- ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- 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 29, 1995 / / 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 29, 1995 COMMON STOCK, $1.00 PAR VALUE 3,568,868 SHARES - ----------------------------------------------------------------------------- - -----------------------------------------------------------------------------
MECHANICAL TECHNOLOGY INCORPORATED INDEX Part I Financial Information Page No. -------- Consolidated Balance Sheets - December 29, 1995 and September 30, 1995 3 - 4 Consolidated Statements of Income - Three months ended December 29, 1995 and December 31, 1994 5 Consolidated Statements of Cash Flows - Three months ended December 29, 1995 and December 31, 1994 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 11 Signature 12
PART I FINANCIAL INFORMATION MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 29, 1995 (Unaudited) and September 30, 1995 (Derived from audited financial statements) (Dollars in thousands) <TABLE> <CAPTION> Dec. 29, Sept. 30, 1995 1995 -------- -------- <S> ASSETS <C> <C> Current Assets: Cash and cash equivalents $ 292 $ 78 Trade accounts 6,608 6,896 Other receivables (1) 17 ------- ------- Gross receivables 6,607 6,913 Allowance for doubtful accounts (109) (120) ------- ------- Net receivables 6,498 6,793 Inventories: Raw materials and components 1,910 2,116 Work in process 1,665 1,119 Finished goods 220 249 ------- ------- Total inventories 3,795 3,484 Escrow deposit - 750 Prepaid expenses & other current assets 217 461 ------- ------- Total Current Assets 10,802 11,566 Other Assets: Excess of cost over net assets of acquired companies, net 58 59 Other 41 60 Property, Plant and Equipment: Cost 19,166 19,115 Accumulated depreciation (16,450) (16,317) ------- ------- Net Property, Plant and Equipment 2,716 2,798 ------- ------- TOTAL ASSETS $ 13,617 $ 14,483 ======= ======= </TABLE> The accompanying notes are an integral part of the consolidated financial statements.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 29, 1995 (Unaudited) and September 30, 1995 (Derived from audited financial statements) (Dollars in thousands) <TABLE> <CAPTION> Dec. 29, Sept.30, 1995 1995 -------- -------- <S> <C> <C> LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Line-of-Credit $ 531 $ 1,446 Current installments on long-term debt 804 738 Income taxes payable 13 13 Accounts payable 1,844 2,290 Accrued liabilities 3,730 3,342 Net liabilities of discontinued operations 2,756 2,756 Payroll and other taxes withheld and accrued 291 387 ------- ------- Total Current Liabilities 9,969 10,972 Line-of-Credit, net of current portion 1,962 1,962 Note Payable 3,000 3,000 Long-term debt, net of current maturities 1,159 1,260 Deferred income taxes and other credits 779 779 ------- ------- Total Liabilities 16,869 17,973 Shareholders' Equity: Common stock 3,569 3,569 Paid-in capital 12,856 12,856 Retained earnings - beginning of year (19,837) (22,759) - current year 240 2,922 Foreign currency translation adjustment (23) (20) Treasury stock (29) (29) Restricted stock grants (28) (29) ------- ------- Total Shareholders' Equity (3,252) (3,490) ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 13,617 $ 14,483 ======= ======= </TABLE> The accompanying notes are an integral part of the consolidated financial statements.
MECHANICAL TECHNOLOGY INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share) <TABLE> <CAPTION> Three months ended Dec. 29, Dec. 31, 1995 1994 ------- ------- <S> <C> <C> Product revenue $ 5,397 $ 7,079 Research & development revenue 2,004 2,514 ------ ------ Total revenue $ 7,401 $ 9,593 Product cost of sales 3,349 4,023 Research & development contract costs 1,409 2,088 Selling, general and administrative expenses 1,898 2,153 Product development and research costs 191 474 ------ ------ Operating income $ 554 $ 855 Interest expense (263) (361) Gain on sale of subsidiary, ProQuip - 6,779 Other (expense) income, net (44) (47) ------ ------ Income before income taxes $ 247 $ 7,226 Income tax expense 7 68 ------ ------ Net income $ 240 $ 7,158 ====== ====== Earnings per share $ .07 $ 2.02 ====== ====== </TABLE> 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) <TABLE> <CAPTION> Three months ended Dec. 29, Dec. 31, 1995 1994 -------- -------- <S> <C> <C> OPERATING ACTIVITIES Net income $ 240 $ 7,158 Adjustments to reconcile net income to net cash provided (used): Depreciation and amortization 166 213 Gain on sale of subsidiary 0 (6,779) Foreign currency translation (3) 3 Other (10) 1 Changes in operating assets and liabilities: Accounts receivable 306 719 Inventories (311) (165) Escrow deposit 750 - Prepaid expenses and other current assets 244 2 Accounts payable (446) (52) Income taxes - 28 Accrued liabilities 292 (1,042) ------- ------- Net cash provided by operations $ 1,228 $ 86 ------- ------- INVESTING ACTIVITIES Purchases of property, plant & equipment $ (64) $ (184) Proceeds from sale of subsidiary, ProQuip, net of cash balance and expenses - 9,125 ------- ------- Net cash (used) provided in investing activities $ (64) $ 8,941 ------- ------- FINANCING ACTIVITIES Net payments under line-of-credit agreement $ (915) $ (2,836) Principal payments of long-term debt (35) (8,000) ------- ------- Net cash used in financing activities $ (950) $(10,836) ------- ------- Increase (decrease) in cash and cash equivalents $ 214 $ (1,809) Cash and cash equivalents - beginning of period 78 1,820 ------- ------- Cash and cash equivalents - end of period $ 292 $ 11 ======= ======= </TABLE> 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 29, 1995 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 29, 1995 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, 1995.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company's United Telecontrol Electronics, Inc. ("UTE") subsidiary filed for voluntary bankruptcy under Chapter 11 of the Federal Bankruptcy Code in April 1994 and commenced an orderly liquidation in October 1994. The Company expects that the final liquidation of UTE and related court approval will occur during calendar year 1996. At that time any final adjustments will be made. (For further information on this bankruptcy see the discussion in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note 16 to the Consolidated Financial Statements, in the Company's Form 10-K Report for the fiscal year ended September 30, 1995 which are incorporated herein by reference). 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. Prior year information contains ProQuip, Inc. ("ProQuip") results through its sale date (November 22, 1994) and the $6.8 million gain on the sale. (For further information on this sale transaction, see the discussion under the caption "Results of Operations:1995 in Comparison with 1994", in Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations, and Note 17 to the Consolidated Financial Statements, in the Company's Form 10-K Report for the fiscal year ended September 30, 1995 which are incorporated herein by reference). RESULTS OF OPERATIONS (Dollars in thousands) <TABLE> <CAPTION> SALES Three months ended -------------------- BUSINESS SEGMENT: 12/29/95 12/31/94 Change - ----------------- -------- -------- ------ <S> <C> <C> <C> Technology $ 2,004 $ 2,848 $ (844) Test & Measurement 5,397 6,745 (1,348) ------ ------ ------ TOTAL $ 7,401 $ 9,593 $(2,192) ====== ====== ====== OPERATING INCOME Three months ended -------------------- BUSINESS SEGMENT: 12/29/95 12/31/94 Change - ----------------- -------- -------- ------ Technology $ 118 $ (217) $ 335 Test & Measurement 436 1,072 (636) ------ ------ ------ TOTAL $ 554 $ 855 $ (301) ====== ====== ====== </TABLE>
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 1996 versus the same period of fiscal year 1995 have decreased. However, excluding ProQuip, sales and operating income for the first three months have increased. The effect each business segment had on this change is outlined in the above table and discussed below. TECHNOLOGY The Technology segment experienced a decrease in sales, but an increase in profitability compared to the corresponding period last year. The 30% decline in sales was due to an expected lower level of activity in the Technology division, combined with a planned reduction of its turbine generator sales, parts, and service business. Despite the decline in sales, the segment managed to generate an operating income of $118 thousand, as compared to an operating loss of $217 thousand for the first three months of the previous fiscal year. Reduced overhead and decreases in administrative and product development expenses contributed to improved profitability. Continued improvement will depend on success in procuring and fulfilling orders within fiscal year 1996. TEST AND MEASUREMENT The Test and Measurement segment reported a 20% decline in revenues and a 59% reduction in operating income compared to the same period last year. These decreases are entirely attributable to the sale of ProQuip, a subsidiary which was sold by the Company in November 1994. ProQuip recorded sales of $2,584 thousand during the first quarter of fiscal year 1995 and accounted for $714 thousand of operating profit during that period. Excluding ProQuip, sales increased $1,236 thousand, or 30%, compared to the first quarter of fiscal year 1995 and operating income increased $78 thousand, or 22%. Ling Electronics ("Ling"), the Advanced Products Division, and the LAB Division all exceeded their sales levels of the same period last year and each recorded an operating profit for the first quarter. The operating results benefitted from a higher level of sales and lower product development spending, which were partially offset by higher selling and administrative expenses. While management is cautiously optimistic, challenges remain to be met within this business segment, especially at Ling, to sustain this level of results.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION Working capital of $833 thousand at December 29, 1995 reflects a $239 thousand improvement from September 30, 1995. At December 29, 1995 cash and cash equivalents were $292 thousand versus $78 thousand at September 30, 1995. Net cash provided by operations for the first quarter of fiscal 1996 amounted to $1,228,000, as compared to $86,000 in the prior year. The net cash provided in the current fiscal quarter resulted principally from the purchaser of ProQuip releasing the funds held in escrow and paying tax monies due the Company, both totaling approximately $1,021,000, combined with the Company generating income from operations. The net cash flow provided was used to reduce, among other things, the line-of- credit and long-term debt. The Company anticipates that it will be able to meet the liquidity needs of its 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 indebtedness during fiscal 1996. However, the Company's ability to achieve these objectives is dependent upon an orderly liquidation of its United Telecontrol Electronics, Inc. subsidiary and attaining overall profitability and positive cash flow. There is no assurance that the Company will be able to achieve these objectives. (For further information, see the discussion under the caption "Liquidity and Capital Resources", in Item 7: Management's Discussion and Analysis of Financial Conditions and Results of Operations, and Note 13 to the Consolidated Financial Statements, in the Company's Form 10-K Report for the fiscal year ended September 30, 1995).
PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) None.
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 2-09-96 /s/ R. WAYNE DIESEL - --------- ------------------------------------ (Date) R. Wayne Diesel President & Chief Executive Officer 2-09-96 /s/ STEPHEN T. WILSON - --------- ------------------------------------ (Date) Stephen T. Wilson Chief Financial Officer