UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For Quarterly Period Ended March 31, 2009
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Transition period from _______________ to ______________
Commission File Number 000-49805
MACHINETALKER, INC.
-----------------------------
(Name of registrant in its charter)
DELAWARE 01-05922991
-------- -----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
513 DE LA VINA STREET, SANTA BARBARA, CALIFORNIA 93101
-----------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone Number: (805) 957-1680
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the proceeding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes[__] No[_X_]
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of "large accelerated filer," "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [___] Accelerated filer [___]
Non-accelerated filer [___] Smaller reporting company [_X_]
(Do not check if a smaller
reporting company)
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes[__] No[_X_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
The number of shares of registrant's common stock outstanding as of September 1,
2009 was 181,976,793.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 2
Consolidated Balance Sheets at March 31, 2009 (unaudited) and December 31, 2008 3
Consolidated Statements of Operations for the Three Months Ended March 31, 2009
and March 31, 2008 (unaudited) 4
Consolidated Statements of Shareholders' Deficit for the Three Months Ended March 31, 2009 (unaudited) 5
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2009
and March 31, 2008 (unaudited) 6
Notes to the Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 14
ITEM 4T. CONTROLS AND PROCEDURES 14
PART II - OTHER INFORMATION 15
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 1A. RISK FACTORS 15
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS 15
SIGNATURES 16
-1-
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
-2-
MACHINETALKER, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, 2009 December 31, 2008
-------------------- --------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,069 $ 2,949
Inventory 39,598 39,598
Prepaid insurance 191 904
-------------------- --------------------
TOTAL CURRENT ASSETS 43,858 43,451
-------------------- --------------------
PROPERTY & EQUIPMENT, at cost
Machinery & equipment 13,080 13,080
Computer equipment 50,351 50,351
Furniture & fixture 4,670 4,670
-------------------- --------------------
68,101 68,101
Less accumulated depreciation (60,787) (58,575)
-------------------- --------------------
NET PROPERTY AND EQUIPMENT 7,314 9,526
-------------------- --------------------
OTHER ASSETS
Patents 656 656
Purchase option, Regents - 5,000
Security deposit 2,975 2,975
-------------------- --------------------
TOTAL OTHER ASSETS 3,631 8,631
-------------------- --------------------
TOTAL ASSETS $ 54,803 $ 61,608
==================== ====================
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 120,087 $ 91,046
Accrued expenses 333,677 294,867
Accrued interest, other 11,896 9,445
Accrued interest, related party 106,706 101,501
Unearned revenues 28,817 38,817
Convertible promissory note 84,000 84,000
Notes payable, related party 347,000 399,342
-------------------- --------------------
TOTAL CURRENT LIABILITIES 1,032,183 1,019,018
-------------------- --------------------
SHAREHOLDERS' DEFICIT
Common stock, $.001 par value;
500,000,000 authorized shares;
44,186,700 shares issued and outstanding, respectively 44,187 44,187
Additional paid in capital 5,927,160 5,874,333
Deficit accumulated during the development stage (6,948,727) (6,875,930)
-------------------- --------------------
TOTAL SHAREHOLDERS' DEFICIT (977,380) (957,410)
-------------------- --------------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 54,803 $ 61,608
==================== ====================
The accompanying notes are an integral part of these
consolidated financial statements
-3-
MACHINETALKER, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended From Inception
------------------------------------- January 30,2002
through
March 31, 2009 March 31, 2008 March 31, 2009
------------------ ------------------------------------
REVENUE $ 10,000 $ 10,000 $ 1,094,079
COST OF SERVICES - 21 454,570
------------------ ------------------------------------
GROSS PROFIT (DEFICIT) 10,000 9,979 639,509
OPERATING EXPENSES
Selling and marketing expenses 2,151 43,000 1,257,204
General and administrative expenses 71,117 90,314 2,631,347
Stock compensation expense - 4,261 69,778
Research and development 1,292 25,241 1,441,157
Impairment loss - - 1,753,502
Depreciation and amortization expense 2,212 13,097 113,111
------------------ ------------------------------------
TOTAL OPERATING EXPENSES 76,772 175,913 7,266,099
------------------ ------------------------------------
LOSS FROM OPERATIONS (66,772) (165,934) (6,626,590)
------------------ ------------------------------------
OTHER INCOME/(EXPENSE) BEFORE PROVISION FOR INCOME TAXES
Interest Income 1 3 10,252
Interest Expense (7,373) (13,573) (252,550)
Penalties - - (155)
Gain/(Loss) on Investment 1,347 - (73,121)
Gain/(Loss) on Sale of Asset - - (963)
------------------ ------------------------------------
TOTAL OTHER INCOME/(EXPENSES) (6,025) (13,570) (316,537)
------------------ ------------------------------------
LOSS BEFORE PROVISION FOR INCOME TAXES (72,797) (179,504) (6,943,127)
PROVISION FOR INCOME TAXES - (800) (5,600)
------------------ ------------------------------------
NET (LOSS) $ (72,797) $ $ (180,304) $ (6,948,727)
================== ====================================
BASIC AND DILUTED LOSS PER SHARE $ (0.00) $ (0.00)
================== ==================
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED 44,186,700 43,732,013
================== ==================
The accompanying notes are an integral part of these
consolidated financial statements
-4-
MACHINETALKER, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2009
Accumulated
Deficit During
Common stock Additional the
------------------------- Paid-in Development
Shares Amount Capital Stage Total
------------------------- -------------- ------------- ------------
Balance at December 31, 2008 44,186,700 $ 44,187 $ 5,874,333 $(6,875,930) $ (957,410)
Contributed capital by shareholder (unaudited) - - 52,827 - 52,827
Net Loss for the three month period ended
March 31, 2009 (unaudited) - - - (72,797) (72,797)
------------------------- -------------- ------------- ------------
Balance at March 31, 2009 (unaudited) 44,186,700 $ 44,187 $ 5,927,160 $(6,948,727) $ (977,380)
========================= ============== ============= ============
The accompanying notes are an integral part of these
consolidated financial statements
-5-
MACHINETALKER, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
---------------------------------- From Inception
January 30, 2002
through
March 31. 2009 March 31, 2008 March 31, 2009
---------------- ---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (72,797) $ (180,304) $ (6,948,727)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 2,212 13,097 113,111
Issuance of common shares and warrants for services - 4,636 561,088
Issuance of common shares in conversion of debt - - 400,000
Write off of investment value - - 74,468
Stock Compensation Cost - 4,261 69,778
Gain on sale of asset - - (1,237)
Impairment loss - - 1,753,502
Gain on investment (1,347) - (1,347)
Disposal of asset - - 4,200
Expiration of license purchase option 5,000 - 5,000
Changes in Assets and Liabilities
(Increase) Decrease in:
Inventory - (517) (39,598)
Prepaid Expenses 713 (46,127) (191)
Deposits - - (2,975)
Increase (Decrease) in:
Accounts payable 29,042 (40,568) 120,088
Accrued expenses 46,465 46,813 452,278
Unearned revenue (10,000) (10,000) 28,817
---------------- ---------------- ----------------
NET CASH USED IN OPERATING ACTIVITIES (712) (208,709) (3,411,745)
---------------- ---------------- ----------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment - - (73,754)
Patent expenditures - (656) (656)
Sale of asset - - 1,963
Investment in companies 1,347 - (6,121)
---------------- ---------------- ----------------
NET CASH PROVIDED/(USED) IN INVESTING ACTIVITIES 1,347 (656) (78,568)
---------------- ---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from officer loans - - 1,080,342
Proceeds from note payables other - - 129,000
Repayment of loans from officer and notes payables other - (45,000) (90,000)
Contributed capital by shareholder 485 - 13,197
Proceeds from subsidiary - 300,000 300,000
Proceeds from issuance of common stock - - 2,054,193
---------------- ---------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 485 255,000 3,486,732
---------------- ---------------- ----------------
NET INCREASE/(DECREASE) IN CASH 1,120 45,635 (3,581)
CASH, BEGINNING OF PERIOD 2,949 3,258 7,650
---------------- ---------------- ----------------
CASH, END OF PERIOD $ 4,069 $ 48,893 $ 4,069
================ ================ ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ - $ - $ 133,948
================ ================ ================
Income taxes $ - $ 800 $ 4,000
================ ================ ================
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS
During the three months ended March 31, 2009, a shareholder forgave $52,342 in notes payable, which
has been recorded by the Company as a capital contribution. During the three months ended March 31,
2008, the Company expensed compensation cost of $4,261 related to the vesting of employee stock
options and issued 13,246 shares of common stock for services at a fair value $3,311.
The accompanying notes are an integral part of these
consolidated financial statements
-6-
MACHINETALKER, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MARCH 31, 2009
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all normal recurring adjustments considered necessary
for a fair presentation have been included. Operating results for the
three months ended March 31, 2009 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2009 For
further information refer to the consolidated financial statements and
footnotes thereto included in the Company's Form 10-K for the year
ended December 31, 2008.
GOING CONCERN
The accompanying consolidated financial statements have been prepared
on a going concern basis of accounting, which contemplates continuity
of operations, realization of assets and liabilities and commitments in
the normal course of business. The accompanying consolidated financial
statements do not reflect any adjustments that might result if the
Company is unable to continue as a going concern. The Company does not
generate significant revenue, and has negative cash flows from
operations, which raise substantial doubt about the Company's ability
to continue as a going concern. The ability of the Company to continue
as a going concern and appropriateness of using the going concern basis
is dependent upon, among other things, an additional cash infusion. The
Company has obtained funds from its shareholders since its inception
through March 31, 2009. It is Management's plan to generate additional
working capital from investors, and then continue to pursue its
business plan and purposes.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of MachineTalker, Inc.
is presented to assist in understanding the Company's consolidated
financial statements. The consolidated financial statements and notes
are representations of the Company's management, which is responsible
for their integrity and objectivity. These accounting policies conform
to accounting principles generally accepted in the United States of
America and have been consistently applied in the preparation of the
consolidated financial statements.
DEVELOPMENT STAGE ACTIVITIES AND OPERATIONS
The Company has been in its initial stages of formation and for the
three months ended March 31, 2009, had insignificant revenues. FASB #7
defines a development stage activity as one in which all efforts are
devoted substantially to establishing a new business and even if
planned principal operations have commenced, revenues are
insignificant.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries Wideband Detection Technologies, Inc. and
Micro Wireless Technologies, Inc. All significant inter-company
balances and transactions have been eliminated.
CASH AND CASH EQUIVALENT
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
-7-
MACHINETALKER, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MARCH 31, 2009
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
REVENUE RECOGNITION
We recognize revenue in accordance with the Securities and Exchange
Commission ("SEC") Staff Accounting Bulletin No. 104, "Revenue
Recognition in Financial Statements" ("SAB 104"). We recognize revenue
upon delivery, provided that evidence of an arrangement exists, title,
and risk of loss have passed to the customer, fees are fixed or
determinable, and collection of the related receivable is reasonably
assured. We record revenue net of estimated product returns, which is
based upon our return policy, sales agreements, management estimates of
potential future product returns related to current period revenue,
current economic trends, changes in customer composition and historical
experience. We accrue for warranty costs, sales returns, and other
allowances based on our experience, which tells us we have less than
$25,000 per year in warranty returns and allowances. Generally, we
extend credit to our customers and do not require collateral. We
perform ongoing credit evaluations of our customers and historic credit
losses have been within our expectations. We do not ship a product
until we have either a purchase agreement or rental agreement signed by
the customer with a payment arrangement. This is a critical policy,
because we want our accounting to show only sales which are "final"
with a payment arrangement. We do not make consignment sales, nor
inventory sales subject to a "buy back" or return arrangement from
customers. Accordingly, original equipment manufacturers do not
presently have a right to return unsold products to us.
We also grant exclusive licenses for the use of the technology required
to operate our products. We recognize revenue from software licensing
arrangements under SOP 97-2 "Software Revenue Recognition," as amended
by SOP-98-9, Modification of SOP 97-2, "Software Revenue Recognition
with Respect to Certain Transactions." For those contracts that either
do not contain a services component or that have services which are not
essential to the functionality of any other element of the contract,
software license revenue is recognized over the contract period.
LOSS PER SHARE CALCULATIONS
The Company adopted Statement of Financial Standards ("SFAS") No. 128
for the calculation of "Loss per Share". SFAS No. 128 dictates the
calculation of basic earnings per share and diluted earnings per share.
Basic earnings per share is computed by dividing income available to
common shareholders by the weighted-average number of common shares
available. Diluted earnings per share is computed similar to basic
earnings per share except that the denominator is increased to include
the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional
common shares were dilutive. The Company's diluted loss per share is
the same as the basic loss per share for the three months ended March
31, 2009 as the inclusion of any potential shares would have had an
anti-dilutive effect due to the Company generating a loss. The weighted
average number of shares used for the calculation of the loss per share
considers the stock split as if it had occurred on January 1, 2003.
STOCK-BASED COMPENSATION
As of December 31, 2007, the Company adopted Financial Accounting
Standards No. 123 (revised 2004), "Share-Based Payment" (FAS) No. 123R,
that addresses the accounting for share-based payment transactions in
which an enterprise receives employee services in exchange for either
equity instruments of the enterprise or liabilities that are based on
the fair value of the enterprise's equity instruments or that may be
settled by the issuance of such equity instruments. The statement
eliminates the ability to account for share-based compensation
transactions, as we formerly did, using the intrinsic value method as
prescribed by Accounting Principles Board, or APB, Opinion No. 25,
"Accounting for Stock Issued to Employees," and generally requires that
such transactions be accounted for using a fair-value-based method and
recognized as expenses in our statement of income. The adoption of
(FAS) No. 123R by the Company had no material impact on the statement
of income.
-8-
MACHINETALKER, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MARCH 31, 2009
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RECLASSIFICATION OF EXPENSES
Certain expenses for the three months ended March 31, 2008 were
reclassified to conform to the expenses for the three months ended
March 31, 2009.
3. CAPITAL STOCK AND WARRANTS
During the three months ended March 31, 2009, the Company issued no
shares of common stock. During the three months ended March 31, 2008,
the Company issued 13,246 shares of common stock for a fair value of
$3,311 for services.
WARRANTS
During the three months ended March 31, 2009, the Company issued no
warrants. At March 31, 2009, the Company had a total of 866,400
warrants to purchase 866,400 shares of common stock outstanding.
4. INCOME TAXES
The Company files income tax returns in the U.S. Federal jurisdiction,
and the state of California. With few exceptions, the Company is no
longer subject to U.S. federal, state and local, or non-U.S. income tax
examinations by tax authorities for years before 2004.
The Company adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, on January 1, 2007.
Deferred income taxes have been provided by temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for tax purposes. To the extent
allowed by GAAP, we provide valuation allowances against the deferred
tax assets for amounts when the realization is uncertain.
Included in the balance at March 31, 2009, are no tax positions for
which the ultimate deductibility is highly certain but for which there
is uncertainty about the timing of such deductibility.
The Company's policy is to recognize interest accrued related to
unrecognized tax benefits in interest expense and penalties in
operating expenses.
5. GAIN ON INVESTMENT
During the three months ended March 31, 2009, the Company received
$1,347 on its initial investment in Listen4U, LLC. During a prior
period Listen4U was discontinued and the $1,347 is the Company's
portion of the remainder of its initial investment. The value of the
initial investment was previously fully impaired during the year ended
December 31, 2007.
6. RELATED PARTY TRANSACTION
During the three months ended March 31, 2009, the Company's President
forgave a note payable to him in the amount of $52,342, which was
recorded as contributed capital. The Company's President also
contributed cash in the amount of $485 during the three months ended
March 31, 2009, which was recorded as contributed capital.
-9-
MACHINETALKER, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
MARCH 31, 2009
7. SUBSEQUENT EVENTS
In April 2009, the Company effected a one-for-five (1:5) reverse stock
split of its outstanding common stock. These financial statements
reflect the stock split. Additionally, in April 2009, the Company
agreed to effect a one-for-one-half (1:1.5) reverse stock split of its
outstanding common stock in the future.
In April 2009, the Company issued 6,200,000 shares of common stock
valued at $201,500 for services with an original value of $62,000. The
difference between these amounts was recorded as general and
administrative expense during the three months ended June 30, 2009.
In April 2009, the Company issued 34,700,000 shares of common stock
valued at $884,850 to pay off the debt of $347,000 held as a
convertible promissory note by the President and Chief Executive
Officer of the Company.
In May 2009, the Company issued 1,900,000 shares of common stock valued
at $48,450 to pay off the debt of $19,000 held as a convertible
promissory note by an investor.
In May 2009, the Company issued 1,750,000 shares of common stock valued
at $44,625 for services with an original value of $17,500. The
difference between these values has been recorded as general and
administrative expense during the three months ended June 30, 2009.
In May 2009, the Company issued 93,240,094 shares of common stock for
$100,000 to two investors for acquisition of a 51% beneficial ownership
of the Company.
-10-
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
CAUTIONARY STATEMENTS
This Form 10-Q contains financial projections and other
"forward-looking statements," as that term is used in federal securities laws,
about MachineTalker, Inc.'s ("we," "us," or the "Company") financial condition,
results of operations and business. These statements include, among others:
statements concerning the potential for revenues and expenses and other matters
that are not historical facts. These statements may be made expressly in this
Form 10-Q. You can find many of these statements by looking for words such as
"believes," "expects," "anticipates," "estimates," or similar expressions used
in this Form 10-Q. These forward-looking statements are subject to numerous
assumptions, risks and uncertainties that may cause the Company's actual results
to be materially different from any future results expressed or implied by the
Company in those statements. The most important facts that could prevent the
Company from achieving its stated goals include, but are not limited to, the
following:
(a) volatility or decline of the Company's stock price;
(b) potential fluctuation in quarterly results;
(c) failure of the Company to earn revenues or profits;
(d) inadequate capital and barriers to raising the additional
capital or to obtaining the financing needed to implement its
business plans;
(e) inadequate capital to continue business;
(f) changes in demand for the Company's products and services;
(g) rapid and significant changes in markets;
(h) litigation with or legal claims and allegations by outside
parties; and
(i) insufficient revenues to cover operating costs.
Because the statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. The Company cautions you not to place undue reliance
on the statements, which speak only as of the date of this Form 10-Q. The
cautionary statements contained or referred to in this section should be
considered in connection with any subsequent written or oral forward-looking
statements that the Company or persons acting on its behalf may issue.
The Company does not undertake any obligation to review or confirm
analysts' expectations or estimates or to release publicly any revisions to any
forward-looking statements to reflect events or circumstances after the date of
this Form 10-Q or to reflect the occurrence of unanticipated events.
The following discussion should be read in conjunction with our
condensed financial statements and notes to those statements. In addition to
historical information, the following discussion and other parts of this
quarterly report contain forward-looking information that involves risks and
uncertainties.
OVERVIEW
The acquisition by the Company in June 2007 of 100% of Wideband
Detection Technologies, Inc. ("WDT") provided the Company with a new product
which the Company calls the "GuardDog." GuardDog employs Ultra-Wide Band ("UWB")
radar-like signals to detect movement within a specific area, either in the open
space or inside of a closed chamber like that of a shipping container. In
addition, it can detect changes other than movement, such as a break or hole
being made in the side of a container. The Company has taken delivery of the
first units and they have been connected to MachineTalkers in order to create a
composite system. This new combined product is aimed at a unique method of
protection for goods in transit or in storage, and is now in the testing phase,
to be introduced within the next six months for demonstration to potential
customers.
The Company's second product, now in demonstration, is the CBM6 which
supports wireless process control applications. It has been packaged within
explosion-proof housings for use in oil refineries and harsh environments. The
CBM6 has been designed to gather data from high speed sources and sensors and
process that data at a remote site prior to sending it by wireless means to a
-11-
central computer facility. The Company anticipates that the CBM6 will be used
for Condition-Based Maintenance ("CBM") operation gathering data from vibration
sensors. The Company is currently bidding this new product into several
applications.
We currently utilize consultants who are technical contributors to our
product development. Our Chief Scientist provides a marketing presence by
presenting seminars at trade shows and by being a contributing member of
wireless standards committees. This work helps to address the wireless process
control aspects of our product line. We have also minimized the use of
administration personnel in favor of technical staff concerned with the
application of our products to security and industrial customers. We also
continue to rely upon original equipment manufacturers ("OEMs") and systems
integrators that are not employees as marketing representatives.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities. On an ongoing basis, we evaluate our estimates, including those
related to impairment of property, plant and equipment, intangible assets,
deferred tax assets and fair value computation using the Black Scholes option
pricing model. We base our estimates on historical experience and on various
other assumptions, such as the trading value of our common stock and estimated
future undiscounted cash flows, that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions; however, we believe that our estimates, including
those for the above-described items, are reasonable.
USE OF ESTIMATES
In accordance with accounting principles generally accepted in the
United States, management utilizes estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements as well as the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. These estimates and assumptions
relate to recording net revenue, collectability of accounts receivable, useful
lives and impairment of tangible and intangible assets, accruals, income taxes,
inventory realization, stock-based compensation expense and other factors.
Management believes it has exercised reasonable judgment in deriving these
estimates. Consequently, a change in conditions could affect these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Our cash, cash equivalents, investments, accounts receivable and
accounts payable are stated at cost which approximates fair value due to the
short-term nature of these instruments.
In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 123R, Share-based Payment. SFAS 123R revises SFAS 123 and
supersedes APB 25. SFAS 123R will be effective for the year ending December 31,
2006, and applies to transactions in which an entity exchanges its equity
instruments for goods or services and also applies to liabilities an entity may
incur for goods or services that are to follow a fair value of those equity
instruments. Under SFAS 123R, we will be required to follow a fair value
approach using an option-pricing model, such as the Black Scholes option
valuation model, at the date of a stock option grant. The deferred compensation
calculated under the fair value method would then be amortized over the
respective vesting period of the stock option. The adoption of SFAS 123R will
not have a material impact on our results of operations.
REVENUE RECOGNITION
We recognize revenue in accordance with the Securities and Exchange
Commission ("SEC") Staff Accounting Bulletin No. 104, "Revenue Recognition in
Financial Statements" ("SAB 104"). We recognize revenue upon delivery, provided
that evidence of an arrangement exists, title, and risk of loss have passed to
the customer, fees are fixed or determinable, and collection of the related
receivable is reasonably assured. We record revenue net of estimated product
returns, which is based upon our return policy, sales agreements, management
estimates of potential future product returns related to current period revenue,
current economic trends, changes in customer composition and historical
-12-
experience. We accrue for warranty costs, sales returns, and other allowances
based on our experience which tells us we have less than $25,000 per year in
warranty returns and allowances. Generally, we extend credit to our customers
and do not require collateral. We perform ongoing credit evaluations of our
customers and historic credit losses have been within our expectations. We do
not ship a product until we have either a purchase agreement or rental agreement
signed by the customer with a payment arrangement. This is a critical policy,
because we want our accounting to show only sales which are "final" with a
payment arrangement. We do not make consignment sales, nor inventory sales
subject to a "buy back" or return arrangement from customers. Accordingly, OEMs
do not presently have a right to return unsold products to the Company.
We also grant exclusive licenses for the use of the technology required
to operate our products. We recognize revenue from software licensing
arrangements under SOP 97-2 "Software Revenue Recognition," as amended by
SOP-98-9, Modification of SOP 97-2, "Software Revenue Recognition with Respect
to Certain Transactions." For those contracts that either do not contain a
services component or that have services which are not essential to the
functionality of any other element of the contract, software license revenue is
recognized over the contract period.
PROVISION FOR SALES RETURNS, ALLOWANCES AND BAD DEBTS
We maintain a provision for sales allowances, returns and bad debts.
Sales returns and allowances result from equipment damaged in delivery or
customer dissatisfaction, as provided by agreement. The provision is provided
for by reducing gross revenue by a portion of the amount invoiced during the
relevant period. The amount of the reduction is estimated based on historical
experience.
RESERVE FOR OBSOLETE/EXCESS INVENTORY
Inventories are stated at the lower of cost or market. We regularly
review our inventories and, when required, will record a provision for excess
and obsolete inventory based on factors that may impact the realizable value of
our inventory including, but not limited to, technological changes, market
demand, regulatory requirements and significant changes in our cost structure.
If ultimate usage varies significantly from expected usage, or other factors
arise that are significantly different than those anticipated by management,
inventory write-downs or increases in reserves may be required.
RESULTS OF OPERATIONS - QUARTER ENDED MARCH 31, 2009 COMPARED TO THE QUARTER
ENDED MARCH 31, 2008
REVENUE
Total revenue for the three months ended March 31, 2009 and 2008, were
$10,000 and $10,000, respectively. The revenue consisted of deferred income as
sales are not yet significant.
COST OF SALES
Cost of Sales ("COS") decreased by $21 or 100.0% to $0 for the three
months ended March 31, 2009 compared to the prior period. This decrease in COS
was a result of recognizing deferred income.
SELLING AND MARKETING EXPENSES
Selling and marketing ("S&M") expenses decreased by $40,849 or 95.0%,
to $2,151 for the three months ended March 31, 2009 compared to the prior
period. This decrease in S&M expenses was the result of a decrease in consulting
fees.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative ("G&A") expenses decreased by $19,197 or
21.26%, to $71,117 for the three months ended March 31, 2009 compared to the
prior period. This decrease in G&A expenses was the result of a decrease in
professional fees, salaries, and marketing services.
-13-
RESEARCH AND DEVELOPMENT
Research and Development ("R&D") costs decreased by $23,949 or 94.88%,
to $1,292 for the three months ended March 31, 2009 compared to the prior
period. This decrease in R&D costs was the result of a decrease in salary
expense.
NET LOSS
Net Loss decreased by $107,507 or 59.63% to $72,797 for the three
months ended March 31, 2009 compared to the prior period. This decrease in Net
Loss was the result of a decrease in operational costs. Currently operating
costs exceed revenue because sales are not yet significant. We cannot assure
when or if revenue will exceed operating costs.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2009, we had a working deficit of $988,325 as compared
to $975,567 at March 31, 2008. This increase of $12,758 was due primarily to use
of funds for operational costs.
Cash flow used in operating activities was $712 for the three months
ended March 31, 2009, as compared to cash used of $208,709 for three months
ended March 31, 2008. This decrease of $207,997 was primarily attributable to a
decrease in operational expenses.
Cash provided by investing activities was $1,347 for the three months
ended March 31, 2009 as compared to cash of $656 used by investing activities
for the three months ended March 31, 2008. The increase of cash provided by
investing activities was due to a return of an initial investment.
Cash provided from financing activities during the three months ended
March 31, 2009 was $485 as compared to cash provided of $255,000 for the three
months ended March 31, 2008. The decrease of $254,515 was due to no equity
financing during the period.
PLAN OF OPERATION AND FINANCING NEEDS
The Company continues to seek investment capital or contracts that
will provide cash flow. If we are unable to obtain sufficient funds through
investment or product orders during the next twelve months, we may be forced to
reduce the size of our organization, which could have a material adverse impact
on, or cause us to curtail and/or cease, the development of our products.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off balance sheet arrangements that are reasonably
likely to have a current or future effect on our financial condition, revenues,
results of operations, liquidity or capital expenditures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
ITEM 4T. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed by the Company is recorded,
processed, summarized, and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission.
Our management, under the direction of our Chief Executive Officer and
Principal Financial Officer, has evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as such terms are defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2009.
-14-
As part of such evaluation, management considered the matters discussed below
relating to internal control over financial reporting. Based on this evaluation
our management, including the Company's Chief Executive Officer and Principal
Financial Officer, has concluded that the Company's disclosure controls and
procedures were effective as of March 31, 2009.
INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's Chief Executive Officer and Principal Financial Officer,
is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes of accounting
principles generally accepted in the United States. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements. Therefore, even those systems determined to be effective can
provide only reasonable assurance of achieving their control objectives.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There were no changes in the Company's internal control over financial
reporting identified in connection with the evaluation of it that occurred
during the quarter ended March 31, 2009 that materially affected or are
reasonably likely to materially affect the Company's internal control over
financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS.
Not Applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
ITEM 6. EXHIBITS.
EXHIBIT DESCRIPTION
------- ----------------------------------------------------
31.1 Section 302 Certification of Chief Executive Officer
31.2 Section 302 Certification of Chief Financial Officer
32.1 Section 906 Certification of Chief Executive Officer
32.2 Section 906 Certification of Chief Financial Officer
-15-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
MACHINETALER, INC.
Dated: September 8, 2009 By: /s/Roland F. Bryan
----------------------------------------
Roland F. Bryan, Chairman of the Board and
Chief Executive Officer (Principal Executive
Officer)
Dated: September 8, 2009 By: /s/Roland F. Bryan
----------------------------------------
Roland F. Bryan, Chief Financial Officer
(Principal Financial Officer)
-16-