-----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, RbDQ7jSN6Bmd72DLA36D9ukEV3o/5guraNDSsAlVzFqoNkO4DKz3V0fsTSsLzPoc Ow48+xLhaAEa0HRsejXB3g== 0001157523-03-001973.txt : 20030515 0001157523-03-001973.hdr.sgml : 20030515 20030515103031 ACCESSION NUMBER: 0001157523-03-001973 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030515 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: 1934 Act SEC FILE NUMBER: 000-14910 FILM NUMBER: 03701616 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 a4397075.txt MPM TECHNOLOGIES 10KSB 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, 2002 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 Identification Number) incorporation or organization) 199 POMEROY ROAD, PARSIPPANY, NEW JERSEY 07054 (Address of principal executive offices) Registrant's telephone number, including area code: 973-428-5009 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: $ 8,005,634 The aggregate market value of the voting and non-voting equity held by non-affiliates computed by reference to the closing price of $0.25 at which the common equity was sold as of May 1, 2003 was $538,397. The number of shares outstanding of the registrant's common stock as of May 1, 2003 was 3,081,074. 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, 2001, 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 were discontinued several years ago. MPM's Board of Directors had originally decided to sell the mining properties and the related buildings and equipment. Currently, the Board has instructed management to hold the properties as an investment. 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. 2 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. AirPol also owns a 40.1% interest in Sunic AirPol ("Sunic"), a joint venture company located in Mainland China. Sunic's results are recorded on AirPol's books using the equity method. Sunic is in the same business as AirPol. 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 85% of the Skygas Venture. In addition to its ownership in the partnership, MPM separately owns 15% of the Venture. MPM MINING, INC. Mining controls 15 claims on approximately 300 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 MPM Mining. In 1998, the Board of Directors decided to dispose of the mining properties. In early 2002, the Board of Directors decided to hold the properties as an investment. 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, 2002 and 2001, the Company operated in two segments. Data for segment reporting is shown in the notes to the consolidated financial statements in Item 16. 3 BACKLOG MPM had a backlog of orders and work in progress aggregating approximately $1,961,254 at December 31, 2002. This is comprised of approximately $1,753,941 at AirPol and approximately $207,313 at HES. It is anticipated that operations will consume these backorders during 2002. There is currently no other backlog of orders for any of MPM's other businesses. 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 during 2003. 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 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. 4 EMPLOYEES At December 31, 2002, MPM employed five employees at HES, and twelve full-time employees at AirPol. MPM believes 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 on a month to month basis. AirPol leases its office space that expires in August of 2007. 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 Leased by MPM: Seven Patented Claims These claims amount to approximately 300 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 hold these interests as previously discussed. Item 3. Legal Proceedings The Company was notified during the second quarter of 2002 that it had been named in a lawsuit earlier in the year. The case was dismissed during the fourth quarter of 2002. 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 2001. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters a) Market Information Until February 18, 2003, MPM's common stock traded on The Nasdaq SmallCap Market under the symbol MPML. On that date MPM common stock began trading on the OTC Bulletin Board under the same trading symbol. The following table shows quarterly high and low bid prices for 2002 and 2001 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. 5 High Bid Low Bid 2002 -------- ------- - ---- First Quarter $ 3.93 $ 2.80 Second Quarter 2.90 1.07 Third Quarter 1.11 .48 Fourth Quarter .70 .16 2001 First Quarter $ 5.63 $ 4.13 Second Quarter 5.50 3.66 Third Quarter 3.70 2.90 Fourth Quarter 5.46 2.90 b) Holders As of May , 2003, there were approximately 2,100 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 None 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 years ended December 31, 2002 and 2001 include the operations of HES and AirPol. 6 For the year ended December 31, 2002, MPM had consolidated revenues of $8,005,634. Consolidated revenues for 2001 were $18,519,390. MPM's net loss for the year was $3,897,927 or $1.29 per share. In 2002, MPM's management decided to take three significant charges against income. The first of these was to recognize a provision for some disputed accounts receivable. Management intends to pursue its claims vigorously using all available business and legal means at its disposal. For the year ended December 31, 2002, however, the Company took a charge against income of $595,000 related to these disputed receivables. Additionally, the fair market value of various intangible assets owned by the Company, were estimated below the recorded value. For the year ended December 31, 2002, the Company took a charge against income of $514,000 to recognize the impairment of these assets. Additionally, the Company is a defendant in various lawsuits, some of which seek substantial monetary damages. The lawsuits include those brought against the Company for breach of contract. For the year ended December 31, 2002, the Company took a charge against income of $294,143 to record a provision for pending lawsuit settlements. Without these one-time charges, MPM's net loss would have been $2,494,784, or $0.83 per share. In late 2002, there were personnel reductions and other cost saving changes. Emphasis continues to be placed on combining the resources of HES and AirPol to realize additional cost savings as we progress in 2002. Management of HES believes that the reorganization of its sales and marketing efforts puts it in a position to significantly increase 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. In December 2000 the United States Environmental Protection Agency promulgated the long delayed "Pulp and Paper Cluster Rules" based on the Clean Air Act II legislation. There are 153 pulp and paper mills in the U.S. that will be affected by the new rules. These mills will have to either upgrade or retrofit new air pollution control equipment. AirPol has been a supplier of air pollution control equipment in the pulp and paper industry for over 30 years. It has over 400 equipment installations in pulp and paper mills and is anticipating that many orders will come from customers who already have AirPol equipment in place. Many of these customers will be looking to upgrade the old equipment to meet the new emission standards. Management expects to get approximately 40 upgrade/retrofit projects over the next two years aggregating about $10 million in sales for this market segment. The Maximum Achievable Control Technology ("MACT") Rules for Hazardous Waste Incinerators ("HWI") was promulgated in October 1999. Facilities classified as HWI have until April 2003 to prove they are in compliance with the new emission standards. There are approximately 130 of these facilities in the U.S. Many of these facilities will need to purchase air pollution control equipment during 2001 to meet the 2003 deadline. 7 The EPA promulgated the MACT Rules for small municipal solid waste incinerators and Commercial Industrial Solid Waste Incinerators in December 2000. Over 50 facilities are affected by these rules. To meet the April 2003 compliance deadline, these facilities will have had to start purchasing activities from mid 2001 to early 2002. Over the next 12 months, AirPol expects to have significant sales in this market. 2002 COMPARED TO 2001 Revenues decreased $10,513,756 from $18,519,390 in 2001 to $8,005,634 in 2002. The net loss for 2002 was $3,897,927 or $1.29 per shares compared to $1,926,216, or $0.65 per share, for 2001. This was due to severe downward economic trend in the U.S. coupled with the easing of certain air pollution standards. Selling, general and administrative expenses decreased $596,718, from $5,405,078 in 2001 to $4,808,360 in 2002. This was due to one-time charges and delayed staff reductions in 2001. The cost savings were realized in 2002. LIQUIDITY AND CAPITAL RESOURCES During 2002, funds for operations were provided principally by loans from an officer/director and cash generated by the continuing operations of HES and AirPol. Current cash reserves and continuing operations of HES and AirPol are not believed to be adequate to fund MPM's and its subsidiaries operations for the foreseeable future. MPM has contracted with an insurance company to arrange a financing package. This financing is collaterialzed by assets of an MPM director. MPM management is also considering alternative sources of capital such as private placements, other 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, 2002 2001 ---- ---- Net cash (used in) provided by operating activities $(1,930,406) $(615,155) Net cash used in investing activities (325,447) (78,862) Net cash provided by financing activities 1,667,614 721,174 Net (decrease) increase in cash and cash equivalents (588,239) 27,157
The net cash used in operating activities in 2002 and 2001 was due primarily to net losses, and to decreases in billings in excess of costs and estimated earnings on jobs in progress. This was due mainly to the decreased activity level at AirPol and HES during 2002 and 2001. The net cash used in investing activities of $325,447 and $78,862 in 2002 and 2001, respectively, was entirely due to acquisitions of property and equipment. 8 The net cash provided by financing activities in 2002 of $1,667,614 was due to a loan from an officer/director, notes payable proceeds and to the exercise of stock options during the year. The net cash provided by financing activities in 2001 of $721,174 was due to a loan from an officer/director and to the exercise of stock options during the year. Management believes its present sources of working capital are sufficient for both its short and long-term purposes. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections," effective May 14, 2002. SFAS No. 145 eliminates the requirement that gains and losses from the extinguishment of debt be aggregated and classified as an extraordinary item, net of tax, and makes certain other technical corrections. SFAS No. 145 did not have a material effect on the Company's Consolidated Financial Statements. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses significant issues relating to the implementation of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and develops a single accounting model, based on the framework established in SFAS No. 121 for long-lived assets to be disposed of by sale, whether such assets are or are not deemed to be a business. SFAS No. 144 also modifies the accounting and disclosure rules for discontinued operations. The standard was adopted on January 1, 2002, and did not have a material impact on the Company's Consolidated Financial Statements. In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires the use of the purchase method of accounting for business combinations and prohibits the use of the pooling of interests method. Under the previous rules, the Company used the purchase method of accounting. SFAS No. 141 also refines the definition of intangible assets acquired in a purchase business combination. As a result, the purchase price allocation of current business combinations may be different than the allocation that would have resulted under the old rules. Business combinations must be accounted for using SFAS No. 141 effective July 1, 2001. SFAS No. 142 eliminates the amortization of goodwill, requires annual impairment testing of goodwill and introduces the concept of indefinite life intangible assets. The Company adopted SFAS No. 142 on January 1, 2002. The new rules also prohibit the amortization of goodwill associated with business combinations that closed after June 30, 2001. The adoption of SFAS No. 142 resulted in an impairment of $514,000 in 2002. 9 In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 provides accounting and reporting guidance for legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction or normal operation of a long-lived asset. SFAS No. 143 requires the recording of an asset and a liability equal to the present value of the estimated costs associated with the retirement of long-lived assets where a legal or contractual obligation exists. The asset is required to be depreciated over the life of the related equipment or facility, and the liability is required to be accreted each year based on a present value interest rate. The standard is effective for the Company on January 1, 2003. The Company has reviewed the provisions of this standard, and its adoption is not expected to have a material effect on the Company's Consolidated Financial Statements. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 supersedes EITF No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity (Including Certain Costs Incurred in a Restructuring)," and requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Such liabilities should be recorded at fair value and updated for any changes in the fair value of each period. The Company is currently evaluating the possible effect on future Consolidated Financial Statements. 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 2002 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. 10
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS DECEMBER 31, 2002 AND 2001 MPM TECHNOLOGIES, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Certified Public Accountants............................................... F-2 Consolidated Balance Sheet as of December 31, 2002............................................... F-3 Consolidated Statements of Operations for the years ended December 31, 2002 and 2001............. F-4 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2002 and 2001... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2002 and 2001............. F-6 to F-7 Summary of Accounting Policies................................................................... F-8 to F-11 Notes to Consolidated Financial Statements....................................................... F-12 to F-22
Independent Auditors' Report To the Board of Directors and Stockholders of MPM Technologies, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheet of MPM Technologies, Inc. and Subsidiaries as of December 31, 2002 and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended, December 31, 2002 and 2001. 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 auditing standards generally accepted in the United States of America. 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, 2002, and the consolidated results of their operations and cash flows for the years ended December 31, 2002 and 2001 in conformity with accounting principles generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in the notes to the Consolidated Financial Statements, the Company has not been able to generate any significant revenues and has a working capital deficiency of $6,366,352 at December 31, 2002. These conditions raise substantial doubt about the Company's ability to continue as a going concern without the raising of additional debt and/or equity financing to fund operations. Management's plans in regard to these matters are described in the notes to the Consolidated Financial Statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/Rosenberg Rich Baker Berman & Company Bridgewater, New Jersey April 1, 2003 F-2
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET DECEMBER 31, 2002 ASSETS Current assets: Cash and cash equivalents................................................................. $ 12,892 Accounts receivable, less allowance for doubtful accounts of $1,608,000 (Notes 11 and 14) 1,399,953 Inventories (Note 3)...................................................................... 29,604 Costs and estimated earnings in excess of billings (Notes 1 and 2)........................ 490,891 Other current assets...................................................................... 79,198 -------------- Total current assets............................................................. 2,012,538 ============== Property, plant and equipment (Notes1 and 5) .................................................. 1,408,587 Mineral property held for investment (Note 12) 1,086,346 Prepaid royalty (Note 13)...................................................................... 273,000 Purchased intangible, net of accumulated amortization of $337,500 (Note 15).................... 337,500 Investments - at equity (Note 4) .............................................................. 173,054 Other assets, net.............................................................................. 89,708 -------------- $ 5,380,733 ============== LIABILITIES AND STOCKHOLDERS EQUITY Current liabilities: Accounts payable (Note 1)................................................................. $ 4,769,281 Accrued expenses (Note 1)................................................................. 808,387 Billings in excess of costs and estimated earnings (Notes 1 and 2)........................ 60,265 Related party debt (Note 7)............................................................... 2,290,957 Current portion of long-term debt (Note 6)................................................ 450,000 -------------- Total current liabilities........................................................ 8,378,890 Notes payable (Note 6) ................................................................... 150,000 Long-term debt, less current portion (Note 6)............................................. 406,324 -------------- Total liabilities................................................................ 8,935,214 -------------- Commitments and contingencies (Notes 8) Stockholders' equity (Note 10): Common stock, $0.001 par value; 100,000,000 shares authorized; 3,021,917 shares issued and outstanding ....................................................................... 3,022 Additional paid-in capital................................................................ 11,266,148 Accumulated deficit....................................................................... (14,823,651) -------------- Total stockholders' equity....................................................... (3,554,481) -------------- $ 5,380,733 ============== 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, ----------------------------------- 2002 2001 -------------- -------------- Revenues (Notes 2 and 16)....................................................... $ 8,005,634 $ 18,519,390 Cost of sales................................................................... (5,932,306) (14,256,598) Gross margin.................................................................... 2,073,328 4,262,792 Selling, general and administrative expenses.................................... (4,808,360) (5,405,078) Impairment loss on intangible asset............................................. (514,000) - Loss from operations............................................................ (3,249,032) (1,142,286) Other income (expense: Provision for pending lawsuit settlement..................................... (294,143) - Provision for unconsummated acquisition expenses (Note 10)................... - (829,000) Interest expense (Note 7).................................................... (384,819) (110,350) Equity in earnings of unconsolidated jointly owned company................... 21,198 33,664 Other income (expense), net.................................................. 8,869 121,756 Net other expense............................................................... (648,895) (783,930) Net loss $ (3,897,927) $ (1,926,216) ============== ============== Loss per share - basic and diluted: $ (1.29) $ (0.65) Weighted average shares of common stock outstanding - basic and diluted......... 3,021,040 2,946,645 ============== ============== 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, 2001...................... 2,933,291 $ 2,933 $ 11,163,122 $ (8,999,508) $ 2,166,547 Sale of common stock pursuant to Regulations under the Securities Act of 1933. 22,566 23 32,677 - 32,700 Interest imputed on related party debt (Note 6) - - 9,000 - 9,000 Common stock issued on exercise of stock options................................... 56,060 56 50,140 - 50,196 Net loss..................................... - - - (1,926,216) (1,926,216) ---------- ---------- ------------ --------------- -------------- Balance, December 31, 2001................... 3,011,917 3,012 11,254,939 (10,925,724) 332,227 Interest imputed on related party debt....... - - 2,219 - 2,219 Common stock issued on exercise of stock options 10,000 10 8,990 - 9,000 Net loss..................................... - - - (3,897,927) (3,897,927) ---------- ---------- ------------ --------------- -------------- Balance, December 31, 2002 3,021,917 $ 3,022 $ 11,266,148 $ (14,823,651) $ (3,554,481) 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 Year Ended December 31, ---------------------------------- 2002 2001 ------------- ------------- Cash flows from operating activities: Net loss.......................................................................$ (3,897,927) $ (1,926,216) Adjustments to reconcile net loss to net cash provided (used in) by operating activities: Depreciation and amortization................................................ 215,382 157,035 Stock issued for compensation................................................ - 50,196 Interest imputed on related party debt....................................... 2,219 9,000 Impairment loss on intangible assets......................................... 514,000 - Change in assets and liabilities: Accounts receivable...................................................... 675,446 2,221,690 Costs and estimated earnings in excess of billings....................... 404,546 (226,188) Inventories.............................................................. 8,255 (576,123) Other assets............................................................. 239,255 356,053 Accounts payable and accrued expenses.................................... 489,588 1,054,350 Billings in excess of costs and estimated earnings....................... (581,170) (1,734,952) ------------ ------------ Net cash (used in) operating activities........................................... (1,930,406) (615,155) ------------ ------------ Cash flows from investing activities: Acquisition of property, plant and equipment...................................... (325,447) (78,862) ------------ ------------ Net cash (used in) investing activities........................................... (325,447) (78,862) ------------ ------------ Cash flows from financing activities: Stock issued for cash.......................................................... 9,000 82,896 Borrowings from related parties................................................ 1,508,614 592,343 Proceeds from long-term debt................................................... 150,000 45,935 ------------ ------------ Net cash provided by financing activities......................................... 1,667,614 721,174 ------------ ------------ Net (decrease) increase in cash and cash equivalents.............................. (588,239) 27,157 Cash and cash equivalents, beginning of year...................................... 601,131 573,974 ------------- ------------ Cash and cash equivalents, end of year............................................$ 12,892 $ 601,131 ============= ============ 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 Year Ended December 31, ---------------------------------- 2002 2001 ------------- ------------- Supplemental Disclosures Of Cash Flow Information Cash paid during the year for: Interest......................................................................$ 73,875 $ 6,651 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 not currently 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. The Company currently operates within two reportable segments as disclosed in Note 16. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of December 31, 2002, the Company has a working capital deficiency, an accumulated deficit, and has not been able to generate any significant revenues. These conditions raise substantial doubt about the ability of the Company to continue as a going concern. The Company plans to raise additional capital in the future. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. F-8 MPM TECHNOLOGIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES 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, repairs and depreciation. Selling, general and administrative costs are 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 2002 and 2001, 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. Purchased Intangible Purchased intangible represents the excess of the purchase price over the fair value of net assets acquired and is being amortized on a straight-line basis over its estimated period of future benefit of ten years. The Company periodically evaluates the recoverability of purchased intangible. The measurement of possible impairment is based primarily on the Company's ability to recover the unamortized balance of the 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 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. F-9 MPM TECHNOLOGIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES Research and Development Costs Research and development costs are charged to expense as incurred. Advertising Costs Advertising costs are charged to operations when incurred. Advertising expense was $26,464 and $35,602 for the years ended December 31, 2002 and 2001, respectively. 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. The Company provides credit in the normal course of business. The Company performs ongoing credit evaluations of its customers and maintain allowances for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends, and other information. Fair Value of Financial Instruments The carrying amounts reported in the balance sheet as of December 31, 2002 for cash equivalents, investments, 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. Limitations Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 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. F-10 MPM TECHNOLOGIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES 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. 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 weighted average number of shares actually outstanding during the period. Diluted earnings per share reflect 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, 2002 and 2001, outstanding options to purchase 1,451,258 and 1,411,258 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 2001 consolidated financial statements have been reclassified to conform to the 2002 consolidated financial statement presentation. F-11 MPM TECHNOLOGIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES 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 was 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 $760,532 and was being amortized over ten years. As of July 2, 1998, the fair values of assets acquired and liabilities assumed were as follows:
Costs and estimated earnings in excess of billings................$ 248,038 Plant, property and equipment..................................... 89,539 Goodwill.......................................................... 760,532 Accrued expenses.................................................. (15,751) Billings in excess of costs and estimated earnings................ (547,748) ------------ $ 534,610 ============
As of December 31, 2001, the Company wrote off the net balances of the goodwill and negative goodwill. The effect of these write-offs was not material. In September 2000, the Company entered into an agreement to acquire substantially all of the stock of New Monitor Builders, Inc. Since the only assets of New Monitor Builders were patents, the agreement was changed, and the Company acquired only the patents. The Company issued 89,300 shares of its common stock, and recorded the patents acquired at the market value of the stock on its date of issue, $588,244. The patents are being carried at cost on the accompanying financial statements. The patents were being amortized over the life of the patents. During 2002, management took a charge to income for the impairment of the New Monitor investment, based on the estimated fair market value of the asset. This charge amounted to $514,000 and is included on the consolidated statements of operations. 1 MPM TECHNOLOGIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES 2. Costs and Estimated Earnings on Contracts in Progress Following is a summary of costs, billings, and estimated earnings on contracts in progress as of December 31, 2002. Costs incurred on contracts in progress............ $ 9,674,294 Estimated earnings................................. 3,602,679 ------------- 13,276,973 Less billings to date.............................. 12,846,347 ------------- $ 430,626 ============= The above accounts are shown in the accompanying consolidated balance sheets under these captions at December 31, 2002. Costs and estimated earnings in excess of billings..... $ 490,891 Billings in excess of costs and estimated earnings...... (60,265) ------------ $ 430,626 ============ 3. Inventories Inventories consist of the following at December 31, 2002. Equipment........................................... $ - Chemicals........................................... - Parts and supplies ................................. 29,604 -------- $ 29,604 ======== 4. Investments at Equity Investments in unconsolidated jointly owned companies in which the company has a 20% to 50% interest or otherwise exercises significant influence are carried at cost, adjusted for the company's proportionate share of their undistributed earnings or losses. At December 31, 2002 the Company's investment carried at equity consists of a 40% ownership in Sunia-AirPol, Inc. As a result of this investment, the Company recognized $21,198 of income for the year ended December 31, 2002. 2 MPM TECHNOLOGIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES 5. Property, Plant and Equipment Property, plant and equipment consists of the following at December 31, 2002: Equipment.........................................$. 1,750,859 Furniture and fixtures.............................. 132,884 Leasehold improvements.............................. 14,708 ------------- 1,898,451 Less accumulated depreciation....................... 489,864 ------------- $ 1,408,587 ============= Depreciation expense charged to operations was $215,382 and $89,535 in 2002 and 2001, respectively. 6. Note Payable and Long-Term Debt In December 2002, the Company entered into a revolving credit agreement with an insurance company. Under the terms of its agreement, the Company may borrow up to $500,000 at 5.25% per annum. The note is secured by stock and matures on December 1, 2005. As of December 31, 2002, the Company has $150,000 of advances outstanding under the agreement. 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 sixteen 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 payments due in 2002, 2001, 2000, 1999 and 1998 have 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, 2002, the carrying value of the obligation, net of discount, was $856,324 plus accrued interest. At December 31, 2002, current amounts owed under this obligation are $450,000. 7. Related Party Debt Related party debt consists of advances received from various directors and related parties. At December 31, 2002, amounts owed these related parties totaled $2,290,957 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 $2,219 and $9,000 has been imputed on this debt at 10% for 2002 and 2001 with a corresponding offset to additional paid-in capital. 3 MPM TECHNOLOGIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES 8. Commitments and Contingencies The Company leases office space and mineral properties under operating leases that expire at various dates through 2008. 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 ----------------------------------- ---------- 2003............................... $ 181,776 2004............................... 185,413 2005............................... 189,120 2006............................... 192,902 2007............................... 196,760 Thereafter......................... 33,449 ---------- $ 979,420 ========== Rent expense for the years ended December 31, 2002 and 2001 was $315,954 and $345,226, 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. The Company is a defendant in various lawsuits, some of which seek substantial monetary damages. The lawsuits include those brought against the Company for breach of contract. The estimated losses as a result of the lawsuits total $294,143 and is recorded as a charge to income on the consolidated statement of operations. 9. Income Taxes As of December 31, 2002 the significant components of the Company's net deferred tax asset is as follows: Net operating loss carryforward...................... $ 2,584,000 Differences between book and tax depreciation........ 220,000 Goodwill and purchase asset adjustments.............. 10,000 Writedown of mineral properties...................... 136,000 Other................................................ 40,000 ----------- 2,990,000 Less: valuation allowance............................ 2,990,000 ----------- $ - ============ 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 December 31, 2002. At December 31, 2002, the Company has net operating loss carryforwards for federal income tax purposes totaling approximately $7.6 million that expire in the years 2003 through 2022. At December 2002, the Company has net operating loss carryforwards for state income tax purposes totaling approximately $4.0 million that expire in the years 2003 through 2022. 4 MPM TECHNOLOGIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES 10. Stockholders' Equity 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 236,667 shares were approved to be granted, which in 2002 and 2001, was increased by 300,000 and 300,000, respectively. 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 purchase price will be paid in full on the date of purchase. 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, 2001........................ 1,014,480 $ 1.86 Granted............................................... 452,838 2.70 Exercised............................................. (56,060) (0.92) Expired............................................... - - ---------- -------- Outstanding at December 31, 2001...................... 1,411,258 2.11 Granted............................................... 50,000 0.60 Exercised............................................. (10,000) (0.90) Expired............................................... - - ------------ -------- Outstanding at December 31, 2002...................... 1,451,258 $ 2.05 ============ ========
Proforma Information 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 4.35 percent for 2002 and 5.25 percent for 2001; and expected lives of ten years for 2002 and five years for 2001. The weighted average fair value at date of grant for options granted to employees was $2.07 per option for 2002 and $2.64 per option for 2001. 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, 2002 and 2001 would have been adjusted to the pro forma amounts indicated below: 5
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES Year Ended December 31 ------------------------------ 2002 2001 ------------- ------------- Net loss.......................................... As reported.................................... $ (3,897,927) $ (1,926,216) Pro forma...................................... $ (3,911,277) $ (2,212,822) Loss per share.................................... As reported.................................... $ (1.29) $ (0.65) Pro forma...................................... $ (1.29) $ (0.75) The following table summarizes information about stock options outstanding at December 31, 2002:
Options Number Weighted Outstanding and Range of Outstanding Average Exercisable Weighted Exercise and Exercisable Exercise Average Remaining Prices at 12/31/02 Price Contractual Life (Years) --------------- ------------------ -------------- --------------------------- $ 0.88 - $0.90 164,591 $ 0.89 5.6 $ 2.00 710,000 $ 2.00 8.4 $ 2.70 450,000 $ 2.70 9.8 $ 3.00 126,667 $ 3.00 8.5 ---------- ---------- $ 0.88 - $3.00 1,451,258 $ 2.05 7.5 ========== ===========
11. Valuation and Qualifying Accounts Allowance for doubtful account activity was as follows at December 31, 2002. Balance, beginning of year........................... $ 1,013,000 Charged to (deducted from) expense.................... 595,000 Write-offs, net of recoveries......................... - ------------- Balance, end of year.................................. $ 1,608,000 ============= At December 31, 2002, management of the Company decided to provide for a large amount for accounts that were in dispute at that time. Management intends to vigorously pursue all its legal and business options in collecting these receivables. Additionally, in 2001 management elected to take a change to income for expenses that were related to some business acquisitions, which did not come to fruition. This charge amounted to $829,000. 12. Mineral Properties During 1998, the Board of Directors authorized a plan to dispose of the Company's mineral properties and related mining assets. In 2001, the Board of Directors changed this plan to hold the mineral properties as an investment. Accordingly, the Company has classified these assets as mineral properties held for investment in its balance sheet at December 31, 2002 and 2001. 6 MPM TECHNOLOGIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES 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 prepaid royalties, recoverable from future revenues resulting from the operation of the equipment. The balance at December 31, 2002 and 2001 was $273,000. 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. In 2002 and 2001, the Company incurred expenses to this related party company of $72,276 and $75,718, 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 2002 and 2001 of $90,998 and $70,569, respectively. As of December 31, 2002 and 2001, 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. 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. 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. 7
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES The segments' profit and loss components and schedule of assets as of December 31, 2002 are as follows: Air Air Pollution Pollution Control Control All (Heat) (Scrubbers) Other Total ------------- ---------------- ------------- -------------- Revenue external............................ $ 2,369,552 $ 5,601,979 $ 34,103 $ 8,005,634 Impairment loss on intangible assets........ - - 514,000 514,000 Interest expense............................ 56,834 26,481 301,504 384,819 Depreciation and amortization............... 153,498 41,823 20,061 215,382 Segment income (loss)....................... (800,270) (2,413,833) (683,824) (3,897,927) Other significant non-cash items: Costs and estimated earnings in excess of billings............................ 115,708 375,183 - 490,891 Billings in excess of costs and estimated earnings..................... 3,922 56,343 - 60,265 Segment assets............................. 1,872,763 2,522,515 6,886,032 11,281,310 Expenditures for long lived assets......... 317,732 3,047 4,668 325,447 Reconciliation of net income (loss), total assets, and other significant items for the year ended December 31, 2002 are as follows:
Profit or loss Amount -------------- ------ Total loss for reportable segments.................................... $ (3,214,103) Other loss............................................................ (683,824) Total consolidated or loss............................................ $ (3,897,927) =========== Assets ------ Total assets for reportable segments.................................. $ 4,395,278 Other assets.......................................................... 6,886,032 Elimination of intersegment assets.................................... (5,900,577) Total consolidated assets............................................. $ 5,380,733 =========== The Company's revenues by geographic region for the year ended December 31, 2002 are as follows:
Geographic Region Revenues ----------------- -------- United States $ 7,967,700 Foreign countries 37,934 Total consolidated revenues $ 8,005,634 ============== The Company attributes revenues to countries based on the location of the customer.
8 MPM TECHNOLOGIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES
The segments' profit and loss components and schedule of assets as of December 31, 2001 are as follows: Air Air Pollution Pollution Control Control All (Heat) (Scrubbers) Other Total ------------- ---------------- ------------- -------------- Revenue external............................ $ 7,103,019 $ 11,416,371 $ - $ 18,519,390 Interest income............................. 72,129 31,123 218 103,470 Interest expense............................ 91,888 - 18,462 110,350 Depreciation and amortization............... (33,278) 121,893 68,420 157,035 Segment income (loss)....................... (1,041,763) 1,300,481 (2,184,934) (1,926,216) Other significant non-cash items: Costs and estimated earnings in excess of billings............................ 108,477 786,960 - 895,437 Billings in excess of costs and estimated earnings..................... 77,662 563,773 641,435 - Segment assets.............................. 2,081,426 5,510,272 2,876,487 10,468,185 Expenditures for long-lived assets.......... 15,176 63,686 - 78,862 Reconciliation of net income (loss), total assets, and other significant items for the year ended December 31, 2001 are as follows:
Profit or loss Amount -------------- ------ Total income for reportable segments.................................. $ 258,718 Other loss............................................................ (2,184,934) Total consolidated profit or loss..................................... $ (1,926,216) ============ Assets ------ Total assets for reportable segments................................ $ 7,591,700 Other assets........................................................ 2,876,487 Elimination of intersegment assets.................................. (2,767,778) Total consolidated assets........................................... $ 7,700,409 ============
Other significant items: Segment Consolidated Totals Eliminations Totals ------------- ---------------- ----------------- Interest income................................................ $ 103,470 $ (38,466) $ 65,004 Interest expense............................................... 110,350 (38,466) 71,884 Expenditures for long-lived assets............................. 16,062 - 16,062 Depreciation and amortization.................................. 128,164 - 128,164 Costs and estimated earnings in excess of billings............. 895,437 - 895,437 Billings in excess of costs and estimated earnings............. 641,435 - 641,435
9 MPM TECHNOLOGIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES 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, 2001 are as follows:
Geographic Region Revenues ----------------- -------- United States $ 17,480,639 United Kingdom 1,033,498 Other foreign countries 5,253 Total consolidated revenues $ 18,519,390 ==============
The Company attributes revenues to countries based on the location of the customer. 17. New Accounting Pronouncements Standards Implemented In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections," effective May 14, 2002. SFAS No. 145 eliminates the requirement that gains and losses from the extinguishment of debt be aggregated and classified as an extraordinary item, net of tax, and makes certain other technical corrections. SFAS No. 145 did not have a material effect on the Company's Consolidated Financial Statements. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses significant issues relating to the implementation of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and develops a single accounting model, based on the framework established in SFAS No. 121 for long-lived assets to be disposed of by sale, whether such assets are or are not deemed to be a business. SFAS No. 144 also modifies the accounting and disclosure rules for discontinued operations. The standard was adopted on January 1, 2002, and did not have a material impact on the Company's Consolidated Financial Statements. In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires the use of the purchase method of accounting for business combinations and prohibits the use of the pooling of interests method. Under the previous rules, the Company used the purchase method of accounting. SFAS No. 141 also refines the definition of intangible assets acquired in a purchase business combination. As a result, the purchase price allocation of current business combinations may be different than the allocation that would have resulted under the old rules. Business combinations must be accounted for using SFAS No. 141 effective July 1, 2001. SFAS No. 142 eliminates the amortization of goodwill, requires annual impairment testing of goodwill and introduces the concept of indefinite life intangible assets. The Company adopted SFAS No. 142 on January 1, 2002. The new rules also prohibit the amortization of goodwill associated with business combinations that closed after June 30, 2001. The adoption of SFAS No. 142 resulted in an impairment of $514,000 in 2002. 10 MPM TECHNOLOGIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES New Standards to be Implemented In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 provides accounting and reporting guidance for legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction or normal operation of a long-lived asset. SFAS No. 143 requires the recording of an asset and a liability equal to the present value of the estimated costs associated with the retirement of long-lived assets where a legal or contractual obligation exists. The asset is required to be depreciated over the life of the related equipment or facility, and the liability is required to be accreted each year based on a present value interest rate. The standard is effective for the Company on January 1, 2003. The Company has reviewed the provisions of this standard, and its adoption is not expected to have a material effect on the Company's Consolidated Financial Statements. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 supersedes EITF No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit and Activity (Including Certain Costs Incurred in a Restructuring)," and requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Such liabilities should be recorded at fair value and updated for any changes in the fair value of each period. The Company is currently evaluating the possible effect on future Consolidated Financial Statements. 11 MPM TECHNOLOGIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES 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 - ------------------------------------------------------------------------------- Richard E. Appleby ........ 63 Director 4/25/1985 Glen Hjort................. 50 Director 2/16/1998 Frank E. Hsu............... 57 Director 6/24/2002 Richard Kao................ 62 Director 6/28/1999 Anthony L. Lee [1]......... 67 Director 2/16/1998 Michael J. Luciano ........ 49 Director 2/16/1998 L. Craig Cary Smith........ 53 Director 4/25/1985 Daniel D. Smozanek......... 77 Director 4/25/1985 [1] On March 6, 2003, Mr. Lee announced his retirement from the Board of Directors. 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 - ------------------------------------------------------------------------------ Richard E. Appleby......... 63 Vice President 4/25/1985 Glen Hjort................ 50 Chief Financial Officer 6/28/1999 Frank E. Hsu............... 57 Chief Operating Officer 6/24/2002 Robert D. Little........... 53 Secretary 1/03/1991 Michael J. Luciano........ 49 Chairman & CEO 2/16/1998 Daniel D. Smozanek......... 77 Treasurer 4/25/1985 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, 2002, 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. 12 MPM TECHNOLOGIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES 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 in 1999. In 1998, he 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 in 1999. He has been a Director since 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. Frank E. Hsu is Chief Operating Officer and was elected Director in 2002. Mr. Hsu is a registered professional engineer with 28 years of experience in design, manufacturing and construction of air pollution control equipment and solid waste disposal systems. He holds a B.S. Degree in Civil engineering from Taiwan Chen Kung University, an M.S. Degree in Environmental Engineering from New Jersey Institute of Technology and an MBA Degree from Fairleigh Dickinson University. Prior to joining AirPol in 1990, Mr. Hsu was Engineering Director of Belco Pollution Control Corp. In addition to his engineering and business management background, he also has extensive experience in international sales, marketing and project execution. Mr. Hsu resides in Warren, New Jersey. Richard E. Appleby is Vice President and a Director since 1985. He attended postgraduate courses at Rutgers in Landscape Design, Landscape Maintenance and Landscape Construction. 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. Daniel D. Smozanek is Treasurer and a Director since 1985. 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. 13 MPM TECHNOLOGIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES 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 has been a Director since 1985. 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. Dr. Richard Kao has been a Director since 1998. Dr. Kao has PhD and Master of Science degrees in chemical engineering from the Illinois Institute of Technology in Chicago, and a Bachelor of Science degree in chemical engineering from Tunghai University in Taiwan. He presently serves as senior vice president of Unitel Technologies, Inc., and is responsible for the research, development, economic evaluation, assessment and upgrade of new technologies for commercial application for chemical, petroleum, solid/semi-solid/liquid waste, synthetic fuel, food, pulp, and paper industries. Prior to joining Unitel, he was Director of Technologies for the Gas Technology Institute (1967-1982). Prior to joining Unitel, he was Director of Technologies for Xytel Corporation (1988-1996). He is a registered professional engineer in Illinois and a member of Sigma Xi and the National Society of Professional Engineers. Dr. 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 $100,000 in 2002 and 2001. 14 MPM TECHNOLOGIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES Summary Compensation Table Annual Compensation Name and Principal
Position Year Salary Bonus(s) Compensation Awards(s)($)SARs($)Payout(s)($) Compensation - ------------------------------------------------------------------------------------------- Michael J. Luciano 2002 $ 25,000 None CEO 2001 $ 25,000 None Robert D. Little 2002 $ 61,776 Secretary 2001 $ 71,897
(1) MPM contracts with Mr. Little for its shareholder relations services. Expenses related to this were $ 61,776 and $71,897 for 2002 and 2001, respectively. Option Grants In 2002 Fiscal Year Individual Grants Individual Grants
Market % of Total Price on Options Options Granted Exercise or Date of Expiration Name Granted In Fiscal Year Base Price Grant Date - ---- ------- ------------------ ---------------- ----------- ---------- Frank E. Hsu 50,000 100% $0.60 $0.60 8/7/12
Aggregated Option/SAR Exercises in Last Fiscal Year and FYE 2002 Option/SAR Values Number of Securities Value of Underlying Unexercised Unexercised In-The-Money Options/SARs Options/SARs Shares At FY-End (#) At FY-End Acquired Value Exercisable/ Exercisable/ Name On Exercise Realized ($) Unexercisable Unexercisable - -------------------- ------------ ------------ --------------- ------------ Michael J. Luciano None 521,890 $130,473 Exercisable L. Craig Cary Smith None 200,389 $ 50,097 Exercisable Robert D. Little 10,000 195,223 $ 48,806 Exercisable Glen Hjort None 90,000 $ 22,500 Exercisable Frank E. Hsu None 50,000 $ 12,500 Exercisable Richard E. Appleby None 38,000 $ 9,500 Exercisable Daniel D. Smozanek None 8,000 $ 2,000 Exercisable
15 MPM TECHNOLOGIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES a) Current Remuneration. Except as noted above, 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. MPM's officers and directors are committed to the long-term success of the Company, and have, accordingly, weighted heavily any benefits received in the form of stock and stock options. 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 26, 2002, the shareholders approved an amendment to the stock option plan therefore increasing the number of shares in the plan by 300,000. Item 11. Security Ownership of Certain Beneficial Owners and Management a) Security Ownership of Certain Beneficial Owners. Except as noted in part b. below, no person or group was known by the Registrant except as noted below to own more than five percent (5%) of its common stock at December 31, 2002. 16 MPM TECHNOLOGIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES b) Security Ownership of Management as of May 1, 2003. The following table sets forth, as of May 1, 2003 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 873,910 [2] 17.50 Common Richard E. Appleby 221,155 4.43 Common Robert D. Little 202,966 4.06 Common L. Craig Cary Smith 200,389 4.01 Common Daniel D. Smozanek 160,257 3.21 Common Glen Hjort 101,833 2.04 Common Frank E. Hsu 68,756 1.38 Common Richard Kao 64,222 1.29 Common Anthony Lee [3] 20,000 * Common As A Group 1,950,349 48.1
[*] Less than one percent [1] Includes options available for exercise aggregating 1,074,502 shares for the entire group. [2] Does not include 396,509 shares (7.94%) of the Company's outstanding stock owned by a trust for which Mr. Luciano is the Trustee. [3] On March 6, 2003, Mr. Lee announced his retirement from the Board of Directors. 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. 17 MPM TECHNOLOGIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES b.) Certain Business Relationships. In September 2001, Michael J. Luciano, Chairman and Chief Executive Officer loaned the Company approximately $600,000 evidenced by a convertible promissory note. Under the terms of the promissory note, the principal and any unpaid accrued interest may be converted to common stock at the option of the note holder. 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. In 2000, MPM issued 100,000 shares of its common stock in settlement of the debt. At December 31, 2002 and 2001, Richard Appleby was owed $65,000 pursuant to 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 years ended December 31, 2002 and 2001, MPM paid $61,776 and $71,897 for these services, respectively. 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 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 None 18 MPM TECHNOLOGIES, INC. AND SUBSIDIARIES SUMMARY OF ACCOUNTING POLICIES 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: May 1, 2003 ------------------------- 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: May 1, 2003 Dated: May 1, 2003 ----------- ----------- /s/ Frank E. Hsu /s/ Daniel D. Smozanek - ------------------ -------------------------- Frank E. Hsu Daniel D. Smozanek Chief Operating Officer & Director Treasurer & Director Dated: May 1, 2003 Dated: May 1, 2003 ----------- ----------- /s/ Richard E. Appleby /s/ L. Craig Cary Smith - -------------------------- --------------------------- Richard E. Appleby L. Craig Cary Smith Vice President & Director Director Dated: May 1, 2003 Dated: May 1, 2003 ----------- ----------- /s/ Richard Kao - ------------------ Richard Kao Director Dated: May 1, 2003 ----------- 19 -----END PRIVACY-ENHANCED MESSAGE-----