UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   Form 10-KSB

   [X}     ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
                         Commission File Number 0-14910

                             MPM TECHNOLOGIES, INC.
             (Exact Name of Registrant as specified in its Charter)

         WASHINGTON                                       81-0436060
         ----------                                       ----------
(State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                       Identification Number)

           222 W. MISSION AVENUE, SUITE 30, SPOKANE, WASHINGTON 99201
                    (Address of principal executive offices)

Registrant's telephone number, including area code:  509-326-3443

SECURITIES REGISTERED UNDER SECTION 12(b) OF THE EXCHANGE ACT:         None

SECURITIES REGISTERED UNDER SECTION 12(g) OF THE EXCHANGE ACT:

                        COMMON STOCK, PAR VALUE OF $0.001
                        ---------------------------------
                                 TITLE OF CLASS

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or  shorter  period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [X] No[_]

Check if there is no disclosure of delinquent  filers in resonnse to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

State issuer's revenues for the most recent fiscal year: $10,056,054

The  aggregate  market  value  of the  voting  and  non-voting  equity  held  by
non-affiliates  computed by reference to the closing price of $2.25 at which the
common equity was sold as of as of April 5, 1999 was $4,828,788.

The number of shares outstanding of the registrant's common stock as of April 5,
1999 was 2,146,128.

DOCUMENTS  INCORPORATED  BY REFERENCE The following  document is incorporated by
reference into Part IV of this report:  (1) Form 10, effective October 21, 1986,
Commission File No. 0-14910

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PART  I

Item 1.  Business

MPM   Technologies,   Inc.  ("MPM"  or  "the  Company")  has  four  wholly-owned
subsidiaries including Huntington  Environmental Systems, Inc. ("HES"),  AirPol,
Inc. ("AirPol"),  Nupower,  Inc. ("Nupower") and MPM Mining ("Mining").  For the
year  ended  December  31,  1998,  HES  and  AirPol  were  the  only  completely
operational entities.

HES and AirPol  operate in the air  pollution  control  industry.  They sell air
pollution  control systems to Fortune 500 and other large industrial  companies.
MPM continues its efforts in the development of a waste-to-energy  process known
as "Skygas".  These efforts are largely through MPM's  participation  in Nupower
Partnership in which MPM has a 58.21% interest through its ownership of Nupower.
Mining  operations  have been  discontinued  at the  direction of MPM's board of
directors, and will be sold.

HUNTINGTON ENVIRONMENTAL SYSTEMS, INC.

Effective April 1, 1997, MPM acquired  certain of the assets and assumed certain
of the liabilities of part of a division of United States Filter  Corporation in
exchange for 146,666 shares of the Company's  common stock.  The transaction was
accounted for as a purchase.  In connection with the  acquisition,  MPM formed a
wholly-owned subsidiary, HES, which assumed the assets and liabilities acquired.
HES designs, engineers, supplies, and services high temperature and chemical air
pollution control systems for Fortune 500 and other environmental and industrial
companies around the world.

HES has been in the business for over 25 years,  and has over 300  installations
worldwide.  HES's  engineering  staff is  uniquely  prepared to address the full
scope  of  customers'  process  problems.  HES's  policy  of  handling  clients'
individual  concerns  includes  in-depth  analysis and  evaluation,  followed by
complete  engineering  and  design  services  leading  to   application-specific
engineered solutions.

HES was the first  acquisition  in MPM's  revised  plans to change its focus and
direction  toward  environmental   concerns  generally,   and  pollution  issues
specifically.


AIRPOL, INC.

Effective July 1, 1998, the Company  acquired  certain of the assets and assumed
certain  of the  liabilities  of part  of a  division  of FLS  miljo,  Inc.  The
agreement  called  for the  Company  to pay  $300,000  worth of its  stock,  and
$350,000  in cash  subject  to  certain  adjustments.  The cash  portion  of the
acquisition was $234,610. The transaction was accounted for as a purchase.

AirPol,  like HES,  designs,  engineers,  supplies and  services  air  pollution
control  systems  for  Fortune  500  and  other   environmental  and  industrial
companies.  The  technologies  used by AirPol differ from those used by HES, and
the companies are in no way competitors. On certain specific applications,  they
may complement each other in that a customer may require both types of pollution
control systems.

The  technologies  of AirPol  utilize wet and dry scrubbers,  wet  electrostatic
precipitators and venturi absorbers to control air pollution. AirPol brings over
30 years experience to MPM through its technologies and employees.

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NUPOWER, INC.

The Company holds a 58.21% interest in Nupower Partnership through its ownership
of  Nupower.  No  other  operations  were  conducted  through  Nupower.  Nupower
partnership  is  engaged  in  the   development  and   commercialization   of  a
waste-to-energy  process.  This is an innovative technology for the disposal and
gasification  of carbonaceous  wastes such as municipal  solid waste,  municipal
sewage sludge,  pulp and paper mill sludge,  auto fluff,  medical waste and used
tires.  The process  converts solid and semi-solid  wastes into a  clean-burning
medium  BTU gas  that  can be used  for  steam  production  for  electric  power
generation.  The  gas  may  also  be a  useful  building  block  for  downstream
conversion into valuable  chemicals.  Nupower Partnership owns 70% of the Skygas
Venture.  MPM separately owns 15% of the venture and USF Smogless,  Milan, Italy
(a  subsidiary  of United  States  Filter  Corp.) owns the  remaining 15% of the
venture.

MPM MINING, INC.

Mining controls 32 claims on  approximately  1,000 acres in the historical Emery
Mining  District in Montana.  It also owns a 200 ton per day floatation  mill on
site. Extensive  exploration has been conducted in the area by companies such as
Exxon  Corporation,  Freeport  McMoran Gold Company and Hecla Mining  Company in
addition to the efforts of Mining.  In  accordance  with the Board of Director's
mandates in 1998,  MPM's management is actively seeking out mining companies and
other businesses to purchase its mining properties and equipment.


FACTORS MANAGEMENT USED TO IDENTIFY REPORTABLE SEGMENTS

MPM's reportable segments are business units that offer different products.  The
reportable segments are each managed separately because they design and engineer
distinct  products with  different  applications  in the air  pollution  control
field. MPM's other segments are essentially non-operational at the present time,
and,  accordingly have been aggregated for reporting purposes.  Data for segment
reporting is shown in the notes to the consolidated financial statements in Item
7.

BACKLOG

MPM has a  backlog  of orders  and work in  progress  aggregating  approximately
$16,400,000 at December 31, 1998. This is comprised of approximately $11,000,000
at AirPol and approximately $5,400,000 at HES. It is anticipated that operations
will consume these  backorders  throughout the year at AirPol,  and in the first
two quarters of 1999 at HES.  There is currently no other  backlog of orders for
any of MPM's other businesses.


WASTE-TO-ENERGY

MPM's  waste-to-energy  process  consists of an innovative  technology  known as
"Skygas".  MPM is negotiating with interested  entities to work with in building
Skygas units. Negotiations are ongoing, and MPM management is hopeful that there
will be some type of formal  agreement  in place  during the  second  quarter of
1999,  and that  construction  of a unit can begin  before  the end of the year.
Additionally,  USF Smogless is in negotiations with other interested  parties in
Europe to build Skygas units. MPM expects these  negotiations to be completed in
the  second  quarter  as  well.  There  can be no  assurances  that  MPM will be
successful in its negotiations.

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COMPETITIVE CONDITIONS

Both HES and AirPol operate in extremely competitive  environments.  There are a
number of potential  competitors  for every job the companies bid on. The number
of bidders  ranges from two or three to as many as seven or eight  depending  on
the potential customer and the work to be performed.  The parts and service side
of the  business  tends to be  somewhat  less  competitive  since  the parts and
service  work are  generally  for units that have  previously  been sold  and/or
installed by the companies.

There are a significant number of persons and companies  developing or that have
developed any number of waste-to-energy systems. Management of MPM believes that
its development of Skygas as a non-polluting  and energy  efficient  system will
give it the necessary competitive edge in this area.

Due to the large number of persons and companies  engaged in exploration for and
production of  mineralized  material,  there is a great degree of competition in
the mining part of the business. Since management has decided to sell its mining
holdings and equipment, it will no longer need to compete in this area.


SEASONAL VARIATIONS

The  impact  of  seasonal  changes  is  minimal  on the  air  pollution  control
businesses of HES and AirPol.  There may be some limitations on the installation
of the air pollution control units when the weather is more severe in the winter
months in those areas of the world where the weather is significantly  colder in
that season.  There have been,  however,  no  discernible  variations to date to
indicate that the business is subject to seasonal variations.

There are  currently no seasonal  influences on the ongoing  development  of the
Skygas  process.  It is also  not  expected  that  there  will  be any  seasonal
variations when the Skygas units are produced.


EMPLOYEES

At December 31, 1998, MPM employed  twenty-one  full-time  employees at HES, and
nineteen full-time  employees at AirPol. MPM believe that its relations with its
employees are good.


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<PAGE>

Item 2.  Properties

HES presently owns no property related to its air pollution control business. It
leases its office space under a lease  expiring in  September  of 2003,  with an
option for an  additional  five years.  AirPol  leases its office  space under a
lease  on  a   month-to-month   basis.  MPM  has  no  property  related  to  its
waste-to-energy  operations.  MPM  believes  that its  existing  facilities  are
adequate for the current level of operations.

The  principal  properties  of MPM's mining  interests  consist of the following
claims under control:

         Owned by MPM:
               Eight Patented Claims
               Sixteen Unpatented Claims


         Leased by MPM:
                Eight Patented Claims

These  claims  amount  to  approximately  1,000  acres of land in  Montana.  MPM
controls  eighteen former mine sites that have been inactive since 1930. Each of
these has old adits, tunnels and dump piles of known mineralized  material.  All
testing and metallurgical  work has been completed.  Management has directed MPM
to sell these interests as previously discussed.


Item 3.  Legal Proceedings

MPM's management knows of no litigation present, threatened, or contemplated, or
unsatisfied judgments against MPM or its subsidiaries, officers or directors, or
any proceedings in which MPM or its  subsidiaries or officers or directors are a
party.


Item 4.  Submission of Matters to a Vote of Security Holders

MPM  mailed to  shareholders  of record as of  December  21,  1998,  a Notice of
Special Meeting of Shareholders and Proxy Statement.  Shareholders were asked to
consider  and vote upon the  issuance of shares of MPM's $0.001 par value common
stock in exchange  for and upon the  conversion  of shares of MPM's  outstanding
Series A Convertible  Preferred Stock. At the Special  Shareholder's  Meeting on
January 25, 1999, the result of the vote was as follows:

Item #1:  Issuance of shares in exchange  for and upon  conversion  of Shares of
MPM's outstanding Series A Convertible Preferred Stock.

For            Against        Abstain
---            -------        -------

1,466,186      24,790         6,174

The total voted shares were  1,497,150  which  represented  70.04% of the common
stock  outstanding.  On the record date December 21, 1998,  there were 2,137,428
shares outstanding.

5

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PART II

Item 5.  Market for the Registrant's Common Equity and Related Stockholder
         Matters

a)  Market Information

MPM's common stock trades on The Nasdaq  SmallCap  Market under the symbol MPML.
The following table shows quarterly high and low bid prices for 1997 and 1998 as
reported by the National  Quotations Bureau  Incorporated.  These prices reflect
interdealer  quotations  without  adjustments  for retail  markup,  markdown  or
commission and do not  necessarily  represent  actual  transactions.  All prices
reflect 1 for 9 reverse stock split effective June 18,1998.

                      High Bid    Low Bid
                      --------    -------
1998
----
First Quarter         $10.69      $4.78
Second Quarter          7.87       3.43
Third Quarter           4.25       0.87
Fourth Quarter          4.37       1.37

1997
----
First Quarter           4.50       2.25
Second Quarter         11.25       3.42
Third Quarter           8.37       5.04
Fourth Quarter          7.92       4.50

b)  Holders

As of April 5, 1998,  there were  approximately  2,300  holders of record of the
Registrant's common stock.

c)  Dividends

MPM has not paid  dividends  in the past.  It is not  anticipated  that MPM will
distribute dividends for the foreseeable future. Earnings of MPM are expected to
be retained to enhance the its capital and expand its operations.

d)  Recent Sales of Unregistered Securities

During 1998, MPM entered into the following  transactions  involving  securities
not registered under the Securities Act:

1.  5,556 shares of common stock valued at $21,827 were issued in exchange for
    services.
2.  96,884 shares of common stock valued at $300,000 were issued in connection
    with the acquisition of AirPol.
3.  234,575 share of common stock were issued in exchange for property valued at
    $93,000 and the retirement of debt of $285,000.
4.  8,700 shares of common stock valued at $14,703 were issued to employees.
5.  Options to purchase 146,613 shares of common stock at a share price of $0.88
    were issued to employees and directors.

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<PAGE>

During 1997, the following transactions involved unregistered securities:

1.  82,181 shares of common stock were issued upon the conversion of $164,098 of
    convertible debt.

2.  146,666 shares of common stock were issued in connection with the
    acquisition of HES.

3.  2,333 shares of common stock valued at $9,408 were issued to employees.

During 1998 MPM entered into an  agreement  to obtain $1.2  million  through the
issuance of 1,200 shares of its preferred  stock.  As of December 31, 1998,  MPM
had  received  deposits  of  $760,250  and had  incurred  costs of  $144,000  in
connection with this offering.  Subsequent to year end, MPM received  additional
funds of  approximately  $440,000 and incurred costs of  approximately  $81,000.
Prior to the issuance of the preferred  shares,  MPM rescinded the agreement and
will refund the monies advanced.

Item 6. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

a)  Results of Operations

MPM acquired  certain of the assets and assumed  certain of the liabilities of a
part of a division of FLS miljo,  Inc. as of July 1, 1998.  MPM formed AirPol to
run this air  pollution  control  business.  As of April 1, 1997,  MPM  acquired
certain of the assets and assumed  certain of the  liabilities of a portion of a
division of United States Filter Corporation, and formed HES to operate this air
pollution  control  business.  The  results  of  operations  for the year  ended
December 31, 1998 include the  operations of AirPol for the six months from July
1, 1998  through  December 31, 1998,  and the  operations  of HES for the entire
year. The results of operations for the year ended December 31, 1997 include the
operations  of HES for the nine months from April 1, 1997  through  December 31,
1997.

The  acquisition  of HES  changed  MPM from a  development  stage  company to an
operating  company.  Prior  to that  acquisition,  there  had  been no  revenues
reported since 1994.  Accordingly,  revenues  increased to $6,076,936 in 1997. A
full year of operations from HES and the acquisition of AirPol in 1998 increased
revenues to $10,056,054 for the year ended December 31, 1998.

For 1998, MPM included all assets  related to its mining and related  properties
as being held for sale pursuant to the directive of the Board of Directors  that
the properties  should be sold.  Losses from mining and related  activities have
been  included as  discontinued  operations  in the  consolidated  statements of
operations in the financial  statements.  For more  information  regarding these
matters, see the financial statements included as Item 8 in this filing.

Since  the  acquisition  of  HES,  management  has  strategically   pursued  the
consolidation  of its operations,  and effected a reduction in both its overhead
and operating  costs.  At the same time,  HES has increased its efforts in sales
and  marketing.  Steps to improve  market share included the creation of the new
position of Vice President of Sales and  Marketing.  This position was filled in
late 1997 with a highly  experienced  individual.  In November  1998,  HES added
another sales person, and was in the process of hiring another sales person when
this document was being prepared.  Other steps to improve market  awareness have
included  preparation  of new product  literature,  presentations  of  technical
papers and continued  participation  and attendance at strategic  industry trade
shows.

Management of HES believes  that it has the resources in place to  significantly
increase its top line results, with

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a corresponding improvement on the bottom line. Requests for quotations continue
at strong  levels  both for firm  quotations  and for  budget  quotations.  Firm
quotations  are  requests to quote on projects  that the  customer is  currently
planning  to  implement.  Budget  quotations  are for  customers  who are in the
process of doing their capital  budgeting,  and may be planning to include a HES
unit, upgrade or service.  Quotations for repeat customers are high for both new
and   replacement   equipment.   Quotations  for  new  projects  abroad  include
installations in Canada,  the United Kingdom,  Australia and India. HES has also
developed  its first  two-chamber  unit which was recently  started.  Management
believes that two chamber  units will  comprise an increasing  percentage of the
total volatile organic compound (VOC) control market in the upcoming years.

HES is anticipating  improvements in all areas in 1999.  Management's goal is to
produce  $1,000,000 in orders each month. Sales for all of 1999 are projected to
exceed  $10,000,000.  This would be a 60% increase over the sales in 1998. These
projections  are  based  in  part  on  the  year-end  backlog  of  approximately
$5,400,000 which will be realized in the first two quarters of 1999, meeting its
goal in March 1999, and on the activity levels currently being experienced.  The
increased activity is attributed to the additional personnel,  and other efforts
by HES to increase its market share.

AirPol's  performance  since  its  acquisition  by MPM on July 1,  1998  has far
exceeded management's expectations.  Some major sales activity toward the end of
the year  resulted in a backlog of  approximately  $11,000,000,  the majority of
which will be realized during 1999.  With the backlog in existence,  and new and
anticipated  orders,   AirPol  is  projected  to  have  revenues  in  excess  of
$16,000,000  for 1999.  This would be an increase of 319% over the period  ended
December 31, 1998 which  included  only six months of  operations  of AirPol for
that period.

AirPol's performance can be attributed to its strong management and enthusiastic
work force.  It is  management's  opinion  that  AirPol's  results  prior to the
acquisition  were  hindered  because  of the  structure  of the large  corporate
environment,  and an inability to react to the  marketplace  in a timely manner.
Management at AirPol has made the necessary  adjustments to properly position it
to best serve its markets which is reflected in the strong sales numbers.

At December 31, 1998, MPM had deferred tax assets of  approximately  $1,700,000,
and has provided a valuation  allowance in an equal amount since, in the opinion
of management,  it cannot be determined that it is more likely than not that MPM
will realize the benefits of the assets.

1998 COMPARED TO 1997

Revenues increased $3,979,118,  or 65.5%, from $6,076,936 in 1997 to $10,056,054
in 1998. This was due to the acquisition of AirPol  effective July 1, 1998 which
accounted for $3,822,691 of the increased revenues. The net loss from continuing
operations  for 1998 was $699,322,  or $0.36 per share,  compared to a loss from
continuing  operations of $341,467, or $0.19 per share for 1997. This was due to
a  larger  than  expected  loss  at  HES  which  was  caused  primarily  by  the
postponement  of two large  jobs in the fourth  quarter of 1998,  and lower than
expected  activity in the first quarter of 1998.  MPM had  significantly  higher
expenses in 1998 than 1997 due primarily to  professional  fees  associated with
the  reverse 1 for 9 stock  split,  the  acquisition  of  AirPol,  and  expenses
associated with MPM's proposed offering of convertible preferred stock.

Losses from discontinued  operations were $435,681, or $0.22 per share, for 1998
compared to $32,990,  or $0.02 per share, for 1997. The discontinued  operations
were  MPM's  mining  operations.  The  increased  losses  in 1998  were due to a
$400,000 write down of MPM's mining properties to reflect management's  estimate
of the net  realizable  value.  Management is actively  attempting to sell MPM's
mineral  properties.  Net  loss for 1998 was  $1,135,003,  or $0.58  per  share,
compared to $374,457, or $0.21 per share in 1997.

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Gross margin in 1998 increased 92% to $2,186,102  from  $1,137,774 in 1997. This
was due primarily to the acquisition of AirPol on July 1, 1998. AirPol accounted
for $891,866 of the increased gross margin.  The balance of the increase was due
to improved margins at HES which are the result of improving  market  conditions
and management's efforts at job cost controls.

Selling,  general and administrative  expenses increased $1,450,043,  or 102.1%,
from  $1,419,803 in 1997 to  $2,869,846  in 1998. Of this amount,  approximately
$683,000 was due to expenses  incurred at AirPol following its acquisition.  The
balance of the increases  were due to there being a full year of HES expenses in
1998 compared to nine months in 1997,  and increased  expenses at MPM related to
its  acquisitions,  expenses  of its  reverse  stock  split and other  corporate
activities.

LIQUIDITY AND CAPITAL RESOURCES

During 1998,  funds for operations  were provided  principally by cash generated
subsequent  to  the   acquisitions  of  HES  and  AirPol  and  their  continuing
operations.  Current cash reserves and  continuing  operations of HES and AirPol
are believed to be adequate to fund MPM's and its  subsidiaries  operations  for
the foreseeable  future. MPM will also consider  alternative  sources of capital
such as private  placements,  stock  offerings and loans from  shareholders  and
officers to fund its current  business and expand in other related areas through
more acquisitions.

Following is a summary from MPM's consolidated statements of cash flows:

                                                             Year ended
                                                            December 31,
                                                            ------------
                                                        1998            1997
                                                        ----            ----

         Net cash provided by operating activities   $ 784,491       $1,945,738

         Net cash used in investing activities        (428,640)         (51,941)

         Net cash provided by financing activities     268,123           76,233

         Net increase in cash and cash equivalents     623,974        1,970,030


The net cash  provided  by  operating  activities  in 1998 of  $784,491  was due
primarily to increases in billings in excess of costs and estimated  earnings on
contracts in progress.  For 1997, the net cash provided by operating  activities
of $1,945,738 was due to collections of accounts receivable, reductions in costs
in excess of estimated earnings on contracts in progress,  and also to increases
in billings in excess of costs and estimated earnings on contracts in progress.

The net cash used in investing  activities of $428,640 in 1998 was due primarily
to the  acquisition  of AirPol and to purchases of property and  equipment.  For
1997,  the net cash used in investing  activities of $51,941 was entirely due to
additions of property and equipment.

In 1998,  the net cash provided by financing  activities was due to the $760,250
received from a preferred  stock  subscription  which was partly offset offering
costs related to the preferred stock subscription, by repayments of debt and the
repurchase  of MPM's  common  stock.  MPM  completed  its  private  offering  of
preferred stock in early 1999. Net proceeds  raised were $975,000.  Prior to the
issuance of the  preferred  shares,  the  agreement  was  rescinded and MPM will
refund  the  monies  advanced.  MPM  eliminated  its bank debt in 1998,  and was
contemplating  the filing of a  registration  statement in  connection  with the
registration of stock and  convertible  preferred stock at the end of 1998. This
filing has been postponed indefinitely.

Management  believes its present  sources of working  capital are sufficient for
both its short and long-term purposes.

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IMPACT OF YEAR 2000

The Year 2000 Issue is the result of computer  programs  being written using two
digits rather than to define the applicable year. Any of MPM's computer programs
or hardware that have date-sensitive  software or embedded chips may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations.

Based on  recent  assessments,  MPM  management  has  determined  that its basic
computer systems are year 2000 compliant, and will properly utilize dates beyond
December 31, 1999. MPM has also identified other areas where minor modifications
will be  required  for some of its less  critical  software to make it year 2000
compliant,  and has  taken  steps to make  sure  that  these  modifications  are
completed in a timely  manner.  Accordingly,  management  believes that the Year
2000 Issue will not have a material impact on its operations.

MPM is also making  inquiries of its major suppliers to determine their systems'
compliance  with  the  year  2000  issue.  Management  has  determined  based on
responses  received to date that the majority of its suppliers are in compliance
with year 2000 issues. Accordingly, the effect of a third party's non-compliance
is not expected to have a material impact on the financial condition of MPM.

During  1998,  MPM  expended  approximately  $4,000  on  issues  related  to its
compliance with the year 2000 issues.  MPM expects to spend an additional $2,000
in 1999 to ensure that its systems are Year 2000  compliant to avoid  disruption
of its operations and financial condition.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  ("SFAS") No. 133,  "Accounting  for Derivative
Instruments  and  Hedging  Activities,"  which is  required to be adopted in all
fiscal  quarters of fiscal years  beginning  after June 15, 1999.  The Statement
requires  companies to recognize  all  derivative  contracts as either assets or
liabilities  in the balance sheet and to measure them at fair value.  If certain
conditions are met, a derivative may be specifically  designated as a hedge, the
objective  of which is to match the  timing of gain or loss  recognition  on the
hedging  derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are  attributable  to the hedged risk or (ii)
the earnings effect of the hedged forecasted  transaction.  For a derivative not
designated as a hedging instrument,  the gain or loss is recognized as income in
the  period of  change.  Based on its  current  and  planned  future  activities
relative  to  derivative  instruments,  MPM  believes  that the  adoption of the
Statement on January 1, 2000 will not have a significant effect on its financial
statements.

In June 1998,  the  Accounting  Standards  Executive  Committee  of the American
Institute of Certified  Public  Accountants  issued  Statement of Position  98-5
("SOP 98-5"), "Reporting on the Costs of Start-Up Activities". SOP 98-5 requires
all  start-up  and  organizational  costs to be  expensed as  incurred.  It also
requires all remaining historically  capitalized amounts of these costs existing
at the date of adoption to be expensed and reported as the cumulative  effect of
a change in  accounting  principle.  SOP 98-5 is effective  for all fiscal years
beginning  after  December 31, 1998.  MPM believes that the adoption of SOP 98-5
will not have a significant effect on its financial statements.

10

<PAGE>

In February 1999, the Financial  Accounting Standards Board issued SFAS No. 135,
"Rescission  of  Financial  Accounting  Standards  Board  No.  75 and  Technical
Corrections".  SFAS  No.  135  rescinds  SFAS No.  75 and  amends  Statement  of
Financial  Accounting  Standards  Board No. 35. SFAS No. 135 also  amends  other
existing authoritative literature to make various technical corrections, clarify
meanings,  or describe  applicability under changed conditions.  SFAS No. 135 is
effective for financial statements issued for fiscal years ending after February
15,  1999.  MPM  believes  that the  adoption  of SFAS  No.  135 will not have a
significant effect on its financial statements.

IMPACT OF INFLATION

Although  inflation  has  slowed  in recent  years,  it is still a factor in our
economy and MPM  continually  seeks ways to mitigate  its impact.  To the extent
permitted  by  competition,  HES and  AirPol  pass  increased  costs on to their
customers by increasing prices over time.  Management  estimates that the impact
of inflation on the revenues for 1998 was negligible.

Since MPM did not  engage  in any  mining  operations,  sales of metals or metal
bearing ores, and was in the development stage of the  waste-to-energy  process,
inflation did not materially impact the financial  performance of those segments
of the MPM's business. Management estimates that the operations of MPM were only
nominally impacted by inflation.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Forward-looking   statements  in  this  report,  including  without  limitation,
statements  relating  to  MPM's  plans,  strategies,  objectives,  expectations,
intentions  and  adequacy  of  resources,  are made  pursuant to the safe harbor
provisions of the Private Securities Reform Act of 1995. Investors are cautioned
that such forward-looking  statements involve risks and uncertainties  including
without  limitation  the  following:  (i) MPM's loans,  strategies,  objectives,
expectations  and intentions are subject to change at any time at the discretion
of MPM's management; (ii) MPM's plans and results of operations will be affected
by its  ability to manage its growth  and (iii)  other  risks and  uncertainties
indicated  from time to time in MPM's filings with the  Securities  and Exchange
Commission.

Item 7.  Financial Statements

The financial statements follow on the next page.

11

<PAGE>

Item  8.  Changes  in and  disagreements  with  accountants  on  Accounting  and
          Financial Disclosure.

In December 1998,  MPM announced the  resignation  of its  independent  auditor,
Terrence J. Dunne,  C.P.A.  On February 1, 1999,  MPM filed on Form 8-K that Mr.
Dunne's decision to resign was mutually agreeable between the Registrant and Mr.
Dunne.  During  the two most  recent  fiscal  years and the  subsequent  interim
period,  there were no disagreements  with Mr. Dunne on any matter of accounting
principles or practices,  financial statement  disclosure,  or auditing scope or
procedure,  or any reportable events.  MPM engaged the firm of BDO Seidman,  LLP
effective  December  31,  1998.  During  the two most  recent  fiscal  years and
subsequent interim period prior to their  appointment,  MPM did not consult with
BDO Seidman  regarding the  application  of accounting  principles,  the type of
opinion BDO Seidman might render or on any other accounting matter.

                                    PART III

Item 9. Directors and Executive Officers of the Registrant

a)  Identification of Directors
                                                     FIRST ELECTED
     NAME                  AGE     POSITION          DIRECTOR
------------------------------------------------------------------
Charles A. Romberg         50       Director         4/25/1985
Richard E. Appleby         59       Director         4/25/1985
Myron Katz                 68       Director         4/25/1985
Daniel D. Smozanek         73       Director         4/25/1985
L. Craig Cary Smith        49       Director         4/25/1985
Michael J. Luciano         45       Director         2/16/1998
Anthony L. Lee             63       Director         2/16/1998
Glen Hjort                 46       Director         2/16/1998

The directors will serve until the next meeting of  shareholders  or until their
successors are elected and qualified.

b)  Identification of Executive Officers.

    NAME                   AGE     POSITION               OFFICER SINCE 
-----------------------------------------------------------------------
Charles A. Romberg         50      President              4/25/1985
Michael J. Luciano         45      Senior Vice President  2/16/1998
Richard E. Appleby         59      Vice President         4/25/1985
Myron Katz                 68      Vice President         4/25/1985
Daniel D. Smozanek         73      Treasurer              4/25/1985
Robert D. Little           49      Secretary              1/03/1991

The officers  will serve until the next meeting of  shareholders  or until their
successors are elected and qualified.

c)   Identification of Certain Significant Employees.

As of December 31, 1998,  MPM was  dependent  upon the services of its principal
officers and directors.  In the event that one of these persons should leave the
Company,  there  is  no  assurance  that  the  Company  can  employ  a  suitable
replacement.

12

<PAGE>

d)  Family Relations

MICHAEL J. LUCIANO,  Senior Vice President and Director is the nephew of Richard
E.  Appleby,   Vice   President   and  Director.   There  are  no  other  family
relationships,  whether by blood, marriage, or adoption,  between any executives
and/or directors.

e)  Business Experience

Background

CHARLES A. ROMBERG is President and a Director of MPM. Mr. Romberg is a graduate
of Linfield  College where he received a Bachelor of Science Degree in Economics
and Business  Administration.  He was elected President of MPM Technologies Inc.
in 1990. Mr. Romberg has been the President of Andre-Romberg Insurance Brokerage
since 1980. Over the past 20 years, Mr. Romberg has worked with numerous clients
restructuring existing businesses and organizing and launching new ventures. Mr.
Romberg resides in Spokane, Washington.

MICHAEL J. LUCIANO is Senior Vice  President and a Director of MPM. Mr.  Luciano
was a co-owner of Morris County Sanitation  Services,  Inc. in East Hanover, New
Jersey  where  he was  responsible  for  acquisitions,  governmental  regulatory
permitting and compliance.  He is also the owner of MJL & Associates involved in
consulting  services   specializing  in  solid  waste  facilities,   permitting,
construction and operations. Mr. Luciano resides in Mt. Arlington, New Jersey.

RICHARD E. APPLEBY is Vice President and a Director of the Company.  He attended
postgraduate  courses at Rutgers in  Landscape  Design,  Landscape  Maintenance,
Landscape Construction and Pesticide Application. From 1957 to 1973, Mr. Appleby
was  Superintendent  and Manager of A-L  Services and for Farm  Harvesting  Co.,
constructing all types of site development and landscape  construction projects.
From 1973 to 1980,  he was Vice  President of A-L  Services and since 1980,  has
been President of that company. Mr. Appleby resides in Mendham, New Jersey.

MYRON KATZ is Vice  President  and a Director of the  Company.  He received  his
Bachelor of Science Degree in Merchandising from Fairleigh Dickinson  University
in 1952 and  graduated  from Lewis  Hotel  School in 1953.  Mr. Katz has over 30
years  diversified  administrative  and  managerial  experience.  He is the past
President  of Central  Credit  Clearing  Bureau in Newark and East  Orange,  New
Jersey. Mr. Katz is currently a private consultant facilitating various business
ventures. Mr. Katz resides in Lake Hopatcong, New Jersey.

DANIEL D.  SMOZANEK is  Treasurer  and a Director of the  Company.  From 1947 to
1972,  Mr.  Smozanek  was owner and  President  of Spring  House Tree Service in
Summit,  New  Jersey.  He has been  involved in  extensive  real estate and land
development  in New Jersey,  Montana and  Florida.  From 1972 to 1980,  he was a
partner in land  development and real estate sales in the Eureka,  Montana area.
During  this  time,  he was also a partner in the  exploration  of 29 silver and
copper mining claims in the Flathead  National  Forest.  Mr. Smozanek resides in
Port St. Lucie, Florida.

ROBERT D.  LITTLE is  Secretary  of the  Company.  He is a  graduate  of Central
Washington  University  with a Bachelor  of Arts Degree in  Sociology;  graduate
studies at the  University of  Washington in Education and he completed  Teacher
Certification at Seattle  University.  From 1975 to 1985, he was the founder and
Director of Education of the Meridian School in Seattle,  Washington.  From 1985
to the  present,  Mr.  Little  as been  Operations  Manager  for MPM and  became
Secretary of MPM in 1991.  Mr. Little has been the owner of R.D.  Little Company
which  specializes  in assisting  small public  companies with  shareholder  and
investor  relations  from 1985 to the present.  Mr.  Little  resides in Spokane,
Washington.

13

<PAGE>

L. CRAIG CARY SMITH is a Director.  Mr. Smith  graduated from Gonzaga Law School
in 1981 and was admitted to the Washington  State Bar that same year.  From 1981
to the present,  Mr.  Smith has been a partner in general  practice at Smith and
Hemingway in Spokane, Washington. Mr. Smith resides in Spokane, Washington.

ANTHONY L. LEE is a Director,  having been elected in 1998.  Mr. Lee is Managing
Director,  Gas  Processing  Technology at the Institute of Gas Technology in Des
Plaines,  Illinois.  He manages projects on hydrogenation  and  dehydrogenation,
reforming hydrodesulfurization,  hydrocracking, membrane technology, dehydration
and acid gas  removal.  He holds  eleven  patents and has  published  sixty-four
articles within his scope of expertise. Mr. Lee resides in Glen Ellyn, Illinois.

GLEN HJORT is a Director,  having been elected in 1998.  Mr. Hjort is a graduate
of the University of Illinois, and is a certified public accountant. He has over
twenty years experience  providing  services to numerous  corporate clients in a
wide variety of industries.  He is a past Chief  Financial  Officer for a public
company  where  he  had  responsibility   for  all  accounting,   personnel  and
administrative  functions,  and for SEC  reporting.  Mr.  Hjort  resides  in Mt.
Prospect, Illinois.

(2)  Directorships

None of the  directors  of the Company are  directors  of other  companies  with
securities  registered  pursuant to section 12 of the Exchange Act or subject to
the  requirements of section 15(d) of such act or any company  registered  under
the Investment Company Act of 1940.

f)   Involvement in Certain Legal Proceedings.

     Not Applicable

g)   Promoter and Control Persons.

     Not Applicable


Item 10.  Executive Compensation

The following  table shows the  remuneration of officers and directors in excess
of $100,000 in 1998 and 1997.

<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
                                                   Annual Compensation
Name and
Principal
Position     Year Salary  Bonus(s)  Compensation  Awards(s) ($)SARs($)Payout(s)($) Compensation
----------------------------------------------------------------------------------------------

<S>          <C>                                  <C>
Charles A.
Romberg      1998 None                            $50,872

</TABLE>

----------

(1)  Mr. Romberg  devotes time to MPM on a part-time basis for which he received
     options to purchase 70,778 shares of MPM's common stock. The value of these
     options was  recorded  at  $50,872.  No other  persons  received  more than
     $100,000 in compensation.


15

<PAGE>

<TABLE>
<CAPTION>
Option Grants In 1998 Fiscal Year Individual Grants
---------------------------------------------------
Individual Grants
-----------------

                        % of Total                  Market Price
             Options  Options Granted   Exercise or  on Date of   Expiration
Name         Granted  in Fiscal Year    Base Price    Grant          Date
----------------------------------------------------------------------------
<S>          <C>         <C>            <C>           <C>           <C>
Charles A 
Romberg ..   70,778      48.28%$        0.87$         1.59          9/1/08

Robert D .
Little ...   20,223      13.79%$        0.87$         1.59          9/1/08

L. Craig
Smith ....   35,389      24.14%$        0.87$         1.59          9/1/08

Michael J 
Luciano ..   20,223      13.79%$        0.87$         1.59          9/1/08

Aggregated  Option/SAR  Exercises  in Last Fiscal  Year and FYE 1998  Option/SAR Values
----------  ----------  ---------  --------------  -----------------  -----------------
</TABLE>
<TABLE>
<CAPTION>
                                                           Number of
                                                           Securities           Value of
                                                           Underlying           Unexercised
                                                           Unexercised          In-TheMoney
                                                           Options/SARs         Options/SARs
                         Shares                            at FY-End (#)        at FY-End
                         Acquired on        Value          Exercisable/         Exercisable/
--------------------------------------------------------------------------------------------
Name                     Exercise         Realized ($)     Unexercisable        Unexercisable
<S>                                                         <C>                 <C>     
Charles A.
Romberg                                                     105,556             $356,252
                                                            Exercisable
Robert D.
Little                                                      47,223              $159,378
                                                            Exercisable
L. Craig Cary
Smith                                                       74,611              $251,812
                                                            Exercisable

Michael J.
Luciano                                                     20,223              $ 68,253
                                                            Exercisable
</TABLE>

a) Current Remuneration.

None of the  officers  or  directors  is  compensated  for their  services as an
officer or director.  Each is reimbursed for out-of-pocket  expenses incurred on
MPM business.

15

<PAGE>

b) Proposed Remuneration.

It is not  contemplated  that any salaries  will be paid unless,  and until such
time as, MPM may require full time commitments from any officer or director.

c) Incentive and Compensation Plans and Arrangements.

MPM has no retirement,  profit sharing, pension, or insurance plans covering its
officers and directors. No advances have been made, nor are any contemplated, by
MPM to any of its officers or directors.

The  shareholders  of MPM, at the Annual  Shareholders  Meeting on May 22, 1989,
voted to  approve a stock  option  plan for  selected  employees,  officers  and
directors of MPM. The purpose of the option plan is to promote the  interests of
MPM  and  its   stockholders  by  attracting,   retaining  and  stimulating  the
performance  of  selected  employees,  officers  and  directors  and giving such
employees the  opportunity  to acquire a proprietary  interest in MPM's business
and an increased  personal interest in this continued  success and progress.  At
the Annual Meeting of  Shareholders  held on September 14 1998 the  shareholders
approved an amendment to the stock option plan  therefore  increasing the number
of shares in the plan by 250,000.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

a) Security Ownership of Certain Beneficial Owners.

In  addition  as set  forth  in  Part b. of this  Item,  Security  Ownership  of
Management,  United  States  Filter  Corporation  owns 146,666 or 6.83% of MPM's
outstanding  shares.  Unitel  Technologies,  Inc. owns 133,333 or 6.21% of MPM's
outstanding  common stock.  No other person or group was known by the Registrant
to own more than five percent of its common stock at December 31, 1998.

b) Security Ownership of Management as of April 1, 1999.

The following table sets forth, as of April 1, 1999 the amount and percentage of
the Common Stock of MPM, which according to the information  supplied to MPM, is
beneficially  owned by  management,  including  officers  and  directors of MPM.
Except as otherwise  specified,  the persons named in the table have sole voting
power  and  investment  power  with  respect  to  all  shares  of  Common  Stock
beneficially owned by them.
<TABLE>
<CAPTION>

 Title of         Name of                            Amount and Nature of       Percent
 Class            Beneficial Owner                   Beneficial Ownership       of Class
 -----            ----------------                   --------------------       --------
<S>               <C>                                       <C>                  <C>
 Common           Charles A. Romberg                        3,557  [1]             *
 Common           Richard E. Appleby                      193,155                 9.0
 Common           Myron Katz                              133,650                 6.2
 Common           Robert D. Little                          4,361  [1]             *
 Common           Daniel D. Smozanek                      162,257                 7.6
 Common           L. Craig Cary Smith                       1,335  [1]             *
 Common           Michael J. Luciano                       10,353  [2]             *
 Common           Anthony L. Lee                            2,388                  *
 Common           Glen Hjort                                3,333                  *
 Common           As A Group                              514,389                24.0
</TABLE>

[1] Does not include options for the purchase of shares of the Company's  common
stock.  Options  available  for  exercise as of December 31, 1998 for Charles A.
Romberg,  L.  Craig Cary  Smith,  Michael J.  Luciano  and Robert D.  Little are
105,556, 74,611, 20,633 and 47,233, respectively.

16
<PAGE>

[2] Does not include  85,760 shares of MPM's  outstanding  common stock owned by
two trusts for which Mr. Luciano is the Executor.

c.)  Changes in Control.

There are no contractual  arrangements of any kind, known to MPM, which may at a
subsequent date result in a change in control of MPM.

Item 12.  Certain Relationships and Related Transactions

a.)  Transactions with Management and Others.

No  Officers or  Directors  of MPM, or nominees  for  election as  Director,  or
beneficial owners of more than five percent of MPM's voting stock, or members of
their immediate  families had any material  transactions  with MPM other than as
set forth in part b. of this item.

b.)  Certain Business Relationships.

Between  1991  and 1997 the  certain  of the  Officers  and  Directors  provided
approximately $1.9 million in contributed capital to MPM to fund operations.

At December 31, 1998 and 1997,  Richard  Appleby was owed $210,000 and $329,682,
respectively,  pursuant to unsecured demand notes. At December 31, 1997,  Daniel
Smozanek had advanced $66,117 to MPM pursuant to an unsecured demand note.

MPM has a contract  with R.D.  Little Co. to provide  shareholder  and  investor
relations services. Robert D. Little, Secretary of MPM owns R.D. Little Co.. For
the year ended December 31, 1998, MPM paid $67,841 for these services.

It is the  opinion  of  management  that the  amount  and terms for  leases  and
services from  affiliates  are  comparable to those which might be obtained from
unaffiliated parties.

Effective July 1, 1998, MPM acquired  certain of the assets and assumed  certain
of the  liabilities  of part of a division of FLS miljo,  Inc.  in exchange  for
96,884  shares of its common  stock.  In connection  with the  acquisition,  MPM
formed a  wholly-owned  subsidiary,  AirPol,  Inc.  which assumed the assets and
liabilities acquired.

Effective April 1, 1997, MPM acquired  certain of the assets and assumed certain
of the liabilities of part of a division of United States Filter  Corporation in
exchange  for  146,666  shares  of its  common  stock.  In  connection  with the
acquisition,  MPM formed a  wholly-owned  subsidiary,  Huntington  Environmental
Systems, Inc., which assumed the assets and liabilities acquired.

In December of 1996, MPM announced it had purchased Unitel Technologies,  Inc.'s
15%  interest  in the Skygas  venture for 133,333  shares of common  stock.  The
shares  have  not  been  registered  under  the  Securities  Act of 1933 and are
"restricted  securities"  as that term is defined in Rule 144 under the Act. The
shares may not be offered for sale, sold, traded or transferred  except pursuant
to an  effective  registration  statement  under  the  Act,  or  pursuant  to an
exemption from  registration  under the Act, the  availability of which is to be
established to the satisfaction of MPM.

17
<PAGE>

c)  Other Information

      None

Item 13.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(A) Exhibits and Financial Statements have been previously reported or are being
    shown as an exhibit in this Form 10-KSB.

(B) Reports on Form 8-K
    No reports on Form 8-K were filed for the quarter ended December 31, 1998.

<PAGE>


<TABLE>
<CAPTION>
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


<S>                                                                                    <C>
MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants.....................................F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997...........................F-3
Consolidated Statements of Operations for the years ended December 31, 1998
    and 1997...........................................................................F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31,
    1998 and 1997......................................................................F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1998
    and 1997 ..........................................................................F-6 to F-7
Summary of Accounting Policies.........................................................F-8 to F-12
Notes to Consolidated Financial Statements.............................................F-13 to F-24
</TABLE>

                                      F-1
<PAGE>


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors and Stockholders
MPM Technologies, Inc. and Subsidiaries


We have audited the accompanying consolidated balance sheet of MPM Technologies,
Inc.  and  Subsidiaries  as of December  31,  1998 and the related  consolidated
statements of operations,  stockholders' equity and cash flows for the year then
ended.  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the consolidated financial position of MPM Technologies,
Inc. and Subsidiaries as of December 31, 1998, and the  consolidated  results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

We also  audited  the  adjustments  described  in Note 17 which were  applied to
restate  the 1997  consolidated  financial  statements.  In our  opinion,  these
adjustments are appropriate and have been properly applied.

BDO Seidman, LLP


Spokane, Washington
April 9, 1999

                                      F-2
<PAGE>


<TABLE>
<CAPTION>
                                 MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
                                       CONSOLIDATED BALANCE SHEETS

                                                  ASSETS
                                                                                        DECEMBER 31,
                                                                                --------------------------
                                                                                   1998            1997
                                                                                -----------    -----------
                                                                                                (RESTATED)
<S>                                                                             <C>            <C>        
Current assets:
     Cash and cash equivalents (Note 1) .....................................   $ 2,634,570    $ 2,010,596
     Accounts receivable, less allowance for doubtful accounts of $90,000
        and $50,000 (Notes 1, 11 and 14) ....................................     1,630,630        756,934
     Inventories (Notes 1 and 3) ............................................       496,964        718,434
     Costs and estimated earnings in excess of billings (Notes 1 and 2) .....     1,571,833        445,205
     Other current assets ...................................................        66,999         28,814
                                                                                -----------    -----------
              Total current assets ..........................................     6,400,996      3,959,983
                                                                                -----------    -----------
Property, plant and equipment, net (Notes 1 and 4) ..........................       320,026         33,308
Mineral properties held for sale (Note 12) ..................................     1,086,346      1,410,653
Goodwill, net of accumulated amortization of  $38,027 (Note 1) ..............       722,505             --
Note receivable (Note 13) ...................................................       275,000        275,000
Purchased intangible, net of accumulated amortization of $135,000 and
     $67,500 (Note 15) ......................................................       540,000        607,500
Other assets, net ...........................................................       123,420         79,240
                                                                                -----------    -----------
                                                                                $ 9,468,293    $ 6,365,684
                                                                                ===========    ===========


                                   LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable (Note 1) ..............................................   $   821,600    $   419,625
     Accrued expenses (Note 1) ..............................................       386,869        353,251
     Billings in excess of costs and estimated earnings (Notes 1 and 2) .....     3,819,204        760,224
     Accrued expenses - related party (Note 14) .............................        63,116        185,113
     Notes payable (Note 5) .................................................         5,461        282,369
     Related party debt (Note 7) ............................................       270,000        514,765
     Current portion of long-term debt (Note 6) .............................        43,034         67,634
     Preferred stock deposit (Note 10) ......................................       760,035             --
                                                                                -----------    -----------
              Total current liabilities .....................................     6,169,319      2,582,981
                                                                                -----------    -----------
     Long-term debt, less current portion (Note 6) ..........................       561,518        583,962
     Negative goodwill, net of accumulated amortization of $165,356 and
       $70,867 (Note 1) .....................................................       779,533        874,022
                                                                                -----------    -----------
              Total liabilities .............................................     7,510,370      4,040,965
                                                                                -----------    -----------

Commitments and contingencies (Notes 8 and 12)

Stockholders' equity (Note 10):
     Common stock, $0.001 par value; 100,000,000 shares authorized;
        2,146,128 and 1,832,013 shares issued and outstanding ...............         2,146          1,832
     Additional paid-in capital .............................................     8,844,883      8,076,990
     Accumulated deficit ....................................................    (6,889,106)    (5,754,103)
                                                                                -----------    -----------
              Total stockholders' equity ....................................     1,957,923      2,324,719
                                                                                -----------    -----------
                                                                                $ 9,468,293    $ 6,365,684
                                                                                ===========    ===========

                        See accompanying summary of accounting policies and notes
                                to the consolidated financial statements.
</TABLE>

                                                   F-3
<PAGE>


<TABLE>
<CAPTION>
                                     MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
                                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                                       YEAR ENDED DECEMBER 31,
                                                                                     ----------------------------
                                                                                         1998            1997
                                                                                     ------------    ------------
                                                                                                      (RESTATED)
<S>                                                                                  <C>             <C>         
Revenues (Notes 2 and 16) ........................................................   $ 10,056,054    $  6,076,936
Cost of sales ....................................................................     (7,869,952)     (4,939,162)
                                                                                     ------------    ------------
Gross margin .....................................................................      2,186,102       1,137,774
Selling, general and administrative expenses .....................................      2,869,846       1,419,803
                                                                                     ------------    ------------
Loss from operations .............................................................       (683,744)       (282,029)
                                                                                     ------------    ------------
Other income (expense):
   Interest expense (Note 7) .....................................................       (124,394)        (96,068)
   Other income, net .............................................................        108,816          36,630
                                                                                     ------------    ------------
Net other expense ................................................................        (15,578)        (59,438)
                                                                                     ------------    ------------
Loss from continuing operations ..................................................       (699,322)       (341,467)
Discontinued operations (Note 12):
   Loss from operations of discontinued mining operations ........................       (435,681)        (32,990)
                                                                                     ------------    ------------
Net loss .........................................................................   $ (1,135,003)   $   (374,457)
                                                                                     ============    ============

Loss per share - basic and diluted:
   Loss from continuing operations................................................   $      (0.36)   $      (0.19)
   Loss from discontinued operations .............................................          (0.22)          (0.02)
                                                                                     ------------    ------------
   Net loss.......................................................................   $      (0.58)   $      (0.21)
                                                                                     ============    ============

Weighted average shares of common stock outstanding -
   basic and diluted .............................................................      1,945,620       1,775,286
                                                                                     ============    ============

                            See accompanying summary of accounting policies and notes
                                    to the consolidated financial statements.
</TABLE>

                                                       F-4
<PAGE>


<TABLE>
<CAPTION>
                                        MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
                                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                                                      Common Stock            Additional                      Total
                                                -------------------------      Paid-In      Accumulated   Stockholders'
                                                  Shares         Amount        Capital        Deficit         Equity
                                                ----------    -----------    -----------    -----------    ----------- 
<S>                                              <C>          <C>            <C>            <C>            <C>        
Balance, January 1, 1997, as previously
   reported ................................     1,600,832    $     1,601    $ 7,430,795    $(4,660,758)   $ 2,771,638

Prior period adjustments
   (Note 16) ...............................            --             --       (525,000)      (718,888)    (1,243,888)
                                                ----------    -----------    -----------    -----------    ----------- 

Balance, January 1, 1997, as restated ......     1,600,832          1,601      6,905,795     (5,379,646)     1,527,750

Common stock issued for conversion of debt .        82,181             82        164,016             --        164,098

Common stock issued for acquisition of
    Huntington Environmental Systems, Inc. .
   (Note 1) ................................       146,667            147        989,853             --        990,000

Contributed services .......................            --             --          7,920             --          7,920

Common stock awarded to employees ..........         2,333              2          9,406             --          9,408

Net loss ...................................            --             --             --       (374,457)      (374,457)
                                                ----------    -----------    -----------    -----------    ----------- 

Balance, December 31, 1997 .................     1,832,013          1,832      8,076,990     (5,754,103)     2,324,719

Common stock issued for services ...........         5,556              5         21,822             --         21,827

Common stock issued for acquisition of
   AirPol, Inc. (Note 1) ...................        96,884             97        299,903             --        300,000

Common stock retired .......................       (31,600)           (32)       (78,143)            --        (78,175)

Common stock issued for debt and property
   (Note 7) ................................       234,575            235        377,430             --        377,665

Common stock awarded to employees ..........         8,700              9         14,694             --         14,703

Interest imputed on related party debt
   (Note 7) ................................            --             --         27,187             --         27,187

Compensatory stock options issued ..........            --             --        105,000             --        105,000

Net loss ...................................            --             --             --     (1,135,003)    (1,135,003)
                                                ----------    -----------    -----------    -----------    ----------- 

Balance, December 31, 1998 .................     2,146,128    $     2,146    $ 8,844,883    $(6,889,106)   $ 1,957,923
                                                ==========    ===========    ===========    ===========    =========== 


                               See accompanying summary of accounting policies and notes
                                       to the consolidated financial statements.
</TABLE>

                                                          F-5
<PAGE>


<TABLE>
<CAPTION>
                                     MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
                                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

                                                                                        YEAR ENDED DECEMBER 31,
                                                                                      ---------------------------
                                                                                         1998           1997
                                                                                      -----------    -----------
                                                                                                      (RESTATED)
<S>                                                                                   <C>            <C>         
Cash flows from operating activities:
   Net loss........................................................................   $(1,135,003)   $  (374,457)
   Adjustments  to  reconcile  net  loss  to  net  cash  provided  by  operating
    activities:
     Depreciation and amortization ................................................        33,785         45,919
     Gain on disposal of assets ...................................................        (7,684)            --
     Provision for bad debts ......................................................        77,447        123,350
     Provision for obsolete inventory .............................................        25,000             --
     Interest imputed on related party debt .......................................        27,187             --
     Stock issued for services ....................................................        21,827             --
     Stock issued for compensation ................................................        14,703          9,408
     Compensatory stock options issued ............................................       105,000             --
     Write-down of mineral properties .............................................       400,000             --
     Contributed services .........................................................            --          7,920
     Change in assets and liabilities, net of effect of acquisitions:
         Accounts receivable ......................................................      (951,143)     1,586,727
         Costs and estimated earnings in excess of billings .......................      (878,590)       362,144
         Inventories ..............................................................       196,470       (331,696)
         Other assets .............................................................       (83,582)       (27,376)
         Accounts payable and accrued expenses ....................................       427,842        145,448
         Billings in excess of costs and estimated earnings .......................     2,511,232        398,351
                                                                                      -----------    -----------
Net cash provided by operating activities .........................................       784,491      1,945,738
                                                                                      -----------    -----------
Cash flows from investing activities:
   Proceeds from sale of mineral properties .......................................        19,614             --
   Acquisition of property, plant and equipment ...................................      (213,644)       (51,941)
   Cash paid in business acquisition ..............................................      (234,610)            --
                                                                                      -----------    -----------
Net cash used in investing activities .............................................      (428,640)       (51,941)
                                                                                      -----------    -----------
Cash flows from financing activities:
   Repayments of notes payable ....................................................      (276,908)      (123,767)
   Repayments of long term debt ...................................................       (47,044)            --
   Repurchase and retirement of common stock ......................................       (78,175)            --
   Proceeds from preferred stock deposit ..........................................       760,250             --
   Advances of related party debt .................................................        10,000        200,000
   Repayments of related party debt ...............................................      (100,000)            --
                                                                                      -----------    -----------
Net cash provided by financing activities .........................................       268,123         76,233
                                                                                      -----------    -----------
Net increase in cash and cash equivalents .........................................       623,974      1,970,030
Cash and cash equivalents, beginning of year ......................................     2,010,596         40,566
                                                                                      -----------    -----------
Cash and cash equivalents, end of year ............................................   $ 2,634,570    $ 2,010,596
                                                                                      ===========    ===========


                            See accompanying summary of accounting policies and notes
                                    to the consolidated financial statements.
</TABLE>

                                                      F-6
<PAGE>


<TABLE>
<CAPTION>
                                    MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                               INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


                                                                                       YEAR ENDED DECEMBER 31,
                                                                                      --------------------------
                                                                                         1998            1997
                                                                                      -----------    -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                                     (RESTATED)
<S>                                                                                   <C>            <C>        
Cash paid during the year for:
    Interest ......................................................................   $    99,596    $    97,092

Non-cash investing and financing activities:
    Notes payable converted to shares of common stock .............................   $        --    $   164,098
    Issuance of shares of common stock for acquisitions
       of subsidiary ..............................................................   $   300,000    $   990,000
    Related party debt converted to and property exchanged for
       shares of common stock .....................................................   $   377,665    $        --

Business acquisitions:
    Fair value of assets acquired .................................................   $   337,577    $ 3,624,081
    Purchase price in excess of net assets acquired ...............................       760,532             --
    Liabilities assumed ...........................................................      (563,499)    (1,689,192)
    Net assets acquired in excess of purchase price ...............................            --       (944,889)
    Common stock issued ...........................................................      (300,000)      (990,000)
                                                                                      -----------    -----------

    Cash paid for acquisitions.....................................................   $   234,610    $        --
                                                                                      ===========    ===========

                           See accompanying summary of accounting policies and notes
                                   to the consolidated financial statements.
</TABLE>

                                                     F-7
<PAGE>


                     MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
                         SUMMARY OF ACCOUNTING POLICIES

OPERATIONS, PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

MPM Technologies,  Inc. (the Company) was incorporated as Okanogan  Development,
Inc. on July 18, 1983, under the laws of the State of Washington.  It was formed
primarily  for the purpose of  investing  in real estate and  interests  in real
estate. On April 25, 1985, the Company combined with MADD Exploration  (MADD), a
Montana  partnership,  and changed its name to Montana Precision Mining, Ltd. In
August 1995, the Company changed its name to MPM Technologies,  Inc. As a result
of the combination with MADD, the Company acquired mining properties  located in
Powell County,  Montana. As of the end of 1997, the Company is no longer engaged
in exploration or developmental  mining activities in regard to these properties
(See Note 12).

The accompanying  consolidated  financial statements include the accounts of the
Company and the  following  subsidiaries  and other  entities  controlled by the
Company:  Huntington  Environmental  Systems, Inc. (HES), AirPol, Inc. (AirPol),
MPM Mining,  Inc.,  NuPower,  Inc., NuPower (a General  Partnership) and SkyGas.
Intercompany accounts and transactions among the companies have been eliminated.

HES, a wholly owned subsidiary, was acquired on March 31, 1997 (See Note 1). HES
designs,  engineers,  supplies and services air  pollution  control  systems for
Fortune 500 and other environmental and industrial  companies  worldwide.  HES's
systems primarily utilize heat and chemicals to control air pollution.

AirPol,  a wholly owned  subsidiary,  was acquired on July 2, 1998 (See Note 1).
AirPol,  like HES,  designs,  engineers,  supplies and  services  air  pollution
control systems.  AirPol's systems,  however, utilize wet and dry scrubbers, wet
electrostatic precipitators and venturi absorbers to control air pollution.

NuPower, a 58.21% owned partnership,  is engaged in the research and development
of an electrothermal  gasification  process which will be utilized  primarily in
the waste-to-energy field, although the process is expected to have applications
in other areas. This partnership was formed in 1986.

SkyGas,  an 85% directly and indirectly owned joint venture,  was formed in 1990
for  the  purpose  of  commercializing   the  SkyGas  technology,   which  is  a
disposal/gasification  process that converts  solid and  semi-solid  wastes into
clean,  medium BTU  syntheses  gas. As of December  31, 1998,  participants  and
interests owned in the SkyGas venture included:  NuPower, 70%, MPM Technologies,
Inc.,  15%,  and USF Smogless of Milan,  Italy (a  subsidiary  of United  States
Filter Corporation), 15%.

REVENUE RECOGNITION

Contract  revenue is  recognized on the  percentage-of-completion  method in the
ratio that costs incurred bears to estimated costs at completion.  Costs include
all direct  material and labor  costs,  and  indirect  costs,  such as supplies,
tools, repair and depreciation.  Selling,  general and administrative  costs are
charged to expense  as  incurred.  Other  revenue  is  recorded  on the basis of
shipment or  performance  of services or  shipment of  products.  Provision  for
estimated  contract  losses,  if any, is made in the period that such losses are
determined.  During 1998 and 1997,  no amounts  were  recognized  for  estimated
contract losses.

                                      F-8
<PAGE>


                     MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
                         SUMMARY OF ACCOUNTING POLICIES

The asset  "costs  and  estimated  earnings  in excess of  billings"  represents
revenues  recognized in excess of amounts invoiced.  The liability  "billings in
excess  of costs  and  estimated  earnings"  represents  invoices  in  excess of
revenues recognized.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined by the
first-in, first-out method.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost, less accumulated depreciation.
For  financial  reporting  purposes,  the  costs  of  plant  and  equipment  are
depreciated  over the  estimated  useful  lives of the assets,  which range from
three to fifteen years, using the straight-line method.

MINERAL PROPERTIES HELD FOR SALE

Mineral  properties  held for sale are stated at estimated net realizable  value
determined  based  on  estimated   undiscounted   future  cash  flows  from  the
liquidation of the related asset.

GOODWILL AND PURCHASED INTANGIBLE

Goodwill and purchased  intangible  represents  the excess of the purchase price
over  the  fair  value of net  assets  acquired  and are  being  amortized  on a
straight-line  basis over their estimated period of future benefit of ten years.
The Company periodically  evaluates the recoverability of goodwill and purchased
intangible.  The  measurement of possible  impairment is based  primarily on the
Company's  ability to  recover  the  unamortized  balance  of the  goodwill  and
purchased   intangible  from  expected   future   operating  cash  flows  on  an
undiscounted basis.

ASSET IMPAIRMENT

The Company  evaluates  its  long-lived  assets for  financial  impairment,  and
continues to evaluate them as events or changes in  circumstances  indicate that
the  carrying  amount of such assets may not be fully  recoverable.  The Company
evaluates  the  recoverability  of  long-lived  assets by measuring the carrying
amount of the  assets  against  the  estimated  undiscounted  future  cash flows
associated  with them.  At the time such  evaluations  indicate  that the future
undiscounted  cash flows of certain  long-lived  assets  are not  sufficient  to
recover the carrying value of such assets, the assets are adjusted to their fair
values.

INCOME TAXES

The Company  accounts  for income  taxes under the  provisions  of  Statement of
Financial  Accounting  Standards (SFAS) No. 109,  "Accounting for Income Taxes".
SFAS No.  109 uses the asset and  liability  method so that  deferred  taxes are
determined based on the estimated future tax effects of differences  between the
financial statement and tax bases of assets and liabilities given the provisions
of enacted  tax laws and tax rates.  Deferred  income tax  expense or benefit is
based on the changes in the  financial  statement  bases versus the tax bases in
the  Company's  assets or  liabilities  from  period  to  period.  

                                      F-9
<PAGE>


                     MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
                         SUMMARY OF ACCOUNTING POLICIES

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are charged to expense as incurred.

ESTIMATES

The preparation of financial  statements in conformity  with generally  accepted
accounting  principles  requires  management to make estimates and  assumptions.
Those  estimates  and  assumptions  affect  the  reported  amounts of assets and
liabilities and disclosures of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period. Actual results could differ from those estimates.

CONCENTRATIONS OF CREDIT RISK

Financial instruments,  which potentially subject the Company to a concentration
of credit risk,  consist of cash and cash  equivalents.  The Company  places its
cash and cash  equivalents  with various high  quality  financial  institutions;
these deposits may exceed  federally  insured limits at various times throughout
the year.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying  amounts reported in the balance sheets as of December 31, 1998 and
1997 for cash  equivalents,  accounts payable and accrued  expenses  approximate
fair value because of the immediate or  short-term  maturity of these  financial
instruments. The fair value of notes payable and long-term debt approximates its
carrying  value as the stated or  discounted  rates of the debt  reflect  recent
market conditions. The fair value of related party debt cannot be determined.

CASH AND CASH EQUIVALENTS

For purposes of balance sheet  classification  and the statements of cash flows,
the Company considers all highly liquid  investments  purchased with an original
maturity of three months or less to be cash equivalents.

WARRANTY RESERVE

The  Company  warranties  its  pollution  control  units for  defects in design,
materials,  and workmanship  generally for a period from six months to one year.
Provision  for  estimated  warranty  costs is recorded  upon  completion  of the
project and periodically adjusted to reflect actual experience.

                                      F-10
<PAGE>


                     MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
                         SUMMARY OF ACCOUNTING POLICIES

EARNINGS PER SHARE

SFAS No. 128 requires dual  presentation of basic earnings per share and diluted
earnings per share on the face of all income  statements  issued after  December
15, 1997 for all entities with complex  capital  structures.  Basic earnings per
share  includes no dilution and is  calculated by dividing  income  available to
common shareholders by the average number of shares actually  outstanding during
the  period.  Diluted  earnings  per share  reflect  the  potential  dilution of
securities  (such as stock  options,  warrants and securities  convertible  into
common  stock) that could share in the  earnings of an entity.  At December  31,
1998 and 1997, outstanding options to purchase 247,613 and 101,000 shares of the
Company's  common stock were not included in the computation of diluted earnings
per share as their effect would have been  antidilutive.  As the Company's stock
options are antidilutive,  basic and diluted earnings per share are the same for
all periods presented.

RECLASSIFICATIONS

Certain  amounts  in  the  1997  consolidated  financial  statements  have  been
reclassified   to  conform  to  the  1998   consolidated   financial   statement
presentation.

EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1997,  the  Financial  Accounting  Standards  Board issued SFAS No. 131,
DISCLOSURES  ABOUT  SEGMENTS OF AN  ENTERPRISE  AND RELATED  INFORMATION,  which
supersedes  SFAS  No.  14,  FINANCIAL  REPORTING  FOR  SEGMENTS  OF  A  BUSINESS
ENTERPRISE, establishes standards for the new way that public enterprises report
information about operating segments in annual financial statements and requires
reporting of selected  information about operating segments in interim financial
statements issued to the public.  It also establishes  standards for disclosures
regarding products and services,  geographic areas and major customers. SFAS No.
131  defines  operating  segments as  components  of an  enterprise  about which
separate financial  information is available that is evaluated  regularly by the
chief  operating  decision  maker in deciding how to allocate  resources  and in
assessing  performance.  The adoption of SFAS No. 131 by the Company in 1998 did
not have a significant impact on the Company's financial position.

In February 1998, the Financial  Accounting Standards Board issued SFAS No. 132,
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POST-RETIREMENT  BENEFITS, which
standardizes the disclosure  requirements for pension and other  post-retirement
benefits.  The adoption of SFAS No. 132 did not materially  impact the Company's
current disclosures.

In June 1998,  the  Financial  Accounting  Standards  Board issued SFAS No. 133,
ACCOUNTING  FOR  DERIVATIVE  INSTRUMENTS  AND HEDGING  ACTIVITIES.  SFAS No. 133
requires  companies to recognize  all  derivative  contracts as either assets or
liabilities  in the balance sheet and to measure them at fair value.  If certain
conditions are met, a derivative may be specifically  designated as a hedge, the
objective  of which is to match the  timing of gain or loss  recognition  on the
hedging  derivative with the recognition of (i) the changes in the fair value of
the hedged asset or liability that are  attributable  to the hedged risk or (ii)
the earnings effect of the hedged forecasted  transaction.  For a derivative not
designated as a hedging instrument,  the gain or loss is recognized as income in
the  period of change.  SFAS No. 133 is  effective  for all fiscal  quarters  of
fiscal  years  beginning  after June 15,  1999.  The Company  believes  that the
adoption of SFAS No. 133 on January 1, 2000 will not have a  significant  effect
on its financial statements.

                                      F-11
<PAGE>
                     MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
                         SUMMARY OF ACCOUNTING POLICIES

In June 1998,  the  Accounting  Standards  Executive  Committee  of the American
Institute of Certified  Public  Accountants  issued  Statement of Position (SOP)
98-5,  REPORTING  ON THE COSTS OF START-UP  ACTIVITIES.  SOP 98-5  requires  all
start-up and organizational  costs to be expensed as incurred.  It also requires
all remaining  historically  capitalized  amounts of these costs existing at the
date of adoption  to be expensed  and  reported  as the  cumulative  effect of a
change in  accounting  principle.  SOP 98-5 is  effective  for all fiscal  years
beginning after December 31, 1998. The Company believes that the adoption of SOP
98-5 will not have a significant effect on its financial statements.

In February 1999 the Financial  Accounting  Standards Board issued SFAS No. 135,
RESCISSION  OF  FINANCIAL  ACCOUNTING  STANDARDS  BOARD NO. 75 (SFAS No. 75) AND
TECHNICAL CORRECTIONS.  SFAS No.135 rescinds SFAS No. 75 and amends Statement of
Financial  Accounting  Standards  Board No. 35. SFAS No. 135 also  amends  other
existing authoritative literature to make various technical corrections, clarify
meanings,  or describe  applicability under changed conditions.  SFAS No. 135 is
effective for financial statements issued for fiscal years ending after February
15, 1999. The Company believes that the adoption of SFAS No. 135 will not have a
significant effect on its financial statements.

                                      F-12
<PAGE>

                     MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       BUSINESS ACQUISITIONS

On March 31, 1997, the Company acquired an operating business from United States
Filter   Corporation  under  the  terms  of  an  asset  purchase  agreement  and
subsequently formed an Illinois corporation,  Huntington  Environmental Systems,
Inc.,  into which the acquired  assets and  liabilities  were  transferred.  The
acquisition  of HES was  recorded  under  the  purchase  method  of  accounting;
accordingly,  the results of operations of HES are included in the  consolidated
statements  of  operations  from the date of  acquisition.  The  purchase  price
consisted of the issuance of 146,667 shares of the Company's common stock valued
at $990,000.  The excess of the fair value of the net assets  acquired  over the
purchase  price was  $944,889,  which  amount has been  established  as negative
goodwill and is being amortized over ten years.

As of March 31, 1997, the fair values of assets acquired and liabilities assumed
were as follows:

Accounts receivable..............................................   $ 2,429,994
Inventories .....................................................       386,738
Costs and estimated earnings in excess of billings ..............       807,349
Accounts payable ................................................      (430,467)
Accrued expenses ................................................      (245,256)
Billings in excess of costs and estimated earnings ..............      (361,873)
Long-term debt ..................................................      (651,596)
Negative goodwill ...............................................      (944,889)
                                                                    -----------
                                                                    $   990,000
                                                                    ===========

The following  unaudited pro forma consolidated  results of operations have been
prepared as if the  acquisition  of HES had  occurred at the  beginning of 1997,
after  giving  effect to  certain  adjustments,  including  amortization  of the
negative  goodwill.  They do not  purport  to be  indicative  of the  results of
operations  which actually would have resulted had the  acquisition  occurred at
the beginning of 1997.

                                                                        1997
                                                                   ------------
Revenues.........................................................   $ 7,130,000
Net loss.........................................................   $  (343,000)
Loss per share...................................................   $     (0.19)

On July 2, 1998, the Company acquired an operating business from FLS miljo, Inc.
under the terms of an asset  purchase  agreement and  subsequently  formed a New
Jersey corporation, AirPol, Inc., into which the acquired assets and liabilities
were  transferred.  The  acquisition  of AirPol was recorded  under the purchase
method of  accounting;  accordingly,  the  results of  operations  of AirPol are
included  in  the  consolidated  statements  of  operations  from  the  date  of
acquisition.  The total  purchase  price of AirPol was $534,610 and consisted of
$234,610  of cash and 96,884  shares of common  stock of the  Company  valued at
$300,000. The excess of the purchase price over the fair value of the net assets
acquired was $760,532 and is being amortized over ten years.

                                      F-13
<PAGE>

                     MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of July 2, 1998, the fair values of assets acquired and  liabilities  assumed
were as follows:

Costs and estimated earnings in excess of billings.................   $ 248,038
Plant, property and equipment .....................................      89,539
Goodwill ..........................................................     760,532
Accrued expenses ..................................................     (15,751)
Billings in excess of costs and estimated earnings ................    (547,748)
                                                                      ---------
                                                                      $ 534,610
                                                                      =========

Unaudited pro forma consolidated  results of operations assuming the acquisition
of AirPol had occurred as of an earlier date, have not been provided for 1998 or
1997 as the  results  would not have been  materially  different  than  reported
amounts.

2.       COSTS AND ESTIMATED EARNINGS ON CONTRACTS IN PROGRESS

Following is a summary of costs,  billings,  and estimated earnings on contracts
in progress:

                                                       DECEMBER 31,
                                             ---------------------------------
                                                   1998              1997
                                             ---------------   --------------- 

Costs incurred on contracts in progress ..   $     7,484,761   $     3,918,585
Estimated earnings .......................         1,854,518         1,246,410
                                             ---------------   --------------- 
                                                   9,339,279         5,164,995
Less billings to date ....................        11,586,650         5,480,014
                                             ---------------   --------------- 
                                             $    (2,247,371)  $      (315,019)
                                             ===============   =============== 

The above  accounts are shown in the  accompanying  consolidated  balance sheets
under these captions:

                                              DECEMBER 31,
                                      --------------------------
                                         1998            1997
                                      -----------    -----------

Costs  and  estimated  earnings
  in  excess of billings ..........   $ 1,571,833    $   445,205
Billings in excess of costs and
  estimated earnings ..............    (3,819,204)      (760,224)
                                      -----------    -----------
                                      $(2,247,371)   $  (315,019)
                                      ===========    ===========


                                      F-14
<PAGE>

                     MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3.       INVENTORIES
<TABLE>
<CAPTION>

Inventories consist of the following:

                                                                                      DECEMBER 31,
                                                                                   -------------------
                                                                                     1998       1997
                                                                                   --------   --------
<S>                                                                                <C>        <C>     
Equipment ......................................................................   $237,062   $516,550
Chemicals ......................................................................    162,356     96,522
Parts and supplies .............................................................     97,546    105,362
                                                                                   --------   --------
                                                                                   $496,964   $718,434
                                                                                   ========   ========

4.       PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following:

                                                                                      DECEMBER 31,
                                                                                   -------------------
                                                                                     1998       1997
                                                                                   --------   --------
                  Equipment ....................................................   $225,369   $ 46,674
                  Furniture and fixtures .......................................    118,565         --
                  Leasehold improvements .......................................     14,708         --
                                                                                   --------   --------
                                                                                    358,642     46,674
                  Less accumulated depreciation ................................     38,616     13,366
                                                                                   --------   --------
                                                                                   $320,026   $ 33,308
                                                                                   ========   ========

5.       NOTES PAYABLE

Notes payable consists of the following:


                                                                                      DECEMBER 31,
                                                                                   -------------------
                                                                                     1998       1997
                                                                                   --------   --------
              Note payable - other .............................................   $  5,461   $  5,461
              Note payable to a Bank, with interest at prime plus
                  1%; repaid in 1998 ...........................................         --    231,300
              Note payable to a Bank, with interest at prime plus
                  1%; repaid in 1998 ...........................................         --     45,608
                                                                                   --------   --------
                                                                                   $  5,461   $282,369
                                                                                   ========   ========
</TABLE>

During 1997,  $164,098 of the notes payable were converted into shares of common
stock of the Company at prices ranging from $0.20 to $0.25 per share.

                                      F-15
<PAGE>

                     MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6.       LONG-TERM DEBT

In conjunction  with the Company's  acquisition of HES (See Note 1), the Company
assumed a long-term obligation totaling $1,200,000,  which is payable in fifteen
annual  installments  of $75,000.  As there was no stated  interest  rate on the
obligation,  an imputed  interest rate of 9% was utilized which  represented the
Company's estimated borrowing rate. The $75,000 payment due in 1998 has not been
made as the Company  believes the note holder has breached the agreement.  Under
the  terms of the  agreement,  non-payment  does not  result  in the debt  being
callable.  At December 31, 1998 and 1997, the carrying value of the  obligation,
net of discount, was $604,552 and $651,596,  respectively. At December 31, 1998,
current  amounts owed under this  obligation are $150,000,  of which $106,966 of
accrued interest is included in accrued expenses.

7.       RELATED PARTY DEBT

Related  party debt  consists of advances  received  from various  directors and
related  parties.  At December  31, 1998 and 1997,  amounts  owed these  related
parties totaled $270,000 and $514,765, respectively, and are due on demand.

Certain of the related party  creditors  voluntarily  agreed to terminate  their
current and future  right to interest  payments.  As such,  interest  expense of
$27,187  has been  imputed  on this  debt at 10% for 1998  with a  corresponding
offset to additional  paid-in  capital.  In 1997,  the related  party  creditors
agreed to subordinate their loans to claims of outside creditors.

During 1998,  the related  party  creditors  entered into an agreement  with the
Company to exchange  notes payable and accrued  interest  thereon  together with
property  contributed  for  shares of the  Company's  common  stock.  Under this
agreement,  the Company  issued  234,575  shares of common stock in exchange for
notes  payable  and  accrued  interest  totaling  approximately  $285,000  and a
contribution of property with an estimated fair value of approximately $93,000.

8.       COMMITMENTS AND CONTINGENCIES

The Company leases office space and mineral  properties  under operating  leases
that expire at various  dates  through  2003.  Future  minimum  rental  payments
required under  operating  leases that have initial and remaining  noncancelable
terms in excess of one year are as follows:

             YEAR  ENDING DECEMBER 31,                           AMOUNT
             --------------------------------                 ------------

             1999 ........................................    $     13,231
             2000 ........................................          13,568
             2001 ........................................          10,520
             2002 ........................................           9,485
             2003 ........................................           7,322
                                                              ------------
                                                              $     54,126
                                                              ============

Rent  expense for the year ended  December  31, 1998 and 1997 was  $195,833  and
$66,897, respectively.

                                      F-16
<PAGE>

                     MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The  Company  has  entered  into  an  exclusive  license  rights  agreement  for
technology  to be utilized in its SkyGas  venture.  Pursuant to the terms of the
agreement,  the Company has agreed to pay $72,000  annually  through April 2007.
The agreement may be terminated by the Company at any time.

9.       INCOME TAXES

At December  31,  1998 and 1997,  the  Company  had net  deferred  tax assets of
approximately  $1,700,000 and $1,300,000  principally arising from net operating
loss  carryforwards  for  income  tax  purposes,   the  write  down  of  mineral
properties,  and  book and tax  differences  on  goodwill  and  purchased  asset
adjustments.  As  management  of the Company  cannot  determine  that it is more
likely than not that the Company  will  realize the benefit of the net  deferred
tax asset,  a valuation  allowance  equal to the net deferred tax asset has been
established at both December 31, 1998 and 1997.

At December 31, 1998, the Company has net operating loss carryforwards  totaling
approximately $3,500,000 that expire in the years 2001 through 2012.

10.      STOCKHOLDERS' EQUITY

REVERSE STOCK SPLIT

In June 1998,  the Board of Directors  authorized a 1 for 9 reverse stock split.
This  reverse  stock  split  was  performed  by  the  Company  granting  to  all
stockholders as of the date of record one share of common stock to replace every
nine shares of stock currently  outstanding.  All references in the consolidated
financial  statements referring to the number of shares, share prices, per share
amounts  and options  have been  adjusted  retroactively  for the effect of this
reverse stock split.

PREFERRED STOCK DEPOSIT

During  1998,  the Company  entered  into an  agreement  to obtain $1.2  million
through the issuance of shares of preferred  stock. As of December 31, 1998, the
Company had received  deposits of  approximately  $760,000 and incurred costs of
approximately $144,000 in connection with this offering. Subsequent to year end,
the Company received  additional  funds of  approximately  $440,000 and incurred
costs of  approximately  $81,000.  Prior to the issuance of preferred  shares in
1999,  the agreement was rescinded and the Company is to refund monies  advanced
to  it.  Accordingly,  funds  received  through  December  31,  1998  have  been
classified  as a  current  liability  and  offering  costs  incurred  have  been
expensed.

STOCK OPTION PLAN

On May 22, 1989, the shareholders of the Company voted to approve a stock option
plan (the Plan) for  selected  key  employees,  officers  and  directors  of the
Company.  The Plan is administered  by a Compensation  Committee of the Board of
Directors  (the  "Committee")  consisting of those  directors of the Company and
individuals who are elected annually by the Board of Directors to the Committee.
The Board of Directors has chosen one of the Company's directors and one outside
individual to serve on the Committee.  No director  eligible to receive  options
under the Plan may vote  upon the  granting  of an option or Stock  Appreciation
Rights  (SAR) to  himself  or  herself  or upon  any  decision  of the  Board of

                                      F-17
<PAGE>

                     MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Directors or the  Committee  relating to the Plan.  Under the Plan, a maximum of
236,667  shares  were  approved  to be  granted,  which  in 1997 and  1998,  was
increased by 55,555 and 250,000 respectively,  to 542,222.  Generally,  the Plan
provides  that the terms under which options may be granted are to be determined
by a Committee  subject to certain  requirements  as follows:  (1) the  exercise
price  will not be less than 100% of the  market  price per share of the  common
stock of the Company at the time an  Incentive  Stock  Option is granted,  or as
established  by  the  Committee  for   Non-qualified   Stock  Options  or  Stock
Appreciation  Rights; and (2) the option purchased price will be paid in full on
the date of purchase.  The Plan provides that options may be transferred only by
will or by laws of descent  and  distribution  and may be  exercised  during the
optionee's  lifetime only by the optionee or by the optionee's guardian or legal
representative.

Stock option activity under the Plan is summarized as follows:
<TABLE>
<CAPTION>

                                                                            WEIGHTED
                                                                             AVERAGE
                                                                             OPTION
                                                              OPTIONS         PRICE
                                                            -----------     ----------

<S>                                                             <C>         <C>       
    Outstanding at January 1, 1997......................        101,000     $     0.90
    Granted.............................................             --             --
    Exercised...........................................             --             --
    Expired.............................................             --             --
                                                            -----------     ----------

    Outstanding at December 31, 1997....................        101,000           0.90
    Granted.............................................        146,613           0.88
    Exercised...........................................             --             --
    Expired.............................................             --             --
                                                            -----------     ----------
    Outstanding at December 31, 1998....................        247,613     $     0.89
                                                            ===========     ==========
</TABLE>

SFAS No. 123 requires the Company to provide pro forma information regarding net
loss and loss per share as if  compensation  cost for the Company's stock option
plan  had been  determined  in  accordance  with the  fair  value  based  method
prescribed  by SFAS No. 123. The Company  estimates the fair value of each stock
option at the grant date by using the  Black-Scholes  option-pricing  model with
the following weighted-average assumptions used: dividend yield of zero percent;
expected  volatility of 40 percent;  risk-free  interest rate of 6 percent;  and
expected lives of five years.  The weighted  average fair value at date of grant
for  options  granted  to  employees  in 1998 was  $1.59 per  option.  Under the
accounting provisions of SFAS No. 123, the Company's net loss and loss per share
for each of the two years in the period ended  December 31, 1998 would have been
adjusted to the pro forma amounts indicated below:

                                      F-18
<PAGE>
                     MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31
                                                            -----------------------------
                                                                1998            1997
                                                            -------------    ------------

      Net loss
<S>                                                       <C>                <C>         
         As reported....................................  $   (1,135,003)    $  (374,457)
         Pro forma......................................  $   (1,194,729)    $  (374,457)

      Loss per share
         As reported....................................  $        (0.58)    $     (0.21)
         Pro forma......................................  $        (0.61)    $     (0.21)
</TABLE>


The following table summarizes  information  about stock options  outstanding at
December 31, 1998:
<TABLE>
<CAPTION>

                                                                                             Options
                               Weighted                     Number                   Outstanding and
                                Average                Outstanding              Exercisable Weighted
                               Exercise            And Exercisable                 Average Remaining
                                 Prices                At 12/31/98          Contractual Life (Years)
                         ---------------        -------------------       --------------------------
<S>                      <C>                               <C>                                   <C>
                         $         0.88                    146,613                               9.7
                         $         0.90                    101,000                               4.5
                         --------------         ------------------        --------------------------

                         $    0.88-0.90                    247,613                               7.6
                         ==============         ==================        ==========================
</TABLE>

11.      VALUATION AND QUALIFYING ACCOUNTS

Allowance for doubtful account activity was as follows:
<TABLE>
<CAPTION>

                                                                     DECEMBER 31,
                                                             ----------------------------
                                                                 1998            1997
                                                             ----------------------------

<S>                                                        <C>                <C>        
      Balance, beginning of year....................         $     50,000     $        --
      Charged to expense............................               77,447         123,350
      Write-offs, net of recoveries.................              (37,447)        (73,350)
                                                             ------------     -----------
      Balance, end of year..........................         $     90,000     $    50,000
                                                             ============     ===========
</TABLE>

12.      DISCONTINUED OPERATIONS AND FOURTH QUARTER ADJUSTMENTS

During  1998,  the  Board  of  Directors  authorized  a plan to  dispose  of the
Company's mineral properties and related mining assets. Accordingly, the Company
has classified  these assets as mineral  properties held for sale in its balance
sheet at December 31, 1998 and 1997. The Company is actively  seeking buyers for
these assets. During the year ended 1998 and 1997, the Company recognized a loss
from operations of discontinued  mining operations of $435,681 and $32,990.  The
1998 loss includes a fourth  quarter  adjustment  of $400,000 to write-down  the
carrying value of the Company's  mineral  properties to estimated net realizable
value. This write-down was the result of depressed gold prices and the impact of
the Montana  Initiative  I37, which limits the use of cyanide heap leach process
and is currently being litigated in the Montana judicial system.


                                      F-19
<PAGE>


                    MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.      NOTE RECEIVABLE

During 1994,  the Company  entered  into an agreement to sell certain  equipment
related to the SkyGas  technology to the inventor of this technology in exchange
for a $275,000  note  receivable.  The note is  collateralized  by the equipment
sold. Under the agreement,  the note was due in a balloon payment of $275,000 on
December 1, 1995 or at such time the SkyGas  process is placed into  sustainable
commercial production. On January 22, 1999, the Company amended its agreement to
extend the due date of the balloon payment until December 1, 1999.

14.      RELATED PARTY TRANSACTIONS

The  president  of the Company is also the  president  of another  company  that
provides  general  insurance  coverage  and  various  administrative  and office
expenses  for the Company.  As of December  31, 1998 and 1997,  the Company owed
$63,116 and $55,116,  respectively,  to this related party company.  In 1998 and
1997,  the Company  incurred  expenses to this related party company of $105,100
and $65,434, respectively.

The Company contracts for its shareholder  relations services with an officer of
the Company. The Company incurred expenses to this related party for services in
1998 and 1997 of $67,841 and $41,350, respectively.

Included in accounts  receivable at December 31, 1998 and 1997, are amounts owed
the Company by a partner in the SkyGas  joint  venture of $26,748  and  $14,625,
respectively, for SkyGas related expenses.

15.      PURCHASED INTANGIBLE

In 1996,  the Company  issued  133,333  shares of its common stock to acquire an
additional 15% interest in the SkyGas  venture.  The transaction was recorded at
$675,000 based on the then-fair  value of the shares issued.  In accordance with
FASB  Technical  Bulletin No. 84-1,  the Company  recorded an  intangible  asset
representing the additional  interest purchased in SkyGas's patent and licensing
rights.  The intangible  asset is being amortized on a straight-line  basis over
its estimated period of future benefit of ten years.

16.      SEGMENT INFORMATION

The Company's  consolidated  financial  statements  include  certain  reportable
segment  information.  These  segments  include HES, a wholly  owned  subsidiary
engaged in designing, engineering, supplying and servicing air pollution control
systems which primarily utilize heat and chemicals to control air pollution, and
AirPol, a wholly owned subsidiary engaged in designing,  engineering,  supplying
and servicing air pollution control systems which utilize wet and dry scrubbers,
wet electrostatic  precipitators and venturi absorbers to control air pollution.
The Company  evaluates the  performance  of these  segments  based upon multiple
variables including revenues and profit or loss.

                                      F-20
<PAGE>


                    MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The segments'  profit and loss  components and schedule of assets as of December
31, 1998 are as follows:

<TABLE>
<CAPTION>
                                                     AIR             AIR
                                                  POLLUTION       POLLUTION
                                                   CONTROL         CONTROL         ALL
                                                    (HEAT)       (SCRUBBERS)      OTHER            TOTAL
                                                 -----------    ------------   ------------    ------------
<S>                                              <C>            <C>            <C>             <C>         
Revenue external.............................    $ 6,233,363    $  3,822,691   $         --    $ 10,056,054
Revenue internal ............................             --              --        114,000         114,000
Interest income .............................         61,293              --            870          62,163
Interest expense ............................         52,805           9,921         87,572         150,298
Depreciation and amortization ...............        (88,877)         49,239         73,423          33,785
Segment profit (loss) .......................       (444,544)        198,765       (453,543)       (699,322)
Other significant non-cash items:
    Costs and estimated earnings in excess
     of billings ............................        547,706       1,024,127             --       1,571,833
Segment assets ..............................      4,322,897       3,589,824      3,790,335      11,703,056
Expenditures for long-lived assets ..........        197,481         105,702         92,903         396,086

</TABLE>
Reconciliation of segment revenues,  net income (loss),  total assets, and other
significant items for the year ended December 31, 1998 are as follows:

<TABLE>
<CAPTION>
             REVENUES                                                                    AMOUNT
            --------------                                                             -----------
<S>                                                                                    <C>        
            Total revenues for reportable segments.................................    $10,056,054
            Other revenues ........................................................        114,000
            Elimination of intersegment revenues ..................................       (114,000)
                                                                                       -----------

            Total consolidated revenues............................................    $10,056,054
                                                                                       ===========

            PROFIT OR LOSS
            --------------

            Total profit or loss for reportable segments...........................    $  (245,779)
            Other profit or loss ..................................................       (453,543)
            Discontinued operations ...............................................       (435,681)
                                                                                       -----------

            Total consolidated profit or loss......................................    $(1,135,003)
                                                                                       ===========

            ASSETS
            --------------

            Total assets for reportable segments...................................    $ 7,912,721
            Other assets ..........................................................      3,790,335
            Assets of discontinued operation ......................................      1,086,346
            Elimination of intersegment assets ....................................     (3,321,109)
                                                                                       -----------

            Total consolidated assets..............................................    $ 9,468,293
                                                                                       ===========
</TABLE>

                                               F-21
<PAGE>

                    MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other significant items:


<TABLE>
<CAPTION>
                                                                          SEGMENT                  CONSOLIDATED
                                                                           TOTALS     ELIMINATIONS    TOTALS
                                                                         -----------  ------------ ------------
<S>                                                                      <C>           <C>         <C>       
Interest income.......................................................   $    62,163   $ (25,904)  $   36,259
Interest expense.....................................................        150,298     (25,904)     124,394
Expenditures for long-lived assets...................................        396,086          --      396,086
Depreciation and amortization.........................................        33,785          --       33,785
Costs and estimated earnings in excess of billings.................        1,571,833          --    1,571,833
</TABLE>

Adjustments to reconcile  interest  expense and interest income  represent total
intercompany amounts.

The Company's revenues by geographic region for the year ended December 31, 1998
are as follows:

             GEOGRAPHIC REGION                              REVENUES
             -----------------                            ------------

             United States                                $  9,705,479
             Canada                                             61,437
             Other foreign countries                           289,138
                                                          ------------

             Total consolidated revenues                  $ 10,056,054
                                                          ============

The  Company  attributes  revenues  to  countries  based on the  location of the
customer.

Revenues  from one  customer  of MPM's  air  pollution  control  (heat)  segment
represented  approximately $1.3 million,  or 13%, of the Company's  consolidated
revenues for the year ended December 31, 1998.

The segments'  profit and loss  components and schedule of assets as of December
31, 1997 are as follows:

<TABLE>
<CAPTION>
                                                                            AIR
                                                                         POLLUTION
                                                                           CONTROL         ALL
                                                                            (HEAT)        OTHER           TOTAL
                                                                          ----------   -----------     -----------
<S>                                                                       <C>          <C>             <C>        
Revenue external......................................................    $6,076,936   $        --     $ 6,076,936
Revenue internal .....................................................            --         72,000         72,000
Interest income ......................................................        36,937          1,360         38,297
Interest expense .....................................................        42,863         54,870         97,733
Depreciation and amortization ........................................       (49,776)        95,695         45,919
Segment profit (loss) ................................................        47,369       (388,836)      (341,467)
Other significant non-cash items:
    Costs and estimated earnings in excess of billings ...............       445,205             --        445,205
Segment assets .......................................................     4,220,879      2,995,033      7,215,912
Expenditures for long-lived assets ...................................        43,156             --         43,156
</TABLE>

Reconciliation of segment revenues,  net income (loss),  total assets, and other
significant items for the year ended December 31, 1997 are as follows:

                                      F-22
<PAGE>
<TABLE>
<CAPTION>
                    MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             REVENUES                                                                AMOUNT
             --------------                                                        ----------
             <S>                                                                   <C>       
             Total revenues for reportable segments.............................   $6,076,936
             Other revenues ....................................................       72,000
             Elimination of intersegment revenues ..............................      (72,000)
                                                                                   ----------

             Total consolidated revenues........................................   $6,076,936
                                                                                   ==========

             PROFIT OR LOSS
             --------------

             Total profit or loss for reportable segments.......................   $   47,369
             Other profit or loss ..............................................     (388,836)
             Discontinued operations ...........................................      (32,990)
                                                                                   ----------

             Total consolidated profit or loss..................................   $ (374,457)
                                                                                   ==========

             ASSETS
             --------------

             Total assets for reportable segments...............................   $4,220,879
             Other assets.......................................................    2,995,033
             Assets of discontinued operation...................................    1,410,653
             Elimination of intersegment assets.................................   (2,260,881)
                                                                                   ----------

             Total consolidated assets..........................................   $6,365,684
                                                                                   ==========
</TABLE>

Other significant items:
<TABLE>
<CAPTION>
                                                      SEGMENT               CONSOLIDATED
                                                      TOTALS   ELIMINATIONS    TOTALS
                                                     --------  ------------ ------------
<S>                                                  <C>        <C>          <C>     
Interest income ..................................   $ 38,297   $ (1,665)    $ 36,632
Interest expense .................................     97,733     (1,665)      96,068
Expenditures for long-lived assets ...............    197,481         --      197,481
Depreciation and amortization ....................     45,919         --       45,919
Costs and estimated earnings in excess of billings    445,205         --      445,205
</TABLE>

Adjustments to reconcile  interest  expense and interest income  represent total
intercompany amounts.

The Company's revenues by geographic region for the year ended December 31, 1997
are as follows:

             GEOGRAPHIC REGION                                       REVENUES
             -----------------                                     ------------
             United States                                         $  4,117,394
             Canada                                                   1,806,852
             Other foreign countries                                    152,690
                                                                   ------------

             Total consolidated revenues                           $  6,076,936
                                                                   ============

The  Company  attributes  revenues  to  countries  based on the  location of the
customer.

Revenues  from one  customer  of MPM's  air  pollution  control  (heat)  segment
represented  approximately $1.8 million,  or 30%, of the Company's  consolidated
revenues for the year ended December 31, 1997.

                                      F-23
<PAGE>

                    MPM TECHNOLOGIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.      RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

Financial  statements  for 1997 have been restated as a result of corrections of
errors in the accounting for (i) minority interest,  (ii) the acquisition of HES
and (iii) the acquisition of the Company's additional 15% interest in SkyGas.

MINORITY INTEREST

The Company had previously recorded at December 31, 1997 a receivable balance of
$753,748   representing  the  minority  interests'  allocated  interest  in  the
accumulated losses of the NuPower  partnership.  Due to uncertainties  regarding
the ultimate  recoverability  of these losses from the minority  interests,  the
Company absorbed the minority interest  receivable balance as of January 1, 1997
of $718,888 and reversed the 1997 allocated loss of $34,859.

ACQUISITION OF HES

The  Company  previously  recorded  the value of the  146,667  shares of Company
common stock issued to acquire HES at a per share price of $12.02.  Based on the
then-fair value of the common stock, a per share price of $6.75 should have been
used.  The  resulting  decrease  in  the  value  of  consideration  paid  in the
acquisition  gave rise to  negative  goodwill  of  approximately  $945,000.  The
Company has elected to amortize  the negative  goodwill  over a ten year period,
which resulted in 1997 amortization of approximately $71,000.  Additionally, the
Company  expensed in 1997  approximately  $100,000 in bad debts which amount had
previously been reflected as a purchase price adjustment.

ACQUISITION OF ADDITIONAL INTEREST IN SKYGAS

During  1996,  the  Company  issued  133,333  shares of its common  stock for an
additional  15% interest in SkyGas.  The shares were valued at a per share price
of $9.00;  the per share fair value of the  shares at the time of  issuance  was
approximately $5.06. Accordingly,  the Company reduced the recorded value of the
transaction by approximately $525,000. Additionally, as the Company consolidates
its  investment in SkyGas,  this  additional  investment was  reclassified  as a
purchased  intangible,  for which the  Company  has  assigned  a ten year  life.
Amortization expense recorded in 1997 was $67,500.

The net impact of these error corrections  resulted in a $1,243,888 reduction in
stockholders'  equity at January 1, 1997 and impacted  previously  reported 1997
amounts as follows:

<TABLE>
<CAPTION>
                                                         DECEMBER 31,         DECEMBER 31,
                                                             1997                 1997
                                                         AS PREVIOUSLY             AS
                                                           REPORTED             RESTATED
                                                        -------------         ------------
<S>                                                     <C>                   <C>         
                 Assets................................ $   6,885,952         $  6,365,684
                 Stockholders' Equity..................     4,472,757            2,324,719
                 Net Loss..............................      (242,714)            (374,457)
</TABLE>

                                      F-24
<PAGE>

                                   SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized


MPM Technologies, Inc.

         By: /s/  Charles A. Romberg
            ---------------------------
         Title:   President         
         Date:    April 13, 1999


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


/s/ Charles A. Romberg                       /s/ Michael J. Luciano     
----------------------------                 --------------------------------
Charles A. Romberg                           Michael J. Luciano
President & Director                         Senior Vice President & Director

Dated: April 13 1999                         Dated: April 13, 1999      


/s/ Myron Katz                               /s/ Daniel D. Smozanek    
----------------------------                 --------------------------------
Myron Katz                                   Daniel D. Smozanek
Vice President & Director                    Treasurer & Director

Dated: April 13, 1999                        Dated: April 13, 1999      


/s/ Richard E. Appleby                       /s/ L. Craig Cary Smith    
----------------------------                 --------------------------------
Richard E. Appleby                           L. Craig Cary Smith
Vice President & Director                    Director

Dated: April 13, 1999                        Dated: April 13, 1999     


/s/ Anthony L. Lee                           /s/ Glen Hjort    
----------------------------                 --------------------------------
Anthony L. Lee                               Glen Hjort
Director                                     Director

Dated: April 13, 1999                        Dated: April 13, 1999     


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