============================================================================== 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 31, 2000 / / 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.) 3O South Pearl Street, Albany, New York 12207 __________________________________________________________ (Address of principal executive offices) (Zip Code) (518) 433-2170 ______________ 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 May 12, 2000 _____________________________ _____________________________ Common stock, $1.00 Par Value 35,283,210 Shares ==============================================================================
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES INDEX Page No. ________ Part I Financial Information ____________________________ Consolidated Balance Sheets - March 31, 2000 3 - 4 and September 30, 1999 Consolidated Statements of Operations - Three months and six months ended March 31, 2000 and March 26, 1999 5 Consolidated Statements of Cash Flows - Six months ended March 31, 2000 and March 26, 1999 6 Notes to Consolidated Financial Statements 7 - 16 Management's Discussion and Analysis of Financial Condition and Results of Operations 17 - 20 Part II Other Information _________________________ Item 1 21 Item 6 21-22 Signature 23
PART I FINANCIAL INFORMATION MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of March 31, 2000 (Unaudited) and September 30,1999 (Derived from audited financial statements) (Dollars in thousands) Mar.31, Sept.30, 2000 1999 _______ ________ Assets Current Assets: Cash and cash equivalents $ 1,828 $ 5,870 Investments in marketable debt securities - 7,876 Restricted cash and investments 679 - Accounts receivable, less allowance of $122 and $113 706 3,852 Other receivables - related parties - 105 Inventories: Raw materials and components 742 2,763 Work in process 157 916 Finished goods 71 73 _______ _______ Total inventories 970 3,752 Note receivable - current 333 329 Prepaid expenses and other current assets 461 265 Taxes receivable - 10 _______ _______ Total Current Assets 4,977 22,059 Property, plant and equipment, net 512 827 Note receivable - noncurrent 142 184 Investment in Plug Power 59,122 8,710 Investment in SatCon 16,641 - _______ _______ Total Assets $ 81,394 $ 31,780 ======= ======= The accompanying notes are an integral part of the consolidated financial statements.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of March 31, 2000 (Unaudited) and September 30, 1999 (Derived from audited financial statements) (Dollars in thousands) Mar.31, Sept 30, 2000 1999 _______ ________ Liabilities and Shareholders' Equity Current Liabilities: Accounts payable $ 141 $ 614 Accrued liabilities 1,619 2,243 Income taxes payable 12 - Net liabilities of discontinued operations 581 540 _______ _______ Total Current Liabilities 2,353 3,397 Line of credit 17,000 - Deferred income taxes and other credits 7,878 597 _______ _______ Total Liabilities 27,231 3,994 Commitments Shareholders' Equity: Common stock 35,304 34,947 Paid-in-capital 51,295 19,457 Accumulated Deficit (32,407) (26,573) _______ _______ 54,192 27,831 Accumulated Other Comprehensive Loss: Unrealized loss on available for sale securities,net - (5) Foreign currency translation adjustment - (11) _______ _______ Accumulated Other Comprehensive Loss - (16) Treasury stock (29) (29) _______ _______ Total Shareholders' Equity 54,163 27,786 _______ _______ Total Liabilities and Shareholders' Equity $ 81,394 $ 31,780 ======= ======= The accompanying notes are an integral part of the consolidated financial statements.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Dollars in thousands, except per share) Three months ended Six months ended Mar.31, Mar.26, Mar.31, Mar.26, 2000 1999 2000 1999 Revenue $ 1,733 $ 3,293 $ 3,090 $ 6,003 Cost of sales 740 2,229 1,544 3,940 ______ ______ ______ ______ Gross profit 993 1,064 1,546 2,063 Selling, general and administrative expenses 1,428 1,254 2,218 2,380 Product development and research costs 266 310 583 532 ______ ______ ______ ______ Operating loss (701) (500) (1,255) (849) Interest (expense) income (493) 31 (815) (27) Gain on sale of division/subsidiary - - 1,262 - Equity in losses of affiliates (6,328) (2,094) (9,319) (3,315) Other income, net - 3 98 34 ______ ______ ______ ______ Loss before income taxes (7,522) (2,560) (10,029) (4,157) Income tax benefit (3,461) - (4,195) - ______ ______ ______ ______ Net loss $(4,061) $(2,560) $(5,834) $ (4,157) ====== ====== ====== ====== Net Loss per Share (Basic and Diluted): $ (.12) $ (.08) $ (.17) $ (.12) ====== ====== ====== ====== The accompanying notes are an integral part of the consolidated financial statements.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) Six months ended Mar.31, Mar.26, 2000 1999 Operating Activities Net loss from continuing operations $ (5,834) $ (4,157) Adjustments to reconcile net loss to net cash (used)provided by continuing operations: Depreciation and amortization 121 316 Gain on sale of division/subsidiary (1,262) - Equity in losses of affiliates 9,319 3,315 Reserve for bad debts 98 22 Loss on sale of fixed assets 20 - Deferred income taxes and other credits (4,207) - Stock option compensation 596 55 Changes in operating assets and liabilities: Accounts receivable 752 1,271 Other receivables - related parties 105 (9) Inventories (120) (116) Prepaid expenses and other current assets (179) (418) Accounts payable 169 (827) Income taxes 22 3 Accrued liabilities (360) (1,106) _______ _______ Net cash used by continuing operations (760) (1,651) _______ _______ Discontinued operations: Change in net liabilities/assets of discontinued operations 41 377 _______ _______ Net cash provided by discontinued operations 41 377 _______ _______ Net cash used by operating activities (719) (1,274) _______ _______ Investing Activities Purchases of property, plant & equipment (176) (2,560) Investment in Plug Power (20,500) (4,000) Investment in SatCon (7,070) - Proceeds from sale of subsidiary, net 23 - Change in restricted cash account (679) - Proceeds from sale of marketable debt securities 9,881 - Investment in marketable debt securities (2,000) - Principal payments from note receivable 38 35 _______ _______ Net cash used by investing activities (20,483) (6,525) _______ _______
Financing Activities Proceeds from long term debt 22,500 - Payments under line-of-credit (5,500) - Debt issue costs (210) - Borrowings under IDA financing, less restricted cash - 5,106 Proceeds from stock options exercised 370 109 _______ _______ Net cash provided by financing activities 17,160 5,215 _______ _______ Effect of exchange rate on cash - (11) _______ _______ Decrease in cash and cash equivalents (4,042) (2,595) Cash and cash equivalents - beginning of period 5,870 5,567 _______ _______ Cash and cash equivalents - end of period $ 1,828 $ 2,972 ======= ======= The accompanying notes are an integral part of the consolidated financial statements.
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, 1999. 2. Reclassification Certain fiscal 1999 amounts have been reclassified to conform with the fiscal 2000 presentation. 3. Investment in Plug Power On November 1, 1999, the Company purchased 2,733,333 shares of Plug Power at $7.50 per share with proceeds from a $22.5 million Credit Agreement (see Note 5). This purchase completed the Company's commitment to purchase Plug Power shares at the time of its public offering. Plug Power's public offering was completed at $15 per share. The Company's total contributions to Plug Power (including contributions of cash, assets, research credits, a below market lease and real estate) now totals $41.198 million. Immediately after the Plug Power IPO, the Company owned 13,704,315 shares or 31.9% of Plug Power. Since October 1, 1999, Plug Power's shareholders' equity capital accounts increased $180.526 million primarily due to cash investments by individuals and corporate investors, including the Company, and the public offering. As a result, the Company recorded its proportionate share of the increase in Plug Power's equity ($38.386 million) as investment in Plug Power and additional paid-in-capital (net of associated deferred taxes of $11.488 million). The carrying value of the Company's investment in Plug Power is $59.122 million as of March 31, 2000. At March 31, 2000, the market value of the Company's investment in Plug Power was approximately $1.165 billion, as quoted on the NASDAQ National Market. The Company will recognize its proportionate share of losses in the future to the extent of its carrying value and additional future investments. Plug Power is in the development stage, therefore it is expected that they will continue to incur losses.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. Investment in Plug Power (continued) Summarized below is financial information for Plug Power calculated from its published financial reports. Plug Power's fiscal year ends December 31. Mar.31, Sept.30, 2000 1999 ________ ________ (Dollars in thousands) Current assets $ 147,995 $ 12,024 Non-current assets 52,343 31,522 Current liabilities 7,967 6,291 Non-current liabilities 6,439 6,002 Stockholders' equity 185,932 31,253 3 Months Ended Mar.31, Mar.31, 2000 1999 ________ _______ Gross revenues $ 2,933 $ 1,738 Negative gross profit (966) (446) Net loss (17,246) (6,499) 6 Months Ended Mar.31, Mar.31, 2000 1999 _______ _______ Gross revenues $ 7,232 $ 3,283 Negative gross profit (2,315) (939) Net loss (25,848) (9,023) 4. Sale of Ling Electronics/Investment in SatCon On October 21, 1999, the Company created a strategic alliance with SatCon Technology Corporation (SatCon). SatCon acquired Ling Electronics, Inc. and Ling Electronics, Ltd. from the Company and the Company invested $7.070 million in SatCon. In consideration for the acquisition of Ling Electronics warrants to purchase 300,000 shares of MTI common stock (post-split) and the cash investment, the Company received 1,800,000 shares of SatCon's common stock and warrants to purchase an additional 100,000 shares of SatCon's common stock. The Company funded $2.570 million of its investment on October 21, 1999 and $4.500 million on January 31, 2000 in accordance with the stock purchase agreement. The sale of Ling resulted in a $1.262 million gain.
The warrants issued by the Company as a part of the SatCon transaction, as adjusted for the April 3, 2000 stock split, provided for the purchase of 108,000 and 192,000 shares of the Company's common stock on October 21, 1999 and January 31, 2000, respectively. The warrants are immediately exercisable at $12.56 per share and expire on October 21, 2003 and January 31, 2004, respectively. The estimated fair value of these warrants at the dates issued were $4.94 and $16.38 per share, respectively, using a Black Scholes option pricing model and assumptions similar to those used for valuing the Company's stock options.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Sale of Ling Electronics/Investment in SatCon (continued) The Company also received warrants to purchase 36,000 and 64,000 shares of SatCon common stock on October 21, 1999 and January 31, 2000, respectively. The warrants are immediately exercisable at $8.80 per share and expire on October 21, 2003 and January 31, 2004, respectively. The Company owns a 15.8% interest in SatCon as of the end of SatCon's first quarter ended December 31, 1999. The Company accounts for its investment in SatCon on the equity method. The consolidated financial statements include the Company's investments in SatCon plus its share of earnings/losses (on a one- quarter lag). The investment is included in the financial statement line "Investment in SatCon." The carrying value of the Company's investment in SatCon is $16.641 million as of March 31, 2000. At March 31, 2000, the quoted market value of the Company's investment in SatCon was approximately $46.913 million as quoted on the NASDAQ National Market. In addition, David Eisenhaure, President and Chief Executive Officer of SatCon Technology Corporation, became a member of the Company's Board of Directors and Alan Goldberg, a director of the Company and Co-Chief Executive Officer of First Albany Companies Inc., became a member of SatCon's Board of Directors. SatCon has also agreed to appoint an additional member to its Board of Directors based on the recommendations of the Company. SatCon Technology Corporation manufactures and sells power and energy management products for distributed power generation, telecommunications, silicon wafer manufacturing, factory automation, aircraft, satellites and automotive applications. SatCon has three operating segments that contain six divisions. Under the Electronics Products segment, Advanced Fuel Cell Power Products manufactures and sells power conversion products for fuel cell and other power generation systems and Film Microelectronics, Inc. designs and manufactures standard and custom microelectronic circuits and interconnect products. Under the Motion Control Products segment, Magmotor manufactures standard and custom high-performance motors and magnetic suspension systems and Ling Electronics manufactures shaker vibration test equipment, power converters, amplifiers and controllers. Under the Contract Research and Development segment, SatCon Electronic Power Products performs contract research and development for power electronics and the Technology Center is responsible for new technology and product development. SatCon's affiliate, Beacon Power Corporation, is developing flywheel energy storage systems for uninterruptible power and power quality management. 5. Debt On March 29, 2000, the Company entered into a $50 million Amended and Restated Credit Agreement with KeyBank, N.A. ("the $50 million Credit Agreement"), this agreement supercedes all previous credit agreements with KeyBank, N.A. The Company has pledged 2,000,000 shares of Plug Power common stock as collateral for the $50 million Credit Agreement. The Company is obligated to make interest only payments through March 15, 2002, and upon exercise of a term loan option at the end of the line of credit term, to repay the principal in 8
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. Debt (continued) equal quarterly installments beginning March 31, 2002. Interest is payable monthly at the Prime Rate (9% on March 31, 2000) or if certain performance standards are based on Plug Power common stock trading volume and price. The $50 million Credit Agreement requires the Company to meet certain covenants, including maintenance of a debt service reserve account and a collateral coverage ratio. All other covenants in the previous KeyBank credit agreements were eliminated in connection with this financing. On November 1, 1999, the Company entered into a $22.5 million Credit Agreement with KeyBank, N.A. ("the $22.5 million Credit Agreement"), the Company had pledged 13,704,315 shares of Plug Power common stock as collateral for its $22.5 million loan from KeyBank, N.A. ("Loan"). The proceeds of this loan were used to fund $20.5 million of the Company's Mandatory Capital Commitment to Plug Power. Pursuant to the $22.5 million Credit Agreement, the Company was obligated to make interest only payments for the first 18 months following the closing of the Loan, and to repay the principal in 6 equal quarterly installments of $3.750 million each, commencing in August 2001. In addition, a one-time commitment fee totaling $247,500 was paid for the Loan, $75,000 of which was paid as of September 30, 1999. Interest was payable monthly at the Prime Rate (9% on March 31, 2000) or if certain performance standards were achieved, at a reduced rate. The performance standards were based on the trading volume and price of Plug Power common stock. The $22.5 million Credit Agreement terminated on March 29, 2000 when the $50 million Credit Agreement was executed. The Company's $4 million working capital line of credit and $1 million equipment loan/lease line of credit terminated on March 29, 2000 when the $50 million Credit Agreement was executed. 6. Shareholders' Equity On March 8, 2000, the Company declared a 3 for 1 stock split in the form of a dividend. Holders of the Company's $1.00 par value common stock received two additional shares of $1.00 par value common stock for every one share of common stock owned as of April 3, 2000. The stock split was effective as of April 12, 2000. The financial statements for all prior periods have been retroactively adjusted to reflect the stock split for both common stock issued and options and warrants outstanding.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Shareholders' Equity (continued) Changes in shareholders' equity for the six months ended March 31, 2000 is as follows: 6 months Mar.31 (Dollars in Thousands) 2000 ________ COMMON STOCK Balance, October 1 (as previously reported) $ 11,649 Three-for-one common stock split effected in the form of of a stock dividend effective April 12, 2000 23,298 _______ Balance, October 1 (as adjusted) 34,947 Issuance of shares - options 357 _______ Balance, March 31, 2000 $ 35,304 ======= PAID-IN CAPITAL Balance, October 1 (as previously reported) $ 42,755 Three-for-one common stock split effected in the form of a stock dividend effective April 12, 2000 (23,298) _______ Balance, October 1 (as adjusted) 19,457 Issuance of shares - options 13 Plug Power investment, net of deferred taxes of $11,488 26,899 MTI warrants issued 3,678 Compensatory stock options 1,248 _______ Balance, March 31, 2000 $ 51,295 ======= ACCUMULATED DEFICIT Balance, October 1 $(26,573) Net (loss) (5,834) _______ Balance, March 31, 2000 $(32,407) ======= UNREALIZED LOSS ON AVAILABLE FOR SALE SECURITIES, NET Balance, October 1 $ (5) Adjustment 5 _______ Balance, March 31, 2000 $ - ======= FOREIGN CURRENCY TRANSLATION ADJUSTMENT Balance, October 1 $ (11) Adjustment 11 _______ Balance, March 31, 2000 $ - ======= TREASURY STOCK Balance, October 1 $ (29) _______ Balance, March 31, 2000 $ (29) =======
SHAREHOLDERS' EQUITY March 31, 2000 $ 54,163 =======
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. Income Taxes The Company's effective tax rates for the six months ended March 31, 2000 and March 26, 1999 were (41.8)% and 0%, respectively. Income tax (benefit) expense consists of the following: <TABLE> For the three month period For the six month period ended ended Mar.31, 2000 Mar.26, 1999 Mar.31, 2000 Mar.26, 1999 ____________ ____________ ____________ ____________ <S> <C> <C> <C> <C> (Dollars in Thousands) Federal $ 3 $ - $ 6 $ - State 3 - 6 - Deferred (3,467) - (4,207) - ___________ ___________ ___________ ___________ $ (3,461) $ - $ (4,195) $ - =========== =========== =========== =========== </TABLE> The valuation allowance at March 31, 2000 has been reduced to zero from $3.750 million at September 30, 1999. This $3.750 million decrease in the valuation allowance results from the establishment of deferred tax liabilities associated with the Company's Investment in Plug Power. These deferred tax liabilities are primarily due to the difference between the book and tax treatments of the Plug Power investment and losses. 8. Earnings per Share The amounts used in computing earnings per share and the effect on income and the weighted average number of shares of potentially dilutive securities are as follows: <TABLE> For the three month period For the six month period ended ended Mar.31, 2000 Mar.26, 1999 Mar.31,2000 Mar.26, 1999 (Dollars in Thousands) ____________ ____________ ___________ ____________ <S> <C> <C> <C> <C> Loss from continuing operations available to common stockholders $ (4,061) $ (2,560) $ (5,834) $ (4,157) Weighted average number of shares: Weighted average number of shares used in net loss per share, including the bonus element effects for the 1999 rights offering 35,248,832 33,443,841 35,131,243 33,407,034 Effect of dilutive securities: Stock options - - - - _______________________________________________________________________________________________________ Weighted average number of shares used in diluted net loss per share 35,248,832 33,443,841 35,131,243 33,407,034 _______________________________________________________________________________________________________ </TABLE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. Earnings per Share (continued) At March 31, 2000, options to purchase 2,151,825 shares of common stock at prices ranging between $.542 and $21.917 per share were outstanding but were not included in the computation of Earnings per Share-assuming dilution because the Company incurred a loss during this period and inclusion would be anti- dilutive. The options expire between December 20, 2006 and March 30, 2010. At March 26, 1999, options to purchase 1,947,894 shares of common stock at prices ranging from $.542 to $1.778 per share were outstanding but were not included in the computation of Earnings per Share-assuming dilution because the Company incurred a loss during this period and inclusion would be anti- dilutive. The options expire between December 20, 2006 and January 8, 2009. 9. Equity in Losses of Affiliates The Company's proportionate share of losses of investments accounted for under the equity method are as follows: <TABLE> For the three month period For the six month period ended ended Mar.31, 2000 Mar.26, 1999 Mar.31,2000 Mar.26, 1999 ____________ ____________ ___________ ____________ <S> <C> <C> <C> <C> Plug Power losses $ (5,484) $ (2,094) $ (8,475) $ (3,315) SatCon losses (844) - (844) - ___________ ___________ __________ ___________ $ (6,328) $ (2,094) $ (9,319) $ (3,315) =========== =========== ========== =========== </TABLE> 10. Comprehensive (Loss)Income Total comprehensive (loss) income consists of the following: <TABLE> Three months ended Six months ended Mar.31, Mar.26, Mar.31, Mar.26, (Dollars in thousands) 2000 1999 2000 1999 _______ _______ _______ _______ <S> <C> <C> <C> <C> Net loss $(4,061) $(2,560) $(5,834) $(4,157) Other comprehensive (loss)income, before tax: Foreign currency translation adjustments - (12) 11 (11) ______ ______ ______ ______ Total comprehensive loss $(4,061) $(2,572) $(5,823) $(4,168) ====== ====== ====== ====== </TABLE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. Cash Flows - Supplemental Information Six months ended Mar.31, Mar.26, (Dollars in thousands) 2000 1999 _______ _______ NONCASH INVESTING ACTIVITIES Proceeds from sale of subsidiary - investment in SatCon $ 6,737 $ - Warrants issued to SatCon (3,678) - ______ ______ Net noncash investing activities $ 3,059 $ - ______ ______ NONCASH FINANCING ACTIVITIES Additional paid-in capital - other Plug Power investors, net of taxes $26,899 $ 5,894 ______ ______ Net noncash financing activities $26,899 $ 5,894 ______ ______ Net noncash provided by investing and financing activities $29,958 $ 5,894 ====== ====== Noncash financing activities for the six months ended March 31, 2000 include an increase in investment in Plug Power and additional paid-in-capital generated primarily by investments in Plug Power by third parties. 12. Geographic and Segment Information The Company operates in two business segments, New Energy Technology and Test and Measurement. The New Energy Technology segment incubates and invests in new energy technology. The Test and Measurement segment develops, manufactures, markets and services sensing instruments and computer-based balancing systems for aircraft engines. The Company evaluates performance based on profit or loss from operations before income taxes, accounting changes, non-recurring items and interest income and expense. Summarized financial information concerning the Company's reportable segments is shown in the following table. The "Other" column includes corporate related items and items like income taxes or unusual items, which are not allocated to reportable segments. In addition, segments noncash items include any depreciation and amortization in reported profit or loss. Amounts in the New Energy Technology segment represent the Company's interest in Plug Power and SatCon. The Company includes its proportionate share of the results of operations of these entities in its consolidated statements of operations. SatCon is accounted for on a one-quarter lag and the information for Plug Power is derived from its unaudited financial statements.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. Geographic and Segment Information (continued) <TABLE> (Dollars in thousands) Three Months Ended New Energy Test and Reconciling Consolidated Mar.31, 2000 Technology Measurement Other Items Totals ____________ __________ ___________ _______ ___________ ____________ <S> <C> <C> <C> <C> <C> Revenues $ 7,489 $ 1,733 $ - $ (7,489) $ 1,733 Segment (loss)/ profit (19,789) 152 2,237 13,339 (4,061) Equity in losses of affiliates - - - (6,328) (6,328) Total assets 231,665 2,001 3,630 (155,902) 81,394 Investment in Plug Power - - - 59,122 59,122 Investment in SatCon - - - 16,641 16,641 Capital expenditures 3,789 49 9 (3,789) 58 Depreciation and amortization 1,306 20 44 (1,306) 64 Three Months Ended New Energy Test and Reconciling Consolidated Mar.26, 1999 Technology Measurement Other Items Totals ____________ __________ ___________ _______ ___________ ____________ Revenues $ 1,738 $ 3,293 $ - $ (1,738) $ 3,293 Segment (loss)/ profit (6,499) (351) (115) 4,405 (2,560) Equity in losses of affiliates - - - (2,094) (2,094) Total assets 28,520 7,844 11,805 (24,720) 23,449 Investment in Plug Power - - - 3,800 3,800 Capital expenditures 2,333 32 941 (2,333) 973 Depreciation and amortization 165 51 140 (165) 191
(Dollars in thousands) Six Months Ended New Energy Test and Reconciling Consolidated Mar.31, 2000 Technology Measurement Other Items Totals ____________ __________ ___________ _______ ___________ ____________ Revenues $ 11,787 $ 3,090 $ - $ (11,787) $ 3,090 Segment (loss)/ profit (28,391) (288) 3,895 18,950 (5,834) Equity in losses of affiliates - - - (9,319) (9,319) Total assets 231,665 2,001 3,630 (155,902) 81,394 Investment in Plug Power - - - 59,122 59,122 Investment in SatCon - - - 16,641 16,641 Capital expenditures 6,301 75 101 (6,301) 176 Depreciation and amortization 1,669 46 75 (1,669) 121 </TABLE>
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. Geographic and Segment Information (continued) <TABLE> Six Months Ended New Energy Test and Reconciling Consolidated Mar.26, 1999 Technology Measurement Other Items Totals ____________ __________ ___________ _______ ___________ ____________ <S> <C> <C> <C> <C> <C> Revenues $ 3,283 $ 6,003 $ - $ (3,283) $ 6,003 Segment (loss)/ profit (9,023) (686) (156) 5,708 (4,157) Equity in losses of affiliates - - - (3,315) (3,315) Total assets 28,520 7,844 11,805 (24,720) 23,449 Investment in Plug Power - - - 3,800 3,800 Capital expenditures 3,043 43 2,517 (3,043) 2,560 Depreciation and amortization 341 97 219 (341) 316 </TABLE> The following table presents the details of "Other" segment profit (loss). (Dollars in thousands) Three months ended Six months ended Mar.31, Mar.26, Mar.31, Mar.26, 2000 1999 2000 1999 _______ _______ _______ _______ Corporate and Other Expenses/(Income): Depreciation and amortization $ 44 $ 140 $ 75 $ 219 Interest expense (income) 493 (31) 815 27 Interest income (140) (54) (301) (101) Income tax benefit (3,461) - (4,195) - Other expense, net 827 60 973 11 Gain on sale of division - - (1,262) - ______ ______ ______ ______ Total (income) expense $(2,237) $ 115 $(3,895) $ 156 ====== ====== ====== ====== The reconciling items are the amounts of revenues earned and expenses incurred for corporate operations, which is not included in the segment information. 13. Related Party Transactions During fiscal 2000, First Albany Corporation provided financial advisory services in connection with the sale of Ling Electronics for which they were paid fees of $.353 million.
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. Continuing Operations Sales decreased $1.560 million to $1.733 million for the three months ended March 31, 2000 as compared to $3.293 million for the three months ended March 26, 1999, a 47.4% decrease. This decrease is the result of the sale of Ling on October 21, 1999 offset by $.615 million increase in MTI Instruments, Inc. (formerly the Advanced Products Division) sales. Ling sales were $2.175 million for the 1999 quarter. The sale of Ling resulted in a $1.262 million gain, which was recorded in the first quarter of fiscal 2000. Sales for the first half of fiscal year 2000 versus the same period in fiscal year 1999 have decreased $2.913 million to $3.090 million in 2000 from $6.003 million in 1999, a 48.5% decrease. The six-month changes are the result of the same conditions as the three month changes. Selling, general and administrative expenses increased $.174 million to $1.428 million for the three months ended March 31, 2000 as compared to $1.254 for the three months ended March 26, 1999, a 13.9% increase. This increase is the net result of compensatory stock option grants made to consultants offset by a $.609 million decrease for the sale of Ling in October 1999. Selling, general and administrative expenses during the first half of fiscal 2000 of $2.218 million represented a $.162 million decrease or a 6.8% decrease from $2.380 million incurred during the same period in fiscal 1999. The six-month changes are primarily the result of the same conditions as the three-month changes. Operating loss increased $.201 million to an operating loss of $.701 million for the three months ended March 31, 2000 as compared to $.500 million for the three months ended March 26, 1999, a 40.2% increase. This increase is the result of the sale of Ling on October 21, 1999 and compensatory stock option grants made to consultants. The first half of fiscal 2000 operating loss of $1.255 million represented a $.406 million increase or a 47.8% increase from the $.849 million operating loss recorded during the same period last year. The six-month charges are primarily the result of the same conditions as the three-month charges. Other In addition to the matters noted above, for the six and three months ended March 31, 2000, the Company recorded a $9.319 million and $6.328 million loss, respectively, from the recognition of the Company's proportionate share of losses of equity investments in affiliates, Plug Power and SatCon, compared to a $3.315 million and $2.094 million loss, respectively, for the comparable periods in fiscal 1999. Results during the first half of fiscal 2000 were reduced by higher interest expense of $.493 million and $.815 million, respectively, for the three and six months ended March 31, 2000 compared to $.310 million income and $.270 million expense, respectively, for the comparable period in fiscal 1999, principally resulting from increased debt used to fund additional investments in Plug Power. The tax rates for the six months ended March 31, 2000 and
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Other (continued) March 26, 1999 was (41.8)% and 0%, respectively. The March 31, 2000 tax rate is due to the loss generated by operations and changes in deferred tax liabilities associated with the accounting for the investment in and recognition of the Company's proportionate share of losses from Plug Power. Financial Condition Working capital of $2.624 million at March 31, 2000 reflects a $16.038 million decrease from September 30, 1999. This decrease reflects the $7.07 million investment in SatCon, the $5.5 million principal reduction on the line of credit, as well as the impact of the sale of Ling in October 1999. At March 31, 2000, cash and cash equivalents were $1.828 million versus $5.870 million at September 30, 1999. Net cash used by operating activities for the first six months of fiscal 2000 amounted to $.719 million, as compared to $1.274 million in the prior year. Accounts receivable decreased due to the collection of receivables generated late in the fourth quarter of fiscal 1999 and the sale of Ling in October 1999. Accounts receivable totaled $.706 million or an 81.7% decrease as of March 31, 2000 as compared to $3.852 million as of September 30, 1999. On November 1, 1999, the Company entered into a $22.5 million Credit Agreement with KeyBank, N.A. ("the $22.5 million Credit Agreement"). The proceeds of this loan were used to fund $20.5 million of the Company's Mandatory Capital Commitment to Plug Power. Pursuant to the Mandatory Capital Commitment, the Company purchased 266,667 shares of Plug Power for $2 million on September 30, 1999 and 2,733,333 shares of Plug Power for $20.5 million in November 1999. On March 29, 2000, the Company entered into a $50 million Amended and Restated Credit Agreement with KeyBank, N.A. ("the $50 million Credit Agreement") which superceded all previous credit agreements with KeyBank, N.A. The Company is obligated to make monthly interest only payments through March 15, 2002 and, upon exercise of a term loan option at the end of the line of credit term, to repay the principal in 8 equal quarterly installments beginning March 31, 2002. The $50 million Credit Agreement requires the Company to meet certain covenants, including maintenance of a debt service reserve and a collateral coverage ratio. All other covenants in the original KeyBank lines of credit were eliminated in connection with this financing. The $50 million Credit Agreement is collateralized by 2,000,000 shares of Plug Power common stock. Capital spending during the first half of fiscal 2000 was $.176 million, a decrease from the comparable period in 1999 where capital spending totaled $2.560 million. Capital spending during fiscal 2000 included the fit-up for the MTI Instruments, Inc. facility. Total additional capital spending during fiscal 2000 is expected to be approximately $.206 million for computer and manufacturing equipment.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition (continued) The Company anticipates that it will be able to meet the liquidity needs of its continuing operations from current cash resources, cash flow generated by operations and borrowing under its existing line of credit. Market Risk Market risk represents the risk of changes in value of a financial instrument, caused by fluctuations in interest rates and equity prices. At March 31, 2000, the Company had variable rate debt totaling $17 million. Interest rate changes generally do not affect the fair market value but do impact future earnings and cash flows. The earnings and cash flow impact for the next year resulting from a one-percentage point increase in interest rates would be approximately $.170 million, holding other variables (debt level) constant. The Company has performed a sensitivity analysis on its investments in Plug Power and SatCon common stock. The sensitivity analysis presents the hypothetical change in fair value of those financial instruments held by the Company at March 31, 2000 which are sensitive to changes in interest rates. Market risk is estimated as the potential change in fair value resulting from an immediate hypothetical one-percentage point parallel shift in the yield curve. The fair values of the Company's investments in marketable securities have been based on quoted market prices. The Company has investments in Plug Power and SatCon, which are accounted for on the equity method. The fair market values, at March 31, 2000, of the investments are $1.165 billion for Plug Power and $46.913 million for SatCon. If the market price on these investments decreased by ten percent, the fair value of the stocks would decrease by $116.500 and $4.691 million for Plug Power and SatCon, respectively. Year 2000 The Company's information technology systems successfully completed the transition into the year 2000. The beginning of the new year resulted in no adverse or negative impact on operations. The Company believes that the risk associated with the year 2000 problem has been identified and eliminated. The Company will continue to evaluate the 2000 readiness of its business systems and significant vendors to ensure a complete transition through the year 2000. The total cost of the year 2000 assessment and remediation plan was approximately $120 thousand.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statement Concerning Forward Looking Statements Statements in this Form 10-Q or in documents incorporated herein by reference that are not historical facts or information constitute "forward- looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, the information set forth herein. Such forward looking statements involve known and unknown risks, uncertainties or other factors which may cause the actual results, levels of activity, performance or achievement of Company or industry results to be materially different from any future results, levels of activity, performance or achievement expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions; the ability of the Company to implement its business strategy; the Company's access to financing; the Company's ability to successfully identify new business opportunities; the Company's ability to attract and retain employees; changes in the industry; competition; the effect of regulatory and legal proceedings and other factors discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations". As a result of the foregoing and other factors, no assurance can be given as to the future results and achievements of the Company. Neither the Company nor any other person assumes responsibility for the accuracy and completeness of these statements.
PART II OTHER INFORMATION Item 1. Legal Proceedings On September 9, 1998, Barbara Lawrence, the Lawrence Group, Inc. ("Lawrence"), and certain other Lawrence-related entities ("Plaintiffs") filed suit in the United States Bankruptcy Court for the Northern District of New York against First Albany Corporation ("FAC"), Dale Church, Edward Dohring, Alan Goldberg, George McNamee, Beno Sternlicht, Marty Mastroianni (former President and Chief Operating Officer of MTI) and 33 other individuals ("Defendants") who purchased a total of 820,909 shares of MTI stock from the Plaintiffs. The complaint alleged that Defendants purchased MTI stock from the Plaintiffs in violation of sections 10b, 20, 20A and rule 10b-5 of the Securities Exchange Act of 1934. In December 1998, the complaint was amended to add MTI as a defendant and assert a claim for common law fraud against all the Defendants including MTI. The case concerns the Defendants' 1998 purchase of MTI shares from the Plaintiffs at the price of $2.25 per share. Ownership of the shares was disputed and several of the Plaintiffs were in bankruptcy at the time of the sale. FAC acted as Placement Agent for the Defendants in the negotiation and sale of the shares and in proceedings before the Bankruptcy Court for the Northern District of New York, which approved the sale in September 1997. Plaintiffs claim that the Defendants failed to disclose material inside information concerning Plug Power, LLC to the Plaintiffs and therefore the $2.25 per share purchase price was unfair. Plaintiffs are seeking damages of $5 million plus punitive damages and costs. In April 1999, Defendants filed a motion to dismiss the amended complaint, which was denied. In June 1999, the parties agreed to stay discovery and amend Defendants time to answer the amended complaint until September 17, 1999. In October 1999, Defendants answered the amended Complaint. On January 25, 2000, a complaint was filed by DCT, Inc. against Plug Power, The Detroit Edison Company and Edison Development Corporation in the Wayne County, Michigan Circuit Court. The complaint alleges, among other things, that Plug Power, The Detroit Edison Company and Edison Development Corporation misappropriated from DCT business and technical trade secrets, ideas, know-how and strategies relating to fuel cell systems and breached certain contractual obligations owed to DCT. Plug Power believes that the allegations made against it are without merit and intends to vigorously contest the litigation, but the ultimate outcome of any litigation is of course uncertain.
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description ___________ ___________ 4.106 Amended and Restated Credit Agreement, dated as of March 29, 2000, between the registrant and KeyBank National Association for a $50.0 million revolving note. 4.107 Revolving Note, dated as of March 29, 2000, between the registrant and KeyBank National Association for the $50.0 million credit agreement. 4.108 Amended and Restated Stock Pledge Agreement, dated as of March 29, 2000, by the registrant and KeyBank National Association pledging 2,000,000 shares of Plug Power stock in support of the $50.0 million credit agreement. 27 Financial Data Schedule (b) One report on Form 8-K was filed during the quarter ended March 31, 2000. The Company filed a Form 8-K Report, dated January 31, 2000, reporting under item 5 thereof that on January 25, 2000, a complaint was filed by DCT, Inc. against Plug Power, Inc., The Detroit Edison Company and Edison Development Corporation in the Wayne County, Michigan Circuit Court. The complaint alleges, among other things, that Plug Power, The Detroit Edison Company and Edison Development Corporation misappropriated from DCT business and technical trade secrets, ideas, know-how and strategies relating to fuel cell systems and breached certain contractual obligations owed to DCT.
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 05-15-2000 s/George C. McNamee __________ __________________________________ (Date) George C. McNamee Chairman and Chief Executive Officer 05-15-2000 s/Cynthia A. Scheuer __________ __________________________________ (Date) Cynthia A. Scheuer Vice President/Chief Financial Officer