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 June 30, 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
18, 2009 was 181,976,794.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION 2
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 2
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statement of Shareholders Deficit 5
Consolidated Statements of Cash Flows 6
Notes to the Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 10
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
-1-
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
-2-
MACHINETALKER, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 2009 December 31, 2008
-------------------- --------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 11,823 $ 2,949
Inventory 39,598 39,598
Prepaid insurance - 904
-------------------- --------------------
TOTAL CURRENT ASSETS 51,421 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 (62,999) (58,575)
-------------------- --------------------
NET PROPERTY AND EQUIPMENT 5,102 9,526
-------------------- --------------------
OTHER ASSETS
Patents - 656
Purchase option, Regents - 5,000
Security deposit 2,975 2,975
-------------------- --------------------
TOTAL OTHER ASSETS 2,975 8,631
-------------------- --------------------
TOTAL ASSETS $ 59,498 $ 61,608
==================== ====================
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 22,233 $ 91,046
Accrued expenses 354,584 294,867
Accrued interest, other 14,019 9,445
Accrued interest, related party 108,777 101,501
Unearned revenues 18,817 38,817
Convertible promissory note 65,000 84,000
Notes payable, related party - 399,342
-------------------- --------------------
TOTAL CURRENT LIABILITIES 583,430 1,019,018
-------------------- --------------------
SHAREHOLDERS' DEFICIT
Common stock, $.001 par value;
550,000,000 authorized shares;
181,976,794 and 44,186,700 shares issued and outstanding, respectively 181,977 44,187
Additional paid in capital 7,074,795 5,874,333
Deficit accumulated during the development stage (7,780,704) (6,875,930)
-------------------- --------------------
TOTAL SHAREHOLDERS' DEFICIT (523,932) (957,410)
-------------------- --------------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 59,498 $ 61,608
==================== ====================
The accompanying notes are an integral part of
these consolidated financial statements
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MACHINETALKER, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended For the Six Months Ended From Inception
---------------------------------------------------------January 30, 2002
through
June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008 June 30, 2009
-------------- ------------- ------------- -------------- -------------
REVENUE $ 14,510 $ 10,000 $ 24,510 $ 20,000 $ 1,108,589
COST OF SERVICES - - - 21 454,570
-------------- --------------------------- -----------------------------
GROSS PROFIT (DEFICIT) 14,510 10,000 24,510 19,979 654,019
-------------- --------------------------- -----------------------------
OPERATING EXPENSES
Selling and marketing expenses 22,877 47,811 25,028 90,812 1,280,081
General and administrative expenses 249,367 88,470 320,484 178,785 2,880,714
Stock compensation expense - 4,262 - 8,523 69,778
Research and development 538 41,325 1,830 66,566 1,441,695
Impairment loss - 1,715,000 - 1,715,000 1,753,502
Depreciation and amortization expense 2,212 13,107 4,424 26,204 115,323
-------------- --------------------------- -----------------------------
TOTAL OPERATING EXPENSES 274,994 1,909,975 351,766 2,085,890 7,541,093
-------------- --------------------------- -----------------------------
LOSS FROM OPERATIONS (260,484) (1,899,975) (327,256) (2,065,911) (6,887,074)
-------------- --------------------------- -----------------------------
OTHER INCOME/(EXPENSE) BEFORE PROVISION FOR INCOME TAXES
Interest income 1 3 2 6 10,253
Interest expense (4,194) (13,830) (11,567) (27,402) (256,744)
Penalties - - - - (155)
Gain/(Loss) on investment - - 1,347 - (73,121)
Loss on settlement of debt (567,300) - (567,300) - (567,300)
Gain/(Loss) on sale of asset - - - - (963)
-------------- --------------------------- -----------------------------
TOTAL OTHER INCOME/(EXPENSES) (571,493) (13,827) (577,518) (27,396) (888,030)
-------------- --------------------------- -----------------------------
LOSS BEFORE PROVISION FOR INCOME TAXES (831,977) (1,913,802) (904,774) (2,093,307) (7,775,104)
PROVISION FOR INCOME TAXES - - - (800) (5,600)
-------------- --------------------------- -----------------------------
NET (LOSS) $ (831,977) $ (1,913,802) $ (904,774) $ (2,094,107) $ (7,780,704)
============== =========================== ==============================
BASIC AND DILUTED LOSS PER SHARE $ (0.01) $ (0.04) $ (0.01) $ (0.05)
============== =========================== ===============
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED 129,321,263 43,743,366 86,989,160 43,737,253
============== =========================== ===============
The accompanying notes are an integral part of
these consolidated financial statements
-4-
MACHINETALKER, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 2009
Accumulated
Additional 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)
Issuance of common stock in April 2009 (unaudited)
(6,200,000 shares at $0.0325 per share issued for services) 6,200,000 6,200 195,300 - 201,500
Issuance of common stock in May 2009 (unaudited)
(93,240,094 shares at $0.0010725 per share issued for cash) 93,240,094 93,240 6,760 - 100,000
Issuance of common stock in May 2009 (unaudited)
(1,750,000 shares at $0.0255 per share issued for services) 1,750,000 1,750 42,875 - 44,625
Issuance of common stock in May 2009 (unaudited)
(1,900,000 shares at $0.0255 per share issued for conversion
of promissory note) 1,900,000 1,900 46,550 - 48,450
Issuance of common stock in May 2009 (unaudited)
(34,700,000 shares at $0.0255 per share issued for conversion
of promissory note) 34,700,000 34,700 850,150 - 884,850
Contributed capital by shareholder (unaudited) - - 58,827 - 58,827
Net Loss for the six month period ended June 30, 2009
(unaudited) - - - (904,774) (904,774)
------------ ------------ -------------- ------------- ------------
Balance at June 30, 2009 (unaudited) 181,976,794 $ 181,977 $ 7,074,795 (7,780,704) (523,932)
============ ============ ============== ============= ============
The accompanying notes are an integral part of
these consolidated financial statements
-5-
MACHINETALKER, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended
--------------------------------- From Inception
January 30, 2002
through
June 30, 2009 June 30, 2008 June 30, 2009
---------------- ---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (904,774) $ (2,094,107) $ (7,780,704)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 4,424 26,204 115,323
Issuance of common shares and warrants for services 166,625 4,636 727,713
Issuance of common shares in conversion of debt - - 400,000
Write off of investment value - - 74,468
Stock Compensation Cost - 8,523 69,778
Gain on sale of asset - - (1,237)
Impairment loss - 1,715,000 1,753,502
Loss on settlement of debt 567,300 - 567,300
Return on investment (1,347) - (1,347)
Disposal of asset - - 4,200
Changes in Assets and Liabilities
(Increase) Decrease in:
Inventory - (32,325) (39,598)
Prepaid Expenses 904 2,835 -
Patents 656 (656) -
Deposits and other assets 5,000 - 2,025
Increase (Decrease) in:
Accounts payable 10,687 2,783 101,733
Accrued expenses 71,567 89,329 477,380
Unearned revenue (20,000) (20,000) 18,817
---------------- ---------------- ----------------
NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES (98,958) (297,778) (3,510,647)
---------------- ---------------- ----------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment - - (73,754)
Sale of asset - - 1,963
Investment in companies 1,347 - (6,121)
---------------- ---------------- ----------------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES 1,347 - (77,912)
---------------- ---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable related party - 59,000 1,080,342
Proceeds from convertible promissory note - - 129,000
Repayment of notes payable related party - (45,000) (90,000)
Contributed capital by shareholder 6,485 - 19,197
Proceeds from subsidiary - 300,000 300,000
Proceeds from issuance of common stock 100,000 - 2,154,193
---------------- ---------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 106,485 314,000 3,592,732
---------------- ---------------- ----------------
NET INCREASE IN CASH 8,874 16,222 4,173
CASH, BEGINNING OF PERIOD 2,949 3,258 7,650
---------------- ---------------- ----------------
CASH, END OF PERIOD $ 11,823 $ 19,480 $ 11,823
================ ================ ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ - $ - $ 133,948
================ ================ ================
Income taxes $ - $ 800 $ 5,600
================ ================ ================
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS
During the six months ended June 30, 2009, the Company issued 7,950,000 shares of common stock for services
and accounts payable at a fair value of $246,125; 36,600,000 shares of common stock with a par value of
$933,300 were issued in conversion of $366,000 in debt resulting in a $567,300 loss on settlement of debt.
During the six months ended June 30, 2008, the Company expensed compensation cost of $8,523 related to the
vesting of employee stock options; issued 13,246 shares of common stock for services at a fair value of
$3,311. The Company, also recognized a loss on impairment of goodwill in the amount of $1,715,000.
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
JUNE 30, 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
six months ended June 30, 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 June 30, 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 six
months ended June 30, 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
Mirco 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
JUNE 30, 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
JUNE 30, 2009
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2009, the FASB issued SFAS No. 165, "Subsequent Events" ("SFAS
165"), which establish general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued. SFAS 165 is for interim or annual
periods ending after June 15, 2009. The adoption of SFAS 165 is not
expected to have a material effect on the Company's financial
statements.
RECLASSIFICATION OF EXPENSES
Certain expenses for the six months ended June 30, 2008 were
reclassified to conform to the expenses for the six months ended June
30, 2009.
3. CAPITAL STOCK AND WARRANTS
During the six months ended June 30, 2009, the Company issued
93,240,094 shares of common stock at a price of $0.0010725; 7,950,000
shares of common stock were issued for services and accounts payable at
a fair value of $246,125; 36,600,000 shares of common stock with a fair
value of $933,300 were issued in conversion of $366,000 in debt
resulting in the recognition of a $567,300 loss on settlement of debt.
During the six months ended June 30, 2008, the Company issued 13,246
shares of common stock for services a fair value of $3,311.
WARRANTS
During the six months ended June 30, 2009, the Company issued no
warrants. At June 30, 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 June 30, 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. RELATED PARTY TRANSACTION
During the six months ended June 30, 2009, the Company's President
forgave a note payable of $52,342 and cash contributed during the
period of $6,485 to contributed capital.
6. SUBSEQUENT EVENT
Management has evaluated subsequent events through September 24, 2009,
the date the financial statements were issued, and has determined there
are no subsequent events to be reported.
-9-
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 successfully commercialize its
technology or 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
In May 2008, the Company successfully interconnected its Talker(R)
product line to its new "GuardDog" product which uses Ultra-Wide Band ("UWB")
technology to detect any movement or motion in its vicinity. The combination of
Talkers(R) and GuardDog employs UWB radar-like signals to detect movement within
an area, either in the open space or inside of a closed chamber like that of a
shipping container. In addition, this new product can detect changes other than
movement, such as a break or hole being made in the side of a container. This
product is aimed at a unique method of protection for goods in transit or in
storage, and has been proposed as part of a package to several potential
customers.
Another recently released product, the CBM6, has been proposed for use
in monitoring the vibration in high speed rotating spindles and slower speed
rotating fans and motors in oil refineries for wireless data acquisition in
support of Condition-Based Maintenance ("CBM"). This product has been packaged
within explosion-proof housings for use in oil refineries and in less costly
polycarbonate enclosures for other harsh environments. The CBM6 has been
-10-
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 central
computer facility.
We currently do not have full time employees. We generally utilize
consultants who are technical contributors to product development with our Chief
Scientist providing 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 are negotiating with several Systems Integrators to utilize our
products in their respective fields of business. The Company does not currently
have a general product liability insurance plan in place, but plans to purchase
a new policy if and when sales of our products are made.
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, collectibility 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.
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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 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.
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RESULTS OF OPERATIONS - QUARTER ENDED JUNE 30, 2009 COMPARED TO THE QUARTER
ENDED JUNE 30, 2008
REVENUE
Total revenue increased by $4,510 or 45.10% to $14,510 for the three
months ended June 30, 2009 compared to the prior period. Total revenue increased
by $4,510 or 22.55% to $24,510 for the six months ended June 30, 2009 compared
to the prior period. This increase in revenue was a result of deferred income
and software sales.
COST OF SALES
Cost of Sales ("COS") was approximately $0 for the three months ended
June 30, 2009 and 2008, respectively. COS decreased by $21 or 100.0% to $0 for
the six months ended June 30, 2009 compared to the prior period. This decrease
in COS was a result of a decrease in raw materials and labor, and recognizing
deferred income.
SELLING AND MARKETING EXPENSES
Selling and marketing ("S&M") expenses decreased by $24,934 or 52.15%,
to $22,877 for the three months ended June 30, 2009 compared to the prior
period. S&M expenses decreased by $65,784 or 72.44%, to $25,028 for the six
months ended June 30, 2009 compared to the prior period. This decrease in S&M
expenses was the result of a decrease in salaries and travel expenses.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative ("G&A") expenses increased by $160,897 or
181.87%, to $249,367 for the three months ended June 30, 2009 compared to the
prior period. G&A expenses increased by $141,699 or 79.26%, to $320,484 for the
six months ended June 30, 2009 compared to the prior period. This increase in
G&A expenses was the result of an increase in professional fees.
RESEARCH AND DEVELOPMENT
Research and Development ("R&D") costs decreased by $40,787 or 98.70%,
to $538 for the three months ended June 30, 2009 compared to the prior period.
R&D costs decreased by $64,736 or 97.25%, to $1,830 for the six months ended
June 30, 2009 compared to the prior period. This decrease in R&D costs was the
result of a decrease in salaries and consulting fees.
NET LOSS
Net Loss decreased by $1,081,825 or 56.53% to $831,977 for the three
months ended June 30, 2009, compared to the prior period. Net Loss decreased by
$1,189,333 or 56.79% to $904,774 for the six months ended June 30, 2009,
compared to the prior period. This decrease in Net Loss resulted mainly from
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 June 30, 2009, we had a working capital deficit of $532,009 as
compared to $975,567 as of December 31, 2008. This decrease of $443,558 in the
working capital deficit was due primarily to conversion of debt for common
shares.
Cash flow used in operating activities was $(98,958) for the six months
ended June 30, 2009, as compared to cash used of $(297,778) for the prior
period. This decrease of $198,820 was primarily attributable to a decrease in
research and development, and general and administrative expenses, as well as
the write off of goodwill.
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Cash provided by investing activities was $1,347 for the six months
ended June 30, 2009, as compared to cash provided of $0 for the prior period.
The increase of cash provided by investing activities was primarily due to a
return of an investment that was previously written off.
Cash provided from financing activities during the six months ended
June 30, 2009 was $106,485 as compared to cash provided of $314,000 for the
prior period. The decrease of $207,515 was due to less funding received from an
officer and subsidiary.
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 June 30, 2009. 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 June 30, 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 June 30, 2009 that materially affected or are
reasonably likely to materially affect the Company's internal control over
financial reporting.
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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.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
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
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.
MACHINETALKER, INC.
Dated: September 24, 2009 By: /s/Roland F. Bryan
--------------------------------------------
Roland F. Bryan, Chairman of the Board and
Chief Executive Officer (Principal Executive
Officer)
Dated: September 24, 2009 By: /s/Roland F. Bryan
--------------------------------------------
Roland F. Bryan, Chief Financial Officer
(Principal Financial Officer)
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