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 September 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 November 20,
2009 was 181,976,794.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 2
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements 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 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 14
ITEM 4T. CONTROLS AND PROCEDURES 14
PART II - OTHER INFORMATION
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.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, 2009 December 31, 2008
-------------------- --------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 11,183 $ 2,949
Inventory 39,598 39,598
Prepaid insurance - 904
-------------------- --------------------
TOTAL CURRENT ASSETS 50,781 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 (65,211) (58,575)
-------------------- --------------------
NET PROPERTY AND EQUIPMENT 2,890 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 $ 56,646 $ 61,608
==================== ====================
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 41,711 $ 91,046
Accrued expenses 384,584 294,585
Accrued interest, other 15,275 9,445
Accrued interest, related parties 109,551 101,783
Unearned revenues 8,817 38,817
Convertible promissory note 65,000 65,000
Notes payable, related parties 19,000 418,342
-------------------- --------------------
TOTAL CURRENT LIABILITIES 643,938 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 (7,844,064) (6,875,930)
-------------------- --------------------
TOTAL SHAREHOLDERS' DEFICIT (587,292) (957,410)
-------------------- --------------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 56,646 $ 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)
From Inception
For the Three Months Ended For the Nine Months Ended January 30,2002
--------------------------------- --------------------------------- through
September 30, September 30, September 30, September 30, September 30,
2009 2008 2009 2008 2009
---------------- ---------------- ---------------- ---------------- ----------------
REVENUE $ 10,000 $ 10,000 $ 34,510 $ 30,000 $ 1,118,589
COST OF SERVICES - 65 - 86 454,570
---------------- ---------------- ---------------- ---------------- ----------------
GROSS PROFIT 10,000 9,935 34,510 29,914 664,019
---------------- ---------------- ---------------- ---------------- ----------------
OPERATING EXPENSES
Selling and marketing expenses 49 19,491 25,077 110,302 1,280,130
General and administrative expenses 69,069 67,433 389,553 246,219 2,949,783
Stock compensation expense - 4,352 - 12,875 69,778
Research and development - 24,338 1,830 90,904 1,441,695
Impairment loss - - - 1,715,000 1,753,502
Depreciation and amortization expense 2,212 4,774 6,636 30,978 117,535
---------------- ---------------- ---------------- ---------------- ----------------
TOTAL OPERATING EXPENSES 71,330 120,388 423,096 2,206,278 7,612,423
---------------- ---------------- ---------------- ---------------- ----------------
LOSS FROM OPERATIONS (61,330) (110,453) (388,586) (2,176,364) (6,948,404)
---------------- ---------------- ---------------- ---------------- ----------------
OTHER INCOME/(EXPENSES) BEFORE PROVISION
FOR INCOME TAXES
Interest income 1 3 3 9 10,254
Interest expense (2,031) (14,585) (13,598) (41,987) (258,775)
Penalties - - - - (155)
Gain/(loss) on investment - - 1,347 - (73,121)
Loss on settlement of debt - - (567,300) - (567,300)
Gain/(loss) on sale of asset - - - - (963)
---------------- ---------------- ---------------- ---------------- ----------------
TOTAL OTHER INCOME/(EXPENSES) (2,030) (14,582) (579,548) (41,978) (890,060)
---------------- ---------------- ---------------- ---------------- ----------------
LOSS BEFORE PROVISION FOR INCOME TAXES (63,360) (125,035) (968,134) (2,218,342) (7,838,464)
PROVISION FOR INCOME TAXES - (118) - (918) (5,600)
---------------- ---------------- ---------------- ---------------- ----------------
NET (LOSS) $ (63,360) $ (125,153) $ (968,134) $ (2,219,260) $ (7,844,064)
================ ================ ================ ================ ================
BASIC AND DILUTED LOSS PER SHARE $ (0.00) $ (0.00) $ (0.01) $ (0.05)
================ ================ ================ ================
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED 181,976,794 43,834,888 118,999,645 43,772,888
================ ================ ================ ================
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 NINE MONTHS ENDED SEPTEMBER 30, 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)
Issuance of common stock in April 2009 (unaudited)
(6,200,000 shares at $0.0325 per share issued for
services and accounts payable) 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 and accounts payable) 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 nine months ended September 30, 2009
(unaudited) - - - (968,134) (968,134)
------------ ------------ -------------- ------------- ------------
Balance at September 30, 2009 (unaudited) 181,976,794 $ 181,977 $ 7,074,795 $ (7,844,064) $ (587,292)
============ ============ ============== ============= ============
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 Nine Months Ended From Inception
---------------------------------- January 30, 2002
through
September 30, September 30, September 30,
2009 2008 2009
---------------- ----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (968,134) $ (2,219,260) $ (7,844,064)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 6,636 30,978 117,535
Issuance of common shares and warrants for services 166,625 30,469 727,713
Issuance of common shares in conversion of debt - - 400,000
(Gain)/Loss on investment (1,347) - 73,121
Stock compensation expense - 12,875 69,778
(Gain)/Loss on sale of asset - - 963
Impairment loss - 1,715,000 1,753,502
Loss on settlement of debt 567,300 - 567,300
Changes in Assets and Liabilities
Increase) Decrease in:
Inventory - (32,325) (39,598)
Prepaid Expenses 904 3,547 -
Patents 656 (656) -
Deposits and other assets 5,000 - 2,025
Increase (Decrease) in:
Accounts payable 30,165 18,314 121,211
Accrued expenses 103,597 137,155 509,410
Customer deposits - 12,000 -
Unearned revenue (30,000) (30,000) 8,817
---------------- ----------------- -----------------
NET CASH USED IN OPERATING ACTIVITIES (118,598) (321,903) (3,532,287)
---------------- ----------------- -----------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment - - (73,754)
Sale of asset - - 3,963
Investment in companies 1,347 - (6,121)
---------------- ----------------- -----------------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES 1,347 - (75,912)
---------------- ----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable related parties 19,000 59,000 1,099,342
Proceeds from convertible promissory note - - 129,000
Repayment of notes payable related party - (45,000) (90,000)
Contributed capital by shareholder 6,485 15,000 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 125,485 329,000 3,611,732
---------------- ----------------- -----------------
NET INCREASE IN CASH 8,234 7,097 3,533
CASH, BEGINNING OF PERIOD 2,949 3,258 7,650
---------------- ----------------- -----------------
CASH, END OF PERIOD $ 11,183 $ 10,355 $ 11,183
================ ================= =================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ - $ - $ 133,948
================ ================= =================
Income taxes $ - $ 918 $ 5,600
================ ================= =================
SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS
During the nine months ended September 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 fair 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 nine months ended September 30, 2008, the
Company expensed compensation cost of $12,875 related to the vesting of
employee stock options; issued 386,579 shares of common stock for services at
a fair value of $22,979. 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
SEPTEMBER 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 nine months
ended September 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 September 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 nine
months ended September 30, 2009, had insignificant revenues. A development
stage activity is 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.
REVENUE RECOGNITION
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,
-7-
MACHINETALKER, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
SEPTEMBER 30, 2009
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
REVENUE RECOGNITION (Continued)
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. Software license revenue is recognized over the
contract period, for those contracts that either do not contain a service
component or that have services which are not essential to the
functionality of any other element of the contract.
LOSS PER SHARE CALCULATIONS
Loss per Share 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 nine months ended
September 30, 2009 as the inclusion of any potential shares would have had
an anti-dilutive effect due to the Company generating a loss.
STOCK-BASED COMPENSATION
The Company 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 transactions are accounted for
using a fair-value-based method and recognized as expenses in our statement
of income.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2009, the FASB issued guidance under Accounting Standards
Codification ("ASC") Topic 105, "Generally Accepted Accounting Principles"
(SFAS No. 168, The FASB Accounting Standards Codification TM and the
Hierarchy of Generally Accepted Accounting Principles). This guidance
establishes the FASB ASC as the single source of authoritative U.S. GAAP
recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the SEC under authority of federal securities laws
are also sources of authoritative U.S. GAAP for SEC registrants. SFAS 168
and the ASC are effective for financial statements issued for interim and
annual periods ending after September 15, 2009. The ASC supersedes all
existing non-SEC accounting and reporting standards. All other
non-grandfathered, non-SEC accounting literature not included in the ASC
has become non-authoritative. Following SFAS 168, the FASB will no longer
issue new standards in the form of Statements, FSPs, or EITF Abstracts.
Instead, the FASB will issue Accounting Standards Updates, which will serve
only to update the ASC, provide background information about the guidance,
and provide the bases for conclusions on the change(s) in the ASC. We
adopted ASC 105 effective for our financial statements issued as of
September 30, 2009. The adoption of this guidance did not have an impact on
our financial statements but will alter the references to accounting
literature within the consolidated financial statements.
-8-
MACHINETALKER, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
SEPTEMBER 30, 2009
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS (Continued)
In August 2009, the FASB issued guidance under Accounting Standards Update
("ASU") No. 2009-05, "Measuring Liabilities at Fair Value". This guidance
clarifies how the fair value a liability should be determined. This
guidance is effective for the first reporting period after issuance. We
will adopt this guidance for our year ending December 31, 2009. We do not
expect the adoption of this guidance to have a material impact on our
financial statements.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the
current financial statement presentation.
3. CAPITAL STOCK AND WARRANTS
During the nine months ended September 30, 2009, the Company issued
93,240,094 shares of common stock for cash at a price of $0.0010725 per
share; 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 nine months ended September 30, 2008, the Company issued
386,579 shares of common stock for a fair value of $22,979 for services.
WARRANTS
During the nine months ended September 30, 2009, the Company issued no
warrants. At September 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.
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 September 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 nine months ended September 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.
During the nine months ended September 30, 2009, the Company's President
loaned the Company $7,000 for operating expenses. The note payable bears
interest at 6% per annum. The note will be paid upon demand.
During the nine months ended September 30, 2009, an investor loaned the
Company $12,000 for operating expenses. The note bears interest at 6% per
annum. The note will be paid upon demand.
-9-
MACHINETALKER, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-UNAUDITED
SEPTEMBER 30, 2009
6. SUBSEQUENT EVENT
Management has evaluated subsequent events through November 20, 2009, the
date the financial statements were issued, and has determined there are no
subsequent events to be reported.
-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
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
-11-
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, 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.
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, OEMs
do not presently have a right to return unsold products to the Company.
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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 SEPTEMBER 30, 2009 COMPARED TO THE QUARTER
ENDED SEPTEMBER 30, 2008
REVENUE
Total revenue for the three months ended September 30, 2009 and 2008,
were $10,000 and $10,000, respectively. Total revenue for the nine months ended
September 30, 2009 and 2008, were $34,510 and $30,000, respectively. The
increase in revenue was the result of software sales, and the majority of the
revenue recognized was previously deferred income.
COST OF SALES
Cost of Sales ("COS") decreased by $65 or 100.0% to $0 for the three
months ended September 30, 2009 compared to the prior period. COS decreased by
$86 or 100% for the nine months ended September 30, 2009, compared to the prior
period. This decrease in COS was a result of a decrease in raw materials and
labor related to sales transactions, and recognition of previously deferred
income.
SELLING AND MARKETING EXPENSES
Selling and marketing ("S&M") expenses decreased by $19,442 or 99.75%,
to $49 for the three months ended September 30, 2009 compared to the prior
period. S&M expenses decreased by $85,225 or 77.27%, to $25,077 for the nine
months ended September 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 $1,636 or
2.43%, to $69,069 for the three months ended September 30, 2009 compared to the
prior period. G&A expenses increased by $143,334 or 58.21%, to $389,553 for the
nine months ended September 30, 2009 compared to the prior period. This increase
in G&A expenses was the result of an increase in professional fees.
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RESEARCH AND DEVELOPMENT
Research and Development ("R&D") costs decreased by $24,338 or 100.0%,
to $0 for the three months ended September 30, 2009 compared to the prior
period. R&D costs decreased by $89,074 or 97.99%, to $1,830 for the nine months
ended September 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 $61,793 or 49.37% to $63,360 for the three months
ended September 30, 2009 compared to the prior period. Net Loss decreased by
$1,251,126 or 56.38% to $968,134 for the nine months ended September 30, 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 September 30, 2009, we had a working deficit of $593,157 as
compared to $889,580 at September 30, 2008. This decrease of $296,423 was due
primarily to conversion of debt for common shares.
Cash flow used in operating activities was $118,598 for the nine months
ended September 30, 2009, as compared to cash used of $321,903 for nine months
ended September 30, 2008. This decrease of $203,305 was primarily attributable
to a decrease in operational expenses, as well as the write off of goodwill.
Cash provided by investing activities was $1,347 for the nine months
ended September 30, 2009 as compared to cash of $0 used by investing activities
for the nine months ended September 30, 2008. The increase of cash provided by
investing activities was due to a return of an investment that was previously
written off.
Cash provided from financing activities during the nine months ended
September 30, 2009 was $125,485 as compared to cash provided of $329,000 for the
nine months ended September 30, 2008. The decrease of $203,515 was due to less
funding 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 September 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 September 30, 2009.
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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 September 30, 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
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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: November 20, 2009 By: /s/Roland F. Bryan
---------------------------------------------
Roland F. Bryan, Chairman of the Board and
Chief Executive Officer (Principal Executive
Officer)
Dated: November 20, 2009 By: /s/Roland F. Bryan
----------------------------------------
Roland F. Bryan, Chief Financial Officer
(Principal Financial Officer)
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