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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 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 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
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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 December 26, 1997
- ----------------------------- --------------------------------
Common Stock, $1.00 Par Value 5,905,661 Shares
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<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
INDEX
Page No.
----------
Part I Financial Information
- ----------------------------
Consolidated Balance Sheets - December 26, 1997
and September 30, 1997 3 - 4
Consolidated Statements of Income -
Three months ended December 26, 1997
and December 27, 1996 5
Consolidated Statements of Cash Flows -
Three months ended December 26, 1997
and December 27, 1996 6 - 7
Notes to Consolidated Financial Statements 8 - 10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 12
Part II Other Information
- -------------------------
Item 6 13
Signature 14
<PAGE>
PART I FINANCIAL INFORMATION
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 26, 1997 (Unaudited) and
September 30, 1997 (Derived from audited financial statements)
(Dollars in thousands)
Dec. 26, Sept. 30,
1997 1997
-------- --------
Assets
Current Assets:
Cash and cash equivalents $ 178 $ 1,421
Trade accounts 3,779 4,576
Allowance for doubtful accounts ( 91) (94)
------- -------
Net receivables 3,688 4,482
Inventories:
Raw materials and components 2,573 2,214
Work in process 1,073 967
Finished goods 243 205
------- -------
Total inventories 3,889 3,386
Note receivable - current 322 315
Prepaid expenses and other current assets 41 102
Taxes receivable 179 -
Net assets of discontinued operations 917 3,186
------- -------
Total Current Assets 9,214 12,892
Property, Plant and Equipment, net 1,622 749
Note receivable - noncurrent 318 335
Other assets - 27
------- -------
Total Assets $ 11,154 $ 14,003
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 26, 1997 (Unaudited) and
September 30, 1997 (Derived from audited financial statements)
(Dollars in thousands)
Dec. 26, Sept. 30,
1997 1997
-------- --------
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 1,278 $ 1,389
Accrued liabilities 2,638 3,276
Income taxes payable - 73
Payroll and other taxes withheld
and accrued 108 458
------- -------
Total Current Liabilities 4,024 5,196
Deferred income taxes and other credits 594 594
------- -------
Total Liabilities 4,618 5,790
Shareholders' Equity:
Common stock 5,909 5,909
Paid-in-capital 13,923 13,923
Deficit (13,248) (11,569)
Foreign currency translation adjustment (17) (19)
Treasury stock (29) (29)
Restricted stock grants (2) (2)
------- -------
Total Shareholders' Equity 6,536 8,213
------- -------
Total Liabilities and Shareholders' Equity $ 11,154 $ 14,003
======= =======
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. 26, Dec. 27,
1997 1996
-------- --------
Product revenue $ 3,250 $ 6,266
Product cost of sales 2,021 3,904
Selling, general and administrative expenses 1,323 1,406
Product development and research costs 148 169
------- -------
Operating (loss) income $ (242) $ 787
Interest expense (5) (161)
Other income, net 61 35
------- -------
(Loss) income from continuing operations
before extraordinary item and income taxes $ (186) $ 661
Income tax expense 0 (45)
------- -------
(Loss) income from continuing operations
before extraordinary item $ (186) $ 616
Gain on extinguishment of debt, net of
taxes ($106) - 2,507
------- -------
Net (loss) income from continuing operations $ (186) $ 3,123
------- -------
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 (1,493) (193)
------- -------
Net (loss) income $ (1,679) $ 2,930
======= =======
Earnings per Share:
(Loss) income before extraordinary item $ (.03) $ .13
Gain on extinguishment of debt . - .51
Loss on discontinued operations (.25) (.04)
------- -------
Net (loss) income $ (.28) $ .60
======= =======
Earnings per Share-assuming dilution:
(Loss) income before extraordinary item $ (.03) $ .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.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Three months ended
Dec. 26, Dec. 27,
1997 1996
-------- --------
Operating Activities
Net (loss) income from continuing operations $ (186) $ 3,123
Adjustments to reconcile net (loss) income to net
cash used by operations:
Gain on extinguishment of debt - (2,507)
Depreciation and amortization 67 52
Loss in joint venture 27 -
Foreign currency translation 2 5
Other (3) 12
Changes in operating assets and liabilities:
Accounts receivable 797 502
Inventories (503) (41)
Prepaid expenses and other current assets 61 (9)
Accounts payable (111) (150)
Income taxes (252) 138
Accrued liabilities (988) (1,454)
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Net cash used by continuing operations $(1,089) $ (329)
------ ------
Discontinued operations:
Net loss from discontinued operations $(1,493) $ (193)
Change in net assets/liabilities of
discontinued operations 2,269 (357)
Net assets transferred from discontinued
operations (907) -
------ ------
Net cash used by discontinued operations $ (131) $ (550)
------ ------
Net cash used by operating activities $(1,220) $ (879)
------ ------
Investing Activities
Purchases of property, plant & equipment $ (33) $ (177)
Principal payments from note receivable 10 -
------ ------
Net cash used in investing activities $ (23) $ (177)
------ ------
Financing Activities
Net borrowings under line-of-credit $ - $ 1,269
Principal payments of long-term debt - (151)
------ ------
Net cash provided in financing activities $ - $ 1,118
------ ------
(Decrease) increase in cash and cash equivalents $(1,243) $ 62
Cash and cash equivalents - beginning of period 1,421 62
------ ------
Cash and cash equivalents - end of period $ 178 $ 124
====== ======
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)
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. In the opinion of management the accompanying unaudited consolidated
financial statements contain all adjustments, consisting of only normal,
recurring adjustments, necessary for a fair presentation of results for
such periods. The results for any interim period are not necessarily
indicative of results for the full year. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
omitted. These consolidated financial statements should be read in
conjunction with the financial statements and notes thereto 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.
<PAGE>
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. Discontinued 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.
<PAGE>
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 1996
--------------- ---------------
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 liabilities of the Company's discontinued operations are as
follows:
(Dollars in thousands) 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 net book value of $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
fiscal 1998 presentation.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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 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
- ---------------------
Sales for the first quarter fiscal 1998 versus the same period in fiscal
1997 have decreased $3 million from $6.3 million in 1997 to $3.3 million in
1998, a 48.1% decrease. This decrease is the result of lower levels of
shipments in the first quarter of 1998 compared to 1997 due, in part, to the
timing 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 first quarter of fiscal 1997. The first quarter
fiscal 1998 operating loss of $242 thousand represented a $1.03 million
decrease or a 130.8% decrease from the $787 thousand operating income recorded
during the same period last year.
Other
- -----
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 debt.
Results during the first quarter of fiscal 1998 and fiscal 1997 were enhanced
by lower interest expense, principally resulting from reduced indebtedness.
Moreover, the Company benefited from reduced income tax expense due to the use
of net operating loss carryforwards. However, as a result of ownership
changes, the availability of 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.
<PAGE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
- -------------------
Working capital of $5.19 million at December 26, 1997 reflects a $2.5
million decline from September 30, 1997.
At December 26, 1997 cash and cash equivalents were $178 thousand versus
$1,421 thousand at September 30, 1997. Net cash used by operating activities
for the first quarter of fiscal 1998 amounted to $1.22 million, as compared to
cash used of $879 thousand in the prior year.
The capital used during the first quarter of fiscal 1998 was applied
principally to reduce accrued liabilities, build inventories for orders
expected to ship in the second quarter of fiscal 1998 and pay tax estimates.
All of the funds provided were from the Company's cash accounts. There were
no line of credit borrowings at December 26, 1997 or September 30, 1997.
Capital spending during the first quarter of fiscal 1998 was $33
thousand, a decrease from the comparable period in 1997 where capital spending
totaled $177 thousand.
The reduction in net assets of discontinued operations of $2,269 thousand
includes the transfer of $907 thousand of assets to continuing operations
(principally land, building and management information systems) as well as the
accrual for 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 $2.5 million, net of approximately $100 thousand of transaction
related 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.
<PAGE>
PART II OTHER INFORMATION
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 26,
1997.
<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
2-09-98 /s/ M. Mastroianni
- ----------- -------------------------------------
(Date) Martin J. Mastroianni
President and Chief Operating Officer
2-09-98 /s/ C. Scheuer
- ----------- -------------------------------------
(Date) Cynthia A. Scheuer
Chief Financial Officer
<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
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<PERIOD-END> DEC-26-1997
<CASH> 178
<SECURITIES> 0
<RECEIVABLES> 3,779
<ALLOWANCES> 91
<INVENTORY> 3,889
<CURRENT-ASSETS> 9,214
<PP&E> 9,042
<DEPRECIATION> 7,420
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<CURRENT-LIABILITIES> 4,024
<BONDS> 0
0
0
<COMMON> 5,909
<OTHER-SE> 627
<TOTAL-LIABILITY-AND-EQUITY> 11,154
<SALES> 3,250
<TOTAL-REVENUES> 3,250
<CGS> 2,021
<TOTAL-COSTS> 3,492
<OTHER-EXPENSES> (61)
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<INTEREST-EXPENSE> 5
<INCOME-PRETAX> (186)
<INCOME-TAX> 0
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