow or secure additional sources of financing, collectability of project payments, future customer revenue, possible de-listing of MPM stock from NASDAQ, variability of quarterly operating results, completion of remaining contracts, attraction and retention of employees and key management personnel, political and economic uncertainty and other competitive factors. Additionally, there can be no assurance that these expectations will prove to have been correct. Certain important factors that could cause actual results to differ materially from the Company's expectations (the Cautionary Statements") are disclosed in the annual report filed on Form 10-KSB. All subsequent written and oral forward looking statements by or attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by such Cautionary Statements. Investors are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date hereof and are not intended to give any assurance as to future results. The Company undertakes no obligation to publicly release any revisions to these forward looking statements to reflect events or reflect the occurrence of unanticipated events. MPM Technologies, Inc. ("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, Inc. ("AirPol") to run this air pollution control business. AirPol designs, engineers, supplies and services air pollution control systems for Fortune 500 and other industrial and environmental companies. The technologies of AirPol utilize wet and dry scrubbers, wet electrostatic precipitators and venturi absorbers to control air pollution. 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 Huntington Environmental Systems, Inc. ("HES") to operate this air pollution control business. HES designs, engineers, supplies and services high temperature and chemical air pollution control systems for Fortune 500 and other industrial and environmental companies. Both HES's and AirPol's engineering staffs are uniquely prepared to address the full scope of customers' process problems. Their policies of handling clients' individual concerns include in-depth analysis and evaluation, followed by complete engineering and design services leading to application-specific engineered solutions. MPM holds a 58.21% interest in Nupower Partnership through its wholly-owned subsidiary, Nupower, Inc. Nupower Partnership is engaged in the development and commercialization of a waste-to-energy process which has been named "Skygas". Skygas 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. MPM controls 32 claims on approximately 1,000 acres in the historical Emery Mining District in Montana through its wholly-owned subsidiary, MPM Mining, Inc. In accordance with the Board of Directors' mandates, MPM's management is actively seeking out mining and other businesses to purchase its mining properties and equipment. HES and AirPol are active continuing concerns. The development of the Skygas process through Nupower Partnership is also an ongoing process. No other operations were conducted. Accordingly, the financial statements for the nine and three months ended September 30, 2002 and 2001 include the operations of HES, AirPol, Skygas and MPM. MPM's consolidated net loss for the nine months ended September 30, 2002 was $1,472,654 or $0.49 per share compared to net income of $78,573, or $0.03 per share for the nine months ended September 30, 2001. MPM continues to negotiate with interested entities with the goal of building Skygas units. These negotiations are also ongoing, and include entities in the United States, Europe and Asia. Management is hopeful there will be some type of formal agreement in place and that construction of a unit can begin in the near future. There can, however, be no assurances that MPM will be successful in its negotiations. MPM faces significant challenges, including, without limitation, the ability to generate or raise sufficient operating capital, and a difficult sales environment. Organizations in the United States are obligated to comply with environmental laws that reduce air pollution emissions. In view of the national economic downturn and, in our opinion, a perception of limited enforcement of environmental laws in general, companies that require or benefit from MPM's environmental technology and knowledge are not procuring or replacing equipment, or are delaying purchasing decisions. Despite this, both companies are experiencing a high level of proposal activity. Between the two companies, there over $66 million in active job proposals that are currently being pursued. This includes 36 proposals for a total ot $37 million at AirPol and 34 proposals for $29 million at HES. This should result in many new jobs at both companies. There can, however, be no assurances that the companies will be successful in securing a sufficient amount of new work. Nine and three months ended 9/30/02 compared to nine and three months ended --------------------------------------------------------------------------- 9/30/01 ------- For the nine months ended 9/30/02, MPM had a net loss of $1,472,654, or $0.49 per share compared to net income of $78,573, or $0.03 per share for the nine months ended 9/30/01. Revenues decreased 62.4% to $5,725,880 for the nine months ended 9/30/02 compared to $15,241,642 for the nine months ended 9/30/01. Revenues were down 52.8% at AirPol, and were down 75.5% at HES. Costs of sales decreased 61.8% to $4,458,292 for the nine months ended September 30, 2002 compared to $11,683,585 for the nine months ended September 30, 2001. This corresponded to the decreases in revenues. Operating expenses decreased 23.0% to $2,647,859 for the nine months ended September 30, 2002 compared to $3,437,164 for the nine months ended 9/30/01. For the three months ended 9/30/02, MPM had a net loss of $750,429, or $0.25 per share compared to net income of $22,017, or $0.01 per share for the three months ended 9/30/01. Revenues decreased 53.4% to $2,168,879 for the three months ended 9/30/02 compared to $4,654,907 for the three months ended 9/30/01. Costs of sales decreased 47.3% to $1,680,891 for the three months ended September 30, 2002 compared to $3,188,988 for the three months ended September 30, 2001 due to the decreases in revenues. Operating expenses decreased 16.5% to $1,198,225 for the three months ended September 30, 2002 compared to $1,435,307 for the three months ended 9/30/01. The Company currently has a backlog of approximately $4.7 million. This includes $3.4 million at AirPol and $1.3 million at HES. Financial Condition and Liquidity --------------------------------- For the nine months ended September 30, 2002, the Company relied on operating revenues and loans from an officer/director to fund its operations. During the nine months, an officer/director loaned MPM approximately $1,200,000 which was evidenced by a convertible promissory note. Under the terms of the note, the principal and any unpaid accrued interest may be converted to common stock at the option of the note holder. Working capital deficit at 9/30/02 was $3,013,885 compared to $2,451,905 at 12/31/01. Management expects that MPM will continue to incur losses and additional cash outflows for the balance of 2002. If the Company is unsuccessful in its efforts to obtain a new source of financing or generate sufficient cash flows to continue operations for the near term, management expects that MPM's cash balance will drop below levels needed to continue operations for the next several months. The Company is attempting to raise additional financing. Management anticipates that this additional financing from a private financing source will be completed in November 2002. There is no assurance that the Company will obtain additional financing or achieve profitable operations. As provided in Item 4 of this Form 10-QSB, at a special shareholders' meeting on August 2, 2002, MPM received shareholder approval to issue $3,000,000 of its common stock to purchase real estate known as "Mariners Haven", issue common shares pursuant to the terms in a convertible promissory note held by an officer/director, and issue common shares to an officer/director in exchange for $600,000 in debt. Due to the significant drop in the price of MPM's common stock, it is the opinion of Management that these transactions are no longer in the best interests of MPM's shareholders or the Company as they now result in the substantial dilution of MPM's shareholders if these transactions were consummated. The transactions also provide no liquidity to fund current operations, or improve market conditions for the Company's stock. MPM's common stock is currently traded on the NASDAQ Small Cap Market under the symbol "MPML". MPM was advised by NASDAQ on August 1, 2002 that it had approved MPM's continued listing if it met certain conditions, including NASDAQ's listing requirements which include financial tests relating to market capitalization, net income, net tangible assets, and a minimum $1.00 per share market price. If the Company is unable to meet the continued listing requirements as a result of its decision not to proceed with the transactions previously approved by the shareholders' actions on August 2, 2002 as discussed above, or as a result of its failure to obtain additional financing, or obtain an exception to the continued listing requirements, then MPM's stock may be de-listed from NASDAQ. MPM has initiated an immediate cost reduction strategy through personnel reductions, consolidation of facilities, restrictions on spending, and other means. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company knows of no litigation present, threatened or contemplated or unsatisfied judgment against the Company, its officers or directors or any proceedings in which the Company, its officers or directors are a party. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS The rights of the holders of the Company's securities have not been modified nor have the rights evidenced by the securities been limited or qualified by the issuance or modification of any other class of securities. ITEM 3. DEFAULTS UPON SENIOR SECURITIES There are no senior securities issued by the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A special meeting of shareholders was held on August 2, 2002. Following are the results of the shareholders' voting: Proposal 1 Approval to issue $3,000,000 in common shares to purchase real estate known as Mariner's Haven. For Against Abstain Not voted --------- ---------- ---------- --------- 911,307 63,820 62,346 124,337 Proposal 2 Approval to issue common shares pursuant to the terms in the Convertible Promissory Note. For Against Abstain --------- ---------- ---------- 1,070,136 88,106 3,568 Proposal 3 Approval to issue common shares to Michael J. Luciano in exchange for $600,000 in debt. For Against Abstain --------- ---------- ---------- 1,092,290 65,072 4,448 Total voted shares represented by proxy: 1,161,810 Percentage of the outstanding votable shares: 50.60 Outstanding votable shares: 2,295,982 ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K No reports on Form 8-K were filed for the quarter ended September 30, 2002. SIGNATURES Pursuant to the requirements of the Securities and 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. November 18, 2002 /s/ Michael J. Luciano ----------------- ----------------------------- (date) Michael J. Luciano Chairman & CEO