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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 19981999
or
/ / 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,325 Washington Avenue Extension, Albany, New York 1211012205
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518)785-2211218-2500
Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act
$1.00 Par Value Common Stock
(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. [ ]
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
_____ _____
The aggregate market value of the registrant's Common Stock held by
nonaffiliates of the registrant on December 11, 199820, 1999 (based on the last
sale price of $8.50$21.50 per share for such stock reported by OTC Bulletin
BoardNASDAQ for that
date) was approximately $32,296,183.$137,542,000.
As of December 11, 1998,20, 1999, the registrant had 7,179,77011,698,571 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document Where Incorporated into Form 10-K Report
Proxy Statement for Part III
Annual Meeting of Shareholders
to be held on March 18, 199916, 2000
PART I
ITEM 1: BUSINESS
During the last twoMTI manufactures and a half years, MTI has undergone significant
change. In May 1996, First Albany Companies, Inc. ("FAC") acquired a
substantial interest in MTIsells precision diagnostic and led a series of financialmeasurement
instruments and strategic
transactions that have significantly changedincubates alternative energy technology. Given MTI's
operations and fiscal
well-being. In July 1996, MTI received an infusion of capital through a
private placement of its Common Stock. In December 1996, MTI and FAC
succeeded in restructuring a significant outstanding debt of the Company
by swapping the debt for Common Stock. This allowed the Company to
receive an unqualified opinion in 1996 from its Independent Auditors,
Coopers & Lybrand L.L.P., for the first time since 1992. On June 27,
1997, the Company transferred a portion of the Technology Division torecent success with Plug Power, L.L.C. ("Plug Power") to form a joint venture between the
CompanyInc. and Edison Development Corp. ("EDC"), a subsidiary of DTE
Energy, Corp. Plug Power has focused exclusively on the research andits early development of an economically viableefforts
with Proton Exchange Membrane ("PEM") fuel cell. On September 30, 1997,cells, gas and steam powered
turbines and the Company sold all of the assets of
its L.A.B. Division to Noonan Machine Company of Franklin Park,
Illinois. The proceeds from this sale were used to pay down outstanding
debt and build working capital. On March 31, 1998, the Company sold the
remainder of its Technology Division to a subsidiary of Foster-Miller,
Inc., a Waltham, Massachusetts-based technology company. These
divestitures have enabled the Company to continue to invest in fuel cell
technology through Plug Power and to better focus on its profitable test
and measurement business. In June, 1998, the Company raised
approximately $7.2 millionSterling Engines, MTI is in a rights offering and committedunique position to invest
approximately $5 million of the proceeds in Plug Power, now an industrybe a
leader in the evolution of alternative energy technology. MTI's
alternate energy strategy includes: acquisition of companies that have
synergies with MTI's core competencies; acquisition of majority stock
positions in established alternative energy companies; and internal
development and growth of fuel cells inalternative energy businesses.
Over the United States.last several years MTI sold off non-core businesses and
restructured its balance sheet. Today MTI is a very different Company,company,
substantially streamlined in focus, but with many challenges remaining. MTI
is a manufacturer of advanced diagnostic, test and measurementsmeasurement products
that combine precision sensing capabilities with proprietary software
and systems to serve a variety of applications for commercial and
military customers. The Company has two principal business units: the
Advanced Products Division ("Advanced Products"), which produces
diagnostic and sensing instruments and computer-based balancing systems,systems;
and Ling Electronics, Inc. ("Ling"), a developer and manufacturer of
vibration test systems and power conversion products.
MTI is alsoproducts, which was sold on
October 21, 1999, as part of a fifty percent owner of Plug Power, which hopes to bestrategic alliance with SatCon Technology
Corporation.
In the first commercial manufacturer of PEM fuel cells for residential and
other applications.coming year, Advanced Products has two general product families: non-contact sensing
instrumentationwill focus on improving existing
products and computer-based balancing systems.developing additional products for diagnostic and testing
equipment. The non-contact sensing instrumentation products utilize
fiber optic, laser and capacitance technology to perform high precision
position measurements for product design and quality control inspection
requirements, primarily in the semiconductor and computer disk drive
industries. Some
of these products bear the trademarks FOTONIC and ACCUMEASURE, which are
recognized in the industry worldwide. Advanced Products's computer-
basedProducts' computer-based aircraft engine balancing
systems include an on-wing jet engine balancing system used by both
commercial and military aircraft fleet maintenance personnel. This
product provides trim balancing and vibration analysis in the field or
in test cells.
MTI is uniquely positioned to be the moving force behind the evolution
of alternative energy technology. As a pioneer in the alternative
energy field, MTI has demonstrated its ability, first in the research
and development of gas and steam turbines; then through its development
efforts in connection with the Sterling Engines; and most recently in
its research and development of PEM fuel cell technology. MTI has
successfully turned its PEM fuel cell research into a public company
dedicated to bringing a safe, reliable and cost-effective fuel cell to
market. Plug Power, Inc., which was initially a joint venture of MTI
and Detroit Edison, believes that it will soon have residential fuel
cells in the market place. MTI helped develop the strategic
partnerships, capital investment, and growth strategy of Plug Power,
Inc. It is MTI's forward strategy to use its resources and experiences
to repeat this success with other alternative energy companies.
Mechanical Technology Incorporated was incorporated in New York in 1961.
Unless the context otherwise requires, the "registrant", "Company",
"Mechanical Technology" and "MTI" refers to Mechanical Technology
Incorporated and its subsidiaries. The Company's principal executive
offices are located at 325 Washington Avenue Extension, Albany, New York
12205 and its telephone number is (518) 218-2500.
Significant Developments in the Business
On June 27, 1997, the Company and Edison Development Corp. ("EDC"), a
subsidiary of DTE Energy Co. formed a joint venture, Plug Power, L.L.C.
("Plug Power"), to further develop the Company's Proton Exchange Membrane
("PEM") Fuel Cell technology. In exchange for its contribution of
contracts and intellectual property and certain other net assets that had
comprised the fuel cell research and development business activity of the
Technology segment (which assets had a net book value of $357 thousand),
the Company received a 50% interest in Plug Power. EDC made an initial
cash contribution of $4.75 million in exchange for the remaining 50%
interest in Plug Power. The Company's investment in Plug Power is included
in the balance sheet caption "Investment in Plug Power"; the assets
contributed by the Company to Plug Power had previously been included in
the assets of the Company's Technology segment. See the supplemental
disclosure regarding Contribution of Net Assets to Plug Power in the
Consolidated Statements of Cash Flows for additional information regarding
the assets contributed by the Company to Plug Power.
Plug Power has focused exclusively on the research, development and
manufacture of an economically viable PEM fuel cell. During 1999, the
Company invested $6 million cash in Plug Power and sold the MTI campus
to Plug Power in exchange for shares of Plug Power and Plug Power's
assumption of $6 million of debt.
On October 29, 1999 Plug Power Inc. made an initial public offering
("IPO") of its common stock on the NASDAQ National Market under the
symbol "PLUG." The initial public offering price for the 6 million
shares issued was $15 per share. Additionally, the underwriters of the
IPO exercised their 900,000 share over allotment at the IPO price.
Since Plug Power was formed in 1997 the Company, EDC and other investors
have contributed substantial amounts of cash and other assets to Plug
Power. Contributions to Plug Power by the Company totaled $20.7 million
as of September 30, 1999. Immediately prior to the Plug Power IPO, the
Company purchased an additional 2,733,333 shares of Plug Power at $7.50
per share for a total purchase price of $20.5 million. Immediately
after Plug Power's IPO, the Company owned 13,704,315 shares of Plug
Power or approximately 31.9 percent of outstanding Plug Power stock.
The Company's contribution to Plug Power increased to $41.2 million as
of Plug Power's IPO date.
On October 21, 1999, the Company created a strategic alliance with
SatCon Technology Corporation (SatCon), an innovator of alternative
energy technologies. SatCon acquired Ling Electronics, Inc. and Ling
Electronics, Ltd. from the Company and the Company committed to invest
approximately $7 million in SatCon. In consideration for the
acquisition of Ling Electronics and the Company's investment, the
Company will receive 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 $2.57 million of its investment in SatCon and
will make the remaining investment by the end of January 2000. SatCon
will also receive warrants to purchase 100,000 shares of the Company's
common stock.
On July 12, 1999, the Company completed the sale of 801,223 shares of
common stock to current shareholders through a rights offering. The
offering raised approximately $12.8 million before offering costs of
approximately $158 thousand for net proceeds of approximately $12.7
million. The Company will use some or all of the proceeds of the offering
for investment into Plug Power. In addition, some proceeds may be used
for acquisitions, efforts to increase market share, working capital,
general corporate purposes and other capital expenditures.
On September 30, 1998, the Company completed the sale of 1,196,399 shares
of common stock to current shareholders through a rights offering. The
offering raised approximately $7.2 million before offering costs of
approximately $186 thousand for net proceeds of approximately $7 million.
The Company used substantially all of the proceeds of the offering for
investment in Plug Power. The remaining proceeds were used for efforts to
increase market share, working capital, general corporate purposes and
other capital expenditures.
The sale of the Company's Technology Division, the sole component of the
Technology segment, to NYFM, Incorporated (a wholly owned subsidiary of
Foster-Miller, Inc., a Waltham, Massachusetts-based technology company)
on March 31, 1998, completed management's planned sale of non-core
businesses. Accordingly, the Company no longer includes Technology among
its reportable business segments. The Technology Division is reported
as a discontinued operation as of December 26, 1997, and the
consolidated financial statements have been restated 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. See Note 16 to the accompanying Consolidated
Financial Statements.
On September 30, 1997, the Company sold all of the assets of its L.A.B.
division to Noonan Machine Company of Franklin Park, IL. The Company
received $2.6 million in cash and two notes, totaling $650 thousand, from
Noonan Machine Company. The purchaser has requested that the principal
amount of the note be reduced to reflect the resale value of certain
assets of L.A.B. The Company is enforcing its rights with respect to the
note. The net proceeds from the sale were used to pay down all
outstanding debt and build working capital. The sale of L.A.B. resulted
in a $2.0 million gain, which was recorded in the fourth quarter of fiscal
year 1997.
On December 27, 1996, the Company and First Albany Companies Inc. ("FAC")
entered into a Settlement Agreement and Release whereby the Company issued
FAC 1.0 million shares of Common Stock in full satisfaction of its
obligations pursuant to the Claim Participation Agreement dated December
21, 1993 and amended December 14, 1994, among United Telecontrol
Electronics, Inc. ("UTE"), the Company and First Commercial Credit
Corporation, in the principal amount of $3.0 million plus accrued interest
of $1.2 million. As a result, the Company in the first quarter of fiscal
1997 realized a gain on the extinguishment of debt totaling $2.5 million,
net of approximately $100 thousand of transaction related expenses and net
of taxes of $106 thousand.
Business Segments
The Company currently conducts business in two business segments:
Alternative Energy Technology and Test and Measurement.
Alternative Energy Technology
The Alternative Energy Technology segment incubates companies that
research, develop, manufacture and distribute alternative energy
technology solutions. Investments at September 30, 1999 consist of a 40.65
percent equity interest in Plug Power L.L.C. Plug Power is a leading
designer and developer of on-site, electricity generation systems
utilizing proton exchange membrane ("PEM") fuel cells for residential
applications. GE Fuel Cell Systems, LLC, a joint venture that is owned by
General Electric's GE Power Systems business (75%) and Plug Power (25%)
will market, sell, service, and install Plug Power's products once they
are developed.
On October 29, 1999 Plug Power Inc. made an initial public offering
("IPO") of its common stock on the NASDAQ National Market under the
symbol "PLUG." The initial public offering price for the 6 million
shares issued was $15 per share.
Immediately prior to the Plug Power IPO, the Company purchased an
additional 2,733,333 shares of Plug Power at $7.50 per share for a total
purchase price of $20.5 million. The Company financed the acquisition
of these shares through a $22.5 million loan from KeyBank N.A.
Immediately after Plug Power's IPO, the Company owned 13,704,315 shares
of Plug Power or approximately 31.9 percent of outstanding Plug Power
stock.
Plug Power is developing a PEM fuel cell for residential and automotive
applications. As of December 1999, Plug Power has reported achieving
the following milestones:
June 1998 Powered a three-bedroom home ("Demonstration Home")
with a hydrogen-fueled residential fuel cell system
November 1998 Demonstrated a methanol-fueled residential fuel cell
system
December 1998 Selected to design and manufacture 80 test and
evaluation residential fuel cell systems for the
State of New York for installation at various test
sites over the next two years
December 1998 Demonstrated a natural gas-fueled residential fuel
cell system
February 1999 Entered into agreement with GE On-Site Power to
distribute and service Plug Power residential fuel
cell systems
June 1999 Began construction of a state-of-the-art, 51,000
square foot manufacturing facility in Latham, New
York
August 1999 Powered the Demonstration Home with a residential
fuel cell system connected to its existing natural
gas pipeline
September 1999 Filed their 50th patent application relating to fuel
cell technology, system designs and manufacturing
processes
December 1999 Announced successful completion of a four-month test
of a natural gas powered fuel cell system in the
Demonstration Home
In October, 1999, MTI sold Ling to SatCon in exchange for common stock and
purchased or made commitments to purchase SatCon common stock and
warrants. Assuming all funding commitments are made and warrants
exercised, MTI will own approximately 16% of SatCon's issued and
outstanding common stock.
SatCon manufactures and sells power and energy management products for
telecommunications, silicon wafer manufacturing, factory automation,
aircraft, satellites and automotive applications. SatCon has four
operating divisions: Film Microelectronics, Inc. designs and manufactures
microelectronic circuits and interconnect products; Magmotor manufactures
motors and magnetic suspension systems; Beacon Power manufactures
flywheel energy storage devices; and the Technology Center is responsible
for new technology and product development.
Test and Measurement
Test and Measurement offers a wide range of technology-based equipment and
systems for improved manufacturing, product testing, and inspection for
industry. Business units in this segment include the Advanced Products
Division, Ling Electronics, Inc. (sold on October 21, 1999) and the L.A.B.
Division (sold on September 30, 1997).
Advanced Products designs, manufactures and markets high-performance test
and measurement instruments and systems. These products are categorized
in two general product families: non-contact sensing instrumentation and
computer-based balancing systems. The Division's largest customers
include industry leaders in the computer, electronic, semiconductor,
automotive, aerospace, aircraft and bioengineering fields.
The non-contact sensing instrumentation products utilize fiber optic,
laser and capacitance technology to perform high precision position
measurements for product design and quality control inspection
requirements, primarily in the semiconductor and computer disk drive
industries. Product trademarks such as the Fotonic Sensor and Accumeasure
are recognized worldwide.
The Division's computer-based aircraft engine balancing systems include an
on-wing jet engine balancing system used by both commercial and military
aircraft fleet maintenance personnel. This product provides trim
balancing and vibration analysis in the field or in test cells.
Ling, of Anaheim, California, designs, manufactures, and markets
electro-dynamic vibration test systems, high-intensity-sound
transducers, power conversion equipment and power amplifiers used to
perform reliability testing and stress screening during product
development and quality control. This mode of testing is used by
industry and the military to reveal design and manufacturing flaws in a
broad range of precision products, from satellite parts to computer
components. Recent Ling products for power and frequency conversion and
"clean power" applications include systems capable of output up to 432
kVA. Ling was sold on October 21, 1999 to SatCon in exchange for
770,000 shares of SatCon common stock (with a market value of $6.738
million on the transaction date).
The L.A.B. Division, which was sold on September 30, 1997, designed,
manufactured and marketed mechanically driven and hydraulically driven
test systems for package and product reliability testing. Among other
uses, this equipment simulates the conditions a product will encounter
during transportation and distribution including shock, compression,
vibration and impact. This type of testing is widely conducted by
businesses involved in product design, packaging and distribution.
The Company believes that the test and measurement industry will undergo
substantial consolidation in the near future. The challenges facing MTI
today are similar to those facing other smaller companies in industries
where consolidation is a part of the landscape. The Company believes
that consolidation may become a competitive necessity and that Advanced
Products and Ling areis well-positioned to combine with complementary, synergistic
businesses to enhance and expand product offerings and increase
profitability and market position. Accordingly, the Company is actively
exploring strategic acquisitions and alliances for these
business units.
Plug Power, the Company's fuel cell joint venture, is developing a
proton exchange membrane fuel cell for residential and automotive
applications. In June 1998, Plug Power introduced the world's first
fuel cell powered home. In September 1998, Plug Power announced a
preliminary agreement with GE Power Systems to market and distribute
Plug Power's residential fuel cell units worldwide. Plug Power
continues to need substantial investment to continue its research and
development of the fuel cell and is aggressively pursuing additional
funding sources.
Mechanical Technology Incorporated was incorporated in New York in 1961.
Unless the context otherwise requires, the "registrant", "Company",
"Mechanical Technology" and "MTI" refers to Mechanical Technology
Incorporated and its subsidiaries. The Company's principal executive
offices are located at 968 Albany-Shaker Road, Latham, New York 12110 and
its telephone number is (518) 785-2211.
Significant Developments in the Business
On June 27, 1997, the Company and Edison Development Corp. ("EDC"), a
subsidiary of DTE Energy Co. formed a joint venture, Plug Power, L.L.C.
("Plug Power"), to further develop the Company's Proton Exchange Membrane
Fuel Cell technology. In exchange for its contribution of contracts and
intellectual property and certain other net assets that had comprised the
fuel cell research and development business activity of the Technology
segment (which assets had a net book value of $357 thousand), the Company
received a 50% interest in Plug Power. The Company's interest in Plug
Power may be reduced in certain circumstances. EDC made an initial cash
contribution of $4.75 million in exchange for the remaining 50% interest
in Plug Power. The Company's investment in Plug Power is included in the
balance sheet caption "Investment in Joint Venture"; the assets
contributed by the Company to Plug Power had previously been included in
the assets of the Company's Technology segment. See the supplemental
disclosure regarding Contribution of Net Assets to Joint Venture in the
Consolidated Statements of Cash Flows for additional information regarding
the assets contributed by the Company to Plug Power.
On April 15, 1998, EDC contributed $2.25 million in cash to Plug Power.
The Company contributed a below-market lease for office and manufacturing
facilities in Latham, New York valued at $2 million and purchased a one-
year option to match the remaining $250 thousand of EDC's contribution.
In May 1998, EDC contributed an additional $2 million to Plug Power and
the Company purchased another one-year option to match that contribution.
The Company paid approximately $191 thousand for the options, which mature
in April 1999 ($250 thousand) and May 1999 ($2 million). If the Company
does not exercise its options, they will lapse.
In August 1998, the Company committed to contribute an additional $5
million dollars (in cash, accounts receivable and research credits) to
Plug Power between August 5, 1998 and March 31, 1999 and recorded a
liability representing this obligation. Such contributions will
increase the Company's total contributions to Plug Power (including
contributions of cash, assets, research credits and a below market
lease) to $11.75 million over the period commencing on June 27, 1997 and
ending on March 31, 1999.
On August 5, 1998, the Company made a short term loan to Plug Power of
$500 thousand, which was subsequently contributed to capital on
September 23, 1998. The Company also converted $500 thousand of its
accounts receivable from Plug Power to capital on September 23, 1998.
At September 30, 1998, the remaining obligation to provide additional
funds to Plug Power was $4 million. The Company has recorded its
proportionate share of Plug Power's losses to the extent of its recorded
investment in Plug Power (including the foregoing obligation to
contribute an additional $4 million through March 31, 1999).
On September 30, 1998, the Company completed the sale of 1,196,399 shares
of common stock to current shareholders through a rights offering. The
offering raised approximately $7,178 thousand before offering costs of
approximately $186 thousand for net proceeds of approximately $6,992
thousand. The Company will use some or all of the proceeds of the
offering for investment in and/or loans to Plug Power. In addition, some
proceeds may be used for acquisitions for the Company's core businesses,
efforts to increase market share, working capital, general corporate
purposes and other capital expenditures.
The sale of the Company's Technology Division, the sole component of the
Technology segment, to NYFM, Incorporated (a wholly owned subsidiary of
Foster-Miller, Inc., a Waltham, Massachusetts-based technology company)
on March 31, 1998 completed management's planned sale of non-core
businesses. Accordingly, the Company no longer includes Technology among
its reportable business segments and now operates in only one segment,
Test and Measurement. The Technology Division is reported as a
discontinued operation as of December 26, 1997, and the consolidated
financial statements have been restated to report separately the net
assets and operating results of the business. Net assets of the
discontinued operation were $8 thousand and $3,186 thousand at September
30, 1998 and 1997, respectively and the loss on discontinued operations
in 1998 included a loss from operations of $516 thousand and a loss on
disposal of $1,769 thousand. The loss on disposal includes a provision
for estimated operating results prior to disposal. The Company's prior
year financial statements have been restated to conform to this
treatment. See Note 15 to the accompanying Consolidated Financial
Statements.
On September 30, 1997, the Company sold all of the assets of its L.A.B.
division to Noonan Machine Company of Franklin Park, IL. The Company
received $2,600 thousand in cash and two notes, totaling $650 thousand,
from Noonan Machine Company. The purchaser has requested that the
principal amount of the note be reduced to reflect the resale value of
certain assets of L.A.B. The Company is enforcing its rights with respect
to the note. The net proceeds from the sale were used to pay down all
outstanding debt and build working capital. The sale of L.A.B. resulted
in a $2,012 thousand gain, which was recorded in the fourth quarter of
fiscal year 1997.
On December 27, 1996, the Company and First Albany Companies, Inc. ("FAC")
entered into a Settlement Agreement and Release whereby the Company issued
FAC 1.0 million shares of Common Stock in full satisfaction of its
obligations pursuant to the Claim Participation Agreement dated December
21, 1993 and amended December 14, 1994, among United Telecontrol
Electronics, Inc. ("UTE"), the Company and First Commercial Credit
Corporation, in the principal amount of $3.0 million plus accrued interest
of $1.2 million. As a result, the Company in the first quarter of fiscal
1997 realized a gain on the extinguishment of debt totaling $2.5 million,
net of approximately $100 thousand of transaction related expenses and net
of taxes of $106 thousand.
The Company's wholly owned subsidiary, UTE of Asbury Park, New Jersey,
filed for voluntary bankruptcy under Chapter 11 of the Federal Bankruptcy
Code in April 1994. During October 1994, UTE commenced an orderly
liquidation and final court approval occurred during the third quarter of
fiscal 1996. Accordingly, the Company no longer includes Defense/Aerospace
amongst its reportable business segments and UTE has been classified as a
"discontinued operation" in the Company's Financial Statements. (See Note
15 to the accompanying Consolidated Financial Statements).
During November 1994, the Company sold all of the outstanding capital
stock of its subsidiary, ProQuip Inc. ("ProQuip") of Santa Clara, CA for
approximately $13.3 million. The sale resulted in a gain of approximately
$6.8 million in fiscal 1995 and $750 thousand, as a result of the release
of escrow funds, in fiscal 1996. (See Note 16 to the accompanying
Consolidated Financial Statements).
Business Segments
The Company currently conducts business in one business segment: Test and
Measurement. Test and Measurement offers a wide range of technology-based
equipment and systems for improved manufacturing, product testing, and
inspection for industry. Business units in this segment include the
Advanced Products Division, Ling Electronics, Inc. and the L.A.B. Division
(sold on September 30, 1997).
Advanced Products designs, manufactures and markets high-performance test
and measurement instruments and systems. These products are categorized
in two general product families: non-contact sensing instrumentation and
computer-based balancing systems. The Division's largest customers
include industry leaders in the computer, electronic, semiconductor,
automotive, aerospace, aircraft and bioengineering fields.
The non-contact sensing instrumentation products utilize fiber optic,
laser and capacitance technology to perform high precision position
measurements for product design and quality control inspection
requirements, primarily in the semiconductor and computer disk drive
industries. Product trademarks such as the Fotonic Sensor and Accumeasure
are recognized worldwide.
The Division's computer-based aircraft engine balancing systems include an
on-wing jet engine balancing system used by both commercial and military
aircraft fleet maintenance personnel. This product provides trim
balancing and vibration analysis in the field or in test cells.
Ling Electronics, Inc., of Anaheim, California, designs, manufactures, and
markets electro-dynamic vibration test systems, high-intensity-sound
transducers, power conversion equipment and power amplifiers used to
perform reliability testing and stress screening during product
development and quality control. This mode of testing is used by industry
and the military to reveal design and manufacturing flaws in a broad range
of precision products, from satellite parts to computer components. Recent
Ling products for power and frequency conversion and "clean power"
applications include systems capable of output up to 432 kVA.
The L.A.B. Division, which was sold on September 30, 1997, designed,
manufactured and marketed mechanically-driven and hydraulically-driven
test systems for package and product reliability testing. Among other
uses, this equipment simulates the conditions a product will encounter
during transportation and distribution including shock, compression,
vibration and impact. This type of testing is widely conducted by
businesses involved in product design, packaging and distribution.
The business units in the Test and Measurement segment have numerous
customers and are not dependent upon a single or a few customers.
Backlog
The backlog of orders believed to be firm as of September 30, is $2,071,000$2.1
million for 1999 and 1998 (of which $997 thousand and $3,861,000 for 1997.$487 thousand,
respectively, relates to the Company's Advanced Products Division). The
backlog relates to contracts awarded by commercial customers or government
agencies or commercial customers.
Approximately $110 thousand of the orders included in the September 30,
1998 backlog may not be filled during the Company's current fiscal year.agencies.
Marketing and Sales
The Company sells its products and services through a combination of a
direct sales force, manufacturer's representatives, distributors and
commission salespeople. Each business unit is responsible for its own
sales organization. Typically, the Company's product businesses employ
regional manufacturer's representatives on an exclusive geographic basis
to form a nationwide or worldwide distribution organization; the business
unit is responsible for marketing and sales management and provides the
representatives with sales and technical expertise on an "as-required"
basis. To a great extent, the marketing and sales of the Company's larger
products and systems consist of a joint effort by the business unit's
senior management, its direct sales force and manufacturer's
representatives to sophisticated customers. The manufacturer's
representatives are compensated on a commission basis.
Research and Development
The Company conducts considerable research and development to support
existing products and develop new products. (See the accompanying
Consolidated Statements of Operations). The Company holds patents and
rights in various fields of technology. The technology of the Company is
generally an advancement of the "state of the art", and the Company
expects to maintain a competitive position by continuing such advances
rather than relying on patents. Licenses to other companies to use
Company-developed technology have been granted and are expected to be of
benefit to the Company, though royalty income received in recent years has
not been material in amount and is not expected to be material in the
foreseeable future.
Competition
The Company and each of its business units are subject to intense
competition. The Company faces competition from at least several
companies, many of which are larger than MTI and have greater financial
resources. While the business units in the Company's Test and Measurement
segment each have a major share of their respective markets, the Company
does not consider any of them to be dominant within its industry.
The primary competitive considerations in the test and measurement segment
are:are product quality and performance, price and timely delivery. The
Company believes that its product development skills and reputation are
competitive advantages.
Employees
The total number of employees of the Company and its subsidiaries was 123104
as of September 30, 1998,1999, compared to 178123 as of the beginning of the
fiscal year.
Executive Officers
The executive officers of the registrant (all of whom serve at the
pleasure of the Board of Directors), their ages, and the position or
office held by each, are as follows:
Position or Office Name Age
Chief Executive Officer, George C. McNamee 5253
and a Director
Vice President and Chief Cynthia A. Scheuer 3738
Financial Officer
Vice President and General Manager, Denis P. Chaves 5859
Advanced Products
President and Chief Executive Officer James R. Clemens 4950
Ling Electronics, Inc.
Mr. McNamee has been Chief Executive Officer of the Company since April
1998 and a director since 1996.
Ms. Scheuer was appointed Vice President and Chief Financial Officer of
the Company in November 1997. Prior to joining the Company, she was a
senior business assurance manager at Coopers & Lybrand L.L.P. where she
was employed since 1983.
Mr. Chaves has been Vice President and General Manager of the Company's
Advanced Products Division since 1987 and was Vice President and General
Manager of the Company's L.A.B. Division from January 1994 until it was
sold in September, 1997. Previously, he served as Manager of Corporate
Marketing for the Company from 1981 to 1987.
Mr. Clemens has been President and Chief Executive Officer of Ling
Electronics, Inc., a wholly owned subsidiary of the Company, since April
1998. Mr. Clemens was previously Vice President and General Manager of
Ling from April 1997 to April 1998. Mr. Clemens resigned as an officer of
the Company on October 21, 1999, to join SatCon Technology Corporation.
From December 1994 to March 1997, he was a site manager for Teleflex
Control. From September 1992 to November 1994, he was President and Chief
Operating Officer of MTI's former subsidiary United Telecontrol
Electronics, Inc.
ITEM 2: PROPERTIES
The Company owns and leases property in New York and, prior to the sale of Ling,
leased space in California. In management's opinion, the facilities are
generally well-maintained and adequate to meet the Company's current and
future needs.
The Company's corporate headquarters arewere located onin a 36 acre sitebuilding in Latham,
New York.York which was sold to Plug Power during 1999 and a portion of which was
leased back to the Company until November 1999. The site includes three separate buildings that containbuilding contained a
total of approximately 116,00031,000 square feet. In October 1998,November 1999, the Company
completed construction ofits relocation to Albany, New York, where it leases a new manufacturing and office facility for
Advanced Products and corporate headquarters. The former Advanced Products facility has been
renovatedapproximately
20,700 square feet of office and is being rented to Plug Power, as part of the Company's capital
contribution to Plug Power. See "Significant Developments in the Business".manufacturing space. The lease expires on
SeptemberNovember 30, 2008. The third building is being rented
to Plug Power and NYFM, Incorporated. Both Plug Power's and NYFM
Incorporated's leases expire on March 31, 1999.2009.
Ling Electronics',Electronics, Inc. (Ling) leases approximately 85,000 square feet of
office and manufacturing space in Anaheim, California. The lease will
expire in June of 2003. In additionLing was sold, and the lease assigned, to the above property, the Company and its subsidiaries lease
several small offices for field engineering and/or marketing personnel at
various locations in the United States and United Kingdom.SatCon
Technology Corporation on October 21, 1999.
ITEM 3: LEGAL PROCEEDINGS
At any point in time, the Company and its subsidiaries may be involved in
various lawsuits or other legal proceedings; these could arise from the
sale of products or services or from other matters relating to its regular
business activities, may relate to compliance with various governmental
regulations and requirements, or may be based on other transactions or
circumstances. The Company does not believe there are any such proceedings
presently pending that could have a material adverse effect on the
Company's financial condition except for the matters described in Note 1314
to the accompanying Consolidated Financial Statements (which description
is incorporated herein by reference).
On or about February 6, 1997, Ling HoldingsSeptember 9, 1998, Barbara Lawrence, the Lawrence Group, Inc.
("Holdings"Lawrence"), and certain other Lawrence-related entities ("Plaintiffs")
commenced an action against the Company and its former chief executive
officer, R. Wayne Diesel,filed suit in the SuperiorUnited States Bankruptcy Court Orange County,
California, entitled Ling Holdings Group, Inc. v. Mechanical Technology
Inc. et al, No. 775074. Infor 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 action, Holdings alleged nine causesDefendants
purchased MTI stock from the Plaintiffs in violation of action against the Company for breach of contractsections 10b, 20,
20A and tort. Allrule 10b-5 of the claims relatedSecurities Exchange Act of 1934. In December
1998, the complaint was amended to add MTI as a Stock Purchase Agreement between Holdingsdefendant and assert a
claim for common law fraud against all the Company. InDefendants including MTI. The
case concerns the action, Holdings sought specific performanceDefendants' 1998 purchase of MTI shares from the
Plaintiffs at the price of $2.25 per share. Ownership of the Stock
Purchase Agreement (i.e.,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 two subsidiaries of$5 million plus punitive damages and
costs. In April 1999, Defendants filed a motion to dismiss the Company,
Ling Electronics, Inc.amended
compliant, which was denied. In June 1999, the parties agreed to stay
discovery and Ling Electronics Limited), as well as
compensatory and punitive damages. The Company asserted counterclaims.amend Defendants time to answer the amended complaint until
September 17, 1999. In August 1998, all but five of Holdings' causes of action were dismissed
with prejudice. The remaining causes of action were dismissed with
prejudice in an oral statement of decision byOctober 1999, Defendants answered the court after a trial,
which began on September 21 and concluded September 30, 1998. The
Company's counterclaims were dismissed, as well. The judgment, based upon
the court's September 30 statement of decision, was entered November 17,
1998. Holdings will have 60 days from the mailing of notice of entry of
the judgment to appeal.amended
Complaint.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the registrant's security
holders during the fourth quarter of fiscal 1998.1999.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Price Range of Common Stock
SinceOn April 16, 1999, the stock began trading on the NASDAQ National Market
System under the same symbol, MKTY. From August 1994 through April 15,
1999, the Company's Common Stock has been traded on the over-
the-counterover-the-counter market and is listed
under the symbol MKTY on the OTC Bulletin Board. Set forth below are the
highest and lowest prices at which shares of the Company's Common Stock
have been traded during each of the Company's last two fiscal years.
Prices as Adjusted to
Effect for April 30,1999
Prices as Reported Three for Two Stock Split
High Low High Low
Fiscal Year 1999
First Quarter 8-5/8 6-3/4 5-3/4 4-1/2
Second Quarter 21 8 14 5-1/3
Third Quarter 30 11-11/12 30 7-15/16
Fourth Quarter 35-9/16 23-6/16 35-9/16 23-6/16
Fiscal Year 1998
First Quarter 6-3/4 3-3/4 4-1/2 2-1/2
Second Quarter 8-1/8 3-1/2 5-5/12 2-1/3
Third Quarter 8-1/8 5-11/16 5-5/12 3-3/4
Fourth Quarter 9-3/8 6 Fiscal Year 1997
First Quarter 2-7/8 1-1/2
Second Quarter 2-3/6-1/4 1-7/8
Third Quarter 3-1/2 1-7/8
Fourth Quarter 4-1/3 2-1/4
Number of Equity Security Holders
As of December 11, 1998,20, 1999, the Company had approximately 538479 holders of its
$1.00 par value Common Stock. In addition, there are approximately 1,3564,154
beneficial owners holding stock in "street" name.
Dividends
The payment of dividends is within the discretion of the Company's Board
of Directors and will depend, among other factors, on earnings, capital
requirements, and the operating and financial condition of the Company.
The Company has never paid and does not anticipate paying dividends in the
foreseeable future.
ITEM 6: SELECTED FINANCIAL DATA
The following table sets forth summary financial information regarding
Mechanical Technology Incorporated for the years ended September 30, as
indicated:
Statement of Earnings Data (In thousands, except per share data)
Restated Restated Restated Restated
1998 1997 1996 1995 1994
Net Sales $ 21,028 $ 24,102 $ 22,755 $ 18,140 $ 29,721
Gain on sale of
subsidiary/division or
building - 2,012 750 6,779 1,856
(Loss) Income from
Continuing Operations
Before Extraordinary
Item and Income Taxes (2,006) 2,701 673 3,352 816
(Loss) Income from
Continuing Operations
before Extraordinary Item (2,031) 2,558 598 3,256 201
Extraordinary Item -
Gain on Extinguish-
ment of Debt, net of
taxes($106) - 2,507 - - -
(Loss) Income from
Continuing Operations (2,031) 5,065 598 3,256 201
(Loss) Income from
Discontinued
Operations, Net
of Taxes (2,285)(1) (545) 3,150 (334) (24,579)(2)
Net(Loss)Income $ (4,316) $ 4,520 $ 3,748 $ 2,922 $(24,378)
Diluted Earnings
Per Share (3)
(Loss) Income from
Continuing Operations
before Extraordinary
Item $ (0.35) $ 0.45 $ 0.15 $ 0.91 $ 0.05
Extraordinary Item - 0.44 - - -
(Loss)Income from
Discontinued
Operations (0.38) (0.09) 0.81 (0.09) 6.96
Net (Loss)Income $ (0.73) $ 0.80 $ 0.96 $ 0.82 $ (6.91)
Weighted Average Shares
Outstanding and
Equivalents 5,937,158 5,672,045 3,911,952 3,559,789 3,529,881
Balance Sheet Data:
Working Capital
(Deficit) $ 5,779 $ 7,696 $ 7,086 $ 2,712 $ (6,219)
Total Assets 21,128 14,003 13,481 13,444 23,971
Total Long-Term
Debt 0 0 5,508 6,960 11,182
Total Shareholders'
Equity (Deficit) 11,124 8,213 2,164 (3,490) (6,418)
_______________________
(1) Includes a net charge of $1,769 related to the discontinuance of the
Company's Technology Division.
(2) Includes a net charge of $15,415 related to the discontinuance of the
Company's United Telecontrol Electronics, Inc. subsidiary.
(3)
Statement of Earnings Data (In thousands, except per share data)
Restated Restated Restated
1999 1998 1997 1996 1995
Net Sales $ 12,885 $ 21,028 $ 24,102 $ 22,755 $ 18,140
Gain on Sale of
Subsidiary/Division or
Building - - 2,012 750 6,779
(Loss) Income from Continuing
Operations before
Extraordinary Item and
Income Taxes (10,692) (2,006) 2,701 673 3,352
(Loss) Income from Continuing
Operations before
Extraordinary Item (10,729) (2,031) 2,558 598 3,256
Extraordinary Item -
Gain on Extinguish-
ment of Debt, Net of
Taxes ($106) - - 2,507 - -
(Loss) Income from
Continuing Operations (10,729) (2,031) 5,065 598 3,256
Income (Loss) from
Discontinued
Operations, Net
of Taxes 41 (2,285)2 (545) 3,150 (334)
Net(Loss)Income $ (10,688) $ (4,316) $ 4,520 $ 3,748 $ 2,922
Diluted Earnings
Per Share1,3
(Loss) Income from
Continuing Operations
before Extraordinary
Item $ (0.94) $ (0.21) $ 0.28 $ 0.09 $ 0.57
Extraordinary Item - - 0.27 - -
(Loss)Income from
Discontinued
Operations - (0.24) (0.06) 0.50 (0.06)
Net (Loss)Income $ (0.94) $ (0.45) $ 0.49 $ 0.59 $ 0.51
Weighted Average Shares
Outstanding and
Equivalents1 11,330,530 9,576,672 9,149,176 6,310,094 5,742,045
Balance Sheet Data:
Working Capital $ 18,662 $ 5,779 $ 7,696 $ 7,086 $ 2,712
Total Assets 31,780 21,128 14,003 13,481 13,444
Total Long- Term Debt - - - 5,508 6,960
Total Shareholders' Equity (Deficit) 27,786 11,124 8,213 2,164 (3,490)
__________________________
1 Earnings per share information has been retroactively adjusted to reflect the April 30, 1999 3 for 2 stock split.
2 Includes a net charge of $1,769 related to the discontinuance of the Company's Technology Division and a $516 loss
from operations prior to discontinuance.
3 Earnings per share have been restated to comply with SFAS No. 128, "Earnings Per Share."
Prior years have been restated to reflect the Technology and
Defense/Aerospace segments as discontinued operations. (See Note 1516 to
the accompanying Consolidated Financial Statements).
There were no cash dividends on common stock declared for any of the
periods presented.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations: 19981999 in Comparison with 19971998
The following three paragraphs summarize significant organizational
changes, which impact the comparison of 19981999 and 19971998 results of
operations.
On June 27, 1997, the Company and Edison Development Corp. ("EDC"), a
subsidiary of DTE Energy Co. formed a joint venture, Plug Power L.L.C.
("Plug Power") to further develop the Company's Proton Exchange Membrane
("PEM") Fuel Cell technology. In exchange for its contribution of
employees, contracts, intellectual property and certain other assets that
had comprised the fuel cell research and development business activity of
the Technology segment (which assets had a net book value of $357
thousand), the Company received a 50% interest in Plug Power. The Company's interest
in Plug Power may be reduced in certain circumstances. EDC made an
initial cash contribution of $4.75 million in exchange for the remaining
50% interest in Plug Power. The Company's investment in Plug Power is
included in the balance sheet caption "Investment in Joint Venture"Plug Power"; the
assets contributed by the Company to Plug Power had previously been
included in the assets of the Company's Technology segment. See the
supplemental disclosure regarding Contribution of Net Assets to Joint
VenturePlug Power
in the Consolidated Statements of Cash Flows for additional information
regarding the assets contributed by the Company to Plug Power.
Since Plug Power was formed in 1997 the Company, EDC and other investors
have contributed substantial amounts of cash and other assets to Plug
Power. Contributions to Plug Power by the Company totaled $20.7 million
as of September 30, 1999 and increased to $41.2 million as of Plug
Power's IPO date. After Plug Power' s IPO, the Company owned 13,704,315
shares or 31.9% of outstanding Plug Power stock.
The sale of the Company's Technology Division, the sole component of the
Technology segment, to NYFM, Incorporated (a wholly owned subsidiary of
Foster-Miller, Inc., a Waltham, Massachusetts-based technology company)
on March 31, 1998 completed management's planned sale of non-core
businesses. Accordingly, the Company no longer includes Technology among
its reportable business segments and now operates in only one segment, Test
and Measurement.segments. The Technology Division is reported
as a discontinued operation as of December 26, 1997, and the
consolidated financial statements have been restated to report
separately the net assets and operating results of the business.
The following is management's discussion and analysis of certain
significant factors, which have affected the Company's results of
operations for 1999 compared to 1998. This discussion relates only to the
Company's continuing operations before the sale of Ling, which occurred in
October 1999.
Sales for fiscal 1999 totaled $12.9 million compared to $21.0 million for
the prior year, a decrease of $8.1 million or 38.7%. This decrease is the
result of continuing weak market conditions. Advanced Products and Ling
reported sales decreases of 48.7% and 31.6%, respectively in the year
ended September 30, 1999.
Selling, general and administrative expenses for fiscal 1999 were 38.4% of
sales, as compared to 27.6% in 1998. Higher levels of
general/administrative expenses as a percentage of sales for fiscal 1999
resulted primarily from the 38.7% decrease in sales. Actual selling,
general and administrative expenses decreased $.863 million from 1998 to
1999.
Product development and research costs during fiscal 1999 were 8.6% of
sales, compared to 4% for 1998. Development costs increased $.274 million
from 1998 to 1999 reflecting the Advanced Products Division's commitment
to developing diagnostic and other new products.
The operating loss of $1.4 million for the year ended September 30, 1999
represents a $3.4 million or 170.4% decrease from the $2 million
operating income reported during the same period last year. The
decrease is the result of decreased sales levels and corresponding
decreases in gross profits due to fixed cost absorption at lower sales
levels. Gross profit decreased to 36% of sales in fiscal 1999 from 41%
of sales in fiscal 1998.
In addition to the matters noted above, the Company recorded a $9.4
million loss from the recognition of the Company's proportionate share of
losses of Plug Power compared to a $3.8 million loss in 1998.
Results during fiscal 1999 were adversely effected by the sales decrease.
Further, as a result of ownership changes in 1996, the availability of net
operating loss carryforwards to offset future taxable income will be
significantly limited pursuant to the Internal Revenue Code.
Results of Operations: 1998 in Comparison with 1997
The following two paragraphs summarize significant organizational changes,
which impact the comparison of 1998 and 1997 results of operations.
Net assets of the discontinued technology operation were $8 thousand and
$3,186 thousand at September 30, 1998 and 1997, respectively, and the loss
on discontinued operations included a loss from operations of $516
thousand and a loss on disposal of $1,769 thousand at September 30, 1998.
The loss on disposal includes a provision for estimated operating results
prior to disposal. The Company's prior year financial statements have
been restated to conform to this treatment.
On September 30, 1997, the Company sold all of the assets of its L.A.B.
Division to Noonan Machine Company of Franklin Park, IL. The Company
received $2,600 thousand$2.6 million in cash and two notes, totaling $650 thousand, from
Noonan Machine Company. The purchaser has requested that the principal
amount of the note be reduced to reflect the resale value of certain
assets of L.A.B. The Company is enforcing its rights with respect to the
note. The net proceeds from the sale were used to pay down all outstanding
debt and build working capital. The sale of L.A.B. resulted in a $2,012 thousand$2.0
million gain, which was recorded in the fourth quarter of fiscal year
1997. In addition, $250 thousand of the proceeds associated with one of
the notes was recorded as deferred revenue due to the possible reduction
of the $250 thousand note receivable, in the event of a sale of certain
fixed assets, in accordance with the terms of the note.
The following is management's discussion and analysis of certain
significant factors, which have affected the Company's results of
operations for 1998 compared to 1997. This discussion relates only to the
Company's continuing operations.
Sales for fiscal 1998 totaled $21.0 million compared to $24.1 million for
the prior year, a decrease of $3.1 million or 12.8%. This decrease is
attributable to the reduction of sales resulting from the sale of the
L.A.B. Division on September 30, 1997, which reported sales of
$3.3 million and operating income of $500 thousand at September 30, 1997.
Advanced Products reported a sales increase of 26.2% and Ling reported a
sales decrease of 11.3% in the year ended September 30, 1998.
Selling, general and administrative expenses for fiscal 1998 were 27.6% of
sales, as compared to 29.1% in 1997. Product development and research
costs during fiscal 1998 were 4% of sales, compared to 4.2% for 1997.
Lower levels of general/selling, general and administrative expenses for fiscal
1998 resulted primarily from cost reduction efforts during fiscal 1998 as
well as the elimination of costs for L.A.B. of $600 thousand.
Operating income of $2 million at September 30, 1998 represented a $400
thousand or 24%25.5% increase from the $1.6 million operating income
recorded during the same period last year. The increase is the result
of increased sales levels for Advanced Products and improved margins as
a result of cost control measures. Excluding the L.A.B. division
results in 1997, operating income increased $900 thousand.
In addition to the matters noted above, during the fourth quarter of
fiscal 1998, the Company recorded a $3.8 million loss from the recognition
of the Company's proportionate share of losses of thein Plug Power joint
venture compared to a
$300$330 thousand loss in 1997. During the fourth quarter of fiscal 1997, the
Company recorded a $2.0 million gain on the sale of the L.A.B. Division.
Further, 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 fiscal 1998 were enhanced by lower interest expense,
principally resulting from reduced indebtedness. Moreover, the Company
benefited from reduced income tax expense due to the loss generated by
discontinued operations and the use of net operating loss carryforwards.
However, as a result of recent 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.
Results of Operations: 1997 in Comparison with 1996
The following three paragraphs summarize significant organizational
changes, which impact the comparison of 1997 and 1996 results of
operations.
On September 30, 1997, the Company sold all of the assets of its L.A.B.
Division to Noonan Machine Company of Franklin Park, IL. The Company
received $2,600 thousand in cash and two notes, totaling $650 thousand,
from Noonan Machine Company. The purchaser has requested that the
principal amount of the note be reduced to reflect the resale value of
certain assets of L.A.B. The Company is enforcing its rights with respect
to the note. The net proceeds from the sale were used to pay down all
outstanding debt and build working capital. The sale of L.A.B. resulted
in a $2,012 thousand gain, which was recorded in the fourth quarter of
fiscal year 1997. In addition, $250 thousand of the proceeds associated
with one of the notes was recorded as deferred revenue due to the
possible reduction of the $250 thousand note receivable, in the event of
a sale of certain fixed assets, in accordance with the terms of the
note.
On June 27, 1997, the Company and Edison Development Corp. ("EDC"), a
subsidiary of DTE Energy Co. formed a joint venture, Plug Power L.L.C.
("Plug Power") to further develop the Company's Proton Exchange Membrane
Fuel Cell technology. In exchange for its contribution of employees,
contracts, intellectual property and certain other assets that had
comprised the fuel cell research and development business activity of the
Technology segment (which assets had a net book value of $357 thousand),
the Company received a 50% interest in Plug Power. The Company's interest
in Plug Power may be reduced in certain circumstances. EDC made an initial
cash contribution of $4.75 million in exchange for the remaining 50%
interest in Plug Power. The Company's investment in Plug Power is
included in the balance sheet caption "Investment in Joint Venture"; the
assets contributed by the Company to Plug Power had previously been
included in the assets of the Company's Technology segment. See the
supplemental disclosure regarding Contribution of Net Assets to Joint
Venture in the Consolidated Statements of Cash Flows for additional
information regarding the assets contributed by the Company to Plug Power.
On December 27, 1996, the Company and First Albany Companies, Inc. ("FAC")
entered into a Settlement Agreement and Release whereby the Company issued
FAC 1.0 million shares of Common Stock in full satisfaction of its
obligations pursuant to the certain Claim Participation Agreement dated
December 21, 1993 and amended December 14, 1994, among United Telecontrol
Electronics, Inc. ("UTE"), the Company and First Commercial Credit
Corporation, in the principal amount of $3.0 million plus accrued interest
of $1.2 million. As a result, the Company in the first quarter of fiscal
1997 realized a gain on the extinguishment of debt totaling $2.5 million,
net of approximately $100 thousand of transaction related expenses and net
of taxes of $106 thousand. (See "Liquidity and Capital Resources",
below.)
The following is management's discussion and analysis of certain
significant factors, which have affected the Company's results of
operations for 1997 compared to 1996. This discussion relates only to the
Company's continuing operations.
Sales for fiscal 1997 totaled $24.1 million compared to $22.8 million for
the prior year, an increase of 5.9% in fiscal 1997 compared to fiscal
1996. L.A.B and Advanced Products reported sales increases of 7.8% and
19.4%, respectively and Ling reported a sales decrease of 0.2%.
Selling, general and administrative expenses for fiscal 1997 were 29.1% of
sales, as compared to 31.1% in 1996. Product development and research
costs during fiscal 1997 were 4.2% of sales, compared to 3.0% for 1996.
Lower levels of general/administrative expenses for fiscal 1997 resulted
primarily from cost reduction efforts during fiscal 1997 as well as
certain expenses having been incurred during 1996 in connection with the
now-discontinued efforts to sell Ling.
Company 1997 operating income totaled $1.6 million compared to $1.1
million for fiscal 1996, or an increase of $500 thousand. The increase
in operating income is primarily due to continuing growth of revenues.
Increased operating income was achieved in spite of higher product
development costs. All divisions reported improvements, however, Ling
continues to experience an operating loss.
In addition to the matters noted above, during the fourth quarter of
fiscal 1997, the Company recorded a $2.0 million gain on the sale of the
L.A.B. Division and a $330 thousand loss from the recognition of the
Company's proportionate share of the loss of the Plug Power joint venture.
Sales for the L.A.B. Division were $3.3 million in 1997 and $3.1 million
in 1996. Further, the Company recorded a $2.5 million extraordinary gain,
net of taxes, on the extinguishment of debt during the first quarter of
fiscal 1997. Fiscal 1996 results included a $750 thousand gain from the
sale of its former subsidiary ProQuip, as a result of the removal of
contingencies.
Results during fiscal 1997 were further enhanced by lower interest
expense, principally resulting from reduced indebtedness. Moreover, the
Company has benefited from reduced income tax expense due to the use of
net operating loss carryforwards. However, as a result of recent ownership
changes, the availability of further net operating loss carryforwards to
offset future taxable income will be significantly limited pursuant to the
Internal Revenue Code.
Liquidity and Capital Resources
At September 30, 1998,1999, the Company's order backlog was $2.1 million,
a
decrease of $1.8 millionrepresenting no change from the prior year-end.
This reduction reflects
a decline dueInventories in 1999 remained stable at $3.75 million to orderssupport expected
insales increases during the fourthfirst quarter of 1998 being
shifted to the next fiscal year.
Inventories increased by $362 thousand in 1998 to support increased sales
levels at Advanced Products.2000. Additionally, accounts
receivable increaseddecreased by $477 thousand$1.1 million in 19981999 due to the timing ofreduced sales
at the end of theduring fiscal year.1999.
Cash flow fromused by continuing operations was $513 thousand$2.3 million in 1999 compared
with $.5 million provided in 1998 compared
with $1,089 thousandand $1.1 million provided in 1997 and ($49) thousand in 1996.1997. Cash
flow from operating activities was impacted in 1999 by operating losses
and 1998 and 1997 were impacted by positive operating income and
fluctuations in working capital components.
Working capital was $5.8$18.7 million at September 30, 1998,1999, a $1.9$12.9 million
decreaseincrease from $7.7$5.8 million at fiscal year-end 1997.1998. Capital used during
fiscal 1998 was principallyincreased
$12.7 million in 1999 which reflects the proceeds received from the sale
of common shares to fund short term operating cash flow
requirements and pay construction costs.existing shareholders through a rights offering.
Capital expenditures were $3,166 thousand$2.7 million for 1999, $3.2 million for 1998 $377 thousandand
$.4 million for 1997
and $170 thousand for 1996.1997. The increased capital expenditures in 19981999 were in accordance
with the higher level of planned expenditures andincluding the construction
of a new facility for Advanced Products and corporate headquarters and
renovations to an existing building, leasedwhich were subsequently sold to Plug
Power.Power in July 1999. Capital expenditures in 19992000 are expected to
be about $4.4approximate $.4 million, which consists of additional expenditures associated with the construction of
the newfor facility computer softwarefit-
up and hardware costscomputer and manufacturing equipment. The Company expects to
finance these expenditures with cash from operations and existing credit
facilities.
As of September 30, 1998,
the Company was committed to construction costs of approximately $2,856
thousand.
Cash and cash equivalents were $5,567 thousand$5.9 million at September 30, 19981999 compared
to $1,421 thousand$5.6 million at September 30, 1997, this increase is1998. Investments in marketable
securities were $7.9 million at September 30, 1999. These increases are
primarily attributable to $6,992 thousand$12.7 million of net cash proceeds from the sale
of common shares to existing shareholders through a rights offering, which
closed on September 30, 1998July 12, 1999 net of payments associated with the Company's
construction project. During 1999, the Company also funded $4 million of
previously accrued capital contributions to Plug Power.
At September 30, 19981999 and 1997,1998, there were no borrowings outstanding on
the lines of credit. The Company has a working capital line of credit
available in the amount of $4 million and a $1 million equipment line of
credit. These lines of credit expire on January 31, 2000. The Company is
currently negotiating an extension of these lines of credit.
The reduction in net assets of discontinued operations to a net liability
of $3,178 thousand
includes$.5 million reflects the transfercollection of $878 thousandreceivables and settlement of
assets to continuing operations
(principally land, building and management information systems) as well as
the accrual for the loss on disposal of the Technology Division. Such
accrual included a provision for estimated operating results prior to
disposal and an estimate of the loss on disposal and winddown of the
Technology Division, which totaled $1,769 thousand.liabilities. The sale of the Technology Division was completed as of
March 31, 1998.
On July 31, 1998, Plug Power askedKeyBank issued a letter of credit for approximately $6 million in
connection with the issuance of $6 million of Industrial Development
Revenue Bonds ("IDR Bonds"). The KeyBank credit agreements required the
Company to commit to contribute $5
million (in cash, other assetsmeet certain covenants, including a fixed charge coverage and
research credits)leverage ratio. Further, if certain performance standards were achieved,
the interest rates on the debt may be reduced. The IDR Bond Obligation,
letter of credit and unexpended bond proceeds were transferred to Plug
Power in connection with the sale of the MTI facility and adjacent
residence effective July 1, 1999.
The Industrial Development Agency for the Town of Colonie issued $6
million in IDR Bonds on behalf of the Company to assist in the
construction of a new building for Advanced Products and the Company's
corporate staff and renovation of existing buildings leased to Plug Power.
The bond closing was completed December 17, 1998 and proceeds of the IDR
Bonds were deposited with a trustee for the bondholders. The Company has
drawn bond proceeds to cover qualified project costs.
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 continuing operationsthe Company's remaining $20.5
million balance of its Mandatory Capital Commitment to contribute $22.5
million to Plug Power. Pursuant to the Mandatory Capital Commitment, the
Company purchased 266,667 shares of Plug Power for the period August 1, 1998 through March 31,$2 million on September
30, 1999 and 2,733,333 shares of Plug Power for $20.5 million in November
1999. The Company has committedmay sell shares of Plug Power Common Stock to pay
monthly interest and or quarterly principal payments (beginning May 2001)
on the Loan. Plug Power's stock is currently traded on the NASDAQ,
therefore the stock is subject to stock market conditions. Due to the
$5 million contribution request,
whichCompany's significant ownership position, sales of Plug Power stock will
be funded by the proceeds from the rights offering. On August
5, 1998, EDC andsubject to SEC Rule 144 limitations including a limit of one (1)
percent of total outstanding shares per quarter.
The $22.5 million Credit Agreement requires the Company each made short-term loansto meet certain
covenants, including maintenance of $500a collateral account which at all
times has a minimum market value of $600 thousand and a balance on
November 1, 1999 of $2.65 million, and maintenance of a collateral
coverage ratio. The existing covenants under the original letter of
credit were eliminated pursuant to Plug Power, which were subsequently contributed to capital on September
23, 1998. On September 23, 1998, the Company also contributed $500
thousand$22.5 million Credit Agreement.
The $22.5 million Credit Agreement is collateralized by 100% of accounts receivable from Plug Power to equity. A liability
for $4 million was recorded as of September 30, 1998 to reflect the
Company's additional obligation to fund Plug Power during 1999. In
addition, Plug Power will continue to need substantial investment for the
foreseeable future. Plug Power continues to pursue strategic partners and
additional sources of capital. Plug Power is currently negotiating with
several strategic partners and has signed a preliminary Memorandum of
Understanding with General Electric Power Systems. There is no assurance,
however, that Plug Power will successfully conclude any transactions with
strategic partners or find other sources of capital. If other sources of
funding cannot be found, the Company will be faced with contributing
and/or lending additional capital to Plug Power or dilution of itsequity interest in Plug Power.
If EDCOn 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 stop funding Plug Powercommitted to invest approximately $7 million in SatCon. In
consideration for the acquisition of Ling Electronics and nothe Company's
investment, the Company will receive 1,800,000 shares of SatCon's common
stock and warrants to purchase an additional sources100,000 shares of capital are found, Plug PowerSatCon's
common stock. The Company funded $2.57 million of its investment in
SatCon and will not be
ablemake the remaining investment by the end of January
2000. SatCon will also receive warrants to continue as a going concern.
During fiscal 1996, First Albany Companies, Inc. ("FAC") had purchased
909,091purchase 100,000 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 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 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 benefited in fiscal 1997 from the sale of the L.A.B. Division
on September 30, 1997, with cash proceeds of $2.6 million and two notes
receivable for a total of $650 thousand. The cash proceeds were used to
pay off the remaining balance on the Company's term loan to Chase
Manhattan Bank and to provide for general working capital needs.common stock.
The Company anticipates that it will be able to meet the liquidity needs
of its continuing operations and its investment commitment to SatCon
from current cash resources, cash flow generated by operations and
borrowing under its existing lines of credit.
Debt
Market Risk
Market risk represents the risk of changes in value of a financial
instrument, caused by fluctuations in interest rates and equity prices.
Because the Company's cash and investment position exceeds both short
and long term obligations, the Company's exposure to interest rate risk
relates primarily to its investment in marketable debt securities. The
Industrial Development Agency forinvestments are at variable rates, which generally reflect market
conditions. The Company manages its investments to increase return on
investment and only invests in instruments with high credit quality.
The Company has performed a sensitivity analysis on its marketable debt
securities and its investment in Plug Power common stock. The
sensitivity analysis presents the Townhypothetical change in fair value of
Colonie has agreed to
issue $6 million in Industrial Development Revenue Bonds ("IDR") on behalf
ofthose financial instruments held by the Company at September 30, 1999
which are sensitive to assistchanges 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 construction of a new building for
Advanced Products and the Company's corporate staff and renovation of
existing buildings leased to Plug Power.yield
curve. The construction project is due
to be completed as of April 1999. First Albany Companies, Inc. ("FAC"),
which owns 34%fair values of the Company's stock, will underwriteinvestments in marketable
securities have been based on quoted market prices. As the salecarrying
amounts on short-term investments maturing in less than 180 days
approximate the fair value, these are not included in the sensitivity
analysis. The fair value of marketable securities over 180 days is $3.0
million. A one-percentage point change in the interest rates would
change the fair value of investments over 180 days by $85 thousand.
The Company also has an investment in Plug Power, which is accounted for
on the equity method. The fair market value of the IDR
Bonds. Proceedsinvestment is $164.6
million based on the October 28, 1999 $15 per share initial public
offering price. If the market price on the Plug Power stock would
decrease by ten percent the fair value of the IDR Bonds will be deposited with a trustee for the
bondholders. The Company may draw the bond proceeds to cover qualified
project costs. The bond closing is expected to be completed on or about
December 17, 1998. FAC will receive no fees for underwriting the IDR
Bonds but will be reimbursed for its out of pocket costs.stock would decrease by
$16.5 million.
Year 2000
General
Mechanical Technology Incorporated's company-wideThe Company's Year 2000 plan is proceeding on schedule.complete. The plan is addressingaddresses the issue
of computer programs and embedded computer chips being unable to
distinguish between the year 1900 and the year 2000 as well as the
ability to recognize the leap year date of February 29, 2000. The plan
has been divided into six areas: (1)Systems evaluation, (2) Software
evaluation, (3) Third-party suppliers, (4) Facility systems, (5)
Products and (6)Contingency plans. The general phases common to all
segments are: (1) Inventorying Year 2000 items, (2) Assigning priorities
to identified items, (3) Assessing the Year 2000 compliance of items
determined to be material to the Company, (4) Repairing or replacing
material items that are determined not to be Year 2000 compliant, (5)
Testing material items and (6) Designing and implementing contingency
and business continuation plans for each organization and company
location.
Systems Evaluation
At September 30, 1998, allAll internal systems have been identified, inventoried, prioritized and
assessed for Year 2000 compliance. Systems found to be totally non-compliant
were replaced the remainingand compliant systems were foundassessed to be in compliance.determine what if
any maintenance is required to keep them compliant. Plans are beinghave been
developed to ensure that staff areis available to oversee restarting
certain machines and manually adjusting their dates.
Software Evaluation
At September 30, 1998, allAll software material to the Company has been identified, evaluated, and
placed into one of three categories: (1)
Found to beis now in full compliance and certified as such by vendors (2)
Identified as requiring update or (3) Identified as requiring
replacement with compliant software. Those in the latter categorynew software
has been purchased.
Third-Party Suppliers
Third-party suppliers have been included in the current budget.
Third-Party Suppliers
This phase of theidentified and reviewed to determine
whether their products and supplies are Year 2000 Plancompliant. Any
provider identified as non-compliant has been or will be completed by the end of the 2nd
Quarter of fiscal 1999. These third-party suppliers are in the process
of implementing their own plansreplaced with
an expected completion date of
1999. If anyalternative provider is not successfully compliant, the Company will
evaluate selecting alternative providers at that time.if they cannot serve our needs.
Facility Systems
TheAll facility systems review is complete. All systems are believed to be Year 2000 compliant including
telephone, fire alarm, security elevator and network components.
Products
The Company has evaluated both current product offerings and products in
the field to determine their ability to comply with Year 2000 issues.
The products were found to befall into three categories, non-compliant,
compliant if modifications are made and fully compliant or not impacted
(that is, the product does not have a computer or contains an embedded
computer but does not use a date function). All products currently sold
by the Company are fully Year 2000 compliant. The Company has produced
and made available for sale, upgrades to products requiring
modifications to be Year 2000 compliant. Those products identified as
non-compliant are products that have been in the field that are not Year 2000 compliant, cannot be modifiedfor a number of
years and must be replaced. Products which can be modified will have upgrades
available for sale during fiscal 1999.replaced by the customer.
Contingency Plans
This phaseIn the event the Company's Year 2000 plan is currently being developed. Contingencyineffective or
unanticipated problems arise, the Company has developed contingency
plans should bewhich are now in place by the endplace. The plans include use of the 2nd Quarter of fiscal 1999.hard copy data
and alternate suppliers.
Costs
The total cost associated with required modifications to become Year
2000 compliant is not expected to be material to the Company's financial
position. The estimated total cost of the Year 2000 project iswas
approximately $120 thousand, which includesincluded software, hardware and
cabling upgrade and replacement costs. This estimate does not include
the Company's potential share of Year 2000 costs that may be incurred by
joint ventures, in which the company participates but is not the
operator. The total amount expended on the Plan through September 30,
19981999 was $34$124 thousand for the upgrade and replacement of hardware.
Risks
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the
Company's results of operations, liquidity and financial condition. Due
to the general uncertainty inherent in the Year 2000 problem, resulting
in part from the uncertainty of the Year 2000 readiness of third-party
suppliers and customers, the Company is unable to determine at this time
whether the consequences of Year 2000 failures will have a material
impact on the Company's results of operations, liquidity or financial
condition. The Year 2000 Plan is expected to significantly reduce the
Company's level of uncertainty about the Year 2000 problem and, in
particular, about the Year 2000 compliance and readiness of its material
customers. The Company believes that, with the implementation and
completion of theits Year 2000 Plan, as scheduled, the
possibility of significant interruptions of normal operations should be
reduced.
Forward Looking Statements
Statements in this Form 10-K or in documents incorporated herein by
reference that are not statements of historical factfacts or information constitute
"forward-
looking"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, including, statements regarding future
revenues, expenses and profits. Thesebut not limited to, the
information set forth herein. Such forward looking statements are
subject toinvolve
known and unknown risks, uncertainties or other factors thatwhich may cause
the actual results, levels of theactivity, performance or achievement of
Company or industry results to be materially different from the historicalany future
results, levels of activity, performance or from any resultsachievement expressed or
implied by the forward lookingsuch forward-looking statements. Such risks and factors include, but are
not limitedamong
others, the following: general economic and business conditions; the
ability of the Company to thoseimplement 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.
ITEM 8: FINANCIAL STATEMENTS
The financial statements filed herewith are set forth on the Index to
Consolidated Financial Statements on Page F-1 of the separate financial
section which follows page 3329 of this report and are incorporated herein
by reference.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the caption "Executive Officers" in Item 1
of this Form 10-K Report, and the information which will be set forth in
the section entitled "Election of Directors", and under the captions
"Security Ownership of Certain Beneficial Owners" and "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" in the section
entitled "Additional Information", in the definitive Proxy Statement to be
filed by the registrant, pursuant to Regulation 14A, for its Annual
Meeting of Shareholders to be held on March 18, 199916, 2000 (the "1999"2000 Proxy
Statement"), is incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
The information which will be set forth under the captions "Executive
Compensation", "Compensation Committee Report", "Compensation Committee
Interlocks and Insider Participation", "Employment Agreements", and
"Directors Compensation", in the section entitled "Additional Information"
in the registrant's 19992000 Proxy Statement, is incorporated herein by
reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information which will be set forth under the captions "Security
Ownership of Certain Beneficial Owners" and "Security Ownership of
Management" in the section entitled "Additional Information" in the
registrant's 19992000 Proxy Statement, is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information which will be set forth under the caption "Certain
Information Regarding Nominees" in the section entitled "Election of
Directors", and under the captions "Directors Compensation", "Security
Ownership of Certain Beneficial Owners", and "Certain Relationships and
Related Transactions", in the section entitled "Additional Information",
in the registrant's 19992000 Proxy Statement is incorporated herein by
reference.
reference.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON
FORM 8-K
(a) (1) The financial statements filed herewith are set forth on the
Index to Consolidated Financial Statements on page F-1 of the separate
financial section which accompanies this Report, which is incorporated
herein by reference.
The following exhibits are filed as part of this Report:
Exhibit
Number Description
2.1 Purchase Agreement, dated as of November 23,
1994, among the Registrant, ProQuip Inc. and
Phase Metrics.(7)
3.1 Certificate of Incorporation of the registrant,
as amended.(1)amended and restated. (6)
3.2 By-Laws of the registrant, as amended.
4.1 Certificate of Amendment of the Certificate
of Incorporation of the registrant, filed
on March 6, 1986 (setting forth the provisions
of the Certificate of Incorporation, as amended,
relating to the authorized shares of the
registrant's Common Stock) - included in
the copy of the registrant's Certificate of
Incorporation, as amended, filed as Exhibit 3.1
hereto.
4.20 Loan Agreement, dated as of June 1, 1987,
between the registrant and Chase Lincoln
First Bank, N.A. ("Chase Lincoln"), relating to
a $20,000,000 term loan to finance the registrant's
acquisition of United Telecontrol Electronics, Inc.
(the "UTE Loan Agreement").(1)
4.21 First Amendment to Loan Agreement, dated as
of September 30, 1988, amending certain
provisions of the UTE Loan Agreement.(1)
4.22 Second Amendment to Loan Agreement, dated as of
February 21, 1990, amending certain provisions
of the UTE Loan Agreement.(1)
4.24 Third Amendment to Loan Agreement, dated as
of January 1, 1991, amending certain
provisions of the UTE Loan Agreement.(2)
4.25 Form of Note, in the amount of $9,181,700, executed
by the registrant on January 1, 1991 to evidence its
indebtedness under the UTE Loan Agreement.(2)
4.26 Form of Note, in the amount of $2,000,000,
executed by the registrant on January 1, 1991
to evidence its indebtedness under the UTE
Loan Agreement.(2)
4.27 Form of Note, in the amount of $1,000,000,
executed by the registrant on January 1, 1991
to evidence its indebtedness under the UTE
Loan Agreement.(2)
4.28 Mortgage, dated January 31, 1991, executed
by the registrant in favor of Chase Lincoln
and securing the registrant's obligation to
Chase Lincoln, including those under the
UTE and ProQuip Loan Agreements.(2)
4.30 Loan Agreement, dated as of September 30, 1998
between the registrant and Chase Lincoln relating
to an $8,000,000 term loan to finance the
registrant's acquisition of ProQuip, Inc. (the
"ProQuip Loan Agreement").(1)
4.31 Negative Pledge Agreement, dated as of
September 30, 1988, executed by the registrant
in favor of Chase Lincoln in connection with
the ProQuip Loan Agreement.(1)
4.32 Security Agreement, dated as of September 30, 1988,
executed by the registrant in favor of Chase
Lincoln and securing the registrant's obligations
to Chase Lincoln, including those under the UTE
and ProQuip Loan Agreements (the "Chase Lincoln
Security Agreement").(1)
4.33 First Amendment to Loan Agreement, dated as
of February 21, 1990, amending certain provisions
of the ProQuip Loan Agreement.(1)
4.34 Form of Note, in the amount of $3,375,817.80,
executed by the registrant on February 21, 1990
to evidence its indebtedness under the ProQuip
Loan Agreement.(1)
4.35 Amendment Number One to Security Agreement,
executed by the registrant on February 21, 1990,
amending the Chase Lincoln Security Agreement.(1)
4.36 Mortgage, dated February 21, 1990, executed
by the registrant in favor of Chase Lincoln
and securing the registrant's obligations
to Chase Lincoln, including those under the
UTE and ProQuip Loan Agreements.(1)
4.37 Second Amendment to Loan Agreement, dated
as of January 1, 1991, amending certain
provisions of the ProQuip Loan Agreement. (2)
4.38 Mortgage Modification and Allocation Agreement,
dated January 1, 1991, executed by the registrant
and Chase Lincoln.(2)
4.40 Form of Payment Guaranty, dated as of
September 1, 1988 [as of September 30, 1988,
in the case of ProQuip, Inc.], executed by the
subsidiaries of the registrant in favor of Chase
Lincoln and guaranteeing payment of the
registrant's obligations to Chase Lincoln,
including those under the UTE and ProQuip Loan
Agreements.(1)
4.41 Form of Negative Pledge Agreement, dated as
of September 30, 1988, executed by the
subsidiaries of the registrant in favor of
Chase Lincoln in connection with the
ProQuip Loan Agreement.(1)
4.42 Form of Security Agreement, dated as of
September 30, 1988, executed by the
subsidiaries of the registrant in favor of
Chase Lincoln and securing the registrant's
obligations to Chase Lincoln, including those
under the UTE and ProQuip Loan Agreements.(1)
4.43 Acknowledgment, Confirmation and Further
Agreement, made as of February 21, 1990,
executed by the subsidiaries of the registrant
in favor of Chase Lincoln with respect to the
registrant's obligations under the UTE and
ProQuip Loan Agreements.(1)
4.50 Debt Restructure Agreement, made as of
February 21, 1990, between the registrant,
Chase Lincoln, and Manufacturers Hanover Trust
Company ("Manufacturers Hanover"), providing for
a restructuring of the registrant's indebtedness
to Chase Lincoln under the UTE and ProQuip Loan
Agreements and of the registrant's outstanding
indebtedness to Manufacturers Hanover (the
"MHTCo. Existing Debt"), among other things.(1)
4.55 Second Amendment to Debt Restructure Agreement,
made as of January 1, 1991, between the registrant,
Chase Lincoln, and Manufacturers Hanover, amending
certain provisions of the Debt Restructure
Agreement.(2)
4.56 Second Debt Restructure Agreement, as of
July 22, 1992, between the registrant,
Chase Lincoln First Bank, N. A. ("CLFB"),
and Chemical Bank ("Chemical"), as successor in
interest to Manufacturers Hanover Trust Company,
providing for a restructuring of the registrant's
indebtedness to CLFB under the UTE and ProQuip
Loan Agreements and of the registrant's outstanding
indebtedness to Chemical, among other things.(3)
4.63 Promissory Note, in the amount of $4,000,000
and dated July 22, 1992, executed by the registrant
to evidence its indebtedness to Chemical from
time to time with respect to a line of credit
in such amount (The Chemical Line of Credit).(3)
4.64 Form of Payment Guaranty, dated as of July
24, 1992, executed by Masco Corporation in
favor of Chemical and guaranteeing payment
of the registrant's obligations to Chemical
under the Chemical Line of Credit.(3)
4.65 Promissory Note, in the amount of
$4,000,000 and dated October 31, 1994,
extending the maturity date of the
Promissory note dated July 22, 1992,
executed by the registrant to evidence its
indebtedness to Chemical under The Chemical
Line of Credit.(8)
4.66 Promissory Note, in the amount of $4,000,000
and dated October 31, 1995, extending the
maturity date of the Promissory note dated
October 31, 1994, executed by the registrant to
evidence its indebtedness to Chemical under The
Chemical Line of Credit.(9)
4.67 Form of Payment Guaranty, dated October 31,
1995 executed by Masco Corporation in favor of
Chemical and guaranteeing payment of the
registrant's obligations to Chemical under the
Chemical Line of Credit.(9)
4.80 Amended and Restated Loan Agreement, dated
as of July 22, 1992, between the registrant
and Chase Lincoln First Bank, N.A., which
amends, restates, combines, and supersedes
in full the UTE and the ProQuip loan
agreements.(3)
4.81 Form of Note, in the amount of $5,000,000,
executed by the registrant on July 24, 1992
to evidence its indebtedness to CLFB under
the July 22, 1992 Loan Agreement.(3)
4.82 Form of Note, in the amount of $7,984,770,
executed by the registrant on July 24, 1992
to evidence its indebtedness to CLFB under
the July 22, 1992 Loan Agreement.(3)
4.83 Additional Mortgage Note, dated July 24,
1992, executed by the registrant in favor
of CLFB and securing the registrant's
obligation to CLFB under the Loan Agreement.(3)
4.84 Additional Mortgage and Security Agreement,
dated as of July 22, 1992, executed by the
registrant in favor of CLFB and securing
the registrant's obligations to CLFB.(3)
4.85 Mortgage Consolidation, Spreader, Modification
Extension and Security Agreement, dated July
22, 1992, executed by the registrant and
CLFB.(3)
4.86 Confirmation of Guaranties and Security
Agreements, dated July 22, 1992, executed
by subsidiaries of the registrant in favor
of CLFB with respect to the registrant's
obligations to CLFB.(3)
4.87 Consent and waiver, dated December 21, 1993,
from CLFB to the registrant with respect to the
Amended and Restated Loan Agreement.(5)
4.88 Amendment One to Amended and Restated Loan
Agreement, dated as of August 1, 1994, between
the registrant and Chase Manhattan Bank, N. A.
which amends the Amended and Restated Loan
Agreement to defer the payment due on June 30,
1994.restated. (6)
4.89 Amendment Two to Amended and Restated Loan
Agreement with waiver, dated as of November
22,1994, between the registrant and Chase
Manhattan Bank, N. A. which amends the Amended
and Restated Loan Agreement and waives any
existing defaults.(8)
4.90 Additional Mortgage and Security Consolidation
Agreement, dated as of October 6, 1995 executed
by the registrant in favor of Chase Manhattan
Bank, N.A. and securing the registrant's
obligations to Chase Manhattan Bank, N.A.(9)
4.91 Form of Note, in the amount of $340,000,executed
by the registrant on October 6, 1995 to evidence
its indebtedness to Chase Manhattan Bank, N.A.
under the July 22, 1992 Loan Agreement.(9)
4.92 Amendment Three to Amended and Restated Loan
Agreement with waiver, dated as of November
30,1995, between the registrant and Chase
Manhattan Bank, N. A. which amends the Amended
and Restated Loan Agreement and waives any
existing defaults.(9)
4.93 Credit Agreement dated as of September 22, 1998
among Mechanical Technology Incorporated and
KeyBank National Association ("KeyBank"). (8)
4.94 Security Agreement, dated as of September 22,
1998, executed by the registrant in favor of
KeyBank and securing the registrant's
obligations to KeyBank. (8)
4.95 Security Agreement, dated as of September 22,
1998, executed by Ling Electronics, Inc. (a
wholly-ownedwholly owned subsidiary of the registrant) in
favor of KeyBank and securing the registrant's
obligations to KeyBank. (8)
4.96 Guaranty of Payment and Performance, dated as of
September 22, 1998, executed by Ling
Electronics, Inc. (a wholly-owned subsidiary of
the registrant) in favor of KeyBank and
guaranteeing payment of the registrant's
obligations to KeyBank. (8)
4.103 Assignment and Assumption Agreement, dated as of
July 1, 1999, by and among Town of Colonie
Industrial Development Agency, the registrant,
Plug Power, LLC, KeyBank National Association
and First Albany Corporation in connection with
the sale of the MTI facility to Plug Power and
the assignment and assumption of rights and
obligations in connection with the Industrial
Development Revenue Bonds (Letter of Credit
Secured) Series 1998 A in the original
aggregate amount of $6,000,000. (10)
4.104 Credit Agreement, dated as of November 1, 1999,
between the registrant and KeyBank National
Association for a $22.5 million term loan to
finance a capital contribution to Plug Power,
LLC. (11)
4.105 Stock Pledge Agreement, dated as of November 1,
1999, by the registrant with KeyBank National
Association pledging 13,704,315 shares of Plug
Power stock in support of the $22.5 million
credit agreement. (11)
10.1 Mechanical Technology Incorporated Restricted
Stock Incentive Plan-filedPlan. Filed as Exhibit 28.1 to
the registrant's Form S-8 Registration
Statement No. 33-26326 and incorporated herein
by reference. 10.3 MTI Employee 1982 Stock Option Plan.(1)
10.4 Agreement, dated December 21, 1993, between
UTE, First Commercial Credit Corporation
("FCCC") and the registrant, relating to an
advance against certain receivables.(5)
10.6 Agreement, dated June 2, 1993, between the
registrant and Mr. Harry Apkarian, Director,
regarding his employment.(5)
10.7 Agreement, dated February 22, 1994, between
the registrant and Mr. R. Wayne Diesel,
President and Chief Executive Officer,
regarding his employment.(8)
10.8 Agreement, dated December 14, 1994, between
FCCC and the registrant, modifying the Agreement
dated December 21, 1993 relating to an
advance against certain receivables.(8)
10.9 Agreement, dated May 30, 1995, between FCCC
and the registrant, extending the maturity of
the Agreement dated December 14, 1994 relating
to an advance against certain receivables.(9)
10.10 Agreement, dated June 28, 1995, between FCCC
and the registrant, extending the maturity of
the Agreement dated December 14, 1994 relating
to an advance against certain receivables.(9)
10.11 Agreement, dated September 21,1995, between FCCC
and the registrant, extending the maturity of
the Agreement dated December 14,1994 relating to
an advance against certain receivables.(9)
10.12 Agreement, dated October 25, 1995, between FCCC
and the registrant, extending the maturity of
the Agreement dated December 14, 1994 relating
to an advance against certain receivables.(9)
10.13 Agreement, dated December 27, 1995, between
FCCC and the registrant, extending the maturity
of the Agreement dated December 14, 1994
relating to an advance against certain
receivables.(9)
10.14 Mechanical Technology Incorporated Stock
Incentive Plan - included as Appendix A to the
registrant's Proxy Statement, filed pursuant to
Regulation 14A, for its December 20, 1996
Special Meeting of Shareholders and
incorporated herein by reference. (10)
10.15 Agreement, dated December 6, 1996, between
the registrant and Mr. Martin J. Mastroianni,
President and Chief Operating Officer,
regarding his employment. (10)
10.16 Settlement Agreement and Release, dated as of
December 27, 1996, between First Albany
Companies Inc. and the registrant, with respect
to the registrant's indebtedness and
obligations under the Agreement dated December
14, 1994 between FCCC and the registrant
relating to an advance against certain receivables. (10)(2)
10.17 Agreement, dated March 14, 1997,1998, between the
Registrant and Mr. James Clemens, Vice President
and General Manager of Ling Electronic, Inc.,
regarding his employment. (11)(3)
10.18 Limited Liability Company Agreement of Plug
Power, L.L.C., dated June 27, 1997,1998, between
Edison Development Corporation and Mechanical
Technology, Incorporated. (12)(13)(4)(5)
10.19 Contribution Agreement, dated June 27, 1997,1998,
between Mechanical Technology, Incorporated and
Plug Power, L.L.C. (12)(13)(4)(5)
10.20 Asset Purchase Agreement, dated as of September
22, 1997,1998, between Mechanical Technology,
Incorporated and Noonan Machine Company. (12)(4)
10.21 Asset Purchase Agreement between MTI and NYFM,
Incorporated, dated as of March 31, 1998. (14)
10.22 Option Agreement-Contribution Match between Plug
Power, L.L.C. and MTI, dated as of April 24,
1998. (14)
10.23 Option Agreement-Contribution Match between Plug
Power, L.L.C. and MTI, dated as of June 15,
1998. (14)(7)
10.24 Contribution Agreement between Edison Development
Corporation and MTI, dated as of June 10, 1998.
(14)
10.25 Form(7)
10.30 Mechanical Technology Incorporated 1999 Employee
Stock Incentive Plan. (9)
10.31 Agreement of NoticeSale, dated June 23, 1999, by and
between the registrant and Plug Power, LLC for
the sale of Guaranteed Delivery for
Subscription Certificate. (14)
10.26 Form of Americanthe MTI campus and adjacent
residence. (10)
10.32 Stock Transfer & Trust Co.
Agency Agreement. (14)
10.27 Form of Instructions for Subscription
Certificate. (14)
10.28Purchase Agreement, dated October 21,
1999, between the registrant, Ling Electronics,
Inc., Ling Electronics, Ltd. and SatCon
Technology Corporation.
10.33 Securities Purchase Agreement, dated October 21,
1999, between the registrant and SatCon
Technology Corporation.
10.34 Mechanical Technology Incorporated Registration
Rights Agreement, dated October 21, 1999, between
the registrant and SatCon Technology Corporation.
10.35 SatCon Technology Corporation Registration
Rights Agreement, dated October 21, 1999, between
SatCon Technology Corporation and the registrant.
10.36 Mechanical Technology Incorporated Stock
Purchase Warrant dated October 21, 1999.
10.37 SatCon Technology Corporation Stock Purchase
Warrant dated October 21, 1999.
10.38 Lease dated August 10, 1999 between Carl E.
Touhey and Mechanical Technology, Inc.
10.39 Registration Rights Agreement, dated November
1, 1999 by and Malone & Tate Builders, Inc. for Building 1
Construction. (15)
10.29 Mechanical Technology, Incorporated/among Plug Power L.L.C. Lease for Building III. (15)Inc. and the
registrant.
10.40 Plug Power Inc. Lock-Up Agreement, dated
November 1, 1999.
21 Subsidiaries of the registrant.
27 Financial Data Schedule
______________________
Certain exhibits were previously filed (as indicated below) and are
incorporated herein by reference. All other exhibits for which no
other filing information is given are filed herewith:
(1) Filed as an Exhibit (bearing the same exhibit number)28.1 to the registrant's Form 10-K Report, as amended, for its fiscal year ended
September 30, 1989.
(2) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-Q Report for its fiscal quarter endedS-8 Registration
Statement No. 33-26326, filed December 29, 1990.
(3) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-Q Report for its fiscal quarter ended June 27,
1992.
(4)1988, and incorporated
herein by reference.
(2) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-K Report for its fiscal year ended September
30, 1991.
(5) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-K Report for its fiscal year ended September 30,
1993.
(6) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-Q Report for its fiscal quarter ended July 2,
1994.
(7) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 8-K Report dated November 23, 1994.
(8) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-K Report for its fiscal year ended September 30,
1994.
(9) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-K Report for its fiscal year ended September 30,
1995.
(10) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-K Report for its fiscal year ended September
30, 1996.
(11)(3) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 8-K Report dated May 12, 1997.
(12)(4) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-K Report for the fiscal year ended September
30,1997.
(13)(5) Refiled herewith after confidential treatment request with
respect to certain schedules and exhibits waswere denied by the
Commission. Confidential treatment with respect to certain
schedules and exhibits was granted.
(14)(6) Filed as an Exhibit to the Proxy Statement, Schedule 14A,
dated March 9, 1998.
(7) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form S-2 dated August 18, 1998.
(15)(8) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-K Report onfor the fiscal year ended September
30, 1998.
(9) Filed as an Exhibit to the registrant's Proxy Statement,
Schedule 14A, dated February 12, 1999.
(10) Filed as an Exhibit (bearing the same exhibit number) to the
registrant's Form 10-Q Report for the periodits fiscal quarter ended June
26,
1998.25, 1999.
(11) Filed as an Exhibit to the registrant's 13D Report dated
November 4, 1999.
(a) (2) Schedule. The following consolidated financial statement
schedule for each of the three years in the period ended September 30,
19981999 is included pursuant to Item 14(d):
Report of Independent Accountants on Financial Statements
Schedule
Schedule II--Valuation and Qualifying Accounts
(a) (3) One report
(b) Two reports on Form 8-K waswere filed during the quarter endingended
September 30, 1998.1999 and three reports were filed subsequent to the
quarter ended September 30, 1999.
The Company filed a Form 8-K Report, dated September 10, 1998,July 2, 1999, reporting
under item 5 thereof its intention to release 125,000 shares for the
Rights Offering over-subscription and pre-releasing preliminary third
quarter 1999 results.
The Company filed a Form 8-K Report, dated August 30, 1999, reporting
under item 5 thereof that the Company's fuel cell affiliate, Plug
Power, LLC's (a joint venture
between MTIfiled a registration statement with the Securities and
DTE)Exchange Commission, in connection with the initial public offering
of its preliminary approvalcommon stock. If the public offering price is greater than
$7.50 per share, the Company has agreed to purchase 3 million shares
of Plug Power stock at the fixed price of $7.50 per share, pursuant
to the Mandatory Capital Contribution Agreement dated as of January
26, 1999.
The Company filed a Form 8-K Report, dated October 4, 1999, reporting
under item 5 thereof that Plug Power filed an amendment to its
registration statement with the Securities and Exchange Commission
stating that shares of Plug Power would be offered at an estimated
price range of $13 to $15 per share. On September 30, 1999, the
Company purchased 266,667 shares of Plug Power at $7.50 per share
thereby reducing the Company's commitment to purchase shares at the
public offering from 3 million to 2,733,333 shares.
The Company filed a Form 8-K Report, dated October 22, 1999,
reporting under item 5 thereof the creation of a strategic alliance
with SatCon Technology Corporation. SatCon acquired Ling
Electronics, Inc. and Ling Electronics, Ltd. from the Company and the
Company will invest approximately $7,000,000 in SatCon. In
consideration for the acquisition of Ling Electronics and the
Company's investment, the Company will receive 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 immediately funded
$2,570,000 of its Boardinvestment in SatCon and will make the remaining
investment by the end of Managers concerning its understanding with GEJanuary 2000. SatCon will also receive
warrants to purchase 100,000 shares of the Company's common stock.
The Company filed a Form 8-K Report, dated November 16, 1999,
reporting under item 5 thereof that on November 8, 1999 Plug Power
Systems,received correspondence from counsel to brand, marketDCT, Inc., alleging , among
other things, that the Company misappropriated from DCT, Inc.
business and distributetechnical trade secrets, ideas, know-how and strategies
relating to fuel cell systems, and that certain contractual
obligations owed to DCT, Inc. were breached.
(d) Separate financial statements for Plug Power, Inc., a less than fifty
percent owned entity, will be filed as an amendment to this Form 10-K as
soon as they become available. Plug Power's residential fuel cells
through a joint venture marketing subsidiary.fiscal year ends December 31,
1999 and their financial statements should be available by March 30, 1999,
the SEC filing deadline for their Report on Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: December 16, 199828,1999 By: /s/ G.C. McNamee
George C. McNamee
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ George C. McNamee Chief Executive Officer and
George C. McNamee Chairman of the Board of
Directors 12/16/98December 28, 1999
/s/ Cynthia A. Scheuer Chief Financial Officer
Cynthia A. Scheuer (Principal Financial and
Accounting Officer) "
/s/ Dale W. Church Director "
Dale W. Church
/s/ Edward A. Dohring Director "
Edward A. Dohring
/s/ Alan P. Goldberg Director "
Alan P. Goldberg
/s/ E. Dennis O'Connor Director "
E. Dennis O'Connor
/s/ Walter L. Robb Director "
Dr. Walter L. Robb
/s/ Beno Sternlicht Director "
Dr. Beno Sternlicht
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Shareholders
of Mechanical Technology Incorporated
Our audits of the consolidated financial statements referred to in our
report dated November 6, 199812, 1999 appearing on page F-2 of this Form 10-K
of Mechanical Technology Incorporated also included an audit of the
financial statement schedule listed in Item 14(a)(2) of this Form 10-K.
In our opinion, this financial statement schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers L.L.P.
Albany, New York
November 6, 199812, 1999
SCHEDULE II
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
Additions
Balance at Charged to Charged Balance
beginning costs and to other at end of
Description of period expenses accounts Deductions period
Allowance for
doubtful accounts
Year ended
September 30:
19981999 $ 9499 $ 9576 $ - $ 62 $ 113
1998 94 95 - 90 $ 99
1997 73 49 - 28 94
1996 58 26 - 11 73
Valuation allowance
for deferred tax assets
Year ended
September 30:
1998 $ 2,754 $ 1,335 $ - $ - $ 4,089
1997 4,264 - - 1,510 2,754
1996 5,565 - - 1,301 4,264
Includes accounts written off as uncollectible, recoveries and the effect
of currency exchange rates.
Valuation allowance
for deferred tax assets
Year ended
September 30:
1999 $ 4,089 $ 5,092 $ - $ 5,431 $ 3,750
1998 2,754 1,335 - - 4,089
1997 4,264 - - 1,510 2,754
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Accountants. . . . . . . . . . . F-2
Consolidated Financial Statements:
Balance Sheets as of September 30, 19981999 and 19971998 . . F-3 & F-4
Statements of Operations for the Years Ended
September 30, 1999, 1998 1997 and 19961997 . . . . . . . . F-5
Statements of Shareholders' Equity for the Years Ended
September 30, 1999, 1998 1997 and 19961997 . . . . . . . . F-6
Statements of Cash Flows for the Years Ended
September 30, 1999, 1998 1997 and 19961997 . . . . . . . .F-7. F-7 - F-8
Notes to Consolidated Financial Statements . . . . . F-9 - F-29F-35
Separate financial statements of the registrant alone are omitted because
the registrant is primarily an operating company and all subsidiaries
included in the consolidated financial statements being filed, in the
aggregate, do not have minority equity interest and/or indebtedness to
any person other than the registrant or its consolidated subsidiaries in
amounts which together exceed 5% of the total assets as shown by the most
recent year-end consolidated balance sheet.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Mechanical Technology Incorporated
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and retained earnings and
of cash flows present fairly, in all material respects, the financial
position of Mechanical Technology Incorporated and Subsidiaries at
September 30, 19981999 and 1997,1998, and the results of their operations and
their cash flows for each of the three years in the period ended
September 30, 1998,1999, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits
of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
/s/PricewaterhouseCoopers L.L.P.
Albany, New York
November 6, 199812, 1999
F-2
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 19981999 and 19971998
(Dollars in thousands)
Restated1999 1998 1997
------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,870 $ 5,567
$ 1,421Investments in marketable securities 7,876 -
Accounts receivable, less allowance of
$113 (1999) and $99 (1998) and $94 (1997)3,852 4,959
4,482
AccountsOther receivables - related parties 105 87
Inventories 3,752 3,748
Taxes receivable - Joint Venture 87 -
Inventories 3,748 3,386
Taxes receivable10 8
Note receivable - current 329 327 315
Prepaid expenses and other current assets 265 472 102
Net assets of a discontinued operation - 8
3,186
------- --------______ ______
Total Current Assets 22,059 15,176 12,892
Property, Plant and Equipment, net 827 4,467 749
Note receivable - noncurrent 184 264 335
Investment in Joint VenturePlug Power 8,710 1,221
27
------- --------_______ ________
Total Assets $21,128 $ 14,00331,780 $ 21,128
======= ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
September 30, 19981999 and 19971998
(Dollars in thousands)
Restated1999 1998 1997
------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Income taxes payable $ 5- $ 735
Accounts payable 614 2,064 1,389
Accrued liabilities 2,243 3,328
3,734
Contribution payable-Joint Venturepayable-Plug Power - 4,000
Net liabilities of discontinued operations 540 -
_______ _______
Total Current Liabilities 3,397 9,397 5,196
LONG-TERM LIABILITIES
Deferred income taxes and other credits 597 607
594
------- --------_______ _______
Total Liabilities $10,004 $ 5,790
------- --------3,994 $ 10,004
_______ _______
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share,
authorized 15,000,000; issued
7,182,645 (1998)11,649,959 (1999) and 5,908,661 (1997) 7,183 5,90910,773,968(1998) 11,649 10,775
Paid-in capital 19,866 13,92342,755 16,274
Deficit (26,573) (15,885)
(11,569)
------- --------_______ _______
27,831 11,164
8,263Accumulated Other Comprehensive Loss:
Unrealized loss on available for sale
securities, net (5) -
Foreign currency translation adjustment (11) (19)(11)
_______ _______
Accumulated Other Comprehensive Loss (16) (11)
Common stock in treasury, at cost,
3,0006,750 shares (1998(1999) and
1997)4,500 shares (1998) (29) (29)
Restricted stock grants - (2)
------- --------_______ _______
Total Shareholders' Equity 27,786 11,124 8,213
------- --------
Total Liabilities and Shareholder's Equity $21,128 $ 14,00331,780 $ 21,128
======= ===============
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended September 30, 1999, 1998 1997 and 19961997
(Dollars in thousands, except per share)
Restated
Restated1999 1998 1997
1996
------- -------- --------
Net sales $21,028$ 12,885 $ 21,028 $ 24,102 $ 22,755
Cost of sales 8,239 12,386 14,474
13,925
------- -------- --------_______ _______ _______
Gross profit 4,646 8,642 9,628 8,830
Selling, general and administrative
expenses 4,949 5,812 7,015 7,071
Product development and research costs 1,105 831 1,020
690
------- -------- --------_______ _______ _______
Operating (loss) income (1,408) 1,999 1,593
1,069
Interest expense (106) (102) (323) (790)
Gain on sale of division
/subsidiarydivision/subsidiary - - 2,012
750
Equity in joint venture losslosses of Plug Power (9,363) (3,806) (330)
-
Other (expense)income,income(expense), net 185 (97) (251)
(356)
------- -------- --------_______ _______ _______
(Loss)Incomeincome from continuing operations
before extraordinary item and income
taxes (10,692) (2,006) 2,701 673
Income tax expense 37 25 143
75
------- -------- --------_______ _______ _______
(Loss)Incomeincome from continuing operations
before extraordinary item (10,729) (2,031) 2,558
598
Extraordinary Item-item- gain on extinguishment
of debt, net of taxes ($106) - - 2,507
-
------- -------- --------_______ _______ _______
(Loss)Incomeincome from continuing operations (10,729) (2,031) 5,065
598
(Loss)Income Income(loss)from discontinued operations 41 (2,285) (545)
3,150
------- -------- --------_______ _______ _______
Net(loss)income $(4,316)$(10,688) $ (4,316) $ 4,520
$ 3,748
======= ======== =============== =======
Earnings (loss) per share (Basic and Diluted):
(Loss)income before extraordinary item $ (.35)(.94) $ .45(.21) $ .15.28
Extraordinary Itemitem - .44 - .27
(Loss)income onfrom discontinued operations (.38) (.09) - ------- -------- --------
Net (Loss)(.24) (.06)
_______ _______ _______
Net(loss)income $ (.73)(.94) $ .80(.45) $ .15.49
======= ======== =============== =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended September 30, 1999, 1998 1997 and 19961997
(Dollars in thousands)
Restated
Restated1999 1998 1997 1996
-------- -------- --------
COMMON STOCK
Balance, October 1
(1997 balance as previously reported) $ 5,90910,775 $ 8,864 $ 4,902
$ 3,569Three-for-two common stock split effected
in the form of a 50% stock dividend
effective April 30, 1999 - - 2,451
Issuance of shares - options 78 -56 117 -
Issuance of Shares 1,196 1,007 1,333
-------- -------- --------shares 818 1,794 1,511
_______ _______ _______
Balance, September 30 $ 7,18311,649 $ 5,90910,775 $ 4,902
======== ======== ========8,864
======= ======= =======
PAID-IN-CAPITAL
Balance, October 1
(1997 balance as previously reported) $ 13,92316,274 $ 10,968 $ 13,423
$ 12,856Three-for-two common stock split effected
in the form of a 50% stock dividend
effective April 30, 1999 - - (2,451)
Issuance of shares - options 147 -168 108 -
Issuance of shares 5,796 500 567
-------- -------- --------11,826 5,198 (4)
Plug Power investment 14,487 - -
_______ _______ _______
Balance, September 30 $ 19,86642,755 $ 13,92316,274 $ 13,423
======== ======== ========10,968
======= ======= =======
DEFICIT
Balance, October 1 $(15,885) $(11,569) $(16,089)
$(19,837)
Net(loss)income (10,688) (4,316) 4,520
3,748
-------- -------- --------_______ _______ _______
Balance, September 30 $(26,573) $(15,885) $(11,569)
$(16,089)
======== ======== =============== ======= =======
UNREALIZED LOSS ON AVAILABLE FOR SALE
SECURITIES, NET
Balance, October 1 $ - $ - $ -
Unrealized loss on available for
for sale securities, net (5) - -
_______ _______ _______
Balance, September 30 $ (5) $ - $ -
======= ======= =======
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance, October 1 $ (11) $ (19) $ (19)
$ (20)
Adjustments - 8 -
1
-------- -------- --------_______ _______ _______
Balance, September 30 $ (11) $ (19)(11) $ (19)
======== ======== =============== ======= =======
TREASURY STOCK
Balance, October 1 $ (29) $ (29) $ (29)
Restricted stock grants - - -
-------- -------- --------_______ _______ _______
Balance, September 30 $ (29) $ (29) $ (29)
======== ======== =============== ======= =======
RESTRICTED STOCK GRANTS
Balance, October 1 $ - $ (2) $ (24)
$ (29)
Grants issued/vested,net - 2 22
5
-------- -------- --------_______ _______ _______
Balance, September 30 $ - $ - $ (2)
$ (24)
======== ======== =============== ======= =======
SHAREHOLDERS' EQUITY
September 30 $ 27,786 $ 11,124 $ 8,213
$ (2,164)
======== ======== =============== ======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended September 30, 1998, 1997 and 1996
(Dollars in thousands)
Restated Restated
1998 1997 1996
------- -------- --------
OPERATING ACTIVITIES
(Loss)Income from continuing
operations $(2,031) $ 5,065 $ 598
Adjustments to reconcile net income
to net cash provided (used) by
continuing operations:
Depreciation and amortization 323 243 233
Gain on extinguishment of debt,
net of taxes - (2,507) -
Gain on sale of subsidiaries - (2,012) (750)
Equity in joint venture loss 3,806 330 -
Accounts receivable reserve 5 21 15
Loss on sale of fixed assets 9 - -
Deferred income taxes and other credits 13 (170) (15)
Other - 31 29
Changes in operating assets and liabilities net
of effects from discontinued operations:
Accounts receivable (1,069) (44) (1,635)
Inventories (362) 228 (664)
Escrow deposit - - 750
Prepaid expenses and other current
assets (374) (18) 240
Accounts payable 788 (87) 97
Income taxes (76) (49) 4
Accrued liabilities (519) 58 1,049
------- -------- --------
Net cash provided (used) by
continuing operations 513 1,089 (49)
------- -------- --------
Discontinued Operations:
(Loss)/Income from discontinued
operations (2,285) (574) 3,150
Adjustments to reconcile income to net cash
provided (used) by discontinued operations:
Changes in net assets/liabilities
of discontinued operations 3,178 31 (1,598)
Net assets transferred from
discontinued operations (878) - -
------- -------- --------
Net cash provided (used) by discontinued
operations 15 (543) 1,552
------- -------- --------
Net cash provided by operations 528 546 1,503
------- -------- --------
INVESTING ACTIVITIES
Purchases of property, plant &
equipment (3,166) (377) (170)
Proceeds from sale of subsidiaries - 2,600 750
Principal payments from note receivable 59 - -
Note receivable Plug Power (500) - -
------- -------- --------
Net cash (used)provided by investing
activities (3,607) 2,223 580
------- -------- --------
FINANCING ACTIVITIES
Private placement of common stock,
net expenses - - 1,900
Proceeds from options exercised 225 - -
Proceeds from rights offering 7,178 - -
Costs of rights offering (186) - -
Net (payments) under line-of-credit
and note agreement - (100) (3,308)
Principal payments on long-term debt - (1,310) (688)
------- -------- --------
Net cash provided(used)by financing
activities 7,217 (1,410) (2,096)
------- -------- --------
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended September 30, 1999, 1998 and 1997
(Dollars in thousands)
Restated
1999 1998 1997
OPERATING ACTIVITIES
(Loss)income from continuing operations $ (10,729) $ (2,031) $ 5,065
Adjustments to reconcile net (loss) income to net cash
provided (used) by continuing operations:
Depreciation and amortization 581 323 243
Gain on extinguishment of debt, net of taxes - - (2,507)
Gain on sale of subsidiaries - - (2,012)
Unrealized loss on marketable securities (5) - -
Equity in losses of Plug Power 9,363 3,806 330
Accounts receivable reserve 14 5 21
Loss on sale of fixed assets 28 9 -
Deferred income taxes and other credits (10) 13 (170)
Other - - 31
Stock option compensation 55 - -
Changes in operating assets and liabilities net
of effects from discontinued operations:
Accounts receivable 1,093 (1,069) (44)
Accounts receivable - related parties (18) - -
Inventories (4) (362) 228
Prepaid expenses and other current assets (174) (346) (18)
Accounts payable (1,450) 788 (87)
Income taxes (7) (76) (49)
Accrued liabilities (1,085) (519) 58
________ _______ _______
Net cash (used) provided by continuing operations (2,348) 541 1,089
________ _______ _______
Discontinued Operations:
Income/(loss)from discontinued operations 41 (2,285) (574)
Adjustments to reconcile income to net cash
provided (used) by discontinued operations:
Changes in net assets/liabilities
of discontinued operations 548 3,178 31
Net assets transferred from discontinued operations - (878) -
________ _______ _______
Net cash provided (used) by discontinued operations 589 15 (543)
________ _______ _______
Net cash (used) provided by operations (1,759) 556 546
________ _______ _______
INVESTING ACTIVITIES
Purchases of property, plant & equipment (2,738) (3,166) (377)
Investment in marketable securities (7,876) - -
Proceeds from sale of subsidiaries - - 2,600
Principal payments from note receivable 78 59 -
Investment in Plug Power (6,000) - -
Note receivable Plug Power - (500) -
________ _______ _______
Net cash (used)provided by investing activities (16,536) (3,607) 2,223
________ _______ _______
FINANCING ACTIVITIES
Borrowings under IDA financing, less restricted
cash 5,858 - -
Proceeds from options exercised 153 225 -
Proceeds from rights offering 12,820 7,178 -
Costs of rights offering (158) (186) -
Debt issue costs (75) (28) -
Net (payments) under line-of-credit and note
agreement - - (100)
Principal payments on long-term debt - - (1,310)
________ _______ _______
Net cash provided(used)by financing activities 18,598 7,189 (1,410)
________ _______ _______
Effect of exchange rate changes on cash flows - 8 - 1
Increase (decrease) in cash and cash equivalents 303 4,146 1,359 (12)
Cash and cash equivalents - beginning of year 5,567 1,421 62 74
------- -------- --------
Cash and cash equivalents -
end of year $ 5,567 $ 1,421 $ 62
________ _______ _______
Cash and cash equivalents - end of year $ 5,870 $ 5,567 $ 1,421
======== ======= ======= ======== ========
The accompanying notes are an integral part of the consolidated financial statements.
F-7
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For The Years Ended September 30, 1999, 1998 1997 and 19961997
(Dollars in thousands)
Restated
Restated1999 1998 1997 1996
------- -------- --------
Supplemental Disclosures
NONCASH INVESTING ACTIVITIES
Contribution of net assets to joint venturePlug Power:
Accounts receivable $ - $ 500 $ -
$ -
Note receivable - 500 - -
Inventories - - 1 -
Property, plant and equipment, net - - 452 -
Accounts payable - - (46) -
Accrued liabilities - - (50) -
Contribution payable - Joint VenturePlug Power - 4,000 -
______ ______ ________
$ -
------- -------- -------- $ 5,000 $ 357
$ -
------- -------- --------______ ______ ________
Proceeds from sale of subsidiary
Notes receivable $ - $ - $ 650
______ ______ ________
Net noncash provided by investing activities $ -
------- -------- --------
Net noncash provided(used) in
investing activities $ 5,000 $ 1,007
$ -
------- -------- --------______ ______ ________
NONCASH FINANCING ACTIVITIES
Conversion of Note Payable to Common StockStock:
Note Payable extinguishment $ - $ (3,000)- $ -(3,000)
Common stock issued - - 1,500 -
Accrued interest - Note Payable - - (1,213)
Additional paid-in capital - ------- -------- --------Other Investors 14,487 - -
Campus contribution to Plug Power:
Debt (6,000) - -
Fixed assets 5,861 - -
Prepaid expenses 364 - -
Restricted cash 142 - -
______ ______ ________
Net noncash used inprovided (used) by
financing activities $14,854 $ - $ (2,713)
$ -
------- -------- --------______ ______ ________
Net noncash provided(used)in
investing/provided (used) by
investing and financing activities $14,854 $ 5,000 $ (1,706)
$ -
======= ============== ====== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions and
accounts have been eliminated. The Company has a 50%40.65% interest in a joint
venture.Plug
Power, L.L.C. ("Plug Power"). The consolidated financial statements
include the Company's investments in the joint venturePlug Power (including obligations to
invest), plus its share of undistributed earnings/losses. The investment is included in the
financial line "Investment in Joint Venture"Plug Power".
Use of Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Financial Instruments
The fair value of the Company's financial instruments including cash and
cash equivalents, investments, line-of-credit, note payable and long-term
debt, approximates carrying value. Fair values were estimated based on
quoted market prices, where available, or on current rates offered to the
Company for debt with similar terms and maturities.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Property, Plant, and Equipment
Property, plant and equipment are stated at cost and depreciated using
primarily the straight-line method over their estimated useful lives
ranging fromlives:
Buildings and improvements 20 to 40 years
Leasehold improvements 10 years
Machinery and equipment 2 to 10 years
Office furniture and fixtures 3 to 40 years.10 years
Significant additions or improvements extending assets' useful lives are
capitalized; normal maintenance and repair costs are expensed as
incurred. The costcosts of fully depreciated assets remaining in use are
included in the respective asset and accumulated depreciation accounts.
F-9
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Accounting Policies (continued)
When items are sold or retired, related gains or losses are included in
net income.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Accounting Policies (continued)
Income Taxes
The Company accounts for taxes in accordance with Financial Accounting
Standard No. 109, "Accounting for Income Taxes," which requires the use
of the asset and liability method of accounting for income taxes. Under
the asset and liability method, deferred income taxes are recognized for
the tax consequences of "temporary differences" by applying enacted
statutory tax rates applicable for future years to differences between
financial statement and tax bases of existing assets and liabilities.
Under FAS No. 109, the effect of tax rate changes on deferred taxes is
recognized in the income tax provision in the period that includes the
enactment date. The provision for taxes is reduced by investment and
other tax credits in the years such credits become available.
Revenue Recognition
Sales of products are recognized when products are shipped to customers.
Sales of products under long-term contracts are recognized under the
percentage-of-completion method. Percentage-of-completion is based on the
ratio of incurred costs to current estimated total costs at completion.
Total contract losses are charged to operations during the period such
losses are estimable.
Foreign Currency Translation
Assets and liabilities of the foreign subsidiary are translated at year-
end rates of exchange, and revenues and expenses are translated at the
average rates of exchange for the year. Gains or losses resulting from
the translation of the foreign subsidiary's balance sheet are accumulated
in a separate component of shareholders' equity.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid short-term
investments with maturities of less than three months.
Investments in Marketable Securities
Management determines the appropriate classification of its investments
in marketable securities at the time of purchase and reevaluates such
determinations at each balance sheet date. Marketable securities for
which the Company does not have the intent or ability to hold to
maturity are classified as available for sale along with any
F-10
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Accounting Policies (continued)
investments in mutual funds. Securities available for sale are carried
at fair value, with the unrealized gains and losses, net of income
taxes, reported as a separate component of Shareholders' Equity. The
Company has had no investments that qualify as trading or held to
maturity.
The amortized cost of debt securities is adjusted for accretion of
discounts to maturity. Such accretion as well as interest are included
in interest income. Realized gains and losses are included in Other
income (expense), net in the Consolidated Statements of Operations. The
cost of securities sold is based on the specific identification method.
The Company's investments in marketable securities are diversified among
high-credit quality securities in accordance with the Company's
investment policy.
Earnings (Loss) Per Share
Effective October 1, 1997, the Company adopted Financial Accounting
Standard No. 128, "Earnings per Share." In accordance with this
Standard, net income(loss) per share is computed using the weighted
average number of common shares outstanding during each year. Diluted
net income(loss) per share includes the effects of all potentially
dilutive securities. Earnings per share amounts for all periods
presented have been computed in accordance with this Standard.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Accounting Policies (continued)
Advertising
The costs of advertising are expensed as incurred. Advertising expense
was approximately $102, $83 $92 and $82$92 thousand in 1999, 1998, 1997, and 1996,1997,
respectively.
Asset Impairment
The Company adopted SFAS No. 121, "Accounting For The Impairment of Long-
Lived Assets and for Long-Lived Assets To Be Disposed Of." This
statement requires companies to record impairments to long-lived assets,
certain identifiable intangibles, and related goodwill when events or
changing circumstances indicate a probability that the carrying amount of
an asset may not be fully recovered. Impairment losses are recognized
when expected future cash flows are less than the asset's carrying value.
Reclassification and Restatement
Certain 19971998 and 19961997 amounts have been reclassified to conform withto the
19981999 presentation. The financial statements for 1997 and 1996 have also been
restated to reflect the discontinuance of the Company's Technology
Division (See Note 15)16).
F-11
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) Investments in Marketable Securities
The following is a summary of the investments in marketable securities
classified as current assets:
(Dollars in thousands) 1999 1998
Available for sale securities:
Corporate debt securities
Fair Value $ 7,876 $ -
====== =====
Amortized Cost $ 7,881 $ -
====== =====
Unrealized Loss $ (5) $ -
====== =====
The difference between the amortized cost of available for sale
securities and their fair market value results in unrealized gains and
losses, which are recorded as a separate component of stockholders'
equity. Gross realized gains and losses on sales of available for sale
securities were immaterial in 1999, 1998 and 1997.
The estimated fair value of available for sale securities by contractual
maturity is as follows:
(Dollars in thousands) 1999
Due in one year or less $ 4,916
Due after one year through three years -
Due after three years 2,960
______
$ 7,876
======
Expected maturities may differ from contractual maturities because the
issuers of the securities may have the right to prepay obligations
without prepayment penalties.
(3) Inventories
Inventories consist of the following:
(Dollars in thousands) 1999 1998 1997
-------- --------
Finished goods $ 11273 $ 205112
Work in process 916 791 967
Raw materials, components and
assembliesAssemblies 2,763 2,845
2,214
-------- --------______ ______
$ 3,752 $ 3,748
$ 3,386
======== ========
(3)====== ======
F-12
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Property, Plant and Equipment
Property, plant and equipment consists of the following:
(Dollars in thousands) 1999 1998 1997
-------- --------
Land and improvements $ 125- $ -125
Buildings and improvements 26 6,111 -
Leasehold improvements 470 517 568
Machinery and equipment 3,686 4,285 3,092
Office furniture and fixtures 621 866
579
-------- --------_____ ______
4,803 11,904 4,239
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) Property, Plant and Equipment (continued)
(Dollars in thousands) 1998 1997
-------- --------
Less accumulated depreciation 3,976 7,437
3,490
-------- --------_____ ______
$ 827 $ 4,467
$ 749
======== ============= ======
At the beginning of 1998, assets with a net book value of $878 thousand
consisting primarily of land, building and management information systems
were transferred from discontinued operations to continuing operations.
Construction in progress, included in buildings and improvements, was
approximately $1,371 thousand in 1998.
At the end of 1998,1999, the Company was committed to approximately $2,856$387
thousand of future expenditures for new furniture, equipment and
facilities.fixtures.
Depreciation expense was $489, $317 $216 and $194$216 thousand for 1999, 1998
1997
and 1996,1997, respectively. Repairs and maintenance expense was $166, $177
$175
and $182$175 thousand for 1999, 1998 and 1997, respectively.
Prior to the sale of all land and 1996, respectively.
Thebuildings to Plug Power in 1999, the
cost and accumulated depreciation of buildings and improvements leased
to Plug Power was:
(Dollars in thousands) 1998 1997
1996
-------- -------- --------
Cost $ 1,547 $ 21
$ -
Accumulated depreciation (660) (17)
-
-------- -------- --------______ _____
$ 887 $ 4
$ -
======== ======== ========
(4)====== =====
F-13
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Notes Receivable
Notes receivable consists of the following:
(Dollars in thousands) 1999 1998
1997
-------- --------
$250Notes receivable with an interest
rate of 10%, interest and principal
due September 30, 1998 (A) $ 250 $ 250
$400Notes receivable with an interest
rate of 10%, due in monthly installments
through September 30, 2002 263 341
400
-------- --------______ _____
513 591 650
Less: Current portion (329) (327)
(315)
-------- --------______ _____
$ 184 $ 264
$ 335
======== ========
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Notes Receivable (continued)====== =====
(A) The principal amount of this note may be reduced in accordance with
the terms of the note in the event of a sale of the fixed assets. The
purchaser has requested that the principal amount of the note be reduced
to reflect the resale value of certain assets of L.A.B. The Company is
enforcing its rights with respect to the note and is currently negotiatinglitigating
for the collection of this note.
(5)(6) Investment in Joint VenturePlug Power, L.L.C.
On June 27, 1997, the Company and Edison Development Corp. ("EDC"), a
subsidiary of DTE Energy Co. formed a joint venture, Plug Power, L.L.C.
("Plug Power"), to further develop the Company's Proton Exchange Membrane
("PEM") Fuel Cell technology. In exchange for its contribution of
contracts and intellectual property and certain other net assets that had
comprised the fuel cell research and development business activity of the
Technology segment (which assets had a net book value of $357 thousand),
the Company received a 50% interest in Plug Power. The Company's interest in Plug
Power may be reduced in certain circumstances. EDC made an initial
cash contribution of $4.75 million in exchange for the remaining 50%
interest in Plug Power. The Company's investment in Plug Power is
included in the balance sheet caption "Investment in Joint Venture"Plug Power"; the
assets contributed by the Company to Plug Power in fiscal 1997 had
previously been included in the assets of the Company's Technology
segment. See the supplemental disclosure regarding Contribution of Net
Assets to Joint VenturePlug Power in the Consolidated Statements of Cash Flows for
additional information regarding the assets contributed by the Company to
Plug Power. The Company recorded the carrying value of the net assets
contributed as its initial investment in Plug Power in recognition of the
nature of the venture's undertaking.
F-14
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Investment in Plug Power, L.L.C. (continued)
On April 15, 1998, EDC contributed $2.25 million in cash to Plug Power.
The Company contributed a below-market lease for office and manufacturing
facilities in Latham, New York valued at $2 million and purchased a one-
year option to match the remaining $250 thousand of EDC's contribution.
In May 1998, EDC contributed an additional $2 million to Plug Power and
the Company purchased another one-year option to match thatthe contribution.
The Company paid approximately $191 thousand for the options, which were
scheduled to mature in April 24, 1999 ($250 thousand) and MayJune 15, 1999 ($2
million).
IfAs of March 25, 1999, the Company does not exercise itsand Plug Power exchanged the foregoing
options they will lapse.and certain "research credits" (described below) for 2.25
million Plug Power membership interests. The Company earned the
research credits by assisting Plug Power in securing the award of
certain government grants and research contracts during the period June
1997 through April 1999.
In August, 1998, the Company committed to contribute an additional $5
million dollars (in cash, accounts receivable and research credits) to
Plug Power between August 5, 1998 and March 31, 1999 and recorded a
liability representing this obligation. SuchDuring the period from September
1998 to February 1999, the Company fully funded this commitment by
contributing $4 million cash and converting $.5 million of accounts
receivable and $.5 million of notes receivable.
During April 1999, the Company and EDC amended and restated the Plug
Power Mandatory Capital Contribution Agreement. The agreement, which was
effective as of January 26, 1999, stated that, in the event Plug Power
determined that it required funds at any time through December 31, 2000,
Plug Power had the right to call upon the Company and EDC to each make
capital contributions will
increaseas follows:
* The Company and EDC would each fund capital calls of up to $7.5
million in 1999 and $15 million in 2000 ("Capital Commitment").
* In exchange for such capital contributions to Plug Power, the
Company and EDC would receive class A membership interests
("Shares") from Plug Power at $7.50 per share.
* The Company and EDC would share the Capital Commitment equally.
* Plug Power's Board of Managers would determine when there is
need for such capital contributions.
* The Company and EDC would have sixty (60) days from the date of
such authorization to tender their payment to Plug Power.
The agreement was scheduled to terminate on December 31, 2000 or the
date of an initial public offering of shares by Plug Power at a per
F-15
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Investment in Plug Power, L.L.C. (continued)
share price of greater than $7.50 per share ("Termination Date").
In exchange for the Capital Commitment, Plug Power agreed to permit the
Company and EDC to make capital contributions to the extent of their
Capital Commitment on the Termination Date, whether or not such funds
have been called, in exchange for shares at the fixed price of $7.50 per
share.
In June 1999, the Company and Plug Power entered into an agreement for
the sale of the MTI campus and adjacent residence, including all land
and buildings, to Plug Power in exchange for 704,315 Class A membership
interests and the assumption of approximately $6 million in debt by Plug
Power. The sale of the MTI facility and the transfer of the $6 million
IDR bonds to Plug Power were effective as of July 1, 1999 with no gain
or loss recognized.
In August 1999, the Company committed to purchase 3 million shares of
Plug Power if the public offering price of Plug Power's stock was
greater than $7.50 per share. The Mandatory Capital Contribution
Agreement between the Company and Plug Power, dated as of January 26,
1999 was amended and restated to reflect this commitment.
On September 30, 1999, the Company purchased 266,667 shares of Plug
Power at $7.50 per share. This purchase reduced the Company's
commitment to purchase Plug Power shares at the time of its public
offering from 3,000,000 shares to 2,733,333 shares at a price of $7.50
per share.
The Company's total contributions to Plug Power (including contributions
of cash, assets, research credits, and a below market lease) to $11.75 million overlease and real estate)
for the period commencing on June 27, 1997, and ending on March 31, 1999.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) InvestmentSeptember 30,
1999 total $20.7 million.
During calendar 1999, Plug Power's equity increased approximately
$50.628 million primarily due to investments by investors. Of this
amount, $30.368 million was received in Joint Venture (continued)
On August 5, 1998,cash, $9.010 million in property
and services and $11.250 million represents membership interests issued
in connection with the formation of GE Fuel Cell Systems LLC. As a
result, the Company made a short term loan torecorded its proportionate share of the increase in
Plug Power's equity ($14.854 million) as investment in Plug Power of
$500 thousand, which was subsequently contributed to capital on
September 23, 1998. The Company also converted $500 thousand of its
accounts receivable from Plug Power to capital on September 23, 1998.
At September 30, 1998, the remaining obligation to provideand
additional funds to Plug Power was $4 million.paid-in capital.
The Company has recorded its proportionate share of Plug Power's losses
to the extent of its recorded investment in Plug Power. The carrying
value of the Company's investment is $8.71 million as of September 30,
1999 for a 40.65% interest in Plug Power.
F-16
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Investment in Plug Power, (includingL.L.C. (continued)
The Company will recognize its proportionate shares of losses in the
foregoing obligationfuture to contribute anthe extent of its carrying value and additional $4 million through
March 31, 1999).future
investments.
On November 1, 1999, the Company purchased 2,733,333 shares of Plug
Power at $7.50 per share. 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 as of November 1, 1999
total $41.2 million. Immediately after the Plug Power IPO, the Company
owned 13,704,315 shares or 31.9% of Plug Power.
At September 30, 1999 and 1998, the difference between the carrying value
of the Company's investment in Plug Power and its interest in the
underlying equity consists of the following:
(Dollars in thousands) 1999 1998
Calculated ownership (40.65% in 1999 and
50% ownershipin 1998) $12,704 $ 2,431
Unrecognized negative goodwill (2,086)(3,994) (2,085)
Value of below market lease contribution - (2,000)
Calculated 50% of equity value under option - (1,125)
Contribution liability - 4,000
-------______ ______
Carrying value of Investment in Joint VenturePlug Power $ 8,710 $ 1,221
=======
(6)====== ======
Summarized below is financial information for Plug Power. Plug Power's
fiscal year ends December 31.
9 Months
Ended Year Ended
Sept 30, Dec 31, Dec 31,
(Dollars in thousands) 1999 1998 1997
Current assets $12,024 $ 5,293 $3,917
Noncurrent assets 31,522 2,800 929
Current liabilities 6,291 2,601 1,250
Noncurrent liabilities 6,002 - -
Stockholders' equity 31,253 5,493 3,597
Gross revenue 6,702 6,541 1,194
Gross profit (3,148) (2,323) (33)
Net loss (24,867) (9,616) (5,903)
F-17
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) Income Taxes
Deferred tax assets and liabilities are determined based on the temporary
differences between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates.
Income tax expense (benefit) for the years ended September 30, consists
of the following:
(Dollars in thousands) 1999 1998 1997 1996
-------- -------- --------
Continuing operations
Federal $ 1 $ 15 $ 62
$ 44
State 36 10 81 31
Deferred - - -
-------- -------- --------_______ _______ _______
37 25 143
75
-------- -------- --------_______ _______ _______
Discontinued operations
Federal - - (17) (8)
State - - (12) (3)
Deferred - - -
-------- -------- --------_______ _______ _______
- - (29)
(11)
======== ======== ========
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Income Taxes (continued)
(Dollars in thousands) 1998 1997 1996
-------- -------- --------_______ _______ _______
Extraordinary Item
Federal - - 28 -
State - - 78 -
Deferred - - -
-------- -------- --------_______ _______ _______
- - 106
-
-------- -------- --------_______ _______ _______
$ 37 $ 25 $ 220
$ 64
======== ======== =============== ======= =======
The significant components of deferred income tax expense (benefit) for
the years ended September 30, are as follows:
(Dollars in thousands) 1999 1998 1997 1996
-------- -------- --------
Continuing operations
Deferred tax (benefit) expense $ (1,833) $ (667) $ (356) $ (310)
Net operating loss carryforward (3,259) 105 1,223
635
Valuation allowance 5,092 562 (867)
(325)
-------- -------- --------_______ ________ _______
- - -
-------- -------- --------_______ ________ _______
Discontinued operations
Deferred tax (benefit) expenseexpense(benefit) 114 (508) 60 ( 52)
Net operating loss carryforward (97) (265) (251)
1,028
Valuation allowance (17) 773 191
(976)
-------- -------- --------_______ ________ _______
- - -
-------- -------- --------_______ ________ _______
$ - $ - $ -
======= ======== ======== ===============
F-18
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) Income Taxes (continued)
1999 1998 1997
Extraordinary item
Deferred tax (benefit) expense - - (28) -
Net operating loss carryforward - - 862 -
Valuation allowance - - (834)
-
-------- -------- --------_______ _______ _______
- - -
-------- -------- --------_______ _______ _______
$ - $ - $ -
======== ======== =============== ======= =======
The Company's effective income tax rate from continuing operations
differed from the Federal statutory rate as follows:
1999 1998 1997 1996
-------- -------- --------
Federal statutory tax rate (34%) 34%(34%) 34%
State taxes, net of
federal tax effect - 2% 3%
Meals and entertainment - - 1%
Additional tax gain on sale of
subsidiary - - 11%2%
Change in valuation allowances 34% 28% (32%) (48%)
Alternative minimum tax - - 2% 7%
Other, net - 7% (1%)
3%
-------- -------- --------_______ _______ _______
-% 1% 5%
11%
======== ======== ========
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Income Taxes (continued)======= ======= =======
The deferred tax assets and liabilities as of September 30, consist of
the following tax effects relating to temporary differences and
carryforwards:
(Dollars in thousands)
1999 1998 1997
-------- --------
Current deferred tax assets:
Loss provisions for Discontinued
Operationsdiscontinued
operations $ 337300 $ -337
Bad debt reserve 112 96 52
Inventory valuation 173 161 165
Inventory capitalization 39 20 40
Vacation pay 63 66 111
Warranty and other sale obligations 86 25 51
Other reserves and accruals 116 151
358
-------- --------_______ _______
889 856 777
Valuation allowance (889) (856)
(777)
-------- --------_______ _______
Net current deferred tax assets $ - $ -
======== =============== =======
F-19
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) Income Taxes (continued)
1999 1998
Noncurrent deferred tax assets (liabilities):
Net operating loss $ 1,9515,687 $ 1,7911,951
Property, plant and equipment 122 (9) (251)
Investment in Joint VenturePlug Power (3,322) 954
-
Other 224 187 288
Alternative minimum tax credit 150 149
-------- --------150
_______ _______
2,861 3,233 1,977
Valuation allowance (2,861) (3,233) (1,977)
Other credits (597) (607)
(594)
-------- --------_______ _______
Noncurrent net deferred tax
liabilities and other credits $ (597) $ (607)
$ (594)
======== =============== =======
The valuation allowance at year ended September 30, 19981999 is $4,089
thousand$3.750
million and at September 30, 19971998 was $2,754 thousand.$4.089 million. During the year
ended September 30, 1998,1999, the valuation allowance increaseddecreased by $1,335$339
thousand.
At September 30, 1998,1999, the Company has unused Federal net operating loss
carryforwards of approximately $5,738 thousand.$14.219 million. The Federal net operating
loss carryforwards if unused will begin to expire during the year ended
September 30, 2009. The use of $5,339 thousand$5.339 million of these carryforwards is
limited on an annual basis, pursuant to the Internal Revenue Code, due to
certain changes in ownership and equity transactions. For the year ended
September 30, 1998,1999, the Company has available alternative minimum tax
credit carryforward of approximately $150 thousand.
The Company made cash payments, net of refunds, for income taxes of $15,
$42 $361 and $61$361 thousand for 1999, 1998 and 1997, respectively.
(8) Accrued Liabilities
Accrued liabilities consist of the following:
(Dollars in thousands) 1999 1998
Salaries, wages and 1996, respectively.related expenses $ 553 $ 999
Acquisition and disposition costs 431 410
Legal and professional fees 169 305
Warranty and other sale obligations 398 607
Accrued severance - 143
Deferred income 264 267
Commissions 182 213
Interest expense 7 8
Other 239 376
______ ______
$ 2,243 $ 3,328
====== ======
F-20
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) Accrued Liabilities
Accrued liabilities consist of the following:
(Dollars in thousands) 1998 1997
-------- --------
Salaries, wages and related expenses $ 999 $ 924
Acquisition and disposition costs 410 665
Legal and professional fees 305 445
Warranty and other sale obligations 607 329
Contingent liabilities 150 350
Accrued severance 143 300
Deferred income 267 250
Commissions 213 230
Interest expense 8 103
Other 226 138
-------- --------
$ 3,328 $ 3,734
======== ========
(8)(9) Debt
The Company has a working capital line of credit available in the amount
of $4 million with interest payable monthly at a rate of prime (8.5%(8.25% and
8.5% at September 30, 1998)1999 and 1998, respectively) or LIBOR plus 2.5%
(7.875%(7.9% and 7.875% at September 30, 1998),1999 and 1998, respectively). This
obligation is collateralized by the assets of the Company, exclusive of
its investment in Plug Power. The Company also has a $1 million
equipment loan/lease line of credit at an interest rate of LIBOR plus
2.75% (8.125%(8.15% and 8.125% at September 30, 1998)1999 and 1998, respectively).
This obligation is collateralized by the equipment purchased under the
line of credit. The lines of credit expire on January 31, 2000. No
amounts were outstanding under these lines at September 30, 1999 and
1998.
On December 17, 1998, and 1997.
Thethe Industrial Development Agency for the Town of
Colonie has agreed to
issueissued $6 million in Industrial Development Revenue ("IDR") Bonds
on behalf of the Company to assist in the construction of a new building
for Advanced Products and the Company's corporate staff and renovation of
existing buildings leased to Plug Power. The constructionIDR Bond proceeds were
deposited with a trustee for the bondholders and the Company drew bond
proceeds to cover qualified project is due
to be completed in April 1999.costs. First Albany Companies Inc.
("FAC"), which owns 34% of the Company's stock, will underwriteunderwrote the sale of
the IDR Bonds. Proceeds of the IDR Bonds will be deposited with a trustee for the
bondholders. The Company may draw the bond proceeds to cover qualified
project costs. The bond closing is expected to be completed on or about
December 17, 1998. FAC will receivereceived no fees for underwriting the IDR Bonds but
will be reimbursed for its out-of-pocket costs.
Additionally, KeyBank has agreed to issueissued a $6 million direct pay letter of credit to enhance(the credit agreement) for
approximately $6 million in connection with the $6 million IDR Bonds to be issued on the
Company's behalf on or about December 17, 1998.Bonds. The
KeyBank credit agreements require the Company to meet certain covenants,
including a fixed charge coverage and leverage ratio. Further, if
certain performance standards are achieved, the interest rates on the
debt may be reduced.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(8) Debt (continued)
The credit agreement also requires the Company to grant a first lien on
all consolidated assets of the Company, exclusive of its investment in
Plug Power, a first mortgage on all land and buildings owned by the
Company and a first lien on any equipment purchased by the Company.
The IDR Bond Obligation, letter of credit and unexpended bond proceeds
were transferred to Plug Power in connection with the sale of the MTI
facility and adjacent residence effective July 1, 1999.
F-21
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) Debt (continued)
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 has 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 the Company's remaining $20.5
million balance of its Mandatory Capital Commitment to contribute $22.5
million to Plug Power. Although the Credit Agreement does not require
the Company to sell shares of Plug Power Common Stock, the Company may
sell shares of Plug Power Common Stock to pay interest or principal on
the Loan. Pursuant to the $22.5 million Credit Agreement, the Company is
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 on June 30,
2001. In addition, a one time commitment fee totaling $247,500 is
payable for the Loan, $75,000 of which was paid as of September 30, 1999.
Interest is payable monthly at a rate of Prime (8.25% on November 1,
1999) or if certain performance standards are achieved, the interest
rates on the $22.5 million Credit Agreement may be reduced.
The $22.5 million Credit Agreement requires the Company to meet certain
covenants, including maintenance of a collateral account which at all
times has a minimum market value of $600 thousand and a balance on
November 1, 1999 of $2.65 million, and maintenance of a collateral
coverage ratio. The existing covenants under the original letter of
credit were eliminated pursuant to the $22.5 million Credit Agreement.
The weighted average interest rate for the Note Payable, IDR Bonds and
Line of Credit drawsduring 1999 was 5.11%, 9.02% during 1998 was 9.02%,and 10.75% during
1997 and 13.2% during 1996.1997.
Cash payments for interest were $164, $97 $201 and $477$201 thousand for 1999,
1998 and 1997, and 1996, respectively.
(9)(10) Shareholders' Equity
On September 30, 1998,July 12, 1999, the Company completed the sale of 1,196,399801,223 shares of
common stock to current shareholders through a rights offering. The
offering raised approximately $7,178 thousand$12.820 million before offering costs of
approximately $186$158 thousand for net proceeds of approximately $6,992
thousand.$12.671
million. The Company will use some or all of the proceeds of the
offering for investment in and/or loans tointo Plug Power. In addition, some proceeds may
be used for acquisitions for the Company's core businesses, efforts to
increase market share, working capital, general corporate purposes and
other capital expenditures.
The Company had a Restricted Stock Incentive Plan, which awarded
restricted Common Stock of the Company to officers and other key
employees. The Plan expired on December 31, 1994 and no further awards may
be granted. In fiscal year 1995, 32,500 shares were granted, valued at
$14,375 based on the market value of the stock at the date of grant. For
accounting purposes, the value of the grants represents compensation,
which has been deferred and is being amortized over the 5-year and 10-year
vesting periods. The shares granted during 1995 were recorded as a
component of Shareholders' Equity. The value of the grants, net of
accumulated amortization and write-offs, was $0 at September 30, 1998 and
$2 thousand at September 30, 1997.F-22
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9)(10) Shareholders' Equity (continued)
On April 23, 1999, the Company declared a 3 for 2 stock split in the form
of a stock dividend. Holders of the Company's $1.00 par value common
stock received one additional share of $1.00 par value common stock for
every two shares of common stock owned as of April 30, 1999. The
financial statements for all prior periods have been retroactively
adjusted to reflect this stock split for both common stock issued and
options outstanding.
On September 30, 1998, the Company completed the sale of 1,196,399 shares
of common stock to current shareholders through a rights offering. The
offering raised approximately $7.178 million before offering costs of
approximately $186 thousand for net proceeds of approximately $6.992
million. The Company has used some or all of the proceeds of the
offering for investment in Plug Power. In addition, some
proceeds may be used for acquisitions for the Company's core businesses,
efforts to increase market share, working capital, general corporate
purposes and other capital expenditures.
Changes in common shares for 1999, 1998 1997 and 19961997 are as follows:
Common Shares 1999 1998 1997 1996
- ------------- -------- -------- --------
Balance, October 1
5,908,661(1997 balance as previously
reported) 10,773,968 8,862,992 4,902,201
3,568,868Three-for-two common stock split
effected in the form of a 50%
stock dividend effective
April 30, 1999 - - 2,451,101
Issuance of shares for
stock option exercises 77,585 -74,768 116,377 -
Issuance of shares for stock sale 1,196,399 1,000,000 1,333,333801,223 1,794,599 1,500,000
Issuance of shares - consultant - 6,460 - -------- -------- --------9,690
__________ __________ _________
Balance, September 30 7,182,645 5,908,661 4,902,201
======== ======== ========11,649,959 10,773,968 8,862,992
========== ========== =========
Treasury Shares
Balance, October 1 and4,500 4,500 4,500
Acquisition of shares 2,250 - -
__________ __________ _________
Balance, September 30 3,000 3,000 3,000
======== ======== ========
(10)6,750 4,500 4,500
========== ========== =========
F-23
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) 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:
(Dollars in Thousands) 1999 1998 1997 1996
- -------------------------------------------------------------------------------
(Loss) income before extraordinary
item and available to common
stockholders $ (10,729) $ (2,031) $ 2,558 $ 598
Weighted average number of shares:
Weighted average number of
shares used in net (loss)/income
per share, 5,937,158 5,662,827 3,911,952including the bonus
element effects for the rights
offering 11,330,530 9,576,672 9,134,308
Effect of dilutive securities:
Stock options - 9,218 - - -------------------------------------------------------------------------------14,868
___________________________________________________________________________
Weighted average number of
shares used in diluted net
(loss)/income per share 5,937,158 5,672,045 3,911,952
- -------------------------------------------------------------------------------
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) Earnings per Share (continued)11,330,530 9,576,672 9,149,176
___________________________________________________________________________
During fiscal 1998,1999, options to purchase 404,915741,613 shares of common stock
at prices ranging from $2.44 to $6between $1.63 and $22.50 per share were outstanding 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.operations
and inclusion would be anti-dilutive. The options which expire between
December 20, 2006 and August 31, 2008,
were still outstanding at September 30, 1998.June 16, 2009.
During fiscal 1997,1998, options to purchase 195,000607,372 shares of common stock at
a price of $3.44prices ranging from $1.63 to $4 per share were outstanding but were not
included in the computation of Earnings per Share-assuming dilution
because the exercise price was
greater than the average market price of the common shares. Therefore,
no potential common shares are included in the computation.Company incurred a loss from continuing operations and
inclusion would be anti-dilutive. The options which expire between December
20, 2006 and August 27, 2007 were still outstanding at
September 30, 1997.
(11)31, 2008.
(12) Stock Option Plan
During March 1999, the shareholders approved the 1999 Employee Stock
Incentive Plan ("1999 Plan"). The 1999 Plan provides that an initial
aggregate number of 1 million shares of common stock may be awarded or
issued. The number of shares available under the 1999 Plan may be
adjusted for stock splits and during 1999 the number of shares available
under the plan increased to 1,500,000 shares. Under the 1999 Plan, the
Board of Directors is authorized to award stock options to officers,
employees and others.
F-24
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) Stock Option Plan (continued)
During December 1996, the shareholders approved a new stock incentive plan.plan
("1996 Plan"). The plan1996 Plan provides that an initial aggregate number of
500,000 shares of common stock may be awarded or issued. The number of
shares available under the plan1996 Plan may be increased by 10% of any
increase in the number of outstanding shares of common stock for reasons
other than shares issued under this plan.1996 Plan. During 19981999 and 1997,1998, the
number of shares available under the plan1996 Plan increased to 719,6401,159,582 and
600,000719,640 shares respectively. Under the plan,1996 Plan, the Board of Directors
is authorized to award stock options, stock appreciation rights,
restricted stock, and other stock-
basedstock-based incentives to officers, employees
and others.
Options are generally exercisable in from one to five cumulative annual
amounts beginning 12 months after the date of grant. Certain options
granted may be exercisable immediately. Option exercise prices are not
less than the market value of the shares on the date of grant.
Unexercised options generally terminate ten years after grant.
During 1999, the Company awarded 15,000 options to a consultant. The
fair value of these options ($55 thousand) was charged to expense.
For the purpose of applying Financial Accounting Standard No. 123 ("FAS
123"), "Accounting for Stock-Based Compensation", the fair value of each
option granted is estimated on the grant date using the Black-Scholes
Single Option model. The dividend yield was 0% for 1999, 1998, and 1997,
respectively. The expected volatility was 78% in 1999, 102% in 1998 and
78% and in 1997. The expected life of the options is 5 years. The risk free
interest rate ranges from 4.37% to 5.81% in 1999, 5.52% to 5.85% in 1998
and 6.12% to 6.67% in 1997. The Company applies Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," in
accounting for stock options. Accordingly, no compensation cost has been
recognized in 1999, 1998 or 1997. Had compensation cost and fair value
been determined pursuant to FAS 123, net loss would increase from
$(10,688) to $(11,988) thousand in 1999 and from $(4,316) to $(4,773)
thousand in 1998 and net income would decrease from $4,520 to $4,351
thousand in 1997. Basic and
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) Stock Option Plan (continued)
diluted loss per share would increase from
$(.73)$(0.94) to $(.80)$(1.06) in 1999 and from $(0.45) to $(0.50) in 1998 and basic
and diluted earnings per share would decrease from $0.80$0.49 to $0.76$0.48 in
1997. The weighted average fair value of options granted during 1999,
1998 and 1997 for purposes of FAS 123, is $5.80, $4.70 and $1.96 per
share, respectively.
Activity with respect to the plan is as follows:
1998 1997
-------- --------
Shares under option
at October 1 415,600 -
Options granted 198,500 423,100
Options exercised (77,585) -
Options canceled (131,600) (7,500)
-------- --------
Shares under option
at September 30 404,915 415,600
======== ========
Options exercisable
at September 30 180,915 76,800
Shares available for
granting of options 237,140 184,400
The weighted average exercise price is as follows:
1998 1997
-------- --------
Shares under option
at October 1 $ 2.93 $ -
Options granted 5.75 2.91
Options exercised 2.87 -
Options canceled 2.61 2.44
Shares under option at
September 30 4.37 2.91
Options exercisable at
September 30 3.96 2.93F-25
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11)(12) Stock Option Plan (continued)
Activity with respect to the 1996 Plan is as follows:
1999 1998 1997
Shares under option
at October 1 607,372 623,400 -
Options granted 232,550 297,750 634,650
Options exercised (78,949) (116,378) -
Options canceled (19,360) (197,400) (11,250)
________ _________ ________
Shares under option
at September 30 741,613 607,372 623,400
======== ========= ========
Options exercisable
at September 30 419,438 271,373 115,200
Shares available for
granting of options 222,642 355,710 276,600
The weighted average exercise price is as follows:
1999 1998 1997
Shares under option
at October 1 $ 2.89 $ 1.94 $ -
Options granted 8.62 3.83 1.94
Options exercised 2.26 1.91 -
Options canceled 3.36 1.74 1.63
Shares under option at
September 30 4.89 2.89 1.94
Options exercisable at
September 30 5.59 2.64 1.95
The following is a summary of the status of options outstanding at
September 30, 1998:1999:
Outstanding Options Exercisable Options
- ----------------------------------- --------------------------------___________________________________ ________________________________
Weighted
Average Weighted Weighted
Exercise Remaining Average Average
Price Contractual Exercise Exercise
Range Number Life Price Number Price
$2.44-$1.63-$3.44 212,415 8.8 $3.16 110,915 $3.03
$4.09-2.29 257,438 7.7 $2.12 151,313 $2.09
$3.17-$6.00 192,5004.67 244,875 8.7 $3.98 113,625 $3.98
$5.00-$5.33 129,300 9.2 $5.28 49,500 $5.30
$12.50 105,000 9.5 $12.50 105,000 $12.50
$22.50 5,000 9.7 $5.84 70,000 $6.00
(12)$22.50 -
_______ _______
741,613 419,438
======= =======
F-26
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) Retirement Plan
The Company maintains a voluntary savings and retirement plan (Internal
Revenue Code Section 401(k) Plan) covering substantially all employees.
The Company plan allows eligible employees to contribute a percentage of
their compensation; the Company makes additional contributions in amounts
as determined by management and the Board of Directors. The investment
of employee contributions to the plan is self-directed. The cost of the
plan was $83,$168, $152 and $179 and $187 thousand for 1999, 1998 and 1997,
and 1996, respectively.
(13)(14) Commitments and Contingencies
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, a wholly owned
subsidiary of First Albany Companies Inc., Dale Church, Edward Dohring,
Alan Goldberg, George McNamee, Beno Sternlicht, Marty Mastroianni (former
President and Chief Operating Officer of the Company) 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 the
Company. 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. First Albany Corporation 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.
During October 1998, a legal action brought by a group of investors
against the Company related to a stock purchase agreement and side letter
agreements for the sale of the stock of the Company's wholly owned
subsidiary, Ling Electronics, Inc. ("Ling"), was determined in favor of
the Company.
F-27
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) Commitments and Contingencies (continued)
In February 1995, Ling made a voluntary disclosure to the United States
Department of Commerce regarding unlicensed exports of certain products
shipped in the first four months of fiscal 1995. Ling has fully
cooperated with the Office of Export Enforcement, which has not taken any
action to date. Possible administrative sanctions include: no action; a
warning letter; denial of export privileges; and/or imposition of civil
penalties. Foreign sales represent a significant portion of Ling's total
revenue. The final outcome of this matter is not presently determinable
and, therefore no provision for any liability that may result has been
recorded in the Company's financial statements.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) CommitmentsThe Company and Contingencies (continued)its subsidiaries lease certain manufacturing, warehouse
and office facilities. The leases generally provide for the Company to
pay increases over a base year level for taxes, maintenance, insurance
and other costs of the leased properties. The leases contain renewal
provisions.
Future minimum rental payments required under noncancelable operating
leases are (dollars in thousands): $386 in 1999; $424$269 in 2000; $433$305 in 2001; $438$304 in
2002; $300 in 2003; and $342$300 in 2003.2004. Rent expense under all leases was
$482, $403 $446 and $433$446 thousand for 1999, 1998 and 1997, and 1996, respectively.
Future minimum rental income under non-cancelable operating sub-leases are
(dollars in thousands): $165 in 1999; $160 in 2000; $141 in 2001; $150 in
2002; and $105 in 2003.
Rental income under all sub-leases was $164, $66 $19 and $10$19 thousand in
1999, 1998 and 1997, and 1996, respectively.
The Company leases certain of its Latham, New York facilities to its 50
percent owned joint venture, Plug Power, L.L.C. Effective October 1,
1998, the Company has leased one building to Plug Power at below market
rent as part of its April 1998 capital contribution to Plug Power. The
lease is for ten years with an option to extend the lease for an
additional 5 years at 70 percent of the current fair market rent. Future
minimum rental income receivable under non-cancelable leases as of
September 30, 1998 are as follows:
(Dollars in thousands)
Fiscal Year Amount
- ----------- ----------
1999 $ 212
2000 212
2001 212
2002 212
2003 212
----------
$ 1,061
==========
(14)(15) Related Party Transactions
At September 30, 19981999 First Albany Companies Inc. ("FAC") owned
approximately 34% of the Company's Common Stock (See Note 18)19).
During fiscal 1999, 1998 and 1997, First Albany Corporation, a wholly
owned subsidiary of FAC, provided financial advisory services in
connection with the sale of the Technology Division in 1999 and 1998 and
the L.A.B. Division in 1997, for which First Albany Corporation was paid
fees of $15, $10 and $75 thousand, respectively.
During fiscal 1996, First Albany Corporation,
acted as placement agentAmounts receivable from an officer totaled approximately $38 thousand and
is included in connection with a private placement of 1.3
million shares of the Company's Common Stock, pursuant to which the
Company raised approximately $1.9 million of additional capital (net of
expenses), for which First Albany Corporation was paid a $40 thousand fee.
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) Related Party Transactions (continued)balance sheet caption "Other receivables-related
parties" at September 30, 1999.
On June 27, 1997, the Company entered into a management services
agreement with Plug Power to provide certain services and facilities for
a period of one year. ServicesThis agreement expired on June 27, 1998. The
Company continued to provide services, which were billed by the Company are foron a cost
reimbursement only.
Billings under these agreements amounted to $661 and $65 thousand for 1998
and 1997, respectively. Amounts receivable from Plug Power under these
agreements are included in the balance sheet caption "Accounts receivable
- - Joint Venture".basis. During 1998, the Company entered into leases for
manufacturing, laboratory and office space which expire at various dates
throughexpired on July 1, 1999
pursuant to the sale of the MTI facility to Plug Power in exchange for
704,315 Plug Power Class A membership interests and the assumption of $6
million in debt by Plug Power.
F-28
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(15) Related Party Transactions (continued)
Billings under these agreements amounted to $448, $661 and $65 thousand
for 1999, 1998 and 1997, respectively. Amounts receivable from Plug Power
under these agreements is included in the balance sheet caption "Other
receivables-related parties".
On September 30, 2008.1999, the Company made an additional cash contribution
of approximately $2 million to Plug Power in exchange for 266,667 Plug
Power Class A membership interests.
On July 1, 1999, the Company contributed the MTI campus to Plug Power in
exchange for 704,315 Plug Power Class A membership interests. During the
remainder of 1999, the Company paid $59 thousand to Plug Power in
connection with a lease of office and manufacturing space. This lease
will terminate on November 24, 1999.
On August 5, 1998, the Company made a short termshort-term loan to Plug Power of
$500 thousand, which was subsequently contributed to capital on September
23, 1998. The Company also converted $500 thousand of its accounts
receivable from Plug Power to capital on September 23, 1998. At
September 30, 1998, the remaining obligation to provide additional funds
to Plug Power was $4 million. During 1996,fiscal 1999, the Company made several rental payments for laboratory space
to an officer/director of the Lawrence Insurance Group Inc. ("LIG") and
purchased various insurance coverage from LIG or companies owned directly
or indirectlyfully
funded this commitment by LIG totaling $453 thousand. At September 30, 1996,
several subsidiaries of LIG collectively owned approximately 16.8% of the
Company's common stock.
(15)contributing $4 million cash.
(16) Discontinued Operations
The sale of the Company's Technology Division, the sole component of the
Technology segment, to NYFM, Incorporated (a wholly owned subsidiary of
Foster-Miller, Inc., a Waltham, Massachusetts-based technology company)
on March 31, 1998 completed management's planned sale of non-core
businesses. 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, 1997,1998, and the consolidated
financial statements have been restated to report separately the net
assets and operating results of the business. In exchange for the
Technology Division's assets, NYFM, Incorporated (a) agreed to pay the
Company a percentage of gross sales in excess of $2.5 million for a
period of five years; (b) assumed approximately $40 thousand of
liabilities; and (c) established a credit for warranty work of
approximately $35 thousand.
The Company's United Telecontrol Electronics, Inc. ("UTE") subsidiary, the
sole component of the Defense/Aerospace segment, filed for voluntary
bankruptcy under Chapter 11 of the Federal Bankruptcy Code in April 1994.
During October 1994, UTE commenced an orderly liquidation and final courtF-29
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(15)(16) Discontinued Operations (continued)
approval occurred during the third quarter of fiscal 1996. Accordingly,
the Company no longer includes Defense/Aerospace among its reportable
business segments, and since 1994 UTE has been reported as a discontinued
operation, and accordingly the consolidated financial statements have been
reclassified to report separately the net liabilities and operating
results of the business. The Company recorded the effect of the final
liquidation of UTE during fiscal year 1996. Final adjustments to the
Company's financial statements as a result of the UTE bankruptcy are
reflected in income from discontinued operations.
Discontinued operations consist of the following:
(Dollars in thousands) 1999 1998 1997
1996
-------- -------- --------
Sales $ - $ 532 $ 7,878
$ 9,146
======== ======== ========
(Loss)income ======= ====== ======
Income(loss)from discontinued
operations before income tax 41 (516) (574) 3,139
Income tax (benefit) - - (29)
(11)
-------- -------- --------_______ ______ ______
Net (loss)income income(loss)from discontinued
operations $ 41 $ (516) $ (545)
$ 3,150
======== ======== =============== ====== ======
Loss on disposal of Division $ (1,769) - $(1,769) $ -
Income tax (benefit) - - -
-------- -------- --------_______ ______ ______
Loss on disposal of Division $ (1,769)- $(1,769) $ -
$ -
======== ======== =============== ====== ======
The assets and liabilities of the Company's discontinued operations are
as follows at September 30:
(Dollars in thousands) 1999 1998 1997
-------- --------
Assets (primarily accounts receivable
at September 30, 1998)receivable) $ 1,136220 $ 3,9681,136
Liabilities (primarily accrued expenses
at September 30, 1998)expenses) 760 1,128
782
-------- --------_______ ______
Net (Liabilities)Assets $ (540) $ 8
$ 3,186
======== =============== ======
Assets with a net book value of $878 thousand consisting primarily of
land, building and management information systems were transferred to
continuing operations on October 1, 1997.
(16)(17) Sale of Division/Subsidiary
L.A.B. Division
On September 30, 1997, the Company sold all of the assets of its L.A.B.
Division to Noonan Machine Company of Franklin Park, IL. The Company
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(16) Sale of Division/Subsidiary (continued)
received $2,600 thousand$2.60 million in cash and two notes, totaling $650 thousand,
from Noonan Machine Company. The purchaser has requested that the
principal amount of the note be reduced to reflect the resale value of
certain assets of L.A.B. The Company is enforcing its rights with
respect to the note. The net proceeds from the sale were used to pay
down all outstanding debt and build working capital.
The sale resulted in a $2,012 thousand$2.0 million gain, which was recorded in the
fourth quarter of fiscal year 1997. In addition, $250 thousand of the
proceeds associated with one of the notes was recorded as deferred
revenue due to contingencies associated with the realization of this
note. This note is still outstanding as of September 30, 1998.
ProQuip, Inc.
On November 22, 1994, the Company sold all of the outstanding capital
stock of its ProQuip Inc. subsidiary to Phase Metrics of San Diego, CA.
The Company received $13,250 thousand in cash from Phase Metrics and
ProQuip forgave a $316 thousand intercompany debt due from the Company.
The net proceeds from the sale were used to reduce term debt by $8,000
thousand and to increase working capital by $3,776 thousand.
The sale resulted in a $6,779 thousand gain, which was recorded during the
first quarter of fiscal year 1995. In addition, $750 thousand of the net
proceeds was escrowed to provide a fund for any indemnity payments that
the Company may be obligated to pay Phase Metrics. As of February 22, 1996
(the escrow expiration date), no claim had been filed, nor was the Company
aware of any circumstances which might give rise to future claims.
Accordingly, the Company recognized the remaining $750 thousand gain from
the sale during the second quarter of fiscal 1996.
(17)1999.
F-30
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(18) Geographic and Segment Information
The Company sells its products on a worldwide basis with its principal
markets listed in the table below where information on export sales is
summarized by geographic area for the Company as a whole:
(Dollars in thousands)
Geographic Area 1999 1998 1997
1996
- --------------- -------- -------- --------
United States $ 9,576 $ 17,022 $ 17,290
$ 15,050
Europe 1,180 1,072 1,223
2,909
Japan 787 1,534 1,243
1,321
Pacific Rim 760 834 1,901
1,286
China 278 302 1,900
1,307
Canada 153 228 178 341
Rest of World 151 36 367
541
-------- -------- --------______ _______ _______
Total Sales $12,885 $ 21,028 $ 24,102
$ 22,755
======== ======== ========
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(17) Geographic====== ======= =======
In 1999, no customers accounted for more than 10% of sales and Segment Information (continued)
Onein 1998,
one customer accounted for 11.5% of sales during fiscal 1998.sales.
The Company operates in onetwo business segments, Alternative Energy
Technology and Test and Measurement. The Alternative Energy Technology
segment incubates alternative energy technology. The Test and Measurement
whichsegment develops, manufactures, markets and services sensing instruments,
computer-based balancing systems for aircraft engines, vibration test
systems and power conversion products.
The accounting policies of the Alternative Energy Technology and Test and
Measurement segmentsegments are the same as those described in the summary of
significant accounting policies. The Company evaluates performance based
on profit or loss from operations before income taxes.
The following table detailstaxes, accounting
changes, non-recurring items and interest income and expense. Inter-
segment sales are not significant.
Summarized financial information about the Test and Measurement
segment profit or loss, segment assets and shows the reconciliation of
segment data toconcerning the Company's consolidated totals.reportable
segments is shown in the following table. The Company does not
allocate"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. Reconciling
(Dollars in thousands) Test and Item: Consolidated
1998 Measurement Corporate Totals
- ---- ----------- ----------- ------------
Revenues $ 21,028 $ - $ 21,028
Interest revenue - 65 65
Interest expense - 102 102
Depreciation and
amortization 205 118 323
Equity in joint venture loss - (3,806) (3,806)
Income (loss)For the Alternative Energy Technology segment, the
information is based on an annual period from continuing operations
before tax 2,155 (4,161) (2,006)
Income (loss)October 1 to September 30
derived from continuing operations 2,155 (4,186) (2,031)
Loss on discontinued
operations - (2,285) (2,285)
Total income (loss) 2,155 (6,471) (4,316)
Segment assets 9,424 11,696 21,120
Net assets discontinued
operations - 8 8
Expenditures for segment
assets 202 2,964 3,166Plug Power's unaudited financial statements.
F-31
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(17)(18) Geographic and Segment Information (continued)
Reconciling
(Dollars in thousands) Test and Item: Consolidated
1997 Measurement Corporate Totals
- ---- ----------- ----------- ------------
Revenues $ 24,102 $ - $ 24,102
Interest revenue - - -
Interest expense - 323 323
(Dollars in thousands)
Alternative
Energy Reconciling Consolidated
Technology Test and Items Totals
1999 (unaudited) Measurement Other (unaudited) (unaudited)
Revenues $ 8,247 $ 12,885 $ - $ (8,247) $ 12,885
Segment profit/
(loss) (27,391) (1,404) 79 8,028 (10,688)
Equity in Plug
Power loss - - - (9,363) (9,363)
Total assets 43,547 8,185 14,885 (34,837) 31,780
Investment in
Plug Power - - - 8,710 8,710
Capital
expenditures 9,247 183 2,555 (9,247) 2,738
Depreciation and
amortization 1,165 202 379 (1,165) 581
1998
Revenues $ 5,948 $ 21,028 $ - $ (5,948) $ 21,028
Segment profit/
(loss) (8,243) 2,155 (2,665) 4,437 (4,316)
Equity in Plug
Power loss - - - (3,806) (3,806)
Total assets 8,093 9,424 10,483 (6,872) 21,128
Investment in
Plug Power - - - 1,221 1,221
Capital
expenditures 1,889 202 2,964 (1,889) 3,166
Depreciation and
amortization 418 205 118 (418) 323
1997
Revenues $ 242 $ 24,102 $ - $ (242) $ 24,102
Segment profit/
(loss) (4,752) 2,411 2,439 4,422 4,520
Equity in Plug
Power loss - - - (330) (330)
Total assets 4,979 8,696 5,280 (4,952) 14,003
Investment in
Plug Power - - - 27 27
Capital
expenditures 133 375 2 (133) 377
Depreciation and
amortization 93 206 37 (93) 243
Equity in joint venture loss - (330) (330)
Gain on sale of
division - 2,012 2,012
Income from continuing
operations before
extraordinary item
and tax 2,414 287 2,701
Income from continuing
operations before
extraordinary item 2,411 147 2,558
Extraordinary item, net
of tax - 2,507 2,507
Loss on discontinued
operations - (545) (545)
Total income 2,411 2,109 4,520
Segment assets 8,696 2,121 10,817
Net assets discontinued
operations - 3,186 3,186
Expenditures for segment
assets 375 2 377
1996
- ----
Revenues $ 22,755 $ - $ 22,755
Interest revenue - - -
Interest expense - 790 790
Depreciation and
amortization 203 30 233
Gain on sale of
division - 750 750
Income (loss) from continuing
operations before tax 2,006 (1,333) 673
Income (loss) from
continuing operations 2,004 (1,406) 598
Income from discontinued
operations - 3,150 3,150
Total income 2,004 1,744 3,748
Segment assets 9,577 348 9,925
Net assets discontinued
operations - 3,556 3,556
Expenditures for segment assets 169 1 170
F-32
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(17)(18) Geographic and Segment Information (continued)
The following table presents the details of "Other" segment profit
(loss).
(Dollars in thousands) 1999 1998 1997
Corporate and Other
Expenses/(Income):
Depreciation and
amortization $ 379 $ 118 $ 37
Interest expense 106 102 323
Interest income (335) (65) -
Income tax expense 37 25 143
Other (income)expense, net (225) 200 1,032
(Income)loss from
discontinued operations (41) 2,285 545
Gain on sale of division - - (2,012)
Gain on extinguishment
of debt, net of tax - - (2,507)
_____ _______ _______
Total (income) expense $ (79) $ 2,665 $ (2,439)
The reconciling items are the amounts of revenues earned and expenses
incurred for corporate operations, which is not included in the segment
information.
(18)(19) Extraordinary Item-Item - Extinguishment of Debt
During fiscal 1996, FAC 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 also acquired certain rights to an
obligation ("Term Loan") due from the same finance company ("FCCC") to
whom the Company was obligated under a Note Payable, due December 31,
1996 (See Note 14).1996.
FCCC was in default of its Term Loan to UCIC. FAC, as the owner of the
rights to the Term Loan, filed suit seekingsuit-seeking payment. 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. The Company and FAC entered into an agreement dated as of
December 27, 1996 under which the Company issued to FAC 1.0 million
shares of Common Stock in full satisfaction of the Note Payable
and accrued interest.
F-33
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(19) Extraordinary Item - Extinguishment of Debt (continued)
If FCCC were to seek collection of the Note Payable plus accrued
interest from the Company, the Company, based on the opinion of counsel,
believes that the outcome of any such action pursued by FCCC against the
Company would not have a material adverse impact on the Company's
financial position or results of operation.
(19)(20) Comprehensive (Loss) Income
Total comprehensive (loss) income for the years ended September 30
consists of:
(Dollars in Thousands) 1999 1998 1997
1996
-------- -------- --------
Net (loss)income $(10,688) $ (4,316) $ 4,520 $ 3,748
Other comprehensive income(loss),
before tax:
Foreign currency translation
adjustments - 8 -
1Unrealized loss on available
for sale securities (5) - -
Income tax related to items of
other comprehensive
income(loss) - - -
-------- -------- --------_______ _______ ______
Total comprehensive income(loss)(loss)income $(10,693) $ (4,308) $ 4,520
$ 3,749
======== ======== =============== ======= ======
(21) Subsequent Events
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 will invest approximately $7 million in SatCon. In consideration
for the acquisition of Ling Electronics and the Company's investment,
the Company will receive 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 immediately funded $2.57 million of its investment
in SatCon and will make the remaining investment by the end of January
2000. SatCon will also receive warrants to purchase 100,000 shares of
the Company's common stock.
The Company immediately issued SatCon 36,000 stock purchase warrants.
The warrants are immediately exercisable at $37.66 per share and expire
on October 21, 2003. The estimated fair value of these warrants at the
date issued was $14.81 per share using a Black Scholes option pricing
model and assumptions similar to those used for valuing the Company's
stock options.
The Company immediately received 36,000 stock purchase warrants from
SatCon. The warrants are immediately exercisable at $8.83 per share and
expire on October 21, 2003.
F-34
MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(21) Subsequent Events (continued)
In addition, David Eisenhaure, President and Chief Executive Officer of
SatCon Technology Corporation, will become a member of the Board of
Directors of the Company and Alan Goldberg, a director of the Company
and co-Chief Executive Officer of First Albany Companies Inc. will
become a member of SatCon Technology Corporation's Board of Directors.
SatCon Technology Corporation has also agreed to appoint an additional
member to its Board of Directors based on recommendations by the
Company.
SatCon Technology Corporation manufactures and sells power and energy
management products for telecommunications, silicon wafer manufacturing,
factory automation, aircraft, satellites and automotive applications.
SatCon has four operating divisions: Film Microelectronics, Inc.
designs and manufactures microelectronic circuits and interconnect
products. Magmotor manufactures motors and magnetic suspension systems.
Beacon Power manufactures flywheel energy storage devices and the
Technology Center is responsible for new technology and product
development.
F-35