- - - ----------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------- 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 December 31, 1994 / / Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the period from to ----------------------- COMMISSION FILE NUMBER 0-6890 ----------------------- MECHANICAL TECHNOLOGY INCORPORATED (Exact name of registrant as specified in its charter) NEW YORK 14-1462255 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 968 ALBANY-SHAKER RD., LATHAM, NEW YORK 12110 (Address of principal executive offices) (Zip Code) (518) 785-2211 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 X No CLASS OUTSTANDING AT DECEMBER 31, 1994 COMMON STOCK, $1.00 PAR VALUE 3,568,868 SHARES - - - ----------------------------------------------------------------------------- - - - ----------------------------------------------------------------------------- MECHANICAL TECHNOLOGY INCORPORATED INDEX Part I Financial Information Page No. -------- Consolidated Balance Sheets - December 31, 1994 and September 30, 1994 3 - 4 Consolidated Statements of Income - Three months ended December 31, 1994 and January 1, 1994 5 Consolidated Statements of Cash Flows - Three months ended December 31, 1994 and January 1, 1994 6 Notes to Consolidated Financial Statements 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 12 Part II Other Information 13 Signature 14 PART I FINANCIAL INFORMATION MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, 1994 (Unaudited) and September 30, 1994 (Derived from audited financial statements) (Dollars in Thousands) DEC. 31, SEPT. 30, 1994 1994 -------- -------- ASSETS Current Assets: Cash and cash equivalents $ 11 $ 1,820 Trade accounts 7,449 11,632 Other receivables 318 94 ------- ------- Gross receivables 7,767 11,726 Allowance for doubtful accounts (82) (101) ------- ------- Net receivables 7,685 11,625 Income taxes receivable 353 122 INVENTORIES: Raw materials and components 1,675 3,640 Work in process 1,704 2,231 Finished Goods 40 197 ------- ------- Total inventories 3,419 6,068 Deferred income taxes 69 306 Prepaid expenses & other current assets 198 214 ------- ------- Total Current Assets 11,735 20,155 Other Assets: Excess of cost over net assets of acquired companies, net 1,708 1,726 Other 900 227 Property, Plant and Equipment: Cost 18,708 20,629 Accumulated depreciation (15,905) (17,420) ------- ------- Net Property, Plant and Equipment 2,803 3,209 ------- ------- TOTAL ASSETS $ 17,146 $ 25,317 ======= ======= The accompanying notes are an integral part of the consolidated financial statements. MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, 1994 (Unaudited) and September 30, 1994 (Derived from audited financial statements) (Dollars in thousands) Dec. 31, SEPT.30, 1994 1994 -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Line-of-credit $ 1,164 $ 4,000 Note Payable 3,000 3,000 Current installments on long-term debt 3,048 9,038 Accounts payable 1,883 3,684 Accrued expenses 3,334 5,998 Net liabilities of discontinued operations 2,756 2,756 Payroll and other taxes withheld and accrued 369 267 ------- ------- Total Current Liabilities 15,554 28,743 Long-term debt, net of current maturities - 2,144 Deferred income taxes and other credits 848 848 Shareholders' Equity: Common stock 3,569 3,546 Treasury Stock - (100) Paid-in capital 12,830 12,944 Retained earnings - beginning of year (22,759) 1,619 - current year 7,158 (24,378) Stock Grants (26) (18) Foreign currency translation adjustment (28) (31) ------- ------- TOTAL SHAREHOLDERS' EQUITY 744 (6,418) ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 17,146 $ 25,317 ======= ======= The accompanying notes are an integral part of the consolidated financial statements. MECHANICAL TECHNOLOGY INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share) THREE MONTHS ENDED DEC. 31, JAN. 1, 1994 1994 ------- ------- Product Sales $ 7,079 $ 5,953 Research & Development revenue 2,514 2,331 ------ ------ Total Revenues $ 9,593 $ 8,284 Product cost of sales 4,023 3,625 Research & Development contract costs 2,088 1,983 Selling, general and administrative expenses 2,153 2,197 Product development costs and research 474 751 ------ ------ Operating income (loss) from continuing operations $ 855 $ (272) Interest expense (361) (283) Gain on sale of subsidiary, ProQuip 6,779 - Gain on sale of assets - 1,856 Other income (expense), net (47) (42) ------ ------ Income (loss) from continuing operations before income taxes $ 7,226 $ 1,259 Income tax expense (benefit) 68 525 ------ ------ Income (loss) from continuing operations $ 7,158 $ 734 Loss from discontinued operation 0 (401) ------ ------ Net income $ 7,158 $ 333 ====== ====== Earnings (loss) per share: Continuing operations $ 2.02 $ .21 Discontinued operations .00 (.12) ------ ------ Earnings per share $ 2.02 $ .09 ====== ====== 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) THREE MONTHS ENDED DEC. 31, JAN. 1, 1994 1994 OPERATING ACTIVITIES -------- -------- Net income from continuing operations $ 7,158 $ 734 Adjustments to reconcile net income to net cash provided (used) by continuing operations: Depreciation and amortization 213 356 Gain on sale of assets 0 (1,856) Gain on sale of subsidiary (6,779) 0 Provision for deferred income taxes 0 307 Foreign currency translation 3 (14) Other 1 2 Changes in operating assets and liabilities net of effects of discontinued operations: Accounts receivable 719 976 Inventories (165) 81 Prepaid expenses and other current assets 2 142 Accounts payable (52) (1,387) Income taxes 28 282 Accrued liabilities (1,042) (811) ------- ------- Net cash provided (used) by continuing operations $ 86 $ (1,188) ------- ------- Discontinued operations: (Loss) from discontinued operations $ 0 $ (401) Change in net assets/liabilities of discontinued operations 0 (1,732) ------- ------- Net cash (used) by discontinued operations $ 0 $ (2,133) ------- ------- Net cash provided (used) by operations $ 86 $ (3,321) ------- ------- INVESTING ACTIVITIES Purchases of property, plant & equipment $ (184) $ (131) Proceeds from sale of subsidiary, ProQuip, net of cash balance and expenses 9,125 0 Proceeds on sale of assets 0 1,959 ------- ------- Net cash provided (used) in investing activities $ 8,941 $ 1,828 ------- ------- FINANCING ACTIVITIES Net borrowing under line-of-credit and notes payable agreements $ (2,836) $ 3,056 Principal payments of long-term debt (8,000) (1,775) ------- ------- Net cash provided in financing activities $(10,836) $ 1,281 ------- ------- Increase in cash and cash equivalents $ (1,809) $ (212) Cash and cash equivalents - beginning of period 1,820 675 ------- ------- Cash and cash equivalents - end of period $ 11 $ 463 ======= ======= The accompanying notes are an integral part of the consolidated financial statements. MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The management of the Company believes the accompanying unaudited consolidated financial statements contain all adjustments (consisting primarily of normal recurring accruals) necessary to fairly present the financial position as of December 31, 1994 and results of operations and changes in financial position for the three months then ended. 2. The results of operations for the three-month period ended December 31, 1994 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 these consolidated financial statements 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, 1994. MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company's United Telecontrol Electronics, Inc. ("UTE") subsidiary filed for voluntary bankruptcy under Chapter 11 of the Federal Bankruptcy Code in April 1994 and commenced an orderly liquidation in October 1994. The Company expects the final liquidation of UTE and related court approval will occur during calendar year 1995. At that time any final adjustments will be made. Accordingly, the Company no longer includes Defense/Aerospace amongst its reportable business segments and UTE has been classified as "discontinued operations" in the Consolidated Financial Statements; prior year has been restated to conform to this treatment. (For further information on this bankruptcy see the discussion under the caption "Results of Operations: 1994 in Comparison with 1993", in Item 7: Management's Discussion and Analysis of the Financial Condition and Results of Operations and Note 16 to the Consolidated Financial Statements, in the Company's Form 10-K Report for the fiscal year ended September 30, 1994 which are incorporated herein by refer- ence). 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. This discussion relates only to the Company's continuing operations. RESULTS OF OPERATIONS (Dollars in thousands) SALES Three Months Ended -------------------- BUSINESS SEGMENT: 12/31/94 1/1/94 Change - - - ----------------- -------- -------- ------- Technology $ 2,848 $ 2,376 $ 472 Test & Measurement 6,745 5,908 837 ------ ------ ------ TOTAL $ 9,593 $ 8,284 $ 1,309 ====== ====== ====== OPERATING INCOME Three Months Ended -------------------- BUSINESS SEGMENT: 12/31/94 1/1/94 Change - - - ----------------- -------- -------- ------ Technology $ (217) $ (585) $ 368 Test & Measurement 1,072 313 759 ------ ------ ------ TOTAL $ 855 $ (272) $ 1,127 ====== ====== ====== Sales and profitability from operations for the first three months of fiscal year 1995 versus the same period of fiscal year 1994 have increased. The effect each business segment had on this change is outlined in the above table and discussed below. MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TECHNOLOGY The Technology segment reported increases in both sales and operating profit compared to the corresponding period last year. Sales recorded in the first quarter of fiscal 1995 versus the prior year reflect an improvement of approximately 20%. The $368 thousand reduction in the operating loss was due to the sales increase and to reductions in selling, general & administrative and product development expenses. The Technology Division continues to strive towards its goal to achieve profitability. Management believes this goal is achievable if certain major orders are received as now anticipated. A major program which was expected in early fiscal year 1995 has been delayed and is now expected to be received in the third quarter of the fiscal year. In addition, two customers have notified the Division that recent government orders to them will result in major orders to the Technology Division as a subcontractor . This business is related to further extending new bearing technology developed by the Division. It is anticipated the orders, noted above, and others, will result in higher sales levels as the fiscal year progresses, with a resulting improvement in profitability. TEST AND MEASUREMENT The Test & Measurement segment reported a 14% increase in revenues and a 242% increase in operating income compared to the same period last year. Ling Electronics, Inc. ("Ling"), the LAB Division ("LAB") and ProQuip, Inc. ("ProQuip") all contributed to the increase in both sales and profitability. The Advanced Products Division ("Advanced Products") reported slight decreases in both sales and operating profit versus the same period last year. A discussion of each business unit in this segment follows. The results of the segment include ProQuip which was sold by the Company in November 1994. (For further information on this sale transaction see the discussion under the caption "Results of Operations: 1994 in Comparison with 1993, in Item 7: Management's Discussion and Analysis of the Financial Condition and Results of Operations" and Note 17 to the Consolidated Financial Statements, in the Company's Form 10-K Report for the fiscal year ended September 30, 1994 which are incorporated herein by reference). ProQuip recorded sales of $2,584 thousand and $2,271 thousand for the first quarter of fiscal year 1995 and the first quarter of fiscal year 1994, respectively, and accounted for $714 thousand of operating profit during the first quarter of 1995 and $382 thousand for the corresponding period of the prior year. Ling's sales for the first quarter of 1995 were $416 thousand or 16% higher than 1994's similar period. Operating profit for 1995 was $343 thousand higher than 1994, reflecting the higher sales, improved margins and lower expenses. Ling experienced improvements in orders and backlog levels for the past several months, and expects to continue to record improvements in 1995 over 1994 results. Sales at LAB were $183 thousand higher than the comparable period for the prior year. Operating income increased by $89 thousand, reflecting the higher sales. A new Transportation Simulator product was introduced at a major trade show during the first fiscal quarter and initial sales are expected in the third quarter. It is expected this year will continue to compare favorably to the prior year. MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TEST AND MEASUREMENT (continued) The Advanced Products Division reported sales and operating profits slightly lower than the same period of the prior year. MICROTRAK 7000, a new laser triangulation sensor product, was introduced last fall and the initial sales will be recorded in the second fiscal quarter. Advanced Products expects the new product will contribute to another profitable year for the Division. FINANCIAL CONDITION During the first quarter of fiscal 1995, the Company sold its ProQuip subsidiary for approximately $13.3 million. The sale resulted in a gain of approximately $6.8 million. Approximately $8.0 million of the net proceeds were applied to the Company's term debt. The balance of this debt was $3.0 million at December 31, 1994. (For further information on this transaction see Note 17: "Subsequent Event" to the Consolidated Financial Statements in the Company's Form 10-K Report for the fiscal year ended September 30, 1994 which is incorporated herein by reference). Working capital reflects a $4.8 million improvement from September 30, 1994 to a negative $3.8 million at December 31, 1994. The working capital position remains a deficiency due mainly to a $3.0 million note payable due in May 1995 and the $3.0 million term debt noted above due in October 1995. The maturity of these debts during the next ten months will require the Company to secure alternative financing or make other arrangements to satisfy its obligations as they become due; see the discussion under the caption "Liquidity and Capital Resources" in Item 7: Management's Discussion and Analysis of the Financial Condition and Results of Operations, in the Company's Form 10-K Report for the fiscal year ended September 30, 1994 which is incorporated herein by reference. At December 31, 1994 cash and cash equivalents were $11 thousand versus $1,820 thousand at September 30, 1994. As shown by the Consolidated Statement of Cash Flow for the three months ended December 31, 1994, cash and cash equivalents were used to reduce, among other things, current liabili- ties, the line-of-credit, and long-term debt. PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) None. (b) The registrant filed a Current Report on Form 8-K, November 23, 1994, regarding the sale of a wholly owned subsidiary, ProQuip, Inc. 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 2-13-95 /s/ R. WAYNE DIESEL - - - --------- ------------------------------------ (Date) R. Wayne Diesel President & Chief Executive Officer 2-13-95 /s/ GEORGE HATHAWAY - - - --------- ------------------------------------ (Date) George Hathaway Corporate Controller