Soluna Holdings, Inc - Annual Report: 2000 (Form 10-K)

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2000

or

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the period from __________ to __________

Commission file number 0-6890

MECHANICAL TECHNOLOGY INCORPORATED

(Exact name of registrant as specified in its charter)

New York 14-1462255

(State or other jurisdiction of (I.R.S. Employer

incorporation or organization) Identification No.)

30 South Pearl Street, Albany, New York 12207

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (518)433-2170

Securities Registered Pursuant to Section 12(b) of the Act: NONE

Securities Registered Pursuant to Section 12(g) of the Act

$1.00 Par Value Common Stock

(Title of Class)

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. [ ]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

The aggregate market value of the registrant's common stock held by nonaffiliates of the registrant on December 19, 2000 (based on the last sale price of $2.625 per share for such stock reported by NASDAQ for that date) was approximately $52,207,341.

As of December 19, 2000, the registrant had 35,422,335 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Document Where Incorporated into Form 10-K Report

Proxy Statement for Part III

Annual Meeting of Shareholders

to be held on April 24, 2001

Mechanical Technology, Inc., ("Mechanical Technology" or "the Company") is a New York Corporation, and was incorporated in 1961.

Over the last five years, Mechanical Technology has strengthened its commitment to and involvement in the new energy sector. The Company has sold off non-core businesses and restructured its balance sheet in order to implement its core business strategy, which is to develop a series of coordinated new energy efforts in areas which may include, but are not limited to, embedded, distributed and improved power, advanced power transmission and storage or enabling technologies and services. The Company plans to implement this strategy through the internal development and growth of businesses, the acquisition of majority stock positions in emerging new energy companies, and strategic investments in established new energy businesses.

Mechanical Technology held interests in the following new energy companies as of September 30, 2000:

Plug Power researches, develops and manufactures proton exchange membrane (PEM) fuel cell systems for electric power generation. SatCon designs, develops and manufactures power and energy management products. Beacon Power designs and develops flywheel energy storage systems.

Subsequent to September 30, 2000, Mechanical Technology launched another new energy endeavor: a strategic initiative to develop direct methanol fuel cell ("DMFC") technology capable of providing power ranging from 100 milliwatts to several hundred watts. Initial applications are believed to include, but are not limited to, handheld and portable electronics.

Mechanical Technology intends to continue implementing its core business strategy with the goal of providing much-needed energy products and services and increasing shareholder value.

Mechanical Technology's majority-owned subsidiary, MTI Instruments, Inc., ("MTI Instruments"), formerly the Advanced Products Division of the Company, commenced operations on April 1, 2000. MTI Instruments has three product lines: portable engine balancing systems for the aircraft industry, non-contact measurement probes and electronics, and metrology tools for the semiconductor industry. MTI Instruments' strategy is to continue to enhance and expand its product offerings with the goal of increasing market share and profitability.

Mechanical Technology is focusing its entrepreneurial efforts in the field of new energy, helping to accelerate the development of new energy technologies and companies.

The Company plans to use its experience as a founding member of Plug Power and a strategic partner of Satcon and Beacon Power, to accelerate the commercialization of other new energy technologies. The Company's approach will include forming strategic alliances and working partnerships with industry leaders, structuring research and development processes, developing the ramp-up to manufacturing and product distribution, and directing the hiring of the key people needed to successfully launch entrepreneurial efforts. The Company also plans to provide other resources and varied levels of strategic assistance to innovative companies in the field.

As of September 30, 2000, companies in which Mechanical Technology held interests, provided the following products and services:

Plug Power is developing and producing residential fuel cells that are essentially miniature home power plants using a combustion-free process to produce electricity. Plug Power's fuel cells are intended to provide homes and small businesses with a compact, efficient, reliable, clean, and economically advantageous method of meeting their power requirements.

SatCon is designing, developing and manufacturing power and energy management products which convert, condition, store and manage electricity for businesses and consumers requiring high-quality, high-efficiency, uninterruptible power. SatCon's products are intended to be enabling technologies for the emerging distributed power generation and power quality markets. SatCon is focusing its development and manufacturing efforts on products for high-growth markets in the following categories: power electronics and control software serving fuel cells and microturbine power generation systems; and high-performance motors and electric drivetrains for hybrid-electric vehicles.

Beacon Power is developing flywheel energy storage systems to provide standby power when a primary power source fails. Flywheel systems draw electrical energy from a primary power source (i.e., the electric grid or fuel cells), store that energy, and then convert that energy to immediately provide uninterruptible electric power when the primary power source fails or is disrupted. The expected advantages of flywheels include higher reliability, longer life, lower life-cycle cost, improved recharging capability, reduced maintenance, more reliable monitoring, and greater environmental friendliness. The systems are expected to be used for communications networks, computers, the internet, industrial manufacturing, commercial facilities and distributed generation products.

MTI Instruments is involved in the design, manufacture and sale of high-performance test and measurement instruments and systems. MTI Instruments has three product groups: non-contact sensing instrumentation, computer-based balancing systems, and semiconductor systems.

Non-contact sensing instrumentation products utilize fiber optic, laser, and capacitance technology to perform high precision position measurements for product design and quality control inspection requirements, primarily in the semiconductor and computer disk drive industries. Product trademarks such as the Fotonic SensorÔ and AccumeasureÔ are recognized worldwide.

MTI Instruments' computer-based aircraft engine balancing systems include an on-wing jet engine balancing system used by both commercial and military aircraft fleet maintenance personnel. This product provides trim balancing and vibration analysis in the field or in test situations.

The semiconductor group designs and produces manual, semi-automated and fully automated metrology tools designed specifically for the semiconductor industry. Such tools are based on MTI Instruments' proprietary Push-PullÔ technology.

MTI Instruments' largest customers include industry leaders in the computer, electronic, semiconductor, automotive, aerospace, aircraft and bioengineering fields.

Mechanical Technology operates in the segment of new energy technologies, and MTI Instruments operates in the segment of test and measurement instrumentation.

In the segment of new energy, Mechanical Technology plans to further implement its core business strategy of developing new technologies and companies with the goal of positioning them to capitalize on opportunities in the field of new energy.

The Company's most recent initiative is the research and development of Direct Methanol Fuel Cells ("DMFC"). Fuel cells convert chemical energy in a fuel to electrical energy through an electrochemical process much like a battery. DMFC systems use methanol fuel directly in the fuel cell without the need for a fuel processor. For small systems (<100w), DMFC technology could offer much higher power density than is currently available in batteries. In addition, DMFCs do not need to be recharged like a battery but can make electricity as long as fuel is available, and additional fuel may be added without interrupting power generation.

The Company believes that the initial applications of DMFCs include, but are not limited to, handheld and portable electronic devices such as cell phones, PDA's and laptops, and that DMFCs should provide the consumer with longer use time for these devices, as well as instant and easy refueling.

Because of the dramatically increasing demand for portable electronic devices and the potential uses and advantages of DMFCs, the Company anticipates significant market opportunities for DMFCs, and it predicts that these opportunities will continue to exist or grow substantially over the next decade or more. The Company also believes that DMFCs could be an enabling technology that may provide the increased power necessary to combine portable electronic products, and therefore, should provide significant new market opportunities.

After conducting scientific and market sizing research, the Company has made a commitment to hiring top scientists and engineers in the area of DMFCs and to establishing relationships with strategic partners in order to rapidly commercialize DMFCs. The Company also has patents filed, pending and in process and has entered into an agreement to license DMFC technology from Los Alamos National Laboratories (see the Intellectual Property and Proprietary Rights Section under Item 1). In addition, the Company's new team of officers and senior staff will use their expertise in technical, financial, business development, organizational and marketing areas to help the DMFC commercialization effort (see the Executive Officers Section under Item 1). Despite these beliefs and actions, the Company's efforts in DMFC technology remain in the research and development phase and the Company recognizes that significant technical and engineering challenges remain before DMFCs can become commercially viable and available.

In addition to its own efforts to develop new energy products, Mechanical Technology has holdings in companies that control their own product development efforts, such as Plug Power, SatCon and Beacon Power. However, the Company realizes that their products and any products developed by the Company itself, are not necessarily lower cost alternatives to existing energy technologies but are often solutions to questions of reliability, capacity, quality, maintenance, environmental issues and other current and future power requirements or concerns.

The Company intends to expand its activities in the new energy segment through a series of strategic and coordinated efforts that may include any or all of the following: the acquisition of majority stock positions in new energy companies; the acquisition of existing new energy companies, and the internal development and growth of new energy technologies and companies. These companies and technologies may be in areas including embedded, distributed and improved power, advanced power transmission and storage or enabling technologies, distribution and service for new energy.

In the segment of test and measurement instrumentation, MTI Instruments' strategy is to continue to enhance and expand its product offerings and market share and increase profitability. MTI Instruments expects to introduce the following product offerings in 2001: The semiconductor product group will add a new automated wafer thickness measurement system specifically designed to handle 300 mm wafers. This system will offer edge handling robotics and full wafer mapping capability. The general instruments group will introduce a new generation of CCD-based laser triangulation sensors. This new product is expected to offer accuracy and speed or frequency response advantages over existing competitive products. In January 2001, the PBS group's 4100 product line will be enhanced by a next generation vibration diagnostics and balancing system - the WinPBS - for on-wing balancing and test cell applications. The test cell version permits exchange of data with other test cell instrumentation using Ethernet.

Mechanical Technology's officers and senior staff attend and speak at conferences appropriate to developing the Company's efforts and expanding its activities in the new energy sector.

In the sector of test and measurement instrumentation, MTI Instruments markets its products and services through a separate experienced marketing, sales and applications engineering staff. The marketing and sales efforts of MTI Instruments are supported by a network of manufacturers' representatives, a regional sales office in the USA, and sales agents and distributors in foreign markets. In some cases, such as OEM accounts, MTI Instruments sells direct.

To supplement these efforts, MTI Instruments also attends numerous trade shows in the areas of its concentration and uses product listings in appropriate media and directories and the internet.

A comparison of sales by class of products, which account for over 10 percent of the Company's consolidated sales, are shown below for the years ended September 30:

Mechanical Technology, its subsidiary and each of the businesses in which it has holdings, are subject to intense competition. The Company faces competition from large diversified companies with greater resources and from smaller developing companies as it enters new markets. The Company does not consider itself dominant in either the new energy or precision instrumentation markets but believes its management team, product development skills, product quality and reputation are competitive advantages.

As part of its core business strategy of helping to accelerate new energy technologies and companies, Mechanical Technology will conduct research on developing and existing efforts in the field of new energy. As of September 30, 2000, the Company's research and development activities were in Direct Methanol Fuel Cells ("DMFCs"). A discussion of DMFCs is covered more fully in the Business Strategy Section under this Item 1.

MTI Instruments conducts research and develops technology to support its existing products and to develop new products. MTI Instruments' technology is generally an advancement of state of the art in its industries. MTI Instruments expects to maintain a competitive position by continuously advancing its technology rather than relying on patent protection.

During fiscal years 2000, 1999 and 1998, the Company expended $2.0, $1.1, and $.8 million, respectively, on product development and research costs.

Mechanical Technology relies on a combination of patent, trade secret, and copyright and trademark laws to protect its intellectual property. It has entered into confidentiality agreements with all of its employees and consultants with respect to its intellectual property, whether developed internally or licensed from other parties.

The Company will continue to develop intellectual property related to its core business strategy in new energy, and will seek to appropriately protect this intellectual property using patents and other appropriate legal protection.

The Company has entered into an agreement to license certain core Direct Methanol Fuel Cell ("DMFC") Technology from Los Alamos National Laboratory ("LANL"). Under this agreement, the Company has a nonexclusive right to use technology developed by LANL's research teams. The technology relates to fundamental DMFC construction and architecture of the power generating components of the DMFC.

In addition to licensing technology from LANL, the Company has developed intellectual property related to DMFC systems. To date, the Company has applied for five patents. These patents cover, among other things, fuel cell system designs that result in increased efficiency, ease of manufacture, and overall performance, as well as designs for individual components of a DMFC system, and subsystems, which assist in controlling the DMFC system. A discussion of DMFCs is covered more fully in the Business Strategy Section under this Item 1.

The Company will continue to develop intellectual property related to DMFC systems, and will seek to appropriately protect this intellectual property using patents and other appropriate legal protection.

The Company's majority-owned subsidiary, MTI Instruments, relies primarily on trade secret law to protect its intellectual property.

Segment information is set forth in Note 20 - Geographic and Segment Information - of the Notes to Consolidated Financial Statements referred to in Item 8 below and incorporated herein by reference.

Subsequent to September 30, 2000, Mechanical Technology has launched a strategic initiative to develop direct methanol fuel cell ("DMFC") technology capable of providing power ranging from 100 milliwatts to several hundred watts. Initial applications are believed to include, but are not limited to, handheld and portable electronics. A discussion of DMFCs is covered more fully in the Business Strategy Section under this Item 1.

On December 20, 2000, the Company exercised its 1,333,333 warrants in Beacon Power Corporation ("Beacon Power") common stock at an exercise price of $2.25 per share. This transaction was a cash-less exercise, which resulted in the Company obtaining an additional 985,507 shares of Beacon Power's common stock as a result of the exercise.

On December 27, 2000, the Company restructured its $50 million line of credit with KeyBank, N.A. ("Line of Credit"), to provide greater liquidity for the Company as the price of Plug Power stock, which secured the Line of Credit, declined in volatile markets. This agreement was amended as follows:

The $50 million Credit Agreement, as amended, was reduced to $30 million ("the $30 million Credit Agreement, as amended"). Concurrent with this amendment, KeyBank, N.A. permanently waived all covenant violations related to the minimum price of Plug Power common stock and the Company made a principal reduction of $3 million, bringing the loan balance to $25.2 million as of the amendment date. Additional borrowings are available when the Plug Power stock price is above $20 per share.

The Company has pledged 8 million shares of Plug Power common stock as collateral. In addition, the Company entered into a Put and Call with First Albany Companies, Inc. ("FAC") to provide independent credit support for repayment of the loan ("FAC Credit Enhancement"). The FAC Credit Enhancement provides FAC with the option, if the price of Plug Power stock falls to $4 per share, to either purchase 6.3 million Plug Power shares pledged as collateral on the loan or take an assignment of KeyBank N.A.'s rights under the Credit Agreement, as amended. The FAC Credit Enhancement may be triggered in the event of a default and expires on April 27, 2001 and may be renewed by the Company and FAC on a monthly basis upon mutually agreeable terms. Upon expiration of the FAC Credit Enhancement, if Plug Power stock is trading below $20 per share the loan is immediately due and payable. Mandatory repayments on any outstanding balance in excess of $25.2 million would be required if the Plug Power stock price declines below $16 per share while the FAC Credit Enhancement is in place. After the FAC Credit Enhancement expires, mandatory repayments on any outstanding balance would be required if the Plug Power stock price is below $20 per share. If the line of credit is due and payable upon expiration of the FAC Credit Enhancement on April 27, 2001, the Company may need to sell assets including certain investments to fund this obligation. The Company is obligated to make interest-only payments through March 15, 2002, and upon exercise of a term loan option at the end of the line of credit term, to repay the principal in 8 equal quarterly installments beginning March 31, 2002. Interest is payable monthly at either the Prime Rate or if certain performance standards are achieved, based on both the trading volume and market price of Plug Power common stock, at LIBOR based rates. On September 30, 2000, $27 million of debt was outstanding at Prime (9.5%).

Subsequent Events (Continued)

On December 27, 2000, the Company entered into two bridge loan agreements with FAC. The first loan was for $945,000 and was used to pay the purchase price for the FAC Credit Enhancement. The Company has pledged 200,000 shares of Plug Power common stock as collateral. The second loan is for $5 million, $3 million of which was used to make the principal loan repayment to KeyBank, N.A. and the remaining $2 million will be used for working capital. The Company pledged 1 million shares of Plug Power common stock as collateral. Both loans bear interest at the Prime Rate (9.5% at December 27, 2000); and both interest and principal are due on January 3, 2002. Upon mutual agreement of FAC and the Company, the loans may be converted to equity prior to maturity.

On June 27, 1997, the Company and Edison Development Corp. ("EDC"), a subsidiary of DTE Energy Co. formed a joint venture, Plug Power, LLC ("Plug Power"), to further develop the Company's Proton Exchange Membrane (" PEM") Fuel Cell technology. In exchange for its contribution of contracts and intellectual property and certain other net assets that had comprised the fuel cell research and development business activity of the Technology segment (the assets of which had a net book value of $357 thousand), the Company received a 50% interest in Plug Power. EDC made an initial cash contribution of $4.75 million in exchange for the remaining 50% interest in Plug Power. The Company's investment in Plug Power is included in the balance sheet caption "Investments, at equity".

Plug Power has focused exclusively on the research, development and manufacture of an economically viable PEM fuel cell.

On October 29, 1999, Plug Power Inc. made an initial public offering ("IPO") of its common stock on the Nasdaq National Market under the symbol "PLUG." The initial public offering price for the 6 million shares issued was $15 per share. Additionally, the underwriters of the IPO exercised their 900,000 shares over allotment at the IPO price.

Since Plug Power was formed in 1997, the Company, EDC and other investors have contributed substantial amounts of cash and other assets to Plug Power. Contributions to Plug Power by the Company totaled $20.7 million as of September 30, 1999. Immediately prior to the Plug Power IPO, the Company purchased an additional 2,733,333 shares of Plug Power at $7.50 per share for a total purchase price of $20.5 million. The Company owns 13,704,315 shares of Plug Power or approximately 31.4% of outstanding Plug Power stock at September 30, 2000.

On October 21, 1999, the Company created a strategic alliance with SatCon Technology Corporation ("SatCon"), an innovator of new energy technologies. SatCon acquired Ling Electronics, Inc. and Ling Electronics, Ltd. ("Ling") from the Company, and the Company invested approximately $7 million in SatCon. In consideration for the acquisition of Ling and the Company's investment, the Company received 1,800,000 shares of SatCon's common stock and warrants to purchase an additional 100,000 shares of SatCon's common stock. SatCon also received warrants to purchase 100,000 (300,000 post-split) shares of the Company's common stock.

On May 23, 2000, the Company purchased preferred stock and received warrants to purchase common stock and the right to receive additional warrants for common stock if there was an initial public offering ("IPO"), from Beacon Power Corporation, in exchange for $6 million in cash. In August 2000, the Company exercised its 12,000 warrants. At September 30, 2000, the Company owned 1,428,571 shares of Beacon Power Class F Preferred Stock and 12,000 shares of common stock. On November 17, 2000, Beacon Power completed its initial public offering of its common stock, and the warrant terms were set for the purchase of 1,333,333 shares of common stock at an exercise price of $2.25 per share, exercisable as of November 17, 2000. The warrants expire May 23, 2005. Immediately prior to its IPO, Beacon Power converted its preferred stock to common stock and completed a 2-for-1 stock split. On December 20, 2000, the Company exercised its 1,333,333 warrants on a cash-less basis which resulted in the Company's receiving an additional 908,507 shares of Beacon Power common stock.

On July 12, 1999, the Company completed the sale of 801,223 shares of common stock to current shareholders through a rights offering. The offering raised approximately $12.8 million before offering costs of approximately $158 thousand for net proceeds of approximately $12.7 million. The Company used some of the proceeds of the offering for investment into Plug Power. In addition, some proceeds were used for acquisitions for the Company's core businesses, efforts to increase market share, working capital, general corporate purposes and other capital expenditures.

On September 30, 1998, the Company completed the sale of 1,196,399 shares of common stock to current shareholders through a rights offering. The offering raised approximately $7.2 million before offering costs of approximately $186 thousand for net proceeds of approximately $7 million. The Company used some of the proceeds of the offering for investment in Plug Power. In addition, some proceeds were used for acquisitions for the Company's core businesses, efforts to increase market share, working capital, general corporate purposes and other capital expenditures.

This Annual Report on Form 10-K contains forward-looking statements. You

can identify these statements by forward-looking words such as "may," "will," "expect," "anticipate," "believe," "estimate," and "continue," or similar words. You should read statements that contain these words carefully because they discuss our future expectations contain projections of our future results of operations or of our financial condition or state other "forward-looking" information. All statements other than historical information should be deemed to be forward looking statements. We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties, and actual results may differ materially from those discussed as a result of various factors, including the risks described below.

In December 2000, we restructured our loan agreement with KeyBank, N.A., reducing our credit line from $50 million to $30 million and made a $3 million principal repayment. To provide independent credit support for the repayment of the loan, the Company purchased the FAC Credit Enhancement from First Albany Companies Inc. In exchange, KeyBank, N.A. agreed to permanently waive any covenant violations related to the price of Plug Power stock. The Company may resume borrowing on the line when Plug Power's stock price is above $20 per share. After the FAC Credit Enhancement expires on April 27, 2001, mandatory repayments on any outstanding balance would be required if Plug Power stock is trading at less than $20 per share. As of December 27, 2000, the total amount outstanding on our line of credit was $25.2 million.

In December 2000, the Company also entered into two bridge loan agreements with First Albany Companies Inc. The first loan was for $945 thousand and was used to pay the purchase price for the FAC Credit Enhancement. The second loan is for $5 million, $3 million of which was used to make the principal loan repayment to KeyBank, N.A. and the remaining $2 million will be used for working capital. The Company pledged 1.2 million shares of Plug Power common stock as collateral for the two loans. Both loans bear interest at the Prime Rate and both interest and principal are due on January 3, 2002. Both loans may also be converted to equity prior to maturity.

The Company believes that it will be able to meet the liquidity needs of its continuing operations for the next year from one or more of the following sources: additional borrowings, equity financings, the sale of assets, debt financings, current cash resources, cash flow generated by operations, and borrowings under its bridge loan from First Albany Companies Inc. If future financing is not available or is not available on acceptable terms, we may not be able to fund our future needs, which would have a material adverse effect on our business, results of operations and financial condition.

A component of our business strategy is to develop or acquire businesses, products, assets and technologies that are related to embedded, distributed and improved power; advanced power transmission and storage; or enabling technologies, distribution and service for this sector.

Internal development of businesses and technologies is extremely difficult. We cannot assure that we will be able to successfully develop any new technologies, or if we are successful, that such technologies will be commercially viable. Development of new technologies requires substantial resources including financial, managerial and technical resources. We cannot assure that all the necessary resources will be available to the degree, and at the times they are needed. If we are unable to successfully develop new energy businesses and technologies, the results of operations could be materially adversely affected.

Acquisitions are difficult to identify and complete for a number of reasons, including competition among prospective buyers and the need for regulatory approvals, including antitrust approvals. There is no assurance that we will be able to successfully identify acquisition candidates or complete future acquisitions. In order to finance acquisitions, we may have to raise additional funds. Such funds may not be available at all, or may be on terms that are not favorable to us. There is no assurance that acquired businesses will be operated profitably or achieve their growth strategy. The successful combination of companies in a rapidly changing high technology industry such as ours may be more difficult to accomplish than in other industries. Our ability to integrate any newly acquired entities will require us to continue to improve our operational, financial and management information systems, and to motivate and effectively manage our employees. If our management is unable to manage growth effectively, the results of operations could be materially and adversely affected.

The success of the Company's new energy strategy depends on increased acceptance of alternatives to traditional methods of power generation, transmission, storage and distribution. We believe the market is at an early stage in the c ommercialization of new energy technologies and products, but the future commercial prospects are not yet clear. The businesses of our portfolio companies, and therefore our financial results and condition, will be materially adversely affected if new energy generation, transmission, storage and distribution methods do not receive significant levels of acceptance.

There are unique and substantial risks associated with our direct methanol fuel cell (DMFC) initiative. Significant technical challenges must be resolved before DMFCs can be commercialized, and there is no guarantee that we will be able to overcome these challenges in either the short or long term, or that we will be able to resolve these challenges in a manner that allows for commercialization of DMFC technology. In addition, there are other entities involved in the development of DMFCs, who also seek to commercialize DMFC technology, and may resolve these issues more quickly, more completely, or more efficiently than we do. We may seek strategic partners to participate in this initiative, but may not be able to negotiate relationships with suitable partners on acceptable terms, if at all. The success of the DMFC initiative will further depend on our ability to fund the initiative, attract talented scientific, managerial and professional personnel, and develop a DMFC that satisfies the needs of prospective customers.

As of September 30, 2000, we had an accumulated deficit of $45.2 million. Our net loss for the year ended September 30, 2000 was $18.6 million, $15.8 million of which was generated by our proportionate shares of losses, after taxes, in our portfolio companies. We expect to continue incurring net losses until we and our portfolio companies can produce sufficient revenues to cover costs. In order to achieve profitability, we and our portfolio companies must successfully achieve all or some combination of the following:

• develop new products for existing markets;
• sell these products to existing and new customers;
• increase gross margins through higher volumes and manufacturing efficiencies;
• control operating expenses; and
• develop and manage distribution capability.

Our equity investments in other companies constitute investment securities under the Investment Company Act. In general, a company may be deemed to be an investment company if it owns investment securities with a value exceeding 40% of its total assets, subject to certain exclusions and exemptions. Investment companies are subject to registration under, and compliance with, the Investment Company Act unless a particular exclusion or safe harbor provision applies. If we were to be deemed an investment company, we would become subject to the requirements of the Investment Company Act. As a consequence, we would be prohibited from engaging in certain businesses or issuing certain securities, certain of our contracts might be voidable, and we might be subject to civil and criminal penalties for noncompliance.

Although our investment securities currently comprise more than 40% of our total assets, our interest in Plug Power, based upon the level of our ownership of shares of Plug Power and our influence over its management or policies, enable us to qualify for a safe harbor exemption from the Act. Fluctuations in the value of our investment securities or of our other assets, or the reclassification of our interest in Plug Power, may cause this safe harbor exemption to be unavailable. Unless an exclusion or safe harbor was available to us, we would have to attempt to reduce our investment securities. If we were required to sell investment securities, we may sell them sooner than we otherwise would. These sales may be at depressed prices and we may never realize anticipated benefits from, or may incur losses on, these investments. We may be unable to sell some investments due to contractual or legal restrictions or the inability to locate a suitable buyer. Moreover, we may incur tax liabilities when selling assets.

The primary assets of the Company are equity securities of publicly traded companies. As of September 30, 2000, the Company owned shares of common stock in Plug Power and SatCon, each of which is a publicly traded company. The Company also owns shares of Beacon Power, which went public in November 2000. The market price and valuations of the securities the Company holds in these companies may fluctuate due to market conditions and other conditions over which the Company has no control. Fluctuations in the market price and valuations of the securities held by the Company may result in fluctuations in the market price of the Company's common stock.

Our success is partially dependent on the success of our portfolio companies. Each of these companies is still researching and developing technologies. Plug Power, a developer of residential fuel cells, has stated that it does not expect to have a commercial product available until at least 2002. There is no assurance Plug Power will successfully develop a commercial product, or if it does, that it will do so in the time frames predicted. Although SatCon currently produces and sells some products, it continues to research and develop other products for commercial business applications. There is no assurance that such products will be accepted by the market or will be produced at a cost that is commercially feasible. Finally, Beacon, a developer of flywheel energy storage devices, is still in the development stage. There is no assurance it will develop a commercially viable flywheel at the costs or in the timeframes it currently predicts.

New energy technology markets are characterized by rapid technological change, frequent new product introductions and enhancements, uncertain product life cycles, changes in customer requirements and evolving industry standards. The introduction of new products embodying new technologies and the emergence of shifting customer demands or changing industry standards could render the products of our portfolio companies and our research and development efforts obsolete and unmarketable which would have a material adverse effect on our business, operating results and financial condition. Our future success will depend upon our and our portfolio companies' ability to continue to develop and introduce a variety of new products and product enhancements to address the increasingly sophisticated needs of customers. This will require that our portfolio companies and we continue to make substantial product development investments. Our portfolio companies and we may experience delays in releasing new products and product enhancements in the future. Such material delays may cause customers to forego purchases of products and/or purchase those of our competitors. Technological advances in new energy products and improvements in existing technologies and power supplies may render our technologies and the technologies of our portfolio companies obsolete.

Patent and trade secret rights are of material importance to us and to our portfolio companies. No assurance can be given as to the issuance of patents or, if so issued, as to their scope. Patents granted may not provide meaningful protection from competitors. Even if a competitor's products were to infringe patents owned by us, or our portfolio companies, it would be costly to pursue an enforcement action and would divert funds and resources which otherwise could be used in operations. Furthermore, there can be no assurance that an enforcement action would be successful. In addition, there is no assurance that we, or our portfolio companies, will not infringe patent or intellectual property rights of third parties. Such infringement could be costly and cause delays in product development and introduction. In addition to our patent rights, we also rely on treatment of our technology as trade secrets and upon confidentiality agreements. These agreements may be breached, and we may not have adequate remedies for any breach.

The markets for high technology companies in particular have been volatile, and the market price of our common stock, which is traded on the Nasdaq National Market under the symbol MKTY, may be subject to significant fluctuations. Fluctuations could be in response to operating results, announcements of technological innovations or new products by us, our portfolio companies, or by our competitors, patent or proprietary rights developments, and market conditions for high technology stocks in general. In addition, the stock market in recent years has experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of individual companies. These market fluctuations, as well as general economic conditions, may adversely affect the market price of our common stock.

Certain industries in which we, or our portfolio companies sell products, such as the energy and semiconductor industry, are highly cyclical. In the future, our results may be subject to substantial period-to-period fluctuations as a consequence of the industry patterns of our customers, general or regional economic conditions, and other factors. These factors may also have a material adverse effect on our business, operating results and financial condition.

If we raise additional funds through the sale of equity or convertible debt securities, current shareholders' percentage ownership will be reduced. In addition, these transactions may dilute the value of common stock outstanding. We may have to issue securities that may have rights, preferences and privileges senior to our common stock. We cannot assure current shareholders that we will be able to raise additional funds on terms acceptable to us, if at all. If future financing is not available or is not available on acceptable terms, we may not be able to fund our future needs, which would have a material adverse effect on our business, results of operations and financial condition.

A large percentage of the revenue of our portfolio companies is from government contracts. The loss of such contracts could adversely affect our financial condition. We believe that government funding for areas of research and development activities of our portfolio companies will continue without reduction, however, we cannot assure that this funding will not be reduced in the future.

Some of the Company's officers and directors serve as officers or directors of one or more of the Company's portfolio companies. Some of the Company's officers and directors also serve as officers and directors of the Company's majority shareholder. As a result, the Company, the Company's officers and directors, the Company's portfolio companies and the Company's majority shareholder may face potential conflicts of interest with each other and with its stockholders. Specifically, the Company's officers and directors may be presented with situations in their capacity as officers or directors of one of the Company's portfolio Companies or as officers and directors of the Company's majority shareholder that conflict with their obligations as officers or directors of the Company.

The Company is focused on developing and expanding its new energy initiative. In doing so, the Company has expended substantial managerial, operational, and financial resources, which have, at times, placed significant strains on its managerial, operational, and financial resources. As the Company continues to develop and expand its new energy strategy, it will be required to manage multiple relationships with strategic partners and other third parties. Further growth of the Company or its strategic relationships may increase these strains, and may hinder its ability to rapidly implement its business plan.

A variety of companies compete in accelerating new energy companies and technologies, test and measurement instrumentation and in the businesses in which our portfolio companies are engaged. We expect competition to intensify greatly as the need for new energy alternatives and precision instrumentation becomes more apparent and continues to increase. Some of our competitors, and the competitors of our portfolio companies, are well established and have substantially greater managerial, technical, financial, marketing and product development resources. Additional companies, both large and small, are entering the markets in which we compete. There can also be no assurance that current and future competitors will not be more successful in the markets in which we compete than we have been, or will be in the future. There can be no assurance that we will be successful in such a competitive environment.

Our success will depend, in large part, upon our ability to attract, motivate and retain highly qualified scientists and engineers, as well as highly skilled and experienced management and technical personnel. Competition for these personnel is intense, and there can be no assurance that we will be successful in attracting, motivating or retaining key personnel. Our success depends to a significant extent upon a number of key employees, including members of senior management. The loss of the services of one or more of these key employees could have a material adverse effect on our plans for expansion in the future.

As of September 30, 2000, our officers, directors, and their affiliates, beneficially own approximately 44% of our outstanding common stock; and First Albany Companies Inc. holds approximately 34% of the outstanding common stock. This concentration of ownership may have the effect of delaying or preventing a change in control of the Company.

Ling Electronics, Inc. and Ling Electronics, Ltd. ("Ling") were sold on October 21, 1999 to SatCon in exchange for 770,000 shares of SatCon common stock (which stock had a market value of approximately $6.7 million on the transaction date). Ling, of Anaheim, California, designed, manufactured, and marketed electro-dynamic vibration test systems, high-intensity-sound transducers, power conversion equipment and power amplifiers used to perform reliability testing and stress screening during product development and quality control. This mode of testing is used by industry and the military to reveal design and manufacturing flaws in a broad range of precision products, from satellite parts to computer components. Ling products for power and frequency conversion and "clean power" applications include systems capable of output up to 432 kVA.

The sale of the Company's Technology Division, the sole component of the Technology segment, to NYFM, Incorporated (a wholly-owned subsidiary of Foster-Miller, Inc., a Waltham, Massachusetts-based technology company) was completed on March 31, 1998. Accordingly, the Company no longer includes Technology among its reportable business segments. The Technology Division is reported as a discontinued operation as of December 26, 1997, and the consolidated financial statements have been restated to report separately the net assets and operating results of the business. The Company's prior year financial statements have been restated to conform to this treatment. See Note 18 of the Notes to Consolidated Financial Statements referred to in Item 8 below.

On September 30, 1997, the Company sold all of the assets of its L.A.B. Division to Noonan Machine Company of Franklin Park, IL. The Company received $2.6 million in cash and two notes, totaling $650 thousand, from Noonan Machine Company. The purchaser has requested that the principal amount of the $250 thousand note be reduced to reflect the resale value of certain assets of L.A.B. The Company is enforcing its rights with respect to the note. The net proceeds from the sale were used to pay down all outstanding debt on September 30, 1997 and build working capital. The sale of L.A.B. resulted in a $2.0 million gain, which was recorded in the fourth quarter of fiscal year 1997.

The L.A.B. Division designed, manufactured, and marketed mechanically and hydraulically-driven test systems for package and product reliability testing. Among other uses, this equipment simulates the conditions a product will encounter during transportation and distribution including shock, compression, vibration and impact. This type of testing is widely conducted by businesses involved in product design, packaging and distribution.

The backlog of orders believed to be firm as of September 30, is $1.9 million and $2.1 million ($1.1 million of which relates to Ling, which was sold on October 21, 1999) for 2000 and 1999, respectively. The backlog relates to contracts awarded by commercial customers or government agencies.

The total number of employees of Mechanical Technology and its subsidiaries was 59 as of September 30, 2000, as compared to 104 as of September 30, 1999. This reduction in employees is primarily due to the sale of Ling on October 21, 1999.

Fiscal 2000 employees reflect the strategic development of a new executive team and staff for Mechanical Technology as the Company stepped up its involvement in new energy. Executives and staff were chosen for their acumen, ability and experience in areas critical to the execution of the Company's core business strategy. The backgrounds of the Company's officers are more fully detailed under the Executive Officers Section of Item 1.

Significant customers information is set forth in Note 20 of the Notes to Consolidated Financial Statements referred to in Item 8 below and incorporated herein by reference.

The executive officers of the registrant (all of whom serve at the pleasure of the Board of Directors), their ages, and the position or office held by each, are as follows:

Mr. McNamee has been a Director and Chairman of the Company's Board since 1996, and Chief Executive Officer since April 1998. Mr. McNamee is and has been the Chairman of the Board of First Albany Companies, Inc. ("FAC") since 1985 and its Co-Chief Executive Officer since 1994 (see "Securities Ownership of Certain Beneficial Owners" in Item 10 below). Mr. McNamee also serves as Chairman of the Board of Plug Power Inc., a position he has held since Plug Power was formed in 1997. He is a member of the Board of Directors of MapInfo Corporation and The Meta Group, Inc. He is on the Board of Directors of the New York Stock Exchange, and the New York Conservation Education Fund.

Dr. Acker was appointed President of the Company in June 2000. From 1997 to June 2000, Dr. Acker was Vice President of Technology and Product Development at Plug Power, Inc., a manufacturer of residential fuel cells founded as a joint venture of the Company and DTE Energy. Before his tenure at Plug Power, Dr. Acker joined Texaco in 1990 and served in numerous management positions, including Global Manager for Engineering and Product Testing from 1996 to 1997, where he was responsible for the development of energy products and was involved in the formation of Texaco's strategic business direction.

Dr. Barnes had a consulting practice from 1971 until March 2000, when she joined the Company as Vice President and Chief Marketing Officer. She provided services in marketing, advertising, management communication and technical communication to clients in business and industry, finance, the arts, education, healthcare, retailing and entertainment. Dr. Barnes is and has been an adjunct professor in the Lally School of Management and Technology at Rensselaer Polytechnic Institute, where she has taught in its graduate and executive programs since 1990.

Mr. Bunch, who joined the Company as Vice President of Business Development in June 2000, has worked in the energy sector as an equity research analyst. He evaluated international integrated and Russian oil companies with Goldman, Sachs in New York from 1993 to 1995 and London from 1997 to 1998. From 1996 to 1997, he worked in Moscow with Renaissance Capital, a Russian investment bank, where he was involved in the sale of part of one of Russia's largest integrated oil and gas companies to a leading international petroleum company. Mr. Bunch also worked with the Boston Consulting Group in London during the summer of 1999, while completing his MBA from Harvard University, which he received in May 2000.

Ms. Hill, who joined the Company in March of 2000 as Vice President of Corporate Development, has focused on counseling high technology start-up firms throughout her career, first at Wilmer, Cutler & Pickering in Washington, D.C. from 1990 through 1996, and then at Whiteman, Osterman, Hanna in Albany, New York from 1997 to 1999. She was instrumental in forming Plug Power and in developing and implementing its early strategic relationships. From 1999 until she joined the Company, Ms. Hill worked as outside general counsel for a number of start-up internet and software companies.

Ms. Scheuer was appointed Vice President and Chief Financial Officer of the Company in November 1997. Prior to joining the Company, she was a Senior Business Assurance Manager at PricewaterhouseCoopers L.L.P, where she was employed from 1983 to 1997. From 1989 to 1997, she was a Senior Business Assurance Manager responsible for the planning and delivery of audit and financial consulting services to a diverse group of clients in manufacturing, high technology, retailing and government.

Mr. Chaves has been Vice President and General Manager of MTI Instruments, Inc., a majority-owned subsidiary of the Company, since March 2000. He was Vice President and General Manager of the Company's Advanced Products Division from 1987 to March 2000, and Vice President and General Manager of the Company's L.A.B Division from January 1994 until it was sold in September 1997. Previously, he served as Manager of Corporate Marketing for the Company from 1981 to 1987.

The Company leases property in New York and, prior to the sale of Ling in October 1999, leased space in California. In management's opinion, the facilities are generally well-maintained and new facilities are being evaluated to support the new energy segment and corporate offices. The new energy segment has offices and laboratories in the MTI Instruments' facility.

The Company leases approximately 2,800 square feet for its corporate headquarters in Albany, New York. The lease is month to month. The Company's majority-owned subsidiary, MTI Instruments, Inc., leases a facility of approximately 20,700 square feet of office and manufacturing space in Albany, New York. The lease expires on November 30, 2009.

At any point in time, the Company and its subsidiaries may be involved in various lawsuits or other legal proceedings; these could arise from the sale of products or services or from other matters relating to its regular business activities, compliance with various governmental regulations and requirements, or other transactions or circumstances. The Company does not believe there are any such proceedings presently pending, which could have a material adverse effect on the Company's financial condition except for the matters described in Note 16 of the Notes to Consolidated Financial Statements referred to in Item 8 below incorporated herein by reference.

On September 9, 1998, Barbara Lawrence, the Lawrence Group, Inc.

("Lawrence"), and certain other Lawrence-related entities ("Plaintiffs") filed suit in the United States Bankruptcy Court for the Northern District of New York against First Albany Corporation, Mechanical Technology, Dale Church, Edward Dohring, Alan Goldberg, George McNamee, Beno Sternlicht, Marty Mastroianni (former President and Chief Operating Officer of MTI), and 33 other individuals ("Defendants") who purchased a total of 820,909 shares of the Company's stock from the Plaintiffs. The case concerns the Defendants' 1997 purchase of Mechanical Technology shares from the Plaintiffs at the price of $2.25 per share. FAC acted as Placement Agent for the Defendants in the negotiation and sale of the shares and in proceedings before the Bankruptcy Court for the Northern District of New York, which approved the sale in September 1997. Plaintiffs claim that the Defendants failed to disclose material inside information concerning Plug Power, LLC to the Plaintiffs and therefore the $2.25 per share purchase price was unfair. Plaintiffs are seeking damages of $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' cause of action was dismissed by the United States District Court for the Northern District of New York. In November 2000, Plaintiffs filed an appeal of that dismissal with the United States Court of Appeals for the Second Circuit. That appeal is presently pending.

There were no matters submitted to a vote of the registrant's security holders during the fourth quarter of fiscal 2000.

STOCKHOLDER MATTERS

On April 16, 1999, the stock began trading on the Nasdaq National Market under the symbol MKTY. From August 1994 through April 15, 1999, the Company's stock traded on the over-the-counter market under the symbol MKTY on the OTC Bulletin Board. Set forth below are the highest and lowest prices at which shares of the Company's common stock have been traded during each of the Company's last two fiscal years.

As of December 19, 2000, the Company had approximately 482 holders of its $1.00 par value common stock. In addition, there are approximately 3,466 beneficial owners holding stock in "street" name.

The payment of dividends is within the discretion of the Company's Board of Directors and will depend, among other factors, on earnings, capital requirements, and the operating and financial condition of the Company. The Company has never paid and does not anticipate paying dividends in the foreseeable future.

The following table sets forth summary financial information regarding Mechanical Technology for the years ended September 30, as indicated:

_________________________________

Fiscal Year-End Option Values

The following table sets forth information concerning the number and value of unexercised options to purchase common stock of the Company held by the Named Executive Officers of the Company who held such options at September 30, 2000.

Compensation for the Named Executive Officers during Fiscal 2000 included salary and bonus. Base salary was determined by reviewing the previous levels of base salary, base salaries paid by comparable companies to executives with similar responsibilities, perceived level of individual performance and the overall performance of the Company. No specific weight was given to any of these factors in the evaluation of base salaries because each of these factors was considered significant and the relevance of each varies depending on an officer's responsibilities.

ON EXECUTIVE COMPENSATION (Continued)

For fiscal 2000, bonus amounts were based on the Named Executive Officers' specific contributions made during the year toward the Company's goals established at the beginning of the year. Bonus amounts are paid in cash generally during the first quarter after year-end. Stock options are also granted to executive officers based upon their specific responsibilities. The Compensation Committee believes that with current salary, bonus and stock option grants, which generally vest over a four-year period, the executive team is properly motivated to achieve the short and long-term goals of the Company.

The Budget Reconciliation Act of 1993 amended the Internal Revenue Code to add Section 162(m), which bars a deduction to any publicly held corporation for compensation paid to a "covered employee" in excess of $1 million per year. The Compensation Committee does not believe that this law will impact the Company because the current level of compensation for each of the Company's executive officers is well below the $1 million salary limitation. The Compensation Committee will continue to evaluate the impact of such provisions and take such actions as it deems appropriate.

Compensation Committee

Mr. Alan P. Goldberg

Dr. Beno Sternlicht

The Compensation Committee ("Committee") approves all of the policies under which compensation is paid or awarded to the Company's officers and employee directors. The Committee, in fiscal 2000, consisted of Mr. Goldberg and Dr.  Sternlicht.

Mr. Goldberg is Co-Chief Executive Officer of First Albany Companies Inc. ("FAC"). (See "Securities Ownership of Certain Beneficial Owners" in Item 10 and "Certain Relationships and Related Transactions," in Item 13, below).

Directors who are not salaried officers or employees receive fees of $750 for each Board of Directors meeting attended and all directors receive annual stock option grants for 10,000 shares. Directors also are reimbursed for travel expenses incurred in attending meetings.

Below is a line graph comparing the percentage change in the cumulative total shareholder return on the Company's common stock, based on the market price of the Company's common stock, with the total return of companies included within the Standard & Poor's (S&P)500 Composite Index and the companies included within the S&P Technology Sector Composite Index for the period commencing October 1, 1999 and ending September 30, 2000. The calculation of total cumulative return assumes a $100 investment in the Company's common stock, the S&P 500 Composite Index and the S&P Technology Sector Composite Index on October 1, 1999, the first day of the Company's fiscal year.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN

AMONG MECHANICAL TECHNOLOGY INCORPORATED, THE S&P INDEX

AND THE S&P TECHNOLOGY SECTOR INDEX

[GRAPH APPEARS HERE]

The following table sets forth information regarding the beneficial ownership of our common stock as of September 30, 2000 for:

• All persons known by us to own beneficially 5% or more of the common stock;

• each of our directors;
• the executive officers and key employees listed in the Summary Compensation Table; and
• all directors and executive officers as a group.

At September 30, 2000, First Albany Companies, Inc. ("FAC") owned approximately 34% of the Company's common stock. George McNamee, a Director and Chief Executive Officer of the Company, is Chairman of the Board of Directors, Co-Chief Executive Officer and a shareholder of FAC. Alan Goldberg, a Director of the Company, is a Director, President and Co-Chief Executive Officer and a shareholder of FAC.

Transactions among related parties are as fair to the Company as obtainable from unaffiliated third parties.

On December 27, 2000, the Company entered into a Put and Call with First Albany Companies, Inc. ("FAC") to provide independent credit support for repayment of the loan ("FAC Credit Enhancement"). The FAC Credit Enhancement provides FAC with the option, if the price of Plug Power stock falls to $4 per share, to either purchase 6.3 million Plug Power shares pledged as collateral on the loan or take an assignment of KeyBank N.A.'s rights under the Credit Agreement, as amended. The FAC Credit Enhancement may be triggered in the event of a default and expires on April 27, 2001, and may be renewed by the Company and FAC on a monthly basis upon mutually agreeable terms. In the event of default, the proceeds from the FAC Credit Enhancement will be used to pay down the $30 million Credit Agreement, as amended. Upon expiration of the FAC Credit Enhancement, if Plug Power stock is trading below $20 per share the loan is immediately due and payable.

On December 27, 2000, the Company entered into two bridge loan agreements with FAC. The first loan was for $945 thousand and was used to pay the purchase price for the FAC Credit Enhancement. The Company has pledged 200,000 shares of Plug Power common stock as collateral. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)

The second loan is for $5 million, $3 million of which was used to make a principal loan repayment to KeyBank, N.A. and the remaining $2 million will be used for working capital. The Company pledged 1 million shares of Plug Power common stock as collateral. Both loans bear interest at the Prime Rate (9.5% at December 27, 2000) and both interest and principal are due on January 3, 2002. Upon mutual agreement of FAC and the Company, the loans may be converted to equity prior to maturity.

In April 2000, the Company entered into a management services agreement with First Albany Corporation, a wholly-owned subsidiary of FAC, to provide certain services on a month-to-month basis. Under this agreement, FAC bills services to the Company (phone, network, postage, etc.) on a cost reimbursement basis. Billings under these agreements amounted to approximately $30 thousand for 2000.

During November 1999, FAC/Equities, a division of First Albany Corporation, a wholly-owned subsidiary of FAC, was paid approximately $353 thousand for financial advisory and investment banking services in connection with the sale of Ling Electronics, Inc. and Ling Electronics, Ltd. ("Ling") to SatCon Technology Corporation ("SatCon").

FAC/Equities was a co-manager in the Plug Power Inc. ("Plug Power") initial public offering ("IPO"). George C. McNamee is the Chairman and Co-Chief Executive Officer of FAC, the Chairman and Co-Chief Executive Officer of First Albany Corporation, the Chairman of the Board and Chief Executive Officer of Mechanical Technology, and is currently the Chairman of the Board of Directors of Plug Power. In addition, Dr. Walter L. Robb, a director of Mechanical Technology, is a director of Plug Power and Dr. Beno Sternlicht, a director of Mechanical Technology, was a director of Plug Power until just before the Plug Power IPO in 1999.

The Company received approximately $5 thousand in interest income from Beacon Power Corporation ("Beacon Power") for bridge loan interest. Mechanical Technology owns approximately 10% of Beacon Power, after its IPO and the Company's exercise of warrants on December 20, 2000, and Alan Goldberg is the Company's representative on the Beacon Power Board of Directors.

Plug Power has agreed to purchase power conditioners from SatCon for its residential fuel cell systems. Mechanical Technology owns approximately 13.2% of SatCon's outstanding stock and has the right to appoint two members to SatCon's Board of Directors. Alan Goldberg is the Company's current representative on the SatCon board.

David B. Eisenhaure, a Director of the Company, is President, Chief Executive Officer and Chairman of the Board of Directors of SatCon. On October 21, 1999, the Company created a strategic alliance with SatCon. SatCon acquired Ling from the Company and the Company agreed to invest approximately $7 million in SatCon. This investment was done in two stages. In consideration for the acquisition of Ling and the Company's investment, the Company received 1,800,000 shares of SatCon's common stock and warrants to purchase an additional 100,000 shares of SatCon's common stock. SatCon also received warrants to purchase 300,000 shares of the Company's common stock (after the effects of the Company's 3-for-1 stock split).

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)

As a part of the SatCon transaction, the Company issued to SatCon warrants to purchase 108,000 and 192,000 shares of the Company's stock on October 21, 1999 and January 31, 2000, respectively. The warrants are immediately exercisable at $12.56 per share and expire on October 21, 2003 and January 31, 2004, respectively. The estimated fair value of these warrants at the dates issued were $4.94 and $16.38 per share, respectively, using a Black-Scholes option pricing model and assumptions similar to those used for valuing the Company's stock options.

The Company also received warrants to purchase 36,000 and 64,000 shares of SatCon common stock on October 21, 1999 and January 31, 2000, respectively. The warrants are immediately exercisable at $8.80 per share and expire on October 21, 2003 and January 31, 2004, respectively.

Prior to becoming Vice President of Corporate Development, Catherine Hill's law firm, Catherine S. Hill, PLLC, served as general counsel to the Company. Billings for 2000 totaled approximately $141 thousand.

Ms. Hill also received 30,000 stock options during 2000 with a Black Scholes value of approximately $446 thousand.

FORM 8-K

1. (1) The financial statements filed herewith are set forth on the Index to Consolidated Financial Statements on page F-1 of the separate financial section which accompanies this Report, which is incorporated herein by reference.

The following exhibits are filed as part of this Report:

Certain exhibits were previously filed (as indicated below) and are incorporated herein by reference. All other exhibits for which no other filing information is given are filed herewith:

(a) (2) Schedule. The following consolidated financial statement schedule for each of the three years in the period ended September 30, 2000 is included pursuant to Item 14(d):

(b) No reports on Form 8-K were filed during the quarter ended September 30, 2000 and one report was filed subsequent to the quarter ended September 30, 2000. The Company filed a Form 8-K Report, dated December 22, 2000, reporting under Items 2 and 7 thereof its sale of Ling Electronics and acquisition of SatCon shares as of October 21, 1999 and the associated pro-forma financial statements and financial statements of SatCon for the year ended September 30, 1999.

(d) Separate financial statements for Plug Power Inc. and SatCon Technology Corporation; less than fifty percent owned entities, will be filed as Exhibit 99 to this Form 10-K or as an amendment to this Form 10-K as soon as they become available. Plug Power's fiscal year ends December 31, 2000 and their financial statements should be available by March 31, 2001, the SEC filing deadline for their Report on Form 10-K. SatCon's fiscal year ends September 30, 2000 and their financial statements have been attached as Exhibit 99 to this Form 10-K.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: December 28, 2000 By: /s/ William P. Acker
Dr. William P. Acker

President and Chief Technology Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

To the Board of Directors and Shareholders

of Mechanical Technology Incorporated

Our audits of the consolidated financial statements referred to in our report dated October 27, 2000, except for Notes 8, 11, and 17 for which the date is December 27, 2000, appearing on page F-2 of this Form 10-K of Mechanical Technology Incorporated, also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/PricewaterhouseCoopers L.L.P.

Albany, New York

October 27, 2000,

except for Notes 8,

11, and 17 for which

the date is

December 27, 2000

Includes accounts written off as uncollectible, recoveries and the effect of currency exchange rates.

Page

Report of Independent Accountants. . . . . . . . . . . F-2

Consolidated Financial Statements:

Balance Sheets as of September 30, 2000 and 1999. . F-3 & F-4

Statements of Operations for the Years Ended

September 30, 2000, 1999 and 1998 . . . . . . . . F-5

Statements of Shareholders' Equity for the Years Ended

September 30, 2000, 1999 and 1998 . . . . . . . . F-6

Statements of Cash Flows for the Years Ended

September 30, 2000, 1999 and 1998 . . . . . . . . F-7 - F-8

Notes to Consolidated Financial Statements . . . . . F-9 - F-42

Separate financial statements of the registrant alone are omitted because the registrant is primarily an operating company and all subsidiaries included in the consolidated financial statements being filed, in the aggregate, do not have minority equity interest and/or indebtedness to any person other than the registrant or its consolidated subsidiaries in amounts which together exceed 5% of the total assets as shown by the most recent year-end consolidated balance sheet.

F-1

To the Board of Directors and Shareholders

of Mechanical Technology Incorporated

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, shareholders' equity and of cash flows present fairly, in all material respects, the financial position of Mechanical Technology Incorporated and Subsidiaries at September 30, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/PricewaterhouseCoopers L.L.P.

Albany, New York

October 27, 2000,

except for Notes

8, 11, and 17 for

which the date is

December 27, 2000

F-2

F-3

F-4

(Dollars in thousands, except per share)

F-5

(Dollars in thousands)

F-6

(Dollars in thousands)

F-7

(Dollars in thousands)