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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, 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 December 27, 1996
/ / 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 RD., LATHAM, NEW YORK 12110
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(Address of principal executive offices)(Zip Code)
(518) 785-2211
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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 27, 1996
- ----------------------------- --------------------------------
COMMON STOCK, $1.00 PAR VALUE 5,899,201 SHARES
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<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
INDEX
Page No.
--------
Part I Financial Information
- ----------------------------
Consolidated Balance Sheets - December 27, 1996
and September 30, 1996 3 - 4
Consolidated Statements of Income -
Three months ended December 27, 1996
and December 29, 1995 5
Consolidated Statements of Cash Flows -
Three months ended December 27, 1996
and December 29, 1995 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 10
Part II Other Information
- -------------------------
Item 4. and Item 6. 11
Signature 12
<PAGE>
PART I FINANCIAL INFORMATION
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 27, 1996 (Unaudited) and
September 30, 1996 (Derived from audited financial statements)
(Dollars in thousands)
Dec. 27, Sept. 30,
1996 1996
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents $ 128 $ 66
Trade accounts 7,255 7,491
Allowance for doubtful accounts (111) (102)
------- -------
Net receivables 7,144 7,389
Inventories:
Raw materials and components 2,564 2,231
Work in process 1,468 1,727
Finished goods 191 153
------- -------
Total inventories 4,223 4,111
Prepaid expenses & other
current assets 165 190
------- -------
Total Current Assets 11,660 11,756
Property, Plant and Equipment:
Cost 19,846 19,498
Accumulated depreciation (17,001) (16,880)
------- -------
Net Property, Plant and Equipment 2,845 2,618
Other Assets 72 78
------- -------
TOTAL ASSETS $ 14,577 $ 14,452
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 27, 1996 (Unaudited) and
September 30, 1996 (Derived from audited financial statements)
(Dollars in thousands)
Dec. 27, Sept. 30,
1996 1996
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Line-of-credit $ 1,369 $ -
Current installments on long-term debt 604 604
Income taxes payable 146 16
Accounts payable 1,883 1,979
Accrued liabilities 2,333 3,350
Payroll and other taxes withheld
and accrued 328 671
------- -------
Total Current Liabilities 6,663 6,620
Line-of-credit, net of current portion - 100
Note Payable - 3,000
Long-term debt, net of current maturities 555 706
Accrued interest - Note Payable - 1,098
Deferred income taxes and other credits 739 764
------- -------
Total Liabilities 7,957 12,288
Shareholders' Equity:
Common stock 5,902 4,902
Paid-in-capital 13,923 13,423
Deficit (13,159) (16,089)
Foreign currency translation adjustment (14) (19)
Treasury stock (29) (29)
Restricted stock grants (3) (24)
------- -------
Total Shareholders' Equity 6,620 2,164
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 14,577 $ 14,452
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share)
Three months ended
Dec. 27, Dec. 29,
1996 1995
-------- --------
Product revenue $ 6,296 $ 5,397
Research & development revenue 1,826 2,004
------- -------
Total revenue $ 8,122 $ 7,401
Product cost of sales 3,906 3,349
Research & development contract costs 1,323 1,409
Selling, general and administrative
expenses 2,020 1,898
Product development and research costs 290 191
------- -------
Operating income $ 583 $ 554
Interest expense (161) (263)
Other income(expense), net 36 (44)
------- -------
Income before extraordinary item
and income taxes $ 458 $ 247
Income tax expense 35 7
------- -------
Income before extraordinary item $ 423 $ 240
Gain on extinguishment of debt, net of
taxes ($106) 2,507 -
------- -------
Net income $ 2,930 $ 240
======= =======
Earnings per share:
Income before extraordinary item .09 .07
Gain on extinguishment of debt .51 -
------- -------
Net income $ .60 $ .07
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three months ended
Dec. 27, Dec. 29,
1996 1995
-------- --------
OPERATING ACTIVITIES
Net income $ 2,930 $ 240
Adjustments to reconcile net income to net
cash (used)provided by operations:
Gain on extinguishment of debt (2,507) -
Depreciation and amortization 129 166
Foreign currency translation 5 (3)
Other 12 (10)
Changes in operating assets and liabilities:
Accounts receivable 236 306
Inventories (112) (311)
Escrow deposit - 750
Prepaid expenses and other current assets 25 244
Accounts payable (96) (446)
Income taxes 24 -
Accrued liabilities (1,345) 292
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Net cash (used) provided by operations $ (699) $ 1,228
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INVESTING ACTIVITIES
Purchases of property, plant & equipment $ (357) $ (64)
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Net cash used in investing activities $ (357) $ (64)
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FINANCING ACTIVITIES
Net borrowings (payments) under line-of-credit $ 1,269 $ (915)
Principal payments of long-term debt (151) (35)
------- -------
Net cash provided (used) in financing activities $ 1,118 $ (950)
------- -------
Increase in cash and cash equivalents $ 62 $ 214
Cash and cash equivalents - beginning of period 66 78
------- -------
Cash and cash equivalents - end of period $ 128 $ 292
======= =======
Supplemental Disclosure
- -----------------------
NONCASH FINANCING ACTIVITIES
Conversion of Note Payable to common stock
Note Payable extinguishment $ (3,000) -
Common stock issued 1,500 -
Accrued interest- Note Payable (1,213) -
------- -------
Net noncash used in financing activities $ (2,713) $ -
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
<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 December 27, 1996 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 27,
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, 1996.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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
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.)
During the first quarter of fiscal 1997 the Company announced it had
discontinued efforts to sell its wholly owned subsidiary, Ling Electronics
Inc. ("Ling"), of Anaheim, California. A definitive agreement had been
negotiated and executed under which the amount to be paid in cash at
closing approximated Ling's net book value; however the buyer failed to
obtain funding prior to the expiration date of the agreement.
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 OPERATIONS
- ---------------------
(Dollars in thousands)
SALES
Three months ended
---------------------
BUSINESS SEGMENT: 12/27/96 12/29/95 Change
- ----------------- -------- -------- --------
Test & Measurement $ 6,266 $ 5,397 $ 869
Technology 1,856 2,004 (148)
-------- -------- --------
TOTAL $ 8,122 $ 7,401 $ 721
======== ======== ========
OPERATING
INCOME (LOSS)
Three months ended
---------------------
BUSINESS SEGMENT: 12/27/96 12/29/95 Change
- ----------------- -------- -------- --------
Test & Measurement $ 767 $ 436 $ 331
Technology (184) 118 (302)
-------- -------- --------
TOTAL $ 583 $ 554 $ 29
======== ======== ========
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales and operating income for the first three months of fiscal year
1997 versus the same period of fiscal year 1996 have increased
approximately 9.7% and 5.2%, respectively. 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 16.1% increase in
revenues and a 75.9% rise in operating income compared to the same period
last year.
Sales for the first quarter of fiscal year 1997 totaled $6.3 million
compared to $5.4 million for the comparable period in the prior year. All
divisions within this segment reported higher levels of shipments in the
first quarter of fiscal 1997 as compared to the same period in the prior
year. Operating income for the first quarter of fiscal 1997 amounted to
$767 million, an increase of $331 thousand over the $436 thousand operating
income for the same period in 1996; improved operating income resulted
primarily from the higher level of sales. All divisions were profitable
during the quarter and reported higher levels of operating income than in
the prior year.
TECHNOLOGY
- ----------
The Technology segment experienced a 7.4% decrease in sales and
experienced a significant decline in operating income compared to the
corresponding period last year. The decline in sales was substantially due
to the timing of the work performed on a large order received. This segment
incurred an operating loss of $184 thousand compared to income of $118
thousand for the first three months of the previous year. Current year
results were negatively impacted by contract overruns of approximately $190
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
remaining quarters 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.
OTHER
- -----
In addition to the matters noted above, the Company recorded a $2.5
million extraordinary gain, net of taxes, on the extinguishment of debt
during the first quarter of fiscal 1997. Results during the first quarter
of fiscal 1997 were further enhanced by lower interest expense, principally
resulting from reduced indebtedness. Moreover, in the first quarter, the
Company benefited from reduced income tax expense due to the use of net
operating loss carryforwards. However, the use of any further carryforwards
will be significantly limited on an annualized basis pursuant to the
Internal Revenue Code.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
- -------------------
Working capital of $5.0 million at December 27, 1996 reflects a $139
thousand decline from September 30, 1996.
At December 27, 1996 cash and cash equivalents were $128 thousand
versus $66 thousand at September 30, 1996. Net cash used by operations for
the first quarter of fiscal 1997 amounted to $699 thousand, as compared to
cash provided of $1.2 million in the prior year.
The capital used during the first quarter of fiscal 1997 was used
principally to reduce accrued liabilities and acquire capital equipment.
Substantially all of the funds provided were from line of credit
borrowings. Line of credit borrowings at December 27, 1996 were $1.4
million, while at September 30, 1996 there were line of credit borrowings
of $100 thousand.
Capital spending during the first quarter of fiscal 1997 was $357
thousand, a significant increase from the comparable period in 1996's
capital spending level of $64 thousand.
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 million, net of approximately $100
thousand of transaction related expenses.
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.
<PAGE>
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
A Special Meeting of Shareholders of the Company was held at the
Company's corporate offices on December 20, 1996 for the purpose of
considering and voting on a proposal to adopt and approve the Company's
Stock Incentive Plan, as described in the Proxy Statement dated November
20, 1996.
The Plan provides that the initial aggregate number of 500,000 shares
of Common Stock may be awarded or issued. Under the Plan, the Board of
Directors is authorized to award stock options, stock appreciation rights,
restricted stock, and other stock-based incentives to officers, employees
and others.
The results of the voting on the proposal to adopt and approve the
Company's Stock Incentive Plan were as follows:
Votes of % of
In Favor Opposed Abstained Outstanding Shares
--------- -------- --------- ------------------
2,716,496 65,050 2,351 56.8%
The proposal, having received the favorable votes of a majority of
the outstanding shares as required by law, was approved.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) No Form 8-K Reports were filed during the quarter ending December 27,
1996. Subsequent to the end of the quarter, the Company filed a Form 8-K
Report, dated January 15, 1997, reporting under Item 5 thereof the
Company's issuance of a press release dated January 3, 1997. The press
release announced that the Company had reached an agreement with First
Albany Companies Inc. (FAC) to satisfy an approximate $4.1 million
obligation ($3.0 million principal and $1.1 million in accrued
interest). Under the terms of the agreement, MTI issued one million
shares of common stock to FAC in satisfaction of all principal and
interest obligations under the First Commercial Credit Corporation
arrangement. A copy of the press release was filed as Exhibit 20.5 to the
Form 8-K Report.
<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
2-10-97 /s/ R. WAYNE DIESEL
- -------- ----------------------------------
(Date) R. Wayne Diesel
Chief Executive Officer
2-10-97 /s/ STEPHEN T. WILSON
- -------- ----------------------------------
(Date) Stephen T. Wilson
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-26-1996
<CASH> 128
<SECURITIES> 0
<RECEIVABLES> 7,255
<ALLOWANCES> 111
<INVENTORY> 4,223
<CURRENT-ASSETS> 11,660
<PP&E> 19,846
<DEPRECIATION> 17,001
<TOTAL-ASSETS> 14,577
<CURRENT-LIABILITIES> 6,663
<BONDS> 0
0
0
<COMMON> 5,902
<OTHER-SE> 718
<TOTAL-LIABILITY-AND-EQUITY> 14,577
<SALES> 8,122
<TOTAL-REVENUES> 8,122
<CGS> 5,229
<TOTAL-COSTS> 7,539
<OTHER-EXPENSES> (36)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 161
<INCOME-PRETAX> 458
<INCOME-TAX> 35
<INCOME-CONTINUING> 423
<DISCONTINUED> 0
<EXTRAORDINARY> 2,507
<CHANGES> 0
<NET-INCOME> 2,930
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
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