_____________________________________________________________________________
_____________________________________________________________________________
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 March 29, 1996
/ / Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition 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 Road, 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 March 29, 1996
_____________________________ _____________________________
Common Stock, $1.00 Par Value 3,565,868 Shares
_____________________________________________________________________________
_____________________________________________________________________________
1
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED
INDEX
Page No.
--------
Part I Financial Information
Consolidated Balance Sheets - March 29, 1996
and September 30, 1995 3 - 4
Consolidated Statements of Income -
Three months and six months ended
March 29, 1996 and April 1, 1995 5
Consolidated Statements of Cash Flows -
Six months ended March 29, 1996
and April 1, 1995 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 11
Part II Other Information 12
Signature 13
2
<PAGE>
PART I FINANCIAL INFORMATION
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of March 29, 1996 (Unaudited) and
September 30, 1995 (Derived from audited financial statements)
(Dollars in thousands)
<TABLE>
<CAPTION>
March 29, Sept. 30,
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 115 $ 78
Trade accounts 6,268 6,896
Other receivables 37 17
------- -------
Gross receivables 6,305 6,913
Allowance for doubtful accounts (70) (120)
------- -------
Net receivables 6,235 6,793
Inventories:
Raw materials and components 1,996 2,116
Work in process 1,720 1,119
Finished goods 188 249
------- -------
Total inventories 3,904 3,484
Escrow deposit - 750
Prepaid expenses & other
current assets 193 461
------- -------
Total Current Assets 10,447 11,566
Other Assets:
Excess of cost over net assets of
acquired companies, net 56 59
Other 36 60
Property, Plant and Equipment:
Cost 19,283 19,115
Accumulated depreciation (16,615) (16,317)
------- -------
Net Property, Plant and Equipment 2,668 2,798
------- -------
TOTAL ASSETS $ 13,207 $ 14,483
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
As of March 29, 1996 (Unaudited) and
September 30, 1995 (Derived from audited financial statements)
(Dollars in thousands)
<TABLE>
<CAPTION>
March 29, Sept.30,
1996 1995
-------- --------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Line-of-Credit $ 200 $ 1,446
Note Payable 3,000 -
Current installments on long-term debt 604 738
Income taxes payable 13 13
Accounts payable 1,742 2,290
Accrued liabilities 3,701 3,342
Net liabilities of discontinued operations 2,756 2,756
Payroll and other taxes withheld
and accrued 327 387
------- -------
Total Current Liabilities 12,343 10,972
Line-of-Credit, net of current portion 1,600 1,962
Note Payable - 3,000
Long-term debt, net of current maturities 1,008 1,260
Deferred income taxes and other credits 764 779
------- -------
Total Liabilities 15,715 17,973
Shareholders' Equity:
Common stock 3,569 3,569
Paid-in capital 12,856 12,856
Retained earnings - beginning of year (19,837) (22,759)
- current year 984 2,922
Foreign currency translation adjustment (25) (20)
Treasury stock (29) (29)
Restricted stock grants (26) (29)
------- -------
Total Shareholders' Equity (2,508) (3,490)
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 13,207 $ 14,483
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share)
<TABLE>
<CAPTION>
Three months ended Six months ended
March 29, April 1, March 29, April 1,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Product revenue $ 4,939 $ 4,316 $ 10,336 $ 11,395
Research & development revenue 2,925 2,063 4,929 4,577
------- ------- ------- -------
Total revenue $ 7,864 $ 6,379 $ 15,265 $ 15,972
Product cost of sales 2,992 2,651 6,341 6,674
Research & development contract
costs 1,805 1,887 3,214 3,975
Selling, general and administrative
expenses 2,224 1,806 4,122 3,959
Product development and
research costs 378 268 569 742
------- ------- ------- -------
Operating income (loss) $ 465 $ (233) $ 1,019 $ 622
Interest expense (160) (222) (423) (583)
Gain on sale of subsidiary, ProQuip 750 - 750 6,779
Other (expense) income, net (302) (66) (346) (113)
------- ------- ------- -------
Income (loss) before income taxes $ 753 $ (521) $ 1,000 $ 6,705
Income tax expense 9 - 16 68
------- ------- ------- -------
Net income (loss) $ 744 $ (521) $ 984 $ 6,637
======= ======= ======= =======
Earnings (loss) per share $ .21 $ (.15) $ .28 $ 1.87
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Six months ended
March 29, April 1,
1996 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 984 $ 6,637
Adjustments to reconcile net income to net
cash provided (used) :
Depreciation and amortization 351 411
Gain on sale of subsidiary (750) (6,779)
Accounts receivable reserve (50) 3
Asset valuation reserve 134 -
Foreign currency translation (5) 13
Other - 1
Changes in operating assets and liabilities:
Accounts receivable 608 1,860
Inventories (420) (643)
Escrow deposit 750 -
Prepaid expenses and other current assets 268 (82)
Accounts payable (548) (531)
Income taxes (15) 28
Accrued liabilities 299 (1,145)
------- -------
Net cash provided (used) by operations $ 1,606 $ (227)
------- -------
INVESTING ACTIVITIES
Purchases of property, plant & equipment $ (325) $ (337)
Proceeds from sale of subsidiary, ProQuip,
net of cash balance and expenses 750 9,125
------- -------
Net cash provided in investing activities $ 425 $ 8,788
------- -------
FINANCING ACTIVITIES
Net payments under line-of credit agreement $ (1,608) $ (1,864)
Principal payments of long-term debt ( 386) (8,500)
------- -------
Net cash used in financing activities $( 1,994) $(10,364)
------- -------
Increase (decrease) in cash and cash equivalents $ 37 $ (1,803)
Cash and cash equivalents - beginning of period 78 1,820
------- -------
Cash and cash equivalents - end of period $ 115 $ 17
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
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 March 29, 1996 and results of operations and changes
in financial position for the six months then ended.
2. The results of operations for the six-month period ended March 29, 1996 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, 1995.
7
<PAGE>
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
that the final liquidation of UTE and related court approval will occur during
calendar year 1996. At that time any final adjustments will be made. (For
further information on this bankruptcy see the discussion in Item 7:Management's
Discussion and Analysis of 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, 1995 which are incorporated
herein by reference).
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. Prior year information
contains ProQuip, Inc. ("ProQuip") results through its sale date (November 22,
1994) and the $6.8 million gain on its sale. (For further information on this
transaction, see the discussion under the caption "Results of Operations: 1995
in Comparison with 1994", in Item 7: Management's Discussion and Analysis of
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, 1995 which are incorporated herein by reference).
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
- ---------------------
(Dollars in thousands)
SALES
Six months ended
--------------------
<S> <C> <C> <C>
BUSINESS SEGMENT: 3/29/96 4/01/95 Change
- ----------------- -------- -------- ------
Technology $ 4,939 $ 4,887 $ 52
Test & Measurement 10,326 11,085 (759)
------ ------ ------
TOTAL $15,265 $15,972 $ (707)
====== ====== ======
OPERATING
INCOME (LOSS)
Six months ended
--------------------
BUSINESS SEGMENT: 3/29/96 4/01/95 Change
- ----------------- -------- -------- ------
Technology $ 225 $ (934) $ 1,159
Test & Measurement 794 1,556 (762)
------ ------ ------
TOTAL $ 1,019 $ 622 $ 397
====== ====== ======
</TABLE>
8
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales for the first six months of fiscal year 1996 versus the same
period of fiscal year 1995 have decreased while operating income for the same
period increased. However, excluding ProQuip, sales and operating income for the
first six months have increased. The effect each business segment had on this
change is outlined in the above table and discussed below.
TECHNOLOGY
- ----------
The Technology segment reported a modest increase in sales as compared to
the corresponding period last year, and generated an operating income of $225
thousand for the first half of the current fiscal year. This is a significant
improvement from the $934 thousand operating loss recorded by the segment for
the first six months of the previous fiscal year. A 15% rise in the Machinery &
Components business area of the Technology division has contributed to the
current growth in sales, while improved productivity and a favorable change in
the blend of cost of sales components increased profitability. Furthermore,
prior year results had been negatively impacted by a contract overrun of
approximately $186 thousand, a $150 thousand inventory write-off, $105 thousand
in losses from a business unit being deactivated, and a margin reversal of $42
thousand due to a customer bankruptcy.
TEST AND MEASUREMENT
- --------------------
The Test & Measurement segment reported a 7% decrease in revenues and a 49%
reduction in operating income compared to the same period last year. These
decreases are attributable to the sale of ProQuip, a subsidiary which was sold
by the Company in November 1994. ProQuip accounted for $2,584 thousand in sales
and $714 thousand of operating profit during the comparable period in fiscal
1995. Excluding ProQuip, sales in fiscal 1996 have increased $1,825 thousand, or
21%, in comparison to last year, with Ling Electronics ("Ling"), the Advanced
Products Division, and the LAB Division all reporting higher sales levels.
Operating income, when excluding ProQuip, is $48 thousand, or 6%, less than last
year. Advanced Products and LAB have produced an operating profit in each
quarter. Ling incurred an operating loss during the second quarter, primarily
due to inadequate margins, and, therefore, has incurred an operating loss for
the first six months of the fiscal year,resulting in the 6% decline in operating
income for the segment as a whole.
As previously announced, the Company has reached an agreement in principle
to sell Ling for an amount, to be paid in cash at closing, that approximates
Ling's net book value; any resulting gain or loss on the transaction is not
expected to be material. Proceeds of the sale will be used to reduce debt and
as additional working capital. The transaction is subject to negotiation and
execution of a definitive agreement and to the purchaser's completion of a "due
diligence" review of Ling's business and assets, and is expected to be completed
within the current fiscal year.
9
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OTHER
- -----
In addition to the matters noted above, the Company's results for the first
half of fiscal 1996 were favorably impacted by decreased interest expense, as a
result of lower rates and reduced indebtedness, and by recognition of a $750
thousand contingency gain on the sale of ProQuip resulting from the expiration
on February 22, 1996 of the escrow agreement in connection with the sale. These
were partially offset by a $175 thousand accrual for settlement of a lawsuit,
the establishment of a $134 thousand asset valuation reserve at Ling, and $99
thousand worth of one time labor charges being accrued. Also, the Company
continues to benefit from net operating loss carryforwards and therefore has no
federal income tax provision.
FINANCIAL CONDITION
- -------------------
On November 22, 1994, the Company sold its ProQuip subsidiary for
approximately $13.3 million, of which $750 thousand was placed in escrow for
fifteen months to provide a fund for indemnity payments. As of February 22, 1996
(the escrow expiration date), no claims had been filed, nor was the Company
aware of any circumstances which might give rise to future claims. Accordingly,
the Company recognized the remaining $750 thousand gain from the sale during the
second quarter of fiscal 1996.
Negative working capital of $1,896 thousand at March 29, 1996 reflects a
$2,490 thousand decline from September 30, 1995. The change in classification of
the $3.0 million Note Payable (due December 31, 1996), from long-term to current
liabilities, is the principal factor contributing to the decline in working
capital. The Company anticipates that it will be able to meet its liquidity
needs during the balance of the fiscal year (including all payments due on its
indebtedness during fiscal 1996) from cash flow generated by its operations,
from the pending sale of its Ling subsidiary (discussed under "Test and
Measurement"
above), and from borrowing under its existing line of credit. However, it
presently does not expect those sources to generate sufficient funds to pay the
Note Payable balance due on December 31, 1996. An extension or restructuring of
the Note Payable will be required unless another source of financing can be
secured. Moreover, the Company's ability to meet its liquidity needs is
dependent upon the orderly liquidation of UTE,restructuring of the Note Payable,
completion of the sale of Ling, and attaining overall profitability and positive
cash flow from operations. There is no assurance that the Company will be able
to achieve these objectives. (For further information, see the discussion under
the caption "Liquidity and Capital Resources", in Item 7:Management's Discussion
and Analysis of Financial Conditions and Results of Operations, and Note 13 to
the Consolidated Financial Statements, in the Company's Form 10-K Report for the
fiscal year ended September 30, 1995).
10
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION (continued)
- -------------------
In May 1996, First Albany Companies ("FAC") completed its previously
announced purchase of 909,091 shares of the Company's common stock (representing
about 25% of the Company's outstanding shares) and certain rights relating to
the Company's Note Payable (the outstanding balance of which, with accrued
interest, is approximately $3.9 million). In connection with obtaining the
approval of the Company's Board of Directors for this transaction, FAC indicated
that it was its intention to assist in the recapitalization of the Company by,
among other things, negotiating a restructuring of the Note Payable on terms
which could include, among others, conversion of the obligation to preferred or
common stock of the Company(at a price of not less than $1.50 per common share),
and by raising approximately $2.0 million in additional equity capital for the
Company through a private placement. However, no specific terms for a
restructuring of the Note Payable agreement, or for the infusion of new equity
capital, have yet been proposed, and no agreement has been reached on such
matters; there is no assurance that any agreements will be reached for a
restructuring of the Note Payable agreement or for the infusion of new equity
capital, or that the terms of any such agreements that may be reached will be
favorable to the Company. Any agreements that may be reached on these matters
will be subject to approval by a majority of disinterested members of the
Company's Board of Directors.
At March 29, 1996, cash and cash equivalents were $115 thousand versus $78
thousand at September 30, 1995. Net cash provided from operations, including
the release of the ProQuip escrow monies, was used to reduce, among other
things, the line-of-credit and long-term debt, and to purchase capital equipment
for the Company.
11
<PAGE>
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders, which had been scheduled for
March 28, 1996, was adjourned before a vote was taken on the matters being
submitted to shareholders. The adjourned meeting will reconvene on May 16, 1996
at 10 A.M. at the Company's Corporate Headquarters in Latham, New York, at which
time shareholders will vote on the election of Directors and on ratification of
the Board's selection of auditors.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C>
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
</TABLE>
(b) No Reports on Form 8-K were filed by the Company during the quarter
ending March 29, 1996. Subsequent to the end of the quarter, the Company filed
a Form 8-K Report, dated April 18, 1996, reporting under Item 5 thereof the
Company's issuance of two press releases. The press releases related to (1) the
approval that had been granted by the Company's Board of Directors, for purposes
of Section 912 of the New York Business Corporation Law, with respect to the
proposed purchase by First Albany Companies of 909,091 shares of the Company's
common stock (representing about 25% of the Company's outstanding shares) and
approximately $3.9 million of the Company's debt, and (2) an agreement in
principle that had been reached for the sale of the Company's Ling Electronics,
Inc. subsidiary. Copies of the press releases were filed as Exhibits to the Form
8-K Report.
12
<PAGE>
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
<TABLE>
<CAPTION>
<S> <C>
5-13-96 /s/ R. WAYNE DIESEL
- --------- ------------------------------------
(Date) R. Wayne Diesel
President & Chief Executive Officer
5-13-96 /s/ STEPHEN T. WILSON
- --------- ------------------------------------
(Date) Stephen T. Wilson
Chief Financial Officer
</TABLE>
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> MAR-29-1996
<CASH> 115
<SECURITIES> 0
<RECEIVABLES> 6,305
<ALLOWANCES> 70
<INVENTORY> 3,904
<CURRENT-ASSETS> 10,447
<PP&E> 19,283
<DEPRECIATION> 16,615
<TOTAL-ASSETS> 13,207
<CURRENT-LIABILITIES> 12,343
<BONDS> 0
0
0
<COMMON> 3,569
<OTHER-SE> (6,077)
<TOTAL-LIABILITY-AND-EQUITY> 13,207
<SALES> 15,265
<TOTAL-REVENUES> 15,265
<CGS> 9,555
<TOTAL-COSTS> 14,246
<OTHER-EXPENSES> 346
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 423
<INCOME-PRETAX> 1,000
<INCOME-TAX> 16
<INCOME-CONTINUING> 984
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 984
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
