MTI Reports Second Quarter 2007 Results and Latest Accomplishments

ALBANY, N.Y., Aug. 9 /PRNewswire-FirstCall/ — Mechanical Technology Incorporated (Nasdaq: MKTY), a company primarily engaged in the development and commercialization of award winning Mobion(R) cord-free advanced portable power systems, through its subsidiary MTI MicroFuel Cells Inc. (MTI Micro) and in the design, manufacture, and sale of high-performance test and measurement instruments and systems through its subsidiary MTI Instruments, Inc. (MTII), today announced its financial results for the quarter ended June 30, 2007.

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“We continued to grow revenues and reduced cash burn in the second quarter. For the first half of 2007, product revenues were 23.7% higher than the same period last year, well ahead of our guidance for product revenue increases of 15% for the year,” said Peng Lim, CEO of MTI. “With our numerous successes to date including MTII’s new Air Force contract, and an anticipated new product shipping in Q4, and MTI Micro’s tangible technical advances in our Mobion(R) platform, and the delivery of prototype units to our Korean partner – we believe the Company is on the right path to achieve MTII’s sales goals and MTI Micro’s plans for manufacturing readiness in 2008 and product launch in 2009.”

    Financial Highlights: Second Quarter 2007
    -- Product revenue growth of 33.8% to $2,275 thousand (2006 Q2; $1,700
       thousand)
        -- Product revenue growth was primarily the result of increasing sales
           in our dimensional gauging product line led by sales to MTII's
           Japanese distributor.
    -- Funded research and development revenue growth of 279.6% to $353
       thousand (2006 Q2; $93 thousand)
        -- This increase was the result of the reinstatement of funding from
           the Department of Energy (DOE) and revenue recognized from the
           alliance agreement with our Korean partner.
    -- Reduction in net loss of 22.8% to $2,487 thousand (2006 Q2; $3,222
       thousand)
        -- This improvement results from increased gross margin contributions
           from MTII, increases in funded R&D revenues, and savings in both
           selling and general administration (SG&A), and research and
           development (R&D) costs - primarily related to savings from the Q1
           2007 restructuring.
    -- Capital resources (cash and marketable securities) of $14,717 thousand
       (2007 Q1; $18,069 thousand).
    -- Cash used in operations decreased 16.4% to $3,125 thousand.

    Operational Highlights: Second quarter 2007 and Third quarter 2007 to date
    -- Introduction of the Mobion(R) chip to advance and support
       commercialization for consumer applications in 2009:
        -- MTI Micro demonstrated its integrated fuel cell chip used as the
           building block for its fuel cell systems for consumer product
           applications.  The state-of-the-art Mobion(R) chip incorporates a
           number of breakthroughs including the use of 100% methanol, and the
           integration of a power module with fluid conditioning that enables
           our Mobion(R) system to run in temperatures from 0C to 40C and at
           most humidity levels - matching standard specifications for the
           lithium Ion battery industry.  In addition, the chip is injection
           molded, and its part count has been reduced from 16 to 1 molded
           piece.  Also, in the last six months, the Mobion(R) chip has been
           reduced in size and weight by over 40% to 9cc and less than one
           ounce, respectively.
    -- Additional funding from the Department of Energy (DOE):
        -- MTI Micro received notification that an additional $500 thousand
           dollars was made available by the DOE to continue funding MTI
           Micro's commercialization efforts.  Including the most recent funds
           release, the DOE has, to date in 2007, committed $1,000 thousand to
           the Company.
    -- MTI Micro achieved a milestone of prototype delivery:
        -- MTI Micro fulfilled a Company milestone by delivering its next
           generation, low power, advanced industrial design prototypes to its
           Korean partner, and is in discussions about collaboration going
           forward. The prototypes delivered for evaluation contained MTI
           Micro's first generation Mobion(R) Chips.
    -- MTII received a purchase order for $1,140 thousand from the U.S. Air
       Force:
        -- MTII was chosen again by the Air Force to provide PBS 4100Plus
           portable aircraft engine balancing systems.  This new purchase
           order of $1,140 thousand has additional options for the Air Force
           to order up to an additional $1,140 thousand in PBS 4100Plus units.
           If all options are exercised, this contract will total $2,280
           thousand in orders.
    -- MTII introduced EVE, a new data acquisition system:
        -- At the MTI Annual Shareholders Meeting on June 18th, MTII
           introduced EVE, a new product to help solve complex measurement
           problems by providing precision non-contact measurement, advance
           data acquisition, data analysis, touch screen user interface, and
           intuitive software for ease of use.  EVE is able to accept data
           from multiple sources allowing numerous variables to be measured
           and correlated in real-time.  MTII is on track to ship EVE units in
           Q4 2007.

Financial Results: Second Quarter 2007

Revenues for the three months ended June 30, 2007 increased 46.6% to $2,628 thousand compared to revenues of $1,793 thousand for the same period in 2006. Second quarter revenues included $2,275 thousand in product revenue from MTII and $353 thousand in funded R&D revenues from MTI Micro. During the second quarter of 2007, product revenues increased $575 thousand, or 33.8%, primarily as the result of increases in dimensional gauging product sales of $555 thousand compared to a similar period last year, led by OEM capacitance sales to a Japanese distributor; increases in semiconductor sales of $202 thousand; and aviation product revenue decreases of $187 thousand due to a decline in commercial aviation revenue. In addition, funded R&D revenue increased $260 thousand, or 279.6%, of which $140 thousand was the result of the reinstatement of funding in May 2007 for a contract with the DOE which had funding suspended for 2006 and $105 thousand was from a strategic alliance agreement.

Net loss for the three months ended June 30, 2007 decreased 22.8% to $2,487 thousand, or $(0.07) per diluted share, compared with a net loss of $3,222 thousand, or $(0.10) per diluted share for the same period in 2006. Net loss for the second quarter of 2007 compared to 2006 decreased and includes positive and negative revenue and expense changes. These changes include increases in gross margins, increases in funded R&D revenue, cost savings in R&D expenses, cost savings in SG&A expenses, and gain on derivatives. These changes were partially offset by a decrease in gains on the sale of securities available for sale. The decreases in SG&A and R&D costs were primarily the result of lower stock based compensation and savings from the Q1 restructuring where the MTI Micro high power program was suspended. Gross margins for the three months ended June 30, 2007, improved over the same period in 2006 due to improved inventory procurement practices, lower inventory obsolescence reserves and the expansion of direct sales channels for the MTII semiconductor product line.

Cash flows: For the three months ended June 30, 2007, cash used in operations decreased 16.4% to $3,125 thousand compared to $3,737 thousand while cash used for capital expenditures decreased 24.3% to $190 thousand, compared to $251 thousand in 2006.

See the attached financial highlights for the Company’s second quarter ended June 30, 2007.

Conference Call: Second Quarter 2007

Mechanical Technology Incorporated (MTI or the Company) will host a conference call and webcast today at 10:30 a.m. (ET). The dial-in phone number for the conference call is (888) 713-4217, or international (617) 213-4869 and refer to pass code 19706252. There will be a simultaneous webcast which can be heard by logging onto MTI’s Web site at http://www.mechtech.com. A replay of the conference call will be available within 24 hours on the Web site or via phone by dialing (888) 286-8010 or international (617) 801-6888 and, when prompted, entering pin code number 86509128.

About MTI

MTI is primarily engaged in the development and commercialization of award winning Mobion(R) cord-free advanced portable power systems, through its subsidiary MTI MicroFuel Cells Inc. (MTI Micro). MTI Micro has a world-class team of entrepreneurial business executives, researchers and scientists; a proprietary direct methanol micro fuel cell power system and a number of system prototypes demonstrating size reductions and performance improvements; and significant related intellectual property. MTI Micro has received government awards and developed strategic partnerships to facilitate efforts to achieve commercialization. MTI is also engaged in the design, manufacture, and sale of high-performance test and measurement instruments and systems through its subsidiary MTI Instruments, Inc. For more information about the Company please visit www.mechtech.com.

Statements in this press release which are not historical fact including statements regarding management’s intentions, hopes, goals, beliefs, expectations, projections, plans, anticipation, outlook or predictions of the future are forward looking statements. Such statements include, among others, estimates of cash needs and sources; our ability to meet cash needs in the future; MTI Micro’s plans under its strategic alliance agreements with its fuel refill partner and its consumer OEM; future prospects and applications for fuel cell systems including the Mobion(R) chip; MTI’s, MTI Micro’s and MTII’s future business prospects, technology and performance; MTII’s sales dependence on a small number of customers; MTII’s ability to achieve revenue growth and introduce new products; the importance of any relationship MTII has with any distribution partner; MTI Micro’s ability to implement its plan to suspend the high power program; the market potential for and progress MTI Micro is making in developing its Mobion fuel cells; the significance of any contracts or grants that MTI Micro received or may receive; the timing or success of market entry by MTI Micro, including the refocusing on the low power consumer market; MTII’s and MTI Micro’s ability to meet its stated milestones on time, if at all; MTI, MTI Micro’s and MTIIs’ ability to increase or maintain sales into commercial, military and other governmental markets; the importance of any relationships we may have, and our ability to maintain those relationships going forward; and, MTI Micro’s ability to produce products or prototypes consistent with any announced specifications or customer requirements, if at all. All forward-looking statements are made as of today, and MTI disclaims any duty to update such statements. It is important to note that the Company’s actual results could differ materially from those projected in forward-looking statements. Factors that could cause the anticipated results not to occur include, among others, risks related to financing; uncertainties in development, manufacturing, competition and consumer demand for DMFCs; Gillette’s ability to terminate its agreements with MTI Micro prior to commercialization of DMFCs; Samsung’s ability to terminate its agreement with MTI Micro; and the risk factors listed from time to time in the Company’s SEC reports including but not limited to, the annual report on Form 10-K and Quarterly Reports on Form 10-Q.

    Financial Highlights

    Statements of Operations Data:
    (Dollars in Thousands, Except per Share Data)

                       Three months ended June 30,  Six months ended June 30,
                             2007         2006         2007         2006
                         (Unaudited)  (Unaudited)  (Unaudited)   (Unaudited)
    Revenues:

    Product revenue        $ 2,275      $ 1,700      $ 3,976      $ 3,213
    Funded research and
     development revenue       353           93          968          138

    Total revenues           2,628        1,793        4,944        3,351

    Operating costs and
     expenses:

    Cost of product revenue    816          726        1,554        1,265
    Research and product
     development expenses:
    Funded research and
     product development       504          130          728          340
    Unfunded research and
     product development     2,368        3,122        5,766        5,472
    Total research and
     product development
     expenses                2,872        3,252        6,494        5,812

    Selling, general and
     administrative expenses 2,440        2,776        4,896        5,836

    Operating loss          (3,500)      (4,961)      (8,000)      (9,562)
    Gain on derivatives        757            -        1,726            -
    Gain on sale of
     securities available
     for sale, net               -        2,544            -        3,810
    Other income, net           91           67          232          138

    Loss before income
     taxes and minority
     interests              (2,652)      (2,350)      (6,042)      (5,614)
    Income tax expense         (16)      (1,044)         (27)      (1,613)
    Minority interests in
     losses of
     consolidated subsidiary   181          172          426          574
    Net loss               $(2,487)     $(3,222)     $(5,643)     $(6,653)

    Loss per share
     (Basic and Diluted):
    Loss per share          $(0.07)      $(0.10)      $(0.15)      $(0.21)



    Statements of Cash Flows Data:
    (Dollars in Thousands)
                                                   Six months ended June 30,
                                                      2007           2006
                                                  (Unaudited)     (Unaudited)
    Net cash used by operating activities           $(7,735)       $(7,124)
    Purchases of property, plant and equipment         (240)          (513)
    Net cash (used) provided by investing activities   (240)         4,904
    Net cash provided by financing activities            15            910
    (Decrease) in cash and cash equivalents          (7,960)        (1,310)
    Cash and cash equivalents - beginning of period  14,545         11,230



    Balance Sheet Data:
    (Dollars in Thousands)
                                         June 30, 2007    December 31, 2006
                                            (Unaudited)            (Audited)
    Assets

    Current Assets:
    Cash and cash equivalents                   $6,585              $14,545
    Securities available for sale                8,132               10,075
    Accounts receivable                          1,643                1,613
    Inventories, net                             1,232                1,216
    Prepaid expenses and other current assets      587                  442

    Total Current Assets                        18,179               27,891

    Long Term Assets:
    Property, plant and equipment, net           2,586                2,926
    Deferred income taxes                        2,234                2,994
    Total Assets                               $22,999              $33,811


    Liabilities and Shareholders' Equity

    Current Liabilities:
    Accounts payable                              $358                 $651
    Accrued liabilities                          2,261                2,470
    Deferred revenue                                60                  866
    Income taxes payable                            17                   90
    Deferred income taxes                        2,234                2,994

    Total Current Liabilities                    4,930                7,071

    Long-Term Liabilities:
    Uncertain tax position liability               200                    -
    Derivative liability                         1,938                3,664

    Total Liabilities                            7,068               10,735

    Minority interests                             147                  205
    Shareholders' Equity                        15,784               22,871
    Total Liabilities and
     Shareholders' Equity                      $22,999              $33,811

    Other Information
    Shares held:
    Plug Power Inc.                          2,589,936            2,589,936

SOURCE Mechanical Technology Incorporated