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UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

							

FORM 10-Q

/X/ Quarterly report pursuant to Section 13 or 15 (d) of the Securities

Exchange Act of 1934

For the quarterly period ended September 30, 2006

or

/ / Transition report pursuant to Section 13 or 15 (d) of the Securities

Exchange Act of 1934

For the transition 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 incorporation or organization)
(I.R.S. Employer Identification No.)
**431 New Karner Road, Albany, New York 12205

(Address of principal executive offices) (Zip Code) 
**(518) 533-2200

(Registrant's telephone number, including area code)
**Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): 

Large accelerated filer	Accelerated filer X 		Non-accelerated filer 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class
Outstanding at November 3, 2006**Common Stock, $.01 Par Value**31,675,622 Shares**														

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

INDEX

 **
 

 

Part I. FINANCIAL INFORMATION
Page No.
 
 
Item 1. Financial Statements

Financial Statements of Mechanical Technology Incorporated and Subsidiaries
 
 
 
Condensed Consolidated Balance Sheets - September 30, 2006 and December 31, 2005 (Unaudited) 
3
 
 
Condensed Consolidated Statements of Operations - Three and nine months ended September 30, 2006 and 2005 (Unaudited)
4
 
 
Condensed Consolidated Statements of Shareholders' Equity and Comprehensive Loss - Nine months ended September 30, 2006 and 2005 (Unaudited)
5
 
 
Condensed Consolidated Statements of Cash Flows - Nine months ended September 30, 2006 and 2005 (Unaudited)
6
 
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
7-24
 
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
25-34
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
34
 
 
Item 4. Controls and Procedures
34-35
 
 
Part II. OTHER INFORMATION
 
 
 
Item 1. 	Legal Proceedings
35
 
 
Item 1A.	Risk Factors
35
 
 
Item 6. 	Exhibits
36
 
 
Signatures
37
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2
**PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As of September 30, 2006 and December 31, 2005 (Unaudited)

(Dollars in thousands)**

 
September 30,
December 31,
 
2006
2005**Assets**Current Assets:
 
 
Cash and cash equivalents
$ 6,939
$ 11,230
Securities available for sale 
11,355
18,947
Accounts receivable
1,109
998
Other receivables - related parties
-
3
Inventories, net
1,213
1,058
Prepaid expenses and other current assets
669 
451
Total Current Assets
21,285
32,687
 
 
 
Property, plant and equipment, net
2,489
2,495
Deferred income taxes
3,432
6,085
Total Assets
$ 27,206
$ 41,267**Liabilities and Shareholders' Equity
 
 
 **Current Liabilities:
 
 
Accounts payable
$ 443
$ 375
Accrued liabilities
2,502
1,672
Accrued liabilities - related parties
-
2
Income taxes payable
88
65
Deferred income taxes
3,432
6,108
Total Current Liabilities
6,465
8,222**Long-Term Liabilities:
_______**_______
Total Liabilities
6,465
8,222
Commitments and Contingencies
 
 
Minority interests 
122
129**Shareholders' Equity
 
 
Common stock, par value $.01 per share, authorized 75,000,000; 
 
 
39,716,358 issued in 2006 and 38,965,937 issued in 2005
397
390
Paid-in-capital
124,463
122,095
Accumulated deficit
(92,049)
(81,718)
Accumulated Other Comprehensive Income:
 
 
Unrealized gain on securities available for sale, net of tax
1,562
5,983
 
 
 
Restricted stock grants - unearned compensation
-
(80)
Common stock in treasury, at cost, 8,040,736 shares in 2006 and 2005
(13,754)
(13,754)
Total Shareholders' Equity
20,619
32,916
Total Liabilities and Shareholders' Equity
$ 27,206
$ 41,267

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

3
**MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Dollars in thousands, except per share data)**

Three months ended
Nine months ended
 
September 30,
September 30,
September 30,
September 30,
 
2006
2005
2006
2005
 
 
 
 
 
Product revenue
$ 1,693
$ 1,428
$ 4,906
$ 4,116
Funded research and development revenue
173
792
311
1,496
Total revenue
1,866
2,220
5,217
5,612
Operating costs and expenses:
Cost of product revenue
650
563
1,915
1,682
Research and product development expenses:
Funded research and product development 
323
877
663
2,989
Unfunded research and product development 
3,234
1,216
8,706
4,677
Total research and product development expenses 
3,557
2,093
9,369
7,666
Selling, general and administrative expenses
1,859
2,187
7,695
7,729
Operating loss
(4,200)
(2,623)
(13,762)
(11,465)
Loss on derivatives
-
-
-
(10,407)
Gain on sale of securities available for sale
-
490
3,810
10,125
Other income, net
85
116
223
325
Loss before income taxes and minority interests
(4,115)
(2,017)
(9,729)
(11,422)
Income tax (expense) benefit 
69
(145)
(1,544)
(408)
Minority interests in losses of consolidated subsidiary
368
253
942 
1,074
Net loss
$ (3,678)
$ (1,909)
$ (10,331)
$ (10,756)
Loss per Share (Basic and Diluted):
Loss per share
$ (0.12)
$ (0.06)
$ (0.33)
$ (0.35)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
** 

 

 

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

4
**MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

AND COMPREHENSIVE LOSS (Unaudited)

(Dollars in thousands)

Nine months ended
September 30,
September 30,
 
2006
2005**Common Stock
 
 
Balance, beginning 
$ 390**********************************