=====================================================================

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 March 31, 2003

/ / 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 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 an accelerated filer (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 May 14, 2003**Common stock, $1.00 Par Value**27,639,135 Shares** 

			MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

INDEX

 

 

 

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

Financial Statements of Mechanical Technology Incorporated   
Consolidated Balance Sheets - March 31, 2003 (Unaudited) and December 31, 2002 (Audited) 
3-4  
Consolidated Statements of Operations - Three months ended March 31, 2003 and 2002 (Unaudited)
5  
Consolidated Statements of Shareholders' Equity -   Three months ended March 31, 2003 and 2002 (Unaudited)
6  
Consolidated Statements of Cash Flows - Three months ended March 31, 2003 and 2002 (Unaudited)
7  
Notes to Interim Consolidated Financial Statements (Unaudited)
8-23  
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
24-36  
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
36  
Item 4.  Controls and Procedures
36  
Part II.  OTHER INFORMATION   
Item 1.  Legal Proceedings
37
Item 2.  Changes in Securities and Use of Proceeds
37
Item 3.  Defaults Upon Senior Securities
37
Item 4.  Submission of Matters to a Vote of Security Holders
37
Item 5.  Other Information
37
Item 6.  Exhibits and Reports on Form 8-K
37  
Signatures
38  
Certifications
39 - 40
 

2
**PART I.  FINANCIAL INFORMATION

  Item 1.  Financial Statements****MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of March 31, 2003 (Unaudited)

 and December 31, 2002 (Audited)

(Dollars in thousands)

 

 **
Mar. 31, 
Dec. 31, 
2003
2002
Assets  
Current Assets:  
  Cash and cash equivalents
$ 8,169
$ 7,320
  Securities available for sale
38,788
37,332
  Accounts receivable 
1,339
1,445
  Inventories
1,344
1,378
  Prepaid expenses and other current assets
   818
   668
    Total Current Assets
50,458
48,143   
Long Term Assets:  
  Derivative assets
-
6
  Property, plant and equipment, net
1,570
1,558
  Deferred income taxes
2,896
 2,677
  Notes receivable-noncurrent, less allowance of $660 
     -
     -
    Total Assets
$54,924
$52,384** 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.
**3
**MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

As of March 31, 2003 (Unaudited)

 and December 31, 2002 (Audited)  

 (Dollars in thousands, except share data)** 
Mar. 31, 
Dec. 31,  
2003
2002
Liabilities and Shareholders' Equity     
Current Liabilities:  
  Accounts payable
$    733
$    761
  Accrued liabilities
1,787
1,543
  Accrued liabilities - related parties
55
190
  Income taxes payable
64
92
  Deferred income taxes
  9,988
  8,876
    Total Current Liabilities
12,627
 11,462
Long-Term Liabilities:  
  Other credits
     24
     24
    Total Liabilities
 12,651
 11,486   
Commitments and Contingencies   
Minority interests
     35
    150   
Shareholders' Equity:  
  Common stock, par value $1 per share,

   authorized 75,000,000; issued 

   35,659,385 in March 2003 and 

   35,648,135 in December 2002
 

 

35,659
 

 

35,648
  Paid-in-capital
67,502
67,479
  Accumulated deficit
(61,937)
(61,874)

41,224
41,253
  Accumulated Other Comprehensive Income:  
    Unrealized gain on securities available for sale, 

    net of taxes
14,677
13,170
  Restricted stock grant
(28)
(40)
  Common stock in treasury, at cost, 

   8,020,250 shares
(13,635)
(13,635)
    Total Shareholders' Equity
 42,238
 40,748
    Total Liabilities and Shareholders' Equity
$ 54,924
$ 52,384
 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.
**4
**MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES  

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Dollars in thousands, except per share data)**
Three months ended 
Mar. 31,
Mar. 31, 
2003
2002*Revenue:  
Product revenue
$ 1,283
$   590
Funded research and development
   522
  172
Total revenue
1,805
762*Operating costs and expenses:
Cost of product revenue
555
412
Research and product development expenses:
Funded research and product development 
820
345
Unfunded research and product development 
   951
 1,023
Total research and product development expenses 
1,771
1,368
Selling, general and administrative expenses
 1,420
 1,635
Operating loss
(1,941)
(2,653)
Interest expense
(3)
(12)
Loss on derivatives
(6)
(167)
Gain on sale of holdings, net
-
2,241
Gain on sale of securities available for sale, net
1,720
-
Impairment losses (Note 6)
 -
(5,282)
Other (expense) income, net
  (38)
     9
Loss from operations before income taxes, equity in holdings' losses and minority interests
(268)
(5,864)
Income tax benefit 
    89
2,353
Equity in holdings' losses, net of tax
 -
(1,866)
Minority interests in losses of consolidated subsidiary
   116
    121
Net loss 
$   (63)
$ (5,256)
Loss per Share (Basic and Diluted):
 Loss per share
$ (0.00)
$  (0.15)
 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 **
5
**MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)**
**(Dollars in thousands)**
Three months ended
Mar. 31,
Mar. 31, 
2003
2002
COMMON STOCK  
 Balance, beginning 
$ 35,648
$ 35,505
   Issuance of shares - options 
     11
     24
 Balance, ending
$ 35,659
$ 35,529
PAID-IN-CAPITAL  
 Balance, beginning 
$ 67,479
$ 67,045
   Issuance of shares - options 
9
(6)
   MTI MicroFuel Cell investment
2
-
   Plug Power holding, net of taxes
-
83
   SatCon holding, net of taxes
-
(86)
   Compensatory options 
11
13
   Stock option exercises recognized

    differently for financial reporting and 

    tax purposes
 

      1
     25
 Balance, ending
$ 67,502
$ 67,074
ACCUMULATED DEFICIT  
 Balance, beginning
$(61,874)
$(54,913)
   Net loss
    (63)
 (5,256)
 Balance, ending
$(61,937)
$(60,169)
ACCUMULATED OTHER COMPREHENSIVE INCOME:
UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE,  
NET OF TAXES  
 Balance, beginning
$ 13,170
 $      -
   Change in unrealized gain on securities available                                                                                          for sale, net of taxes
  1,507
      -
 Balance, ending
$ 14,677
$      -
RESTRICTED STOCK GRANT  
 Balance, beginning
$    (40)
$      -
 Grants vested
     12
      -
 Balance, ending
$    (28)
$      -
TREASURY STOCK  
 Balance, beginning 
$(13,635)
$    (29)
 Balance, ending
$(13,635)
$    (29)
SHAREHOLDERS' EQUITY  
 Balance, ending
$ 42,238
 $ 42,405
TOTAL COMPREHENSIVE INCOME (LOSS):  
  Net loss
$    (63)
$ (5,256)
  Other comprehensive income:  
    Change in unrealized gain on securities available

     for sale, net of taxes
  1,507
      -
  Total comprehensive income (loss)
$  1,444
$ (5,256)
The accompanying notes are an integral part of the consolidated financial statements.

 

6
**MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)** 
Three months ended 
Mar. 31,

2003
Mar. 31,

2002
Operating Activities  
 Net loss 
$   (63)
$ (5,256)
 Adjustments to reconcile net loss to   
 net cash used by operations:  
   Loss on derivatives
6
167
   Impairment losses
-
5,282
   Minority interests in losses of 

    consolidated subsidiary
(116)
(121)
   Depreciation and amortization
138
129
   Gain on sale of holdings, net
-
(2,241)
   Gain on sale of securities available for 

    sale, net
(1,720)
-
   Equity in holdings' losses, gross
-
3,115
   Loss on disposal of fixed assets
-
5
   Deferred income taxes and other credits
(111)
(3,591)
   Stock based compensation
23
13
 Changes in operating assets and liabilities:
   Accounts receivable
106
297
   Inventories
34
(95)
   Prepaid expenses and other current assets
(147)
  (264)
   Accounts payable
(28)
(213)
   Income taxes
(28)
3
   Accrued liabilities - related parties
(135)
32
   Accrued liabilities
   244
   190
 Net cash used by operations
(1,797)
(2,548)
Investing Activities  
 Purchases of property, plant and equipment
(150)
(70)
 Proceeds from sale of holdings
-
3,582
 Proceeds from sale of securities available for sale
2,776
-
 Principal payments from notes receivable
     -
    25
 Net cash provided by investing activities
 2,626
 3,537
Financing Activities  
 Proceeds from stock option exercises
    20
    18
 Net cash provided by financing activities
    20
    18
 Increase in cash and cash equivalents
849
1,007
 Cash and cash equivalents - beginning of period
 7,320
 4,127
 Cash and cash equivalents - end of period
$ 8,169
 $ 5,134**The accompanying notes are an integral part of the consolidated financial statements.
** 

 

 

 

 

 

7
**MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- Basis of Presentation

In the opinion of management the accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and contain all adjustments, consisting of only normal, recurring adjustments, necessary for a fair presentation of results for such periods.  The results for any interim period are not necessarily indicative of results for the full year.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2002.
- Significant Accounting Policies
*Revenue Recognition

The Company recognizes revenue from product sales in accordance with Staff Accounting Bulletin (SAB) No. 101, *Revenue Recognition*.  Product revenue is recognized when there is persuasive evidence of an arrangement, delivery of the product to the customer or distributor has occurred, at which time title generally is passed to the customer or distributor, and the Company has determined that collection of a fixed fee is probable, all of which occur upon shipment of the product.  If the product requires installation to be performed by the Company, all revenue related to the product is deferred and recognized upon the completion of the installation.  

The Company performs funded research and development for government agencies and companies under cost reimbursement contracts, which generally require the Company to absorb up to 50% of the total costs incurred.  Cost reimbursement contracts provide for the reimbursement of allowable costs.  Revenues are generally recognized in proportion to the reimbursable costs incurred.  When government agencies are providing funding they do not expect the government to be the only significant end user of the resulting products.  These contracts do not require delivery of products that meet defined performance specifications, but are best efforts arrangements to achieve overall research and development objectives.  Included in accounts receivable are billed and unbilled work-in-progress on cost reimbursed contracts.  

While the Company's accounting for these contract costs are subject to audit by the sponsoring entity, in the opinion of management, no material adjustments are expected as a result of such audits.  Cost of product revenue includes material, labor and overhead.  Costs incurred in connection with funded research and development arrangements are included in funded research and product development expenses.
** 

8
**MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**
 
- Significant Account Policies  (Continued)

Deferred revenue consists of payments received from customers in advance of services performed, products shipped or installation completed.

Warranty

The Company records a warranty reserve at the time product revenue is recorded based on a historical rate.  The reserve is reviewed during the year and is adjusted, if appropriate, to reflect new product offerings or changes in experience.  Actual warranty claims are tracked by product.

Stock Based Compensation

At March 31, 2003, the Company has two stock-based employee compensation plans, which are described more fully in Note 15 of the financial statements and notes thereto for the year ended December 31, 2002.  SFAS No. 123, *Accounting for Stock-Based Compensation*, requires the measurement of the fair value of stock options or warrants granted to employees to be included in the statement of operations or, alternatively, disclosed in the notes to consolidated financial statements.  The Company accounts for stock-based compensation of employees under the intrinsic value method of Accounting Principles Board (APB) Opinion No. 25, *Accounting for Stock Issued to Employees*, and related Interpretations and has elected the disclosure-only alternative under SFAS No. 123.  The Company records the fair market value of stock options and warrants granted to non-employees in exchange for services in accordance with Emerging Issues Task Force (EITF) No. 96-18, *Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services*, in the Consolidated Statement of Operations. The Company does not intend to adopt the transition provisions of SFAS No. 148, *Accounting for Stock-Based Compensation- Transition and Disclosure.*
The following table illustrates the effect on net loss and earnings per share as if the Company had applied the fair value recognition provisions of FASB Statement No. 123, *Accounting for Stock-Based Compensation*, to stock-based employee compensation.
** 

 

 

 

 

 

9
**MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**- Significant Accounting Policies  (Continued)

(Dollars in thousands, 
Three months ended  
except per share data)
Mar. 31,
Mar. 31,   
2003
2002  
Net loss, as reported
$   (63)
$ (5,256)  
Add:  Total stock-based employee     
compensation expense already recorded in    
financial statements, net of related tax
Effects
7
8  
Deduct:  Total stock-based employee    
compensation expense determined under fair    
value based method for all awards, net of    
related tax effects
  (371)
  (371)  
Pro forma net loss
 $  (427)
$(5,619)       
Loss per share:    
Basic and diluted - as reported
$ (0.00)
$ (0.15)  
Basic and diluted - pro forma
$ (0.02)
$ (0.16)  
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.
- Contracts Receivable Included in accounts receivable are the following at:
 
Mar. 31,
Mar. 31,
(Dollars in thousands)
2003
2002
U.S. and State Government:  
 Amount billable
$ 298
$ 300
 Amount billed
-
42
 Retainage
  35
  25 
$ 333
$ 367

The balances billed but not paid by customers pursuant to retainage provisions in contracts are due upon completion of the contracts and acceptance by the customer.  Based on the Company's experience, most retainage amounts are expected to be collected within the ensuing year.

 

 

10
**MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Inventories

Inventories consist of the following at:
 
Mar. 31,
Dec. 31,
(Dollars in thousands)
2003
2002
Finished goods
$  310
$  313
Work in process
298
253
Raw materials, components and assemblies
  736
  812 
$1,344
$1,378- Securities Available for Sale

Securities available for sale are classified as current assets and accumulated net unrealized gains (losses) are charged to Other Comprehensive Income (Loss).

The principal components of the Company's securities available for sale consist of the following:

(Dollars in thousands, except stock price and share data)
    
Quoted       
Market   
Book
Unrealized
Recorded
Price  
Security
Basis
Gain (Loss)
Fair Value
Per NASDAQ
Ownership
Shares
March 31, 2003      
Plug Power
$13,456
$24,865
$38,321
$ 5.06
15.10%
7,573,227
SatCon
   869
  (402)
   467
  0.72
  3.80%
648,600
Total
$14,325
$24,463
$38,788   
December 31, 2002      
Plug Power
$14,344
$21,905
 $36,249
$ 4.49
15.83%
8,073,227
SatCon 
 1,037
    46
 1,083
  1.40
 4.58%
773,600
Total
$15,381
$21,951
$37,332   
The book basis roll forward of Plug Power and SatCon securities is as follows:
***Plug Power*
(Dollars in thousands)
Mar. 31,
Dec. 31,
2003
2002
Securities available for sale, beginning of period 
 $14,344
 $     -
Transfer asset from holdings, at equity on December 20, 2002
    -
  14,416
Sale of shares
  (888)
   (72)
Securities book basis
13,456
14,344
Unrealized gain on marketable securities
24,865
21,905
Securities available for sale, end of period
$38,321
$36,249*** 

 

 

 

 

 

 *
11
**MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- Securities Available for Sale  (Continued)
***SatCon*
(Dollars in thousands)
Mar. 31,
Dec. 31, 
2003
2002
Securities available for sale, beginning of period
$ 1,037
  $    -
Transfer asset from holdings, at equity on July 1, 2002
       -
   2,193
Sale of shares
    (168)
(488)
Impairment loss (Note 6)
     -
  (668)
Securities book basis
  869
1,037
Unrealized (loss) gain on marketable securities
  (402)
    46
Securities available for sale, end of period
$   467
$ 1,083***- Impairment Losses 

The Company regularly reviews its holdings and securities available for sale to determine if any declines in value of those holdings are other than temporary.  The Company assesses whether declines in the value of its holdings and securities in publicly traded companies, measured by comparison of the current market price of the securities to the carrying value of the Company's holdings and securities, are considered to be other than temporary based on factors that include (1) the length of time carrying value exceeds fair market value, (2) the Company's assessment of the financial condition and the near term prospects of the companies, and (3) the Company's intent with respect to the holdings and securities.
The slowing economy has had a negative impact on the equity value of companies in the new energy sector. In light of these circumstances 

and based on the results of the reviews described above, the Company recorded other than temporary impairment charges with respect to its holdings in publicly traded companies.  Pre-tax impairment losses were recorded as follows:  
 
Three months ended 
(Dollars in thousands)
Mar. 31, 2003
Mar. 31, 2002  
Holdings, at equity (SatCon)
$   -
$(1,798)  
Securities available for sale (Beacon)
   -
(3,484)   
$   -
$(5,282)  Income Taxes

The Company's effective income tax rate from operations, including equity in holdings' losses differed from the Federal statutory rate as follows: 

   Three months ended 
Mar. 31, 2003
Mar. 31, 2002  
Federal statutory tax rate
      (34.00)%
   (34.00)%  
State taxes, net of federal tax     
 Effect
        (.58)
    (6.00)  
Other, net
  1.37
  (.11)  
Tax rate
(33.21)%
(40.11)%  
12
**MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**- Income Taxes  (Continued)

Income tax (benefit) expense consists of the following: 

Three months ended
(Dollars in thousands)
Mar. 31,
Mar. 31,   
2003
2002  
Operations before equity in 

 holdings' losses     
    Federal
$     -
$     -  
    State
22
(11)  
    Deferred
 (111)
(2,342) 
  (89)
(2,353)  
Equity in holdings' losses    
    Federal
          -
     -  
    State
-
-
    Deferred
    -
(1,249)   
    -
(1,249)  
Total operations
      $  (89)
 $(3,602)  
Items charged (credited) 

 directly to stockholders' 

 equity:    
 Increase in additional paid-

  in capital for equity 

  holdings and warrants and 

  options issued - Deferred 
 

 

      $     -
 

 

$   (2)  
 Increase in unrealized gain

  on available for sale 

  securities - Deferred 
 

1,005
-  
 Expenses for employee stock

  options recognized 

  differently for financial 

  reporting/tax purposes -

  Federal
 

 

    (1)
 

 

 

   (25) 
      $ 1,004
$   (27)  
The deferred tax assets and liabilities consist of the following tax effects relating to temporary differences and carryforwards: 

(Dollars in thousands)
Mar. 31, 
    Dec. 31, 
2003
2002
Current deferred tax (liabilities) assets:  
  Bad debt reserve
$    264
$   264
  Inventory valuation
12
12
  Inventory capitalization
19
19
  Securities available for sale
(10,786)
(9,659)
  Vacation pay
94
94
  Warranty and other sale obligations
26
22
  Stock options
261
256
  Other reserves and accruals
    122
   116
     Net current deferred tax liabilities
$ (9,988)
$(8,876)
Noncurrent deferred tax assets (liabilities):  
  Net operating loss
$  4,007
$ 3,790
  Property, plant and equipment
(123)
(123)
  Derivatives
-
(2)
  Other
239
239
  Research and development tax credit
459
459
  Alternative minimum tax credit
    150
   150 
4,732
4,513
  Valuation allowance
 (1,836)
(1,836)
Net noncurrent deferred tax assets
 $  2,896
 $ 2,677
** 

 

13
**MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**- Income Taxes  (Continued)

The valuation allowance at March 31, 2003 and December 31, 2002 was $1.836 million.  The valuation allowance reflects the estimate that it was more likely than not that certain net operating losses may be unavailable to offset future taxable income.
- Debt

As of March 31, 2003, the Company had a $10 million Credit Agreement with KeyBank, N.A. dated as of August 10, 2001 ("the $10 million Credit Agreement").  As of March 31, 2003, the Company had no outstanding debt and no availability under this line of credit because the market value of Plug Power common stock was $5.06 per share, which reduced the availability under this facility to zero.
- Earnings Per Share

The amounts used in computing earnings per share ("EPS") and the effect on income and the weighted average number of shares of potentially dilutive securities are as follows: 
 
  Three months ended 
(Dollars in thousands, except
   Mar. 31,
   Mar. 31,  
per share data)
2003
2002
Loss from operations
$    (63)
   $(5,256)
Basic EPS:    
 Common shares outstanding, 

  beginning of period
27,627,885
35,484,760  
 Unvested restricted common shares
(50,000)
-  
 Weighted average common shares 

  issued during the period 
     9,250
    24,350  
 Weighted average shares 

  outstanding   
27,587,135
35,509,110
 Loss per weighted average share 
$ (0.00)
$ (0.15)
Diluted EPS:
 Common shares outstanding, 

  beginning of period
27,627,885
35,484,760  
 Weighted average common shares 

  issued during the period 
     9,250
    24,350  
 Weighted average number of 

  options
-
-  
 Weighted average number of 

  warrants
         -
         -  
 Weighted average shares 

  outstanding
27,637,135
35,509,110
Loss per weighted average share
$ (0.00)
$ (0.15)** 

 

 

 

 

 

 

 

14
**MECHANICAL TECHNOLOGY INCORPORATED AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Earnings Per Share  (Continued)

For the three months ended March 31, 2003, options to purchase 3,317,275 shares of common stock at prices ranging from $.54 to $21.92 per share and warrants to purchase 300,000 shares of common stock at $12.56 per share were outstanding but were not included in the computations of EPS-assuming dilution because the Company incurred losses during these periods and inclusion would be anti-dilutive.  Additionally, under SFAS No. 128, *Earnings per Share*, 50,000 shares of non-vested restricted common stock, which vests solely upon continued service, were excluded from the computation of basic earnings per share.

For the three months ended March 31, 2002, options to purchase 3,175,050 shares of common stock at prices ranging from $.54 to $21.92 per share and warrants to purchase 300,000 shares of common stock at $12.56 per share were outstanding but were not included in the computations of EPS-assuming dilution because the Company incurred losses during these periods and inclusion would be anti-dilutive.
- Equity in Holdings' Losses, Net of Tax 
Equity in holdings' losses, net of tax, for holdings accounted for under the equity method is as follows: 
 
Three months ended
(Dollars in thousands)
Mar. 31,
Mar. 31, 
2003
2002
Plug Power 
$  -
$(1,612)
SatCon
  -
  (254) 
$  -
$(1,866)Sale of Holdings

The Company sold shares of the following holdings and recognized gains and proceeds as follows:
 
Three  months ended 
Mar. 31,
Mar. 31,
(Dollars in thousands, except shares)
2003
2002***Plug Power  
Shares sold
-
300,000
Proceeds
  $  -
$ 2,902
Gain on sales
  $  -
$ 2,097***SatCon
Shares sold
 -
112,500
Proceeds
$  -
$   680
Gain on sales
$  -
$   144
Total net gain on sales
$  -
$ 2,241******************************************************************