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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

/X/ Quarterly report pursuant to Section 13 or 15 (d) of the Securities

Exchange Act of 1934

For the quarterly period ended DecemberMarch 31, 2000

2001

/ / 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)

3O South Pearl Street, Albany, New York 12207

(Address of principal executive offices) (Zip Code)

(518) 433-2170

Registrant's telephone number, including area code

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 XNo___

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INDEX

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying notes are an integral part of the consolidated financial statements.

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

(Dollars in thousands)

	Three Months Ended
COMMON STOCK	Dec.31, 2000	Dec.31, 1999
Balance, October 1	$ 35,437		$ 34,947
Issuance of shares - options exercised	6		225
Balance, December 31	$ 35,443		$ 35,172
PAID-IN-CAPITAL
Balance, October 1	$ 54,790		$ 19,457
Issuance of shares - options exercised	(1)		25
Plug Power, net of tax	349		26,639
SatCon, net of tax	46		-
Warrants issued	-		533
Compensatory stock options issued	(52)		652
Stock option exercises recognized differently for
financial reporting and tax purposes	15		-
Balance, December 31	$ 55,147		$ 47,306
DEFICIT
Balance, October 1	$(45,169)		$(26,573)
Net loss	(309)		(1,773)
Balance, December 31	$(45,478)		$(28,346)
UNREALIZED GAIN (LOSS) ON AVAILABLE FOR SALE SECURITIES, NET
Balance, October 1	$ -		$ (5)
Unrealized gain on available for sale securities, net of tax	14,470		5
Balance, December 31	$ 14,470		$ -
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance, October 1	$ -		$ (11)
Adjustments	-		11
Balance, December 31	$ -		$ -
TREASURY STOCK
Balance, October 1	$ (29)		$ (29)
Balance, December 31	$ (29)		$ (29)
SHAREHOLDERS' EQUITY
Balance, December 31	$ 59,553		$ 54,103
OTHER COMPREHENSIVE INCOME (LOSS):
Net loss	$ (309)		$ (1,773)
Other comprehensive income:
Foreign currency translation adjustment	-		11
Unrealized gain on available for sale securities, net of tax	14,470		5
Total comprehensive income (loss)	$ 14,161		$ (1,757)

	Six Months Ended
COMMON STOCK	Mar.31,2001	Mar.31,2000
Balance, October 1	$ 35,437	$ 34,947
Issuance of shares - options exercised	39	357
Balance, March 31	$ 35,476	$ 35,304
PAID-IN-CAPITAL
Balance, October 1	$ 54,790	$ 19,457
Issuance of shares - options exercised	(11)	13
Plug Power, net of tax	332	26,899
SatCon, net of tax	1,347	-
Warrants issued	-	3,678
Compensatory stock options issued	(39)	1,248
Stock option exercises recognized differently for
financial reporting and tax purposes	99	-
Balance, March 31	$ 56,518	$ 51,295
ACCUMULATED DEFICIT
Balance, October 1	$(45,169)	$(26,573)
Net loss	(3,067)	(5,834)
Balance, March 31	$(48,236)	$(32,407)
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, October 1	$ -	$ (5)
Unrealized gain on available for sale securities, net of tax	3,449	5
Balance, March 31	$ 3,449	$ -
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance, October 1	$ -	$ (11)
Adjustments	-	11
Balance, March 31	$ -	$ -
COMMON STOCK IN TREASURY
Balance, October 1	$ (29)	$ (29)
Balance, March 31	$ (29)	$ (29)
SHAREHOLDERS' EQUITY Balance, March 31	$ 47,178	$ 45,029
OTHER COMPREHENSIVE INCOME (LOSS):
Net loss	$ (3,067)	$ (5,834)
Other comprehensive income:
Foreign currency translation adjustment	-	11
Unrealized gain on available for sale securities, net of tax	3,449	5
Total comprehensive income (loss)	$ 382	$ (5,818)

The accompanying notes are an integral part of the consolidated financial statements.

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)thousands)

1. In the opinion of management the accompanying unaudited consolidated financial statements contain all adjustments, consisting of only normal, recurring adjustments, necessary for a fair presentation of results for such periods. The results for any interim period are not necessarily indicative of results for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto for the fiscal year ended September 30, 2000.

2. Reclassification

Certain fiscal 2000 amounts have been reclassified to conform with the fiscal 2001 presentation.

3. Inventories

Inventories consist of the following at:

(Dollars in thousands)	Dec.31 2000	Sept.30 2000	Mar.31 2001	Sept.30 2000
Finished goods	$ 164	$ 150	$ 145	$ 150
Work in process	538	249	806	249
Raw materials, components and assemblies	708	794	727	794
	$1,410	$1,193	$1,678	$1,193

 

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Investments, at equity

At DecemberMarch 31, 2000,2001, the principal components of the Company's holdings accounted for under the equity method of accounting are the following:

Summarized below is financial information for Plug Power and SatCon, as derived from published financial reports. Plug Power's fiscal year ends December 31 and SatCon's fiscal year ends September 30. Our holdings in SatCon are accounted for on a one-quarter lag.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Investments, at equity (Continued)

Plug Power Inc.

The following is a roll forward of the Company's accounting for holdings in Plug Power:

There is no difference between the carrying value of the Company's holdings in Plug Power and its interest in the underlying equity at DecemberMarch 31, 20002001 or September 30, 2000.

SatCon Technology Corporation

The following is a roll forward of the Company's accounting for holdings in SatCon:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Investments, at equity (Continued)

The difference between the carrying value of the Company's holdings in SatCon and its interest in the underlying equity consists of the following:

5. Securities available for sale

Securities available for sale are classified as current assets. Accumulated net unrealized gains (losses) are charged to Other Comprehensive Income.

As of DecemberMarch 31, 2000,2001, securities available for sale consist of Beacon Power common stock and includes the following:

For the threesix months ended DecemberMarch 31, 2000,2001, unrealized gains were $24.116$5.750 million. The deferred tax expense on this income at DecemberMarch 31, 20002001 was $9.646$2.301 million, resulting in a net unrealized gain of $14.470$3.449 million, which is included in Other Comprehensive Income.

On November 17, 2000, the date of the Beacon Power IPO, Beacon Power converted Beacon Preferred Stock to common stock and completed a 2-for-1 stock split immediately prior to the IPO. Immediately after Beacon Power's IPO, the Company owned 2,881,142 shares, approximately 7.5%, of Beacon Power common stock.

In connection with the Company's May 23, 2000 purchase of Beacon Power Class F Preferred Stock, the Company received warrants to purchase shares of common stock, the exercise date, number of shares and exercise price of which would be determined upon either the sale of Beacon Power or the consummation of an underwritten public offering of Beacon Power common stock. When Beacon Power completed its IPO, the warrant terms were set for the purchase of 1,333,333 shares of common stock at an exercise price of $2.25 per share exercisable as of November 17, 2000. The warrants expire on May 23, 2005.

The Company exercised the 1,333,333 warrants on a cash-less basis, on December 20, 2000, and received 985,507 shares of Beacon Power common stock. After the exercise of the warrants, the Company owns 3,866,649 shares, approximately 9.2%, of Beacon Power common stock.

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Debt

As of March 31, 2001, the Company owns 3,866,649 shares, approximately 9.2%, of Beacon Power common stock.

At DecemberMarch 31, 2000,2001, the Company has a $30 million Credit Agreement, as amended, with an outstanding balance of $25.2 million at the Prime Rate (9.5%(8.0% at DecemberMarch 31, 2000)2001). Additional borrowings are available when the Plug Power stock price is above $20 per share. This liability is classified as short-term.

The Company has pledged 8 million shares of Plug Power common stock as collateral. In addition, the Company entered into a Put and Call with First Albany Companies Inc. ("FAC") to provide independent credit support for repayment of its $25.2 million indebtedness to KeyBank, N.A. ("FAC Credit Enhancement"). The FAC Credit Enhancement provides FAC with the option, if the price of Plug Power stock falls to $4 per share, to either purchase 6.3 million Plug Power shares pledged as collateral on the loan or take an assignment of KeyBank, N.A.'s rights under the Credit Agreement, as amended. The FAC Credit Enhancement may be triggered in the event of a default and expireswas amended on April 27, 2001 and(the original expiration date) to extend its expiration date to August 27, 2001. The FAC Credit Enhancement may be renewed by the Company and FAC on a monthly basis upon mutually agreeable terms. If the FAC Credit Enhancement expires, and is not replaced, prior to November 3, 2001, the loan is immediately due and payable. After November 3, 2001, upon expiration of the FAC Credit Enhancement, if Plug Power stock is trading below $20 per share, the loan is immediately due and payable. Mandatory repayments on any outstanding balance in excess of $25.2 million will be required if the Plug Power stock price declines below $16 per share while the FAC Credit Enhancement is in place. After the FAC Credit Enhancement expires, mandatory repayments on any outstanding balance will be required if the Plug Power stock price is below $20 per share. If the FAC Credit Enhancement, which expires on AprilAugust 27, 2001, is not renewed, the Company may need to sell assets to fund the repayment of the outstanding balance on the credit line. The Company is obligated to make interest-only payments through March 15, 2002, and upon exercise of a term loan option at the end of the line of credit term, to repay the principal in 8 equal quarterly installments beginning March 31, 2002. Interest is payable monthly at either the Prime Rate or if certain performance standards are achieved, based on both the trading volume and market price of Plug Power common stock, at LIBOR based rates.

As of DecemberMarch 31, 2000,2001, the $30 million Credit Agreement, as amended, requires the Company to meet certain covenants, including maintenance of a debt service reserve account (equal to 6 months of interest payments on outstanding debt, amounting to $1.067$.950 million at DecemberMarch 31, 2000)2001), a collateral coverage ratio, the FAC Credit Enhancement and a minimum Plug Power share price. The Company was in compliance with these covenants as of DecemberMarch 31, 2000.2001.

On December 27, 2000, the Company entered into two bridge loan agreements with FAC. The first loan was for $945 thousand and was

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Debt (Continued)

used to pay the purchase price forof the original FAC Credit Enhancement. The Company has pledged 200,000 shares of Plug Power common stock as collateral. The second loan is for $5 million, $3 million of which was used to make

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. Debt (Continued)

a December 27, 2000 principal loan repayment to KeyBank, N.A. and the remaining $2 million iswas available for working capital. The Company

pledged 1 million shares of Plug Power common stock as collateral. Both loans bear interest at the Prime Rate (9.5%(8% at DecemberMarch 31, 2000)2001) and both interest and principal are due on January 3, 2002. Upon mutual agreement of FAC and the Company, the loans may be converted to equity prior to maturity. As of March 31, 2001, the Company has $4.5 million available under the $5 million FAC Bridge loan.

Outstanding debt is as follows:

6. Change in Accounting for Derivative Financial Instruments

Effective October 1, 2000, the Company adopted SFAS No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 established a new model for accounting for derivatives and hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure these instruments at fair value regardless of purpose or intent for holding them. Changes in the fair value of derivative financial instruments are either recognized periodically in income or shareholders' equity (as a component of comprehensive income), depending on whether the derivative is being used to hedge changes in fair value or cash flows. Upon adoption of SFAS No. 133, the Company recorded an unrealized gain of $9.986 million. The deferred tax expense on this unrealized gain at December 31, 2000 was $3.876 million, resulting in a net unrealized gain of $6.110 million, reported in the Company's results of operations as a cumulative effect of a change in accounting.

Derivative financial instruments do not have quoted market prices; therefore fair value is based on estimates using valuation techniques.

The Company held the following derivative financial instruments:

	Dec.31, 2000	Oct.1, 2000
Warrants to purchase SatCon Technology common stock at a purchase price of $8.80 per share	100,000	100,000
Warrants to purchase Beacon Power Corporation common stock at a purchase price of $2.25 per share	-	1,333,333

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. Income Taxes

The Company's effective tax rates for the three and six months ended March 31, 2001 and March 31, 2000 were as follows:

	For the three month period ended Mar.31, 2001Mar.31, 2000		For the six month period ended Mar.31, 2001Mar.31, 2000
Tax rate	(39.9%)	(46.0%)	(39.8%)	(41.8%)

Income tax (benefit) expense consists of the following:

	For the three month period ended Mar.31, 2001Mar.31, 2000		For the six month period ended Mar.31, 2001Mar.31, 2000
(Dollars in thousands)
Continuing operations before equity investee losses and change in accounting principle
Federal	-	$ 3	$ -	$ 6
State	6	3	11	6
Deferred	925	(822)	(62)	(686)
	931	(816)	(51)	(674)
Equity investee losses
Federal	-	-	-	-
State	-	-	-	-
Deferred	(2,761)	(2,645)	(5,851)	(3,521)
	(2,761)	(2,645)	(5,851)	(3,521)
Total continuing operations	(1,830)	(3,461)	(5,902)	(4,195)
Change in accounting principle
Federal	-	-	-	-
State	-	-	-	-
Deferred	-	-	3,876	-
Total change in accounting principle	-	-	3,876	-
	$(1,830)	$(3,461)	$(2,026)	$(4,195)
Items charged (credited) directly to stockholders' equity:
Increase in additional paid-in capital for equity investments, and warrants and options issued - Deferred	$ 856	$ 181	$ 1,118	$15,238
Increase in unrealized gain on available for sale securities - Deferred	(7,347)	-	2,301	-
Expenses for employee stock options recognized differently for financial reporting/tax purposes - Federal	(84)	-	(99)	-
Valuation allowance	-	-	-	(3,750)
	$(6,575)	$ 181	$ 3,320	$11,488

 

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. Income Taxes

The Company's effective tax rates for the three months ended December 31, 2000 and 1999 were (38.8)% and (29.3)%, respectively.

Income tax (benefit) expense consists of the following for the three months ended December 31:

(Dollars in thousands)	2000	1999
Continuing operations before equity investee losses and change in accounting principle
Federal	$ -	$ 3
State	6	3
Deferred	(988)	136
	(982)	142
Equity investee losses
Federal	-	-
State	-	-
Deferred	(3,090)	(876)
Total continuing operations	(4,072)	(734)
Change in accounting principle
Federal	-	-
State	-	-
Deferred	3,876	-
Total change in accounting principle	3,876	-
	$ (196)	$ (734)
Items charged (credited) directly to stockholders' equity:
Increase in additional paid-in capital for equity investments, and warrants and options issued - Deferred	$ 263	$15,057
Increase in unrealized gain on available for sale securities - Deferred	9,646	-
Expenses for employee stock options recognized differently for financial reporting/tax purposes - Federal	(15)	-
Valuation allowance	-	(3,750)
	$ 9,894	$11,307

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Earnings per Share

The amounts used in computing earnings per share ("EPS") and the effect on income and the weighted average number of shares of potentially dilutive securities are as follows:

	For the three months ended
	Dec.31, 2000	Dec.31, 1999
(Dollars in thousands)
Basic and Diluted EPS:
Loss before cumulative effect of change in accounting principle	$(6,419)	$(1,773)
Cumulative effect of accounting change for derivative financial instruments	6,110	-
Net loss	$ (309)	$(1,773)
Common shares outstanding, beginning of period	35,417,035	34,929,627
Weighted average common shares issued during the period	4,803	85,305
Weighted average number of shares used in basic net loss per share	35,421,838	35,014,932
Loss per share: Loss before cumulative effect of change in accounting principle	$ (0.18)	$ (0.05)
Cumulative effect of accounting change for derivative financial instruments	0.17	-
Net loss	$ (0.01)	$ (0.05)

	For the three month period Ended		For the six month period Ended
	Mar.31, 2001	Mar.31, 2000	Mar.31, 2001	Mar.31, 2000
(Dollars in thousands)
Basic and Diluted EPS:
Loss before cumulative effect of change in accounting principle	$(2,758)	$(4,061)	$(9,177)	$(5,834)
Cumulative effect of accounting Change for derivative financial instruments	-	-	6,110	-
Net loss	$(2,758)	$(4,061)	$(3,067)	$(5,834)
Common shares outstanding, beginning of period	35,422,335	35,140,824	35,417,035	34,929,627
Weighted average common shares issued during the period	26,222	108,008	18,016	201,616
Weighted average number of shares used in basic net loss per share	35,448,557	35,248,832	35,435,051	35,131,243
Loss per share: Loss before cumulative effect of change in accounting principle	$ (0.08)	$ (0.12)	$ (0.26)	$ (0.17)
Cumulative effect of accounting change for derivative financial instruments	-	-	0.17	-
Net loss	$ (0.08)	$ (0.12)	$ (0.09)	$ (0.17)

At DecemberMarch 31, 2000,2001, options to purchase 3,171,0753,158,075 shares of common stock at prices ranging from $.54 to $21.92 per share and warrants to purchase 300,000 shares of common stock at $12.56 per share were outstanding but were not included in the computation of Earnings per Share-assuming dilution because the Company incurred a loss during this period and inclusion would be anti-dilutive.

At DecemberMarch 31, 1999,2000, options to purchase 1,967,0612,151,825 shares of common stock at prices ranging from $.54 to $7.50$21.92 per share and warrants to purchase 108,000 shares of common stock at $12.56 per share were outstanding but were not included in the computation of Earnings per Share-assuming dilution because the Company incurred a loss during this period and inclusion would be anti-dilutive.

10. Equity in Investee Losses, net of tax

The Company's proportionate share of losses, net of tax, from holdings accounted for under the equity method is as follows:

	For the three months ended Dec.31, 2000Dec.31, 1999		Three months ended		Six months ended
(Dollars in thousands)
			Mar.31, 2001	Mar.31, 2000	Mar.31, 2001	Mar.31, 2000
Plug Power	$(4,272)	$(2,115)	$(3,435)	$(3,192)	$(7,707)	$(5,307)
SatCon	(600)	-	(727)	(491)	(1,327)	(491)
	$(4,872)	$(2,115)	$(4,162)	$(3,683)	$(9,034)	$(5,798)

 

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Cash Flows - Supplemental Information

(Dollars in thousands)	Three months ended December 31,
	2000		1999
Non-cash Investing and Financing Activities:
Additional investment and paid-in- capital resulting from other investors' investments in Plug Power	$ 582	$37,946
Acquired stock of SatCon Technology Corporation in exchange for net assets of Ling Electronics, Inc. and subsidiaries	-	6,738
Additional investment and paid-in- capital resulting from warrant issuance to SatCon Technology Corporation	-	533
Additional investment and paid-in- capital resulting from other investors' investments in SatCon Technology Corporation	76	-
Additional paid-in-capital resulting from stock option exercises treated differently for financial reporting and tax purposes	15	-
Additional investment from unrealized gain for fair value adjustment in Beacon Power Corporation	24,116	-
Investment in Beacon Power Corporation - conversion of derivative asset to common stock at warrant exercise	8,500	-

(Dollars in thousands)	Six months ended, Mar.31,2001Mar.31, 2000
Non-cash Investing and Financing Activities:
Additional investment and paid-in- capital resulting from other investors' investments in Plug Power	$ 553	$38,413
Acquired stock of SatCon Technology Corporation in exchange for net assets of Ling Electronics, Inc. and subsidiaries	-	6,738
Additional investment and paid-in- capital resulting from warrant issuance to SatCon Technology Corporation	-	3,678
Additional investment and paid-in- capital resulting from other investors' investments in SatCon Technology Corporation	2,244	-
Additional paid-in-capital resulting from stock option exercises treated differently for financial reporting and tax purposes	99	-
Additional investment from unrealized gain for fair value adjustment in Beacon Power Corporation	5,750	-
Investment in Beacon Power Corporation - conversion of derivative asset to common stock at warrant exercise	8,500	-

12. Geographic and Segment Information

The Company operates in two business segments, New Energy and Test and Measurement Instrumentation. The New Energy segment develops new energy technologies and companies. The Test and Measurement Instrumentation segment develops, manufactures, markets and services sensing instruments and computer-based balancing systems for aircraft engines.

The Company evaluates performance based on profit or loss from operations before income taxes, accounting changes, non-recurring items

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. Geographic and Segment Information (Continued)

and interest income and expense. Inter-segment sales are not significant. Summarized financial information concerning the

Company's reportable segments is shown in the following table. The "Other" column includes corporate related items and items like income taxes or unusual items, which are not allocated to reportable

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. Geographic and Segment Information (Continued)

segments. In addition, segments noncash items include any depreciation and amortization in reported profit or loss. The New Energy segment figures include the Company's activities related to evaluating new energy technologies, companies and growth opportunities, the Company's holdings in Plug Power, SatCon and Beacon Power and the results of the Company's equity method accounting for certain holdings. SatCon results are accounted for on a one-quarter lag. The results for Plug Power and SatCon are derived from their unaudited quarterly and audited annual financial statements.

(Dollars in thousands)

Three months ended Dec. 31, 2000	New Energy	Test and MeasurementInstrumentation	Other	ReconcilingItems	ConsolidatedTotals
Revenues	$ -	$1,638	$ -	$ -	$ 1,638
Segment profit (loss)	395	60	(764)	-	(309)
Equity in investee losses	(7,962)	-	-	3,090	(4,872)
Total assets	96,522	2,802	4,544	-	103,868
Investments, at equity	57,052	-	-	-	57,052
Securities available for sale	38,666	-	-	-	38,666
Capital expenditures	20	14	-	-	34
Depreciation and amortization	4	43	73	-	120

Three months ended Dec. 31, 1999	New Energy	Test and MeasurementInstrumentation	Other	ReconcilingItems	ConsolidatedTotals
Revenues	$ -	$1,360	$ -	$ -	$ 1,360
Segment (loss) profit	(2,991)	(440)	1,658	-	(1,773)
Equity in investee losses	(2,991)	-	-	876	(2,115)
Total assets	78,507	1,946	13,977	-	94,430
Investments, at equity	78,507	-	-	-	78,507
Capital expenditures	-	26	92	-	118
Depreciation and amortization	-	26	31	-	57

The following table presents the details of "Other" segment profit (loss).

	Three months ended
(Dollars in thousands)	Dec.31, 2000	Dec.31, 1999
Corporate and Other (Expenses) Income:
Depreciation and amortization	$ (73)		$ (31)
Interest expense	(717)		(322)
Interest income	38		161
Income tax (benefit) expense	196		734
Other expense, net	(208)		(146)
Gain on sale of division	-		1,262
Total segment (loss) profit	$(764)		$1,658

Three months ended Mar. 31, 2001	New Energy	Test and MeasurementInstrumentation	Other	ReconcilingItems	ConsolidatedTotals
Revenues	$ -	$1,657	$ -	$ -	$ 1,657
Segment (loss) profit	(3,034)	44	232	-	(2,758)
Equity in investee losses	(6,922)	-	-	2,760	(4,162)
Total assets	71,942	3,046	6,237	-	81,225
Investments, at equity	50,761	-	-	-	50,761
Securities available for sale	20,300	-	-	-	20,300
Capital expenditures	136	18	37	-	191
Depreciation and amortization	9	45	836	-	890

Three months ended Mar. 31, 2000	New Energy	Test and MeasurementInstrumentation	Other	ReconcilingItems	ConsolidatedTotals
Revenues	$ -	$1,736	$ -	$ -	$ 1,736
Segment (loss) profit	(6,328)	30	2,237	-	(4,061)
Equity in investee losses	(6,328)	-	-	2,645	(3,683)
Total assets	75,763	2,001	3,680	-	81,144
Investments, at equity	75,763	-	-	-	75,763
Capital expenditures	-	49	9	-	58
Depreciation and amortization	-	20	44	-	64

Six months ended Mar. 31, 2001	New Energy	Test and MeasurementInstrumentation	Other	ReconcilingItems	ConsolidatedTotals
Revenues	$ -	$3,295	$ -	$ -	$ 3,295
Segment (loss) profit	(2,639)	104	(532)	-	(3,067)
Equity in investee losses	(14,884)	-	-	5,850	(9,034)
Total assets	71,942	3,046	6,237	-	81,225
Investments, at equity	50,761	-	-	-	50,761
Securities available for sale	20,300	-	-	-	20,300
Capital expenditures	156	32	37	-	225
Depreciation and amortization	13	88	909	-	1,010

 

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

12. Geographic and Segment Information (Continued)

Six months ended Mar. 31, 2000	New Energy	Test and MeasurementInstrumentation	Other	ReconcilingItems	ConsolidatedTotals
Revenues	$ -	$3,096	$ -	$ -	$ 3,096
Segment (loss) profit	(9,319)	(410)	3,895	-	(5,834)
Equity in investee losses	(9,319)	-	-	3,521	(5,798)
Total assets	75,763	2,001	3,380	-	81,144
Investments, at equity	75,763	-	-	-	75,763
Capital expenditures	-	75	101	-	176
Depreciation and amortization	-	46	75	-	121

The following table presents the details of "Other" segment profit (loss):

	Three months ended		Six months ended
(Dollars in thousands)	Mar.31, 2001	Mar.31, 2000	Mar.31, 2001	Mar.31, 2000
Corporate and Other (Expenses) Income:
Depreciation and amortization	$ (836)	$ (44)	$ (909)	$ (75)
Interest expense	(598)	(493)	(1,315)	(815)
Interest income	21	140	59	301
Income tax benefit (expense)	1,830	3,461	2,026	4,195
Other income (expense), net	(185)	(827)	(393)	(973)
Gain on sale of division	-	-	-	1,262
Total segment profit (loss)	$ 232	$2,237	$ (532)	$3,895

13. Related Party Transactions

During fiscal 2001, First Albany Companies Inc. provided a credit enhancement in December 2000 and extended that enhancement in April 2001 for which the Company paid fees of $945 thousand and $200 thousand, respectively.

13. Subsequent Events

On April 27, 2001, the Company amended the FAC Credit Enhancement to extend its expiration date from April 27, 2001 to August 27, 2001. The Company paid FAC a fee of $945 thousand.$200,000 for this amendment. Further, on April 30, 2001, the Company made principal and interest payments to FAC totaling $1,445 thousand and $117 thousand, respectively, which reduced the Company's obligations on the FAC Bridge Loans to zero.

 

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following is management's discussion and analysis of certain significant factors, which have affected the Company's earnings during the periods included in the accompanying, consolidated statements of income.

Continuing Operations

Sales for the quarter ended DecemberMarch 31, 20002001 totaled $1.638$1.657 million compared to $1.360$1.736 million for the same period in the prior year, an increasea decrease of $.278$.079 million, a 20.4% increase.4.6% decrease. This increasedecrease in sales is primarily the result of MTI Instruments' marketing effortschange in sales mix reflecting a reduction in PBS balancing system sales offset by increases in semiconductor and instrument sales. Sales for the first half of fiscal 2001 versus the same period in fiscal 2000 have increased by $.199 million to $3.295 million in 2001 from $3.096 million in 2000, a 6.4% increase. The six-month change is primarily the result of MTI Instruments' increased sales for its new wafer thickness gaugeand instruments product line.lines.

Gross profit increaseddecreased to 56.3%54.8% of sales in the firstsecond quarter of fiscal 2001 from 40.7%57.2% of sales for the same period in the prior year. Gross profits increaseddecreased in the fiscal 2001 second quarter due to the shift in product mix between PBS balancing systems' and OEM instrument sales. Gross profit as a percentage of sales for the first half of fiscal 2001 versus the same period in fiscal 2000 has increased by 5.6% to 55.5% from 49.9%. The first half change is primarily the result of the sale of Ling in October 1999 (Ling had lower margin sales) and sales of higher margin products in fiscal 2001.

Selling, general and administrative expenses increased $.731$.197 million to $1.521$1.625 million for the three months ended DecemberMarch 31, 20002001 as compared to $.790$1.428 million for the three months ended DecemberMarch 31, 1999,2000, a 92.5%13.8% increase. ThisSelling, general and administrative expenses during the first half of fiscal 2001 of $3.146 million represents a $.928 million or 41.8% increase isfrom $2.218 million incurred during the same period in fiscal 2000. These increases are primarily the result of an increase inincreased personnel costs related to the operations of the new energy technology segment.

Product development and research costs for the three months ended DecemberMarch 31, 20002001 were 27.2%73.4% of sales, compared to 23.3%15.3% for the same period in the prior year. Development costs increased $.129$.951 million from the three months ended DecemberMarch 31, 19992000 to the same period in 2000, reflecting2001. Product development and research costs during the first half of fiscal 2001 of $1.217 million represents a $1.080 million or 185.2% increase from $.583 million incurred during the same period in fiscal 2000. These increases reflect the Company's commitment to developing its micro fuel cell initiative.initiative and new products at MTI Instruments.

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Continuing Operations (Continued)

Operating loss increased $.490$1.233 million to an operating loss of $1.044$1.934 million for the three months ended DecemberMarch 31, 20002001 as compared

to $.554$.701 million for the three months ended DecemberMarch 31, 1999,2000, a 175.9%

increase. The first half of fiscal 2001 resulted in an 88.4% increase. Thisoperating loss of $2.978 million, an increase isof $1.723 million or 137.3% from the $1.255 million operating loss recorded during the same period in fiscal 2000. These increases are the result of increased expenditures for research and product development by both MTI Instruments and activities in the new energy technology segment.Company's micro fuel cell initiative.

TheDuring the first half of fiscal 2001, the Company recorded a $6.110 million unrealized gain, net of tax, from the adoption of SFAS No.133 "Accounting for Derivative Instruments and Hedging Activities," as of October 1, 2000. During the three months ended December 31, 2000, theThe Company also recorded a net $.729$.780 million loss on derivative accounting. Changes in derivative fair values are recorded on a quarterly basis.

Results during the three and six months ended DecemberMarch 31, 20002001 were reduced by higher interest expense of $.717$.598 million and $1.315 million, respectively, compared to $.322$.493 and $.815 million, inrespectively, for the same periodperiods last year. This increase resultsThese increases result primarily from increased debt used to fund purchases of Plug Power, Beacon Power and

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Continuing Operations (Continued)

SatCon stock as well asborrowing levels in 2001 associated with working capital requirements. Prior

Fiscal 2000 first half results include a $5.551 million gain on the sale of investments and the prior year

results included a $1.262 million gain from the sale of Ling.

TheIn the three and six months ended March 31, 2001, the Company recorded a $4.872$4.162 million and $9.034 million loss, net of tax, respectively, from the recognition of the Company's proportionate share of losses in equity investees compared to a $2.115$3.683 million and $5.798 million loss, net of tax, respectively,for the comparable periods in the same period last year.fiscal 2000.

Equity in investee losses result from the Company's minority ownership in certain companies which are accounted for under the equity method of accounting. Under the equity method of accounting, the Company's proportionate share of each company's operating losses and amortization of the Company's net excess investment over its equity in each company's net assets is included in equity in investee losses. Equity in investee losses for the three months ended DecemberMarch 31, 20002001 includes the results from the Company's minority ownership in Plug Power and SatCon. Equity in investee losses for the three months ended December 31, 1999 included the results from the Company's minority ownership in Plug Power. The Company expects these companies to continue to invest in development of their products and services, and to recognize operating losses, which will result in future charges recorded by the Company to reflect its proportionate share of such losses.

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Continuing Operations (Continued)

Equity in investee losses includes a loss, before taxes, from Plug Power of $6.982$5.712 million and $12.694 million, respectively, for the three and six months ended DecemberMarch 31, 20002001 compared to $2.991$5.484 million and $8.475 million, respectively, for the three and six months ended DecemberMarch 31, 1999. This $3.991 million increase2000. These increases in losses isare primarily the result of Plug Power expanding its operations including costs to develop and prototype residential fuel cell units. Equity in investee losses for the three and six months ended DecemberMarch 31, 20002001 also includes our proportionate share of losses from SatCon of $.291$.521 million and $.813 million, respectively, compared to $.195 and $.195, respectively, for the three and six months ended March 31, 2000; and embedded difference (the difference between the carrying value of the Company's investment and its interest in the underlying equity) amortization of $.689 million.million and $1.377 million, respectively, for the three and six months ended March 2001 compared to $.650 and $.650, respectively, for the three and six months ended March 31, 2000. SatCon is accounted for on a one-quarter lag and includes results of SatCon through September 30,December 31, 2000. The Company acquired its stock holdings in SatCon during fiscal 2000.

The tax raterates for the three and six months ended DecemberMarch 31, 2001 are (39.9%) and (39.8%), respectively, compared to the rates for the three and six months ended March 31, 2000 is (38.8%of (46.0%) compared to (29.3%and (41.8%) in the first quarter of 1999., respectively. These tax rates are primarily due to losses generated by operations, gains generated through the sale of holdings and changes in deferred tax liabilities associated with the accounting for holdings in and recognition of the Company's proportionate share of losses from Plug Power and SatCon and its investment in derivatives and marketable securities. Further, as a result of ownership changes in 1996, the availability of net operating loss carryforwards to offset future taxable income will be significantly limited pursuant to the Internal Revenue Code.

 

Financial Condition

Inventory and accounts receivable turnover ratios and their changes for the six months ended March 31 are as follows:

	2001	2000	Change
Inventory	1.00	1.73	(.73)
Accounts receivable	3.66	3.85	(.19)

The change in the accounts receivable and inventory turnover ratios are the result of increasing inventory levels to support new product sales and increased receivables aging.

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Financial Condition

Inventory and accounts receivable turnover ratios and their changes for the three months ended December 31 are as follows:

	2000	1999	Change
Inventory	0.52	0.48	0.04
Accounts receivable	1.97	1.71	0.26

The change in the accounts receivable and inventory turnover ratios are the result of increasing sales levels.

Inventories at DecemberMarch 31, 20002001 of $1.410$1.678 million reflect inventory levels for MTI Instruments required to support expected increased sales levels in fiscal 2001.

Working capital of $16.553$(1.633) million at DecemberMarch 31, 20002001 reflects a $40.846$22.660 million increase from September 30, 2000. This increase reflects the $24.116$5.750 million increase in fair value for the Beacon Power investment, coupled with $8.5 million for additional shares purchased through the cash-less exercise of warrants and the reclassreclassification of $6 million of investments at cost to securities available for sale.

At DecemberMarch 31, 2000,2001, cash and cash equivalents were $.972$2.749 million versus $1.552 million at September 30, 2000. Net cash used by operating activities for the first threesix months of fiscal 2001 amounted to $1.633$4.533 million, as compared to a source of $.063$.719 million in the prior year. Accounts receivable increased due to an increase in sales and the timing of those sales. Accounts receivable totaled $.933$1.586 million as of DecemberMarch 31, 20002001 as compared to $.693 million as of September 30, 2000, or a 34.6%128.9% increase.

At DecemberMarch 31, 2000,2001, the Company has a $30 million Credit Agreement, as amended with KeyBank, N.A., with an outstanding balance of $25.2 million at Prime (9.5%(8% at DecemberMarch 31, 2000)2001). Additional borrowings above the $25.2 million balance are available when the Plug Power stock price is above $20 per share. This liability is classified as short-term.

The Company has pledged 8 million shares of Plug Power common stock as collateral.collateral for the Credit Agreement, as amended. In addition, the Company entered into a Put and Call with First Albany Companies Inc. ("FAC") to provide independent credit support for repayment of its $25.2 million indebtedness to KeyBank, N.A. ("FAC Credit Enhancement"). The FAC Credit Enhancement provides FAC with the option, if the price of Plug Power stock falls to $4 per share, to either purchase 6.3 million Plug Power shares pledged as collateral on the loan or take an assignment of KeyBank N.A.'s rights under the Credit Agreement, as amended. The FAC Credit Enhancement may be triggered in the event of a default and expireswas amended on April 27, 2001 and(the original expiration date) to extend its expiration date to August 27, 2001. The FAC Credit Enhancement may be renewed by the Company and FAC on a monthly basis upon mutually

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Condition (Continued)

agreeable terms. If the FAC Credit Enhancement expires, and is not replaced, prior to November 3, 2001, the loan is immediately due and payable. After November 3, 2001, upon expiration of the FAC Credit Enhancement, if Plug Power stock is trading below $20 per share, the loan is immediately due and payable. Mandatory repayments on any outstanding balance in excess of $25.2 million will be required if the Plug Power stock price declines below $16 per share while the FAC Credit Enhancement is in place. After the FAC Credit Enhancement expires, mandatory repayments on any outstanding balance will be required if the Plug Power stock price is below $20 per share.

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Condition (Continued)

If the FAC Credit Enhancement, which expires on AprilAugust 27, 2001, is not renewed, the Company may need to sell assets to fund the repayment of the outstanding balance on the credit line. The Company is obligated to make interest-only payments through March 15, 2002, and upon exercise of a term loan option at the end of the line of credit term, to repay the principal in 8 equal quarterly installments beginning March 31, 2002. Interest is payable monthly at either the Prime Rate or if certain performance standards are achieved, based on both the trading volume and market price of Plug Power common stock, at LIBOR based rates.

As of DecemberMarch 31, 2000,2001, the $30 million Credit Agreement, as amended, requires the Company to meet certain covenants, including maintenance of a debt service reserve account (equal to 6 months of interest payments on outstanding debt, amounting to $1.067$.950 million at DecemberMarch 31, 2000)2001), a collateral coverage ratio, the FAC Credit Enhancement and a minimum Plug Power share price. The Company was in compliance with these covenants as of DecemberMarch 31, 2000.2001.

On December 27, 2000, the Company entered into two bridge loan agreements with FAC. The first loan was for $945 thousand and was used to pay the purchase price for the FAC Credit Enhancement. The Company has pledged 200,000 shares of Plug Power common stock as collateral. The second loan is for $5 million, $3 million of which was used to make a December 27, 2000 principal loan repayment to KeyBank, N.A. and the remaining $2 million iswas available for working capital. The Company pledged 1 million shares of Plug Power common stock as collateral. Both loans bear interest at the Prime Rate (9.5%(8% at DecemberMarch 31, 2000)2001) and both interest and principal are due on January 3, 2002. Upon mutual agreement of FAC and the Company, the loansloan balances may be converted to equity prior to maturity.

On April 27, 2001, the Company amended the FAC Credit Enhancement to extend its expiration date from April 27, 2001 to August 27, 2001. The Company paid FAC a fee of $200,000 for this amendment. Further, on April 30, 2001, the Company made principal and interest payments to FAC totaling $1,445 thousand and $117 thousand, respectively, which reduced the Company's obligations on the FAC Bridge Loans to zero.

Capital spending during the first three-monthssix months of fiscal 2001 was $.034$.225 million, a decreasean increase from the comparable period in fiscal 2000 where capital spending totaled $.118$.176 million. Capital spending during fiscal 2001 included computers, software, manufacturing and laboratory equipment. Total additional capital spending during fiscal 2001 is expected to be approximately $1.8$2.140 million for computers, furniture, computer network equipment, telephone system, facilities fit-up, laboratory and manufacturing equipment.

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Condition (Continued)

As of March 31, 2001, the Company recognized a $5.551 million gain on the sale of its holdings. This gain related to the Company's previously announced strategy to raise additional capital through equity offerings and the sale of up to 10% of its assets in order to pay down debt, strengthen its balance sheet and fund its micro fuel cell operations.

As of April 30, 2001, the Company has sold 730,000 shares of Plug Power common stock with proceeds totaling $10.9 million and gains totaling $8.6 million. Taxes on gains will be offset by the Company's net operating loss carryforwards. As of March 31, 2001, the Company estimates its remaining net operating loss carryforwards to be approximately $25 million.

The Company anticipates that it will be able to meet the liquidity needs of its continuing operations, including the repayment of its line of credit in AprilAugust 2001 if the FAC Credit Enhancement is not extended, for the next year from current cash resources, borrowings under its $5 million bridge loan from FAC, equity financings, and sale of assets. However, there can be no assurance that the Company will not require additional financing within this time frame or that any additional financing will be available to the Company on terms acceptable to the Company, if at all.

As of DecemberMarch 31, 2000,2001, the Company owns shares of common stock in the following companies:

Plug Power Inc.	13,704,31513,211,815(a)	shares
SatCon Technology Corporation	1,800,000	"
Beacon Power Corporation	3,866,649	"

(a) As of April 30, 2001, the Company owns 12,974,315 shares.

These securities are currently traded on the Nasdaq National Market; therefore these securities are subject to stock market conditions and in Beacon Power's case, an underwriter's lockup prohibiting the sale of securities until May 17, 2001. When acquired, each of these securities was unregistered. In February 2000, SatCon registered the securities acquired by the Company on a Form S-3. The stock in Plug Power and Beacon Power are considered "restricted securities" as defined in Rule 144 and may be sold in the future without registration under the Securities Act subject to compliance with the provisions of Rule 144. Generally, restricted securities that have been owned for at least one year may be sold immediately after the completion of an IPO subject to the volume limitations of Rule 144. However, because of our ownership position and our appointment of directors to both Plug Power's and Beacon Power's Board of Directors, we are considered an "affiliate"

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Condition (Continued)

"affiliate" of those companies and therefore are subject to the volume limitation of Rule 144, even if we have held the securities for two

years.

The Rule 144 limitations, as currently in effect, limit our sales of either Plug Power or Beacon Power stock within any three-month period

to a number of shares that does not exceed the greater of 1% of the then outstanding shares of common stock of the Company, or the average weekly trading volume of the common stock during the four calendar weeks preceding the date on which notice of such sale is filed, subject to certain restrictions.

As disclosed in Plug Power's most recent Form 10-Q10-K filed for the periodyear ended September 30,December 31, 2000:

Plug Power's cash requirements depend on numerous factors, including, but not limited to, completion of its product development activities, ability to commercialize residentialits fuel cell systems and market acceptance of its

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Condition (Continued)

systems and other factors. systems. Plug Power expects to devote substantial capital resources to continue its development programs, directed atestablish a manufacturing

commercializing its fuel cell systems for worldwide residential use, to hireinfrastructure and train its production staff, develop and expand its manufacturing capacity, begin production activities and expand research and development activities.processes. Plug Power believes it will pursue the expansionneed to raise additional funds to achieve commercialization of its operations through internal growth and strategic acquisitions and expect such activitiesproduct. However, Plug Power does not know whether it will be funded from its existing cash and cash equivalents, issuance ofable to secure additional equityfunding, or debt securities, or additional borrowings subject to market and other conditions. There can be no assurance that such additional financing will be availablefunding on

terms acceptable to Plug Power or at all. Failure to raise the funds necessary to finance future cash requirements or consummate future acquisitions could adversely affect Plug Power's abilityterms, to pursue its strategycommercialization plans. If additional funds are raised through the issuance of equity securities, the percentage ownership of Plug Power's then current stockholders will be reduced. If adequate funds are not available to satisfy either short or long-term capital requirements, Plug Power may be required to limit operations in a manner inconsistent with its development and commercialization plans, which could negatively affect operations in future periods. Plug Power anticipates incurring substantial additional losses over at least the next several years and believes that its current cash balancesbalance will provide it with sufficient capital to fund operations for at least the next twelve months.

As disclosed in SatCon's most recent Form 10-K10-Q filed for the yearperiod ended September 30,December 31, 2000:

Since inception, SatCon has financed its operations and met its capital expenditure requirements primarily through the sale of private equity securities, public security offerings, and borrowings on its line of credit and capital equipment leases.

SatCon anticipates that the existing $8.8 million in cash and cash equivalents will be sufficient to fund operations for at least the next twelve months. However, there can be no assurance that SatCon will not require additional financings within this time frame or that any additional financing, if needed, will be available to SatCon on terms acceptable to it, if at all.

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Market Risk

Market risk represents the risk of changes in value of a financial instrument, caused by fluctuations in interest rates and equity prices.

At DecemberMarch 31, 2000,2001, the Company had variable rate debt totaling $29.145$25.2 million. Interest rate changes generally do not affect the fair market value but do impact future earnings and cash flows. The earnings and cash flow impact for the next year resulting from a one-percentage point increase in interest rates would be approximately $.291$.252 million, holding other variables (debt level) constant.

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Market Risk (Continued)

The Company has performed a sensitivity analysis on its holdings of Plug Power, SatCon and Beacon Power common stock and its derivative financial instruments (warrants to purchase SatCon common stock). The sensitivity analysis presents the hypothetical change in fair value of our new energy holdings held by the Company at DecemberMarch 31, 2000,2001, which are sensitive to changes in interest rates. Market risk is estimated as the potential change in fair value resulting from an immediate hypothetical one-percentage point parallel shift in the yield curve. The fair values of the Company's holdings in marketable securities have been based on quoted market prices and its derivative financial instruments based on estimates using valuation techniques.

The Company's interests in Plug Power and SatCon are accounted for on the equity method, Beacon Power is accounted for at fair value, and the derivative financial instruments are accounted for at estimated values. The fair market and estimated values, at DecemberMarch 31, 2000,2001, of the Company's interests in these companies and the derivative financial instruments and the effects on fair value are as follows, if the market price on these interests decreased by ten percent:

(in millions)	Fair Value	10% Change
Plug Power	$201.289	$20.129
SatCon	17.775	1.778
Beacon Power	38.666	3.867
Derivative Financial Instruments	.756	.076

(in millions)	Fair Value	10% Change
Plug Power	$189.101	$18.910
SatCon	18.225	1.823
Beacon Power	20.300	2.030
Derivative Financial Instruments	.706	.071

 

Statement Concerning Forward Looking Statements

This Form 10-Q contains and incorporates forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. You can identify forward-looking statements through our use of the words "expect," "anticipate," "believe," "should," "could," "may," "will," and other similar words, whether in the negative or the affirmative. Statements containing these, or similar words, are our predictions, expectations, plans and intentions of what may occur in the future.

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statement Concerning Forward Looking Statements (Continued)

All statements that are not historical fact should be deemed to be

forward-looking statements. We believe it is important to communicate our future expectations to our investors, however, our actual results may be very different from the predictions, expectations, plans and intentions we have shared with our investors. Such forward-looking statements involve known and unknown risks that may cause our actual results to differ materially from those stated and implied by our forward-looking statements. Such risks include, among others, our need to raise additional financing, difficulties in

developing and acquiring new

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statement Concerning Forward Looking Statements (Continued)

energy companies and technologies, risks related to developing Direct Methanol Fuel Cells, market acceptance of new energy technologies, our dependence on the success of our portfolio companies, our history of losses, the historical volatility of our stock price, the risk we may become an inadvertent investment company, conflicts of interest between us, First Albany Companies Inc. and our portfolio companies and general market conditions. These and other risks are set forth in greater detail in the "Risk Factors" section of our Annual Report on Form 10-K, which is incorporated herein by reference. We do not intend to update any information in any forward-looking statements we make.

PART II OTHER INFORMATION

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

At the Company's Annual Meeting of Shareholders ("Annual Meeting") held on April 24, 2001, the Company's shareholders approved the following:

1. To elect the following directors for the terms of office noted:

ELECTION OF DIRECTORS	Term	Number of VotesFor	Against/Withheld	Abstain	BrokerNon-Votes
ALAN GOLDBERG	3 Yr.	33,444,633	99,745	-	-
DR. WALTER ROBB	3 Yr.	33,444,633	99,745	-	-
DR. BENO STERNLICHT	3 Yr.	33,444,633	99,745	-	-

The other directors, whose terms of office as directors continued after the Annual Meeting are: Dale Church, Edward Dohring, David Eisenhaure, George McNamee and E. Dennis O'Connor.

2. To approve an amendment to the Company's Certificate of

Incorporation increasing the number of authorized shares of Common Stock from 50,000,000 to 75,000,000:

RATIFICATION OF:	For	Against/Withheld	Abstain	BrokerNon-Votes
Amendment to the Company's Certificate of Incorporation to increase from 50,000,000 to 75,000,000 the number of authorized shares of common stock	32,954,223	347,320	242,835	-

3. To ratify the appointment of PricewaterhouseCoopers L.L.P as independent auditors for the fiscal year ended September 30, 2001:

RATIFICATION OF:	For	Against/Withheld	Abstain	BrokerNon-Votes
PricewaterhouseCoopers L.L.P	33,467,343	49,878	27,156	1

 

Item 6. Exhibits and Reports on Form 8-K

 

(a) Exhibits

None

(b) One reportNo reports on Form 8-K waswere filed during the quarter ended

DecemberMarch 31, 2000.


The Company filed a Form 8-K Report, dated December 22, 2000, reporting under Items 2 and 7 thereof its sale of Ling Electronics and acquisition of SatCon shares as of October 21, 1999 and the associated pro-forma financial statements and financial statements of SatCon for the year ended September 30, 1999.

2001.

SIGNATURE

 

Pursuant to the requirements 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

 

05-09-01 02-14-2001 (Date)	s/William P. AckerDr. William P. Acker President and Chief Technology Officer
02-14-2001 05-09-01 (Date)	s/Cynthia A. ScheuerCynthia A. Scheuer Vice President and Chief Financial Officer