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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.D. C. 20549
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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 June 27,December 26, 1997
/ / Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the period from to
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Commission File Number 0-6890
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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 Road,Rd., Latham, New York 12110
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(Address of principal executive offices) (Zip Code)
(518) 785-2211
--------------
(Registrant'sRegistrant's telephone number, including area code)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 X No
--- ---
CLASS OUTSTANDING AT JUNE 27,Class Outstanding at December 26, 1997
- ----------------------------- -------------------------------------------------------------
Common Stock, $1.00 Par Value 5,905,661 Shares
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MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
INDEX
Page No.
------------------
Part I Financial Information
- ----------------------------
Consolidated Balance Sheets - June 27,December 26, 1997
and September 30, 19961997 3 - 4
Consolidated Statements of Income -
Three months and nine months ended June 27,December 26, 1997
and June 28,December 27, 1996 5
Consolidated Statements of Cash Flows -
NineThree months ended June 27,December 26, 1997
and June 28,December 27, 1996 6 - 7
Notes to Consolidated Financial Statements 8 - 10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 911 - 1112
Part II Other Information
12- -------------------------
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K6 13
Signature 1314
PART I FINANCIAL INFORMATION
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of June 27,December 26, 1997 (Unaudited) and
September 30, 19961997 (Derived from audited financial statements)
(Dollars in thousands)
June 27,Dec. 26, Sept. 30,
1997 1996
ASSETS1997
-------- --------
Assets
Current Assets:
Cash and cash equivalents $ 118178 $ 661,421
Trade accounts 7,563 7,4913,779 4,576
Allowance for doubtful accounts (98) (102)( 91) (94)
------- -------
Net receivables 7,465 7,3893,688 4,482
Inventories:
Raw materials and components 2,622 2,2312,573 2,214
Work in process 1,048 1,7271,073 967
Finished goods 288 153243 205
------- -------
Total inventories 3,958 4,1113,889 3,386
Note receivable - current 322 315
Prepaid expenses &and other current assets 99 19041 102
Taxes receivable 179 -
Net assets of discontinued operations 917 3,186
------- -------
Total Current Assets 11,640 11,756
------- -------
Property, Plant and Equipment:
Cost 19,197 19,498
Accumulated depreciation (16,647) (16,880)
------- -------
Net9,214 12,892
Property, Plant and Equipment, 2,550 2,618net 1,622 749
Note receivable - noncurrent 318 335
Other assets - 27
------- -------
OtherTotal Assets 406 78
------- -------
TOTAL ASSETS $ 14,59611,154 $ 14,45214,003
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
As of June 27,December 26, 1997 (Unaudited) and
September 30, 19961997 (Derived from audited financial statements)
(Dollars in thousands)
June 27, Sept.30,Dec. 26, Sept. 30,
1997 1996
LIABILITIES AND SHAREHOLDERS' EQUITY1997
-------- --------
Liabilities and Shareholders' Equity
Current Liabilities:
Line-of-creditAccounts payable $ 1,7491,278 $ -
Current installments on long-term debt 604 6041,389
Accrued liabilities 2,638 3,276
Income taxes payable 35 16
Accounts payable 1,393 1,979
Accrued liabilities 2,358 3,350- 73
Payroll and other taxes withheld
and accrued 541 671108 458
------- -------
Total Current Liabilities 6,680 6,620
Line-of-credit, net of current portion - 100
Note Payable - 3,000
Long-term debt, net of current maturities 252 706
Accrued interest - Note Payable - 1,0984,024 5,196
Deferred income taxes and other credits 594 764594
------- -------
Total Liabilities 7,526 12,288
------- -------4,618 5,790
Shareholders' Equity:
Common stock 5,909 4,902
Paid-in capital5,909
Paid-in-capital 13,923 13,42313,923
Deficit (12,715) (16,089)(13,248) (11,569)
Foreign currency translation adjustment (15)(17) (19)
Treasury stock (29) (29)
Restricted stock grants (3) (24)(2) (2)
------- -------
Total Shareholders' Equity 7,070 2,1646,536 8,213
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITYTotal Liabilities and Shareholders' Equity $ 14,59611,154 $ 14,45214,003
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share)
Three months ended
Nine months ended
------------------ ------------------
JuneDec. 26, Dec. 27,
June 28, June 27, June 28,
1997 1996 1997 1996
-------- --------
-------- --------
Product revenue $ 5,6513,250 $ 4,772 $ 18,305 $ 15,108
Research & development revenue 2,414 2,018 6,396 6,947
------- ------- ------- -------
Total revenue $ 8,065 $ 6,790 $ 24,701 $ 22,0556,266
Product cost of sales 3,224 3,038 10,983 9,379
Research & development contract
costs 1,641 1,375 4,565 4,5892,021 3,904
Selling, general and administrative expenses 2,404 2,219 6,702 6,4801,323 1,406
Product development and research costs 472 325 1,318 959
------- -------148 169
------- -------
Operating (loss) income (loss) $ 324(242) $ (167) $ 1,133 $ 648787
Interest expense (60) (195) (285) (618)
Gain on sale of subsidiary, ProQuip - - - 750(5) (161)
Other income, (expense), net 54 (83) 105 (225)61 35
------- -------
------- -------
Income (loss)(Loss) income from continuing operations
before extraordinary item and income taxes $ 318(186) $ (445) $ 953 $ 555661
Income tax (credit) expense (24) 36 86 520 (45)
------- -------
------- -------
Income (loss)(Loss) income from continuing operations
before extraordinary item $ 342(186) $ (481) $ 867 $ 503616
Gain on extinguishment of debt, net of
taxes ($106) - - 2,507 -
------- -------
------- -------
IncomeNet (loss) income from continuing operations $ 342(186) $ (481) $ 3,374 $ 503
Income3,123
------- -------
Discontinued Operations (Note 4)
Loss from operations of discontinued
Technology Division, net of tax benefit (516) (193)
Loss on disposal of Technology Division,
net of tax benefit (977) -
------- -------
Loss from discontinued operations - 2,143 - 2,143
------- -------(1,493) (193)
------- -------
Net (loss) income $ 342(1,679) $ 1,662 $ 3,374 $ 2,6462,930
======= =======
======= =======
Earnings(loss)Earnings per share:
Continuing operationsShare:
(Loss) income before extraordinary item $ .06(.03) $ (.14) $ .16 $ .14.13
Gain on extinguishment of debt .00 .00 .45 .00
------- ------- ------- -------
Continuing. - .51
Loss on discontinued operations $ .06 $ (.14) $ .61 $ .14
Discontinued operations .00 .60 .00 .60
------- -------(.25) (.04)
------- -------
Net (loss) income $ .06(.28) $ .46.60
======= =======
Earnings per Share-assuming dilution:
(Loss) income before extraordinary item $ .61(.03) $ .74
======= =======.13
Gain on extinguishment of debt - .51
Loss on discontinued operations (.25) (.04)
------- -------
Net (loss) income $ (.28) $ .60
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
NineThree months ended
-------------------
JuneDec. 26, Dec. 27, June 28,
1997 1996
OPERATING ACTIVITIES -------- --------
Operating Activities
Net (loss) income from continuing operations $ 3,374(186) $ 5033,123
Adjustments to reconcile net (loss) income to net
cash (used in) providedused by continuing operations:
Gain on extinguishment of debt - (2,507) -
Depreciation and amortization 447 503
Gain on sale of subsidiary67 52
Loss in joint venture 27 - (750)
Accounts receivable reserve (4) (8)
Asset valuation reserve - 144
Foreign currency translation 4 -2 5
Other 19 1(3) 12
Changes in operating assets and liabilities:
Accounts receivable (72) 591797 502
Inventories 152 (1,187)
Escrow deposit - 750(503) (41)
Prepaid expenses and other current assets 91 (228)61 (9)
Accounts payable (540) (234)(111) (150)
Income taxes and other credits (257) (15)(252) 138
Accrued liabilities (1,057) 396
------- -------(988) (1,454)
------ ------
Net cash (used in) providedused by continuing operations $(1,089) $ (350) $ 466(329)
------ ------
Discontinued operations:
IncomeNet loss from discontinued operations - 2,143
Changes$(1,493) $ (193)
Change in net assets/liabilities of
discontinued operations 2,269 (357)
Net assets transferred from discontinued
operations (907) -
(1,625)
------- ------------- ------
Net cash providedused by discontinued operations $ -(131) $ 518
------- -------(550)
------ ------
Net cash (used in) providedused by operating activities $(1,220) $ (350) $ 984
------- -------
INVESTING ACTIVITIES(879)
------ ------
Investing Activities
Purchases of property, plant & equipment $ (800)(33) $ (481)
Proceeds(177)
Principal payments from sale of subsidiary, ProQuip,
net of cash balance and expensesnote receivable 10 -
750
------- ------------- ------
Net cash (used in) provided byused in investing activities $ (800)(23) $ 269
------- -------
FINANCING ACTIVITIES(177)
------ ------
Financing Activities
Net borrowings (payments) under line-of-credit agreement $ 1,649- $ (787)1,269
Principal payments of long-term debt (454) (537)
Private placement of common stock,
net of expenses - 1,900
Other 7 -
------- -------(151)
------ ------
Net cash provided byin financing activities $ 1,202- $ 576
------- -------
Increase1,118
------ ------
(Decrease) increase in cash and cash equivalents $(1,243) $ 52 $ 1,82962
Cash and cash equivalents - beginning of period 66 78
------- -------1,421 62
------ ------
Cash and cash equivalents - end of period $ 118178 $ 1,907
======= =======124
====== ======
The accompanying notes are an integral part of the consolidated financial
statements.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(Dollars in thousands)
Supplemental Disclosure
- -----------------------
NONCASH INVESTING ACTIVITIES
Contribution of net assets to joint venture
Inventories $ 1 $ -
Property, plant & equipment, net 444 -
Accounts payable (46) -
Accrued liabilities (50) -
------- -------
Net noncash used in investing activities $ 349 $ -
------- -------
NONCASH FINANCING ACTIVITIESNonCash Financing Activities
Conversion of Note Payable to common stock
Note Payablepayable extinguishment $ (3,000) $ - $(3,000)
Common stock issued - 1,500
-
Accrued interest -interest- Note Payable - (1,213)
-
------- ------------- ------
Net noncash used in financing activities $ (2,713) $ - ------- -------
Net noncash used in investing/financing activities $ (2,364) $ -
======= =======$(2,713)
====== ======
The accompanying notes are an integral part of the consolidated financial
statements.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. TheIn the opinion of management of the Company believes the accompanying unaudited consolidated
financial statements contain all adjustments, (consisting primarilyconsisting of only normal,
recurring accruals)adjustments, necessary to fairly present the financial
position asfor a fair presentation of June 27, 1997 and results of operations and changes in financial
position for
the nine months then ended.
2.such periods. The results of operations for the nine-monthany interim period ended June 27, 1997 are not necessarily
indicative of the results to be expected for the full year.
3. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. It is suggested that theseThese consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the Company's Form 10-K Report for the fiscal
year ended September 30, 1997.
2. Income Taxes
The effective tax rate for the three months ended December 26, 1997 and
December 27, 1996 was 0% and 5%, respectively. The December 26, 1997 rate
reflects a full valuation allowance against the deferred tax assets
generated by the loss from continuing operations and the losses on
discontinued operations.
3. Earnings per Share
The reconciliation of the numerators and denominators of Earnings per Share
and Earnings per Share-assuming dilution are as follows:
For the three month period
ended December 26, 1997
--------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ---------
Loss before extraordinary item $(186,000)
Earnings per Share:
Loss available to common
stockholders $(186,000) 5,905,684 $ (.03)
=======
Effect of Dilutive Securities
Stock Options - -
--------- -----------
Earnings per Share-assuming dilution:
Loss available to common
stockholders plus assumed conversion $(186,000) 5,905,684 $ (.03)
========= =========== =======
Options to purchase 449,700 shares of common stock at prices between $2.44 and
$5.70 per share were outstanding during the first quarter of fiscal 1998 but
were not included in the computation of Earnings per Share-assuming dilution
because the Company incurred a loss from continuing operations. Therefore, no
potential common shares are included in the computation. The options, which
expire between December 20, 1999 and October 20, 2007, were still outstanding
at December 26, 1997.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three month period
ended December 27, 1996
-------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- ----------- ---------
Income before extraordinary item $ 616,000
Earnings per Share:
Income available to common
stockholders $ 616,000 4,910,565 $ .13
=======
Effect of Dilutive Securities
Stock Options - -
--------- -----------
Earnings per Share-assuming dilution:
Income available to common
stockholders plus assumed conversion $ 616,000 4,910,565 $ .13
========= =========== =======
Options to purchase 23,100 shares of common stock at a price of $2.44 per
share were outstanding during the first quarter of fiscal 1997 but were not
included in the computation of Earnings per Share-assuming dilution because
the exercise price was equal to the average market price of the common shares.
Therefore, no potential common shares are included in the computation. The
options, which expire on December 20, 2006, were still outstanding at December
27, 1996.
4. On JuneDiscontinued Operations
The Company's Technology Division, the sole component of the Technology
segment, is the subject of a formal plan for disposal and the Company is
actively pursuing the sale of the Division. Accordingly, the Company no
longer includes Technology among its reportable business segments and now
operates in only one segment, Test & Measurement. The Technology Division
is reported as a discontinued operation as of December 26, 1997, and the
consolidated financial statements have been reclassified to report
separately the net assets and operating results of the business. The
Company's prior year financial statements have been restated to conform to
this treatment.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Discontinued operations consist of the following:
For the three month
period ended
------------------------------------
(Dollars in thousands) December 26, December 27,
1997 the Company1996
--------------- ---------------
Sales $ 532 $ 1,856
=========== ===========
(Loss) from operations before
income tax $ (516) $ (203)
Income tax (benefit) - (10)
----------- -----------
Net loss from discontinued
operations $ (516) $ (193)
=========== ===========
(Loss) on disposal of
Division $ (977)
Income tax (benefit) -
-----------
Loss on disposal of Division $ (977)
===========
The assets and Edison Development Corp. ("EDC"), a
subsidiary of DTE Energy Co. entered into final agreements and closed on the
previously announced transaction to form a joint venture to further develop
certainliabilities of the Company's technologydiscontinued operations are as
follows:
(Dollars in connectionthousands) December 26, September 30,
1997 1996
--------------- ----------------
Assets:
Assets held for sale $ 2,266 $ 3,968
----------- -----------
Total Assets $ 2,266 $ 3,968
Liabilities:
Liabilities $ 1,349 $ 782
----------- -----------
Total Liabilities $ 1,349 $ 782
----------- -----------
Net Assets $ 917 $ 3,186
=========== ===========
Assets with a Proton Exchange
Membrane Fuel Cell. In exchange for its contribution of contracts and
intellectual property and certain other net assets that had comprised the fuel
cell research and development business activity of the Technology Segment
(which assets had a net book value of $349 thousand),$907,000 consisting primarily of land,
building and management information systems were transferred to continuing
operations on October 1, 1997.
5. Reclassification
Certain fiscal 1997 amounts have been reclassified to conform with the
Company received a
50% interest in the joint venture; the Company is not obligated to make any
future contributions to the joint venture, but its interest in the joint
venture could be reduced in certain circumstances in the future. EDC made an
initial cash contribution of $4.75 million in exchange for the remaining 50%
interest in the joint venture. The Company's investment in the joint venture is
included in "Other Assets" at June 27, 1997; the assets contributed by the
Company to the joint venture had previously been included in the assets of the
Company's Technology Segment. See the supplemental disclosure regarding
Contribution of Net Assets to Joint Venture in the Consolidated Statements of
Cash Flows (included in the financial statements set forth above in this Form
10-Q Report and incorporated herein by reference) for additional information
regarding the assets contributed by the Company to the joint venture.fiscal 1998 presentation.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On June 27, 1997, the Company and Edison Development Corp. ("EDC"), a
subsidiary of DTE Energy Co. entered into final agreements and closed on the
previously announced transaction to form a joint venture to further develop
certain of the Company's technology in connection with a Proton Exchange
Membrane Fuel Cell. In exchange for its contribution of contracts and
intellectual property and certain other net assets that had comprised the fuel
cell research and development business activity of the Technology Segment
(which assets had a net book value of $349 thousand), the Company received a
50% interest in the joint venture; the Company is not obligated to make any
future contributions to the joint venture, but its interest in the joint
venture could be reduced in certain circumstances in the future. EDC made an
initial cash contribution of $4.75 million in exchange for the remaining 50%
interest in the joint venture. The Company's investment in the joint venture is
included in "Other Assets" at June 27, 1997; the assets contributed by the
Company to the joint venture had previously been included in the assets of the
Company's Technology Segment. See the supplemental disclosure regarding
Contribution of Net Assets to Joint Venture in the Consolidated Statements of
Cash Flows (included in the financial statements set forth above in this Form
10-Q Report and incorporated herein by reference) for additional information
regarding the assets contributed by the Company to the joint venture.
On December 27, 1996, the Company and First Albany Companies, Inc. ("FAC")
entered into an agreement under which the Company issued to FAC 1.0 million
shares of common stock in full satisfaction of the Note Payable of $3.0 million
and accrued interest of $1.2 million. As a result, the Company in the first
quarter of fiscal 1997 realized a gain on the extinguishment of debt totaling
$2.6 million, net of approximately $100 thousand of transaction related
expenses. (see "FINANCIAL CONDITION" below.)
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.
RESULTS OF OPERATIONSThe Company's Technology Division, the sole component of the Technology
segment, is the subject of a formal plan for disposal and the Company is
actively pursuing the disposition of the Division. Accordingly, the Company
no longer includes Technology among its reportable business segments and now
operates in only one segment, Test & Measurement. The Technology Division is
reported as a discontinued operation as of December 26, 1997, and the
consolidated financial statements have been reclassified to report separately
the net assets and operating results of the business. Net assets of the
discontinued operation were $917 thousand at December 26, 1997 and loss on
discontinued operations included a loss from operations of $516 thousand and a
loss on disposal of $977 thousand as of December 26, 1997. The loss on
disposal includes a provision for estimated operating results prior to
disposal in addition to an estimate of the loss on disposal of the division.
The Company's prior year financial statements have been restated to conform to
this treatment.
Continuing Operations
- ---------------------
(Dollars in thousands) SALES
-----
Three months ended Nine months ended
-------------------- -------------------
BUSINESS SEGMENT: 6/27/97 6/28/96 Change 6/27/97 6/28/96 Change
-------- -------- -------- --------- --------- --------
Test & Measurement $ 5,621 $ 4,735 $ 886 $ 18,215 $ 15,061 $ 3,154
Technology 2,444 2,055 389 6,486 6,994 (508)
------ ------ ------ ------- ------- -------
TOTAL $ 8,065 $ 6,790 $ 1,275 $ 24,701 $ 22,055 $ 2,646
====== ====== ====== ======= ======= =======
OPERATING INCOME (LOSS)
-----------------------
Three months ended Nine months ended
-------------------- -------------------
BUSINESS SEGMENT: 6/27/97 6/28/96 Change 6/27/97 6/28/96 Change
-------- -------- -------- --------- --------- --------
Test & Measurement $ 203 $ 150 $ 53 $ 1,505 $ 740 $ 765
Technology 121 (317) 438 (372) (92) (280)
------ ------ ------ ------- ------- -------
TOTAL $ 324 $ (167) $ 491 $ 1,133 $ 648 $ 485
====== ====== ====== ======= ======= =======
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales for the first nine months ofquarter fiscal year 19971998 versus the same period of fiscal year 1996 have increased approximately $2.6 million or 12.0% and
operating income has risen $485 thousand, or 74.8%. The effect each business
segment had on this change is outlined in the above table and discussed below.
TEST AND MEASUREMENT
- --------------------
The Test and Measurement segment reported a 21% increase in sales and a
$765 thousand increase in operating income during the first nine months of fiscal
1997 comparedhave decreased $3 million from $6.3 million in 1997 to $3.3 million in
1998, a 48.1% decrease. This decrease is the same period last year.
Sales for the first nine monthsresult of fiscal year 1997 totaled $18.2 million
compared to $15.1 million for the comparable period in the prior year. All
divisions within this segment reported higherlower levels of
shipments in the first nine monthsquarter of fiscal 1997 as1998 compared to 1997 due, in part, to the
same periodtiming of several large orders. Also, on September 30, 1997, the Company sold
its L.A.B. Division, which reported sales of $866 thousand and operating
income of $90 thousand in the prior year.
Operating income for the first three quarters of fiscal 1997 totaled $1.5
million, an increase of $765 thousand over the $740 thousand operating income
for the same period in 1996; improved operating income resulted primarily from
the higher level of sales and improved margins partially offset by higher
product development cost. All divisions were profitable during the first nine
months with Ling Electronics Inc.("Ling") recording the most significant
improvement from the prior year's operating loss. However, it is unlikely this
level of improvement at Ling will be sustained for the remainder of the fiscal
year which may result in lower segment growth in the final quarter of fiscal 1997. TECHNOLOGY
- ----------
The Technology segment experiencedfirst quarter
fiscal 1998 operating loss of $242 thousand represented a 7.3%$1.03 million
decrease in sales andor a significant decline in130.8% decrease from the $787 thousand operating income compared torecorded
during the corresponding nine monthsame period last year.
The modest decline in sales was substantially due to lower
orders and business activity. This segment incurred an operating loss of $372
thousand compared to a loss of only $92 thousand for the first nine months of
the previous year. Current year results were negatively impacted by contract
overruns of approximately $619 thousand.
The Technology segment continues to be dependent on government-funded R&D
contracts for the bulk of its business. However, fiscal constraints at all
levels of government have reduced the level of funding available for these
programs, and securing additional such contracts has become more difficult and
competitive; no improvement in this situation is anticipated in the foreseeable
future. Any improvement in the segment's results in the final quarter of fiscal
1997 will depend on success in procuring and fulfilling orders within the fiscal
year. The future growth and profitability of the segment will depend on its
success in identifying and exploiting new markets for its products and services.
In light of these circumstances, and with the transfer of the fuel cell research
and development business activity of the Technology Segment to the joint
venture with EDC (discussed above), the Company continues to evaluate its
strategic options with respect to the remaining business activities that
comprise this Segment, but no decisions have yet been made in that regard.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OTHEROther
- -----
In addition to the matters noted above, during the first quarter of
fiscal 1997, the Company recorded a $2.5 million extraordinary gain, net of
taxes, on the extinguishment of debtdebt.
Results during the first quarter of fiscal 1997. Results during the first nine months of1998 and fiscal 1997 were
further enhanced
by lower interest expense, principally resulting from reduced indebtedness.
Moreover, in the first nine months, the Company benefited from reduced income tax expense due to the use
of net operating loss carryforwards. However, as a result of recent ownership
changes, the availability of any further net operating loss carryforwards to
offset future taxable income will be significantly limited pursuant to the
Internal Revenue Code. The tax rate for the three months ended December 26, 1997
and December 27, 1996 was 0% and 5%, respectively. The December 26, 1997
rate reflects a full valuation allowance against the deferred tax assets
generated by the loss from continuing operations and the losses on
discontinued operations.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
- -------------------
Working capital of $5.0$5.19 million at June 27,December 26, 1997 reflects a $176 thousand$2.5
million decline from September 30, 1996.1997.
At June 27,December 26, 1997 cash and cash equivalents were $118$178 thousand versus
$66$1,421 thousand at September 30, 1996.1997. Net cash used by operationsoperating activities
for the first three
quartersquarter of fiscal 19971998 amounted to $350 thousand,$1.22 million, as compared to
cash providedused of $466$879 thousand in the same period lastprior year.
The capital used during the first three quartersquarter of fiscal 19971998 was usedapplied
principally to reduce accrued liabilities, build inventories for orders
expected to ship in the second quarter of fiscal 1998 and accounts payable and to acquire
capital equipment. Substantially allpay tax estimates.
All of the funds provided were from the Company's cash accounts. There were
no line of
credit borrowings. Line of credit borrowings at June 27,December 26, 1997 were $1.7 million,
while ator September 30, 1996 there were line of credit borrowings of $100
thousand.1997.
Capital spending during the first nine monthsquarter of fiscal 19971998 was $800$33
thousand, a significant increasedecrease from the comparable period in 1996, during
which1997 where capital spending
totaled $481$177 thousand.
The increased capital investments
arereduction in accordance withnet assets of discontinued operations of $2,269 thousand
includes the higher leveltransfer of planned expenditures$907 thousand of assets to continuing operations
(principally land, building and management information systems) as well as the
accrual for fiscal 1997.the loss on disposal of the Division which includes a provision
for estimated operating results prior to disposal and an estimate of the loss
on disposal which totals $977 thousand. The disposal is expected to be
completed by the end of the second quarter.
During fiscal 1996, First Albany Companies, Inc. ("FAC") had purchased
909,091 shares of the Company's common stock from the New York State
Superintendent of Insurance as the court-ordered liquidator of United
Community Insurance Company ("UCIC"). In connection with this purchase, FAC
had also acquired certain rights to an obligation ("Term Loan") due from the
same finance company ("FCCC") to whom the Company was obligated under the Note
Payable. FCCC was in default of its Term Loan to UCIC. FAC, as the owner of
the rights to the Term Loan, filed suit seeking payment and obtained a summary
judgment. Collateral for the FCCC Term Loan included the Company's Note
Payable to FCCC. FAC exercised its rights to the collateral securing the Term
Loan, including the right to obtain payment on the Note Payable directly from
the Company.
On December 27, 1996, the Company and FAC entered into an agreement under
which the Company issued to FAC 1.0 million shares of common stock in full
satisfaction of the Note Payable of $3.0 million and accrued interest of $1.2
million. Accordingly, the Company realized a gain on the extinguishment of
debt totaling $2.6$2.5 million,net of approximately $100 thousand of transaction
related expenses.expenses and net of taxes of $106 thousand.
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 term loan indebtedness during 1997.credit.
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
The Company's Annual Meeting of Shareholders was held on April 16, 1997. The
following members were elected to the Company's Board of Directors to hold
office for the ensuing year.
Nominee In Favor Withheld
------- -------- --------
Dale W. Church 4,282,483 4,865
R. Wayne Diesel 4,282,819 4,529
Edward A. Dohring 4,282,783 4,565
Alan P. Goldberg 4,283,283 4,065
Dr. Martin J. Mastroianni 4,282,783 4,565
George C. McNamee 4,283,283 4,065
E. Dennis O'Connor 4,283,283 4,065
Dr. Walter L. Robb 4,282,983 4,365
Dr. Beno Sternlicht 4,282,912 4,436
The results of the voting on the proposal to approve the reappointment of
Coopers & Lybrand as the Company's Auditors were as follows:
In Favor Opposed Abstained
-------- ------- ---------
4,286,448 800 100
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) One report onNo Form 8-K wasReports were filed during the quarter ending June 27,December 26,
1997.
The Company filed a Form 8-K Report, dated May 29, 1997, reporting under
Item 5 thereof the Company's execution of a Letter of Intent with Edison
Development Corp. ("EDC"), a subsidiary of DTE Energy Co.. Pursuant to the
Letter of Intent, the Company agreed to enter into a joint venture to further
develop certain of the Company's discoveries in connection with a Proton
Exchange Membrane Fuel Cell. In exchange for EDC's initial cash contribution to
the joint venture, the Company would contribute certain assets that comprise the
fuel cell research and development business activity of the Technology Segment.
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
8-11-97Mechanical Technology Incorporated
2-09-98 /s/ MARTIN MASTROIANNIM. Mastroianni
- -------- --------------------------------------------- -------------------------------------
(Date) Martin J. Mastroianni
President 8-11-97and Chief Operating Officer
2-09-98 /s/ STEPHEN T. WILSONC. Scheuer
- -------- --------------------------------------------- -------------------------------------
(Date) Stephen T. WilsonCynthia A. Scheuer
Chief Financial Officer