=================================================================Item 8 and portions of Items 6 and 7 are omitted pursuant to Rule 12b-25
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
(Fee Required)
For the fiscal year ended September 30, 19951996
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period from ----------__________ to ----------__________
Commission file number 0-6890
MECHANICAL TECHNOLOGY INCORPORATED
(Exact name of registrant as specified in its charter)
New York 14-1462255
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
968 Albany-Shaker Rd, Latham, New York 12110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518)785-2211
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act
$1.00 Par Value Common Stock
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this form 10-k.10-K. [ ]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
The aggregate market value of the registrant's Common Stock held by
nonaffiliates of the registrant on December 15,199513, 1996 (based on the last
sale price of $.44$2.00 per share for such stock reported by NASDAQ for that
date) was approximately $1,560,000.$6,503,372.
As of December 15, 1995,13, 1996, the registrant had 3,568,8684,899,301 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document Where Incorporated into Form 10-K Report
Proxy Statement for Part III
Annual Meeting of Shareholders
to be held on March 28, 1996April 16, 1997
PART I
ITEM 1: BUSINESS
Mechanical Technology Incorporated and its subsidiaries produce products
and render services in two business segments:
* Test and Measurement
* Technology
The major markets for these products and services are the electron-
ics,electronics,
aerospace, capital goods, and defense industries. 61%72% of the Company's
revenues from operations were derived from product sales in the Company's
fiscal year ended September 30, 1995;1996; the remain-
ing 39%remaining 28% of revenues were
derived from technology support and research and development contracts.
Mechanical Technology Incorporated was incorporated in New York in 1961.
Unless the context otherwise requires, the "registrant", "Company",
"Mechanical Technology", and "MTI" refers to Mechanical Technology
Incorporated and its subsidiaries. The Company's principal executive
offices are located at 968 Albany-Shaker Road, Latham, New York 12110 and
its telephone number is (518) 785-2211.
Significant Developments in the Business
- ----------------------------------------
During the third quarter of fiscal 1996 the Company announced it had
reached an agreement in principle to sell its wholly owned subsidiary,
Ling Electronics Inc. ("Ling"), of Anaheim, California, for an amount, to
be paid in cash at closing, approximating Ling's net book value. A
definitive agreement was negotiated and executed; however the buyer
failed to obtain funding prior to the expiration date of the agreement.
The Company has now discontinued efforts to sell Ling.
In June 1996, the Company successfully raised $1.9 million (net of $100
thousand in expenses) in new capital through a private placement of 1.3
million shares of Common Stock, which was sold at an offering price of
$1.50 per share. The proceeds of this placement were applied to the
Company's line of credit.
The Company's wholly owned subsidiary, United Telecontrol Electron-
ics,Electronics,
Inc. ("UTE") of Asbury Park, New Jersey, filed a voluntary bankruptcy
under Chapter 11 of the Federal Bankruptcy Code in April 1994. During
October 1994, UTE commenced an orderly liquidation.liquidation and final court
approval occurred during the third quarter of fiscal 1996. Accordingly,
the Company no longer includes Defense/Aerospace amongst its reportable
business segments and UTE has been classi-
fiedclassified as a "discontinued
operation" in the Company's Financial Statements; prior year information has been restated to conform to
this treatment.Statements. (See Note 16___ to the
accompanying Consolidated Financial Statements).
During November 1994, the Company sold all of the outstanding capital
stock of its subsidiary, ProQuip Inc. ("ProQuip") of Santa Clara, CA for
approximately $13.3 million. The sale resulted in a gain of approximately
$6.8 million.million in fiscal 1995 and $750 thousand, as a result of the release
of escrow funds, in fiscal 1996. (See Note 17___ to the accompany-
ing Consolidatedaccompanying Consol-
idated Financial Statements). ProQuip's financial results are included as
part of the Company's Test and Measurement segment for theprior fiscal year
periods covered by this Form 10-K until November 22, 1994 (the date of
its sale).
Business Segments
- -----------------
The Company currently conducts business in two business segments: Test
and Measurement and Technology. (Certain financial informa-
tioninformation regarding
the Company's business segments is included in Note 19___ to the
accompanying Consolidated Financial Statements and is incorporated herein
by reference.) In the Test and Measurement segment, the Company primarily
produces products for sale, while in the Technology segment the Company
primarily performs technology support and research and development under
contract. The Company believes its technology support and research and
development activities provide a competitive advantage to the product
segments through the performance of related research which, for the most
part, is funded by outside parties.
Test and Measurement
- --------------------
The Company derived 61%71% of its revenues from the Test and Measure-
mentMeasurement
segment in 1995.1996. Test and Measurement offers a wide range of technology-basedtechnology-
based equipment and systems for improved manufacturing, product testing,
and inspection for industry. Business units in this segment include Ling
Electronics Inc., Advanced Products Division, and L.A.B. Division.
ProQuip Inc. was also included in this segment prior to its sale on
November 22, 1994.
Ling Electronics Inc., of Anaheim, California, designs, manufac-
tures,manufactures, and
markets electrodynamic shakers, high-intensity-sound transducers, and
high-intensity-sound vibra-
tion test systems for productpower amplifliers used to perform reliability testing and environmental
stress
screening.screening during product development and quality control. This mode of
testing is used increasingly by industry and the military to reveal design and
manufacturing flaws in a broad range of precision products, from
satellite parts to computer components. Recent Ling products for power
and frequency conversion and "clean power" applications include systems
capable of output up to 432 kVA.
The Advanced Products Division designs, manufactures, and markets high-performancehigh-
performance test and measurement instruments and systems. These products
are categorized in two general product families: noncontact sensing
instrumentation and computer-based balancing systems. The noncontact
sensing instrumentation products utilize fiber optic, laser and
capacitance technology and are used to perform high precision position measurements
for product design and quality control inspection requirements. Designed for most manufacturing
environments, the MICROTRAK 7000 (tm), a new laser triangulation
sensor product, measures distance, displacement, vibration or
thickness without contact at various operating distances . The
computer-basedComputer-
based balancing system (the PBS-4100 product line) issystems include an on-wing jet engine balancing system
used by both commercial and military aircraft fleet maintenance
personnel.
The L.A.B. Division designs, manufactures, and markets mechani-
cally-mechanically- and
hydraulically-driven test systems for package and product reliability
testing. Among other uses, this equipment simulates the conditions a
product will encounter during transpor-
tationtransportation and distribution including
shock, compression, vibration, and impact. This type of testing is
widely conducted by businesses involved in product design, packaging, and
distribution.
The VALVIEW (tm) software for the VALIDATOR (tm) compression test
system is an example of a new product enhancement during the
current fiscal year.
The business units in the Test and Measurement segment have numer-
ousnumerous
customers and are not dependent upon a single or a few custom-
ers.
customers.
Technology
- ----------
The Technology segment includes the Technology Division and Turbo-
neticsTurbonetics
Energy, Inc. The Company derived 39%29% of its revenues from the
Technology segment in 1995.1996. The activities of the Technology segment are directed towardengages in
technology commercialization/product development, provides technical
support to the performance ofCompany's other divisions, has initiated several
strategic/teaming relationships with other companies, and performs
contract research, and devel-
opment anddevelopment, engineering, and technical services for
the government and industrial customers, technology commercialization/product
development, intracompany support, and strategic/teaming relation-
ships with other companies.commercial customers.
The Technology Segment, with special-
ized skills in mechanical and electrical engineering,Division is structured into fourtwo business areas:
machineryMeasurement & Diagnostics and components; power and
energy systems; monitoring and diagnostics; and new initiatives.Power & Energy Systems.
The machinery and componentsMeasurement & Diagnostics business area provides hardware and
software for machine monitoring; develops sensor technology for
imaging, control, and measurement; and is developing new applications
for biomedical markets. This business area develops hardware and
software that determines physical parameters, the health of machines,
and the quality of products that machines produce. Key markets include
the U.S. Air Force and several major utilities. Measurement &
Diagnostics employs proprietary fiber-optic, capacitance, and laser
sensors and software technology for imaging, control, and measurement.
The Technology Division currently deploys an integrated structured-
light mapping and 3D visualization system to support DOE environmental
remediation. In partnership with a major clinic, Measurement &
Diagnostics is capitalizing on the Company's strengths in sensors,
instrumentation, software, and machinery dynamics to create new
applications for the biomedical market.
The Power & Energy Systems business area is a leader in fuel cell
development, develops electronic controls for hybrid vehicles, markets
high-efficiency turbines, and develops advanced technology for rotating
machinery systems including bearings and
seals, custom test equipment, and magnetic bearings. This business
area also provides a wide range of engineering support services
within the following specialties: machinery audit and failure
analysis; analysis of materials and evaluation of heat transfer,
thermodynamics, and stress; and generation of computer codessystems. Power & Energy currently is developing fuel cell
technology for machinery design, analysis, and control, to government, industrial,both automotive and utility customers.
The power and energy systems business area develops advanced
technology for fuel cells, flywheel-based energy systems, and
hybrid electric vehicle control systems. These systems are intended
to control, store, and generate electrical energy for industrial,
utility, and automotive customers with less environmental impact
than current systems.
The monitoring and diagnostics business area provides engineering
services, computer-based monitoring of high-value machinery, and
develops automated maintenance systems. Monitoring equipment and
services are offered to utility and industrial customers. Automated
systems are provided to U.S. Air Force logistic centers.
The new initiativeindustry applications. This
business area is developing mapping systemsprototype hybrid electric vehicle controls
which support the introduction of fuel cell technology into the
automotive market. The business area is capable of producing high-
efficiency turbines, ranging in size from one to ten megawatts, in the
event that deregulation of utility markets triggers demand. Power &
Energy Systems also has expertise in magnetic bearings, hybrid
bearings, and advanced sensor applications. The mapping systems involve an inte-
grated package consisting of a structured light mapping system and
3D visualization software to support DOE environmental remediation
efforts. The advanced sensor applications employ fibre-optic
displacement, white-light interferometric, and precision capacita-
tive displacement technologies for both the commercial and govern-
ment market.high-efficiency compressors.
Finally, Turbonetics Energy Inc. ("Turbonetics") previously manufactured
and sold a commercial line of high efficiency steam turbines for electric
power generation in the 1 to 10 MW range, through waste heat recovery
application. During the current fiscal year, the
Company entered into an agreement to license the use of Turbonetics
developed technology and expected to benefit through royalty
income, however, this arrangementTurbonectics is being terminated. At this
time, Turbonectics will remainpresently inactive, and onlyactivities related
to this product line are being conducted within the few remaining
outstanding commitments will be fulfilled.Technology Division.
The Technology segment, either directly or as a subcontractor, received
approximately 77%73% of its 19951996 revenues (versus 66%77% in 1994)1995) from various
agencies of the U.S. Government; approximately 74%69% of the segment's
revenues were derived from two agencies, the Departments of Defense and
Energy. Contracts with the U.S. Govern-
mentGovernment are subject to termination,
at any time, by the Government either for convenience or for other causes
as determined by the contracts. The Technology Groupsegment has had no
government contracts terminated which when terminated resulted in a
material adverse effect on the Company.
Backlog
- -------
The backlog of orders believed to be firm as of September 30, 19951996 and
19941995 is as follows:
1995 1994
------ ------
(In thousands)
Technology $ 2,809 $ 6,103
Test and Measurement 4,502 13,758
------- ------
Total $ 7,311 $19,861
======= =======
1996 1995
------ ------
(In thousands)
Technology $ 1,572 $ 2,809
Test and Measurement 6,970 4,502
------ ------
Total $ 8,542 $ 7,311
====== ======
All amounts shown above have been awarded by government agencies or
released to manufacture by commercial customers; however, app-
roximately $70approximately
$40 thousand of the orders included in the September 30, 19951996 backlog may
not be filled during the Company's current fiscal year (as compared to
approximately $244$70 thousand not expected to be so filled at the end of the
prior year). Test and Measurement
includes backlog related to ProQuip of $0 and $10,086 thousand for
1995 and 1994, respectively. (See Note 17 to the accompanying
Consolidated Financial Statements).
Marketing and Sales
- -------------------
The Company sells its products and services through a combination of a
direct sales force, manufacturer's representatives, distribu-
torsdistributors and
commission salesmen. Each business unit is responsible for its own sales
organization. Typically, the Company's product businesses employ regional
manufacturer's representatives on an exclusive geographic basis to form a
nationwide or worldwide distribution organization; the business unit is
responsible for marketing and sales management and provides the
representatives with sales and technical expertise on an "as-required"
basis. To a great extent, the marketing and sales of the Company's larger
products and systems consist of a joint effort by the business unit's
senior management, its direct sales force, and manufacture-
r's representativesmanufacturer's representa-
tives to sophisticated customers. The manufacturer's representatives are
compensated on a commission basis.
The Company's technology support and research and development services
are sold on a direct basis. Reputation and personal contacts within the
specialized technical areas are critical to the identification and
receipt of support contracts. The Company believes it has an excellent
reputation within the technical areas in which it operates.
Research and Development
- ------------------------
The Company conducts considerable research and development. The following
table summarizes company- and customer-sponsored expendi-
turesexpenditures on
technology support, research and development, and product development for
the last three years:
1995 1994 1993
---- ---- ----1996 1995 1994
------ ------ ------
(In thousands)
Company-Sponsored $ 1,263 $ 1,425 $ 3,270 $ 2,620
Customer-Sponsored 5,946 8,492 7,742 9,095
------ ------ ------
Total $ 7,209 $ 9,917 $11,012 $11,715
====== ====== ======
While the amount estimated above as customer-sponsored research
activities is often not directly related to the development of new
products or the improvement of existing products, it is the belief of the
Company that these expenditures contribute to the growth of the Company's
technological base.
Product Protection
- ------------------
The Company holds numerous patents and rights in various fields of
technology. However, these patents, either individually or collec-
tively,collectively,
are not believed to be material to the success of any of the Company's
business segments. The technology of the Company is generally an
advancement of the "state of the art", and the Company expects to
maintain a competitive position by continuing such advances rather than
relying on patents. Licenses to other compa-
niescompanies to use Company-developed
technology have been granted. Licenses which have been granted or agreed
to be granted have been and are expected to be of benefit to the Company,
though royalty income received in recent years has not been material in
amount and is not expected to be material in the foreseeable future.
Competition
- -----------
The Company and each of its business segments are subject to intense
competition. In each of its business segments, the Company faces
competition from at least several companies, many of which are larger
than MTI and have greater financial resources. While the business units
in the Company's Test and Measurement segment each have a major share of
their respective markets, the Company does not consider any of them to be
dominant within its industry. The Company's Technology Division has a
negligible share of its respective market and competes with dozens (and
perhaps hundreds) of competing providers of similar products and
services, many of whom have greater financial and technical resources.
The primary competitive considerations in the business segments in which
the Company operates are: product quality and performance, price, and
timely delivery. The Company believes that its research and development
skills and reputation are competitive advantages.
Employees
- ---------
The total number of employees of the Company and its subsidiaries was 232233
as of September 30, 1995,1996, compared to 317232 as of the begin-
ningbeginning of the
fiscal year (Prior year numbers include 63 employees of
ProQuip, sold in November 1994).year.
Executive Officers
- ------------------
The executive officers of the registrant (all of whom serve at the
pleasure of the Board of Directors), their ages, and the position or
office held by each, are as follows:
Position or Office Name Age
------------------ ---- ---
President, R. Wayne Diesel 50
Chief Executive Officer,
Chief Operating Officer,
and a Director
Chief Financial Officer Stephen T. Wilson 43
Vice-President and General Manager Douglas McCauley 47
Technology Division
President and Chief Operating Officer, Stephen S. Sullivan 61Position or Office Name Age
-------------------- -------------- -----
Chief Executive Officer R. Wayne Diesel 51
and a Director
President and Chief Martin J. Mastroianni 52
Operating Officer
Chief Financial Officer Stephen T. Wilson 44
Vice-President and General Manager Douglas McCauley 48
Technology Division
President and Chief Operating Officer, Stephen S. Sullivan 62
Ling Electronics Inc.
Vice-President and General Manager, Denis P. Chaves 56
LAB Division and Advanced Denis P. Chaves 55
Product Division
Mr. Diesel was elected President and Chief Executive Officer of the Company in February
1994.1994, and prior to December 1996, also held the title of President. Prior
to February 1994, he had been Chief Financial Officer since 1991 and
President since March 1993 of Lawrence Management Group, and Treasurer of
the Lawrence Insurance Group, Inc. since March 1993. From 1988 until his
association with Lawrence Group, Inc., Mr. Diesel was Administrative Vice
President responsible for corporate administration, human resources and
strategic planning at KeyCorp. Previously, he held various executive
positions with the State of New York.
Mr. Mastroianni was appointed President and Chief Operating Officer of
the Company in December 1996. Prior to joining the Company, he served
most recently as Director, Transmission Power Delivery for the Electric
Power Research Institute (EPRI) where he was employed since 1992.
Previously, between 1973 to 1992, he held senior management positions in
the technology driven test and measurement industries with Vacuum
Components, Inc., Tenney Engineering, Inland Vacuum Industries,
Halocarbon Products, Inc., and Allied Signal Corporation.
Mr. Wilson joined the registrantCompany in March 1995 and was appointed Chief
Financial Officer. Prior to joining the registrant,Company, he had been the Manager-CorporateManager-
Corporate Accounting/Banking of Lawrence Management Group since January
1991. Prior to 1991, he held various management positions with Fleet
Financial Group.
Mr. McCauley has been Vice-President and General Manager of the
Technology Group since August 1994. He was previously Director of
Business Development from January 1989 to September 1991 and from October
1993 to August 1994. From October 1991 to October 1993 he had been Vice
President of Corporate Development for Chamberlain Manufacturing
Corporation, responsible for business conversion from defense to
commercial products. Prior to 1989, he held various management positions
with the General Electric Company.
Mr. Sullivan has been President and Chief Operating Officer of Ling
Electronics Inc., a wholly owned subsidiary of the Company, since August
1992. Mr. Sullivan was previously Executive Vice President of Ling
Electronics Inc. from January 1990 through August 1992. Prior to 1990,
he held various management positions with Ling Electronics Inc. since his
employment in 1977.
Mr. Chaves has been Vice-President and General Manager of the Company's
Advanced Products Division since 1987 and Vice-President and General
Manager of the Company's LAB Division since January 1994. Previously, he
served as Manager of Corporate Marketing for the Company from 1981 to
1987.
ITEM 2: PROPERTIES
The Company and its subsidiaries presently own or lease real estate
principally in New York and California. In management's opinion, these
facilities are generally well maintained and are adequate to meet the
Company's current and anticipated future needs.
Owned Properties
- ----------------
The Company's corporate headquarters and certain of its research and
development and manufacturing facilities are located in a three-
buildingthree-building
complex of approximately 103,000 square feet on 38 acres in Latham, New
York, which is owned by the Company. This complex is divided
approximately equally between office and laboratory /
manufacturinglaboratory-manufacturing areas.
Corporate staff, the Technology Segment,segment, and the Advanced Products
Division (part of the Test and Measurement segment) are located at the
Latham facility.
The property referred to in the preceding paragraph is subject to
mortgages to secure the Company's indebtedness described in Note 7___ to
the accompanying Consolidated Financial Statements.
Leased Properties
- -----------------
The Company and its subsidiaries lease the following facilities in which
its various business units conduct operations; generally, these are
stand-alone low-rise buildings containing primarily manufacturing space,
with some portion of each used for office space.
Approximate Lease
Location Square feet Segment Used By Expires
--------Approximate Lease
Location Square feet Segment Used By Expires
---------- ------------- --------------------- ----------- --------------- -------
Anaheim, CA 85,000 Test and Measurement June,1998
Malta, NY 18,000 Technology Dec.,1999
Skaneateles, NY 18,000 Test and Measurement June,1998
In addition to the above properties, the Company and its subsidiaries
lease several small offices for field engineering and/or marketing
personnel at various locations in the U.S.United States and U.K.United Kingdom.
ITEM 3: LEGAL PROCEEDINGS
At any point in time, the Company and its subsidiaries may be involved in
various lawsuits or other legal proceedings; these could arise from the
sale of products or services or from other matters relating to theits
regular business activities, could relate to compliance with various
governmental regulations and requirements, or could be based on other
transactions or circumstances. Except for the matters described in
Notes 11, 12, and 16 to the accompanying Consolidated Financial
Statements (which description is incorporated herein by reference),
management of theThe Company does not believe there are any
such proceedings presently pending which, if ultimately resolved in a
manner adverse to the Company, wouldcould have a material adverse effect on
the Company's financial position.position except for the matters described in Note
___ to the accompanying Consolidated Financial Statements (which
description is incorporated herein by reference),and the matter discussed
below (as to which matter the Company considers the likelihood of a
material adverse outcome to be remote).
In October 1989, the Environmental Protection Agency (EPA) issued an
Order alleging that there has been a release of hazardous materials into
the environment at a site in Malta, New York (the "Site") at which the
Company leased a facility and directing the "potentially responsible
parties" ("PRPs"), including the Company, to undertake a remedial
investigation and feasibility study (RI/FS) of the Site. The Company,
however, believes that it is not responsible for any release of hazardous
substances that may have occurred at the Site, and has denied any
liability for the matter.
In August 1996, after the Site investigation was completed, EPA demanded
that a remedial plan be undertaken by the PRPs and that EPA be reimbursed
for cost it incurred with respect to the Site. Efforts have been underway
between the PRPs and EPA to negotiate a settlement of all claims; a
tentative settlement has been negotiated among the PRPs but has not yet
been approved by EPA. There is no assurance that the proposed settlement
will be completed, however the Company considers the likelihood of a
material adverse outcome to be remote and does not expect that any
expense or liability it may incur as a result of this matter in the
future will be material.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the registrant's security
holders during the fourth quarter of fiscal 1995.
1996.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Price Range of Common Stock
- ---------------------------
InSince August 1994, the Company was notified by the National Association
of Securities Dealers, Inc. ("NASD") that it no longer met certain
minimum requirements to maintain the listing of its common stock on
the NASDAQ National Market System, or to be listed on the NASDAQ
Smallcap Market. Since that time, the Company's Common Stock has been traded on the
over-the-counter market and is quoted inlisted under the so-called
"pink sheets" published by the National Quotation Bureau orsymbol MKTY on NASD's
electronic OTC Bulletin Board under the symbol MTIX.Board. Set forth below are the highest and lowest
prices at which shares of the Company's Common Stock have been traded
during each of the Company's last two fiscal years.
High Low
---- ---
High Low
Fiscal Year 1996 ------ -----
First Quarter 1-1/8 3/8
Second Quarter 3-1/2 5/16
Third Quarter 3-1/4 1-1/2
Fourth Quarter 2-7/8 1-3/4
Fiscal Year 1995
First Quarter 3/8 1/16
Second Quarter 1-3/8 3/8
Third Quarter 2 1-1/4
Fourth Quarter 1-5/8 15/16
Fiscal Year 1994
First Quarter 3-5/8 1-3/4
Second Quarter 3-1/2 2-1/2
Third Quarter 3 3/4
Fourth Quarter 1 1/16
Number of Equity Security Holders
- ---------------------------------
Approximate Number of Record
Title of Class Holders* (as of December 15,1995)
-------------- -------------------------13,1996)
------------------ ---------------------------------
Common Stock, $1.00 Par Value 530535
- --------------------------------------------------------------
*In addition, there are approximately 550505 beneficial owners holding stock
in "street" name.
Dividends
- ---------
The Company has never paid cash dividends on its Common Stock. Subject to
the terms of the Company's loan agreements (described in Note 7___ to the
accompanying Consolidated Financial Statements), under which the payment
of cash dividends is currently prohibited, the payment of dividends is
within the discretion of the Company's Board of Directors and will
depend, among other factors, on earnings, capital requirements, and the
operating and financial condition of the Company. The Company does not
anticipate paying dividends in the foreseeable future.
ITEM 6: SELECTED FINANCIAL DATA
The following table sets forth summary financial information regarding
Mechanical Technology Incorporated for the years ended September 30, as
indicated:
(In thousands, except per share amounts)
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
Net Sales $29,748 $40,234 $41,500 $42,462 $47,523
Income (Loss) from
Continuing Operations 2,922(1) 141 1,162 (335) (8,728)
Net Income (Loss) 2,922 (24,378) 1,056 57 (8,574)
Earnings (Loss) Per
Share:
From Continuing
Operations .82 .04 .33 (.09) (2.46)
Net (Loss) Inco .82 (6.91) .30 .02 (2.42)
As of September 30:
Total Assets 14,483 25,317 42,428 38,890 43,093
Long-term Obligations 6,222 2,144(2) 11,699 13,142 0(3)
(In thousands, except per share amounts)
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Net Sales $31,901 $29,748 $40,234 $41,500 $42,462
Income (Loss) from
Continuing Operations 509(1) 2,922(2) 141 1,162 (335)
Net Income (Loss) 3,748 2,922 (24,378) 1,056 57
Earnings (Loss) Per
Share:
From Continuing
Operations .13 .82 .04 .33 (.09)
Net Income (Loss) .96 .82 (6.91) .30 .02
As of September 30:
Total Assets 14,452 14,483 25,317 42,428 38,890
Long-term Obligations * 6,222 2,144(3) 11,699 13,142
* omitted pursuant to Rule 12b-25.
- ------------------------------
(1) Current year information containsIncludes $750 thousand gain from the sale of ProQuip resulting from
the release of escrow funds. (See Note ___ to the accompanying
Consolidated Financial Statements).
(2) Includes ProQuip (sold in November 1994) results through the sale
date and the $6.8 million gain on its sale. All prior periods include the
results of ProQuip. (See Note 17___ to the accompanying Consolidated
Financial Statements).
(2)
(3) Does not include approximately $8.0 million classified as a current
liability and paid in the first quarter of fiscal year 1995 from the net
proceeds received from the sale of a subsidiaryProQuip in November 1994.
(See
Note 7 to the accompanying Consolidated Financial Statements).
(3) Does not include $16.0 million classified as a current liability.
Consistent with 19951996 data, prior years have been restated to reflect the
Defense/Aerospace segment as a discontinued operation. (See Note 16___ to
the accompanying Consolidated Financial Statements).
There were no cash dividends on common stock declared for any of the
periods presented.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
TheAs described in Note ___ to the accompanying Consolidated Financial
Statements, the Company's United Telecontrol Electronics, Inc. ("UTE")
subsidiary filed for voluntary bankruptcy under Chapter 11 of the Federal
Bankruptcy Code in April 1994 and commenced an orderly liquidation in
October 1994, as described in Note 161994. In June 1996 the Bankruptcy Court confirmed UTE's plan of
liquidation under which the Company was released from all remaining
liabilities related to the accompanying Consolidated
Financial Statements.UTE's bankruptcy. Accordingly, UTE's results and
the impact of the liquidation on the Company's results have been
classified as "discon-
tinued"discontinued operations" in the Consolidated Financial
Statements; prior
years information has been restated to conform with this treatment.
During the fourth quarter of fiscal 1995, UTE signed settlement
agreements with the various parties which resolve all outstanding dis-
putes and claims with the United States Government related to the
Maverick, AMRAAM, and Stinger missile programs. Under the terms of
these agreements, the Company would be released from performance
guarantees it had provided, and all claims against it associated
therewith.Statements.
The Company and UTE in turn would releaserecorded the government
from all claims for equitable adjustment under these contracts. This
settlement is subject to notificationeffect of the creditors and the entry of
a formal order of the bankruptcy court. The Company and UTE are also
party to a settlement agreement, which was reached with the official
committee of the unsecured creditors of UTE in a hearing before the
bankruptcy court. This settlement is also subject to the entry of a
formal order of the bankruptcy court.
The Company expects the final liquidation of UTE will occur during
fiscal year 1996. At that time any finalFinal adjustments to the Company's financial statements
as a result of the UTE bankruptcy will be made.are reflected in income from
discontinued operations. For 1995, no additional loss1996, income from discontinued operations of
$3.2 million was recorded as a result the Company's release from all
remaining liabilities . No income (loss) from discontinued operations was
recorded because the estimated net realizable value including the reserves for future terminationfiscal year 1995, and liquidation costs recorded as of September 30,
1994 remains, in management's opinion, a reasonable estimate. A
$24,519,000$24.5 million net loss was recorded
in 1994 for discontinued operations, including $15,415,000$15.4 million to write
down all assets to net realizable value and establish a reserve for
estimated future termination and liquida-
tionliquidation cost.
In 1993 UTE recordedNovember 1994, the Company sold its ProQuip Inc. ("ProQuip")
subsidiary for approximately $13.3 million, of which $750 thousand was
placed in escrow for fifteen months to provide a $106,000 net loss.fund for indemnity
payments. As of February 22, 1996 (the escrow expiration date), no claim
had been filed, nor was the company aware of any circumstances which
might give rise to future claims. Accordingly, the Company recognized the
remaining $750 thousand gain from the sale during the second quarter of
fiscal 1996. Prior year information contains ProQuip results through its
sale date (November 22, 1994) and the $6.8 million gain on its sale. (See
Note ___ to the accompanying Consolidated Financial Statements).
Results of Operations: 1996 in Comparison with 1995
- ---------------------------------------------------
[Omitted pursuant to Rule 12b-25.]
Results of Operations: 1995 in Comparison with 1994
- -------------------------------------------------------------------------------------------------------
The following is managements's discussion and analysis of certain
significant factors which have affected the Company's results of
operations for 1995 compared to 1994. This discussion relates only to the Company's
continuing operations which includeincluded ProQuip Inc. prior to its sale in
November 1994:
Sales for 1995 of $29,748,000$29.7 million were $10,486,000$10.5 million or 26%26.1% lower than
1994. The decrease in sales was entirely attributable to the sale of
ProQuip. Excluding ProQuip, sales increased $2,161,000$2.2 million or 9%8.6% in 1995
as compared to 1994.
Selling, general and administrative expenses for 1995 were 26.8%27.2% of
sales, versus 24.7% in 1994. Product development and research costs for
1995 were 4.8% of sales versus 8.1% in 1994. The Company continuescontinued to
narrow the focus of its internal research and development activities. Due
to continuing operating and cash flow losses at Ling Electronics, Inc.
("Ling"), a $1,590,000$1.6 million impairment loss was recognized in 1995 to reduce
the carrying value of the Company's investment in that subsid-
iary.subsidiary.
As reported in Note 17___ to the accompanying Consolidated Financial
Statements, the Company sold its ProQuip subsidiary for $13,250,000$13.3 million
which resulted in a gain of $6,779,000$6.8 million before income taxes.
1995 income from continuing operations of $2,922,000$2.9 million was $2,781,000$2.8 million
higher than 1994. The increase is attributed to the $6,779,000$6.8 million gain on
the sale of ProQuip reduced by the $1,590,000$1.6 million impairment loss on Ling;
in addition, 1994 included a $1,856,000$1.9 million gain on the sale of a building.
The Test and Measurement segment's financial results include ProQuip
until November 22, 1994, the date of its sale. The Test and Measurement
segment recorded sales of $18,140,000$18.1 million in 1995, $11,581,000$11.6 million lower than
the $29,721,000$29.7 million in 1994. The decrease in sales was entirely attribut-
able to the sale of ProQuip. Excluding ProQuip, the Test and Measure-
mentMeasurement
segment reported a sales increase of $1,066,000$1.1 million or 7%7.4%. LAB, Advanced
Products, and Ling divisions reported sales increases of 28%, 11%, and
3%, respectively. The Operating results of the Test and Measurement
segment for 1995 were a $1,889,000$2.0 million loss (including an impairment loss
of $1,590,000;$1.6 million; see Note 18___ to the accompanying Consolidated Financial
Statements) as compared to a $2,172,000$2.2 million profit in the prior year.
Excluding ProQuip and the impairment loss, the operating results were a
$997,000$1.1 million loss as compared to a $1,897,000$1.9 million loss or a $900,000$800 thousand
reduction in operating losses, 1995 compared to 1994. All divisions
reported improvements, however, Ling reported an operating loss of $1,979,000$2.0
million (excluding impairment loss) for 1995 compared to $2,572,000$2.6 million
loss for 1994. Ling's poor results reflect continued inadequate margins,
unfavorable adjustments to inventory, account receivable write-offs, and
severance cost associated with work force reductions. Export license
restrictions on certain of Ling's products, imposed in the first quarter
of the fiscal year 1995, caused numerous inefficiencies and delays in
shipments.
The Technology segment recorded sales of $11,608,000$11.6 million in 1995, $1,095,000$1.1
million or 10% higher than the $10,513,000$10.5 million recorded in 1994. The
operating loss for 1995 was $463,000$463 thousand or a $1,440,000$1.4 million improvement
from the $1,903,000$1.9 million loss recorded in 1994. The segment's performance
was favorably impacted by work completed on a major new order along with
lower product development and selling expenses, partially offset by a
contract cost overrun of $243,000,$243 thousand, and inventory write-offs of $160,000$160
thousand on a contract with performance contingencies and $150,000$150 thousand
on the unsuccessful funding of an anticipated project.
Given the
historically low level of backlog, a continued improvement in fiscal
year 1996 will depend on success in procuring and fulfilling
orders within the fiscal year. The Technology division was reorganized
in late 1995 and continues to evolve to a business focused on develop-
ment of technology for products that meet emerging market needs.
Results of Operations: 1994 in Comparison with 1993
- ----------------------------------------------------
The following discussion relates to the continuing operation of the
Company:
Sales for 1994 of $40,234,000 were $1,266,000 or 3% lower than 1993.
The Technology segment reported sales decreases of $2,592,000 or 20%,
while the Test and Measurement segment reported a sales increase of
$1,326,000 or 5%. The 1994 income from continuing operations of
$141,000 was $1,021,000 lower than 1993. The decline is the result of
lower operating results for both the Technology and Test and
Measurement segments and a higher effective income tax rate, partially
offset by profit on the sale of real estate.
Selling, general and administrative expenses for 1994 were 24.7% of
sales, versus 23.5% in 1993. Product development and research costs
for 1994 were 8.1% of sales versus 6.3% in 1993.
As reported in Note 14 to the accompanying Consolidated Financial
Statements, the Company sold its facility located in the Town of
Colonie, New York, during 1994 with a resultant $1,856,000 gain before
income taxes.
The Test and Measurement segment's results include ProQuip, Inc.
("ProQuip") which was sold in November 1994. (See Note 17 to the
accompanying Consolidated Financial Statements). The Test and Measure-
ment segment recorded sales of $29,721,000 in 1994, $1,326,000 higher
than the $28,395,000 in 1993. ProQuip had a sales increase for 1994
over 1993 of $4,533,000, which was partially offset by a
$2,821,000 decrease by Ling Electronics, Inc. ("Ling"). Operating
profit for the segment were $2,171,000 in 1994 versus $3,022,000 in
1993. ProQuip recorded a $1,774,000 increase reflecting their higher
sales level. However, this increase was more than offset by a
$2,656,000 decrease recorded by Ling. Ling's poor results reflect the
sales decline noted above and unfavorable adjustments (mainly inventory
related) of $1,520,000 recorded in the fourth quarter. The Advanced
products and LAB Divisions both recorded operating income in 1994 close
to the amounts recorded in 1993.
The Technology segment recorded sales of $10,513,000 in 1994,
$2,592,000 lower than the $13,105,000 recorded in 1993. The operating
loss for 1994 was $1,524,000 higher than 1993, reflecting the sales
decrease noted above and a $400,000 write-down of a limited partner-
ship interest to its estimated realizable value.
Liquidity and Capital Resources
- -------------------------------
During the first quarter of fiscal year 1995, the Company sold its
ProQuip subsidiary for $13,250,000. The sale resulted in a gain of
$6,779,000. Approximately $8,000,000 of the net proceeds were applied[Omitted pursuant to the Company's term debt.
At September 30, 1995 cash and cash equivalents were $78,000 versus
$1,820,000 at September 30, 1994. Working capital was a positive
$594,000 at September 30, 1995 versus a negative $8,588,000 at fiscal
year-end 1994. Cash used by continuing operations was
$558,000 in 1995 versus $1,996,000 cash provided in 1994. Continued
operating losses at Ling was the most significant negative factor
impacting the cash used from operations. Line of credit borrowing at
September 30, 1995 was $3,408,000, while at September 30, 1994 there
was line of credit borrowing of the maximum $4,000,000. Capital was
used in 1995 to, among other things, increase inventories, reduce
liabilities and debt, and acquire capital equipment.
Capital spending for 1995 was $667,000, a slight increase from 1994
capital spending levels of $645,000.
During November 1995, the lending institution agreed to extend the
maturity of the Company's term debt to October 1998 with scheduled
principal payments outlined below. At fiscal 1995 year-end, the Company
had current installments on long-term debt of $738,000 and the
remaining balance of $1,260,000 due beyond fiscal 1996. The scheduled
principal payments on the Company's bank term loan are as follows:
$738,000 in fiscal year 1996, $604,000 in fiscal year 1997, $604,000 in
fiscal year 1998, and on October 31, 1998 the balance of $52,000 is
payable in full.
The Company has a line of credit available in the amount of
$4,000,000, of which $3,408,000 was outstanding on September 30, 1995.
In October 1995, the lending institution agreed to extend the maturity
of the line of credit until October 31, 1998 when the outstanding
balance becomes due and payable. This line of credit continues to be
collateralized by a guarantee from a former shareholder and expires on
October 31, 1998.
During December 1993 UTE borrowed $3,000,000 from a finance company.
The agreement states that the Company shall pay amounts due thereunder
which are not paid by UTE when due. The obligation matured in October
1994, which was subsequently extended to December 31, 1995; and on
December 27, 1995, the lender agreed to extend the due date until
December 31, 1996. UTE filed for bankruptcy under the Federal Bankrupt-
cy Code in April 1994, and commenced an orderly liquidation in October
31, 1994; any obligation the Company has under the agreement is not
affected by the UTE bankruptcy filing.
The Company anticipates that it will be able to meet the liquidity
needs of its continuing operations from cash flow generated by those
operations and borrowing under its existing line of credit, including
sufficient cash flow to make all payments due on its indebtedness
during 1996. However, the Company's ability to achieve these objectives
is dependent upon an orderly liquidation of its United Telecontrol
Electronics, Inc. subsidiary and attaining overall profitability and
positive cash flow. There is no assurance that the Company will be able
to achieve these objectives.Rule 12b-25.]
ITEM 8: FINANCIAL STATEMENTS
The financial statements filed herewith are set forth on the Index[Omitted pursuant to Consolidated Financial Statements on Page F-1 of the separate financial
section which follows page 24 of this report and are incorporated
herein by reference.Rule 12b-25.]
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Executive Officers" in Item
1 of this Form 10-K Report, and the information which will be set forth
in the section entitled "Election of Directors", and under the captions
"Security Ownership of Certain Beneficial Owners" and "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" in the section
entitled "Additional Information", in the definitive Proxy Statement to
be filed by the registrant, pursuant to Regulation 14A, for its Annual
Meeting of Shareholders to be held on March 28,
1996April 16, 1997 (the "1996"1997 Proxy
Statement"), is incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
The information which will be set forth under the captions "Executive
Compensation", "Compensation Committee Report", "Compensation Committee
Interlocks and Insider Participation", "Employment Agreements", and
"Directors Compensation", in the section entitled "Additional Infor-
mation" in the registrant's 19961997 Proxy Statement, is incorporated herein
by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information which will be set forth under the captions "Security
Ownership of Certain Beneficial Owners" and "Security Ownership of
Management" in the section entitled "Additional Information" in the
registrant's 19961997 Proxy Statement is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information which will be set forth under the caption "Certain
Information Regarding Nominees" in the section entitled "Election of
Directors", and under the captions "Directors Compensation", "Security
Ownership of Certain Beneficial Owners", and "Certain Relationships and
Related Transactions", in the section entitled "Additional Informa-
tion"Information",
in the registrant's 19961997 Proxy Statement is incorporated herein by reference.
refer-
ence.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) The financial statements to be filed herewith are set forth on the
Indexomitted pursuant
to Consolidated Financial Statements on page F-1 of the
separate financial section which accompanies this Report, which is
incorporated by reference.Rule 12b-25.
The following exhibits are filed as part of this Report:
Exhibit
Number Description
------- -------------------- -------------
2.1 Purchase Agreement, dated as of November 23,
1994, among the Registrant, ProQuip Inc. and
Phase Metrics(7)Metrics.(7)
3.1 Certificate of Incorporation of the registrant,
as amended(1)amended.(1)
3.2 By-Laws of the registrant, as amended(4)amended.
4.1 Certificate of Amendment of the Certificate
of Incorporation of the registrant, filed
on March 6, 1986 (setting forth the provisions
of the Certificate of Incorporation,as amended,
relating to the authorized shares of the
registrant's Common Stock) - included in the
copy of the registrant's Certificate of
Incorporation, as amended, filed as Exhibit 3.1
heretohereto.
4.20 Loan Agreement, dated as of June 1, 1987,
between the registrant and Chase Lincoln
First Bank, N.A. ("Chase Lincoln"), relating to
a $20,000,000 term loan to finance the
registrant's acquisition of United
Telecontrol Electronics, Inc. (the "UTE Loan
Agreement").(1)
4.21 First Amendment to Loan Agreement, dated as
of September 30, 1988, amending certain
provisions of the UTE Loan Agreement(1)Agreement.(1)
4.22 Second Amendment to Loan Agreement, dated as of
February 21, 1990, amending certain provisions
of the UTE Loan Agreement(1)Agreement.(1)
4.24 Third Amendment to Loan Agreement, dated as
of January 1, 1991, amending certain
provisions of the UTE Loan Agreement(2)
Agreement.(2)
4.25 Form of Note, in the amount of $9,181,700,
executed by the registrant on January 1,
1991 to evidence its indebtedness under the
UTE Loan Agreement(2)Agreement.(2)
4.26 Form of Note, in the amount of $2,000,000,
executed by the registrant on January 1,
1991 to evidence its indebtedness under the
UTE Loan Agreement(2)Agreement.(2)
4.27 Form of Note, in the amount of $1,000,000,
executed by the registrant on January 1,
1991 to evidence its indebtedness under the
UTE Loan Agreement(2)Agreement.(2)
4.28 Mortgage, dated January 31, 1991, executed
by the registrant in favor of Chase Lincoln
and securing the registrant's obligation to
Chase Lincoln, including those under the
UTE and ProQuip Loan Agreements(2)Agreements.(2)
4.30 Loan Agreement, dated as of September 30,
1988, between the registrant and Chase
Lincoln relating to an $8,000,000 term loan
to finance the registrant's acquisition of
ProQuip, Inc. (the "ProQuip Loan
Agreement").(1)
4.31 Negative Pledge Agreement, dated as of
September 30, 1988, executed by the
registrant in favor of Chase Lincoln in
connection with the ProQuip Loan
Agreement(1)Agreement.(1)
4.32 Security Agreement, dated as of September
30, 1988, executed by the registrant in
favor of Chase Lincoln and securing the
registrant's obligations to Chase Lincoln,
including those under the UTE and ProQuip
Loan Agreements (the "Chase Lincoln
Security Agreement").(1)
4.33 First Amendment to Loan Agreement, dated as
of February 21, 1990, amending certain
provisions of the ProQuip Loan Agreement(1)Agreement.(1)
4.34 Form of Note, in the amount of
$3,375,817.80, executed by the registrant
on February 21, 1990 to evidence its
indebtedness under the ProQuip Loan
Agreement(1)Agreement.(1)
4.35 Amendment Number One to Security Agreement,
executed by the registrant on February 21,
1990, amending the Chase Lincoln Security
Agreement(1)Agreement.(1)
4.36 Mortgage, dated February 21, 1990, executed
by the registrant in favor of Chase Lincoln
and securing the registrant's obligations
to Chase Lincoln, including those under the
UTE and ProQuip Loan Agreements(1)
Agreements.(1)
4.37 Second Amendment to Loan Agreement, dated
as of January 1, 1991, amending certain
provisions of the ProQuip Loan
Agreement(2)Agreement.(2)
4.38 Mortgage Modification and Allocation
Agreement, dated January 1, 1991, executed
by the registrant and Chase Lincoln(2)Lincoln.(2)
4.40 Form of Payment Guaranty, dated as of
September 1, 1988 [as of September 30,
1988, in the case of ProQuip, Inc.],
executed by the subsidiaries of the
registrant in favor of Chase Lincoln and
guaranteeing payment of the registrant's
obligations to Chase Lincoln, including
those under the UTE and ProQuip Loan
Agreements(1)Agreements.(1)
4.41 Form of Negative Pledge Agreement, dated as
of September 30, 1988, executed by the
subsidiaries of the registrant in favor of
Chase Lincoln in connection with the
ProQuip Loan Agreement(1)Agreement.(1)
4.42 Form of Security Agreement, dated as of
September 30, 1988, executed by the
subsidiaries of the registrant in favor of
Chase Lincoln and securing the registrant's
obligations to Chase Lincoln, including
those under the UTE and ProQuip Loan
Agreements(1)Agreements.(1)
4.43 Acknowledgment, Confirmation and Further
Agreement, made as of February 21, 1990,
executed by the subsidiaries of the
registrant in favor of Chase Lincoln with
respect to the registrant's obligations
under the UTE and ProQuip Loan
Agreements(1)Agreements.(1)
4.50 Debt Restructure Agreement, made as of
February 21, 1990, between the registrant,
Chase Lincoln, and Manufacturers Hanover
Trust Company ("Manufacturers Hanover"),
providing for a restructuring of the
registrant's indebtedness to Chase Lincoln
under the UTE and ProQuip Loan Agreements
and of the registrant's outstanding
indebtedness to Manufacturers Hanover (the
"MHTCo. Existing Debt"), among other
things(1)things.(1)
4.55 Second Amendment to Debt Restructure
Agreement, made as of January 1, 1991,
between the registrant, Chase Lincoln, and
Manufacturers Hanover, amending certain
provisions of the Debt Restructure
Agreement(2)Agreement.(2)
4.56 Second Debt Restructure Agreement, as of
July 22, 1992, between the registrant,
Chase Lincoln First Bank, N. A. ("CLFB"),
and Chemical Bank ("Chemical"), as
successor in interest to Manufacturers
Hanover Trust Company, providing for a
restructuring of the registrant's
indebtedness to CLFB under the UTE and
ProQuip Loan Agreements and of the
registrant's outstanding indebtedness to
Chemical, among other things(3)things.(3)
4.63 Promissory Note, in the amount of
$4,000,000 and dated July 22, 1992,
executed by the registrant to evidence its
indebtedness to Chemical from time to time
with respect to a line of credit in such
amount (The Chemical Line of Credit).(3)
4.64 Form of Payment Guaranty, dated as of July
24, 1992, executed by Masco Corporation in
favor of Chemical and guaranteeing payment
of the registrant's obligations to Chemical
under the Chemical Line of Credit(3)Credit.(3)
4.65 Promissory Note, in the amount of
$4,000,000 and dated October 31, 1994,
extending the maturity date of the
Promissory note dated July 22, 1992,
executed by the registrant to evidence its
indebtedness to Chemical under The Chemical
Line of Credit(8)Credit.(8)
4.66 Promissory Note, in the amount of $4,000,000
and dated October 31, 1995, extending the
maturity date of the Promissory note dated
October 31, 1994, executed by the registrant to
evidence its indebtedness to Chemical under The
Chemical Line of CreditCredit.(9)
4.67 Form of Payment Guaranty, dated October 31,
1995 executed by Masco Corporation in favor of
Chemical and guaranteeing payment of the
registrant's obligations to Chemical under the
Chemical Line of CreditCredit.(9)
4.80 Amended and Restated Loan Agreement, dated
as of July 22, 1992, between the registrant
and Chase Lincoln First Bank, N.A., which
amends, restates, combines, and supersedes
in full the UTE and the ProQuip loan
agreements(3)agreements.(3)
4.81 Form of Note, in the amount of $5,000,000,
executed by the registrant on July 24, 1992
to evidence its indebtedness to CLFB under
the July 22, 1992 Loan Agreement(3)Agreement.(3)
4.82 Form of Note, in the amount of $7,984,770,
executed by the registrant on July 24, 1992
to evidence its indebtedness to CLFB under
the July 22, 1992 Loan Agreement(3)Agreement.(3)
4.83 Additional Mortgage Note, dated July 24,
1992, executed by the registrant in favor
of CLFB and securing the registrant's
obligation to CLFB under the Loan Agreement(3)
Agreement.(3)
4.84 Additional Mortgage and Security Agreement,
dated as of July 22, 1992, executed by the
registrant in favor of CLFB and securing
the registrant's obligations to CLFB(3)CLFB.(3)
4.85 Mortgage Consolidation, Spreader, Modification
Extension and Security Agreement, dated July
22, 1992, executed by the registrant and
CLFB(3)CLFB.(3)
4.86 Confirmation of Guaranties and Security
Agreements, dated July 22, 1992, executed
by subsidiaries of the registrant in favor
of CLFB with respect to the registrant's
obligations to CLFB(3)CLFB.(3)
4.87 Consent and waiver, dated December 21, 1993,
from CLFB to the registrant with respect to the
Amended and Restated Loan Agreement(5)Agreement.(5)
4.88 Amendment One to Amended and Restated Loan
Agreement, dated as of August 1, 1994, between
the registrant and Chase Manhattan Bank, N. A.
which amends the Amended and Restated Loan
Agreement to defer the payment due on June 30,
1994(6)1994.(6)
4.89 Amendment Two to Amended and Restated Loan
Agreement with waiver, dated as of November
22,
1994,22,1994, between the registrant and Chase
Manhattan Bank, N. A. which amends the Amended
and Restated Loan Agreement and waives any
existing defaults.(8)
4.90 Additional Mortgage and Security Consolidation
Agreement, dated as of October 6, 1995 executed
by the registrant in favor of Chase Manhattan
Bank, N.A. and securing the registrant's
obligations to Chase Manhattan Bank, N.A.(9)
4.91 Form of Note, in the amount of $340,000,
executed by the registrant on October 6, 1995
to evidence its indebtedness to Chase
Manhattan Bank, N.A. under the July 22, 1992
Loan AgreementAgreement.(9)
4.92 Amendment Three to Amended and Restated Loan
Agreement with waiver, dated as of November
30, 1995, between the registrant and Chase
Manhattan Bank, N. A. which amends the Amended
and Restated Loan Agreement and waives any
existing defaults.(9)
10.1 Mechanical Technology Incorporated Restricted
Stock Incentive Plan - filed as Exhibit 28.1 to
the registrant's Form S-8 Registration
Statement No. 33-
2632633-26326 and incorporated herein
by referencereference.
10.3 MTI Employee 1982 Stock Option Plan(1)
Plan.(1)
10.4 Agreement, dated December 21, 1993, between
UTE, First Commercial Credit Corporation
("FCCC") and the registrant, relating to an
advance against certain receivables.(5)
10.6 Agreement, dated June 2, 1993, between the
registrant and Mr. Harry Apkarian, Director,
regarding his employment.(5)
10.7 Agreement, dated February 22, 1994, between
the registrant and Mr. R. Wayne Diesel,
President and Chief Executive Officer,
regarding his employment.(8)
10.8 Agreement, dated December 14, 1994, between
FCCC and the registrant, modifying the
Agreement dated December 21, 1993 relating to
an advance against certain receivables.(8)
10.9 Agreement, dated May 30, 1995, between FCCC
and the registrant, extending the maturity of
the Agreement dated December 14, 1994 relating
to an advance against certain receivables.(9)
10.10 Agreement, dated June 28, 1995, between FCCC
and the registrant, extending the maturity of
the Agreement dated December 14, 1994 relating
to an advance against certain receivables.(9)
10.11 Agreement, dated September 21, 1995, between
FCCC and the registrant, extending the
maturity of the Agreement dated December 14,
1994 relating to an advance against certain
receivables.(9)
10.12 Agreement, dated October 25, 1995, between FCCC
and the registrant, extending the maturity of
the Agreement dated December 14, 1994 relating
to an advance against certain receivables.(9)
10.13 Agreement, dated December 27, 1995, between
FCCC and the registrant, extending the maturity
of the Agreement dated December 14, 1994
relating to an advance against certain
receivables.
22.1(9)
10.14 Mechanical Technology Incorporated Stock
Incentive Plan - included as Appendix A to the
registrant's Proxy Statement, filed pursuant to
Regulation 14A, for its December 20, 1996
Special Meeting of Shareholders and
incorporated herein by reference.
10.15 Agreement, dated December 6, 1996, between
the registrant and Mr. Martin J. Mastroianni,
President and Chief Operating Officer,
regarding his employment.
21 Subsidiaries of the registrant
registrant.
- --------------------------------------------------------------------------------
Certain exhibits were previously filed (as indicated below) and are
incorporated herein by reference. All other exhibits for which no
other filing information is given are filed herewith:
(1) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-K Report, as amended, for its fiscal year ended
September 30, 1989.
(2) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-Q Report for its fiscal quarter ended December
29, 1990.
(3) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-Q Report for its fiscal quarter ended June 27,
1992.
(4) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-K Report for its fiscal year ended Septem-
berSeptember
30, 1991.
(5) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-K Report for its fiscal year ended Septem-
berSeptember
30, 1993.
(6) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-Q Report for its fiscal quarter ended July 2,
1994.
(7) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 8-K Report dated November 23, 1994.
(8) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-K Report for its fiscal year ended Septem-
berSeptember
30, 1994.
(9) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-K Report for its fiscal year ended September
30, 1995.
(b) No reports on Form 8-K were filed by the registrant during the
last quarter of the period covered by this Form 10-K Report.
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.
MECHANICAL TECHNOLOGY INCORPORATED
Date: December 28, 1995 by:30, 1996 By: /s/ R. Wayne Diesel
------------------------------------ ---------------------
R. Wayne Diesel--------------------------Diesel
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----------
/s/ Lawrence A. ShoreGeorge C. McNamee Chairman of the Board of Directors 12/28/9530/96
- -----------------------
Lawrence A. Shore---------------------
George C. McNamee
/s/ R. Wayne Diesel President, Chief Executive Officer
- -------------------------------------------- (Principal Executive Officer),
R.Wayne
R. Wayne Diesel Chief Operating Officer, and a Director "
/s/ Stephen T. Wilson Chief Financial Officer
- -------------------------------------------- (Principal Financial and Accounting
Stephen T. Wilson Officer) "
/s/ Harry Apkarian Director "
- --------------------------------------------
Harry Apkarian
/s/ Albert W. LawrenceAlan P. Goldberg Director "
- -----------------------
Albert W. Lawrence---------------------
Alan P. Goldberg
/s/ Stanley Landgraf Director "
- --------------------------------------------
Stanley Landgraf
/s/ E. D. O'Connor Director "
- --------------------------------------------
E. D. O'Connor
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------
Page
Report of Independent Accountants. . . . . . . . . . . F-2
Consolidated Financial Statements:
Balance Sheets as of September 30, 1995 and 1994 . . F-3 & F-4
Statements of Income for the Years Ended
September 30, 1995, 1994 and 1993 . . . . . . . . F-5
Statements of Shareholders' Equity for the Years Ended
September 30, 1995, 1994 and 1993 . . . . . . . . F-6
Statements of Cash Flows for the Years Ended
September 30, 1995, 1994 and 1993 . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . F-8 - F-22
Separate financial statements of the registrant alone are omitted
because the registrant is primarily an operating company and all
subsidiaries included in the consolidated financial statements being
filed, in the aggregate, do not have minority equity interest and/or
indebtedness to any person other than the registrant or its consoli-
dated subsidiaries in amounts which together exceed 5% of the total
assets as shown by the most recent year-end consolidated balance
sheet.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Mechanical Technology Incorporated
We have audited the consolidated financial statements of Mechanical
Technology Incorporated and Subsidiaries listed in the accompanying
index in Item 8 of this Form 10-K. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Mechanical Technology Incorporated and Subsidiaries as of September 30,
1995 and 1994, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended
September 30, 1995, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 13
to the financial statements, the Company has suffered operating losses
and negative cash flows from its continuing operations for the year
ended September 30, 1995, and has a shareholders' deficiency at
September 30, 1995. The Company's continuance is dependent on the
resolution of uncertainties surrounding the pending liquidation of the
Company's wholly owned subsidiary, United Telecontrol Electronics, Inc.
(Notes 1, 11 and 16), and its ability to achieve profitability and
adequate cash flow from operations. These factors raise substantial
doubt about the Company's ability to continue as a going concern.
Management's plans in regards to these matters are also described in
Note 13. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
/s/ Coopers & Lybrand L.L.P.
Albany, New York
November 22, 1995, except as to the information
in Note 7, for which the date is December 27, 1995
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1995 and 1994
(Dollars in thousands)
1995 1994
-------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 78 $ 1,820
Accounts receivable, less allowance of
$120 (1995) and $101 (1994) 6,793 11,625
Income taxes receivable - 122
Inventories 3,484 6,068
Escrow deposit 750 -
Deferred Income Taxes - 306
Prepaid expenses and other current assets 461 214
------- ------
Total Current Assets 11,566 20,155
Excess of cost over net assets of
acquired companies, net 59 1,726
Other 60 227
Property, Plant and Equipment, net 2,798 3,209
------- -------
$ 14,483 $ 25,317
======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
September 30, 1995 and 1994
(Dollars in thousands)
1995 1994
------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Line-of-Credit $ 1,446 $ 4,000
Note Payable - 3,000
Current installments on long-term debt 738 9,038
Income taxes payable 13 -
Accounts payable 2,290 3,684
Accrued liabilities 3,729 6,265
Net liabilities of discontinued operations 2,756 2,756
------ ------
Total Current Liabilities 10,972 28,743
LONG-TERM LIABILITIES
Line-of-Credit 1,962 -
Note Payable 3,000 -
Long-term debt, net of current maturities 1,260 2,144
Deferred income taxes and other credits 779 848
------- -------
Total Liabilities 17,973 31,735
------- -------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share,
authorized 15,000,000; issued 3,568,868
(1995) and 3,546,493 (1994) 3,569 3,546
Paid-in capital 12,856 12,944
Retained earnings (19,837) (22,759)
------- -------
(3,412) (6,269)
Foreign currency translation adjustment (20) (31)
Common stock in treasury, at cost,
3,000 shares (1995) and 10,200 (1994) (29) (100)
Restricted stock grants (29) (18)
------- -------
Total shareholders' equity (3,490) (6,418)
------- -------
$ 14,483 $ 25,317
======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended September 30, 1995, 1994 and 1993
(Dollars in thousands, except per share)
1995 1994 1993
------ ------ ------
Product revenue $18,516 $30,347 $28,710
Research & development revenue 11,232 9,887 12,790
------ ------ ------
Total revenue 29,748 40,234 41,500
Product cost of sales 12,616 19,033 17,399
Research & development contract costs 8,492 7,742 9,095
Selling, general and administrative
expenses 7,977 9,921 9,743
Product development and
research costs 1,425 3,270 2,620
Impairment loss on long-lived assets 1,590 - -
------ ------ ------
Operating (loss) income from
continuing operations (2,352) 268 2,643
Interest expense (1,081) (1,157) (1,170)
Gain on sale of subsidiary, ProQuip 6,779 - -
Gain on sale of building - 1,856 -
Other income (expense), net (338) (249) (40)
------ ------ ------
Income from continuing operations
before income taxes 3,008 718 1,433
Income tax expense 86 577 271
------ ------ ------
Income from continuing operations 2,922 141 1,162
Loss from discontinued operations - (24,519) (106)
------ ------ ------
Net income (loss) $ 2,922 $(24,378) $ 1,056
====== ======= ======
Earnings (loss) per share:
Continuing operations $ .82 $ .04 $ .33
Discontinued operations .00 (6.95) (.03)
------ ------- ------
Net income (loss) $ .82 $ (6.91) $ .30
====== ======= ======
The accompanying notes are an integral part of the consolidated
financial statements.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended September 30, 1995, 1994 and 1993
(Dollars in thousands)
1995 1994 1993
------- -------- --------
COMMON STOCK
Balance, October 1 $ 3,546 $ 3,546 $ 3,546
Issuance of shares 23 - -
------- ------- -------
Balance, September 30 $ 3,569 $ 3,546 $ 3,546
======= ======= =======
PAID-IN-CAPITAL
Balance, October 1 $ 12,944 $ 13,049 $ 13,033
Restricted stock grants (88) (105) 16
------- ------- -------
Balance, September 30 $ 12,856 $ 12,944 $ 13,049
======= ======= =======
RETAINED EARNINGS
Balance, October 1 $(22,759) $ 1,619 $ 563
Net income (loss) 2,922 (24,378) 1,056
------- ------- -------
Balance, September 30 $(19,837) $(22,759) $ 1,619
======= ======= =======
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance, October 1 $ (31) $ (44) $ (8)
Adjustments 11 13 (36)
------- ------- -------
Balance, September 30 $ (20) $ (31) $ (44)
======= ======= =======
TREASURY STOCK
Balance, October 1 $ (100) $ (201) $ (149)
Restricted stock grants 71 101 (52)
------- ------- ------
Balance, September 30 $ (29) $ (100) $ (201)
======= ======= ======
RESTRICTED STOCK GRANTS
Balance, October 1 $ (18) $ - $ -
Grants issued (11) (18) -
------- ------- -------
Balance, September 30 $ (29) $ (18) $ -
======= ======= =======
SHAREHOLDERS' EQUITY
September 30 $ (3,490) $ (6,418) $ 17,969
======= ======= =======
The accompanying notes are an integral part of the consolidated finan-
cial statements.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended September 30, 1995, 1994 and 1993
(Dollars in thousands)
1995 1994 1993
-------- -------- --------
OPERATING ACTIVITIES
Income from continuing operations $ 2,922 $ 141 $ 1,162
Adjustments to reconcile net income to net cash
(used) provided by continuing operations:
Depreciation and amortization 837 1,017 1,379
Impairment loss on long-lived assets 1,590 - -
Gain on sale of building - (1,856) -
Gain on sale of subsidiary (6,779) - -
Deferred income taxes and other credits (1) 595 (392)
Foreign currency translation 11 12 63
Other (5) 463 (49)
Changes in operating assets and liabilities net
of effects from discontinued operations:
Accounts receivable 1,611 (824) (2,444)
Inventories (230) (50) 245
Escrow deposit (750) - -
Prepaid expenses and other current assets (19) 299 163
Accounts payable 355 499 850
Income taxes 394 (651) 553
Accrued liabilities (494) 2,351 728
------- ------- ------
Net cash (used) provided by continuing operations (558) 1,996 2,258
------- ------- ------
Discontinued Operations:
Loss from discontinued operations - (24,519) (106)
Adjustments to reconcile loss to net cash
(used) provided by discontinued operations:
Write-down of assets to net realizable value - 15,415 -
Changes in net assets/liabilities
of discontinued operations - 4,839 (1,515)
------- ------- ------
- (4,265) (1,621)
------- ------- ------
Net cash (used) provided by operations (558) (2,269) 637
------- ------- ------
INVESTING ACTIVITIES
Discontinued operations - - (335)
Purchases of property, plant & equipment (667) (645) (540)
Proceeds from sale of building - 1,959 -
Proceeds from sale of subsidiary, net of
cash balance and expenses 9,125 - -
------ ------- ------
Net cash provided (used) in investing activities 8,458 1,314 (875)
------ ------- ------
FINANCING ACTIVITIES
Net borrowings (payments) under line-of-credit (592) 1,000 1,440
Borrowings under note payable agreement - 3,000 -
Principal payments of long-term debt (9,050) (1,900) (1,508)
------- ------- ------
Net cash (used) provided in financing activities (9,642) 2,100 (68)
------- ------- -------
(Decrease) increase in cash and cash equivalents (1,742) 1,145 (306)
Cash and cash equivalents - beginning of year 1,820 675 981
------- ------- -------
Cash and cash equivalents - end of year $ 78 $ 1,820 $ 675
======= ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Accounting Policies
-------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany transactions and accounts have
been eliminated.
Basis of Presentation
- ---------------------
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going concern, which
except as otherwise disclosed, assume that assets will be realized and liabil-
ities will be discharged in the normal course of business (See Note 13). As
described in Note 16, United Telecontrol Electronics, Inc. ("UTE"), a wholly
owned subsidiary which filed for bankruptcy under Chapter 11 of federal
bankruptcy laws in April 1994, commenced an orderly liquidation in October
1994. Accordingly, the financial results for UTE are reported as a discontin-
ued operation in the accompanying financial statements. At September 30, 1995
and 1994 the net liabilities of discontinued operations reflect UTE's pre- and
post-petition liabilities net of the estimated realizable value of the assets.
Inventories
- -----------
Inventories are stated at the lower of cost (first-in, first-out) or market.
Depreciation and Amortization
- -----------------------------
Property, plant and equipment are stated at cost and depreciated using primar-
ily the straight-line method over their estimated useful lives ranging from 3
to 40 years. When assets are sold, retired or otherwise disposed of, the
applicable cost and accumulated depreciation or amortization are removed from
the accounts and the resulting gain or loss is recognized.
Excess of Cost Over Net Assets of Acquired Companies
- ----------------------------------------------------
Costs in excess of net assets acquired in business combinations are amortized
using the straight-line method over 20 to 35 year periods. Accumulated
amortization was $114,787 and $5,338,198 at September 30, 1995 and 1994,
respectively.
During fiscal 1995, the Company adopted the provisions of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets to be
Disposed Of". This Statement requires that long-lived assets (e.g., goodwill)
be reviewed for impairment whenever events indicate that the carrying amount
of the assets may not be recoverable and provides guidelines for measuring the
impairment. Recoverability is based on estimated undiscounted future cash
flows. If the sum of the expected future cash flows is less than the carrying
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Accounting Policies (continued)
-------------------
amount of the asset, an impairment loss is recognized. Measurement of an
impairment loss is based on the fair value of the asset (See Note 18).
Income Taxes
- ------------
During 1993, the Company elected to adopt Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes", which was issued by
the Financial Accounting Standards Board (FASB) in February 1992.
Under SFAS 109, deferred tax consequences represent the future effects on
income taxes, as measured by the applicable enacted tax rate and provisions of
the enacted tax law, resulting from temporary differences and carryforwards,
at the end of the current year.
Revenue Recognition
- -------------------
Sales of products are recognized when products are shipped to customers.
Sales of products under long-term contracts are recognized under the percent-
age-of-completion method. Sales of contract research and development services
are also recognized on the percentage-of-completion method. Percentage-of-
completion is based on the ratio of incurred costs to current estimated total
costs at completion. Total contract losses are charged to operations during
the period such losses are estimated.
Foreign Currency Translation
- ----------------------------
Assets and liabilities of the foreign subsidiary are translated at year-end
rates of exchange, and revenues and expenses are translated at the average
rates of exchange for the year. Gains and losses resulting from the transla-
tion of the foreign subsidiary's balance sheet are accumulated as a separate
component of shareholders' equity.
Statement of Cash FlowsDr. Beno Sternlicht Director "
- -----------------------
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand and repurchase agreements with maturities of less than three months.
Reclassification
- ----------------
Certain 1994 and 1993 amounts have been reclassified to conform with the 1995
presentation.Dr. Beno Sternlicht
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) Long-Term Contracts Receivable
------------------------------
Included in accounts receivable are the following:
(Dollars in thousands) 1995 1994
------ ------
U.S. Government:
Amounts billed and billable $ 2,722 $ 1,602
Retainage 396 536
------ ------
3,118 2,138
Commercial Customers: ------ ------
Amounts billed and billable 207 674
Retainage 223 175
------ ------
430 849
------ ------
$ 3,548 $ 2,987
====== ======
The balances billed but not paid by customers pursuant to retainage provisions
in contracts are due upon completion of the contracts and acceptance by the
customer. Based on the Company's experience, most retainage amounts are expected
to be collected within the ensuing year.
In addition, the Company periodically incurs costs in excess of funded contract
limits. Such costs are incurred in the expectation of future authorization by
the contract sponsor. Management believes these costs, classified as inventory,
will become billable and collectible.
(3) Inventories
-----------
Inventories consist of the following:
(Dollars in thousands) 1995 1994
------ ------
Finished goods $ 249 $ 197
Work in process 1,119 2,231
Raw materials, components and assemblies 2,116 3,640
------ ------
$ 3,484 $ 6,068
====== ======
(4) Property, Plant and Equipment
-----------------------------
Property, plant and equipment consist of the following:
(Dollars in thousands) 1995 1994
------ ------
Land and improvements $ 125 $ 125
Buildings and improvements 3,513 3,513
Leasehold improvements 694 709
Machinery and equipment 13,028 14,330
Office furniture and fixtures 1,755 1,952
------ ------
19,115 20,629
Less accumulated depreciation 16,317 17,420
------ ------
$ 2,798 $ 3,209
====== ======
Depreciation expense was $646,000, $813,000 and $1,170,000 for 1995, 1994 and
1993, respectively. Repairs and maintenance expense was $362,000, $417,000 and
$499,000 for 1995, 1994 and 1993, respectively.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Income Taxes
------------
As discussed in Note 1, the Company adopted SFAS No. 109, during the fiscal year
ended September 30, 1993. Under SFAS 109, the deferred tax assets and liabili-
ties are determined based on the temporary differences between the financial
statement and tax bases of assets and liabilities as measured by the enacted tax
rates. Prior to fiscal year 1993, the Company accounted for income taxes in
accordance with SFAS 96. As permitted by SFAS 109, prior period financial
statements have not been restated; the cumulative effect of adopting SFAS 109 on
prior years was not significant.
Income tax expense (benefit) consists of the following:
(Dollars in thousands) 1995 1994 1993
------ ------ ------
Current tax provision:
Federal $ - $ (477) $ 675
State 86 436 219
Deferred tax provision - 265 (392)
------ ------ ------
$ 86 $ 224 $ 502
====== ====== ======
The income tax (benefit) expense is reflected in the accompanying statements of
income as follows:
(Dollars in thousands) 1995 1994 1993
------ ------ ------
Continuing operations $ 86 $ 577 $ 271
Discontinued operations - (353) 231
------ ------ ------
$ 86 $ 224 $ 502
====== ====== ======
The Company's effective income tax rate from continuing operations differed from
the Federal statutory rate as follows:
1995 1994 1993
------ ------ ------
Federal statutory tax rate 34% 34% 34%
State taxes, net of
federal tax effect 2% 38% 7%
Amortization of goodwill 1% 1% 2%
Impairment loss on long-lived
assets 18% - -
Current FSC earnings
permanently deferred - - (10%)
Change in valuation allowances (9%) - -
Worthless stock deduction (40%) - -
Reversal of prior year contingencies - - (14%)
Other, net (3%) 7% -
------ ------ ------
3% 80% 19%
====== ====== ======
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Income Taxes (continued)
------------
The deferred tax assets and liabilities as of September 30, 1995 and 1994
consist of the following tax effects relating to temporary differences and
carryforwards:
(Dollars in thousands) 1995 1994
------ ------
Current deferred tax assets (liabilities):
Net deferral of income from
discontinued operations $ (295) $ -
Net operating loss - 1,134
Loss provisions for discontinued
operations - 2,458
Investment in subsidiary held for sale - 1,394
Bad debt reserve 41 35
Inventory valuation 261 467
Inventory capitalization 70 58
Vacation pay 180 195
Warranty and other sale obligations 50 201
Other 178 192
------ ------
485 6,134
Valuation allowance (485) (5,828)
------ ------
Net current deferred tax assets $ - $ 306
Noncurrent Deferred tax assets ====== ======
(liabilities):
Net operating loss $ 5,288 $ -
Property, plant and equipment (408) (493)
Other 200 187
Net long-term deferred tax asset ------ ------
(liabilities) 5,080 (306)
Valuation allowance (5,080) -
Other credits (779) (542)
Noncurrent net deferred tax asset ------ ------
(liabilities) and other credits $ (779) $ (848)
====== ======
During the year ended September 30, 1994, a valuation allowance of $5,828,000
was established. The valuation allowance at September 30, 1995 is $5,565,000.
During the year ended September 30, 1995, the valuation allowance decreased by
$263,000.
At September 30, 1995, the company had an unused Federal net operating loss
carryforward of approximately $15,553,000. The Federal net operating loss
carryforward if unused will begin to expire during the year ended September 30,
2009.
During 1995, the Company received a net cash refund for income taxes of $266,000
and, for 1994 and 1993 made cash payments for income taxes of $365,000 and
$312,000, respectively.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Accrued Liabilities
-------------------
Accrued liabilities consist of the following:
(Dollars in thousands) 1995 1994
------ ------
Contract billings in excess of
costs and estimated earnings $ - $ 1,911
Salaries, wages and related expenses 666 1,265
Interest expense 881 655
Deferred income - ProQuip sale 750 -
Warranty and other sale obligations 223 584
Acquisition costs 373 405
Commissions 269 397
Legal and professional fees 89 341
Contingent liabilities 185 150
Other 293 557
------ ------
$ 3,729 $ 6,265
====== ======
(7) Indebtedness
------------
Indebtedness consists of the following:
(Dollars in thousands) 1995 1994
------ ------
Term loan $ 1,998 $11,041
Note payable 3,000 3,000
Line-of-credit 3,408 4,000
Capitalized lease obligations - 141
------ ------
8,406 18,182
Less current portion 2,184 16,038
------ ------
$ 6,222 $ 2,144
====== ======
The Company paid $8,000,000 on its term loan as a result of the sale of the
Company's ProQuip subsidiary during November 1994. The loan agreement covering
the term loan was amended in November 1995 and now provides for principal
payments as follows: $738,000, fiscal year 1996; $604,000, fiscal year 1997;
$604,000, fiscal year 1998; and the balance of $52,000 is payable on October 31,
1998. The term debt is collateralized by accounts receivable, inventories, real
estate, machinery and equipment. The interest on the debt is payable monthly at
the rate of prime plus 1-1/2% (10.25% at September 30, 1995).
The Company borrowed $3,000,000 from a finance company in December 1993 and the
note payable agreement for this loan was modified in December 1994. On December
27, 1995, the lender agreed to extend the due date to December 31, 1996.
Interest is presently accruing at the rate of $1,250 per day (15.2% per annum).
The finance company has loans from an affiliate of the Company. Since the
modification in December 1994, one-third of the interest accrued is paid and as
of September 30, 1995 and 1994 accrued but unpaid interest was $781,000 and
$508,000, respectively.
The Company has a line of credit available in the amount of $4,000,000 with
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) Indebtedness (continued)
------------
interest payable monthly at a rate of prime plus .625% (9.375% at September 30,
1995). As of September 30, 1995, the Company had standby letters of credit
outstanding of $89,400 against the line of credit. In October 1995 the maturity
date of the line of credit was extended and expires on October 31, 1998. The
line of credit is collateralized by a guarantee from a former shareholder.
The weighted average interest rate for the note payable and line of credit was
13.2%, 12.9%, and 6.6% during 1995, 1994, and 1993, respectively.
Cash payments for interest were $695,000, $1,109,000 and $1,139,000 for 1995,
1994 and 1993, respectively.
(8) Shareholders' Equity
--------------------
The Company has outstanding stock options which were granted under a 1982 Stock
Option Plan. All options are exercisable 20% per year, on a cumulative basis,
after a two-year waiting period and expire ten years and six months after they
are granted. The Plan expired in 1992 and no further options may be granted. At
September 30, 1995, options were outstanding and exercisable to purchase 5,000
shares at $6.50 per share. During 1995 and 1994, no options were exercised.
The Company has a Restricted Stock Incentive Plan, which awards restricted
common stock of the Company to officers and other key employees. During the
first quarter of 1995, 32,500 shares were granted, amounting to $14,375 based on
the market value of the stock at the date of grant. The Plan expired on December
31, 1994. During 1994, 15,000 shares were granted, amounting to $18,750 based on
the market value of the stock at the date of grant. For accounting purposes, the
value of the grants represents compensation, which has been deferred and is
being amortized over the 5-year and 10-year vesting periods. The shares granted
during 1995 and 1994 are recorded as a component of Shareholders' Equity. The
value of the grants, net of accumulated amortization and write-offs, was
$29,000 at September 30, 1995 and $18,000 at September 30, 1994.
The Company's term loan obligations prohibit the payment of dividends.
(9) Earnings (Loss) Per Share
-------------------------
Earnings (loss) per share is computed on the basis of the weighted average
number of shares outstanding plus the common stock equivalents which would arise
from the exercise of stock options, unless such common stock equivalents would
be anti-dilutive. Weighted average outstanding shares are: 1995, 3,559,789;
1994, 3,529,881; and 1993, 3,527,835.
(10) Pension Plans
-------------
The Company maintains a savings and retirement plan (Internal Revenue Code
Section 401(k) Plan) covering substantially all employees. The Company
plan allows eligible employees to contribute a percentage of their compensation;
the Company makes additional contributions in amounts as determined by
management and the Board of Directors. The expense for the plan was $346,000,
$420,000 and $420,000 for 1995, 1994 and 1993, respectively.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) Commitments and Contingencies
-----------------------------
The Company may be obligated for certain environmental cleanup costs in
connection with the sale of a subsidiary in 1989, and is potentially liable for
another environmental matter as described in Note 12.
The Company guaranteed the performance of a contract of United Telecontrol
Electronics, Inc. ("UTE"), a wholly owned subsidiary which is now in liquidation
,as described in Note 16. In addition, UTE was served a subpoena, on March 12,
1990, by the Defense Criminal Investigative Services of the U.S. Government
Inspector General's office, for various records relating to UTE's performance of
a now completed government contract. During the ensuing investigation, UTE has
at all times cooperated with the Government. UTE entered into settlement
discussions with the United States Attorney's Office, the Air Force Debarment
Authority, and the Department of Justice. As a result of these discussions, in
December 1992 UTE entered a plea agreement under which it agreed to plead guilty
to one count of conspiracy to defraud the United States and one count of mail
fraud. Pursuant to this settlement agreement, in April 1993 UTE entered its plea
in United States District Court. UTE has recently signed settlement agreements
with the various parties which resolve all outstanding disputes and claims with
the United States Government. Under the terms of these agreements, the Company
would be released from performance guarantees it provided, and all claims
against it associated therewith. The Company and UTE in turn would release the
government from all claims for equitable adjustment under these contracts. This
settlement is subject to notification of the creditors and the entry of a formal
order of the bankruptcy court. The Company believes there will be no adverse
consequences to the Company in connection with any future agreements or actions
on these matters due to the bankruptcy status of UTE.
During 1994, two separate legal actions against the Company related to compensa-
tion matters were commenced by two former company officer/ directors. Management
is vigorously defending the actions and believes the likelihood of a loss in
either action is not probable. The final outcome of these actions is not
presently determinable and, therefore no provision for any liability that may
result has been recorded in the Company's financial statements.
In February 1995, Ling Electronics Inc. ("Ling"), a wholly owned subsidiary of
the Company, made a voluntary disclosure to the United States Department of
Commerce regarding unlicensed exports of certain products shipped in the first
four months of fiscal 1995. Ling is fully cooperating with the Office of Export
Enforcement which has not concluded its investigation or taken any action to
date. Possible administrative sanctions include: no action; a warning letter;
denial of export privileges; and/or imposition of civil penalties. Foreign sales
represent a significant portion of Ling's total revenue. The final outcome of
this matter is not presently determinable and, therefore no provision for any
liability that may result has been recorded in the Company's financial state-
ments.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) Commitments and Contingencies (continued)
-----------------------------
Future minimum rental payments required under noncancelable operating leases are
$539,000, 1996; $536,000, 1997; $523,000, 1998; $495,000, 1999; and $452,000,
2000. Rent expense under all leases was $564,000, $672,000 and $626,000 for
1995, 1994 and 1993, respectively.
(12) Potential Environmental Liability
---------------------------------
The Company is potentially liable in connection with an environmental matter; no
amount is reflected in the Company's financial statements in respect to the
following:
In October 1989, the Environmental Protection Agency (EPA) issued an Order under
Section 106(a) of the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (CERCLA) alleging that there has been a release of
hazardous materials into the environment at a site in Malta, New York (Site) and
directing the respondents named in the Order, including the Company, to
undertake a remedial investigation and feasibility study (RI/FS) of the Site.
The Order states that responsibility to undertake the RI/FS (estimated to cost
between $1.5 and $2.5 million) is a joint and several obligation of the various
potentially responsible parties (PRPs), including the Company, named in the
Order. The PRPs named in the Order are most of the parties (other than federal
government agencies) who have at any time owned or operated any portion of the
Site, which, beginning in 1945, has been used primarily for development and
testing of rocket fuels, propellants and other propulsion systems. The Company
has leased a small portion of the Site, for unrelated activities, since 1976.
Since the Company believes that it has not been involved with the release of any
hazardous substances at the Site and that issuance of the Order to it is,
therefore, unjustified and an arbitrary and capricious abuse of EPA's discretion
under CERCLA, the Company has advised EPA that it cannot comply with the Order
(which became effective November 3, 1989). To date EPA has not, to the best of
the Company's knowledge, taken any steps to enforce the Order against the
Company; and, the Company understands that one of the other PRP's named in the
Order has been carrying out the RI/FS as directed by the Order.
While the Company believes that the expense (including any liability) it will
incur in connection with this matter will not be material, the costs that it
might incur to establish its nonresponsibility, should EPA seek to enforce the
Order against the Company, could be significant. At this time, however, the
Company is unable to estimate the amount of such costs. If EPA seeks to enforce
the Order against the Company and the Company is unable to establish that it is
not responsible, the Company could be liable for substantial amounts under
CERCLA, including fines of up to $25,000 per day for failure to comply with the
Order and punitive damages equal to as much as three times EPA's cost to
undertake the work itself.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) Going Concern
-------------
The Company's ability to continue as a going concern, given its shareholders'
deficiency, is dependent upon achieving an orderly liquidation of its United
Telecontrol Electronics, Inc. ("UTE") subsidiary (See Note 16), and its ability
to demonstrate ongoing income and cash flow from operations. The orderly
liquidation of UTE is underway and appropriate Bankruptcy Court approvals are
expected to occur during calendar year 1996. Subsequent to year end, in October
and November 1995, the line of credit and term loan were extended for three
years, respectively. In addition, on December 27, 1995, the due date on the note
payable was extended to December 31, 1996. The Company's business plans
developed for fiscal 1996 are focused on achieving profitability and positive
cash flow. There is, however, no assurance that the Company will be able to
achieve these objectives.
(14) Related Party Transactions
--------------------------
During 1995 and 1994, the Company made several rental payments for laboratory
space to an officer/director of the Lawrence Insurance Group Inc. and purchased
various insurance coverage from the Lawrence Insurance Group Inc. or companies
owned directly or indirectly by the Lawrence Insurance Group Inc. totalling
$493,000 and $444,000, respectively. During 1993, the Company paid management
fees and purchased various insurance coverage from the Lawrence Insurance Group
Inc. or companies owned directly or indirectly by the Lawrence Insurance Group
Inc. for $560,000. (Several companies of the Lawrence Insurance Group Inc.
("LIG") collectively own approximately 24% of the Company's Common Stock. In
addition, an LIG subsidiary which is now in liquidation, owns an additional 25%
of the Company's Common Stock.)
During November 1993, the Company sold its facility located on New Karner Road
in the Town of Colonie, N.Y. to the Secretary\Director of the Lawrence Insurance
Group Inc. for $1,975,000. The sale resulted in a gain of $1,856,000 in fiscal
1994, of which $1,450,000 of the proceeds were utilized to reduce long-term
debt.
(15) Fourth Quarter Adjustments
--------------------------
During the fourth quarter of 1995, the Company recorded the following adjust-
ments: goodwill write-off, $1,590,000; inventory write-off and reserve
increases, $774,000; accounts receivable write-down and allowance increases,
$128,000; severance expenses, $35,000; and all other, $64,000. These adjustments
reduced fourth quarter and full year income before income taxes from continuing
operations by $2,591,000.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(16) Discontinued Operations
-----------------------
The Company's United Telecontrol Electronics, Inc. ("UTE") subsidiary, the sole
component of the Defense/Aerospace segment, filed for voluntary bankruptcy under
Chapter 11 of the Federal Bankruptcy Code in April 1994. This action was taken
after UTE was notified by the U.S. Air Force that its $7.8 million Request for
Equitable Adjustment on the Advanced Medium Range Air to Air Missile ("AMRAAM")
launcher contract was denied. Subsequent to the bankruptcy filing, UTE attempted
to reorganize and continued to operate as a debtor-in-possession. However,
during October 1994, UTE commenced an orderly liquidation. Accordingly, the
Company no longer includes Defense/Aerospace amongst its reportable business
segments, UTE is reported as a discontinued operation at September 30, 1995, and
the consolidated financial statements have been reclassified to report
separately the net liabilities and operating results of the business. The
Company's prior years financial statements have been restated to conform to this
treatment.
In 1990, when the AMRAAM contract was awarded, the Company guaranteed the
performance by UTE on this contract. The guaranty states, among other things,
that if the Government terminates the AMRAAM launcher contract due to a default
by UTE and awards the uncompleted portion of the contract to another source at
a fair and reasonable price, the Company shall be liable for any excess costs
incurred by the Government as a result of such procurement and for the repayment
of any unrecouped partial payments, progress payments or advanced payments paid
to UTE by the Government. In addition, the guaranty provides that the Company
would be liable for all costs and expenses paid or incurred by the Government in
enforcing the guaranty. The Government has not terminated the contract due to
default. UTE has recently signed settlement agreements with the various parties
which resolve all outstanding disputes and claims with the United States
Government. Under the terms of these agreements, the Company would be released
from the performance guarantee it provided, and all claims against it associated
therewith. The Company and UTE in turn would release the government from all
claims for equitable adjustment under these contracts. This settlement is
subject to notification of the creditors and the entry of a formal order of the
bankruptcy court. The Company and UTE are also party to a settlement agreement,
which was reached with the official committee of the unsecured creditors of UTE
in a hearing before the bankruptcy court. This settlement is also subject to
entry of a formal order of the bankruptcy court.
Included in the fiscal 1994 loss from discontinued operations was a $15,415,000
before income tax charge to write-down the carrying value of all UTE related
assets to their estimated net realizable value, including the establishment of
a reserve for the future costs of the termination and final liquidation of UTE.
The Company expects that the final liquidation of UTE and related court approval
will occur in calendar year 1996. At that time the final adjustments will be
made.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(16) Discontinued Operations (continued)
-----------------------
Discontinued operations consist of the following:
(Dollars in thousands) 1995 1994 1993
------- -------- -------
Sales $ 0 $ 2,299 $ 26,506
======= ======== =======
(Loss) income from operations
before income tax $ 0 $(24,872) $ 125
Income tax (benefit) expense 0 (353) 231
Net loss from discontinued ------- ------- -------
operations $ 0 $(24,519) $ (106)
======= ======= =======
The assets and liabilities of the Company's discontinued operations at September
30, 1995 and 1994 are as follows:
(Dollars in thousands) 1995 1994
-------- --------
Assets:
Cash $ 162 $ 78
Assets held for sale 1,658 2,400
-------- -------
Total Assets $ 1,820 $ 2,478
Liabilities: -------- -------
Post-petition liabilities $ 166 $ 824
Pre-petition liabilities 4,410 4,410
-------- -------
Total Liabilities $ 4,576 $ 5,234
-------- -------
Net Liabilities $ 2,756 $ 2,756
======== =======
(17) Sale of Subsidiary - ProQuip, Inc.
----------------------------------
On November 22, 1994, the Company sold all of the outstanding capital stock of
its ProQuip Inc. subsidiary to Phase Metrics of San Diego, CA. The Company
received $13,250,000 in cash from Phase Metrics and ProQuip forgave a $316,000
intercompany debt due from the Company. The net proceeds from the sale were used
to reduce term debt by $8,000,000 and to increase working capital by $3,776,000.
The sale resulted in a $6,779,000 gain, which was recorded during the first
quarter of fiscal year 1995. In addition, $750,000 of the net proceeds has been
escrowed to provide a fund for any indemnity payments that the Company may be
obligated to pay Phase Metrics. Any amount not required for this purpose will
be returned to the Company and will be recorded as income in a future period.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(17) Sale of Subsidiary - ProQuip, Inc. (continued)
----------------------------------
ProQuip, a component of the Test & Measurements segment, is included in the
Company's financial statements for the years ended September 30, 1995 (through
November 22, 1994, the date of its sale), 1994, and 1993 as follows:
(Dollars in thousands) 1995 1994 1993
------- ------- ------
Sales $ 2,584 $ 15,231 $ 10,698
======== ======== ========
Income from continuing operations
before income tax $ 730 $ 4,019 $ 2,302
Income tax expense 293 1,564 894
-------- -------- --------
Net Income $ 437 $ 2,455 $ 1,408
======== ======== ========
The following unaudited condensed pro forma income statement from continuing
operations for the year ended September 30, 1995 and 1994 reflects the effects
of the sale of ProQuip, assuming the sale had occurred October 1, 1993. The pro
forma adjusted results include a reduction of interest on term debt, assuming a
payment of $8,000,000 was made; a reduction of interest on the line of credit,
assuming the excess net proceeds after the term debt pay down are used to reduce
or pay down any outstanding line of credit balance; and interest income earned
on excess cash after the pay down of the term debt and line of credit.
(Dollars in thousands) 1995 1994
Pro Forma Pro Forma
--------- ---------
Sales $ 27,164 $25,003
======= =======
Operating Income $ (3,074) $ (3,801)
------- -------
Interest Expense 914 290
Other Income (expense), net (346) 1,670
------- -------
Income (loss) from continuing
operations before income tax (4,334) (2,421)
Income tax (benefit) expense (142) (645)
------- -------
Income (loss) from continuing
operations $ (4,192) $ (1,776)
======= =======
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(18) Impairment Loss on Long-Lived Assets
------------------------------------
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
to be Disposed Of" (SFAS 121). SFAS 121 requires that long-lived assets and
identifiable intangibles to be held and used by an entity shall be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable.
During 1995, the Company elected to adopt the provisions of SFAS 121. According-
ly, the realizability of goodwill associated the Company's investment in Ling
Electronics, Inc. (Ling), a wholly owned subsidiary, was analyzed for impairment
due to its history of operating and cash flow losses. The Company determined
that the goodwill would not likely be recoverable based on the estimated future
cash flows at Ling. As a result, a $1,590,000 impairment loss was recognized to
reduce the carrying value of the Company's investment in Ling.
(19) Information on Business Segments
--------------------------------
The Company's operations comprise two business segments.
Technology - provides contract research and development,
design and prototype manufacturing services in mechanical
engineering, machinery dynamics and diagnostics, tribology,
electrical engineering, measurement science, and energy
technology.
Test and Measurement - develops and manufactures high-accuracy
inspection systems, shock and vibration testing systems, and
electronic instruments using noncontact measurement techniques.
The information below includes the results of ProQuip, Inc.
which was sold in November 1994 (See Note 17).
A summary of financial data for these business segments at September 30, 1995,
1994, 1993, and for the fiscal years then ended follows:
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(19) Information on Business Segments (continued)
--------------------------------
(Dollars in thousands)
SALES
----------------------------------------------------
1995 1994 1993
------ ------ ------
Technology $11,608 $10,513 $13,105
Test and Measurement 18,140 29,721 28,395
------ ------ ------
$29,748 $40,234 $41,500
====== ====== ======
OPERATING INCOME (LOSS)
----------------------------------------------------
1995 1994 1993
------ ------ ------
Technology $ (463) $(1,903) $ (379)
Test and Measurement (1,889) 2,171 3,022
------ ------ ------
$(2,352) $ 268 $ 2,643
====== ====== ======
DEPRECIATION
----------------------------------------------------
1995 1994 1993
------ ------ ------
Technology $ 440 $ 510 $ 631
Test and Measurement 203 298 533
Corporate 3 5 6
------ ------ ------
$ 646 $ 813 $ 1,170
====== ====== ======
ASSETS EMPLOYED
-----------------------------------------------------
1995 1994 1993
------ ------ ------
Technology $ 5,753 $ 6,120 $ 7,772
Test and Measurement 7,492 18,167 15,134
Corporate 1,238 1,030 2,024
------ ------ ------
$14,483 $25,317 $24,930
====== ====== ======
CAPITAL EXPENDITURES
----------------------------------------------------
1995 1994 1993
------ ------ ------
Technology $ 227 $ 219 $ 352
Test and Measurement 437 426 184
Corporate 3 0 4
------ ------ ------
$ 667 $ 645 $ 540
====== ====== ======
The U.S. Government is the largest customer of the Technology segment and
accounted for 30%, 17% and 23% of consolidated revenues in 1995, 1994 and 1993,
respectively. The largest single government agency customer of the Technology
segment accounted for 23%, 12% and 12% of the Company's consolidated revenues in
1995, 1994 and 1993, respectively. The largest customer of the Test & Measure-
ment segment accounted for 7%, 13%, and 15% of consolidated revenues in 1995,
1994, and 1993, respectively.