---

---

UNITED
STATESSECURITIES AND EXCHANGE COMMISSIONWashington, 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, 2009**          
|**OR**                                                           
|                                                                 
|c                                                                 |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
|                                                                 
|**FOR THE TRANSITION PERIOD FROM
      _____** **TO
      _____**

**______________**

Mechanical
Technology, Incorporated(Exact
name of registrant as specified in its charter)______________

|New
      York                     | 0-6890                         | 14-1462255         
|---------------------------------- | ------------------------------ | -------------------
|(State or
      Other Jurisdiction | (Commission
      File Number) | (IRS
      Employer
|of
      Incorporation)            |                                | Identification No.)

431 New Karner Road, Albany, New York
12205(Address of registrants
principal executive office)

(518) 533-2200(Registrants telephone number, including area
code)

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 xNo o

Indicate by check mark whether the
registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files).Yes o  No o

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

|Large
      accelerated filer o | Accelerated
      filer o | Non-accelerated
      filer o                     | Smaller
      reporting company x
|------------------------------- | ------------------------- | ------------------------------------------------- | ---------------------------------
|                                |                           | (Do not
      check if a small reporting company) |                                  

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12B-2 of the Act). Yes oNox

The number of shares of common stock, par
value of $0.01 per share, outstanding as of May 11, 2009 was
4,771,658.

---

MECHANICAL TECHNOLOGY, INCORPORATED
AND SUBSIDIARIESINDEX

|Part I. FINANCIAL INFORMATION                                                                       |  | Page No.               
|--------------------------------------------------------------------------------------------------- |  | -----------------------
|Item 1. Financial Statements                                                                        |  |                        
|Financial Statements of Mechanical
      Technology, Incorporated and Subsidiaries                  |  |                        
|                                                                                                    |  |                        
|Condensed Consolidated Balance Sheets 
      December 31, 2008 and March 31, 2009 (Unaudited)      |  | 3                      
|                                                                                                    |  |                        
|Condensed Consolidated Statements of
      Operations  Three months ended March 31, 2008 and 2009  |  | 4                      
|(Unaudited)                                                                                         |  |                        
|                                                                                                    |  |                        
|Condensed Consolidated Statements of
      Stockholders Equity and Comprehensive Loss  Three      |  | 5                      
|months ended March 31, 2008 and 2009
      (Unaudited)                                              |  |                        
|                                                                                                    |  |                        
|Condensed Consolidated Statements of
      Cash Flows  Three months ended March 31, 2008 and 2009  |  | 6                      
|(Unaudited)                                                                                         |  |                        
|                                                                                                    |  |                        
|Notes to Condensed Consolidated
      Financial Statements (Unaudited)                              |  | 7                      
|                                                                                                    |  |                        
|Item 2. Managements Discussion and
      Analysis of Financial Condition and Results of Operations |  | 20                     
|                                                                                                    |  |                        
|Item 4. Controls and
Procedures                                                                     |  | 27                     
|                                                                                                    |  |                        
|Part II. OTHER
    INFORMATION                                                                      |  |                        
|Item
      1.                                                                                       |  | Legal
      Proceedings
|                                                                                                    |  |                        
|Item 1A.                                                                                            |  | Risk Factors           
|                                                                                                    |  |                        
|Item 5.                                                                                             |  | Other Information      
|                                                                                                    |  |                        
|Item 6.                                                                                             |  | Exhibits               
|                                                                                                    |  |                        
|Signatures                                                                                          |  |                        

2

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PART I. FINANCIAL INFORMATIONItem
1. Financial Statements

MECHANICAL TECHNOLOGY, INCORPORATED
AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETSAs of December 31, 2008 and March 31, 2009 (Unaudited)

|(Dollars in
      thousands)                                                              | December 31, |          | March 31,
|----------------------------------------------------------------------------------------- | ------------ | -------- | ---------
|                                                                                          | 2008         |          | 2009     
|Assets                                                                                   
|                                                                                          |              |          |          
|Current Assets:                                                                           |              |          |          
|Cash and cash equivalents                                                                 | $            | 1,662    |          
|Accounts receivable                                                                       |              | 540      |          
|Inventories, net                                                                          |              | 1,509    |          
|Prepaid expenses and other current
      assets                                           |              | 272      |          
|Total Current Assets                                                                      |              | 3,983    |          
|Property, plant and equipment, net                                                        |              | 1,528    |          
|Total Assets                                                                              | $            | 5,511    |          
|                                                                                         
|Liabilities and Stockholders Equity                                                     
|                                                                                          |              |          |          
|Current Liabilities:                                                                      |              |          |          
|Accounts payable                                                                          | $            | 508      |          
|Accrued liabilities                                                                       |              | 1,648    |          
|Deferred revenue                                                                          |              | 8        |          
|Bridge note payable  related party, at fair
      value                                  |              | 1,544    |          
|Income taxes payable                                                                      |              | 23       |          
|Total Current Liabilities                                                                 |              | 3,731    |          
|                                                                                          |              |          |          
|Long-Term Liabilities:                                                                    |              |          |          
|Uncertain tax position liability                                                          |              | 213      |          
|Derivative liability                                                                      |              | 41       |          
|Total Long-Term-Liabilities                                                               |              | 254      |          
|Total Liabilities                                                                         |              | 3,985    |          
|                                                                                          |              |          |          
|Stockholders Equity:                                                                     |              |          |          
|Common stock, par value $0.01 per share,
      authorized 75,000,000; 5,777,578 issued in |              |          |          
|2008 and 5,776,750
      issued in 2009                                                   |              | 58       |          
|Paid-in-capital                                                                           |              | 132,781  |          
|Accumulated deficit                                                                       |              | (117,570 | )        
|Common stock in treasury, at cost, 1,005,092
      shares in 2008 and 2009                |              | (13,754  | )        
|Total MTI stockholders equity                                                             |              | 1,515    |          
|Noncontrolling interest                                                                   |              | 11       |          
|Total Equity                                                                              |              | 1,526    |          
|Total Liabilities and Stockholders
      Equity                                          | $            | 5,511    |          

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

3

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MECHANICAL TECHNOLOGY, INCORPORATED
AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)For the Three Months Ended March 31, 2008 and 2009

|(Dollars in
      thousands, except per share)             | Three Months Ended March 31,
|---------------------------------------------------------- | ----------------------------
|                                                           | 2008                        
|Product revenue                                            | $                           
|Funded research
      and development revenue              |                             
|Total revenue                                              |                             
|Operating costs
      and expenses:                        |                             
|Cost of product revenue                                    |                             
|Research and product development expenses:                 |                             
|Funded research and product
      development              |                             
|Unfunded research and product development                  |                             
|Total research and product development
      expenses      |                             
|Selling, general and administrative
      expenses         |                             
|Operating loss                                             |                             
|Interest
      expense                                     |                             
|Gain on derivatives                                        |                             
|Other income,
      net                                    |                             
|Loss before income taxes and noncontrolling
      interest |                             
|Income tax
      benefit (expense)                         |                             
|Net loss, net of tax                                       |                             
|Plus: Net loss
      attributed to NCI                     |                             
|Net loss
      attributed to MTI                           | $                           
|                                                          
|Loss per Share (Basic and Diluted):                        |                             
|Loss per share                                             | $                           

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

4

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MECHANICAL TECHNOLOGY, INCORPORATED
AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITYAND COMPREHENSIVE LOSS
(Unaudited)For the Three Months Ended March 31, 2008 and 2009

|(Dollars in
      thousands)                                                                         | Three Months Ended March 31,
|---------------------------------------------------------------------------------------------------- | ----------------------------
|                                                                                                     | 2008                        
|Common Stock                                                                                         |                             
|Balance,
      beginning                                                                             | $                           
|Balance, ending                                                                                      | $                           
|                                                                                                     |                             
|Paid-In
      Capital                                                                                |                             
|Balance, beginning                                                                                   | $                           
|Stock-based compensation                                                                             |                             
|Balance, ending                                                                                      | $                           
|                                                                                                     |                             
|Accumulated Deficit                                                                                  |                             
|Balance, beginning                                                                                   | $                           
|Cumulative effect of adoption of FIN 48                                                              |                             
|Net
      loss                                                                                       |                             
|Balance, ending                                                                                      | $                           
|                                                                                                     |                             
|Accumulated Other Comprehensive Income (Loss)                                                        |                             
|Unrealized gain
      (loss) on securities available for sale, net of taxes                          |                             
|Balance, beginning                                                                                   | $                           
|Change in unrealized (loss) gain on securities available
      for sale (net of taxes of $0 in 2008) |                             
|Balance, ending                                                                                      | $                           
|                                                                                                     |                             
|Treasury Stock                                                                                       |                             
|Balance, beginning                                                                                   | $                           
|Balance, ending                                                                                      | $                           
|                                                                                                     |                             
|Noncontrolling Interest (NCI)                                                                        |                             
|Balance,
      beginning                                                                             | $                           
|Net loss
      attributed to NCI                                                                     |                             
|Balance, ending                                                                                      | $                           
|                                                                                                     |                             
|Total Stockholders Equity                                                                           |                             
|Balance, ending                                                                                      | $                           
|                                                                                                     |                             
|Total Comprehensive (Loss)                                                                           |                             
|Net
      loss                                                                                       | $                           
|Other comprehensive (loss):                                                                          |                             
|Change in unrealized (loss) gain on securities available
      for sale, net of taxes                |                             
|Total comprehensive
      (loss)                                                                     | $                           

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

5

---

MECHANICAL TECHNOLOGY, INCORPORATED
AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)For the Three Months Ended March 31, 2008 and 2009

|(Dollars in
      thousands)                                                      | Three Months Ended March 31,
|--------------------------------------------------------------------------------- | ----------------------------
|                                                                                  | 2008                        
|Operating Activities                                                              |                             
|Net
      loss                                                                    | $                           
|Adjustments to reconcile net loss to net cash used by operating
      activities: |                             
|Gain on derivatives                                                               |                             
|Depreciation and amortization                                                     |                             
|Stock based compensation                                                          |                             
|Changes in operating assets and liabilities:                                      |                             
|Accounts receivable                                                               |                             
|Inventories                                                                       |                             
|Prepaid expenses and other current assets                                         |                             
|Accounts payable                                                                  |                             
|Income taxes payable                                                              |                             
|Deferred revenue                                                                  |                             
|Accrued liabilities                                                               |                             
|Net cash used by operating activities                                             |                             
|                                                                                  |                             
|Investing Activities                                                              |                             
|Purchases of property, plant and equipment                                        |                             
|Net cash used by investing activities                                             |                             
|                                                                                  |                             
|Financing Activities                                                              |                             
|Net borrowings
      (payments) on related party debt                             |                             
|Net cash provided by financing activities                                         |                             
|Decrease in cash
      and cash equivalents                                       |                             
|Cash and cash equivalents - beginning of period                                   |                             
|Cash and cash equivalents - end of
      period                                   | $                           

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

6

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MECHANICAL TECHNOLOGY,
INCORPORATEDNOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Nature of Operations

In the opinion of management of Mechanical
Technology, Incorporated (the Company), the accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with the
rules and regulations of the Securities and Exchange Commission (the SEC) and
contain all adjustments, consisting of normal, recurring adjustments, necessary
for a fair statement of results for such periods. The results of operations for
the interim periods presented are not necessarily indicative of results for the
full year.

Certain information and footnote
disclosures normally included in the annual consolidated financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America (U.S. GAAP) have been condensed or omitted. These
unaudited condensed consolidated financial statements should be read in
conjunction with the Companys audited consolidated financial statements and
notes thereto included in the Companys Annual Report on Form 10-K for the year
ended December 31, 2008.

The information presented in the
accompanying condensed consolidated balance sheet as of December 31, 2008 has
been derived from the Companys audited consolidated financial statements but
does not include all disclosures required by U.S. GAAP. All other information
has been derived from the Companys unaudited condensed consolidated financial
statements for the periods as of and for the three months ended March 31, 2008
and 2009.

Reverse Stock Split

Unless otherwise noted, all capital
values, share, and per share amounts in the consolidated financial statements
have been retroactively restated for the effects of the Companys reverse split
of its issued and outstanding common stock at a rate of 1-for-8 which became
effective on May 16, 2008. This action was approved by stockholders on May 15,
2008.

Liquidity and Going Concern

The Company incurred significant losses as
it continued to fund the direct methanol fuel cell product development and
commercialization programs of its majority owned subsidiary, MTI MicroFuel Cells
Inc. (MTI Micro), and had an accumulated deficit of $118.8 million and working
capital deficit of $(922,000) at March 31, 2009. Because of these losses,
limited current cash and cash equivalents, negative cash flows and accumulated
deficit, the report of the Companys independent registered public accounting
firm for the year ended December 31, 2008 expressed substantial doubt about the
Companys ability to continue as a going concern.

During 2008, the Company sold its
remaining 1,137,166 shares of Plug Power Inc. (Plug Power) common stock with
proceeds totaling $3,039 thousand and gains totaling $1,018 thousand. These
proceeds reflect the Companys previous strategy to raise additional capital
through the sale of Plug Power common stock in order to fund MTI Micro
operations.

At present, the Company does not expect to
continue to fund MTI Micros portable power source business. Based on the
Companys projected cash requirements for operations and capital expenditures
and its current cash and cash equivalents of $794,000 at March 31, 2009,
management believes it will have adequate resources to fund its current
operations, excluding MTI Micro operations, through at least December 2009.

In September 2008, MTI Micro issued bridge
notes to investors, including MTI in the form of conversion of existing debt of
$700,000, Dr. Walter L. Robb, a member of the Companys Board of Directors, and
a fund managed by Dr. Robb, totaling $2.2 million. In February 2009, MTI Micro
issued additional bridge notes to the fund managed by Dr. Robb in the amount of
$500,000. On April 15, 2009, MTI Micro, a new investor and the fund managed by
Dr. Robb agreed to amend the bridge note to permit MTI Micro to sell additional
bridge notes from time to time with an additional principal amount of up to
$800,000 in increments not to exceed $165,000 per month. As of May 14, 2009, MTI
Micro has drawn down $380,000 from this line. (See Note 15).

On April 16, 2009, MTI Micro was awarded a
cost share funding grant of $2.4 million from the United States Department of
Energy (DOE) as part of the DOEs $41.9 million in American Recovery and
Reinvestment Act funding for fuel cell technology.

7

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MECHANICAL TECHNOLOGY,
INCORPORATEDNOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

In order to continue full
commercialization of its micro fuel cell solution, MTI Micro will need to do one
or more of the following to raise additional resources, or reduce its cash
requirements:

- obtain additional government or private funding of
  the Companys direct methanol fuel cell research, development, manufacturing
  readiness and commercialization;
- secure additional debt or equity financing;
  or
- further reduce its current expenditure
  run-rate.

There is no guarantee that resources will
be available to MTI Micro on terms acceptable to it, or at all, or that such
resources will be received in a timely manner, if at all, or that MTI Micro will
be able to reduce its expenditure run-rate without materially and adversely
affecting its business. MTI Micro had cash and cash equivalents of $290,000 at
March 31, 2009, has drawn down on the bridge note credit line $380,000, and has
the ability to draw down on the remaining $420,000 bridge loan credit line. The
credit line is expected to bridge MTI Micro to the start of the DOE funding,
which is expected to commence in June 2009, and may allow MTI Micro to bill for
work already completed year to date. As a result of this, management currently
believes it will have adequate resources to fund its MTI Micro operations into
the fourth quarter of 2009.

2. Accounting Policies

On January 1, 2008, the Company adopted
SFAS No. 157,Fair Value Measurements(SFAS No. 157). As defined in SFAS No. 157,
fair value is the price that would be received to sell an asset or transfer a
liability in an orderly transaction between market participants at the
measurement date. The Company utilizes valuation techniques that maximize the
use of observable inputs and minimize the use of unobservable inputs. Based on
the observability of the inputs used in the valuation methods, the Company is
required to provide the following information according to the fair value
hierarchy as specified by SFAS No. 157. This hierarchy ranks the quality and
reliability of the information used to determine fair values.

Financial assets and liabilities are
classified and disclosed in one of the following three categories:

|Level 1: |  | Quoted
      market prices in active markets for identical assets or liabilities, which
      includes listed equities.                                                                                                                                                                                                                                                                                                        
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        
|Level 2: |  | Observable
      market based inputs or unobservable inputs that are corroborated by market
      data. These items are typically priced using models or other valuation
      techniques. These models are primarily financial industry-standard models
      that consider various assumptions, including the time value of money,
      yield curves, volatility factors, as well as other relevant economic
      measures.
|        
|Level 3: |  | These use
      unobservable inputs that are not corroborated by market data. These values
      are generally estimated based upon methodologies utilizing significant
      inputs that are generally less observable from objective
  sources.                                                                                                                                                                              

In determining the appropriate levels, the
Company performs a detailed analysis of financial assets and liabilities that
are subject to SFAS No. 157. At each reporting period, all assets and
liabilities for which the fair value measurements are based upon significant
unobservable inputs are classified as Level 3.

The following is a summary of the
Companys fair value instruments categorized by their associated fair value
input level:

|(Dollars in
      thousands)          |         |   |         |   |         |  |              
|------------------------------------- | ------- | - | ------- | - | ------- |  | -------------
|                                      |         |   |         |   |         |  | Balance at   
|Balance Sheet
      Classification    | Level 1 |   | Level 2 |   | Level 3 |  | Mar. 31, 2009
|Financial Liabilities:                |         |   |         |   |         |  |              
|Derivative liability                  | $       |  |         | $ |        |  | $            
|Bridge note
      payable             |         |  |         |   | 2,087   |  |              
|Total fair value of
      liabilities | $       |  |         | $ | 2,087   |  | $            

8

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MECHANICAL TECHNOLOGY, INCORPORATEDNOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)

The following is a rollforward of Level 3
fair value instruments for the three months ended March 31, 2008:

|(Dollars in thousands)          |               |     |              | Total Gains / |                  |   |                   |   |   | 
|------------------------------- | ------------- | --- | ------------ | ------------- | ---------------- | - | ----------------- | - | - | 
|                                | Beginning     |     | (Losses)     |               | Purchases,       |   | Ending           
|                                | Balance as of |     | Realized and |               | Issuances, Sales |   | **Balance as of**
|Financial Liabilities           | Jan. 1, 2008  |     | Unrealized   |               | and Settlements  |   | Mar. 31, 2008    
|Derivative liability            | $             | 696 |              | $             | (333             | ) |                   | $ |  | 
|Total Level 3
      instruments | $             | 696 |              | $             | (333             | ) |                   | $ |  | 

The following is a rollforward of Level 3 fair value instruments
for the twelve months ended December 31, 2008:

|(Dollars in thousands)          |               |     |              | Total Gains / |                  |   |               |   |   | 
|------------------------------- | ------------- | --- | ------------ | ------------- | ---------------- | - | ------------- | - | - | 
|                                | Beginning     |     | (Losses)     |               | Purchases,       |   | Ending       
|                                | Balance as of |     | Realized and |               | Issuances, Sales |   | Balance as of
|Financial Liabilities           | Jan. 1, 2008  |     | Unrealized   |               | and Settlements  |   | Dec. 31, 2008
|Derivative liability            | $             | 696 |              | $             | (655             | ) |               | $ |  | 
|Total Level 3
      instruments | $             | 696 |              | $             | (655             | ) |               | $ |  | 

The following is a rollforward of Level 3 fair value instruments
for the three months ended March 31, 2009:

|(Dollars in thousands)          |                   |    |              | Total (Gains) / |                  |   |               |   |  
|------------------------------- | ----------------- | -- | ------------ | --------------- | ---------------- | - | ------------- | - | -
|                                | **Beginning**     |    | Losses       |                 | Purchases,       |   | Ending       
|                                | **Balance as of** |    | Realized and |                 | Issuances, Sales |   | Balance as of
|Financial Liabilities           | **Jan. 1, 2009**  |    | Unrealized   |                 | and Settlements  |   | Mar. 31, 2009
|Derivative liability            | $                 | 41 |              | $               | (18              | ) |               | $ | 
|Total Level 3
      instruments | $                 | 41 |              | $               | (18              | ) |               | $ | 

Effective January 1, 2009, the Company
adopted SFAS 160,Noncontrolling Interests in
Consolidated Financial Statements,an Amendment of ARB No. 51(SFAS 160).This standard changed the accounting
for and reporting of minority interests (now referred to as noncontrolling
interests). Noncontrolling interests are now classified as equity in the
financial statements. SFAS 160 also changed the way the consolidated income
statement is presented by requiring net income to include the net income for
both the parent and the noncontrolling interests, with disclosure of both
amounts on the consolidated statement of income. The calculation of earnings per
share continues to be based on income amounts attributable to the parent. As a
result of the adoption of SFAS 160, prior period amounts related to
noncontrolling interests have been reclassified to conform to the current period
presentation.

On January 1, 2009, the Company adopted
FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities, (FSP EITF 03-6-1). FSP EITF
03-6-1 states that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation of
earnings per share pursuant to the two-class method. The adoption of FSP EITF
03-6-1 did not have a material impact on the Financial Statements.

In December 2007, the FASB issued FAS No.
141 (revised 2007), Business Combinations (FAS No. 141(R)) which replaces FAS
No.141, Business Combinations. FAS No. 141 (R) retains the underlying concepts
of FAS No. 141 in that all business combinations are still required to be
accounted for at fair value under the acquisition method of accounting but FAS
No. 141 (R) changed the method of applying the acquisition method in a number of
significant aspects. FAS No. 141(R) is effective on a prospective basis for all
business combinations for which the acquisition date is on or after the
beginning of the first annual period subsequent to December 15, 2008, with the
exception of the accounting for valuation allowances on deferred taxes and
acquired tax contingencies. FAS No. 141(R) amends FAS 109 such that adjustments
made to valuation allowances on deferred taxes and acquired tax contingencies
associated with acquisitions that closed prior to the effective date of FAS No.
141(R) would also apply the provisions of FAS No. 141(R). The Companys adoption
of this Standard on January 1, 2009 did not have a material effect on its
financial statements.

9

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MECHANICAL TECHNOLOGY, INCORPORATEDNOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)

In March 2008, the FASB issued FAS No.
161, Disclosures about Derivative Instruments and Hedging Activities. The
Standard requires enhanced disclosures about derivative instruments and is
effective for fiscal periods beginning after November 15, 2008. SFAS No. 161 was
effective for our Company on January 1, 2009, and will be applied prospectively.
Other than the required disclosures (see Note 6), the adoption of SFAS 161 had
no impact on the Financial Statements.

In May 2008, the FASB issued FAS No. 162,
The Hierarchy of Generally Accepted Accounting Principles (FAS No. 162). FAS
No. 162 identifies the sources of accounting principles and the framework for
selecting principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles in the United States. The FASB does not expect
that FAS No. 162 will result in a change in current practice. However,
transition provisions have been provided in the unusual circumstance that the
application of the provisions of FAS No. 162 results in a change in practice.
FAS No. 162 is effective 60 days following the SECs approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, The Meaning of
Present Fairly in Conformity With GenerallyAccepted Accounting Principles. The Companys
adoption of this Standard on January 1, 2009 did not have a material effect on
its financial statements.

In April 2008, the FASB issued FASB Staff
Position No. FAS 142-3, Determination of the Useful Life of Intangible Assets
(FSP 142-3). FSP 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under FASB Statement No. 142, Goodwill and Other
Intangible Assets and requires enhanced disclosures relating to: (a) the
entitys accounting policy on the treatment of costs incurred to renew or extend
the term of a recognized intangible asset; (b) in the period of acquisition or
renewal, the weighted-average period prior to the next renewal or extension
(both explicit and implicit), by major intangible asset class and (c) for an
entity that capitalizes renewal or extension costs, the total amount of costs
incurred in the period to renew or extend the term of a recognized intangible
asset for each period for which a statement of financial position is presented,
by major intangible asset class. The Companys adoption of this Standard on
January 1, 2009 did not have a material effect on its financial statements.

In May 2008, the FASB issued FASB Staff
Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be
Settled in Cash upon Conversion (Including Partial Cash Settlement) (FSP APB
14-1). This staff position applies to convertible debt instruments that, by
their stated terms, may be settled in cash (or other assets) upon conversion,
including partial cash settlement, unless the embedded conversion option is
required to be separately accounted for as a derivative under FAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. FSP APB 14-1
requires the issuer to separately account for the liability and equity
components of convertible debt instruments in a manner that reflects the
issuers nonconvertible debt borrowing rate on the instruments issuance date
when interest cost is recognized. The Companys adoption of this Standard on
January 1, 2009 did not have a material effect on its financial statements.

3. Accounts Receivable

Receivable balances consist of the
following at:

|(Dollars in
      thousands) | Dec. 31, |     | March 31,
|---------------------------- | -------- | --- | ---------
|                             | 2008     |     | 2009     
|U.S. and State Government    | $        | 106 |          
|Commercial                   |          | 434 |          
|Total                        | $        | 540 |          

For the three months ended March 31, 2008
and 2009, a single commercial customer represented 20.1% and 11.1%,
respectively, and a U.S. governmental agency represented 18.3% and 22.7%,
respectively, of the Companys instrumentation segment product revenue. As of
December 31, 2008 and March 31, 2009, this commercial customer represented 6.3%
and 15.1%, respectively, and the U.S. governmental agency represented 1.0% and
14.1%, respectively, of the Companys instrumentation segment accounts
receivable.

10

---

MECHANICAL TECHNOLOGY, INCORPORATEDNOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)

4. Inventories, net

Inventories, net consist of the following
at:

|(Dollars in thousands) | Dec. 31, |       | March 31,
|---------------------- | -------- | ----- | ---------
|                       | 2008     |       | 2009     
|Finished goods         | $        | 772   |          
|Work in
      process  |          | 449   |          
|Raw materials, net     |          | 288   |          
|                       | $        | 1,509 |          

5. Income Taxes

The Companys effective income tax
(expense) rate from operations differed from the Federal statutory rate for each
of the three months ended March 31 as follows:

|(Dollars in
      thousands)                                | 2008   |    | 2009
|----------------------------------------------------------- | ------ | -- | ----
|Federal statutory tax rate                                  | 34.00  | %  |     
|State taxes, net
      of federal tax effect                | 5.84   |    |     
|Change in valuation allowance                               | (44.03 | )  |     
|Reversal of
      Uncertain Tax Position for NYS Settlement |       |    |     
|Permanent tax difference on derivative valuation            | 4.03   |    |     
|Other,
      net                                            | (0.09  | )  |     
|Tax Rate                                                    | (0.25  | )% |     

Income tax (expense) benefit for the three
months ended March 31 consists of the following:

|(Dollars in thousands)                    | 2008 |    | 2009
|----------------------------------------- | ---- | -- | ----
|Operations before noncontrolling interest |      |    |     
|State                                     |      | (8 | )   
|Total                                     | $    | (8 | )   

The valuation allowance at December 31,
2008 and March 31, 2009 was $27,880 thousand and $28,476 thousand, respectively,
and represents a full valuation allowance. The valuation allowance reflects the
estimate that it is more likely than not that the net deferred tax assets in
excess of deferred tax liabilities may not be realized.

At March 31, 2009 the Company has unused
Federal net operating loss carry forwards of approximately $65,001 thousand. The
Company's and/or its subsidiaries ability to utilize their net operating loss
carryforwards may be significantly limited by Section 382 of the Internal
Revenue Code of 1986, as amended, if the Company or any of its subsidiaries
undergoes an ownership change as a result of subsequent changes in the
ownership of the Company's or its subsidiaries outstanding stock pursuant to
the exercise of the warrants, the conversion of the bridge notes, or otherwise.
A corporation generally undergoes an ownership change when the ownership of
its stock, by value, changes by more than 50 percentage points over any
three-year testing period. In the event of an ownership change, Section 382
imposes an annual limitation on the amount of post-ownership change taxable
income a corporation may offset with pre-ownership change net operating loss
carryforwards and certain recognized built-in losses.

As of March 31, 2009, although no formal
382 study has been performed, the Company and its subsidiaries do not appear to
have had an ownership change for Section 382 purposes. However, when combined
with the changes that the Company has experienced through March 31, 2009, any
additional change in ownership that could result from the conversion of MTI
Micros bridge notes payable is likely to trigger a Section 382 ownership change
that will subject MTI Micros net operating loss carryforwards to significant
annual Section 382 limitations and will likely result in MTI Micro no longer
being permitted to be included in Mechanical Technology, Inc. and Subsidiaries'
consolidated federal and combined New York State tax returns, resulting in
Mechanical Technology, Inc. not being able to utilize MTI Micro's net operating
losses.

11

---

MECHANICAL TECHNOLOGY, INCORPORATEDNOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)

MTI Micros separate company net operating
loss carryforwards as of March 31, 2009, which are currently included with
Mechanical Technology, Inc.'s consolidated net operating loss carryforwards,
equal approximately $ 60.9 million.

On February 2, 2009, the New York State
Department of Taxation and Finance notified the Company that it was no longer
going to pursue the issue associated with potentially not permitting the Company
to file combined tax returns for the period 2002 through 2004. The Company had
recorded a $213,000 long-term liability for this issue. In settlement of this
issue, the Company paid New York State approximately $19, 000, and recognized
the benefit of the reversal of this liability of $194,000 in the first quarter
of 2009.

6. Stockholders Equity

Changes in common shares issued and
treasury stock outstanding are as follows:

|                                                      | Year Ended    |   | Three Months
      Ended
|----------------------------------------------------- | ------------- | - | ------------------------
|                                                      | Dec. 31, 2008 |   | March 31, 2009          
|Common Shares                                         |               |   |                         
|Balance,
      beginning                              | 5,777,578     |   |                         
|Fractional shares redeemed during reverse stock split | (203          | ) |                         
|Forfeiture of
      restricted stock grant            | (625          | ) |                         
|Balance, ending                                       | 5,776,750     |   |                         

Warrants

SFAS No. 161 requires enhanced disclosures
about derivative instruments, amending and expanding the disclosure requirements
of SFAS No. 133, to provide users of financial statements with enhanced
understanding of (i) how and why an entity uses derivative instruments, (ii) how
derivative instruments and related hedged items are accounted for under SFAS No.
133 and its related interpretations, and (iii) how derivative instruments and
related hedged items affect an entitys financial position, results of
operations, and cash flows.

On December 20, 2006, the Company issued
warrants to investors to purchase 378,472 shares of the Companys common stock
at an exercise price of $18.16 per share. These warrants will be fair valued by
the Company until expiration or exercise of the warrants. The warrants became
exercisable on June 30, 2007 and expire on December 19, 2011. The fair value of
the warrants at December 31, 2008 and March 31, 2009 was $41 thousand and $23
thousand, respectively.

The Company accounts for derivative
instruments and embedded derivative instruments in accordance with Statement of
Financial Accounting Standards (SFAS) No. 133,Accounting for Derivative Instruments and Hedging
Activities,as amended. The amended standard
requires an entity to recognize all derivatives as either assets or liabilities
in the statement of financial position and measure these instruments at fair
value. Fair value is estimated using the Black-Scholes Option Pricing model. The
Company also follows Emerging Issues Task Force (EITF) Issue No. 00-19,Accounting for Derivative Financial
Instruments Indexed to and Potentially Settled in, a Companys Own
Stock, which requires freestanding contracts
that are settled in a companys own stock, including common stock warrants, to
be designated as an equity instrument, asset or a liability. Under the
provisions of EITF Issue No. 00-19, a contract designated as an asset or a
liability must be carried at fair value, with any changes in fair value recorded
in the results of operations. A contract designated as an equity instrument can
be included in equity, with no fair value adjustments are required.

The asset/liability derivatives are valued
on a quarterly basis using the Black-Scholes Option Pricing model. Significant
assumptions used in the valuation include exercise dates, closing market prices
for the Companys common stock, volatility of the Companys common stock, and
proxy risk-free interest rates. Gains (losses) on derivatives are included in
Gain (loss) on derivatives in the Consolidated Statement of
Operations.

Reservation of Shares

The Company has reserved common shares for
future issuance as of March 31, 2009 as follows:

|Stock options outstanding                  |  | 702,864  
|------------------------------------------ |  | ---------
|Stock options
      available for issuance |  | 49,153   
|Warrants outstanding                       |  | 378,472  
|Number of common
      shares reserved     |  | 1,130,489

12

---

MECHANICAL TECHNOLOGY, INCORPORATEDNOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)

7. Loss per Share

The following table sets forth the
reconciliation of the numerators and denominators of the basic and diluted per
share computations for the three months ended March 31:

|(Dollars in thousands, except
      shares)                                         | 2008 |           | 2009
|----------------------------------------------------------------------------------- | ---- | --------- | ----
|Numerator:                                                                          |      |           |     
|Net loss                                                                            | $    | (3,187    | )   
|                                                                                    |      |           |     
|Denominator:                                                                        |      |           |     
|Basic
      EPS:                                                                    |      |           |     
|Common shares outstanding, beginning of period                                      |      | 4,772,486 |     
|Less weighted
      average non-vested restricted stock                             |      | (625      | )   
|Denominator for basic earnings per common shares                                   |      |           |     
|Weighted average common shares                                                      |      | 4,771,861 |     
|                                                                                    |      |           |     
|Diluted EPS:                                                                        |      |           |     
|Common shares outstanding, beginning of period                                      |      | 4,772,486 |     
|Less weighted average non-vested restricted stock due to
      anti-dilutive effect |      | (625      | )   
|Denominator for diluted earnings per common shares                                 |      |           |     
|Weighted average common shares                                                      |      | 4,771,861 |     

Not included in the computation of
earnings per share-assuming dilution for the three months ended March 31, 2008
were options to purchase 762,391 shares of the Companys common stock, warrants
to purchase 378,472 shares of the Companys stock, 625 unvested restricted
shares of the Companys common stock and options to purchase 22,668 shares of
MTI Micros common stock. These potentially dilutive items were excluded because
the Company incurred a loss for this period and their inclusion would be
anti-dilutive.

Not included in the computation of
earnings per share-assuming dilution for the three months ended March 31, 2009
were options to purchase 702,864 shares of the Companys common stock, warrants
to purchase 378,472 shares of the Companys stock, and options to purchase
17,939 shares of MTI Micros common stock. These potentially dilutive items were
excluded because the Company incurred a loss for this period and their inclusion
would be anti-dilutive.

8. Stock-Based Compensation

During the three month period ended March
31, 2009, there were no stock options granted.

Total stock-based compensation expense
related to all of the Companys stock-based awards, recognized for the three
months ended March 31, 2008 and 2009, was comprised as follows:

|(Dollars in thousands)                                                                            | 2008 |     | 2009
|------------------------------------------------------------------------------------------------- | ---- | --- | ----
|Unfunded research and product development                                                         | $    | 42  |     
|Selling, general
      and administrative                                                         |      | 347 |     
|Stock-based compensation expense before taxes                                                     |      | 389 |     
|Related income
      tax benefits ***A***                                                         |      |    |     
|Stock-based compensation expense, net of taxes                                                    | $    | 389 |     
|AIncome tax
      effect is zero due to the Company maintaining a full valuation
      allowance. |      |     |     

13

---

MECHANICAL TECHNOLOGY, INCORPORATEDNOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)

The fair value of stock option awards is
estimated on the date of grant using a Black-Scholes Pricing Model with the
following weighted average assumptions for the three months ended March 31:

|                                    | 2008   |      | 2009
|----------------------------------- | ------ | ---- | ----
|Expected life of options (years)    | 5      | .38  |     
|Risk free
      interest rate range | 2.58-3 | .13% |     
|Expected volatility of stock        | 76     | .00% |     
|Expected
      dividend yield       | n/a    |      |     

The fair value of restricted stock awards
is determined using the intrinsic value of the award on the date of grant.

9. Segment Information

The Company operates in two business
segments,New Energyand Test and Measurement Instrumentation. The New Energy segment is
focused on commercializing direct methanol fuel cells. The Test and Measurement
Instrumentation segment designs, manufactures, markets and services
computer-based balancing systems for aircraft engines, high performance test and
measurement instruments and systems, and wafer characterization tools for the
semiconductor and solar industries. The Companys principal operations are
located in North America.

The accounting policies of the New Energy
and Test and Measurement Instrumentation segments are similar to those described
in the summary of significant accounting policies in the Companys Annual Report
on Form 10-K. The Company evaluates performance based on profit or loss from
operations before income taxes, accounting changes, items management does not
deem relevant to segment performance, and interest income and expense.
Inter-segment sales and expenses are not significant.

Summarized financial information
concerning the Companys reportable segments is shown in the following table.
The Other column includes corporate related items and items such as income
taxes or unusual items, which are not allocated to reportable segments. The
Reconciling Items column includes noncontrolling interests in a consolidated
subsidiary. In addition, segments non-cash items include any depreciation and
amortization in reported profit or loss. The New Energy segment figures include
the Companys equity securities of Plug Power and gains on the sale of these
securities.

|(Dollars in
      thousands)                 |            |        |                 |  | Test and    |       |       |  |        |             |  |              | Condensed
|-------------------------------------------- | ---------- | ------ | --------------- |  | ----------- | ----- | ----- |  | ------ | ----------- |  | ------------ | ---------
|                                             |            |        |                 |  | Measurement |       |       |  |        | Reconciling |  | Consolidated
|                                             | New Energy |        | Instrumentation |  | Other       |       | Items |  | Totals
|Three months ended March 31, 2008            |            |        |                 |  |             |       |       |  |        |             |  |              |          
|Product revenue                              | $          |       |                 |  | $           | 1,980 |       |  | $      |            |  | $            |         
|Funded research and development revenue      |            | 173    |                 |  |             |      |       |  |        |            |  |              |         
|Research and product development expenses    |            | 1,891  |                 |  |             | 482   |       |  |        |            |  |              |         
|Selling, general and administrative expenses |            | 928    |                 |  |             | 757   |       |  |        | 933         |  |              |         
|Segment loss from operations before          |            |        |                 |  |             |       |       |  |        |             |  |              |          
|income taxes and noncontrolling interests    |            | (3,394 | )               |  |             | (232  | )     |  |        | 323         |  |              |         
|Segment (loss) profit                        |            | (3,394 | )               |  |             | (232  | )     |  |        | 315         |  |              | 124      
|Total assets                                 |            | 6,406  |                 |  |             | 3,076 |       |  |        | 5,330       |  |              |         
|Securities available for sale                |            | 3,537  |                 |  |             |      |       |  |        |            |  |              |         
|Capital expenditures                         |            | 52     |                 |  |             | 50    |       |  |        |            |  |              |         
|Depreciation and amortization                |            | 167    |                 |  |             | 33    |       |  |        | 21          |  |              |         

14

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MECHANICAL TECHNOLOGY, INCORPORATEDNOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)



|Three months ended March 31, 2009            |   |        |   |  |   |       |   |  |  
|-------------------------------------------- | - | ------ | - |  | - | ----- | - |  | -
|Product revenue                              | $ |       |   |  | $ | 1,549 |   |  | $
|Funded research and development revenue      |   |       |   |  |   |      |   |  |  
|Research and product development expenses    |   | 690    |   |  |   | 286   |   |  |  
|Selling, general and administrative expenses |   | 513    |   |  |   | 483   |   |  |  
|Segment loss from operations before income   |   |        |   |  |   |       |   |  |  
|taxes and
      noncontrolling interests     |   | (1,297 | ) |  |   | (7    | ) |  |  
|Segment (loss) profit                        |   | (1,292 | ) |  |   | (7    | ) |  |  
|Total assets                                 |   | 1,383  |   |  |   | 2,226 |   |  |  
|Securities available for sale                |   |       |   |  |   |      |   |  |  
|Capital expenditures                         |   |       |   |  |   |      |   |  |  
|Depreciation and amortization                |   | 134    |   |  |   | 28    |   |  |  

The following table presents the details
of Other segment (loss) profit:

|(Dollars in
      thousands)           | Three Months ended
|-------------------------------------- | ------------------
|                                       | March 31,         
|                                       | 2008              
|Corporate and other (expenses) income: |                   
|Depreciation and amortization          | $                 
|Interest income                        |                   
|Gain on derivatives                    |                   
|Income tax (expense) benefit           |                   
|Other expense, net                     |                   
|Total income (expense)                 | $                 

10. Restructuring

In August 2008, the Board of Directors
approved a restructuring plan (the Restructuring), which was designed to help
the Company reduce expenses and preserve cash. As part of the Restructuring, a
total of 29 positions across the Company and its subsidiaries were eliminated.
The Company incurred total severance and other benefit charges of $342 thousand
in connection with this plan. All cash expenditures related to this
restructuring have been paid as of March 31, 2009.

11. Effect of Recent Accounting
Pronouncements

In April 2009, the FASB issued FSP No. FAS
157-4, Determining Fair Value When the Volume and Level of Activity for the
Asset or the Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly. FSP No. FAS 157-4 amends SFAS No. 157 to provide
additional guidance on (i) estimating fair value when the volume and level of
activity for an asset or liability have significantly decreased in relation to
normal market activity for the asset or liability, and (ii) circumstances that
may indicate that a transaction is not orderly. FSP No. FAS 157-4 also requires
additional disclosures about fair value measurements in interim and annual
reporting periods. FSP No. FAS 157-4 is effective for interim and annual
reporting periods ending after June 15, 2009. It is expected that the adoption
of FSP No. FAS 157-4 will not have a material effect on the Companys financial
statements.

In April 2009, the FASB issued FSP No. FAS
115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary
Impairments (FSP No. FAS 115-2). FSP No. FAS 115-2 provides additional
guidance on the timing of impairment recognition and greater clarity about the
credit and noncredit components of impaired debt securities that are not
expected to be sold. FSP No. FAS 115-2 also requires additional disclosures
about impairments in interim and annual reporting periods. FSP No. FAS 115-2 is
effective for interim and annual reporting periods ending after June 15, 2009.
It is expected that the adoption of FSP No. FAS 115-2 will not have a material
effect on the Companys financial statements.

15

---

MECHANICAL TECHNOLOGY, INCORPORATEDNOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)

In April 2009, the FASB issued FSP No. FAS
107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments. FSP No. FAS 107-1 and APB 28-1 amends SFAS No. 107, Disclosures
about Fair Value of Financial Instruments, to require disclosures about fair
value of financial instruments in interim as well as in annual financial
statements. This FSP also amends Accounting Principles Board (APB) Opinion No.
28, Interim Financial Reporting, to require those disclosures in all interim
financial statements. FSP No. FAS 107-1 and APB 28-1 is effective for interim
reporting periods ending after June 15, 2009. It is expected that the adoption
of FSP No. FAS 107-1 and APB 28-1 will not have a material effect on the
Companys financial statements.

12. Commitments and Contingencies

Lawrence Litigation

On September 9, 1998, Barbara Lawrence,
the Lawrence Group, Inc. (Lawrence) and certain other Lawrence-related
entities (Plaintiffs) initially filed suit in the United States Bankruptcy
Court for the Northern District of New York (Bankruptcy Court) and the United
States District Court for the Northern District of New York (District Court),
which were subsequently consolidated in the District Court, against First Albany
Corporation, now known as Broadpoint Capital, Inc. (BCI), the Company, Dale
Church, Edward Dohring, Beno Sternlicht, Alan Goldberg and George McNamee
(Church, Dohring, Sternlicht, Goldberg and McNamee are former Directors of the
Company), Marty Mastroianni (former President and Chief Operating Officer of the
Company) and 33 other individuals (Defendants) who purchased a total of
820,909 shares (2,462,727 post-split) of the Companys stock from the
Plaintiffs. The case concerns the Defendants 1997 purchase of the Companys
common stock from the Plaintiffs at the price of $2.25 per share ($0.75 per
share post split). BCI acted as Placement Agent in connection with the
negotiation and sale of the shares, including in proceedings before the
Bankruptcy Court, which approved the sale in September 1997.

Plaintiffs claim that the Defendants
failed to disclose material inside information to the Plaintiffs in connection
with the sale and that the $2.25 per share ($0.75 per share post split) 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 by the Bankruptcy Court. On appeal in
October 2000, Plaintiffs claims were dismissed by the District Court. In
November 2000, Plaintiffs filed an appeal of that dismissal with the United
States Court of Appeals for the Second Circuit. In June 2002, the Second Circuit
Court of Appeals reversed the District Court decision in part and remanded the
case for further consideration of the Plaintiffs claims as motions to modify
the Bankruptcy Court sale order. The Plaintiffs claims have now been referred
back to Bankruptcy Court for such consideration. By order and decision dated
September 30, 2003, the Bankruptcy Court allowed certain limited discovery to
proceed, and this process is still underway.

The Company believes the claims have no
merit and intends to defend them vigorously. The Company cannot predict
theoutcome
of the claims nor reasonably estimate a range of possible loss given the current
status of the litigation. Accordingly, no amounts have been reserved for this
matter.

Leases

The Company and its subsidiaries lease
certain manufacturing, laboratory and office facilities. The leases generally
provide for the Company to pay either an increase over a base year level for
taxes, maintenance, insurance and other costs of the leased properties or the
Companys allocated share of insurance, taxes, maintenance and other costs of
leased properties. The leases contain renewal provisions.

The Companys future minimum rental
payments required under non-cancelable operating leases are (dollars in
thousands): $457 remaining in 2009, $39 in 2010, $8 in years 2011 and $0 in
2012.

Warranties

Below is a reconciliation of changes in
product warranty liabilities:

|(Dollars in
      thousands)                | Three Monhs Ended
|------------------------------------------- | -----------------
|                                            | March 31,        
|                                            | 2008             
|Balance, January 1                          | $                
|Accruals for
      warranties issued        |                  
|Settlements made (in cash or in
      kind) |                  
|Balance, end of
      period                | $                

16

---

MECHANICAL TECHNOLOGY,
INCORPORATEDNOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Licenses

Under the NYSERDA contract, MTI Micro
agreed to pay NYSERDA a royalty of 5.0% of the sales price of any product sold
incorporating IP developed pursuant to the NYSERDA contract. If the product is
manufactured by a New York State manufacturer, this royalty is reduced to 1.5%.
Total royalties are subject to a cap equal to two times the total contract funds
paid by NYSERDA to MTI Micro, and may be reduced to reflect any New York State
jobs created by MTI Micro.

Employment Agreements

The Company has employment agreements with
certain employees that provide severance payments, certain other payments,
accelerated vesting and exercise extension periods of certain options upon
termination of employment under certain circumstances, as defined in the
applicable agreements. As of March 31, 2009, the Companys potential minimum
cash obligation to these employees was approximately $459 thousand.

13. Issuance of Stock by Subsidiary

MTI Micro was formed on March 26, 2001. As
of March 31, 2009, the Company owned approximately 97% of MTI Micros
outstanding common stock.

14. Derivatives

The Company held or has outstanding the
following derivative financial instruments:

|                                                                               | Dec.
      31, |  | March
      31, |  |           
|------------------------------------------------------------------------------ | -------------- |  | --------------- |  | ----------
|                                                                               | 2008           |  | 2009            |  | Expiration
|Derivatives
      issued:                                                      |                |  |                 |  |           
|Warrants, exercisable beginning June 20, 2007, to purchase the
      Companys |                |  |                 |  |           
|common stock issued to three investors at a purchase price of
      $18.16 per |                |  |                 |  |           
|share                                                                          | 378,472        |  | 378,472         |  | 12/19/2011

The estimated fair value of this warrant
at the date issued was $10.16 per share, using a Black-Scholes Option Pricing
model and assumptions similar to those used for valuing the Companys employee
stock-based compensation. The fair value of the derivative is recorded in the
Derivative Liability line on its financial statements, and is valued quarterly
using the Black-Scholes Option Pricing Model. The assumptions used for the
valuations were as follows:

|                                         | Dec. 31, |   | March 31,
|---------------------------------------- | -------- | - | ---------
|                                         | 2008     |   | 2009     
|Expected life of option (number of days) | 1,084    |   |          
|Risk-free
      interest rate            | 1.55     | % |          
|Expected volatility of stock             | 93.45    | % |          
|Expected
      dividend yield            | None     |   |          

The Company recognizes changes in fair
value in its Consolidated Statements of Operations in the line titled Gain on
derivatives.

15. Bridge note payable  related
party, at fair value

On September 18, 2008, MTI Micro executed
a Bridge Note and Warrant Purchase Agreement (the Purchase Agreement), Secured
Convertible Promissory Note Agreements (the Bridge Notes), Security Agreement
(the Security Agreement) and Warrant Agreements (the Warrants) with the
Company and other accredited investors, including Dr. Walter L. Robb, a member
of the Companys Board of Directors, and a fund managed by Dr. Robb (the Other
Investors, and together with the Company, the Investors). The Bridge Notes
allowed MTI Micro to borrow up to an aggregate of $2.2 million, including
conversion of outstanding debt totaling $700,000 owed to the Company. Under this
agreement, MTI Micro closed on $1.5 million of funding from Other Investors and
$700,000 from the Company on September 18, 2008.

17

---

MECHANICAL TECHNOLOGY,
INCORPORATEDNOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

On February 20, 2009, MTI Micro and the
Investors agreed to, among other things, amend the Bridge Notes (Amendment No.
1) to permit MTI Micro to sell additional Bridge Notes with an additional
principal amount of up to $500,000, and to extend the maturity date from March
31, 2009 to May 31, 2009 (the Maturity Date). No other terms of the Bridge
Notes were amended. Following the effectiveness of the Amendment No. 1, MTI
Micro borrowed an additional $500,000 from an existing Bridge Investor, a fund
managed by Dr. Robb, bringing the aggregate outstanding principal amount
borrowed under the Bridge Notes, as amended, to $2.7 million, including
conversion of outstanding debt totaling $700,000 thousand owed to the Company.

On April 15, 2009, MTI Micro and the
Investors agreed to amend the Bridge Notes (Amendment No. 2) to permit MTI
Micro to sell additional Bridge Notes with an additional principal amount of up
to $800,000 to an additional investor and the fund managed by Dr. Robb, and to
extend the maturity date from May 31, 2009 to March 31, 2010 (the Maturity
Date).

If the Next Equity Financing does not
occur on or before the Maturity Date, all principal and (at MTI Micros option)
accrued interest outstanding under all of the Notes shall be converted into
equity securities of MTI Micro based upon a valuation of MTI Micro and on such
terms to be agreed upon by MTI Micro and the holders of a majority interest of
the Notes within thirty (30) days following the earlier to occur of (i) the
Maturity Date or (ii) the date upon which the aggregate principal amount under
all the Notes equals or exceeds $3,500,000, which the valuation and terms shall
be negotiated in good faith by MTI Micro and a majority interest of the Notes.

The Bridge Notes have an interest rate of
10%, compounded annually. Accrued interest at March 31, 2009 was $87,000. MTI
Micro intends to use the proceeds for general corporate purposes, including
development and commercialization activities in support of its portable power
source products. The Bridge Notes were issued in private placements with
accredited investors and were exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933, as amended.

The bridge note payable has been accounted
for as a liability in accordance with FAS 150,Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity, as it represents a
financial instrument with an obligation that requires settlement by issuance of
a variable number of the issuers equity shares that has a value equal to a
fixed monetary amount.

Depending on the valuation of MTI Micro at
the time of conversion, the Companys ownership position could be substantially
diluted, and the Company may no longer have sufficient equity to control the
operations of MTI Micro. If MTI Micro and holders of a majority in interest of
the Bridge Notes cannot agree upon the valuation and terms of a negotiated
conversion, and do not consummate such negotiated conversion within thirty (30)
days following the Maturity Date, then all principal and accrued interest
outstanding under the Bridge Notes shall be due and payable upon demand by the
holders at any time thereafter.

In the event of a change of control of MTI
Micro prior to the consummation of the Next Equity Financing, a negotiated
conversion, or the repayment in full of all principal and accrued interest under
the Bridge Notes, then all unpaid principal and accrued interest shall become
immediately due and payable in an amount equal to 125% of the principal amount
of the Bridge Notes and 100% of the accrued interest then outstanding within
thirty (30) days following the consummation of a change in control.

The Bridge Notes contain customary
negative covenants for loans of this type, including limitations on MTI Micros
ability to incur indebtedness, issue securities, and dispose of assets. As of
March 31, 2009, MTI Micro was not in default. The Bridge Notes are secured by
all of MTI Micros assets (including intellectual property) and are senior to
all other debts and obligations of MTI Micro in accordance with the provisions
of a Security Agreement among MTI Micro and the Investors.

The Investors will also receive Warrants
to purchase securities issued in the Next Equity Financing or issued in a
Negotiated Conversion, as applicable, having an aggregate exercise price equal
to 10% of the principal amount of the outstanding Bridge Notes. The per share
exercise price of the Warrants shall be the per share price at which securities
are sold or issued in the Next Equity Financing or Negotiated Conversion, as
applicable. The Warrants will be net-exercisable and will expire on the earlier
of: (i) the fifth anniversary of the Warrant issue date; (ii) immediately prior
to a change in control; (iii) thirty days following the Maturity Date if no
Negotiated Conversion is consummated; or (iv) immediately prior to an initial
public offering of MTI Micro.

Because the Next Equity Financing or a
Negotiated Conversion has not yet taken place, the warrants exercise price and
number of shares are not yet determinable. As such, the warrants have not been
measured. When the Next Equity Financing or a Negotiated Conversion does occur,
the warrants will be measured and recognized at that time.

As of March 31, 2009, the Company owned
approximately 97% of MTI Micro. MTI Micros financial results are presently
consolidated into the Companys financial information. Conversion of the Bridge
Notes and exercise of the Warrants into equity of MTI Micro by the Other
Investors besides the Company could result in substantial dilution of the
Companys ownership interest in MTI Micro, and could result in the Company
deconsolidating future financial results of MTI Micro.

18

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MECHANICAL TECHNOLOGY,
INCORPORATEDNOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

16.Subsequent Events

On April 15, 2009, MTI Micro and the
Investors agreed to amend the Bridge Notes (Amendment No. 2) to permit MTI
Micro to sell additional Bridge Notes with an additional principal amount of up
to $800,000 to additional investors, and to extend the maturity date from May
31, 2009 to March 31, 2010 (the Maturity Date). MTI Micro borrowed an
additional $215,000 of the $800,000 available additional capacity prior to April
30, and an additional $165,000 on May 1st, bringing the aggregate
outstanding principal amount borrowed under the Purchase Agreement, as amended,
to $3,080,000, including conversion of outstanding debt totaling $700,000 owed
to the Company. Thereafter, MTI Micro will have the right to borrow an
additional $420,000 in increments not to exceed $165,000 per month.

On April 16, 2009, MTI Micro was awarded a
cost share funding grant of $2.4 million from the United States Department of
Energy (DOE) as part of the DOEs $41.9 million in American Recovery and
Reinvestment Act funding for fuel cell technology. The DOE funding is expected
to be made as a cost share contract and will be used to accelerate fuel cell use
in consumer markets by demonstrating a one-watt consumer electronics power pack.
The project will focus on improving reliability to meet the standards required
by the electronics market and will include testing of individual components,
subsystems and complete direct methanol fuel cell systems. MTI Micro will also
use the funding to develop manufacturing processes to improve product yields and
reduce overall costs.

On April 24, 2009, the Company announced
it received a Staff Determination Letter dated April 16, 2009, from the Nasdaq
Stock Market (Nasdaq) on April 23, 2009, stating that the Companys shares of
common stock were subject to delisting from the Nasdaq Capital Market pursuant
to Listing Rule 5210(d) for failure to pay all applicable fees as described in
the Listing Rule 5900 Series. Since the Company had previously determined to
voluntarily delist its common stock from Nasdaq Capital Market prior to
receiving the letter and filed a Form 25 with the Securities and Exchange
Commission and Nasdaq on April 16, 2009, which resulted in the delisting of its
common stock at the close of the trading on April 24, 2009, the Company did not
appeal the Staffs Determination. The Companys common stock is now quoted on
Pink Sheets.

19

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Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations

Unless the context requires otherwise, the
terms we, us, and our refer to Mechanical Technology, Incorporated, a New
York Corporation, MTI Micro refers to MTI MicroFuel Cells Inc., a Delaware
corporation and our majority owned subsidiary, and MTI Instruments refers to
MTI Instruments, Inc., a New York corporation and our wholly owned subsidiary.
We have a registered trademark in the United States for Mobion. Other
trademarks, trade names, and service marks used in this Quarterly Report on Form
10-Q are the property of their respective owners.

The following discussion of our financial
condition and results of operations should be read in conjunction with the
condensed consolidated financial statements and the notes thereto included in
Item 1 of Part I of this Quarterly Report on Form 10-Q and the audited
consolidated financial statements and the notes thereto and Managements
Discussion and Analysis of Financial Condition and Results of Operations for the
year ended December 31, 2008 contained in our 2008 Annual Report on Form 10-K.

In addition to historical information, the
following discussion contains forward-looking statements, which involve risk and
uncertainties. Our actual results could differ materially from those anticipated
in the forward-looking statements, including those discussed in Part II, Item 1A
Risk Factors and elsewhere in this Quarterly Report on Form 10-Q.

Overview

We are developing and commercializing
off-the-grid rechargeable power sources for portable electronics. We have
developed a patented, proprietary direct methanol fuel cell technology platform
called Mobion, which generates electrical power using up to 100% methanol as
fuel. Our proprietary fuel cell power solution consists of two primary
components integrated in an easily manufactured device: the direct methanol fuel
cell power engine, which we refer to as our Mobion Chip, and methanol
replacement cartridges. Our Mobion Chip weighs less than one ounce and is small
enough to fit in the palm of ones hand. The methanol used by the technology is
fully biodegradable. We believe we are the only micro fuel cell developer to
have demonstrated power density of over 62 mW/cm2while producing more than
1,800 Wh/kg of energy from the direct methanol fuel feed. For these reasons, we
believe our technology offers a compelling alternative to current lithium-ion
and similar rechargeable battery systems currently used by original equipment
manufacturers and branded partners, or OEMs, in many handheld electronic
devices, such as mobile phones (including smart phones) and mobile phone
accessories, digital cameras, portable media players, personal digital
assistants (PDAs), and global positioning systems (GPS) devices. We believe our
platform will facilitate the development of numerous product advantages,
including small size, environmental friendliness, and simplicity of design, all
critical for commercialization in the consumer market, and can be implemented as
three different product options: a compact external charging device, a snap-on
or attached power accessory, or a lithium-ion battery replacement embedded fuel
cell power solution. We have strategic arrangements with Samsung Electronics, an
OEM of mobile phone accessories, with a global Japanese consumer electronics
company, with a U.S. based developer and marketer of universal chargers, a
letter of intent with Duracell, part of the Procter & Gamble Company, and a
power tool manufacturer Our goal is to become a leading provider of portable
power for handheld electronic devices and, assuming available financing, we
intend to commercialize Mobion products in late 2009 or early 2010.

Our Mobion technology eliminates the need
for active water recirculation pumps or the inclusion of water as a fuel
dilutant. The water required for the electrochemical process is transferred
internally within the Mobion Chip from the site of water generation on the
air-side of the cell. This internal flow of water takes place without the need
for any pumps, complicated re-circulation loops or other micro-plumbing tools.
Our Mobion technology is protected by a patent portfolio that includes over 110
U.S. patent applications covering five key technologies and manufacturing areas.

We also design, manufacture, and sell
high-performance test and measurement instruments and systems serving three
markets: general dimensional gauging, semiconductor, and aviation. These
products consist of: electronic, computerized gauging instruments for position,
displacement and vibration applications for the design, manufacturing and test
markets; products for wafer characterization in the semiconductor and solar
markets; and engine balancing and vibration analysis systems for military and
commercial aircraft.

Our cash requirements depend on numerous
factors, including completion of our portable power source products development
activities, our ability to commercialize our portable power source products,
market acceptance of our portable power source products, and other
factors.

20

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Several key indicators of our liquidity
are summarized in the following table:

|(Dollars in
      thousands)                    | Three Months Ended
|----------------------------------------------- | ------------------
|                                                | **March, 31**     
|                                                | **2008**          
|Cash and cash equivalents                       | $                 
|Securities
      available for sale             |                   
|Working capital                                 |                   
|Net loss                                        |                   
|Net cash used in operating activities           |                   
|Purchase of
      property, plant and equipment |                   

From inception through March 31, 2009, we
have incurred an accumulated deficit of $118.8 million, and we expect to incur
losses for the foreseeable future as we continue micro fuel cell product
development and commercialization programs. We expect that losses will fluctuate
from year to year and that such fluctuations may be substantial as a result of,
among other factors, our operating results, the availability of equity
financing, and the ability to attract government funding resources to offset
research and development costs.

At present, the Company does not expect to
continue to fund MTI Micros development and commercialization of its portable
power source products. MTI Micro currently has cash and cash equivalents of $290
thousand at March 31, 2009, and the ability to draw down on the $800 thousand
bridge loan credit line. The credit line is expected to bridge MTI Micro to the
start of the DOE funding, which is expected to commence in June 2009, and may
allow MTI Micro to bill for work already completed year to date. As a result of
this, management currently believes it should have adequate resources to fund
its MTI Micro operations into the fourth quarter of 2009. MTI Micro will be
required to raise additional funds through issuance of its equity or debt,
government funding and/or explore other strategic alternatives including but not
limited to the sale of assets and/or the company. If MTI Micro is unable to
raise additional financing, it may be required to discontinue its business
operations. Based upon projected cash requirements and current cash and cash
equivalents for MTI Instruments, along with cash necessary to operate the public
parent company, we believe that we will have adequate resources to fund MTIInstruments and the public parent company at
least through December 2009.

Restructuring

In August 2008, the Board of Directors
approved a restructuring plan (the Restructuring), which was designed to help
the Company reduce expenses and preserve cash. As part of the Restructuring, a
total of 29 positions across the Company and its subsidiaries were eliminated.
The Company incurred total severance and other benefit charges of approximately
$342 thousand in connection with this plan. All cash expenditures related to
this restructuring have been paid as of March 31, 2009.

Results of Operations

Results of Operations for the Three
Months Ended March 31, 2009 Compared to the Three Months Ended March 31, 2008.

Product Revenue.Product revenue in our test and
measurement instrumentation business decreased by $431,000, or 21.7%, to $1.55
million for the three months ended March 31, 2009 from $1.98 million for the
three months ended March 31, 2008. The revenue decrease was primarily the result
of a $503,000 decrease in general dimensional gauging sales due to significantly
lower sales to a Japanese and a domestic OEM. Semiconductor / solar sales
increased $123,000, and aviation sales remained comparable to that of the first
three months of last year.

In our test and measurement
instrumentation business, the U.S. Air Force accounted for $351,000, or 22.7%,
of product revenue to date in 2009. During the same period in 2008, the U.S. Air
Force revenue totaled $362,000, which represented 18.3% of product revenue for
that timeframe. Additionally, during the first quarter of 2009, Koyo Precision,
our Japanese distributor, represented $172,000, or 11.1%, of product revenue
while during the first quarter of 2008, Koyo Precision represented $398,000, or
20.2%, of product revenue.

21

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Information regarding government contracts
included in product revenue is as follows:

|(Dollars in
      thousands)              |  |            |     |      |                              |      |               |                |               |                |         |       |        | Total Contract
|----------------------------------------- |  | ---------- | --- | ---- | ---------------------------- | ---- | ------------- | -------------- | ------------- | -------------- | ------- | ----- | ------ | --------------
|                                          |  |            |     |      |                              |      |               |                |               |                | Revenue |       | Orders
|                                          |  |            |     |      | Revenues for the             |      | Contract      |                | Received     
|                                          |  |            |     |      | Three Months Ended March 31, |      | to
      Date |                | to
      Date
|Contract(1)                               |  | Expiration |     | 2008 |                              | 2009 |               | March 31, 2009 |               | March 31, 2009
|$2.3 million Air Force New PBS-4100       |  |            |     |      |                              |      |               |                |               |                |         |       |        |               
|Systems                                   |  | 07/28/2010 | (2) |      | $                            | --   |               | $              | 285           |                | $       | 1,881 |        | $             
|$8.8 million Air
      Force Retrofit and |  |            |     |      |                              |      |               |                |               |                |         |       |        |               
|Maintenance of PBS-4100                   |  |            |     |      |                              |      |               |                |               |                |         |       |        |               
|Systems                                   |  | 06/19/2008 | (3) |      | $                            | 338  |               | $              | 50            |                | $       | 8,009 |        | $             

|(1) |  | Contract values
      represent maximum potential values and may not be representative of actual
      results.    
|--- |  | -------------------------------------------------------------------------------------------------------------------
|(2) |  | Date represents
      expiration of contract, including all three potential option
      extensions.               
|(3) |  | The contract
      expiration date has passed, however, three delivery orders remain open
      under the contract.

Funded Research and Development
Revenue.Funded research and development
revenue in our new energy business decreased to $-0- in the three months ended
March 31, 2009 from $173,000 for the three months ended March 31, 2008. This
decrease in revenue was the result of the completion of all contracts by
December 31, 2008. All revenues for 2008 were a result of reimbursement for
research and development costs under the DOE contract with the final billing
occurring in December 2008.

Information regarding our prior contract
included in funded research and development revenue as of March 31, 2008 is as
follows:

|(Dollars in
      thousands) |  |               |  |                |     |                 |      |                |   |                 |  |                |  |   |      
|---------------------------- |  | ------------- |  | -------------- | --- | --------------- | ---- | -------------- | - | --------------- |  | -------------- |  | - | -----
|                             |  |               |  | Revenue        |     |                 |      | Revenue        |   |                 |  | Revenue       
|                             |  |               |  | Three Months   |     |                 |      | Three Months   |   |                 |  | Contract to   
|                             |  |               |  | Ended          |     | % of
      2008 |      | Ended          |   | % of
      2009 |  | Date          
|Contract                     |  | Expiration(1) |  | March 31, 2008 |     | Total           |      | March 31, 2009 |   | Total           |  | March 31, 2009
|$3.0 million DOE(2)          |  | 03/31/09      |  | $              | 173 |                 | 100% |                | $ |                |  |               |  | $ | 3,000

|(1) |  | Dates represent
      expiration of contract, not date of final billing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | The DOE contract was a
      cost share contract. DOE funding for this contract was suspended during
      January 2006 and reinstated during May 2007. During 2007, we received
      notifications from the DOE of funding releases totaling $1.0 million and
      also received an extension of the termination date for the contract from
      July 31, 2007 to September 30, 2008. During 2008, we received
      notifications of funding releases totaling $325,000 and also received an
      extension of the termination date for the contract from September 30, 2008
      to March 31, 2009.

Cost of Product Revenue.Cost of product revenue in our test and measurement instrumentation
business decreased by $175,000, or 20.8%, to $665,000 for the first three months
of 2009 compared to $840,000 for the first three months of 2008. The decrease
corresponded to the 21.7% decline in product revenue for the quarter.

Gross profit, as a percentage of product
revenue, of 57.1% for the first three months of 2009 decreased by less than
one-half of a percentage point from 57.6% for the first three months of 2008.
The slight decrease resulted from a change in the current product sales mix,
which to date includes a higher concentration of custom products which have
yielded lower than expected margins.

Funded Research and Product
Development Expenses.Funded research and
product development expenses in our new energy business decreased from $356,000
for the three months ended March 31, 2008 to $-0-, for the three months ended
March 31, 2009. This change was the result of the end of the DOE contract, as
mentioned above in Funded Research and Development Revenue.

22

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Unfunded Research and Product
Development Expense.Unfunded research and product development expenses decreased
by $1 million, or 51%, to $980,000 for the three months ended March 31, 2009
from $2.0 million for the three months ended March 31, 2008. This decrease is
attributable to continued cost reductions by management due to decreases in
funding.

Selling, General and Administrative
Expenses.Selling, general and administrative expenses decreased by $1.2 million,
or 47%, to $1.4 million for the three months ended March 31, 2009 from $2.6
million for the three months ended March 31, 2008. This decrease was primarily
the result of (a) a $423,000 decrease in payroll costs due to staff reductions
in 2008 (b) $326,000 in corresponding decreases in benefit related costs,
bonuses and commissions (c) a $217,000 decrease in stock compensation related
expenses and (d) a $714,000 decrease in general operating expenses representing
management efforts to reduce expenditures due to decreases in funding sources.
These decreases in expenditures were offset by a $600,000 increase related to a
decrease in allocations of expense from SG&A to funded and unfunded research
and development costs for overhead and other costs allocable to research and
development programs.

Operating Loss.Operating loss decreased by $1.8 million or 55%, to $1.5
million for the three months ended March 31, 2009 compared with the three months
ended March 31, 2008 as a result of the factors noted above.

Gain (loss) on Derivatives.Our gain on derivative treatment of the
freestanding warrants issued in conjunction with our December 2006 capital raise
decreased by $315,000, or 94.6%, to $18,000 for the three months ended March 31,
2009 compared with $333,000 for the three months ended March 31, 2008. The
decrease in derivative income was attributable to valuation changes of the
underlying warrants using the Black-Scholes pricing model.

Income Tax (Expense) Benefit.Our income tax rate for the three months
ended March 31, 2009 and 2008 was 13.2% and 0.3%, respectively. These tax rates
were primarily the result of the reversal of the UTP due to the settlement with
New York State, losses generated by operations, changes in the valuation
allowance, state true-ups, permanent deductible differences for derivative
valuations, and disproportionate effects of reclassification of gains on Plug
Power security sales included in operating loss.

The valuation allowance against our
deferred tax assets at March 31, 2009 was $28.5 million and at December 31, 2008
was $27.8 million. We determined that it was more likely than not that ultimate
recognition of certain deferred tax assets would not be realized.

Liquidity and Capital Resources

We have incurred significant losses as we
continue to fund the development and commercialization of our portable power
source business. We expect that losses will fluctuate from year to year and that
such fluctuations may be substantial as a result of, among other factors, our
operating results, the availability of equity financing, and the ability to
attract government funding resources to offset research and development costs.
As of March 31, 2009, we had an accumulated deficit of $118.8 million. During
the three months ended March 31, 2009, our results of operations resulted in a
net loss of $1.2 million and cash used in operating activities totaling $1.4
million. This cash use in 2009 was funded primarily by cash and cash equivalents
on hand as of December 31, 2008 of $1.7 million. We expect to continue to incur
losses during this global economic slowdown, and we expect to continue funding
our operations from current cash and cash equivalents, proceeds, if any, from
debt or equity financings and government funding. We expect to spend
approximately $1.2 million on research and development on MTI Instruments
products and $2 million in MTI Micro during 2009.

In September 2008, MTI Micro issued Bridge
Notes to investors, including MTI in the form of conversion of existing debt of
$700,000, Dr. Walter L. Robb, a member of the Companys Board of Directors, and
a fund managed by Dr. Robb, totaling $2.2 million.

In February 2009, MTI Micro and the Bridge
Investors agreed to, among other things, amend the Bridge Notes (Amendment No.
1) to permit MTI Micro to sell additional Bridge Notes with an additional
principal amount of up to $500,000, and to extend the maturity date from March
31, 2009 to May 31, 2009 (the Maturity Date). No other terms of the Bridge
Notes were amended. Following the effectiveness of the Amendment No. 1, MTI
Micro borrowed an additional $500,000 from an existing Bridge Investor, a fund
managed by Dr. Robb, bringing the aggregate outstanding principal amount
borrowed under the Bridge Notes, as amended, to $2.7 million, including
conversion of outstanding debt totaling $700,000 owed to the Company.

23

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On April 15, 2009, MTI Micro, a new
investor and the fund managed by Dr. Robb agreed to amend the Bridge Notes(Amendment No. 2) to permit MTI Micro to sell
additional Bridge Notes with an additional principal amount of up to $800,000 to
additional investors, and to extend the maturity date from May 31, 2009 to March
31, 2010 (the Maturity Date). As of May 14, 2009, MTI Micro has drawn down
$380,000 from this line.

If the Next Equity Financing does not
occur on or before the Maturity Date, all principal and (at MTI Micros option)
accrued interest outstanding under all of the Notes shall be converted into
equity securities of MTI Micro based upon a valuation of MTI Micro and on such
terms to be agreed upon by MTI Micro and the holders of a majority interest of
the Notes within thirty (30) days following the earlier to occur of (i) the
Maturity Date or (ii) the date upon which the aggregate principal amount under
all the Notes equals or exceeds $3,500,000, which the valuation and terms shall
be negotiated in good faith by MTI Micro and a majority interest of the Notes.

The Bridge Notes carry an annual interest
rate of 10%. These Bridge Notes are secured by all of the assets of MTI Micro,
including intellectual property. Lastly, five-year warrants to purchase
additional securities were issued to all investors, having an aggregate exercise
price equal to 10% of the outstanding principal amounts under the Bridge Notes.
These warrants will be priced in a manner similar to the conversion of the
Bridge Notes.

On April 16, 2009, MTI Micro was awarded a
cost share funding grant of $2.4 million from the United States Department of
Energy (DOE) as part of the DOEs $41.9 million in American Recovery and
Reinvestment Act funding for fuel cell technology. We expect funding from this
grant to commence in June 2009.

We have no other commitments for funding
future needs of the organization at this time and financing during the remainder
of 2009 may not be available to us on acceptable terms, if at all. We may also
seek to supplement our resources through additional debt or equity financings,
sales of assets (including MTI Micro or MTI Instruments), and additional
government funding.

We had a working capital deficit of
$900,000 at March 31, 2009, a $1.15 million decrease from a working capital of
$250,000 at December 31, 2008. This decrease was primarily the result of the use
of cash in operations.

At March 31, 2009, our order backlog was
$971 thousand compared to $1.4 million at December 31, 2008.

Our inventory turnover ratios and accounts
receivable days outstanding for the trailing twelve month periods and their
changes at March 31, 2008 and 2009 are as follows:

|                                                   | **2008** |  | 2009 |  | Change
|-------------------------------------------------- | -------- |  | ---- |  | ------
|Inventory turnover                                 | 2.3      |  | 1.5  |  | (0.8  
|Average accounts
      receivable days outstanding | 56       |  | 41   |  | (15   

The decline in inventory turnover is
attributed to average inventory levels running 18% higher over the last twelve
months as compared to the previous twelve months. Recent increases in inventory
levels have occurred as a result of an overall slow down in base business at MTI
Instruments combined with a higher level of subassemblies necessary for two
existing orders, which are expected to ship during the second and third quarters
of 2009.

The decrease in average accounts
receivable days outstanding over the last twelve months as compared to the
previous twelve months was partially attributable to our decision to grant our
largest commercial customer 90-day payment terms during 2007. These extended
terms were eliminated in conjunction with the expiration of our formal
distribution agreement in September 2008 and the customer is now back to net 30
payment terms. Also contributing to the improvement was the increased
concentration in the current product mix of U.S. Air Force revenue, which by
contract must be paid in 30 days.

Cash used by operating activities was $1.4
million for the three months ended March 31, 2009 compared with $3.0 million in
2008. This cash use decrease of $1.6 million is a direct result of managements
reorganization efforts and expenditure control.

There were no capital expenditures during
the three months ended March 31, 2009, a decrease of $102,000 from the prior
year. Capital expenditures in 2008 included manufacturing, laboratory and
demonstration equipment. We had no outstanding commitments for capital
expenditures as of March 31, 2009.

During 2008, we sold our remaining
1,137,166 shares of Plug Power common stock with proceeds totaling $3.0 million
and gains totaling $1.0 million. These proceeds reflect our previously announced
strategy to raise additional capital through the sale of Plug Power stock to
fund our micro fuel cell operations. The net gains were offset by our operating
losses for purposes of computing taxable income. We estimate that as of March
31, 2009, our remaining net operating loss carry forwards were approximately $65
million.

24

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Off-Balance Sheet Arrangements

Pursuant to a financing transaction
between us and certain investors on December 15, 2006, we issued warrants to
purchase up to an aggregate 378,472 shares of our common stock exercisable at
any time until December 19, 2011 at an exercise price per share of $18.16. The
shares issuable upon exercise of these warrants would be issued under a shelf
registration statement covering the resale of such shares. The terms of the
warrant agreement permit a cash settlement with the holders of the warrants if
we are acquired by, or merge with, a private company. Because of the possibility
of such a settlement, we have classified this agreement as an asset/liability
derivative in accordance with SFAS No. 133 and EITF 00-19.

Contractual Payment Obligations

We have entered into various agreements
that result in contractual payment obligations in future years. These contracts
include financing arrangements for the Bridge Notes and leases. The following
table summarizes cash payments that we are committed to make under the existing
terms of contracts to which we are a party as of March 31, 2009. This table does
not include contingencies.

|                                      | Less   |       |       |   |       |  |        |   | More  |   |   | 
|------------------------------------- | ------ | ----- | ----- | - | ----- |  | ------ | - | ----- | - | - | 
|Contractual
      Payment Obligations | Than 1 |       | 1-3   |   | 3-5   |  | Than 5 |   |       |  
|(in thousands)                        | Year   |       | Years |   | Years |  | Years  |   | Total
|Bridge Notes:                         |        |       |       |   |       |  |        |   |       |   |   | 
|Principal (1)                         | $      | 2,000 |       | $ |      |  | $      |  |       | $ |  | 
|Interest                              |        | 87    |       |   |      |  |        |  |       |   |  | 
|Operating Leases
      (2)            |        | 457   |       |   | 47    |  |        |  |       |   |  | 
|Total Contractual Payment Obligations | $      | 2,544 |       | $ | 47    |  | $      |  |       | $ |  | 

|(1) |  | Reflects amounts outstanding with
      respect to the Bridge Notes. In February 2009, MTI Micro issued an
      additional $500,000 of Bridge Notes due on May 31, 2009.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | Reflects payment obligations
      under certain manufacturing, laboratory and office facility lease
      agreements.                                                   

Critical Accounting Policies and
Significant Judgments and Estimates

The discussion and analysis of our
financial condition and results of operations are based upon our consolidated
financial statements, which have been prepared in accordance with U.S. GAAP.
Note 2 to the consolidated financial statements in our Annual Report on Form
10-K for the year ended December 31, 2008 includes a summary of our most
significant accounting policies. There have been no material changes to the
critical accounting policies previously disclosed in our 2008 Annual Report on
Form 10-K. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of assets and liabilities. On an
ongoing basis, we evaluate our estimates and judgments, including those related
to revenue recognition, inventories, securities available for sale, income
taxes, stock-based compensation and derivatives. Management bases its estimates
on historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. Periodically, we review our
critical accounting estimates with the Audit Committee of our Board of
Directors.

New Accounting
Pronouncements

In April 2009, the FASB issued FSP No. FAS
157-4, Determining Fair Value When the Volume and Level of Activity for the
Asset or the Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly. FSP No. FAS 157-4 amends SFAS No. 157 to provide
additional guidance on (i) estimating fair value when the volume and level of
activity for an asset or liability have significantly decreased in relation to
normal market activity for the asset or liability, and (ii) circumstances that
may indicate that a transaction is not orderly. FSP No. FAS 157-4 also requires
additional disclosures about fair value measurements in interim and annual
reporting periods. FSP No. FAS 157-4 is effective for interim and annual
reporting periods ending after June 15, 2009. It is expected that the adoption
of FSP No. FAS 157-4 will not have a material effect on the Companys financial
statements.

25

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In April 2009, the FASB issued FSP No. FAS
115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary
Impairments (FSP No. FAS 115-2). FSP No. FAS 115-2 provides additional
guidance on the timing of impairment recognition and greater clarity about the
credit and noncredit components of impaired debt securities that are not
expected to be sold. FSP No. FAS 115-2 also requires additional disclosures
about impairments in interim and annual reporting periods. FSP No. FAS 115-2 is
effective for interim and annual reporting periods ending after June 15, 2009.
It is expected that the adoption of FSP No. FAS 115-2 will not have a material
effect on the Companys financial statements.

In April 2009, the FASB issued FSP No. FAS
107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments. FSP No. FAS 107-1 and APB 28-1 amends SFAS No. 107, Disclosures
about Fair Value of Financial Instruments, to require disclosures about fair
value of financial instruments in interim as well as in annual financial
statements. This FSP also amends Accounting Principles Board (APB) Opinion No.
28, Interim Financial Reporting, to require those disclosures in all interim
financial statements. FSP No. FAS 107-1 and APB 28-1 is effective for interim
reporting periods ending after June 15, 2009. It is expected that the adoption
of FSP No. FAS 107-1 and APB 28-1 will not have a material effect on the
Companys financial statements.

Statement Concerning Forward-Looking
Statements

This Quarterly Report on Form 10-Q and the
documents we have filed with the Securities and Exchange Commission that are
incorporated by reference herein contain forward-looking statements that involve
risks and uncertainties within the meaning of Section 27A of the Securities Act
and Section 21E of the Securities Exchange Act of 1934, as amended, or the
Exchange Act. Any statements contained, or incorporated by reference, in this
Form 10-Q that are not statements of historical fact may be forward-looking
statements. When we use the words anticipate, estimate, plans, projects,
continuing, ongoing, expects, management believes, we believe, we
intend, should, could, may, will and similar words or phrases, we are
identifying forward-looking statements. Forward-looking statements involve
risks, uncertainties, estimates and assumptions which may cause our actual
results, performance or achievements to be materially different from those
expressed or implied by forward-looking statements. Important factors that could
cause these differences include the following:

- our history of recurring net losses and the risk
  of continued net losses;
- our independent auditors raising substantial
  concern about our ability to continue as a going concern;
- the delisting of our common stock from The Nasdaq
  Global Market;
- sales revenue growth of our test and measurement
  instrumentation business may not be achieved;
- the dependence of our test and measurement
  instrumentation business on a small number of customers and potential loss of
  government funding;
- our ownership position in MTI Micro may be reduced
  as a result if our plans to seek external financing for MTI Micros
  operation;
- risks related to developing Mobion direct methanol
  fuel cells and whether we will ever successfully develop reliable and
  commercially viable Mobion fuel cell solutions;
- our need to raise additional financing;
- the risk that European Union regulations will not
  be changed to permit methanol to be carried onto airplanes;
- our portable power source products or our
  customers products that utilize our portable power source products may not be
  accepted by the market;
- our inability to build and maintain relationships
  with our customers;
- our limited experience in manufacturing fuel cell
  systems on a commercial basis;
- our dependence on others for our production
  requirements for our portable power source products;
- our dependence on our manufacturing subcontractors
  to maintain high levels of productivity and satisfactory delivery schedules
  for our portable power source products;
- our dependence on third-party suppliers for most
  of the manufacturing equipment necessary to produce our portable power source
  products;
- our inability to obtain sufficient quantities of
  components and other materials, including platinum and ruthenium, necessary
  for the production of our portable power source products;
- our dependence on OEMs integrating Mobion fuel
  cell systems into their devices;
- our lack of long-term purchase commitments from
  our customers and the ability of our customers to cancel, reduce, or delay
  orders for our products;
- risks related to protection and infringement of
  intellectual property;
- our new technologies may not result in customer or
  market acceptance;

26

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- our ability to commercialize our proposed portable
  power source solutions and develop new product solutions on a timely
  basis;
- our ability to develop and utilize new
  technologies that address the needs of our customers;
- intense competition in the direct methanol fuel
  cell and instrumentation businesses;
- change in policies by U.S. or foreign governments
  that hinder, disrupt or economically disadvantage international trade;
- the impact of future exchange rate
  fluctuations;
- uncertainty of the U.S. economy;
- the historical volatility of our stock
  price;
- the cyclical nature of the electronics
  industry;
- failure of our strategic alliances to achieve
  their objectives or perform as contemplated and the risk of cancellation or
  early termination of such alliance by either party;
- product liability or defects;
- risks related to the flammable nature of methanol
  as a fuel source;
- the loss of services of one or more of our key
  employees or the inability to hire, train, and retain key personnel;
- significant periodic and seasonal quarterly
  fluctuations in our results of operations;
- risks related to the limitation of the use of our
  net operating losses in the event of certain ownership changes; and
- other factors discussed under the heading Risk
  Factors in our Annual Report on Form 10-K for the fiscal year ended December
  31, 2008 and in Part II, Item 1A of this Quarterly Report on Form 10-Q.

Forward-looking statements speak only as
of the date they are made. You should not put undue reliance on any
forward-looking statements. We assume no obligation to update forward-looking
statements to reflect actual results, changes in assumptions, or changes in
other factors affecting forward-looking information, except to the extent
required by applicable securities laws. If we do update one or more
forward-looking statements, no inference should be drawn that we will make
additional updates with respect to those or other forward-looking statements.

Item 4. Controls and Procedures

The certifications of our Chief Executive
Officer and Chief Financial Officer attached as Exhibits 31.1 and 31.2 to this
Quarterly Report on Form 10-Q include, in paragraph 4 of such certifications,
information concerning our disclosure controls and procedures and internal
control over financial reporting. Such certifications should be read in
conjunction with the information contained in this Item 4 for a more complete
understanding of the matters covered by such certifications.

(a) Evaluation of Disclosure Controls
and Procedures

Our management, with the participation of
our chief executive officer, who is also our acting principal financial officer,
evaluated the effectiveness of MTIs disclosure controls and procedures as of
March 31, 2009. The term disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other
procedures of a company that are designed to ensure that information required to
be disclosed by a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the SECs rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the companys management, including its principal executive and principal
financial officers, as appropriate to allow timely decisions regarding required
disclosure. We recognize that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving their
objectives and we necessarily apply our judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on the valuation of our
disclosure controls and procedures as of March 31, 2009, our chief executive
officer, who is also our acting principal financial officer, concluded that, as
of such date, our disclosure controls and procedures were not effective due to
staffing turnover and a lack of adequate resources within the accounting and
finance department. In August 2008, the Board of Directors approved a
restructuring plan (the August 2008 Restructuring), which was designed to help
the Company reduce expenses and preserve cash. As part of the August 2008
restructuring, the Companys Chief Financial Officer transitioned out of the
Company along with several other accounting and Information Technology
personnel. Prior to the August 2008 restructuring, the Companys Controller left
the Company to pursue other opportunities. Additionally, effective December 1,
2008 the Companys Interim Chief Financial and Director of Financial Reporting
resigned from the Company. In response to the turnover, the Company has retained
an outside consulting firm to provide controllership and chief financial officer
related services.

(b) Changes in Internal Control Over
Financial Reporting

There have been no changes in our internal
control over financial reporting, as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act, during our fiscal quarter ended March 31, 2009
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.

27

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PART II. OTHER INFORMATION

Item 1. Legal
Proceedings

At any point in time, we may be involved
in various lawsuits or other legal proceedings. Such lawsuits could arise from
the sale of products or services or from other matters relating to its regular
business activities, compliance with various governmental regulations and
requirements, or other transactions or circumstances. We do not believe there
are any such proceedings presently pending that could have a material adverse
effect on our financial condition. See Note 12 to our Condensed Consolidated
Financial Statements for further information.

Item 1A. Risk Factors

Our Annual Report on Form 10-K for the
year ended December 31, 2008 contains a detailed discussion of our risk factors.
In addition, information regarding risk factors appears in Managements
Discussion and Analysis of Financial Condition and Results of Operations 
Statement Concerning Forward Looking Statements. These risk factors could cause
our actual results to differ materially from those stated in forward-looking
statements contained in this document and elsewhere. Pursuant to the
instructions to this Quarterly Report on Form 10-Q, we have provided below only
those risk factors that are new or that have been materially amended since the
time that we filed our 2008 Annual Report on Form 10-K. Accordingly, the
information presented below should be read in conjunction with the risk factors
and information disclosed in our 2008 Annual Report on Form 10-K.

We have incurred recurring net
losses and anticipate continued net losses as we execute our commercialization
plan for our portable power source business.

We incurred recurring net losses,
including net losses of $1.2 million for the three months ended March 31, 2009
and $3.2 million for the three months ended March 31, 2008, which includes a net
gain of $18,000 on derivatives in 2009. As a result of ongoing operating losses,
we had an accumulated deficit of $118.8 million as of March 31, 2009. We expect
to continue to make significant expenditures and incur substantial expenses as
we develop and commercialize our proposed portable power source products;
develop our manufacturing, sales, and distribution networks; implement internal
systems and infrastructure; and hire additional personnel. As a result, we
expect to continue to incur significant losses as we execute our plan to
commercialize our portable power source business and may never achieve or
maintain profitability. We will be unable to satisfy our current obligations
solely from cash generated from operations or become profitable until we
successfully commercialize our portable power source business. If we continue to
incur substantial losses and are unable to secure additional financing, we could
be forced to discontinue or curtail our business operations; sell assets at
unfavorable prices; or merge, consolidate, or combine with a company with
greater financial resources in a transaction that may be unfavorable to us.

At present, the Company does not expect to
fund MTI Micros development and commercialization of its portable power source
products. MTI Micro currently has cash and cash equivalents of $290,000 at March
31, 2009, and the ability to draw down on the $800,000 bridge loan credit line,
of which $420,000 remains available as of May 14, 2009. The credit line is
expected to bridge MTI Micro to the start of the DOE funding, which is expected
to commence in June 2009, and may allow MTI Micro to bill for work already
completed year to date. As a result of this, management currently believes it
should have adequate resources to fund its MTI Micro operations into the fourth
quarter of 2009. MTI Micro will be required to raise additional funds through
issuance of its equity or debt, government funding and/or explore other
strategic alternative, including the sale of assets and/or the company. If MTI
Micro is unable to raise additional financing, it may be required to discontinue
its business operations. Based upon projected cash requirements and current cash
and cash equivalents for MTI Instruments, along with cash necessary to operate
the public parent company, we believe that we will have adequate resources to
fund MTI Instruments and the public parent company at least through December
2009.

Our independent auditors have
included a going concern paragraph in their opinion.

Our auditors included an explanatory
paragraph in their opinion that accompanies our audited consolidated financial
statements as of December 31, 2008, indicating that our recurring losses from
operations, net capital deficiency, and current liquidity position raised
substantial doubt about our ability to continue as a going concern. The
accompanying consolidated financial statements did not include any adjustments
that would have resulted from the outcome of this uncertainty.

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We currently do not have sufficient
funds to commercialize our portable power source products.

We will need additional funding to
commercialize our portable power source business. MTI Micro had cash and cash
equivalents of $290,000 at March 31, 2009, has received $380,000 through May 14,
2009 from the April bridge loan, and has the ability to draw down on the
remaining $420,000 of the bridge loan credit line. The credit line is expected
to bridge MTI Micro to the start of the DOE funding, which is expected to
commence in June 2009, and may allow MTI Micro to bill for work already
completed year to date. As a result of this, management believes it should have
adequate resources to fund its MTI Micro operations into the fourth quarter of
2009. If we are unable to secure the necessary additional funding, we will need
to delay further commercialization plans. In order to conserve cash and extend
operations while we pursue any additional necessary financing, we will be
required to reduce operating expenses and raise additional capital through
funding. There is no assurance that funds raised in any such a financing will be
sufficient, that the financing will be available on terms favorable to us or to
existing stockholders and at such times as required, or that we will be able to
obtain the additional financing required for the continued operation and growth
of our business. During the last twelve months, we have raised $3.5 million in
external debt financing. If we raise additional funds by issuing equity
securities, our stockholders will experience dilution. Additional debt
financing, if available, may involve restrictive covenants. Any debt financing
or additional equity financing may contain terms that are not favorable to us or
our stockholders. If we raise additional funds through collaboration and
licensing arrangements with third parties, it may be necessary to relinquish
some rights to our technologies or our products, or grant licenses on terms that
are not favorable to us. If we are unable to raise adequate funds, we may have
to liquidate some or all of our assets or delay, reduce the scope of or
eliminate some or all of our research and development programs, or discontinue
our portable power source business.

Our ownership position in MTI Micro
may be reduced as a result of our plans to seek external financing for MTI
Micro's operations, which could limit our ability to control the operations.

We currently own approximately 97% of the
outstanding equity in MTI Micro and have control over the operations of this
subsidiary. In September 2008 and February 2009, MTI Micro issued $1.5 million
and $500,000, respectively, of secured notes to outside investors, which notes
are convertible into shares of MTI Micro. On April 15, 2009, MTI Micro amended
the notes to permit MTI Micro to sell additional notes with an additional
principal amount of up to $800,000 to additional investors, and to extend the
maturity date from May 31, 2009 to March 31, 2010. A further amendment provided
that if the Next Equity Financing does not occur on or before the Maturity Date,
all principal and (at MTI Micros option) accrued interest outstanding under all
of the Notes shall be converted into equity securities of MTI Micro based upon a
valuation of MTI Micro and on such terms to be agreed upon by MTI Micro and the
holders of a majority interest of the Notes within thirty (30) days following
the earlier to occur of (i) the Maturity Date or (ii) the date upon which the
aggregate principal amount under all the Notes equals or exceeds $3,500,000,
which the valuation and terms shall be negotiated in good faith by MTI Micro and
a majority interest of the Notes. If the notes are converted, our ownership
could decrease significantly. In addition, we do not currently expect to advance
additional resources to MTI Micro to fund its continued direct methanol fuel
cell development and commercialization programs. Instead, MTI Micro will seek
additional capital from external sources to fund future development and
operations. Depending on the valuation of MTI Micro at the time of future
financings, if any, our ownership position could be substantially diluted, and
we may no longer have sufficient equity to control the operations of MTI Micro.
If MTI Micro is unable to secure the necessary additional external financing, we
may be forced to substantially downsize or eliminate its operations.

We may experience an ownership
change which would result in a limitation of the use of our net operating
losses.

As of March 31, 2009, we had approximately
$65 million of net operating loss, or NOL, carryforwards on the Companys
balance sheet. Our ability to utilize these NOL carryforwards, including any
future NOL carryforwards that may arise, may be limited by Section 382 of the
Internal Revenue Code of 1986, as amended, if we or MTI Micro undergo an
ownership change as a result of subsequent changes in the ownership of our
outstanding common stock pursuant to the exercise of the warrants, the
conversion of MTI Micros bridge notes, or otherwise. A corporation generally
undergoes an ownership change when the ownership of its stock, by value,
changes by more than 50 percentage points over any three-year testing period. In
the event of an ownership change, Section 382 imposes an annual limitation on
the amount of post-ownership change taxable income a corporation may offset with
pre-ownership change NOL carryforwards and certain recognized built-in
losses.

29

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Item 5. Other
Information

None

Item 6. Exhibits

|Exhibit No. |  | Description                                                                                                                                        | 
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------- | 
|31.1        |  | Rule 13a-14(a)/15d-14(a) Certification Pursuant to Section
      302 of the Sarbanes-Oxley Act of 2002, of Peng K. Lim                            
|           
|32.1        |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of Peng K.
      Lim

SIGNATURES

Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.

|             |     | Mechanical Technology,
      Incorporated             
|------------ | --- | ------------------------------------------------------
|            
|            
|            
|May 14, 2009 | By: | /S/ PENG K. LIM                                       
|             |     | Peng K. Lim                                           
|             |     | Chief Executive Officer,
      Chief Financial Officer

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