=============================================================================== =============================================================================== 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 27, 1996 / / 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 27, 1996 - ----------------------------- -------------------------------- COMMON STOCK, $1.00 PAR VALUE 5,899,201 SHARES =============================================================================== ===============================================================================
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
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.
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.
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.
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 ------- ------- Net cash (used) provided by operations $ (699) $ 1,228 ------- ------- INVESTING ACTIVITIES Purchases of property, plant & equipment $ (357) $ (64) ------- ------- Net cash used in investing activities $ (357) $ (64) ------- ------- 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.
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.
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 ======== ======== ========
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.
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.
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.
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