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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 June 27, 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, 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
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(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, 1997
- ----------------------------- -----------------------------
Common Stock, $1.00 Par Value 5,905,661 Shares
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<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED
INDEX
Page No.
--------
Part I Financial Information
Consolidated Balance Sheets - June 27, 1997
and September 30, 1996 3 - 4
Consolidated Statements of Income -
Three months and nine months ended
June 27, 1997 and June 28, 1996 5
Consolidated Statements of Cash Flows -
Nine months ended June 27, 1997
and June 28, 1996 6 - 7
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9 - 11
Part II Other Information 12
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signature 13
<PAGE>
PART I FINANCIAL INFORMATION
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of June 27, 1997 (Unaudited) and
September 30, 1996 (Derived from audited financial statements)
(Dollars in thousands)
June 27, Sept. 30,
1997 1996
ASSETS -------- --------
Current Assets:
Cash and cash equivalents $ 118 $ 66
Trade accounts 7,563 7,491
Allowance for doubtful accounts (98) (102)
------- -------
Net receivables 7,465 7,389
Inventories:
Raw materials and components 2,622 2,231
Work in process 1,048 1,727
Finished goods 288 153
------- -------
Total inventories 3,958 4,111
Prepaid expenses & other
current assets 99 190
------- -------
Total Current Assets 11,640 11,756
------- -------
Property, Plant and Equipment:
Cost 19,197 19,498
Accumulated depreciation (16,647) (16,880)
------- -------
Net Property, Plant and Equipment 2,550 2,618
------- -------
Other Assets 406 78
------- -------
TOTAL ASSETS $ 14,596 $ 14,452
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
As of June 27, 1997 (Unaudited) and
September 30, 1996 (Derived from audited financial statements)
(Dollars in thousands)
June 27, Sept.30,
1997 1996
LIABILITIES AND SHAREHOLDERS' EQUITY -------- --------
Current Liabilities:
Line-of-credit $ 1,749 $ -
Current installments on long-term debt 604 604
Income taxes payable 35 16
Accounts payable 1,393 1,979
Accrued liabilities 2,358 3,350
Payroll and other taxes withheld
and accrued 541 671
------- -------
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 - 1,098
Deferred income taxes and other credits 594 764
------- -------
Total Liabilities 7,526 12,288
------- -------
Shareholders' Equity:
Common stock 5,909 4,902
Paid-in capital 13,923 13,423
Deficit (12,715) (16,089)
Foreign currency translation adjustment (15) (19)
Treasury stock (29) (29)
Restricted stock grants (3) (24)
------- -------
Total Shareholders' Equity 7,070 2,164
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 14,596 $ 14,452
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share)
Three months ended Nine months ended
------------------ ------------------
June 27, June 28, June 27, June 28,
1997 1996 1997 1996
-------- -------- -------- --------
Product revenue $ 5,651 $ 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 $ 22,055
Product cost of sales 3,224 3,038 10,983 9,379
Research & development contract
costs 1,641 1,375 4,565 4,589
Selling, general and administrative
expenses 2,404 2,219 6,702 6,480
Product development and
research costs 472 325 1,318 959
------- ------- ------- -------
Operating income (loss) $ 324 $ (167) $ 1,133 $ 648
Interest expense (60) (195) (285) (618)
Gain on sale of subsidiary, ProQuip - - - 750
Other income (expense), net 54 (83) 105 (225)
------- ------- ------- -------
Income (loss) from continuing
operations before extraordinary
item and income taxes $ 318 $ (445) $ 953 $ 555
Income tax (credit) expense (24) 36 86 52
------- ------- ------- -------
Income (loss) from continuing
operations before extraordinary
item $ 342 $ (481) $ 867 $ 503
Gain on extinguishment of debt, net
of taxes ($106) - - 2,507 -
------- ------- ------- -------
Income (loss) from continuing
operations $ 342 $ (481) $ 3,374 $ 503
Income from discontinued operations - 2,143 - 2,143
------- ------- ------- -------
Net income $ 342 $ 1,662 $ 3,374 $ 2,646
======= ======= ======= =======
Earnings(loss) per share:
Continuing operations before
extraordinary item $ .06 $ (.14) $ .16 $ .14
Gain on extinguishment of debt .00 .00 .45 .00
------- ------- ------- -------
Continuing operations $ .06 $ (.14) $ .61 $ .14
Discontinued operations .00 .60 .00 .60
------- ------- ------- -------
Net income $ .06 $ .46 $ .61 $ .74
======= ======= ======= =======
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)
Nine months ended
-------------------
June 27, June 28,
1997 1996
OPERATING ACTIVITIES -------- --------
Net income $ 3,374 $ 503
Adjustments to reconcile net income to net
cash (used in) provided by continuing operations:
Gain on extinguishment of debt (2,507) -
Depreciation and amortization 447 503
Gain on sale of subsidiary - (750)
Accounts receivable reserve (4) (8)
Asset valuation reserve - 144
Foreign currency translation 4 -
Other 19 1
Changes in operating assets and liabilities:
Accounts receivable (72) 591
Inventories 152 (1,187)
Escrow deposit - 750
Prepaid expenses and other current assets 91 (228)
Accounts payable (540) (234)
Income taxes and other credits (257) (15)
Accrued liabilities (1,057) 396
------- -------
Net cash (used in) provided by continuing operations $ (350) $ 466
Discontinued operations:
Income from discontinued operations - 2,143
Changes in net liabilities of
discontinued operations - (1,625)
------- -------
Net cash provided by discontinued operations $ - $ 518
------- -------
Net cash (used in) provided by operating activities $ (350) $ 984
------- -------
INVESTING ACTIVITIES
Purchases of property, plant & equipment $ (800) $ (481)
Proceeds from sale of subsidiary, ProQuip,
net of cash balance and expenses - 750
------- -------
Net cash (used in) provided by investing activities $ (800) $ 269
------- -------
FINANCING ACTIVITIES
Net borrowings (payments) under
line-of-credit agreement $ 1,649 $ (787)
Principal payments of long-term debt (454) (537)
Private placement of common stock,
net of expenses - 1,900
Other 7 -
------- -------
Net cash provided by financing activities $ 1,202 $ 576
------- -------
Increase in cash and cash equivalents $ 52 $ 1,829
Cash and cash equivalents - beginning of period 66 78
------- -------
Cash and cash equivalents - end of period $ 118 $ 1,907
======= =======
<PAGE>
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 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) $ -
------- -------
Net noncash used in investing/financing activities $ (2,364) $ -
======= =======
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 June 27, 1997 and results of operations and changes in financial
position for the nine months then ended.
2. The results of operations for the nine-month 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 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.
4. 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.
<PAGE>
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 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
====== ====== ====== ======= ======= =======
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales for the first nine months of fiscal year 1997 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 compared to the same period last year.
Sales for the first nine months 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 higher levels of shipments in the first
nine months of fiscal 1997 as compared to the same period 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 experienced a 7.3% decrease in sales and a
significant decline in operating income compared to the corresponding nine month
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.
<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 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 nine months of 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.
FINANCIAL CONDITION
- -------------------
Working capital of $5.0 million at June 27, 1997 reflects a $176 thousand
decline from September 30, 1996.
At June 27, 1997 cash and cash equivalents were $118 thousand versus $66
thousand at September 30, 1996. Net cash used by operations for the first three
quarters of fiscal 1997 amounted to $350 thousand, as compared to cash provided
of $466 thousand in the same period last year.
The capital used during the first three quarters of fiscal 1997 was used
principally to reduce accrued liabilities and accounts payable and to acquire
capital equipment. Substantially all of the funds provided were from line of
credit borrowings. Line of credit borrowings at June 27, 1997 were $1.7 million,
while at September 30, 1996 there were line of credit borrowings of $100
thousand.
Capital spending during the first nine months of fiscal 1997 was $800
thousand, a significant increase from the comparable period in 1996, during
which capital spending totaled $481 thousand. The increased capital investments
are in accordance with the higher level of planned expenditures for fiscal 1997.
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
- -----------------------------------------------------------
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 on Form 8-K was filed during the quarter ending June 27, 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.
<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
8-11-97 /s/ MARTIN MASTROIANNI
- -------- ----------------------------------
(Date) Martin Mastroianni
President
8-11-97 /s/ STEPHEN T. WILSON
- -------- ----------------------------------
(Date) Stephen T. Wilson
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-27-1997
<CASH> 118
<SECURITIES> 0
<RECEIVABLES> 7,563
<ALLOWANCES> 98
<INVENTORY> 3,958
<CURRENT-ASSETS> 11,640
<PP&E> 19,197
<DEPRECIATION> 16,647
<TOTAL-ASSETS> 14,596
<CURRENT-LIABILITIES> 6,680
<BONDS> 0
0
0
<COMMON> 5,909
<OTHER-SE> 1,161
<TOTAL-LIABILITY-AND-EQUITY> 14,596
<SALES> 24,701
<TOTAL-REVENUES> 24,701
<CGS> 15,548
<TOTAL-COSTS> 23,568
<OTHER-EXPENSES> (105)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 285
<INCOME-PRETAX> 953
<INCOME-TAX> 86
<INCOME-CONTINUING> 867
<DISCONTINUED> 0
<EXTRAORDINARY> 2,507
<CHANGES> 0
<NET-INCOME> 3,374
<EPS-PRIMARY> .61
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