UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

 Washington, D.C. 20549

 

FORM 10-K

 

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

For the fiscal year ended December 31, 2020

OR

 

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

For the transition period from _____to _____

 

Commission File Number: 000‑06890

 

Mechanical Technology, Incorporated

 (Exact name of registrant as specified in its charter)

__________________

Nevada

 

14-1462255

State or other jurisdiction

 

(I.R.S. Employer

of incorporation or organization

 

Identification No.)

 

325 Washington Avenue Extension, Albany, New York 12205

 (Address of principal executive offices)                                       (Zip Code)

 

(518) 218-2550

 (Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock ($0.001 par value)

MKTY

The Nasdaq Stock Market LLC

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐   No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐    No

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    No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes    No ☐ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

 

Large accelerated filer

Accelerated filer ☐ 

Non-accelerated filer 

Smaller reporting company 
Emerging growth company ☐ 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No

The aggregate market value of the voting and non-voting common equity held by non-affiliates as of June 30, 2020 (based on the last sale price of $0.70 per share for such stock reported on the over-the-counter market for that date) was $3,756,086.

As of March 26, 2021, the Registrant had 9,821,857 shares of common stock outstanding.

Documents incorporated by reference: Portions of the registrant's Proxy Statement for its 2021 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.

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 INDEX TO FORM 10-K
 

PART I

 

Item 1.

  

Business

  

Page
3

 

 

 

Item 1A.

  

Risk Factors

  

11

 

 

 

Item 1B.

  

Unresolved Staff Comments

  

24

 

 

 

Item 2.

  

Properties

  

24

 

 

 

Item 3.

  

Legal Proceedings

  

24

 

 

 

Item 4.

  

Mine Safety Disclosures

  

25

 

 

PART II

 

 

 

Item 5.

  

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

  

26

 

 

 

Item 6.

  

Selected Financial Data

  

26

 

 

 

Item 7.

  

Management's Discussion and Analysis of Financial Condition and Results of Operations

  

27

 

 

 

Item 7A.

  

Quantitative and Qualitative Disclosures About Market Risk

  

33

 

 

 

Item 8.

  

Financial Statements and Supplementary Data

  

33

 

 

 

Item 9.

  

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

  

34

 

 

 

Item 9A.

  

Controls and Procedures

  

34

 

 

 

Item 9B.

  

Other Information

  

35

 

 

PART III

 

 

 

Item 10.

  

Directors, Executive Officers and Corporate Governance

  

36

 

 

 

Item 11.

  

Executive Compensation

  

36

 

 

 

Item 12.

  

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

  

36

 

 

 

Item 13.

  

Certain Relationships and Related Transactions, and Director Independence

  

36

 

 

 

Item 14.

  

Principal Accounting Fees and Services

  

36

 

 

PART IV

 

 

 

Item 15.

  

Exhibits, Financial Statement Schedules

  

37

 

 

 

 

 

Item 16.

 

Form 10-K Summary

 

39

 2


PART I

Item 1: Business

Unless the context requires otherwise in this Annual Report on Form 10-K, the terms "MTI," the "Company," "we," "us," and "our" refer to Mechanical Technology, Incorporated, "MTI Instruments" refers to MTI Instruments, Inc., and "EcoChain" refers to EcoChain, Inc. Other trademarks, trade names, and service marks used in this Annual Report on Form 10-K are the property of their respective owners.

Overview and Recent Developments 

Mechanical Technology, Incorporated, was incorporated in New York in 1961 as a developer and manufacturer of energy-efficient rotating machinery and instrumentation. Mechanical Technology, Incorporated became a Nevada corporation on March 29, 2021. Headquartered in Albany, New York, the Company has a rich history of technological experience in providing technical advances to support American industry and defense agencies, and in developing related proprietary products, including gas-lubricated bearings, sensors, compressors, steam turbines, high-efficiency engines, and fuel cells for industrial equipment and hand-held devices. During the last four years we have undertaken a process to streamline our product offerings in order to re-focus on our core business and key product lines and limit the amount of customer-specific customization of our products, which has resulted in the Company returning to profitability. We remain, however, as we have throughout the Company's history, highly dependent on the financial expertise of our workforce given the highly-technical nature of our products and businesses.

Today, the Company's core businesses are conducted through its wholly-owned subsidiaries MTI Instruments and EcoChain.

MTI Instruments, incorporated in New York in 2000, is engaged in the design, manufacture, and sale of vibration measurement and system balancing solutions, precision linear displacement sensors, instruments and system solutions, and wafer inspection tools, serving markets that require 1) engine balancing and vibration analysis systems for both military and commercial aircraft, 2) the precise measurements and control of products and processes in automated manufacturing, assembly, and consistent operation of complex machinery, and 3) metrology tools for semiconductor and solar wafer characterization. We continue to work on ways to increase our sales reach, including expanded worldwide sales coverage and enhanced internet marketing, with respect to this business.

EcoChain, a Delaware corporation incorporated in January 2020, is engaged in cryptocurrency mining powered by renewable energy. Related to this new core business, we made a strategic investment, and hold an equity position, in Soluna Technologies, Ltd. ("Soluna"), a Canadian company that develops vertically-integrated, utility-scale computing facilities focused on cryptocurrency mining and cutting-edge blockchain applications, as further discussed below.

Our website is http://www.mechtech.com. Information contained on our website does not constitute part of and is not incorporated into this Annual Report.

The current corporate organizational structure of MTI appears below.

The Company had previously been subject to the reporting requirements of the Securities Exchange Act of 1934 ("Exchange Act") and filed reports and other documents with the Securities and Exchange Commission (the "SEC") thereunder, but had ceased doing so in 2018. The Company filed with the SEC a Form 10 Registration Statement to re-register its common stock under Section 12 of the Exchange Act initially in March 2020, which was withdrawn and then re-filed in September 2020 and that became effective in November 2020, making the Company once again subject to the Exchange Act's reporting requirements.

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In addition, on March 23, 2020, our common stock commenced trading on the Nasdaq Stock Market LLC ("Nasdaq").

On March 29, 2021, the Company re-incorporated from New York to Nevada (the "Redomestication"). To effect the Redomestication, the Company organized a wholly-owned subsidiary in Nevada named Mechanical Technology, Incorporated ("MKTY-NV") and the Company merged with and into MKTY-NV with MKTY-NV as the surviving entity, succeeding to and assuming all rights and obligations of the Company in accordance with Nevada law. Upon consummation of the Redomestication, the Company's state of incorporation as a practical matter changed from New York to Nevada, and each outstanding share of Company common stock was converted into one share of MKTY-NV common stock.  We believe that reincorporation in Nevada will give us a greater measure of flexibility and simplicity in corporate governance than is available under New York law and will increase the marketability of our securities. The Nevada Revised Statutes are generally recognized as one of the most comprehensive and progressive state corporate statutes. We believe that by reincorporating the Company in Nevada, it will be better suited to take advantage of business opportunities as they arise and to provide for its ever-changing business needs. We believe that the Company's growth can be conducted to better advantage if the Company is able to operate under Nevada law. 

In addition, on March 10, 2021, the Company filed with the SEC a Registration Statement on Form S-1 with respect to its anticipated sale of up to $11.5 million worth of its common stock in a firm underwritten offering. We intend to use the net proceeds of the offering primarily for the acquisition, development, and growth of two additional cryptocurrency mining facilities, including cryptocurrency miners, other computer processing equipment, data storage, electrical infrastructure, software and real property (i.e. land and buildings), but we also may use a portion of the proceeds to acquire other entities or businesses in the future that complement our businesses or are otherwise consistent with our business plan. We may also use a portion of the net proceeds to pay for the costs associated with our Nasdaq listing application, which was approved on March 18, 2021.

In connection with our Nasdaq listing application, our Board of Directors approved (subject to shareholder approval, which was obtained at the special meeting of shareholders held on March 25, 2021) a grant of discretionary authority permitting the Board, at any time prior to the Company's 2022 annual meeting of shareholders, to effect a reverse split of the Company's outstanding shares of common stock (either before or after the Redomestication) at a specific whole number ratio within a range from 1-for-2 to 1-for-10. Subject to shareholder approval, we intend for the Board to effect such reverse stock split only if and to the extent necessary to remain in compliance with Nasdaq's continued listing requirements.

In February 2021 we added two new independent directors to our Board of Directors, William Hazelip and Alykhan Madhavji, who bring to the Board expertise that will support EcoChain's cryptocurrency mining business. Mr. Hazelip is an accomplished leader in the energy industry, with deep experience in utility project development, financing, regulation, and operations. Mr. Madhavji is the Managing Partner at Blockchain Founders Fund, an early-stage investment fund specialized in investing in blockchain and emerging technology projects and venture-builder of top-tier start-ups headquartered in Beijing, China. To support EcoChain's cryptocurrency mining business, the Company intends to bolster the Board's expertise in areas vital to this business, including power generation and transmission business, as well as project finance, as it continues to grow EcoChain. Messrs. Hazelip and Madhavji have a wealth of knowledge and experience in these important areas.

Test and Measurement Instrumentation Segment 

MTI Instruments, Inc.

MTI Instruments engages in the design, manufacture, sale, marketing, and support of metrology, or measurement, products that provide analytical data to help customers monitor and analyze processes in areas including research and development, manufacturing, process control, quality control, and troubleshooting of third-party equipment. In research and development, our products can help customers collect empirical data that they can use to develop new products or processes. In manufacturing, our sensors can help engineers understand whether or not a process is under control. In the quality control area, our products can help determine if parts in a manufacturing line pass or fail an applicable quality test. With respect to troubleshooting, our products can provide diagnostic, and potential solution, information. 

Because of the large number of applications and uses for our products, MTI Instruments' product mix varies from a single sensor to a large multi-channel system that contains many different sensors and software, we can provide our customers a complete solution. In addition, MTI Instruments sells components to original equipment manufacturers ("OEMs") who, in turn, incorporate our components into their own products. 

MTI Instruments' operations are headquartered in Albany, New York.

 

4


Instrumentation Products

MTI Instruments manufactures a line of products capable of diagnosing vibration and balancing problems of an aircraft engine and generating a visual map of where metal weights should be placed for the customer to balance the engine, also known as "trim balancing." MTI Instruments also specializes in non-contact, highly-accurate metrology products. The measurements are carried from a distance while the sensor is tracking the object's movement. These types of measurement sensors are commonly referred to in the industry as non-contact, linear displacement measurement sensors. Additionally, MTI Instruments manufactures a portable signal generator as well as quality control tools for the semiconductor industry.

Balancing Systems: MTI Instruments manufactures computer-based portable balancing systems ("PBS") products that automatically collect and record aircraft engine vibration data, identify vibration or balance trouble in an engine, and calculate a solution to the problem on-wing, which means that customers do not have to disassemble the engine off the plane to perform this test and correct for the problem, resulting in a significant reduction of downtime. Major aircraft engine manufacturers and the U.S. Air Force, other military and commercial airlines, and gas turbine manufacturers use these products. MTI instruments also manufactures a product with similar characteristics for test cells. Test cells are dedicated engine facilities outfitted with instruments to test aircraft engines when taken off aircrafts. 

Listed below are selected MTI Instruments' Balancing Systems product offerings and technologies:

Product

 

Description

PBS-4100+ Portable Balancing System

 

Provides easy-to-follow solutions for engine vibration and trim balancing

 

 

 

PBS-4100R+ Test Cell Vibration Analysis and Trim Balance System

 

Advanced trim balancing and diagnostics for engine test cells

 

 

 

TSC-4800A Tachometer Signal Conditioner

 

Signal conditioner detects and conditions signals for monitoring, measuring, and indicating engine speeds

Precision Instruments Products: MTI Instruments' precision instruments products are designed to address the needs of process engineers, researchers, designers, product developers, and others who need to measure and monitor what they are working on with precisions down to a nanometer or 1 billionth of a meter - essential to some industries like the semiconductor market, which uses such precision in the manufacturing of products including computer chips and smartphones. These products are also used in general industrial manufacturing applications including measuring dimensions, monitoring thickness, and the vibration of products.

Listed below are selected MTI Instruments' precision instruments product offerings and technologies:

Product Line

 

Description

Accumeasure ™ Series

 

 

High precision capacitive boards and systems offering great stability

Microtrak ™ Series

 

Single spot laser sensor line equipped with the latest complementary metal oxide semiconductor sensor technology with high sensitivity

Fotonic Sensor® Series

 

Fiber-optic-based vibration sensor systems with high frequency response

Diagnostic Equipment: MTI Instruments offers a portable signal generator - its 1510 Calibrator. A signal, or function, generator is a product that delivers an electronic signal simulating other pieces of equipment or sensors to help the user easily isolate potential problems when testing and calibrating electronic equipment. While the product was originally designed to help customers calibrate PBS products in the field, MTI Instruments now markets this product worldwide to different markets. 

Semiconductor and Solar Metrology Systems: MTI Instruments manufactures a family of products that can assist in early defect detection in the manufacturing process of semiconductor products. Some of these semiconductor products include microchips, which are the basis for building the sophisticated electronic devices in common use today, including computers and smartphones. MTI Instruments' semiconductor products help our manufacturer customers identify irregularities in the components of their products earlier in their manufacturing process. For example, for microchip manufacturers, our products allow for the detection of defects at the wafer (the surface, usually made of the chemical element silicon, from which microchips are built) stage of the manufacturing process. This allows our customers to discard defective components before they result in the manufacture of defective products, saving them time and money. 

5


Listed below are MTI Instruments' semiconductor and solar metrology systems product offerings and technologies:

Product

 

Description

Proforma 300iSA

 

Semi-automated, non-contact full wafer surface scanning system for thickness, total thickness variation, bow, warp, site and global flatness

Proforma 300i

 

Manual, non-contact measurement of wafer thickness, total thickness variation, and bow

PV 1000

 

In process tool for measuring thickness and bow of solar wafers

Marketing, Sales and Distribution 

MTI Instruments markets its products and services using selected and specific channels of distribution. In the Americas, MTI Instruments uses a combination of direct sales and representatives. Overseas, particularly in Europe and Asia, MTI Instruments uses distributors and agents specific to our targeted end markets and has our sales staff frequently (at least once per quarter) visit distributors and customers in these territories to increase our exposure and sales, although during the current COVID-19 pandemic these visits are taking place virtually, either through videoconferences or via webinars. For our balancing systems, MTI Instruments primarily sells directly to end users.

MTI Instruments supplements sales efforts with marketing activities across different media including search engines, targeted newsletters, and purchased customer lists, and participates in trade shows related to our business in hopes to increase lead generation, resulting in new customer sales. The Company also maintains strong working relationships with our existing key customers to continually promote new product sales.

In addition, the Company works with existing OEMs and seeks to work with new OEMs to incorporate our products into their own products or retrofit existing components with our products. In most cases, these OEMs are looking for a semi-custom sensor using our products and technologies as the base for development. While the sales cycle of a new MTI Instruments' product at an OEM can be long, so is the potential for recurring revenue once an OEM adopts our product. 

Product Development

MTI Instruments conducts research and development efforts to support its existing products and develop new ones according to its sales and marketing plans. Management believes that our success in our current business depends to a large extent upon innovation, technological expertise, and new product development, and in some cases, seeking a technological advantage in the market. In addition, as noted above MTI Instruments seeks to work with OEMs to develop semi-custom product solutions.  Below are our most recent product development efforts, all of which are part of our Accumeasure ™ Series product line:

  • In the first quarter of 2020, MTI Instruments launched our D200 HD, a high-definition product targeting customers looking for a linear displacement sensor capable of achieving a resolution in picometers. Resolution is the minimum detectable change in the position of the object being studied. For reference, one inch can be divided into 25.4 billion picometers. This product can detect small distance changes as low as 20 picometers. This product feature is particularly relevant to companies working in nano-science and nano-technology applications including the semiconductor, medical instrumentation, and electronics industries.

  • In 2019, we launched the Digital Accumeasure D Series, Gen 3- the third generation of this product platform with improvements in linearity down to 0.01%, while improving resolution. Linearity is a large component of how an instrument performs and how accurate it is. This product is targeted to customers looking for a linear displacement sensor with both high accuracy and high resolution. This product appeals to companies working on tracking positioning or movement including two-directional moving platform manufacturers, lens positioning developers, and, in general, the semiconductor industry.

  • In 2016, MTI Instruments introduced a paper-thin capacitance probe that is non-magnetic, a feature that allows the probe to conform to and be bonded in a thin gap and provides accurate measurement within surrounding magnetic fields. This paper-thin probe, together with the Accumeasure D, is designed to be used to measure and monitor gaps in high power generators, wind turbines, and other auxiliary equipment. That year, we also enhanced the PBS-4100+ to accommodate the latest generation of fuel-efficient aircraft engines.

 

6


Product Manufacturing & Operations

While many companies in the sensor, instrument, and systems markets have manufacturing operations overseas, MTI Instruments (and its predecessors) is and has always been a U.S.-based manufacturing company. Products are conceived, developed, tested, and shipped out from our headquarters in Albany, New York.

Our management believes that there are inherent advantages in maintaining our operations in the United States, including reducing the risk of inadvertent technology transfer, the ability to control manufacturing quality, and a much more effective customer management and satisfaction process. We have long-term vendor relationships and believe that most raw materials that we use in our products are readily available from a variety of vendors. These advantages were particularly acute during the last 12 months as we experienced minimal supply chain interruptions or other negative effects on our manufacturing processes as a result of the coronavirus pandemic.

We employ a flexible approach to manufacturing. While cross-training our employees in operations in different functional areas, management also implemented and has kept up-to-date lean principles on the manufacturing floor to increase capacity and productivity when experiencing high sales volumes. 

In April 2020, the Company was re-certified ISO 9001:2015 compliant. The certification was authorized by TÜV Rheinland®, an independent testing agency. To initially obtain this certification, which we did in 2017, we underwent a rigorous five-step process including preparation, documentation, implementation, internal audit, and final certification. We believe that operational changes we implemented in accordance with ISO 9001:2015 confirms our commitment to an effective management system and continuous improvement, a practice that management believes is important for continuous growth. 

Competition

We compete with a number of companies, several of which are substantially larger than MTI Instruments.

In the axial turbo machinery market, MTI Instruments' PBS product line competes with products from companies including ACES Systems and Meggitt Sensing Systems (Vibrometer) in the diagnostics of engine vibration and trim balancing.

In the precision automated manufacturing market, MTI Instruments faces competition from companies including Omron Corporation, Turck Inc., Pepperl+Fuchs Inc., Keyence Corporation, Micro-Epsilon Messtechnik GmbH & Co. KG, Schmitt Industries Inc., Capacitec, Inc., Microsense LLC, and Motion Tech Automation Inc.

In the R&D and semiconductor markets, we compete with companies involved in wafer inspection including KLA Corporation, Micro-Epsilon Messtechnik GmbH & Co. KG, and E+H Metrology GmbH. Competitors in precision linear displacement include Keyence Corporation, Micro-Epsilon Messtechnik GmbH & Co. KG, Schmitt Industries Inc., Capacitec, Inc., Microsense LLC, and Motion Tech Automation Inc.

The primary competitive considerations in MTI Instruments' markets are product quality, performance, price, timely delivery, responsiveness, and the ability to identify, pursue, and obtain new customers. MTI Instruments believes that its employees, product development skills, sales and marketing systems, and reputation are competitive advantages.

Raw Materials

Our products are made from a wide variety of raw materials and certain subassemblies that are generally available from multiple sources. While we seek to have several sources of supply for our raw materials and subassemblies, however, we do obtain certain materials from a single source or a limited group of suppliers or from suppliers in a single country. While we believe that we have established strong vendor relationships to mitigate the risks associated with single-source suppliers and have not experienced disruptions in our supply chain to date, disruptions in supply remain a possibility and could result in delays, increased costs, or reduced operating profits or cash flows.

Dependence on Certain Customers

All of our product revenues (which constituted 93.8% of our total revenues) during 2020, and all of our revenues during 2019, 2018, and 2017, were earned through MTI Instruments. While we also have strong relationships with companies in the electronics, aircraft, aerospace, automotive, and semiconductor industries, MTI Instruments' largest customer is the U.S. Air Force. The U.S. Air Force accounted for 42.9%, 20.8%, 28.0%, and 20.1%, respectively, of our total product revenues during 2020, 2019, 2018, and 2017, respectively. While we depend on a relatively small number of commercial customers for the majority of the balance of our product revenues, sales to the largest commercial customer during each of the last three fiscal years accounted for between 9.1% and 11.1% of total product revenue and our largest commercial customer in each of the last three years was a different company than in each of the other three years. While we continue to endeavor to maintain and further expand our customer base, we expect that sales to a limited number of customers will continue to account for a high percentage of our revenues for the foreseeable future, and as a result the loss of or significant reduction in sales to our current customer base could have a material adverse effect on our business, revenues, ability to remain profitable, and financial condition.

 

7


Intellectual Property and Proprietary Rights

We rely on trade secret laws to establish and protect the proprietary rights of our products. In addition, we enter into standard confidentiality agreements with our employees and consultants and seek to control access to and distribution of our proprietary information. Even with these precautions, however, it may be possible for a third party to copy or otherwise obtain and use our products or technology without authorization or to develop similar technology independently. In addition, effective trade secret protection may be unavailable or limited in certain foreign countries.

Royalty Agreement; Sale of Business

Pursuant to an Asset Purchase Agreement by and between MTI Instruments and 5 Twenty-Two Systems, LLC, dated as of May 10, 2019, we sold all assets related to our former tensile stage product line to 5 Twenty-Two Systems for an aggregate purchase price comprised of $28 thousand plus $9 thousand for certain inventory, plus future royalty payments and 5 Twenty-Two Systems' assumption of certain liabilities. Pursuant to the Asset Purchase Agreement, 5 Twenty-Two Systems' is required to pay MTI Instruments, through May 10, 2022, a royalty equal to 3% of 5 Twenty-Two Systems' gross sales from its sale of products, equipment, or other assets containing, incorporating, or making use of the assets purchased from MTI Instruments pursuant to the Asset Purchase Agreement. We have received some royalty payments under this agreement but to date such amounts have been immaterial.

Cryptocurrency Segment 

EcoChain, Inc. 

EcoChain engages in cryptocurrency mining, a process by which transactions between cryptocurrency users are verified and added to the blockchain public ledger. Cryptocurrency mining also introduces new cryptocurrency coins into the existing circulating supply, facilitating a peer-to-peer decentralized network without the need for a third-party central authority.

In connection with this business line, EcoChain has established a facility located in East Wenatchee, Washington to mine cryptocurrencies and integrate with the blockchain network. Pursuant to the January 2020 Operating and Management Agreement between EcoChain and Soluna, Soluna assisted us in developing, and is now operating, the cryptocurrency mining facility. The Operating and Management Agreement requires, among other things, that Soluna provide developmental and operational services, as directed by EcoChain, with respect to the cryptocurrency mining facility in exchange for EcoChain's payment to Soluna of a one-time management fee of $65,000 and profit-based success payments in the event EcoChain achieves explicit profitability thresholds. Pursuant to the Operating and Management Agreement, during the developmental phase of the cryptocurrency mining facility, which ended on March 14, 2020, Soluna gathered and analyzed information with respect to EcoChain's cryptocurrency mining efforts and produced budgets, financial models, and technical and operational plans, including a detailed business plan, that it delivered to EcoChain in March 2020, (the "Deliverables"), all of which was designed to assist with the efficient implementation of a cryptocurrency mine. The agreement provided that, following EcoChain's acceptance of the Deliverables, which occurred on March 23, 2020, Soluna, on behalf of EcoChain, would commence operations of the cryptocurrency mine in a manner that will allow EcoChain to mine and sell cryptocurrency. In that regard, on May 21, 2020, EcoChain acquired the intellectual property of Giga Watt, Inc. ("GigaWatt") and certain other property and rights of GigaWatt associated with GigaWatt's operation of a crypto-mining operation. The acquired assets form the cornerstone of EcoChain's new cryptocurrency mining operation.

The mining facility has electrical capacity of between 1.5 megawatts and 3 megawatts depending on whether the Company decides to upgrade certain electrical infrastructure within the facility. The Company has upgraded its electrical capacity at the facility to 2.2 megawatts and will continue to assess the economics of further investing in facility upgrades to reach 3 megawatts. The Company intends to continue to rigorously evaluate increasing its investment in the Blockchain and dense computing sector.  

The Operating and Management Agreement with Soluna provides EcoChain with the management expertise in the cryptocurrency industry that is necessary to operate the mining facility. Soluna handles the operational management of the mine including making decisions regarding miner purchases (as further described below), including the make and model thereof, and management of execution of daily activities. Several members of the Soluna management team have deep experience in the cryptocurrency industry, including leveraging energy-efficient power and cutting-edge technology advancements. EcoChain has engaged a third-party service provider to handle the day-to-day operational tasks of the mine, including remedial and preventative maintenance, mine operations and general upkeep of the facility. The team handling these matters, which works on-site at the mining facility, has 10 years' experience in the daily management of the mining facility as this same team handled these matters for the facility when it was being operated by GigaWatt and by its bankruptcy trustee prior to EcoChain's purchase of the mine. The Company handles the general and administrative functions of the mine through its corporate office, but otherwise there are no synergies between this business and MTI Instruments' metrology business. EcoChain has no employees.

 

8


Cryptocurrency Mining Operations

EcoChain's cryptocurrency mining operation, operated by Soluna as provided for in the Operating and Management Agreement, commenced operations and immediately began mining several cryptocurrencies, including BitCoin, Ethereum, and LiteCoin, upon consummation of the GigaWatt transaction on May 21, 2020, using the mining equipment we acquired in that transaction. The mine, which is powered by renewable energy, is housed in approximately 19,000 square feet of leased space in four separate buildings. Since commencing its mining operations, EcoChain has acquired additional equipment and initiated improvements to the acquired facilities to increase the mine's capacity. To maximize space utilization at the facility and cut down on our operating costs associated with the facility, EcoChain has entered into a co-location agreement to share both unused space and facility costs with Navier Incorporated. EcoChain sells on a daily basis all cryptocurrencies mined for U.S. dollars, as it is not in the business of accumulating cryptocurrency on its balance sheet for speculative gains. 

On January 14, 2021, EcoChain established a subsidiary, EcoChain Wind, LLC, a Nevada limited liability company, for the purpose of acquiring real property in the Southeastern United States for purposes of building cryptocurrency mining operations at an energy-efficient cryptocurrency mining facility. EcoChain signed an agreement, dated January 21, 2021, relating to the acquisition of this property, and closed the acquisition on March 4, 2021.

On February 22, 2021, EcoChain Wind entered into an Industrial Power Contract with a power-providing cooperative pursuant to which the cooperative will provide electric power and energy to this new mining facility.  This agreement, and the electric power and energy to be provided to EcoChain pursuant thereto, will commence upon the completion of the facility, which is expected to occur in the third or fourth quarter of 2021, for an initial term of five years, with successive automatic five-year renewals unless EcoChain provides notice that it does not wish to renew the agreement. The agreement provides that EcoChain will pay the cooperative for the electric power and energy it provides the new mining facility in accordance with the applicable monthly rates, charges, and provisions agreed to from time to time between the cooperative and the Tennessee Valley Authority ("TVA"), which is subject to modification or adjustment, from time to time, as agreed to between the power provider and the TVA.

On March 24, 2021, EcoChain established a subsidiary, EcoChain Block, LLC, a Nevada limited liability company, for the purpose of acquiring or leasing additional assets in the Southeastern United States.

Cryptocurrency Assets

Cryptocurrency assets, known as miners, consist of hardware and software that perform the computations needed to mine cryptocurrencies, as discussed under "Cryptocurrency Revenue" below, and as such are the source of the associated revenues generated by a cryptocurrency mine, including EcoChain's. EcoChain has approximately 900 miners in service, mostly Bitmains, that generate Bitcoin. For a number of reasons, including the fact that EcoChain purchases miners in the secondary market from a number of different sellers, and that the price fluctuates because of demand and supply fluctuations as well as fluctuations in the price of the specific cryptocurrency that can be mined by the miner purchased, which drives the cost of the miners, the cost of purchasing these assets fluctuates regularly. As a result, EcoChain uses dollar cost averaging to flatten the overall cost of purchasing the miners so that it can consistently purchase miners regardless of the cost on the date of purchase. This allows EcoChain to replace the miners more consistently with newer models, which is important because, as miners age, their speed degrades, usually resulting in decreased computations over the same period and, as a result, fewer mined cryptocurrencies. In addition, miners are subject to ongoing technical obsolescence.

Cryptocurrency Revenue

EcoChain recognizes revenue when the related cryptocurrencies are converted to U.S. dollars through its account with Coinbase, a cryptocurrency exchange (i.e. a platform that facilitates the exchange of cryptocurrencies for other assets, such as conventional money or other digital currencies). EcoChain chooses to exchange cryptocurrency to U.S. dollars through the Coinbase account daily. The primary cryptocurrencies that EcoChain mines are Bitcoin and, to a lesser degree, Ethereum and LiteCoin. The type of cryptocurrency mined is based specifically on the installed miner, as each miner can mine only one type of cryptocurrency. The miners perform complex computations at a speed referred to as the "hash rate." EcoChain participates in mining pools where our miners' computations and those of other miners owned by other persons and entities are combined to place blocks on the blockchain, which generates the relevant cryptocurrency (in other words, it is at this point that more of the relevant cryptocurrency is created, which is memorized in the blockchain by being represented by new "blocks"). The mining pool operator uses software to track contributions made by all the miners and allocates the newly-minted cryptocurrency to the miners based on their pro rata contributions. EcoChain monitors its inputs into these pools and the resulting distribution of the resulting cryptocurrency, which allows the Soluna management team to ensure that EcoChain is being allocated the amounts of cryptocurrency it is entitled to based on the number of computations it contributes to the pools and the hash rate thereof. The cryptocurrencies allocated to EcoChain are automatically issued to its Coinbase account, which Coinbase exchanges for U.S. dollars based on standard exchange rates.  

 

9


Crypto Currency Mining Market Overview

According to Global Coin Research,[1] Bitcoin miners achieved an aggregate of more than $6 billion in revenues through July 2019 on an annualized basis. According to Glassnode, Bitcoin miner revenue hit a new all-time high of $52.3 million per day during the week of March 11, 2021.[2] The Company believes that cryptocurrency mining has seen a growing demand due to, among other things, the continuous adoption of cryptocurrency worldwide. For example, in October 2020 PayPal announced that its customers can now buy, sell, and hold Bitcoin in their PayPal accounts.[3] Crypto.com estimates that there are approximately 106 million cryptocurrency users globally as of January 2021.[4] According the registration statement it recently filed with the SEC to become a public company, Cryptocurrency exchange Coinbase alone has approximately 43 million users as of December 31, 2020, whereas only eight years ago, on December 31, 2012, it had an estimated just 13,000 users. These increases are being fueled by, among other things, the growing adoption of cryptocurrency by a number of industries including, among others, online gaming, online gambling, remittances, and digital commerce.[5] Research estimates that from 2018 through 2028, the compound annual growth rate (return on investment over a period of time) of the market capitalization for the crypto asset market will be 36%.[6] Further, according to Gartner, IDC, and Forrester, the total addressable market (total estimate of value based on available population of users) is estimated to grow from $63 billion in 2020 to $86 billion in 2028.[7] Based on the estimated growth in the total addressable market, the Company expects continued demand downstream to the mining level of cryptocurrencies.

Mining Ecosystem and Competitive Landscape

There are number of methods that individuals and organizations use to engage in cryptocurrency mining, and mining operations run the gamut from individuals using one or more systems to run mining operations to industrial-scale mining farms with thousands of systems.  The Company believes that the high demand for cryptocurrency is fueling innovation in all aspects of the mining hardware and the mining process. This includes the creation of mining pools, discussed above, that permitted the initial mining operators, which were generally small or individually-owned operations, to pool their resources to compete with larger entities that entered the mining market as cryptocurrencies gained wider use and acceptance and, as a result, mining them became more profitable. The mining business is global and is not dominated by any particular individual or organization. EcoChain considers Marathon Patent Group, Riot Blockchain, Inc. CleanSpark, Inc., HIVE Blockchain Technologies, Ltd., and Hut 8 Mining Corp. to be among its closest competitors.

Equity investment - Soluna 

Simultaneously with entering into the January 2020 Operating and Management Agreement with Soluna, the Company, pursuant to a purchase agreement it entered into with Soluna, made a strategic investment in Soluna by purchasing 158,730 Class A Preferred Shares of Soluna for an aggregate purchase price of $500,000. After acceptance of the Deliverables, as required by the terms of the purchase agreement, the Company purchased an additional 79,365 Class A Preferred Shares of Soluna for an aggregate purchase price of $250,000. The Company also has the right, but not the obligation, to purchase additional equity securities of Soluna and its subsidiaries (including additional Class A Preferred Shares of Soluna) if Soluna secures certain levels or types of project financing with respect to its own wind power generation facilities. The Company has additionally entered into a Side Letter Agreement, dated January 13, 2020, with Soluna Technologies Investment I, LLC, a Delaware limited liability company that owns, on a fully diluted basis, 61.5% of Soluna and is controlled by a Brookstone Partners-affiliated director of the Company. The Side Letter Agreement provides for the transfer to the Company of additional Class A Preferred Shares of Soluna in the event Soluna issues additional equity below agreed-upon valuation thresholds.

Several of Soluna's equity holders are affiliated with Brookstone Partners, the investment firm that holds an equity interest in the Company through Brookstone Partners Acquisition XXIV, LLC. One of our Brookstone-affiliated directors serves as a director and as Secretary and Treasurer of Soluna, and the other Brookstone-affiliated director has an ownership interest in Soluna. In light of these relationships, the various transactions by and between the Company and EcoChain, on the one hand, and Soluna, on the other hand, were negotiated on behalf of the Company and EcoChain via an independent investment committee of our Board of Directors and separate legal representation. The transactions were subsequently unanimously approved by both the independent investment committee and the full Board.


[1] Global Coin Research Team, Crypto Mining 101 - Overview & Landscape of the Mining Industry, May 5, 2020, available at https://globalcoinresearch.com/2020/05/05/crypto-mining-101/.

[2] Glassnode, The Week On-chain (Week 11, 2021), March 15, 2021, available at https://insights.glassnode.com/the-week-on-chain-week-11-2021-2/.  See also Mathew Di Salvo, Bitcoin Miner Revenue Hits All-Time High of $52.3 Million in One Day, March 16, 2021, available at https://decrypt.co/61630/bitcoin-miner-revenue-all-time-high.

[3] PayPal Launches New Service Enabling Users to Buy, Hold and Sell Cryptocurrency, Oct 21, 2020, available at https://newsroom.paypal-corp.com/2020-10-21-PayPal-Launches-New-Service-Enabling-Users-to-Buy-Hold-and-Sell-Cryptocurrency.

[4] Harry Robertson, The estimated number of global crypto users has passed 100 million - and boomers are now getting drawn to bitcoin too, reports find, February 25, 2021, available at https://markets.businessinsider.com/currencies/news/crypto-users-pass-100-million-boomers-gen-x-bitcoin-btc-ethereum-2021-2-1030122720#:~:text=Around%20106%20million%20people%20are,drawn%20to%20tokens%20like%20bitcoin.

[5] Statis Group, Cryptoasset Market Coverage Initiation: Valuation, August 30, 2018, available at https://research.bloomberg.com/pub/res/d37g1Q1hEhBkiRCu_ruMdMsbc0A.

[6] Id.

[7] Id.

 

10


Existing or Probable Governmental Regulations

Cryptocurrency Segment

While the United States and a number of other countries are considering how to regulate cryptocurrencies, very little action has been taken in that regard to date. While we expect that regulation, particularly in the United States, governing the cryptocurrency arena will be adopted at some point, there is no certainty at this time when such regulations may be adopted, what form such regulation will take, or the parts of the cryptocurrency sector that such regulations will impact. As a result, we cannot at this time determine or even estimate what the impact of such regulations may be on EcoChain's operations and financial condition and, as a result, the Company's financial condition and results of operations.

Human Capital Resources

At March 26, 2021, we had 33 employees including 29 full-time employees. Of these employees 10 are engaged in product development, nine in manufacturing, and the remainder in sales and general and administrative functions. The manufacturing personnel include both individuals directly involved in the manufacturing of our products as well as warehouse and operations supervisory personnel. Certain positions within our organization require industry-specific technical knowledge. We have been successful in attracting and retaining qualified technical personnel for these positions. None of our employees are covered by any collective bargaining agreement.

Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, engaging, incentivizing, and integrating our existing and additional employees. The Company supports its employees through a generous benefits package and has recently expanded human resource activities to include wellness activities.  In response to the COVID-19 global pandemic, the Company has implemented procedures to support flexible working arrangements for its workforce based on business needs.  In particular, all employees that can perform work remotely have been provided with a laptop and remote access, and the Company regularly holds meetings virtually.

Insurance 

The Company maintains insurance policies with reputable insurers against such risks and in such amounts as management has determined to be prudent for our operations and that we believe are similar in scope and coverage in all material respects to insurance policies maintained by other similarly-situated businesses.

Item 1A: Risk Factors

Factors Affecting Future Results

This Annual Report on Form 10-K, including the discussion in this section, contains forward-looking statements that involve risks and uncertainties. Any statements herein 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. Such forward-looking statements include, but are not limited to, statements regarding:

  • statements with respect to management's strategy and planned initiatives, including anticipated growth;

  • management's belief that it will have adequate resources to fund the Company's operations and capital expenditures for the year ending December 31, 2021 and through at least the end of the first quarter of 2022;

  • future capital expenditures and spending on research and development;

  • expected funding of future cash expenditures;

  • our expectations with respect to pending legal proceedings;

  • statements regarding the expected operations of EcoChain and the impact on our business, operating results, and financial condition as a result thereof;

  • our expectations regarding increases in certain selling, general and administrative expenses;

  • the expected timing of the completion of EcoChain's second cryptocurrency mining facility;

  • statements regarding potential acquisitions;

  • our expected use of proceeds from our anticipated common stock offering and the expected net proceeds therefrom;

  • our expectations regarding the renewal of our contract with the U.S. Air Force that is set to expire on June 30, 2021;

  • the expected impact of pending accounting updates; and

  • the expected impact of our investments in Soluna.

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Forward-looking statements involve risks, uncertainties, estimates, and assumptions that 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:

  • sales revenue growth may not be achieved or maintained;  
  • the dependence of our business on a small number of customers and potential loss of government contracts - particularly in light of potential cuts that may be imposed as a result of U.S. government budget appropriations;
  • 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;  
  • our inability to build and maintain relationships with our customers;  
  • our inability to develop and utilize new products and technologies that address the needs of our customers;  
  • our inability to retain existing or obtain new credit facilities;
  • the cyclical nature of the electronics and military industries;  
  • the uncertainty of the U.S. and global economy;  
  • the impact of future exchange rate fluctuations;  
  • 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;  
  • the loss of services of one or more of our key employees or the inability to hire, train, and retain key personnel;
  • risks related to protection and infringement of intellectual property;  
  • our occasional dependence on sole suppliers or a limited group of suppliers;
  • our ability to generate income to realize the tax benefit of our historical net operating losses;
  • risks related to the limitation of the use, for tax purposes, of our net historical operating losses in the event of certain ownership changes;
  • EcoChain's development efforts with respect to its current cryptocurrency mining facility may not lead to construction of additional operational cryptocurrency mines;
  • even if EcoChain's development of an operational cryptocurrency mine is successful, it still may not achieve profitability in our expected timeframe or at all depending on numerous uncertainties, including the costs of operation, the future price of cryptocurrencies and fluctuations in such prices, government and quasi-government regulation of cryptocurrencies and their use, restrictions on or regulation of access to and operation of blockchain networks or similar systems, and the availability and popularity of other forms or methods of buying and selling goods and services, including government-backed cryptocurrencies;
  • general economic conditions;
  • risks related to scaling the EcoChain cryptocurrency mine to larger-scale cryptocurrency mining operations;
  • the general risk that the EcoChain business may not be successful;
  • uncertainty regarding EcoChain's ability to consistently monetize cryptocurrency;
  • fluctuating valuations of cryptocurrency; and
  • other risks discussed in this Annual Report on Form 10-K.

Except as may be required by applicable law, we do not undertake or intend to update or revise our forward-looking statements and we assume no obligation to update any forward-looking statements contained in this registration statement. Thus, assumptions should not be made that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements.

Risk Factors

You should consider carefully the following risks, along with other information contained in this Annual Report on Form 10-K. The risks and uncertainties described below are not the only ones that may affect us. Additional risks and uncertainties also may adversely affect our business and operations including those discussed in the heading "Factors Affecting Future Results" above. Any of the following events, should they actually occur, could materially and adversely affect our business and financial results.

Adverse changes in economic or other market conditions in the United States and globally may have serious implications for the growth and stability of our business and could otherwise adversely affect our business, results of operations, and financial condition.

Our business is affected by general economic conditions, both inside and outside the U.S. Adverse changes to and uncertainty in the global economy may lead to decreased demand for our products, revenue fluctuations, and increased price competition for our products, and may increase the risk of excess and obsolete inventories and higher overhead costs as a percentage of revenue. It could also result in a decline in business forecasts, which could adversely affect our sales in future periods. Additionally, the financial strength of our customers and suppliers and their ability to obtain and rely on credit financing may affect their ability to fulfill their obligations to us and have an adverse effect on our financial results.

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Revenue growth and continued profitability of our business will continue to depend significantly on the overall demand for test and measurement instrumentations in key markets including research and development, automotive, semiconductor, cryptocurrencies and electronics. If the global economy and financial markets continue to be unstable (including as a result of the COVID-19 pandemic) or significantly decline, it may cause consumers, businesses, and governments to defer purchases in response to tighter credit, decreased cash availability and declining consumer confidence. Accordingly, demand for our products could decrease and differ materially from their current expectations. Further, some of our customers may require substantial financing in order to fund their operations and make purchases from us. The inability of these customers to obtain sufficient credit to finance purchases of our products and meet their payment obligations to us or possible insolvencies of our customers could result in decreased customer demand, an impaired ability for us to collect on outstanding receivables, significant delays in receivable payments, and significant write-offs of accounts receivable, any or all of which could adversely impact our business and financial results.

The long-term effects of the coronavirus pandemic, or the impacts of any future pandemics or other health crises, are unknown and may adversely affect our business, results of operations, financial condition, liquidity and cash flow.

Our overall performance generally depends upon domestic and worldwide economic and political conditions. The global spread of COVID-19 has created volatility, uncertainty, and economic disruption. The pandemic has caused and may continue to cause a slowdown in worldwide economic activity, decreased demand for products and services, and disruptions to global supply chains and financial markets.

While the COVID-19 pandemic, and the changes to our operations necessitated by governmental and societal actions to contain it, including social distancing and the closing and/or limits on the business operations, required us to make certain changes to the way we conduct our business and operations during the last 12 months, we have been fortunate that, to date, the pandemic has had a limited impact on our supply chains, distribution systems, and ability to continue to conduct our business and operations. We cannot, however, predict the longer-term impacts of the pandemic, or future health emergencies, on our business, operations, revenues, results of operations, or financial condition. The ultimate extent of the impact of the current coronavirus pandemic, or any future epidemic, pandemic, or other outbreak, will depend on future developments, including how fast effective (or with respect to the current pandemic, additional) vaccines and treatments are developed, the length of time before such vaccines are sufficiently distributed (both in the United States and worldwide), new or continued government actions in response, including with respect to successive waves or variants of the virus (as well as the extent to which such variants are more contagious and/or lethal), the extent to which then-current vaccines and treatments are less effective against any such variants, and whether delays in such vaccinations allow vaccine-resistant variants to develop and spread, all of which will impact the current or any future pandemic's or similar outbreak's ultimate duration and severity as well as and how fast the economy recovers afterwards. Actions we took to mitigate the impact of the current pandemic may not be successful if the pandemic continues for a longer period than expected or in future pandemics or similar emergencies. For example, beginning in March 2020 we replaced our in-person sales meetings with meetings held by videoconference, telephone calls, webinars, and additional informational website content geared towards addressing our customers' questions and concerns for both domestic and overseas customers. Nevertheless, we believe that our inability to hold in-person meetings, while not significant, did have a negative impact on our product sales over the last 12 months, and our efforts to mitigate the effects of the pandemic restrictions on our sales model may not be a viable alternative to in-person meetings on a longer-term basis or during any future health or other emergency that engender similar restrictions. 

Further, the long-term social and economic impact of the pandemic, or the acceleration of pre-existing trends as a result thereof, are still uncertain. It is also unknowable what impacts future pandemics or health emergencies may bring. In either case, any such developments could materially and adversely affect our customer base or the demand for our products, which would have a negative effect on our business, prospects, results of operations, and financial condition, all of which could have a negative effect on the market price of our common stock.

General Business Considerations

Our business depends on a small number of customers and the U.S. Air Force.

Historically, we have had a small number of customers representing a large percentage of our total revenue. Although we endeavor to maintain and further expand our customer base, we expect that sales to a limited number of customers will continue to account for a high percentage of our revenues in any given period for the foreseeable future, and the loss of even just a couple of customers, or a significant reduction in sales to our existing customer base, could have a material adverse effect on our business. In addition, our revenues are largely dependent upon the ability of our customers to continue to grow or need services or to develop and sell products that incorporate our services and products. We also depend on purchases by the U.S. Air Force for a significant portion of our revenues and the loss of the U.S. Air Force as a customer or a delay or decline in funding of our existing or future contracts with them, particularly in light of the potential for declines in military spending that may accompany the new Presidential administration, could decrease our backlog or adversely affect our business and prospects, sales, cash flows, and our ability to fund our continued product development and growth.

13


We do not have long-term purchase commitments from our customers, and our customers are also able to cancel, reduce, or delay orders for our products.  

We generally do not obtain firm, long-term purchase commitments from our customers and frequently do not have visibility as to their future demand for our products and services. Customers also may cancel, change, or delay design, production or aftermarket service quantities and schedules, or fail to meet their forecasts for a number of reasons beyond our control. Customer expectations can also change rapidly, requiring us to take on additional commitments or risks, and requiring that we provide rapid product turnaround and respond to short lead times. A variety of conditions, both specific to individual customers and generally affecting the demand for OEMs' products, may cause customers to cancel, reduce, or delay orders. Conversely, if our customers unexpectedly and significantly increase product orders, we may be required to rapidly increase production, which could strain our resources and reduce our margins. We typically plan production and inventory levels based on internal forecasts of customer demand, which can be highly unpredictable and can fluctuate substantially, leading to excess inventory write-downs and resulting negative impacts on gross margin and net income. Additionally, and as a result, our revenues may be volatile from period to period, and we may not achieve the anticipated revenues or may incur non-recoverable costs as a result of the work we did to address our customers' anticipated or changed requirements.

Our annual and quarterly operating results may experience significant fluctuations, which could adversely impact our operations, financial results, and stock price.

In addition to the variability resulting from the short-term nature of our customers' commitments, other factors contribute to significant periodic fluctuations in our results of operations. These factors include:

  • the cyclicality of the markets we serve;  
  • the timing and size of orders and of recognizing revenue therefrom;  
  • the volume of orders relative to our capacity;  
  • product introductions and market acceptance of new products or new generations of products;  
  • evolution in the life cycles of our customers' products;
  • timing of expenses in anticipation of future orders;
  • changes in product mix;
  • availability of manufacturing and assembly services;
  • changes in cost and availability of labor and components;  
  • the timing of delivery of products to customers;
  • pricing and availability of competitive products;
  • fluctuations in foreign currency exchange rates;
  • introduction of new technologies into the markets we serve;
  • pressures on reducing selling prices;
  • our success in serving new markets; and
  • changes in economic conditions.

The price of our common stock could decline substantially in the event that any of these risks result in our financial performance being below the expectations of analysts and investors, which are based on historical and predictive models that are not necessarily accurate representations of the future.

We may not be able to keep pace with technological innovations or develop new product solutions in a timely manner.

The electronic, semiconductor, solar, automotive, and general industrial segments are subject to constant technological change. Our future success will depend on our ability to respond appropriately to changing technologies and changes in product function and quality. If we rely on products and technologies that are not attractive to end users, we may not be successful in capturing or retaining market share. Technological advances, the introduction of new products, and new design techniques could adversely affect our business prospects unless we are able to adapt to the changing conditions. Technological advances could render our products obsolete, and we may not be able to respond effectively to the technological requirements of evolving markets. As a result, we will be required to expend substantial funds for and commit significant resources to:

  • continue research and development activities on all product lines;  
  • hire additional engineering and other technical personnel; and  
  • purchase advanced design tools and test equipment.

Our business could be harmed if we are unable to develop and utilize new technologies that address the needs of our customers, or our competitors do so more effectively than we do.

14


Our efforts to continue to develop new products and technologies may not result in commercial success, which could cause a decline in our revenue and otherwise harm our business.

We regularly invest substantial amounts in research and development efforts that pursue advancements in our products and technologies. Our research and development efforts with respect to our products and technologies may not result in customer or market acceptance. Some or all of such products and technologies may not successfully make the transition from the research and development lab to cost-effective production as a result of technology problems, competitive cost issues, yield problems, and other factors. Even when we successfully complete a research and development effort with respect to a particular product or technology, our customers may decide not to introduce or may discontinue products utilizing the product or technology for a variety of reasons, including, but not limited to:

  • difficulties with other suppliers of components for the products;  
  • superior technologies developed by our competitors and unfavorable comparisons of our solutions with these technologies;  
  • price considerations; and  
  • lack of anticipated or actual market demand for the products.

The nature of our business will require us to make continuing investments to develop new products and technologies. Significant expenses relating to one or more new products or technologies that ultimately prove to be unsuccessful for any reason could have a material adverse effect on us. In addition, any investments or acquisitions made to enhance our products and technologies may prove to be unsuccessful. If our efforts are unsuccessful, our business could be harmed. Moreover, when we announce our development of new products, sales of current products may decrease as customers delay making purchases until such new products are available, which could adversely affect our business, revenues, and results of operations.

The cyclical nature of the industries of many of our existing and target customers may result in fluctuations in our operating results.

Demand for our products and services in our target markets is cyclical, and revenues from the sale of our products and services can vary significantly from one period to the next as a result. We may sell a significant amount of our products to one or a few customers for various short-term projects in one period and then have markedly decreased sales in following periods as these projects end or customers have the products they require for the foreseeable future.

The electronics and military industries have experienced significant economic downturns at various times. These downturns are characterized by diminished product demand, accelerated erosion of average selling prices, and production overcapacity. We may seek to reduce our exposure to industry downturns by providing design and production services for leading companies in rapidly expanding industry segments. We may, however, experience substantial period-to-period fluctuations in future operating results because of general industry conditions or events occurring in the general economy.

International sales risks could adversely affect our operating results. Furthermore, our operating results could be adversely affected by changes to U.S. policy and fluctuations in the value of the U.S. dollar against foreign currencies.

Sales outside of the United States accounted for approximately 25.9% of our total revenue in 2020 and 35.3% of our total revenue in 2019. Our international business may be adversely affected by changing political and economic conditions in foreign countries. Having a worldwide distribution network for our products exposes us to various economic, political, and other risks that could adversely affect our operations and operating results, including:

  • export restrictions and controls relating to technology;
  • the burdens and costs of compliance with a variety of existing and new foreign regulatory requirements and laws, including the General Data Protection Regulation (GDPR) in the European Union and similar laws in other jurisdictions, and unexpected changes in such regulatory requirements;
  • laws and business practices favoring local companies, including tariffs imposed by other countries on U.S. goods;
  • timing to meet regulatory requirements;  
  • developments with respect to and any impact of tariffs and other trade barrier restrictions;  
  • longer payment cycles and greater difficulty in enforcing agreements and collecting receivables through foreign legal systems;
  • potentially reduced protection for, and difficulties in enforcing, intellectual property rights; and  
  • political or economic instability in certain parts of the world.

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These risks or any combination of them could increase our costs, lengthen our sales cycle, and require significant management attention and could otherwise negatively affect our business, operating results, financial condition, and results of operations.

In addition, we transact our business in U.S. dollars and bill and collect our sales in U.S. dollars. Approximately 25.9% and 35.3% of our revenue was from customers located outside of the United States in 2020 and 2019, respectively. It is possible that U.S. policy changes and uncertainty about policy could increase market volatility and currency exchange rate fluctuations. Market volatility and currency exchange rate fluctuations could impact our results of operations and financial condition related to transactions denominated in a foreign currency. A weakening of the dollar could cause our overseas vendors to require renegotiation of either the prices or currency we pay for their goods and services. Similarly, a strengthening of the dollar could cause our products to be more expensive for our international customers, which could impact price and margins and/or cause the demand for our products, and thus our revenue, to decline.

In the future, customers may negotiate pricing and make payments in non-U.S. currencies. If our overseas vendors or customers require us to transact business in non-U.S. currencies, fluctuations in foreign currency exchange rates could affect our cost of goods, operating expenses, and operating margins and could result in exchange losses. In addition, currency devaluation can result in a loss to us if we hold deposits of that currency. Hedging foreign currencies can be difficult, especially if the currency is not freely traded. We cannot predict the impact that future exchange rate fluctuations may have on our operating results.

We rely on the ability to secure funding via our credit facility when accepting large orders from certain customers, and if we are not able to retain our existing credit facility or obtain new ones we may not be able to accept these large orders, and our business, revenues, and financial condition could suffer.

For some large customer orders, particularly if the customer requires unusually long payment terms, we may need to rely on funding from our credit facility to meet our ongoing funding needs because we may have to pay for the raw materials needed to manufacture the products for the customer before the customer pays us. While we had historically not needed to do this, the possibility following the placement of a large order in 2020 was the reason we arranged for a credit facility last year. If we are unable to maintain the credit facility or arrange a replacement facility on satisfactory terms and conditions, we may not be able to accept these types of customer orders, which could have a material adverse effect on our business, prospects, revenues, and results of operations, as well as our ability to continue to fund our operations including our product development and customer growth activities. We may also need to obtain a new credit facility to fund our planned expansion of EcoChain's business. Our ability to maintain or replace our existing credit facility or obtain new or additional financing will depend on a variety of factors, many of which are beyond our control, and there can be no assurance that we will be able to do so in needed quantities, on terms favorable to us, or at all.

Our confidentiality agreements with employees and others may not adequately prevent disclosure of our trade secrets and other proprietary information, which could limit our ability to compete.

We rely on trade secrets to protect our proprietary technology and processes. Despite such protection, it is possible that a third party could copy or otherwise obtain and use our proprietary information without our authorization; further, trade secrets can be difficult to protect. Policing unauthorized use of our intellectual property and trade secrets is difficult, particularly in light of the global nature of the Internet and because the laws of other countries may afford us little or no effective protection of our intellectual property. Potentially expensive litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity.  Additionally, we enter into confidentiality and intellectual property assignment agreements with our employees, consultants, and other advisors. These agreements generally require that the other party keep confidential and not disclose to third parties confidential information developed by the party under such agreements or made known to the party by us during the course of the party's relationship with us. Our employees, consultants, and other advisors, however, may not honor these agreements, and enforcing a claim that a party illegally obtained and is using our trade secrets is difficult, expensive and time-consuming, and the outcome is unpredictable. Our failure to obtain and maintain trade secret protection could adversely affect our competitive position.

We rely on highly-skilled personnel and the continuing efforts of our Chief Executive Officer and, if we are unable to retain, motivate, or hire qualified personnel, our business may be severely disrupted.

Our performance largely depends on the talents, knowledge, skills, know-how, and efforts of highly-skilled individuals, including our Chief Executive Officer, Michael Toporek. His absence, were it to occur, would materially and adversely impact the continued development of our businesses. Our future success further depends on our continuing ability to identify, hire, develop, motivate, and retain highly-skilled personnel for all areas of our organization. The competition for qualified management and key personnel, especially engineers, is intense. Our continued ability to compete effectively depends on our ability to motivate and retain our existing, and attract and hire new, engineers and certain other key employees, particularly technical support personnel and capable sales and customer-support employees. If Mr. Toporek or other key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them readily, if at all. In such case, our business may be severely disrupted, we may incur additional expenses to recruit and retain new officers or other key personnel, and our financial condition and results of operations could be materially adversely affected.  We do not currently maintain key life insurance policies on Mr. Toporek or any key employees.  In addition, if any of our key sales personnel joins a competitor or forms a competing company, we may lose customers.

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We may not be successful in locating appropriate acquisition targets or in integrating any acquired companies into our businesses, which could materially and adversely affect our financial condition and operating results.

Part of our strategy to grow our businesses involves the acquisition of other entities or businesses in the future that complement our current products, enhance our market coverage or technical capabilities, or offer growth opportunities. We may not be able, however, to identify and successfully negotiate suitable acquisitions, obtain any financing necessary for such acquisitions on satisfactory terms, or otherwise complete any such acquisitions. Further, any acquisition may require a significant amount of management's time and financial resources to complete the acquisition and integrate the acquired business into our existing operations. Even with this investment of management time and financial resources, an acquisition may not produce the revenue, earnings, or business synergies anticipated. Acquisitions involve numerous other risks, including:

  • potential inability to successfully integrate acquired operations and products or to realize cost savings or other anticipated benefits from integration;
  • loss of key employees or customers of acquired companies;
  • difficulty of assimilating geographically dispersed operations and personnel of the acquired companies;
  • potential disruption of our business or the acquired business;
  • unanticipated expenses;
  • unanticipated difficulties in conforming business practices, policies, procedures, internal controls, and financial records of acquisitions with our own;
  • impairment of relationships with employees, customers, vendors, distributors, or business partners of either an acquired business or our own;
  • inability to accurately forecast the performance of recently-acquired businesses, resulting in unforeseen adverse effects on our operating results;
  • potential liabilities, including liabilities resulting from known or unknown compliance or legal issues, associated with an acquired business; and
  • adverse accounting impact to our results of operations.

Any such effects from acquisitions could be costly and place a significant strain on our management systems and resources.

We cannot offer any assurance that we will be able to identify, complete, or successfully integrate any suitable acquisitions. Even if successfully negotiated and closed, any acquisitions may not yield expected synergies, may not advance our business strategy as expected, may fall short of expected return-on-investment targets, or may not prove successful. Companies that we acquire may operate with different cost and margin structures, which could further cause fluctuations in our operating results and adversely affect our business, financial condition, and results of operations.

Brookstone's ownership of 38.2% of the outstanding shares of our common stock gives it a controlling interest in the Company.

Brookstone Partners Acquisition, XXIV, LLC ("Brookstone"), owns approximately 38.2% of the Company's outstanding shares of common stock and has designated two directors that sit on our eight-member Board. Accordingly, Brookstone has the ability to exert a significant degree of influence or actual control over our management and affairs and, as a practical matter, will continue to control corporate actions requiring shareholder approval, irrespective of how our other shareholders may vote, including the election of directors, amendments to our Certificate of Incorporation and Bylaws, and the approval of mergers and other significant corporate transactions, including a sale of substantially all of our assets, and Brookstone may vote its shares in a manner that is adverse to the interests of our minority shareholders. This concentration of voting control could deprive our investors of an opportunity to receive a premium for their shares of our common stock as part of a sale of the Company. Further, Brookstone's control position might adversely affect the market price of our common stock to the extent investors perceive disadvantages in owning shares of a company with a controlling shareholder.

Brookstone and its director designees may acquire interests and positions that could present potential conflicts with our and our shareholders' interests.

Brookstone and its director designees may make investments in companies and may, from time to time, acquire and hold interests in businesses that compete directly or indirectly with us. Brookstone and its director designees may also pursue, for their own accounts, acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities might not be available to us. As part of our sale of 3,750,000 shares of our common stock to Brookstone in October 2016 and as required by Brookstone as a condition to purchasing the shares, our Board of Directors renounced, to the extent permitted by New York law, the Company's expectancy with respect to being offered an opportunity to participate in any business opportunity that is discovered by or presented to a director designee (a "Business Opportunity"), whether in such director designee's capacity as a director of the Company or otherwise. Accordingly, the interests of Brookstone and the designated directors with respect to a Business Opportunity may supersede ours, and Brookstone or its affiliates or the Brookstone-designated directors may be involved with businesses that compete with us and may pursue opportunities for the sole benefit of Brookstone and its affiliates without our involvement, for which we have limited recourse. Such actions on the part of Brookstone or its director designees could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

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In addition, Michael Toporek, our CEO, serves as the Managing General Partner of Brookstone. As a result of the potential conflicts inherent in his serving in both roles, it is possible that Mr. Toporek could make decisions that benefit Brookstone at the expense of the Company.

Insiders continue to have substantial control over the Company.

As of March 26, 2021, the Company's directors and executive officers hold the right to vote approximately 43.5% of the Company's outstanding voting stock, including the 38.2% of the outstanding common stock owned or controlled by Brookstone, for which Michael Toporek, the Company's CEO, serves as Managing General Partner. The Company's directors and executive officers have the right to acquire an aggregate of an additional 181,250 shares of our common stock by exercising outstanding stock options granted to them under our equity compensation plans. As a result, Mr. Toporek acting alone, and/or many of the Company's officers and directors acting together, may have the ability to exert significant control over the Company's decisions and control the management and affairs of the Company, and also to determine the outcome of matters submitted to shareholders for approval, including the election or removal of a director and any merger, consolidation, or sale of all or substantially all of the Company's assets. Accordingly, this concentration of ownership may harm the market price of our common stock by:

  • Delaying, deferring, or preventing a change in control of the Company;
  • Impeding a merger, consolidation, takeover, or other business combination involving the Company; or
  • Discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company.

Our Rights Plan may limit the rights of our shareholders and decrease the trading price of our common stock; our CEO's role as Managing General Partner of Brookstone could provide Brookstone with further control in the event our Rights Plan is instituted.

We have adopted a Section 382 Rights Agreement, dated October 6, 2016, as amended ("Rights Plan"), that is intended to preserve the Company's net operating loss carryforwards and to act as a deterrent to any person (together with all affiliates and associates of such person) acquiring beneficial ownership of 4.99% or more of outstanding shares of our common stock without the approval of our Board of Directors. The Rights Plan, however, contains provisions and terms that may delay, defer, or prevent a tender offer or change in control of the Company that a shareholder might consider to be in his, her, or its best interests, including attempts that might result in a premium being paid over the market price for our shares of common stock. The Company expects that such provisions and terms will operate to discourage extraordinary corporate transactions with respect to the Company, such as takeover bids, and will instead encourage any potential acquiror of the Company to first correspond with the Board. Additionally, since our Chief Executive Officer is also the Managing General Partner of Brookstone, Brookstone could exert additional control over the Company, even with its minority equity interest held in the Company, in the event the rights to purchase common stock provided for in the Rights Plan become exercisable.

We may incur losses and liabilities in the course of business that could prove costly to defend or resolve.

We may become subject to a variety of claims and lawsuits in the ordinary course of business, including personal injury or property claims. Additionally, we are, at times, involved in commercial disputes with third parties, such as customers, distributors, vendors, and others. Any such litigation involving an adverse result could have a material adverse effect on our business and our financial condition. There is a risk of litigation generally in conducting a commercial business. These risks often may be difficult to assess or quantify and their existence and magnitude often remain unknown for substantial periods of time. We may incur significant legal expenses in defending against litigation.

We may become subject to claims of infringement or misappropriation of the intellectual property rights of others, which could prohibit us from selling our products, require us to obtain licenses from third parties or to develop non-infringing alternatives, and subject us to substantial monetary damages and injunctive relief.

We may receive notices from third parties that the manufacture, use, or sale of any products we develop infringes upon one or more claims of their patents. Moreover, because patent applications can take many years to issue, there may be currently pending applications, unknown to us, that may later result in issued patents that materially and adversely affect our business. Third parties could also assert infringement or misappropriation claims against us with respect to our future product offerings, if any. We cannot be certain that we have not infringed the intellectual property rights of any third parties. Any infringement or misappropriation claim could result in significant costs, substantial damages, and our inability to manufacture, market, or sell any of our product offerings that are found to infringe another person's patent. Even if we were to prevail in any such action, the litigation could result in substantial cost and diversion of resources that could materially and adversely affect our business. If a court determined, or if we independently discovered, that our product offerings violated third-party proprietary rights, there can be no assurance that we would be able to re-engineer our product offerings to avoid those rights or obtain a license under those rights on commercially reasonable terms, if at all. As a result, we could be prohibited from selling products that are found to infringe upon the rights of others. Even if obtaining a license were feasible, it may be costly and time-consuming. A court could also enter orders that temporarily, preliminarily, or permanently enjoin us from making, using, selling, offering to sell, or importing our products that are found to infringe on third parties' intellectual property rights, or could enter orders mandating that we undertake certain remedial actions. Further, a court could order us to pay compensatory damages for any such infringement, plus prejudgment interest, and could in addition treble the compensatory damages and award attorneys' fees. Any such payments could materially and adversely affect our business and financial condition.

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If we are unable to protect our information systems against service interruption or failure, misappropriation of data, or breaches of security, our operations could be disrupted, we could be subject to costly government enforcement actions and private litigation, and our reputation may be damaged.

Our business involves the collection, storage, and transmission of personal, financial, or other information that is entrusted to us by our customers and employees. Our information systems also contain the Company's proprietary and other confidential information related to our business. Our efforts to protect such information may be unsuccessful due to the actions of third parties, computer viruses, physical or electronic break-ins, catastrophic events, employee error or malfeasance, or other attempts to harm our systems. As the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems, change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures in time. We could also experience a loss of critical data and delays or interruptions in our ability to manage inventories or process transactions. Some of our commercial partners, such as those that help us maintain our website, may receive or store information provided by us or our users through our website. If these third parties fail to adopt or adhere to adequate information security practices, or fail to comply with our policies in this regard, or in the event of a breach of their networks, our customers' information may be improperly accessed, used, or disclosed.

If our systems are harmed or fail to function properly, we may need to expend significant financial resources to repair or replace systems or to otherwise protect against security breaches or to address problems caused by breaches. If we experience a significant security breach or fail to detect and appropriately respond to a significant security breach, we could be exposed to costly legal actions in connection with such incidents, which could result in orders or judgments forcing us to pay damages or fines or to take certain actions with respect to our information systems. Any incidents involving unauthorized access to or improper use of user information, or incidents that are a violation of our online privacy policies, could harm our brand reputation and diminish our competitive position. Any of these events could have a material and adverse effect on our business, reputation, or financial results. Our insurance policies carry coverage limits, which may not be adequate to reimburse us for losses caused by security breaches.

Our risk management process may not identify all risks that we are subject to and will not eliminate all risk.

Our Enterprise Risk Management ("ERM") process seeks to identify and address significant risks. Our ERM process uses the most recent integrated risk framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission to assess, manage, and monitor risks. We believe that risk-taking is an inherent aspect of the pursuit of our growth and performance strategy. Our goals are to proactively manage risks in a structured approach in conjunction with strategic planning, with the intent to preserve and enhance shareowner value, and to manage prudently, rather than wholly avoiding, risks. We can mitigate risks and their impact on the Company, however, only to a limited extent, and no ERM process can identify all risks that we may face. Therefore, there may be risks that we are currently unaware of, that may develop in the future or that we currently consider immaterial. Further, our management of risks may prove inadequate. The emergence of risks of which we were unaware or are unable to manage could have a material adverse effect on our business, prospectus, financial condition and results of operations.

MTI Instruments' business operations and financial performance are occasionally reliant on a single supplier or vendor or a limited group of suppliers and vendors.

We depend on a limited number of suppliers and vendors for product and services relating to our MTI Instruments business. Specifically, for the year ended December 31, 2020, Spinnaker Contract Manufacturing, Inc. ("Spinnaker") supplied 15% of the PC boards used by almost all MTI Instrument products, and SYNNEX Corporation ("SYNNEX") supplied 26% of the military computers used by MTI Instruments. In the event it becomes necessary to seek alternative suppliers and vendors, we may be unable to obtain satisfactory replacement supplies or services on economically attractive terms, on a timely basis, or at all, which could increase costs or cause disruptions in the manufacturing of our products or delivery of our services.

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Changes in tariffs and other trade policies could increase the cost of our products sold to our international customers, which could negatively impact our sales and profitability.

Our international sales operations are subject to extensive laws, governmental regulations, and policies, including but not limited to tariffs and other trade policies, including those governing exports. Trade tensions between the United States and China, as well as those between the U.S. and Canada, Mexico, and other countries, have been escalating in recent years, and there have been significant changes to U.S. trade policies, legislation, treaties, and tariffs during this time. Trade tensions have led to a series of tariffs imposed by the U.S. on imports from China, as well as retaliatory tariffs imposed by China on imports from the U.S. Changes in export regulations could increase the cost of our products sold as exports to our international customers.

While the tariffs put in place in March 2018 did not have a material impact on our business or operating results, currently it is unclear how the recent change in Presidential administrations may impact these issues, if at all, or what actions the current administration may take in this regard. Any further changes in U.S. trade policies, tariffs, taxes, export restrictions, or other trade barriers may decrease our profit margins, reduce the competitiveness of our products in foreign markets, or inhibit our ability to sell products, any which could have a material adverse effect on our business, results of operations, and financial condition.

Risks Related to the EcoChain Business and Cryptocurrency

Security breaches could result in a loss of our cryptocurrencies.

Security breaches including computer hacking or computer malware have been a consistent concern in the cryptocurrency industry. This could involve hacking in which an unauthorized person obtains access to the systems or information and can cause harm by the transmission of virus or the corruption of data.  These breaches may occur due to an action by an outside party, or by the error and negligence of an employee. We primarily rely on the Luxor mining pool and EcoChain's cryptocurrencies are stored with exchanges such as Coinbase prior to selling them. If any breach were to occur of our security system, operations or third party platforms, the result could cause a loss of our cryptocurrencies, loss of confidential or proprietary information, force the Company to cease operations, or could cause damage to the reputation of the Company. If an actual or perceived attack were to occur, the market perception of the Company may be damaged, which could adversely affect potential and current investments in the Company and reduce demand for our Common Stock and cause a reduction in our share price. 

EcoChain has a limited operating history and we may not recognize income from the EcoChain line of business in the future.

EcoChain, though a wholly-owned subsidiary of MTI, remains responsible for its own financing and operations and therefore is subject to all the risks inherent in a newly-established business venture. EcoChain began operations in January 2020 and has a limited operating history. It has not yet been able to confirm that its business model can or will be successful over the long-term. Our projections for its growth have been developed internally and may not prove to be accurate. As such, given its start-up status with an unproven business model, there is a substantial uncertainty regarding EcoChain's ability to succeed.

Valuations of cryptocurrencies in U.S. dollars are extremely volatile, and if our mined cryptocurrencies are converted into dollars when such values are low, we may not recognize the income from the conversion of the mined cryptocurrencies that we were expecting.

The fluctuating values of cryptocurrencies represent significant uncertainties for the EcoChain business. The value in U.S. dollars of Bitcoin, Ether, and other cryptocurrencies have been, and continue to be, subject to dramatic fluctuations. A variety of factors, known and unknown, may affect price and valuation, including, but not limited to: (i) the supply of such cryptocurrencies; (ii) global blockchain asset demand, which can be influenced by the growth of retail merchants' and commercial businesses' acceptance of blockchain assets like cryptocurrencies as payment for goods and services, the security of online cryptocurrency exchanges and networks and digital wallets that hold blockchain assets, the perception that the use and holding of blockchain assets is safe and secure, and the regulatory restrictions on their use; (iii) investors' expectations with respect to the rate of inflation; (iv) changes in the software, software requirements, or hardware requirements underlying a blockchain network; (v) changes in the rights, obligations, incentives, or rewards for the various participants in a blockchain network; (vi) currency exchange rates; (vii) fiat currency withdrawal and deposit policies of cryptocurrency exchanges and networks and liquidity on such exchanges and networks; (viii) interruptions in service from or failures of major cryptocurrency exchanges and networks; (ix) investment and trading activities of large subscribers, including private and registered investment funds, that may directly or indirectly invest in blockchain assets; (x) monetary policies of governments, trade restrictions, and currency devaluations and revaluations; (xi) regulatory measures, if any, that affect the use of blockchain assets; (xii) the maintenance and development of the open-source software protocol of the cryptocurrency networks; (xiii) global or regional political, economic, or financial events and situations; and (xiv) expectations among blockchain participants that the value of blockchain assets will soon change. If our mined cryptocurrencies are converted into dollars when their values are low, we may not recognize the income from the conversion of the mined cryptocurrencies that we were expecting. Further, the extreme swings in value can make it difficult for us to develop reasonable financial plans and projections with respect to EcoChain's business.

 

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EcoChain has an evolving business model that is subject to various uncertainties.

As cryptocurrency assets and blockchain technologies become more widely available, we expect the services and products associated with them to evolve. In order to stay current with the industry, our business model may need to evolve as well. From time to time, we may modify aspects of the EcoChain business relating to its models and strategies. We cannot offer any assurance that these or any other modifications will be successful or will not result in harm to EcoChain's business. We may not be able to manage growth effectively, which could damage EcoChain's reputation, limit its growth, and negatively affect our operating results. Further, we cannot provide any assurance that we will successfully identify all emerging trends and growth opportunities in this business sector, and we may lose out on certain opportunities as a result. Such circumstances could have a material adverse effect on EcoChain's business, prospects, operations, or financial condition.

If EcoChain fails to keep pace with technological innovations it will be unable to continue operating its business.

The pace of development with respect to the computing power of miners has been extraordinary. Within the space of a few years, the small mining operations that were once common in the cryptocurrency mining industry have been replaced almost entirely by larger-scale operations that have the ability to scale and the resources to invest in the much more powerful mining equipment that is necessary to successfully operate in the industry today. We may not be able to compete successfully against present or future competitors, including the various high-profile and well-established operators that the industry has attracted, some of which have substantially greater liquidity and financial resources than we do. If we are not able to scale our operations and do not keep up with technological developments in the industry, we risk our miners becoming so far less powerful than our competitors' that they become obsolete. We do not have the resources to compete with the larger cryptocurrency mining operators at this time. With the limited resources we have available, we may experience great difficulties in expanding and improving our network of miners to remain competitive, and we may not be in a position to construct additional operational cryptocurrency mines. 

Competition from existing and future competitors, particularly the many other North American companies that have access to more competitively-priced energy, could result in our inability to secure acquisitions and partnerships that we may need to expand EcoChain's business in the future. This competition from other entities with greater resources, experience, and reputations may result in our failure to maintain or expand EcoChain's business, as we may never be able to successfully execute our business plan. If we are unable to expand and remain competitive, it could have a negative effect on our business, results of operations, and financial condition, which would have an adverse effect on the trading price of our common stock.

We may be unable to obtain additional funding to scale the EcoChain cryptocurrency business to a larger-scale cryptocurrency mining operations.

We are considering further increasing the processing power of our cryptocurrency mining operations as we seek to leverage our experience and expertise in this area of operations. To do so, however, we will need to raise additional financing, and these attempts may not be successful. Failure to generate adequate cash from our operations or find sources of funding would require us to scale back or curtail our operations or expansion efforts, including limiting our ability to expand the EcoChain cryptocurrency business to a larger-scale cryptocurrency mining operation, and would have an adverse impact on our business and financial condition.

Regulatory changes or actions may alter the nature of an investment in us or restrict the use of cryptocurrencies in a manner that adversely affects EcoChain's business, prospects, or operations.

As cryptocurrencies have grown in both popularity and market size, governments around the world have reacted differently to cryptocurrencies. Some governments have deemed them illegal, and others have allowed their use and trade without restriction, while in some jurisdictions, such as in the U.S., cryptocurrencies are subject to extensive, and in some cases overlapping, unclear, and evolving regulatory requirements. Governments may in the future curtail or outlaw the acquisition, use or redemption of cryptocurrencies. Ownership of, holding or trading in cryptocurrencies may then be considered illegal and subject to sanction. Even if EcoChain's development of an operational cryptocurrency mine is successful, government and quasi-government regulation of cryptocurrencies and their use, restrictions on or regulation of access to and operation of blockchain networks or similar systems, and the availability and popularity of other forms or methods of buying and selling goods and services, including government-backed cryptocurrencies, may result in EcoChain still not achieving profitability in our expected timeframe or at all. Ongoing and future regulatory actions may impact EcoChain's ability to continue to operate, which could affect our ability to continue as a going concern or to pursue our new strategy at all, which could have a material adverse effect on our business, prospects or operations.

Facebook's proposed development of a cryptocurrency, as well as the eventual likely development of government-backed digital currencies and the development of cryptocurrencies by other tech companies, may adversely affect the value of Bitcoin and other existing, or even future, cryptocurrencies.

In May 2019, Facebook announced its plans for a cryptocurrency then called Libra, now Diem, which has faced significant objections and concerns from governments, legislatures, and regulators. The massive social network and a number of other partners are estimating that the Diem digital coin and Facebook's corresponding digital wallet would be a way to make sending payments around the world as easy as it is to send a photo. Facebook's significant resources and ability to engage the world via social media may enable it to bring Diem to market rapidly and to deploy it across industries more rapidly and successfully than previous cryptocurrencies. Facebook's size and market share may cause its cryptocurrency to succeed to the detriment and potential exclusion of existing cryptocurrencies.  Further, in the event that government-backed digital currencies, which regulators in several countries are already considering or even developing, are developed and widely adopted, it is likely to have a negative impact on the existing currencies including larger widespread adoption and potentially impacting the market share by non-government digital currency. Additional cryptocurrencies are introduced to the market frequently, and although some have gained popularity as some features have been different than Bitcoin, Bitcoin remains the market leader.  As cryptocurrency adoption grows the likelihood that additional cryptocurrencies will be introduced increases and will gain popularity against Bitcoin, potentially negatively impacting the value of Bitcoin.

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Our mining operations may experience damages, including damages that are not covered by insurance.

Our current mining operation in East Wenatchee, Washington is, and any future mines we establish will be, subject to a variety of risks relating to physical condition and operation, including:

  • the presence of construction or repair defects or other structural or building damage;
  • any noncompliance with or liabilities under applicable environmental, health, or safety regulations or requirements or building permit requirements; and
  • any damage resulting from natural disasters, such as hurricanes, earthquakes, fires, floods, and windstorms.

For example, our mine could be rendered inoperable, temporarily or permanently, as a result of a fire or other natural disaster or by a terrorist or other attack on the mine. The security and other measures we take to protect against these risks may not be sufficient. Additionally, our mine could be materially adversely affected by a power outage, loss of access to the electrical grid, or loss by the grid of cost-effective sources of electrical power-generating capacity. Given the amount of power required to operate a cryptocurrency mine, it would not be feasible to run miners on back-up power generators in the event of a power outage. Our insurance covers the replacement cost of any lost or damaged miners but does not cover any interruption of our mining activities; our insurance therefore may not be adequate to cover the losses we suffer as a result of any of these events, dependent on the amount of downtime that is experienced.  In the event of an uninsured loss, including a loss in excess of insured limits, at our current or any future mines, such mines may not be adequately repaired in a timely manner or at all and we may lose some or all of the future revenues anticipated to be derived from such mines. At this time the potential impact of such a loss on our business is magnified as we are operating only a single mine.

Reliance on Soluna to operate mining machines may cause delays in production and mining and could have an impact on our business and financial condition.

EcoChain relies on Soluna to operate its cryptocurrency mining machinery. While we hold a 2% equity interest in Soluna and certain principals of the Company have roles in Soluna, we do not control Soluna or have control over their employees and, except for restrictions imposed by our contracts with Soluna, we have limited ability to control the amount or timing of resources that Soluna devotes to our programs. Although we rely on Soluna to operate our mining machinery, we remain responsible for the overall mining operations. Soluna may, over time, have relationships with entities that compete with us. If Soluna does not perform its contractual duties or obligations, we may need to enter into new arrangements with alternative third parties. This could be costly, and mining operations may be delayed or terminated. If our relationship with Soluna terminates, we may not be able to enter into arrangements with alternative third-party contractors or to do so on commercially-reasonable terms. Though we carefully manage our relationship with Soluna, there can be no assurance that we will not encounter challenges or delays resulting from this arrangement or that any such delays or challenges will not have a material adverse impact on our business, financial condition, and prospects.

EcoChain's reliance on a third-party mining pool service provider for our mining revenue payouts may have a negative impact on EcoChain's operations.

As discussed in "Item 1. Busines," EcoChain participates in mining pools whereby our miners' computations and those of other, unrelated miners are combined to place blocks on the blockchain, which generates the applicable cryptocurrency. Should any such mining pool suffer downtime due to a cyber-attack, software malfunction, or other problems, it will negatively impact our ability to mine and receive revenue from our mining activities.

We face risk of 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.  

We may need to make acquisitions or form strategic alliances or partnerships in order to remain competitive in our market, and recent acquisitions, strategic alliances or partnerships could be difficult to integrate, disrupt our business and dilute shareholder value.

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For example, in January 2020, the Company formed EcoChain as its wholly-owned subsidiary to pursue a new business line focused on cryptocurrency and the blockchain ecosystem. In connection with this new venture, we entered into a strategic relationship with Soluna, which has assisted us in developing, and which is now operating, the cryptocurrency mining facility. In the future, we may acquire or form strategic alliances or partnerships with other businesses in order to remain competitive or to acquire new technologies. Acquisitions, alliances, and investments involve numerous risks, including:

  • The potential failure to achieve the expected benefits of the combination or acquisition;
  • Difficulties in and the cost of integrating operations, technologies, services and personnel;
  • Diversion of financial and managerial resources from existing operations;
  • Risk of entering new markets in which we have little or no experience or where competitors may have stronger market positions;
  • Potential write-offs of acquired assets or investments, and potential financial and credit risks associated with acquired customers;
  • Inability to generate sufficient revenue to offset acquisition or investment costs;
  • Potential unknown liabilities associated with the acquired businesses;
  • Unanticipated expenses related to acquired technology and its integration into the existing business; and
  • Negative impact to our results of operations because of the depreciation and amortization of amounts related to acquired intangible assets, fixed assets and deferred compensation, and the loss of acquired deferred revenue and unbilled deferred revenue.

Our failure to successfully manage our strategic relationship with Soluna, or other future acquisitions, strategic alliances or partnerships could seriously harm our operating results. In addition, our shareholders would be diluted if we finance the future acquisitions, strategic alliances or partnerships by incurring convertible debt or issuing equity securities.

Risks Related to our Common Stock

The market price of our common stock is likely be volatile, which may cause investment losses for our shareholders.

The market price of our common stock has been and is likely to continue to be volatile, and investors in our common stock may experience a decrease, which could be substantial, in the value of their common stock or the loss of their entire investment in the Company for a number of reasons, including reasons unrelated to our operating performance or prospects. The market price of our common stock could be subject to wide fluctuations in response to a broad and diverse range of factors, including those described elsewhere in this "Risk Factors" section as well as the following:

  • announcements by us regarding liquidity, significant acquisitions, equity investments and divestitures, addition or loss of significant customers and contracts, capital expenditure commitments, and litigation;
  • our issuance of securities or debt, particularly if in connection with acquisition activities;
  • the sale of a significant number of shares of our common stock by shareholders;
  • recent changes in financial condition or results of operations, such as in earnings, revenues or other measure of company value;
  • general market and economic conditions; and
  • announcements of technological innovations or new product introductions by us or our competitors.

Further, broad market and industry factors may have a material adverse effect on the market price of our common stock regardless of our actual operating performance.

In addition, stock markets have experienced in the past and may in the future experience a high level of price and volume volatility, and the market prices of equity securities of many companies have experienced in the past and may in the future experience wide price fluctuations not necessarily related to the operating performance of such companies. These broad market fluctuations may adversely affect the market price of our common stock.

Finally, our relatively small public float and daily trading volume have in the past caused, and may in the future result in, significant volatility in our stock price. At December 31, 2020, we had approximately 5,549,005 million shares outstanding held by non-affiliates. Our daily trading volume for the year ended December 31, 2020 averaged approximately 13,488 shares.

If we are not able to comply with the applicable continued listing requirements or standards of Nasdaq, Nasdaq could delist our common stock or broker-dealers may be discouraged from effecting transactions in shares of our common stock.

As previously discussed our common stock became listed and commenced trading on Nasdaq on March 23, 2020. In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders' equity, minimum share price, and certain corporate governance requirements. There can be no assurances that we will be able to comply with such applicable listing standards. If we fail to do so, Nasdaq may delist our common stock, which would likely have an adverse impact on the market price and liquidity of our common stock.

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In addition, our shares of common stock have in the past constituted, and may again in the future constitute, "penny stock" within the meaning of Section 3(a)(51) of the Exchange Act and Rule 3a-51-1 thereunder, and so will be subject to the "penny stock" rules adopted under Section 15(g) (now 15(h)) of the Exchange Act. The penny stock rules generally apply to companies whose common stock is not listed on a national securities exchange and trades at less than $5.00 per share, other than companies that have had average revenue of at least $6,000,000 for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stocks to persons other than "established customers" complete certain documentation, make suitability inquiries of investors, and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If our common stock is subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our common stock. If the common stock is subject to the penny stock rules, investors will find it more difficult to dispose of their shares of our common stock.

Raising additional funds through debt or equity financing could be dilutive and may cause the market price of our common stock to decline. We still may need to raise additional funding which may not be available on acceptable terms, or at all. Failure to obtain additional capital may force us to delay, limit, or terminate our product development efforts or other operations.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a shareholder. Furthermore, any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our products and services. In addition, the sale of a significant number of our shares of common stock, either by us or by our shareholders (in particular Brookstone, our largest shareholder) could depress the price of our common stock.

We estimate that our current cash and cash equivalents, along with the net proceeds of our contemplated common stock offering, will be sufficient for us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. We may continue to seek funds through equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. Additional funding may not be available to us on acceptable terms, or at all. Any failure to raise capital as and when needed, as a result of insufficient authorized shares or otherwise, could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies.

Item 1B: Unresolved Staff Comments

Not applicable.

Item 2: Properties

We lease approximately 17,400 square feet of office, manufacturing, and research and development space in Albany, New York, which houses the corporate offices of MTI and MTI Instruments as well as MTI Instruments' business operations. The current lease agreement expires on November 30, 2024.

EcoChain leases approximately 19,000 square feet of space in four buildings in East Wenatchee, Washington. The space is leased for the purpose of operating EcoChain's cryptocurrency mining business. The current lease agreements expire for one building on June 30, 2024, for another on November 30, 2024, and for the remaining two buildings on July 31, 2023.

We believe these facilities are generally well-maintained and adequate for MTI's and MTI Instruments' current needs and for expansion, if required.

On March 4, 2021, EcoChain Wind, LLC acquired a 3.2-acre tract of real property located in the Southeastern United States on which it intends to build an energy-efficient cryptocurrency mining facility. 

Item 3: 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 our regular business activities, compliance with various governmental regulations and requirements, or other transactions or circumstances.

 

24


 

We have been named as a party in the December 19, 2019 United States Environmental Protection Agency ("EPA") Demand Letter regarding the Malta Rocket Fuel Area Superfund Site ("Site") located in Malta and Stillwater, New York, in connection with an alleged release of hazardous materials into the environment. The EPA is seeking reimbursement of response costs from all named parties in the amount of approximately $358 thousand plus interest in connection with the investigation and disposal activities associated with the various drum caches discovered at the Site, issuance of the Explanation of Significant Differences ("ESD") of the Site, and implementation of the work contemplated by the ESD. We consider the likelihood of a material adverse outcome with respect to this matter to be remote and do not currently anticipate that any expense or liability that we may incur as a result of this matter in the future will be material to the Company's business or financial condition. Further, we are not presently involved in any other litigation that we believe is likely, individually or in the aggregate, to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

Item 4: Mine Safety Disclosures

Not applicable.

 

 

 

 

 

 

 

 

 

 

 

25


PART II

 

Item 5: Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is listed on the Nasdaq Capital Market under the trading symbol "MKTY." During the years ended December 31, 2020 and 2019, our common stock was quoted on the OTC Markets Group quotation system on the OTC Pink - Current Information tier under the symbol "MKTY."

Holders

We have one class of common stock, par value $.01, and are authorized to issue 75,000,000 shares of common stock. Each share of the Company's common stock is entitled to one vote on all matters submitted to shareholders.  As of December 31, 2020, there were 9,734,607 shares of common stock issued and outstanding. As of March 26, 2021, there were approximately 270 shareholders of record of the Company's common stock. The number of shareholders of record does not reflect the number of persons whose shares are held in nominee or "street" name accounts through brokers.

Dividends

During 2019, we declared and paid a special dividend of $3.5 million or $0.37 per common share. A portion of dividends were charged against paid in capital because the Company did not have sufficient retained earnings.

Other than the special dividend in 2019, we have never declared or paid dividends on our common stock and do not anticipate or contemplate paying cash dividends on our common stock in the foreseeable future. We currently intend to use all available funds to develop our business. We can give no assurance that we will ever have excess funds available to pay dividends. Any future determination as to the payment of dividends will depend upon critical requirements and limitations imposed by our credit agreements, if any, and such other factors as our Board of Directors may consider.

Recent Sales of Unregistered Securities

On January 12, 2021, the Company issued 10,000 shares of common stock, valued at $49,900, to PCG Advisory, Inc. in consideration for its public relations-related consulting services.  Such shares were issued to PCG Advisory, Inc. pursuant to an exemption from the registration requirements of the Securities Act by virtue of Section 4(a)(2) of the Securities Act because the Company believes: (i) the securities were offered and sold only to an accredited investor; and (ii) PCG Advisory, Inc. had knowledge and experience in financial and business matters which allowed it to evaluate the merits and risk of the receipt of these securities, and that it was knowledgeable about our operations and financial condition.  Further, there was no general solicitation or general advertising related to this issuance of shares. 

Item 6: Selected Financial Data

Not applicable.

 

26


Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the related notes included elsewhere in this Annual Report. This discussion contains forward-looking statements, which involve risk and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors, including those discussed in Item 1A: "Risk Factors" and elsewhere in this Annual Report.

Prior to 2020 we conducted our sole business through our wholly-owned subsidiary MTI Instruments, a supplier of vibration measurement and system balancing solutions, precision linear displacement sensors, instruments and system solutions, and wafer inspection tools. We earn revenue through the sale of these products and the provision of related maintenance and repair services. Revenue from MTI Instruments' business constituted 93.8% of our total revenue during 2020, and we expect that we will continue to earn most of our revenues through this business in the foreseeable future. We continue to work on ways to increase our sales reach, including expanded worldwide sales coverage and enhanced internet marketing, with respect to this business.

During 2020 we formed our EcoChain wholly-owned subsidiary, through which we conduct our second core business, cryptocurrency mining powered by renewable energy. In this regard, the Company also invested in Soluna, a Canadian company that develops vertically-integrated, utility-scale computing facilities focused on cryptocurrency mining and cutting-edge blockchain applications. We earn revenue from this business as the mined cryptocurrencies are converted into U.S. dollars.

Recent Developments and Trends

In response to the COVID-19 global pandemic, the Company has implemented procedures to support flexible working arrangements for its workforce based on business needs. While these measures have been necessary and appropriate, they may result in additional costs and may adversely impact the Company's business and financial performance. As the Company's response to the pandemic evolves, the Company may incur additional costs and will potentially experience adverse impacts to its business, each of which are uncertain at this time.

We expect to use the net proceeds of our anticipated common stock offering primarily for the acquisition, development, and growth of two cryptocurrency mining facilities, which will expand EcoChain's cryptocurrency business, which should have the effect of lowering, though probably not significantly, the percentage of our total revenues derived from MTI Instruments' business. We may also use a portion of the proceeds to acquire other entities or businesses to expand the business operations of both MTI Instruments and EcoChain.

Results of Operations

Results of Operations for the Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019. 

The following table summarizes changes in the various components of our net income during the year ended December 31, 2020 compared to the year ended December 31, 2019.

(Dollars in thousands)

Year Ended

December 31,

2020

     

Year Ended

December 31,

2019

     

 

 

$

Change

 

 

 

%

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenue

$

9,004

 

 

$

6,571

 

 

$

2,433

 

 

   37.0%

Cryptocurrency revenue

595

 

 

-

 

 

$

595

 

 

  100.0% 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

    Cost of product revenue

$

2,669

 

 

$

2,205

 

 

$

464

 

 

   21.0% 

    Cost of cryptocurrency revenue

$

405

 

 

-

 

 

$

405

 

 

  100.0% 

    Research and product development expenses

1,491

 

 

$

1,381

 

 

$

110

 

 

    8.0%

    Selling, general and administrative expenses

3,584

 

 

$

2,726

 

 

$

858

 

 

   31.5%

Operating income

1,450

 

 

$

259

 

 

$

1,191

 

 

    459.8% 

Other income, net

104

 

 

$

36

 

 

$

       68

 

 

  188.9% 

Income before income taxes

1,554

 

 

$

295

 

 

$

1,259

 

 

  426.8% 

Income tax benefit

392

 

 

$

28

 

 

$

364

 

 

    1,300% 

  Net income

$

1,946

 

 

$

323

 

 

$

1,623

 

 

   502.5%

 

27


 

Product Revenue: Product revenue consists of revenue recognized from sales of MTI Instruments' products and the provision of related maintenance and repair services.

Product revenue for the year ended December 31, 2020 increased by $2.4 million from 2019. The primary reason for the increase was a $2.7 million increase in overall shipments to the U.S. Air Force, which offset a $360 thousand decline in instrumentation sales, primarily from a $190 thousand decrease in shipments of our semi-automated wafer metrology tools, as well as a $130 thousand decrease in our laser sales due to our customers' more conservative spending policies during the 2020 period resulting primarily from COVID-19-related challenges. The percentage of our product revenue attributable to the U.S. Air Force, which continues to be our largest government and overall customer, increased to 42.9% for the year ended December 31, 2020 from 20.8% for the year ended December 31, 2019.

As further discussed in "Item 1. Business," we are dependent on a limited number of customers for a significant portion of our sales, including the U.S. Air Force, as described in the preceding paragraph. This can cause significant fluctuations in our product sales and, as a result, revenues, from one fiscal period to the next. We may sell a significant amount of our products to one or a few customers for various short-term projects in one period and then have markedly decreased sales in following periods as these projects end or customers have the products they require for the foreseeable future.

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

 (Dollars in thousands) 

 

 

 

 

 

Revenues for the

Year Ended

 

Contract Revenues

to Date

Date

 

Total Contract

Orders Received

To Date

 

 

 

 

 

December 31,

 

December 31,

 

December 31,

Contract(1) 

 

Expiration

     

2020

     

2019

     

 2020

     

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$9.35 million U.S. Air Force Systems, Accessories
and Maintenance

 

06/30/2021

(2)

 

$

3,878

 

$

1,286

 

$

9,196

 

$

9,738

____________________

(1)

 

Contract values represent maximum potential values at time of contract placement and may not be representative of actual results.

(2)

 

Date represents expiration of contract, including the exercise of option extensions.

We are in discussions with the U.S. Air Force regarding renewing their current contract, which is set to expire on June 30, 2021. The Company does not anticipate any issues with the renewal and expects to enter into a renewed contract with the U.S. Air Force on or prior to the expiration of the current contract. As a result, we do not expect that there will be any material impact on our results of operations, cash flows, liquidity, or financial condition as a result of the pending expiration of our current contract with the U.S. Air Force.

Cryptocurrency Revenue: Cryptocurrency revenue consists of revenue recognized from EcoChain's cryptocurrency mining facility.

Cryptocurrency revenue was $595 thousand, for the year ended December 31, 2020. As discussed in "Item 1, Business," EcoChain's cryptocurrency mining facility did not begin operations until the second quarter of 2020, and therefore there was no cryptocurrency revenue for the year ended December 31, 2019. This revenue represents the cash received upon the daily sale of the various cryptocurrencies mined at EcoChain's mining facility during 2020.   

Cost of Product Revenue; Gross Margin: Cost of product revenue includes the direct material and labor cost as well as an allocation of overhead costs that relate to the manufacturing of products we sell. Cost of product revenue also includes the labor and material costs incurred for product maintenance, replacement parts and service under our contractual obligations.

Cost of product revenue for the year ended December 31, 2020 increased by $464 thousand, or 21.0%, to $2.7 million from $2.2 million for the year ended December 31, 2019. Gross profit, as a percentage of product revenue, increased to 70.4% during 2020 compared to 66.4% for 2019.

The primary reason for the increase in the cost of product revenue during 2020 was the increase in U.S. Air Force shipments, as discussed above in "Product Revenue." The improvement in gross profit during 2020 was primarily attributable to changes in the product mix as the proportion of our most profitable product line made up an increased percentage of overall sales during 2020, and efficiencies gained with an increased amount of sales of new engine vibration balancing systems during 2020 compared to greater sales of repaired systems, accessories, and wafer metrology tools, which have higher labor and material components, during 2019.

28


Cost of Cryptocurrency Revenue: Cost of cryptocurrency revenue includes direct utility costs as well as overhead costs that relate to the operations of EcoChain's cryptocurrency mining facility.

Cost of cryptocurrency revenue was $405 thousand for the year ended December 31, 2020. As noted above, EcoChain's cryptocurrency mining facility did not begin operations until the second quarter of 2020, and therefore there was no cryptocurrency revenue or associated costs for the year ended December 31, 2019.

Research and Product Development Expenses: Research and product development expenses includes the costs of materials to build development and prototype units, cash and non-cash compensation and benefits for the engineering and related staff, expenses for contract engineers, fees paid to outside suppliers for subcontracted components and services, fees paid to consultants for services provided, materials and supplies consumed, facility-related costs such as computer and network services, and other general overhead costs associated with our research and development activities, to the extent not reimbursed by our customers.

Research and product development expenses increased $110 thousand, or 8.0%, during the year ended December 31, 2020 compared to 2019. This increase was primarily due to the addition of one full-time employee to the engineering staff during the first quarter of 2020 in connection with the development of our next-generation engine vibration balancing systems and capacitance products, slightly offset by the movement of a highly-compensated employee from full-time to part-time status during the third quarter. This work is expected to continue at similar spending levels into 2021 as we introduce these next-generation products to the market.

Selling, General and Administrative Expenses: Selling, general and administrative expenses includes cash and non-cash compensation, benefits and related costs in support of our general corporate functions, including general management, finance and accounting, human resources, selling and marketing, information technology, and legal services.

Selling, general and administrative expenses for the year ended December 31, 2020 increased by $858 thousand, or 31.5%, to $3.6 million from $2.7 million in 2019. This increase was a result of both expenses incurred in 2020 for which there was no comparable expense in 2019 as well as from changes in a number of our traditional selling, general and administrative expenses. Expenses for which there was no comparable outlay in 2019 consisted primarily of $195 thousand related to the salary and benefits of the new President of MTI Instruments, who was originally hired as Director of Marketing late in the third quarter of 2019 and promoted to President of MTI Instruments in September 2020, $272 thousand in legal fees associated with the Company's investment in Soluna and its March 2020 and September 2020 Form 10 filings, $281 thousand in spending associated with EcoChain's operations, including management fees paid to Soluna in 2020, and $215 thousand related to the salary, benefits, and recruitment of our new Chief Financial Officer (hired in July 2020) and Compliance Manager (hired in November 2020). In addition, compared to 2019 we experienced increases of $85 thousand in audit fees related to the audit of the Company's financial statements for the year ended December 31, 2019, which was required in connection with our September 2020 Form 10 filing, $52 thousand in other expenses in connection with the Form 10 filing, including fees paid to third parties for completing the electronic filings, $30 thousand in employee bonuses corresponding to the increase in product sales, and $71 thousand in additional insurance expense as a result of adjusting our coverage limits after a review of our current policies conducted last year as well as new insurance policies that we purchased to cover EcoChain. These increases were partially offset by a $188 thousand decrease in spending on travel for customer visits and trade shows due to COVID-19 restrictions in place since March 2020 and a decrease of $140 thousand in salary and benefits due to not replacing a sales employee that left the Company in March 2020. Like most companies, we are evaluating our position with respect to travel and considering how to optimize the use of a virtual environment going forward, but we do expect at least some travel related to in-person meetings with clients and potential clients to resume once it is considered safe to do so. As a result, based on current information about the status of the pandemic and the related vaccination effort, we expect travel-related spending to increase from current levels beginning in the third quarter of 2021, although the actual time that travel will resume, and the amount thereof, will be subject to a number of uncertainties related to the course of the pandemic over the next several months. In addition, due to travel restrictions during 2020 our other primary salesperson was able to cover the work of the open sales position during the past year, and while the other sales position remained open during 2020, we did not actively pursue retaining a replacement. That will no longer be the case, however, once travel is deemed safe as we expect our salespersons to conduct in-person meetings with clients and potential clients as had been the case prior to the onset of the pandemic, although the level of travel may not be as high as it was prior to the pandemic. Once travel restrictions are lifted, we intend to retain a salesperson to replace the one that left, so we expect employee salaries and benefits will be higher in 2021 and for the foreseeable future than they were in 2020. We also expect a 17.0% to 20.0% increase in insurance expense in 2021, primarily related to insurance policies for EcoChain's business.

The Company also expects selling, general and administrative expenses to continue to increase in 2021 and generally going forward as a result of its resumption of filing periodic reports, annual proxy statements, and other filings with the SEC following the effectiveness of its Form 10 registration statement in November.

Operating Income: Operating income increased to $1.5 million for the year ended December 31, 2020 from $259 thousand during the prior year. This $1.2 million improvement was the result of the factors noted above, that is, the increased sales, specifically delivering the majority of the PBS units for the U.S. Air Force and the improvement in the profit margin, partially offset by increased selling, general and administrative expenses.

29


Other Income: Other income for the year ended December 31, 2020 was $104 thousand and was primarily related to income from the sale of EcoChain's excess equipment and interest income on operating cash balances. Other income for the year ended December 31, 2109 was $36 thousand and was primarily related to the disposal of the tensile product line and related royalty payments and interest income on operating cash balances.

Income Tax Benefit: Income tax benefit for the year ended December 31, 2020 was $392 thousand and was primarily related to the increase of the tax asset based on projected future taxable earnings, giving the Company the ability to use prior tax losses. Our effective income tax rate for the year ended December 31, 2020 was (25)%. Income tax benefit for the year ended December 31, 2019 was $28 thousand and was primarily a result of a $33 thousand income tax benefit due to a refund associated with the repeal of the federal alternative minimum tax for C corporations. Our effective income tax rate for the year ended December 31, 2019 was (9)%.  

Net Income: Net income for the year ended December 31, 2020 was $1.9 million compared to net income of $323 thousand in 2019. These improvements were the result of the factors noted above, that is, the increased sales and improvement in the profit margin in each period, partially offset by increases in general and administrative expenses, cost of product revenue, and cost of cryptocurrency revenue.

Liquidity and Capital Resources

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

(Dollars in thousands)

Years Ended December 31,

 

2020

     

2019

Cash

$

2,630

 

 

$

2,510

 

Working capital

 

3,142

 

 

 

3,093

 

Net income

 

1,946

 

 

 

323

 

Net cash provided by operating activities

 

1,622

 

 

 

289

 

Purchase of property, plant and equipment

 

(835

)

 

 

(83

)

Cash dividends on common stock

 

-

 

 

 

(3,541

)

The Company has historically incurred significant losses primarily due to its past efforts to fund direct methanol fuel cell product development and commercialization programs and had a consolidated accumulated deficit of approximately $117.8 million as of December 31, 2020. As of December 31, 2020, the Company had working capital of approximately $3.1 million, no debt, no outstanding commitments for capital expenditures and approximately $2.6 million of cash available to fund its operations.

Based on business developments, including changes in production levels, staffing requirements, and network infrastructure improvements, we may require additional capital equipment in the foreseeable future. With respect to MTI and MTI Instruments, we expect to spend a total of approximately $300 thousand on computer equipment and software and $1.6 million on research and development during 2021. As we have done historically, we expect to finance these expenditures and continue funding their operations from our current cash position and our projected 2021 cash flows pursuant to management's plans. If necessary, we may also seek to supplement our resources by increasing credit facilities to fund operational working capital and capital expenditure requirements. Any additional financing, if required, may not be available to us on acceptable terms or at all.

As discussed elsewhere in this Annual Report on Form 10-K, the Company expects to use the net proceeds of our pending common stock offering to fund EcoChain's acquisition and development of two additional mining facilities. The Company also expects to look for acquisition opportunities that meet certain strategic requirements of the Company, which we expect will be funded by the proceeds of the offering and/or bank financing to the extent available on acceptable terms.

While it cannot be assured, management believes that, due in part to our current working capital level and projected cash requirements for operations and capital expenditures, its current available cash of approximately $2.6 million, and its projected 2021 cash flow pursuant to management's plans, the Company will have adequate resources to fund operations and capital expenditures for the year ending December 31, 2021 and through at least the end of the first quarter of 2022.

If our revenue estimates are off either in timing or amount, or if cash generated from operations is insufficient to satisfy the Company's operational working capital and capital expenditure requirements, however, the Company may need to implement additional steps to ensure liquidity including, but not limited to, the deferral of planned capital spending and/or delaying existing or pending product development initiatives, or the Company may be required to obtain credit facilities or other loans, if available, to fund these initiatives. The Company has no other formal commitments for funding its future needs at this time and any additional financing we may require during the year ending December 31, 2021, may not be available to us on acceptable terms or at all. Such steps, if required, could potentially have a material and adverse effect on our business, results of operations, and financial condition.

30


Debt

On May 7, 2020, in connection with receipt of a $3.3 million U.S. Air Force delivery order, MTI Instruments obtained a $300 thousand secured line of credit from Pioneer Bank. The line of credit may be drawn in the discretion of MTI Instruments and bears interest at a rate of Prime +1% per annum. Accrued interest is due monthly, and principal is payable over a period of 30 days following the lender's demand. The line of credit is secured by the assets of MTI Instruments and is guaranteed by the Company. As of December 31, 2020, there were no amounts outstanding under the line of credit.

We had no additional credit facilities available or debt outstanding at either December 31, 2020 or December 31, 2019.

Backlog, Inventory and Accounts Receivable

At December 31, 2020, the Company's order backlog was $555 thousand, compared to $721 thousand at December 31, 2019. The decrease in backlog was primarily due to a few large orders placed in late 2019 in the capacitance line with deliveries in 2020.  

Our inventory turnover ratios and average accounts receivable days outstanding for the years ended December 31, 2020 and 2019 and their changes are as follows:

 

Years Ended December 31,

 

 

 

2020

     

2019

     

Change

Inventory turnover

3.0

 

2.3

 

 

  1.3

Average accounts receivable days outstanding

33

 

40

 

 

 7

The increase in inventory turns is due to the U.S Air Force contract driving increased inventory balances and a quicker turn to shipment. 

The average accounts receivable days' outstanding decreased seven days during 2020 compared to the prior year due to the increased volume of sales to the U.S. Air Force during 2020 compared to 2019, as the U.S. Air Force generally pays for its purchases within 15 days of delivery, compared to an average of approximately 30 days for non-government customers.  

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies and Significant Judgments and Estimates

The prior discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. Note 2 of the Consolidated Financial Statements included in this Annual Report on Form 10-K includes a summary of our most significant accounting policies. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, 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, income taxes and share-based compensation. We base our estimates on historical experience and on various other factors that we believe are 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, our management reviews our critical accounting estimates with the Audit Committee of our Board of Directors.

The significant accounting policies that we believe are most critical to aid in fully understanding and evaluating our consolidated financial statements include the following:

Revenue Recognition, Accounts Receivable, and Allowance for Doubtful Accounts. Product revenue consists of revenue recognized from MTI Instruments' product lines. Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

If a customer requires that that we provide installation of a purchased product, all revenue related to the product is deferred and recognized upon the completion of the installation. If the terms of our contract with the customer or the customer's purchase order requires specific customer acceptance criteria with respect to a product, such as on-site customer acceptance and/or acceptance after install, then revenue is deferred until customer acceptance occurs or the acceptance provisions lapse, unless we can objectively and reliably demonstrate that the criteria specified in the acceptance provisions is satisfied. We may also record unearned revenues, which include payments for other offerings for which we have been paid in advance. The resulting revenue would be earned when we transfer control of the product or service.

31


MTI Instruments currently has distributor agreements in place for the international sale of general instrument and semiconductor products in certain global regions. Such agreements grant a distributor the right of first refusal to act as distributor for such products in the distributor's territory. In return, the distributor agrees to not market products that are considered by MTI Instruments to be in direct competition with MTI Instruments' products. The distributor is allowed to purchase MTI Instruments' equipment at a price that is discounted off the published domestic/international list prices. Such list prices can be adjusted by MTI Instruments during the term of the distributor agreement. Generally, payment terms with the distributor are standard net 30 days, but, on occasion, we have granted extended payment terms. Title and risk of loss of the product passes to the distributor upon delivery to the independent carrier (standard "free-on-board" factory), and the distributor is responsible for any required training and/or service with the end-user. The sale of products to our distributors (and their subsequent payment to us) is completed upon delivery and is not contingent upon the distributors' resale of the products. Distributor sales are covered by MTI Instruments' standard one-year warranty and there are no special return policies for distributors.

Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. We determine the standalone selling price ("SSP") for each distinct performance obligation. Since we sell products and services separately, the SSP is directly observable.

Trade accounts receivable are stated at the invoiced amount billed to customers and do not bear interest. An allowance for doubtful accounts, if necessary, represents our best estimate of the amount of probable credit losses in our existing accounts receivable. We determine the allowance based on historical write-off experience and current exposures identified. We review our allowance for doubtful accounts monthly. We review past due balances over 90 days and over a specified amount individually for collectability. We review all other balances on a pooled basis by type of receivable. We charge off account balances against the allowance when we believe it is probable the receivable will not be recovered. We do not have any off-balance-sheet credit exposure related to our customers.

Cryptocurrency revenue consists of revenue recognized from EcoChain's cryptocurrency mining facility. Revenue is recognized at the cryptocurrency's realized cash value based upon the rates at cryptocurrency exchanges where we are registered. Cryptocurrencies are earned when the miners solve complex computations and cryptocurrency is issued as a result. The mined cryptocurrency is immediately paid to the Coinbase wallet. Cryptocurrency is converted to U.S. dollars on a daily basis.

Inventory. We value inventories at the lower of cost (first-in, first-out) or net realizable value. We periodically review inventory quantities on hand and record a provision for excess, slow moving, and obsolete inventory based primarily on our estimated forecast of product demand, as well as based on historical usage. We also provide estimated inventory allowances for inventory whose carrying value is in excess of net realizable value. Demand and usage for products and materials can fluctuate significantly. A significant decrease in demand for our products could result in a short-term increase in the cost of inventory purchases and an increase of excess inventory quantities on hand. Although we make every effort to assure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand could have a significant impact on the value of our inventory and our reported operating results. If changes in market conditions result in reductions in the estimated net realizable value of our inventory below our previous estimate, we would increase our reserve in the period in which we made such a determination and record a charge to cost of product revenue.

Share-Based Payments. We grant options to purchase our common stock and award restricted stock to our employees and directors under our equity incentive plans. The benefits provided under these plans are share-based payments and we account for stock-based awards exchanged for employee service in accordance with the appropriate share-based payment accounting guidance. Stock-based compensation represents the cost related to stock-based awards granted to employees and directors. We measure stock-based compensation cost at grant date based on the estimated fair value of the award and recognize the cost as expense on a straight-line basis in accordance with the vesting of the options (net of estimated forfeitures) over the option's requisite service period. We estimate the fair value of stock-based awards on the grant date using a Black-Scholes valuation model. We use the fair value method of accounting with the modified prospective application, which provides for certain changes to the method for valuing share-based compensation. The valuation provisions apply to new awards and to awards that are outstanding on the effective date and subsequently modified.

The determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate, and expected dividends.

32


Theoretical valuation models and market-based methods are evolving and may result in lower or higher fair value estimates for share-based compensation. The timing, readiness, adoption, general acceptance, reliability, and testing of these methods is uncertain. Sophisticated mathematical models may require voluminous historical information, modeling expertise, financial analyses, correlation analyses, integrated software and databases, consulting fees, customization, and testing for adequacy of internal controls.

For purposes of estimating the fair value of stock options granted using the Black-Scholes model, we use the historical volatility of our stock for the expected volatility assumption input to the Black-Scholes model, consistent with the accounting guidance. The risk-free interest rate is based on the risk-free zero-coupon rate for a period consistent with the expected option term at the time of grant. We paid a special dividend during the year ended December 31, 2019 and did not pay any dividends during the year ended December 31, 2020. We are required to assume a dividend yield as an input to the Black-Scholes model. Since the 2019 dividend was a special dividend and we do not anticipate paying any cash dividends in the foreseeable future, we therefore use an expected dividend yield of zero in the option valuation model. The expected option term is calculated based on our historical forfeitures and cancellation rates.

Income Taxes. We are subject to income taxes in the U.S. (federal and state). As part of the process of preparing our consolidated financial statements, we calculate income taxes for each of the jurisdictions in which we operate. This involves estimating actual current taxes due together with assessing temporary differences resulting from differing treatment for tax and accounting purposes that are recorded as deferred tax assets and liabilities, loss carryforwards, and tax credit carryforwards, for which income tax benefits are expected to be realized in future years. Deferred tax assets are reported net of a valuation allowance when it is more likely than not that a tax benefit will not be realized. The effect on deferred taxes of a change in tax rates is recognized in the period that includes the enactment date.

Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against our net deferred tax assets. We considered all available evidence, both positive and negative, such as historical levels of income and future forecasts of taxable income amongst other items in determining our valuation allowance. In addition, our assessment requires us to schedule future taxable income in accordance with accounting standards that address income taxes to assess the appropriateness of a valuation allowance, which further requires the exercise of significant management judgment.

We account for taxes in accordance with the asset and liability method of accounting for income taxes. Under this method, we must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The impact of our reassessment of our tax positions for these standards did not have a material impact on its results of operations, financial condition, or liquidity.

We are also currently subject to audit in various jurisdictions, and these jurisdictions may assess additional income tax liabilities against us. Developments in an audit, litigation, or in applicable laws, regulations, administrative practices, principles, and interpretations could have a material effect on our operating results or cash flows in the period or periods in which such developments occur, as well as for prior and in subsequent periods.

Tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. Our effective tax rates could be affected by numerous factors, such as intercompany transactions, earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates, the applicability of special tax regimes, losses incurred in jurisdictions for which we are not able to realize the related tax benefit, changes in foreign currency exchange rates, entry into new businesses and geographies, changes to our existing businesses and operations, acquisitions and investments and how they are financed, changes in our stock price, changes in our deferred tax assets and liabilities and their valuation, and changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles, and interpretations.

Recent Accounting Pronouncements

A discussion of recently-adopted and new accounting pronouncements is included in Note 2 of the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 8: Financial Statements and Supplementary Data

The Company's Consolidated Financial Statements begin on page F-1 and are incorporated in this Item 8 by reference.

 

33


Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A: Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of MTI's disclosure controls and procedures as of December 31, 2020. 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 evaluation of our disclosure controls and procedures as of December 31, 2020, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
 

(b) Management's Report on Internal Control Over Financial Reporting

Management of our Company is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including the principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth in Internal Control-Integrated Framework (2013 version) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation using the criteria set forth in Internal Control-Integrated Framework, Management has concluded that our internal control over financial reporting was effective as of December 31, 2020. 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Our report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only Management's Report in this annual report.

/s/ Michael Toporek

Chief Executive Officer

(Principal Executive Officer) (Principal Executive Officer)

 

/s/ Jessica L. Thomas

Chief Financial Officer

(Principal Financial Officer)

(c) 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 December 31, 2020 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

 

 

34


Item 9B: Other Information

Submission of Matters to a Vote of Security Holders

The Company held a special meeting of its shareholders on March 25, 2021 (the "Special Meeting").  At the Special Meeting, the Company's shareholders:

1.    Approved the reincorporation of the Company in the State of Nevada pursuant to a merger with and into a wholly-owned subsidiary of the Company;

2.    Approved an amendment to the Company's Articles (Certificate) of Incorporation to effect, in the discretion of the Board of Directors of the Company for the limited purposes provided, a reverse stock split of the Company's common stock at any time prior to the Company's 2022 annual meeting of shareholders at a reverse split ratio in the range of between 1-for-2 and 1-for-10, which specific ratio will be determined by our Board of Directors; and

3.    Approved the adoption of the Company's 2021 Stock Incentive Plan.

At the Special Meeting, the stockholders voted as follows:

Matter

Votes For

Votes Against

Abstentions

Broker
Non-Votes

1. Approval of the reincorporation of the Company in the State of Nevada pursuant to a merger with and into a wholly-owned subsidiary of the Company

6,897,687

104,110

23,836

1,553,671

2. Approval of an amendment to the Company's Articles (Certificate) of Incorporation to effect, in the discretion of the Board of Directors, the above-described reverse stock split

8,096,892

474,262

8,150

-

3. Approval of the adoption of the Company's 2021 Stock Incentive Plan

6,148,808

707,434

169,390

1,553,672

 

Reincorporation of the Company to the State of Nevada

 

As provided above, at the Special Meeting held on March 25, 2021, the Company's shareholders approved the reincorporation of the Company from the State of New York to the State of Nevada.  Effective March 29, 2021, the Company filed a Certificate of Merger with the New York Department of State and Articles of Merger with the Secretary of State of Nevada in connection with the merger (the "Reincorporation Merger") of Mechanical Technology, Incorporated, a New York corporation ("MKTY-NY") with and into Mechanical Technology, Incorporated, a corporation formed in the State of Nevada on March 24, 2021, and a wholly-owned subsidiary of MKTY-NY ("MKTY-NV").  As a result of the Reincorporation Merger, the Company was re-domiciled from the State of New York to the State of Nevada.  MKTY-NV was the surviving corporation of the Reincorporation Merger and is governed by the laws of the State of Nevada.

 

The terms of the Reincorporation Merger are set forth in an Agreement and Plan of Merger which was executed and entered into by MKTY-NY and MKTY-NV on March 26, 2021 (the "Merger Agreement").  Pursuant to the terms of the Merger Agreement the Reincorporation Merger was conducted as a tax-free reorganization pursuant to the provisions of Section 368 of the Internal Revenue Code.  Each share of common stock, par value $0.01 per share of MKTY-NY (the "MKTY-NY Common Stock") which was outstanding at the effective time of the Reincorporation Merger was converted into one share of the common stock, par value $0.001 per share of MKTY-NV (the "MKTY-NY Common Stock") with no further action required on the part of the Company's shareholders.  In addition, each outstanding option to purchase shares of MKTY-NY Common Stock became an option to purchase the same number of shares of MKTY-NV Common Stock, with no change in the exercise price or other terms or provisions of the option.

 

Also, at the effective time of the Reincorporation Merger, the Articles of Incorporation and Bylaws of MKTY-NV became the Articles of Incorporation and Bylaws of the Company.  In addition, all of the directors and officers of MKTY-NY, at the effective time of the Reincorporation Merger, became all of the officers and directors of MKTY-NV and continue to be the officers and directors of the Company.

 

The foregoing description of the Agreement and Plan of Merger, Articles of Incorporation, Bylaws, Articles of Merger and Certificate of Merger, are qualified in their entirety by reference to the full text of such Agreement and Plan of Merger, Articles of Incorporation, Bylaws, Articles of Merger and Certificate of Merger, the forms of which are attached as Exhibits 2.1, 3.1, 3.2, 3.3 and 3.4, respectively, to this Annual Report on Form 10-K, and which are incorporated herein in their entirety by reference.

 

 

35


PART III

 

Item 10: Directors, Executive Officers and Corporate Governance

Code of Conduct and Ethics: We have adopted a Code of Conduct and Ethics for employees, officers and directors. A copy of the Code of Conduct and Ethics is available on our website at https://www.mechtech.com under Investors, Governance Documents.

The remaining information required by this Item 10 is incorporated herein by reference to the information appearing under the captions "Information about our Directors," "Executive Officers," "Board of Director Meetings and Committees - Audit Committee" and "Section 16(a) Beneficial Ownership Reporting Compliance" in our definitive Proxy Statement for our 2021 Annual Meeting of Shareholders to be filed with the SEC on or before April 30, 2021.

Item 11: Executive Compensation

The information required by this Item 11 is incorporated herein by reference to the information appearing under the caption "Executive Compensation" in the Company's definitive Proxy Statement for our 2021 Annual Meeting of Shareholders to be filed with the SEC on or before April 30, 2021.

Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Equity Compensation Plans

As of December 31, 2020, we have three equity compensation plans, each of which was originally approved by our shareholders; the Mechanical Technology Incorporated 2006 Equity Incentive Plan (the "2006 Plan"), the Mechanical Technology Incorporated 2012 Equity Incentive Plan and the Mechanical Technology Incorporated 2014 Equity Incentive Plan (collectively, the "Plans"). The 2006 Plan was amended and restated and approved by our Board of Directors in 2011 and 2009. See Note 11 of our Consolidated Financial Statements in this Annual Report on Form 10-K for a description of the Plans.

The following table presents information regarding these plans as of December 31, 2020:

 

 

 

     

 

 

     

Number of Securities Remaining 

 

 

 

 

 

 

Available for Future Issuance 

 

Number of Securities To Be 

 

 

 

 

Under 

 

Issued Upon Exercise of 

 

  Weighted Average Exercise 

 

Equity Compensation Plans 

 

Outstanding 

 

  Price of Outstanding 

 

(excluding securities reflected in 

 

Options, Warrants, Rights(1) 

 

  Options, Warrants, Rights 

 

column (a))

                   Plan Category 

(a) 

 

  (b) 

 

(c) 

Equity compensation plans 

 

 

 

 

 

 

approved by security holders 

398,750

 

$

0.87

 

11,125

 ___________________

(1)

      

The securities available under the Plans for issuance and issuable pursuant to exercises of outstanding options may be adjusted in the event of a change in outstanding stock by reason of stock dividend, stock splits, reverse stock splits, etc.

The remaining information required by this Item 12 is incorporated herein by reference to information appearing under the caption "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" in our definitive Proxy Statement for our 2021 Annual Meeting of Shareholders to be filed with the SEC on or before April 30, 2021.

Item 13: Certain Relationships and Related Transactions, and Director Independence

The information required by this Item 13 is incorporated herein by reference to the information appearing under the captions "Certain Relationships and Related Transactions" and "Information about our Directors" in our definitive Proxy Statement for the 2021 Annual Meeting of Shareholders to be filed with the SEC on or before April 30, 2021.

Item 14: Principal Accounting Fees and Services

The information required by this Item 14 is incorporated herein by reference to the information appearing under the caption "Independent Registered Public Accounting Firm" in our definitive Proxy Statement for the 2021 Annual Meeting of Shareholders to be filed with the SEC on or before April 30, 2021.

36


PART IV

Item 15: Exhibits, Financial Statement Schedules

15(a) (1) Financial Statements: 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.

15(a) (2) Financial Statement Schedules: Financial statement schedules not listed have been omitted because they are either not required, not applicable, or the information has been included elsewhere in the consolidated financial statements or notes thereto.

15(a) (3)

Exhibits: The exhibits listed in the Exhibit Index below are filed as part of this Annual Report on Form 10-K.

Exhibit
Number     

 Description

2.1

Agreement and Plan of Merger.

   

3.1

Articles of Incorporation of the registrant.

   

3.2

Bylaws of the registrant.

   

3.3

Articles of Merger filed with the Secretary of State of Nevada.

   

3.4

Certificate of Merger filed with the Department of State of New York.

 

 

4.1

Rights Agreement, dated as of October 6, 2016, between Mechanical Technology, Incorporated and American Stock Transfer & Trust Company, LLC, as Rights Agent (incorporated by reference from Exhibit 4.1 of the Company's Form 8-K Report filed October 6, 2016).

 

 

4.2

Amendment No. 1 dated as of October 20, 2016, to the Rights Agreement, dated as of October 6, 2016, between Mechanical Technology, Incorporated and American Stock Transfer & Trust Company, LLC, as Rights Agent (incorporated by reference from Exhibit 4.2 of the Company's Form 8-K Report filed October 21, 2016).

 

 

10.1

Mechanical Technology, Incorporated Amended and Restated 2006 Equity Incentive Plan (incorporated by reference from Exhibit 10.1 of the Company's Form 10-K Report for the year ended December 31, 2016).+

 

 

10.2

Form of Restricted Stock Agreement for Mechanical Technology, Incorporated Amended and Restated 2006 Equity Incentive Plan (incorporated by reference from Exhibit 10.2 of the Company's Form 8-K Report filed July 11, 2011).+

 

 

10.3

Mechanical Technology, Incorporated Amended and Restated 2012 Equity Incentive Plan (incorporated by reference from Exhibit 10.3 of the Company's Form 10-K Report for the year ended December 31, 2016).+

 

 

10.4

Form of Restricted Stock Agreement Notice for Board of Directors and Employees for Mechanical Technology, Incorporated 2012 Equity Incentive Plan (incorporated by reference from Exhibit 10.2 of the Company's Form 10-Q Report for the quarter ended June 30, 2012).+

 

 

10.5

Form of Incentive Stock Option Notice for Employees for Mechanical Technology, Incorporated 2012 Equity Incentive Plan (incorporated by reference from Exhibit 10.3 of the Company's Form 10-Q Report for the quarter ended June 30, 2012).+

 

 

10.6

Form of Non-Qualified Stock Option Notice for Employees for Mechanical Technology, Incorporated 2012 Equity Incentive Plan (incorporated by reference from Exhibit 10.4 of the Company's Form 10-Q Report for the quarter ended June 30, 2012).+ 

 

 

10.7

Form of Non-Qualified Stock Option Notice for Board of Directors for Mechanical Technology, Incorporated 2012 Equity Incentive Plan (incorporated by reference from Exhibit 10.5 of the Company's Form 10-Q Report for the quarter ended June 30, 2012).+

 

 

10.8

Form of Restricted Stock Award Agreement under the Mechanical Technology, Incorporated Amended and Restated 2012 Equity Incentive Plan (incorporated by reference from Exhibit 10.8 of the Company's Registration Statement on Form 10 filed March 4, 2020).+

 

 

10.9

Mechanical Technology, Incorporated 2014 Equity Incentive Plan (incorporated by reference to Exhibit A to the Registrant's Proxy Statement on Schedule 14A filed with the Commission on April 25, 2014).+

 

 

10.10

Form of Restricted Stock Grant Agreement under the Mechanical Technology, Incorporated 2014 Equity Incentive Plan (incorporated by reference from Exhibit 10.10 of the Company's Registration Statement on Form 10 filed March 4, 2020).+

 

 

10.11

Form of Nonstatutory Stock Option Grant Agreement under the Mechanical Technology, Incorporated 2014 Equity Incentive Plan (incorporated by reference from Exhibit 4.3 of the Company's Registration Statement on Form S-8 (File No. 333-196989) filed with the Commission on June 24, 2014).+

 

 

10.12

Form of Incentive Stock Option Grant Agreement under the Mechanical Technology, Incorporated 2014 Equity Incentive Plan (incorporated by reference from Exhibit 4.4 of the Company's Registration Statement on Form S-8 (File No. 333-196989) filed with the Commission on June 24, 2014).+

 

37


 

10.13

Lease dated August 10, 1999 between Carl E. Touhey and Mechanical Technology, Inc. (incorporated by reference from Exhibit 10.38 of the Company's Form 10-K Report for the fiscal year ended September 30, 1999).

 

 

10.14

Amendment No. 1 to Lease Agreement Between Mechanical Technology Inc. and Carl E. Touhey dated September 29, 2009 (incorporated by reference from Exhibit 10.166 of the Company's Form 10-K Report for the year ended December 31, 2009).

 

 

10.15

Amendment No. 2 to Lease Agreement Between MTI Instruments Inc. and Carl E. Touhey dated May 2, 2014 (incorporated by reference from Exhibit 10.1 of the Company's Form 10-Q Report for the quarter ended March 31, 2014).

 

 

10.16

Amendment No. 3 to Lease Agreement Between MTI Instruments Inc. and CETF Properties, LLC dated January 1, 2018 (incorporated by reference from Exhibit 10.16 of the Company's Registration Statement on Form 10 filed September 30, 2020).

 

 

10.17

Amendment No. 4 to Lease Agreement Between MTI Instruments Inc. and CETF Properties, LLC dated December 4, 2019 (incorporated by reference from Exhibit 10.17 of the Company's Registration Statement on Form 10 filed September 30, 2020).

 

 

10.18#

Contract dated July 1, 2016 between Mechanical Technology, Incorporated and the U.S. Air Force (incorporated by reference from Exhibit 10.1 of the Company's Form 10-Q Report for the quarter ended June 30, 2016).

 

 

10.19

Securities Purchase Agreement dated as of October 21, 2016, by and between Mechanical Technology, Incorporated and Brookstone Partners Acquisition XXIV, LLC (incorporated by reference from Exhibit 10.22 of the Company's Form 8-K Report filed October 21, 2016).

 

 

10.20

Registration Rights Agreement dated as of October 21, 2016, by and between Mechanical Technology, Incorporated and Brookstone Partners Acquisition XXIV, LLC (incorporated by reference from Exhibit 10.23 of the Company's Form 8-K Report filed October 21, 2016).

 

 

10.21

Form of Option Exercise and Stock Transfer Restriction Agreement between the Company and its Chief Executive Officer, Chief Financial Officer and Non-Employee Directors (incorporated by reference from Exhibit 10.24 of the Company's Form 8-K Report filed October 21, 2016).

 

 

10.22

Operating and Management Agreement between Soluna Technologies, Ltd. and EcoChain, Inc. dated January 13, 2020 (incorporated by reference from Exhibit 10.20 of the Company's Registration Statement on Form 10 filed March 4, 2020).

 

 

10.23

Class A Preferred Share Purchase Agreement dated January 13, 2020, among Soluna Technologies, Ltd., Mechanical Technology, Incorporated, and the other investors set forth on Exhibit A thereto (incorporated by reference from Exhibit 10.21 of the Company's Registration Statement on Form 10 filed March 4, 2020).

 

 

10.24

Contingent Rights Agreement dated January 13, 2020, by and between Soluna Technologies, Ltd. and Mechanical Technology, Incorporated (incorporated by reference from Exhibit 10.22 of the Company's Registration Statement on Form 10 filed March 4, 2020).

 

 

10.25

Side Letter Agreement dated January 13, 2020, by and between Soluna Technologies, Ltd. and Mechanical Technology, Incorporated (incorporated by reference from Exhibit 10.23 of the Company's Registration Statement on Form 10 filed March 4, 2020).

 

 

10.26

Commercial Line of Credit Agreement and Note dated May 7, 2020, by and between MTI Instruments Inc. and Pioneer Bank (incorporated by reference from Exhibit 10.27 of the Company's Registration Statement on Form 10 filed September 30, 2020).

 

 

10.27

Business Loan Agreement dated May 7, 2020, by and between MTI Instruments Inc. and Pioneer Bank (incorporated by reference from Exhibit 10.28 of the Company's Registration Statement on Form 10 filed September 30, 2020).

 

 

10.28

Commercial Loan Settlement Statement dated May 7, 2020, by and between MTI Instruments Inc. and Pioneer Bank (incorporated by reference from Exhibit 10.29 of the Company's Registration Statement on Form 10 filed September 30, 2020).

 

 

10.29

Commercial Security Agreement dated May 7, 2020, by and between MTI Instruments Inc. and Pioneer Bank (incorporated by reference from Exhibit 10.30 of the Company's Registration Statement on Form 10 filed September 30, 2020).

 

 

10.30

Unlimited Continuing Guaranty dated May 7, 2020, by and between MTI Instruments Inc. and Pioneer Bank (incorporated by reference from Exhibit 10.31 of the Company's Registration Statement on Form 10 filed September 30, 2020).

 

 

10.31

Sale Order dated May 18, 2020, by and between GigaWatt, Inc. and the United States Bankruptcy Court Eastern District of Washington (incorporated by reference from Exhibit 10.32 of the Company's Registration Statement on Form 10 filed September 30, 2020).

 

 

10.32

Bill of Sale dated May 20, 2020, by and between Mark D. Waldron, as Chapter 11 Trustee and EcoChain, Inc (incorporated by reference from Exhibit 10.33 of the Company's Registration Statement on Form 10 filed September 30, 2020).

 

 

10.33

Assignment and Assumption Agreement (Tangible Property) dated May 20, 2020, by and between Mark D. Waldron, as Chapter 11 Trustee and EcoChain, Inc (incorporated by reference from Exhibit 10.34 of the Company's Registration Statement on Form 10 filed September 30, 2020).

 

 

10.34

Intellectual Property Assignment Agreement dated May 20, 2020, by and between Mark D. Waldron, as Chapter 11 Trustee and EcoChain, Inc (incorporated by reference from Exhibit 10.35 of the Company's Registration Statement on Form 10 filed September 30, 2020).

 

 

10.35

Agreement for Transfer of Responsibility for Telecommunication Services dated May 19, 2020, by and between Mark D. Waldron, as Chapter 11 Trustee and EcoChain, Inc (incorporated by reference from Exhibit 10.36 of the Company's Registration Statement on Form 10 filed September 30, 2020).

 

 

10.36

Assignment of Lease Agreements dated February 4, 2020, by and between, on the one hand, David M. Carlson, Dorrinda M. Carlson, Enterprise Focus, Inc. and, on the other hand, Mark D. Waldron, in his capacity as the Chapter 11 Trustee (incorporated by reference from Exhibit 10.37 of the Company's Registration Statement on Form 10 filed September 30, 2020).

 

38


 

10.37

Commercial Lease dated August 1, 2018, by and between TNT Business Complexes, LLC and Enterprise Focus, Inc. and Dave Carlson (incorporated by reference from Exhibit 10.38 of the Company's Registration Statement on Form 10 filed September 30, 2020).

 

 

10.38

Commercial Lease dated November 14, 2014, by and between TNT Business Complexes, LLC and Dave Carlson /Enterprise Focus, Inc. (incorporated by reference from Exhibit 10.39 of the Company's Registration Statement on Form 10 filed September 30, 2020).

 

 

10.39

21, 2019 Certified Letter Regarding Option to Extend Commercial Lease dated November 14, 2014, by and between TNT Business Complexes, LLC and Dave Carlson /Enterprise Focus, Inc (incorporated by reference from Exhibit 10.40 of the Company's Registration Statement on Form 10 filed September 30, 2020).

 

 

10.40

Amendment of Commercial Lease Agreement dated January 28, 2020, by and between Mark Waldron, as Chapter 11 Trustee and TNT Business Complexes, LLC (incorporated by reference from Exhibit 10.41 of the Company's Registration Statement on Form 10 filed September 30, 2020).

 

 

10.41

Mechanical Technology, Incorporated 2021 Stock Incentive Plan+

 

  

10.42

Form of Stock Option Agreement under the Mechanical Technology, Incorporated 2021 Stock Incentive Plan+

 

  

10.43

Form of Restricted Stock Agreement under the Mechanical Technology, Incorporated 2021 Stock Incentive Plan+

 

  

10.44

Form of Restricted Stock Unit Agreement under the Mechanical Technology, Incorporated 2021 Stock Incentive Plan+<

 

  

21

Subsidiaries of the Registrant

 

 

31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

31.2

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

32.1

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

32.2

Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

101.INS

XBRL Instance Document

 

 

101.SCH

XBRL Taxonomy Extension Schema Document

 

 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

101.DEF

XBRL Taxonomy Definition Linkbase Document

 

 

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

 

 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

# Certain portions of this exhibit have been omitted based upon a request for confidential treatment. The omitted portions have been filed with the Securities and Exchange Commission pursuant to our application for confidential treatment. The items are identified in the exhibit with "**".

+              Represents management contract or compensation plan or arrangement.

Item 16: Form 10-K Summary

None.

39


 

Signatures

 

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.

 

 

MECHANICAL TECHNOLOGY, INCORPORATED 

 

 

 

 

Date:  March 30, 2021

By:

/s/ Michael Toporek

 

 

Michael Toporek

 

 

Chief Executive Officer

     
Date:  March 30, 2021 By: /s/ Jessica L. Thomas
    Jessica L. Thomas
    Chief Financial 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.

Signature 

Title 

Date 

/s/ Michael Toporek

Chief Executive Officer, Director

 

Michael Toporek

(Principal Executive Officer)

 March 30, 2021

 

 

 

/s/ Jessica L. Thomas

Chief Financial Officer

 

Jessica L. Thomas

(Principal Financial and Accounting Officer)

 March 30, 2021

 

 

 

/s/ David C. Michaels 

Chairman

 

David C. Michaels

 

 March 30, 2021

 

 

 

/s/ Edward R. Hirshfield

Director 

 

Edward R. Hirshfield

 

 March 30, 2021

 

 

 

/s/ Matthew E. Lipman

Director 

 

Matthew E. Lipman

 

 March 30, 2021

 

 

 

/s/ Thomas J. Marusak 

Director 

 

Thomas J. Marusak 

 

 March 30, 2021

 

 

 

/s/ William P. Phelan 

Director 

 

William P. Phelan 

 

 March 30, 2021

 

 

 

/s/ William Hazelip 

Director 

 

William Hazelip 

 

 March 30, 2021

 

 

 

/s/ Alykhan Madhavji 

Director 

 

Alykhan Madhavji 

 

 March 30, 2021

 

 

 

 

 

40


 

MECHANICAL TECHNOLOGY, INCORPORATED AND SUBSIDIARIES

 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Page 

Report of Independent Registered Public Accounting Firm 

F-2 to F-3

 

 

Consolidated Financial Statements: 

 

 

 

     Balance Sheets as of December 31, 2020 and 2019

F-4

 

 

     Statements of Operations for the Years Ended December 31, 2020 and 2019

F-5

 

 

    Statements of Changes in Equity for the Years Ended December 31, 2020 and 2019

F-6

 

 

    Statements of Cash Flows for the Years Ended December 31, 2020 and 2019

F-7

 

 

Notes to Consolidated Financial Statements 

F-8 to F-26

 

 

 

F-1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and
Stockholders of Mechanical Technology, Incorporated and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Mechanical Technology, Incorporated and Subsidiaries (the Company) as of December, 2020 and 2019, and the related consolidated statements of operations, changes in equity, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Realizability of the deferred tax assets

As described in Note 6 to the financial statements, the Company's deferred tax asset balance was $759 thousand net of valuation allowances as of December 31, 2020. The ultimate realization of deferred tax assets depends upon generating sufficient future taxable income during the periods in which the temporary differences become deductible or before net operating loss and tax credit carryforwards expire. The Company records a valuation allowance to reduce deferred tax assets to an amount that is "more likely than not" to be realized. Evaluating the need for and quantifying the valuation allowance often requires significant judgment and extensive analysis of all the weighted positive and negative evidence available to the Company in order to determine whether all or some portion of the deferred tax assets will not be realized. In performing this analysis, the Company's forecasted income, and the existence of potential prudent and feasible tax planning strategies that would enable the Company to utilize some or all of its deferred tax assets, are taken into consideration.

The principal considerations for our determination that performing procedures relating to the realizability of the deferred tax assets is a critical audit matter is due to the significant judgment used by management when evaluating the estimates and assumptions used in the projection of future taxable income. This led to a high degree of auditor judgment and subjectivity in performing procedures on management's assessment of the tax planning strategies to enable utilization of deferred tax assets. The evaluation of audit evidence available to support the realizability of tax loss and tax credit carryforwards was complex and subjective, and therefore required significant auditor judgment.

 

F-2


 

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included, among others, (i) evaluating the reasonableness of management's assessment of tax planning strategies and the amount that is "more likely than not" to be realized, (ii) testing the completeness and accuracy of tax loss and tax credit carryforwards, (iii) evaluating the appropriateness of the realizability of net operating loss and credit carryforwards relevant to the deferred tax assets recognized, and (iv) evaluating the completeness, accuracy and sufficiency of disclosures.

 

/s/ Wojeski & Company, CPAs, P.C.

We have served as the Company's auditor since 2018. 

Albany, New York
March 30, 2021

 

 

 

 

 

 

 

 

 

F-3


Mechanical Technology, Incorporated and Subsidiaries
Consolidated Balance Sheets
As of December 31, 2020 and December 31, 2019

 

(Dollars in thousands, except per share)

December 31,

   

December 31,

2020

2019

Assets

Current Assets:

 

 

 

 

   Cash

$

2,630

$

2,510

   Accounts receivable - less allowances of $0 in 2020 and 2019

975

745

   Inventories

828

924

   Prepaid expenses and other current assets

346

56

  Total Current Assets

4,779

4,235

Other assets

309

-

Deferred income taxes, net

759

395

Equity investment

750

-

Property, plant and equipment, net

847

174

Operating lease right-of-use assets

1,203

947

  Total Assets

$

8,647

$

5,751

 

 

 

 

 

Liabilities and Stockholders' Equity

Current Liabilities:

 

 

 

 

   Accounts payable

$

300

$

210

   Accrued liabilities

1,019

761

   Operating lease liability

316

171

   Income taxes payable

2

-

      Total Current Liabilities

1,637

1,142

Other liabilities

203

-

Operating lease liability

891

776

      Total Liabilities

2,731

1,918

 

Commitments and Contingencies (Note 12)

Stockholders' Equity:

 

 

 

 

 Common stock, par value $0.01 per share, authorized 75,000,000; 10,750,100 issued in 2020
and 10,586,170 issued in 2019

108

106

 Additional paid-in capital

137,365

137,230

 Accumulated deficit

(117,793

)

(119,739

 Common stock in treasury, at cost, 1,015,493 shares in both 2020 and 2019

(13,764

)

(13,764

   Total Stockholders' Equity

5,916

3,833

   Total Liabilities and Stockholders' Equity

$

8,647

$

5,751

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

F-4


 

Mechanical Technology, Incorporated and Subsidiaries
Consolidated Statements of Operations
For the Years Ended December 31, 2020 and 2019

(Dollars in thousands, except per share)

Years Ended

December 31,

 

2020

   

2019

 

Product revenue

$

9,004

$

6,571

Cryptocurrency revenue

595

-

     Total revenue

9,599

6,571

Operating costs and expenses:

    Cost of product revenue

2,669

2,205

     Cost of cryptocurrency revenue

405

-

     Research and product development expenses

1,491

1,381

     Selling, general and administrative expenses

3,584

2,726

Operating income

1,450

259

Other income, net

104

36

Income before income taxes

1,554

295

Income tax benefit 

392

28

     Net income

$

1,946

$

323

Net income per share (Basic)

$

.20

$

.03

Net income per share (Diluted)

$

.20

$

.03

Weighted average shares outstanding (Basic)

9,581,886

9,548,460

Weighted average shares outstanding (Diluted)

9,634,503

9,602,548

 

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

F-5


Mechanical Technology, Incorporated and Subsidiaries
Consolidated Statements of Changes in Equity
For the Years Ended December 31, 2020 and 2019

 

(Dollars in thousands, except per share)

 

Common Stock

 

 

 

Treasury Stock

 

 

 

 

Shares

 

 

 

Amount

 

Additional
Paid-in
Capital

 

 

Accumulated

Deficit

 

 

 

Shares

 

 

 

Amount

Total  
Stockholders'
Equity

 

January 1, 2019

10,452,670

$

105

$

139,067

$

(118,462

)

1,015,493

$

(13,764

)

$

6,946

 

Net income

-

-

-

323

-

-

323

 

Stock based compensation

-

-

31

-

-

-

31

 

Issuance of shares - option exercises

133,500

1

73

-

-

-

74

 

Cash dividends

-

-

(1,941

)

(1,600

)

-

-

(3,541

)

 

December 31, 2019

10,586,170

$

106

$

137,230

$

(119,739

)

1,015,493

$

(13,764

)

$

3,833

 

Net income

-

-

-

1,946

-

-

1,946

 

Stock based compensation

-

-

54

-

-

-

54

 

Issuance of shares - option exercises

83,000

1

82

-

-

-

83

 

Issuance of shares - restricted stock

80,930

1

(1

)

-

-

-

-

 

December 31, 2020

10,750,100

$

108

$

137,365

$

(117,793

)

1,015,493

$

(13,764

)

$

5,916

 

 

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

 

F-6


Mechanical Technology, Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2020 and 2019

(Dollars in thousands)

Year Ended December 31,

 

2020

2019

Operating Activities

 

 

 

 

Net income

$

1,946

$

323

Adjustments to reconcile net income to net cash provided by operating activities:

   Depreciation

159

87

   Provision for bad debts

-

1

   Deferred income taxes

(364

)

-

   Stock based compensation

54

31

   Provision (recovery) for excess and obsolete inventories

(3

)

33

   Loss on disposal of equipment

3

3

             

Changes in operating assets and liabilities:

   Accounts receivable

(230

)

125

   Inventories

99

(94

)

   Prepaid expenses and other current assets

(290

)

1

   Other long-term assets

(309

)

-

   Accounts payable

90

9

   Operating lease, net

4

-

   Income taxes and uncertain tax positions

2

-

   Other long-term liabilities

203

-

   Accrued liabilities

258

(230

)

Net cash provided by operating activities

1,622

289

             

Investing Activities

 

 

 

 

   Purchases of equipment

(835

)

(83

)

   Purchase of stock in equity investment

(750

)

-

Net cash used in investing activities

(1,585

)

(83

)

             

Financing Activities

   Cash dividends on common stock

-

(3,541

)

   Proceeds from stock option exercises

83

74

Net cash provided by (used in) financing activities

83

(3,467

)

             

Increase (decrease) in cash

120

(3,261

)

Cash - beginning of period

2,510

5,771

Cash - end of period

$

2,630

$

2,510

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

 

F-7


Notes to Consolidated Financial Statements

1.                   Nature of Operations

Description of Business

Mechanical Technology, Incorporated (MTI or the Company), a New York corporation until redomestication in the State of Nevada on March 29, 2021, was incorporated in 1961 and is headquartered in Albany, New York. The Company's core business is conducted through MTI Instruments, Inc. (MTI Instruments), a wholly-owned subsidiary, which designs, manufactures and markets its products also at the Albany, New York location. The Company has also recently formed EcoChain, Inc. (EcoChain), a wholly-owned subsidiary, to conduct a new line of business associated with cryptocurrency mining operations, and also purchased Class A Preferred Shares of Soluna Technologies, Ltd. (Soluna), a Canadian company that develops vertically-integrated, utility-scale computing facilities focused on cryptocurrency mining and cutting-edge blockchain applications.   

MTI Instruments was incorporated in New York on March 8, 2000 and is a supplier of vibration measurement and balancing systems, precision linear displacement solutions, and wafer inspection tools. Our products consist of engine vibration analysis systems for both military and commercial aircraft and electronic gauging instruments for position, displacement and vibration application within the industrial manufacturing markets, as well as in the research, design and process development markets. These systems, tools and solutions are developed for markets and applications that require consistent operation of complex machinery and the precise measurements and control of products, processes, the development and implementation of automated manufacturing and assembly.

EcoChain was incorporated in Delaware on January 8, 2020. EcoChain has established a new business line focused on cryptocurrency and the blockchain ecosystem. In connection with the creation of the new business line, EcoChain has established a cryptocurrency mining facility that integrates with the bitcoin blockchain network. On May 21, 2020, EcoChain closed its acquisition of the intellectual property of Giga Watt, Inc. (GigaWatt) and certain other property and rights of GigaWatt associated with GigaWatt's operation of a crypto-mining operation located in Washington State. EcoChain purchased these assets from Giga Watt's Chapter 11 Trustee in its bankruptcy case in the United States Bankruptcy Court Eastern District of Washington.  Company management did not consider the assets EcoChain purchased from Giga Watt to constitute a "business" as substantially all the fair value of the gross assets acquired is concentrated in a group of similar identifiable assets.  Therefore, management did not consider the acquisition of such assets to be a "business combination" as defined under ASC 805. The total purchase price of the assets acquired in the GigaWatt transaction was $200 thousand, of which $20 thousand was charged back as per the colocation agreement with Navier, Inc. and the remaining cost of $180 thousand was recorded as a leasehold improvement. The acquired assets formed the cornerstone of EcoChain's cryptocurrency mining operation in Washington.

Liquidity

The Company has historically incurred significant losses primarily due to its past efforts to fund direct methanol fuel cell product development and commercialization programs and had a consolidated accumulated deficit of approximately $117.8 million as of December 31, 2020. As of December 31, 2020, the Company had working capital of approximately $3.1 million, no debt, no outstanding commitments for capital expenditures, and approximately $2.6 million of cash available to fund our operations.

Based on the Company's projected cash requirements for operations and capital expenditures, its current available cash of approximately $2.6 million and its projected 2021 cash flow pursuant to management's plans, management believes it will have adequate resources to fund operations and capital expenditures for the year ending December 31, 2021 and through the end of the first quarter of 2022. If cash generated from operations is insufficient to satisfy the Company's operational working capital and capital expenditure requirements, the Company may utilize the $300 thousand line of credit at MTI Instruments to fund these initiatives. The Company is considering other funding sources, including debt and equity. However, the Company has no other formal commitments for funding its future needs at this time and any additional financing we may require during the year ending December 31, 2021, may not be available to us on acceptable terms or at all.

2.                   Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, MTI Instruments and EcoChain. All intercompany balances and transactions are eliminated in consolidation.

Use of Estimates

The consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP), which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

F-8


Inventories

Inventories are valued at the lower of cost (first-in, first-out) or net realizable value. The Company periodically reviews inventory quantities on hand and records a provision for excess, slow moving and obsolete inventory based primarily on our estimated forecast of product demand, as well as based on historical usage. The Company also provides estimated inventory allowances for inventory whose carrying value is in excess of net realizable value. Demand and usage for products and materials can fluctuate significantly. A significant decrease in demand for our products could result in a short-term increase in the cost of inventory purchases and an increase of excess inventory quantities on hand. Although the Company makes every effort to assure the accuracy of our forecasts of future product demand, any significant unanticipated changes in demand could have a significant impact on the value of our inventory and our reported operating results. If changes in market conditions result in reductions in the estimated net realizable value of our inventory below our previous estimate, the Company would increase our reserve in the period in which we made such a determination and record a charge to cost of product revenue.

Property, Plant, and Equipment

Property, plant and equipment are stated at cost and depreciated using the straight-line method over their estimated useful lives as follows:

Leasehold improvements

Lesser of the life of the lease or the useful life of the improvement

Computers and related software

3 to 5 years

Machinery and equipment

3 to 10 years

Office furniture, equipment and fixtures

2 to 10 years

Significant additions or improvements extending assets' useful lives are capitalized; normal maintenance and repair costs are expensed as incurred. The costs of fully depreciated assets remaining in use are included in the respective asset and accumulated depreciation accounts. When items are sold or retired, related gains or losses are included in net (loss) income.

Income Taxes

The Company is subject to income taxes in the U.S. (federal and state). As part of the process of preparing our consolidated financial statements, the Company calculates income taxes for each of the jurisdictions in which the Company operates. This involves estimating actual current taxes due together with assessing temporary differences resulting from differing treatment for tax and accounting purposes that are recorded as deferred tax assets and liabilities, loss carryforwards and tax credit carryforwards, for which income tax benefits are expected to be realized in future years. A valuation allowance has been established to reduce deferred tax assets, if it is more likely than not that all, or some portion, of such deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in the period that includes the enactment date.

Significant management judgment is required in determining the Company's provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against the Company's net deferred tax assets. The Company considers all available evidence, both positive and negative, such as historical levels of income and future forecasts of taxable income amongst other items in determining the Company's valuation allowance. In addition, the Company's assessment requires the Company to schedule future taxable income in accordance with accounting standards that address income taxes to assess the appropriateness of a valuation allowance, which further requires the exercise of significant management judgment.

The Company accounts for taxes in accordance with the asset and liability method of accounting for income taxes. Under this method, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The impact of the Company's reassessment of its tax positions for these standards did not have a material impact on its results of operations, financial condition, or liquidity.

The Company is currently subject to audit in various jurisdictions, and these jurisdictions may assess additional income tax liabilities against us. Developments in an audit, litigation, or in applicable laws, regulations, administrative practices, principles, and interpretations could have a material effect on the Company's operating results or cash flows in the period or periods in which such developments occur, as well as for prior and in subsequent periods.

Tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating the Company's provision and accruals for these taxes. There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. The Company's effective tax rates could be affected by numerous factors, such as intercompany transactions, earnings being lower than anticipated in jurisdictions where the Company has lower statutory rates and higher than anticipated in jurisdictions where the Company has higher statutory rates, the applicability of special tax regimes, losses incurred in jurisdictions for which the Company is not able to realize the related tax benefit, changes in foreign currency exchange rates, entry into new businesses and geographies, changes to its existing businesses and operations, acquisitions and investments and how they are financed, changes in the Company's stock price, changes in its deferred tax assets and liabilities and their valuation, and changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles, and interpretations.

F-9


Equity Investment - Soluna

The equity investment in Soluna is carried at the cost of investment and is $750 thousand as of December 31, 2020. The Company owns approximately 1.86% of Soluna's stock, calculated on a fully-diluted basis, as of December 31, 2020.

Equity Investments without Readily Determinable Fair Values

Our equity investment in Soluna is accounted for under the measurement alternative. Equity securities measured and recorded using the measurement alternative are recorded at cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes. Adjustments resulting from impairments and observable price changes are recorded in the income statement. There was no impairment of investment recognized in 2020.

Equity Method Investments

The Company's consolidated net income will include our proportionate share, if any, of the net income or loss of our equity method investee. When the Company records its proportionate share of net income, it increases equity income (loss), net in our consolidated statements of operations and our carrying value in that investment. Conversely, when the Company records its proportionate share of a net loss, it decreases equity income (loss), net in our consolidated statements of operations and our carrying value in that investment. When the Company's carrying value in an equity method investee company has been reduced to zero, no further losses are recorded in the Company's financial statements unless the Company guaranteed obligations of the investee company or has committed additional funding. When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

The Company records its investment in MeOH Power, Inc. using the equity method of accounting. The fair value of the Company's interest in MeOH Power, Inc. has been determined to be $0 as of December 31, 2020 and December 31, 2019, based on MeOH Power, Inc.'s net position and expected cash flows. As of December 31, 2020, the Company retained its ownership of approximately 47.5% of MeOH Power, Inc.'s outstanding common stock, or 75,049,937 shares. The number of shares of MeOH Power, Inc.'s common stock authorized for issuance is 240,000,000 as of December 31, 2020.

Fair Value Measurement

The estimated fair value of certain financial instruments, including cash, accounts receivable and short-term debt approximates their carrying value due to their short maturities and varying interest rates. "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 accounting standards. These standards established a fair value hierarchy as specified that 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.

Revenue Recognition

Product Revenue

Product revenue consists of revenue recognized from MTI Instruments' product lines. In general, the Company determines revenue recognition by: (1) identifying the contract, or contracts, with the customer; (2) identifying the performance obligations in the contract; (3) determining the contract price; (4) allocating the transaction price to performance obligations in the contract; and (5) recognizing revenue when, or as, the performance obligations are satisfied by transferring the promised goods or services.  Based on past experience, the Company reasonably estimates its returns and warranty reserves.  Revenue is presented net of discounts and allowances, which are determined when the sale is negotiated.  The nature of the Company's contracts do not give rise to variable consideration. The Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations.

 

F-10


If the product requires that the Company provide installation, all revenue related to the product is deferred and recognized upon the completion of the installation. If the product requires specific customer acceptance criteria, such as on-site customer acceptance and/or acceptance after install, then revenue is deferred until customer acceptance occurs or the acceptance provisions lapse, unless the Company can objectively and reliably demonstrate that the criteria specified in the acceptance provisions is satisfied. The Company may also record unearned revenues, which include payments for other offerings for which we have been paid in advance. The resulting revenue would be earned when we transfer control of the product or service. As of December 31, 2020 and December 31, 2019, the Company had no deferred or unearned revenue.

MTI Instruments currently has distributor agreements in place for the international sale of general instrument and semiconductor products in certain global regions. Such agreements grant a distributor the right of first refusal to act as distributor for such products in the distributor's territory. In return, the distributor agrees to not market other products which are considered by MTI Instruments to be in direct competition with MTI Instruments' products. The distributor is allowed to purchase MTI Instruments' equipment at a price which is discounted off the published domestic/international list prices. Such list prices can be adjusted by MTI Instruments during the term of the distributor agreement. Generally, payment terms with the distributor are standard net 30 days; however, on occasion, extended payment terms have been granted. Title and risk of loss of the product passes to the distributor upon delivery to the independent carrier (standard "free-on-board" factory), and the distributor is responsible for any required training and/or service with the end-user. The sale (and subsequent payment) between MTI Instruments and the distributor is not contingent upon the successful resale of the product by the distributor. Distributor sales are covered by MTI Instruments' standard one-year warranty and there are no special return policies for distributors.

The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring services to the customer. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct good or service that forms part of a single performance obligation. The Company determines standalone selling price based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

Shipping and handling charges billed to customers is a pass-through from the freight forwarder and is included in product revenue.

Cost of Product Revenue

Cost of product revenue includes material, labor, overhead and shipping and handling costs.

Cryptocurrency Revenue

Cryptocurrency revenue consists of revenue recognized from EcoChain's cryptocurrency mining facility. Revenue is recognized at the cryptocurrency's realized cash value based upon the rates at cryptocurrency exchanges where we are registered. Cryptocurrencies are earned when the miners solve complex computations and cryptocurrency is issued as a result. The mined cryptocurrency is immediately paid to the Coinbase wallet. Cryptocurrency is converted to U.S. dollars daily, as EcoChain is not in the business of accumulating cryptocurrency on its balance sheet for speculative gains.

Cost of Cryptocurrency Revenue

Cost of cryptocurrency revenue includes direct utility costs as well as overhead costs that relate to the operations of EcoChain's cryptocurrency mining facility.

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are stated at the invoiced amount billed to customers and do not bear interest. An allowance for doubtful accounts, if necessary, represents the Company's best estimate of the amount of probable credit losses in its existing accounts receivable. The Company determines the allowance based on historical write-off experience and current exposures identified. The Company reviews its allowance for doubtful accounts monthly. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. All other balances are reviewed on a pooled basis by type of receivable. Account balances are charged off against the allowance when the Company believes it is probable the receivable will not be recovered. The Company does not have any off-balance-sheet credit exposure related to its customers. The Company's allowance for doubtful accounts was $0 at both December 31, 2020 and December 31, 2019.

Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 days. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined our contracts generally do not include a significant financing component. The primary purpose of the Company's invoicing terms is to provide customers with simplified and predictable ways of purchasing our products and services, not to receive financing from its customers.

The Company recognizes an asset for the incremental costs of obtaining a contract with a customer, if the Company expects the benefit of those costs to be longer than one year. As of December 31, 2020 and December 31, 2019, the Company has recorded no capitalized costs to obtain a contract.

 

F-11


 

The Company applies the practical expedient to expense costs as incurred for costs to obtain a contract when the amortization period would have been one year or less. These costs include our internal sales force compensation programs as we have determined annual compensation is commensurate with annual sales activities.

Warranty

The Company accrues a warranty liability at the time product revenue is recorded based on historical experience. The liability is reviewed during the year and is adjusted, if appropriate, to reflect new product offerings or changes in experience. Actual warranty claims are tracked by product line. Warranty liability was $22 thousand and $16 thousand as of December 31, 2020 and 2019, respectively. Warranty expense was $11 thousand and $1 thousand for 2020 and 2019, respectively.

Long-Lived Assets

The Company accounts for impairment or disposal of long-lived assets in accordance with accounting standards that address the financial accounting and reporting for the impairment or disposal of long-lived assets, specify how impairment will be measured, and how impaired assets will be classified in the consolidated financial statements. On a quarterly basis, the Company analyzes the status of its long-lived assets at each subsidiary for potential impairment. As of December 31, 2020, the Company does not believe that any of its long-lived assets have suffered any type of impairment that would require an adjustment to that asset's recorded value.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid short-term investments with original maturities of less than three months.

Net Income per Share

The Company computes basic income per common share by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted income per share reflects the potential dilution, if any, computed by dividing income by the combination of dilutive common share equivalents, comprised of shares issuable under outstanding investment rights, warrants and the Company's share-based compensation plans, and the weighted average number of common shares outstanding during the reporting period. Dilutive common share equivalents include the dilutive effect of in-the-money stock options, which are calculated based on the average share price for each period using the treasury stock method. Under the treasury stock method, the exercise price of a stock option and the amount of compensation cost, if any, for future service that the Company has not yet recognized are assumed to be used to repurchase shares in the current period.

Share-Based Payments

The Company grants options to purchase our common stock and award restricted stock to our employees and directors under our equity incentive plans. The benefits provided under these plans are share-based payments and the Company accounts for stock-based awards exchanged for employee service in accordance with the appropriate share-based payment accounting guidance. Stock-based compensation represents the cost related to stock-based awards granted to employees and directors. The Company measures stock-based compensation cost at grant date based on the estimated fair value of the award and recognizes the cost as expense on a straight-line basis in accordance with the vesting of the options (net of estimated forfeitures) over the option's requisite service period. The Company estimates the fair value of stock-based awards on the grant date using a Black- Scholes valuation model. The Company uses the fair value method of accounting with the modified prospective application, which provides for certain changes to the method for valuing share-based compensation. The valuation provisions apply to new awards and to awards that are outstanding on the effective date and subsequently modified. Under the modified prospective application, prior periods are not revised for comparative purposes. Stock-based compensation expense is recorded in the lines titled "Cost of product revenue," "Selling, general and administrative expenses" and "Research and product development expenses" in the Consolidated Statements of Operations based on the employees' respective functions.

The Company records deferred tax assets for awards that potentially can result in deductions on the Company's income tax returns based on the amount of compensation cost that would be recognized upon issuance of the award and the Company's statutory tax rate. All income tax effects of awards, including excess tax benefits, recognized on stock-based compensation expense are reflected in the Consolidated Statements of Operations as a component of the provision for income taxes on a prospective basis.

The determination of the fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company's stock price as well as assumptions regarding a number of complex and subjective variables. These variables include the Company's expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate, and expected dividends.

Theoretical valuation models and market-based methods are evolving and may result in lower or higher fair value estimates for share-based compensation. The timing, readiness, adoption, general acceptance, reliability, and testing of these methods is uncertain. Sophisticated mathematical models may require voluminous historical information, modeling expertise, financial analyses, correlation analyses, integrated software and databases, consulting fees, customization, and testing for adequacy of internal controls.

 

F-12


 

For purposes of estimating the fair value of stock options granted using the Black-Scholes model, the Company uses the historical volatility of its stock for the expected volatility assumption input to the Black-Scholes model, consistent with the accounting guidance. The risk-free interest rate is based on the risk-free zero-coupon rate for a period consistent with the expected option term at the time of grant. The Company paid a special dividend during the year ended December 31, 2019 and did not pay any dividends during the year ended December 31, 2020. The Company is required to assume a dividend yield as an input to the Black-Scholes model. Since the 2019 dividend was a special dividend and the Company does not anticipate paying any cash dividends in the foreseeable future, the Company therefore used an expected dividend yield of zero in the option valuation model. The expected option term is calculated based on our historical forfeitures and cancellation rates.

The fair value of restricted stock awards is based on the market close price per share on the grant date. The Company expenses the compensation cost of these awards as the restriction period lapses, which is typically a one- to three-year service period to the Company. The shares represented by restricted stock awards are outstanding at the grant date, and the recipients are entitled to voting rights with respect to such shares upon issuance.

Concentration of Credit Risk

Financial instruments that subject the Company to concentrations of credit risk principally consist of cash equivalents and trade accounts receivable. The Company's trade accounts receivable are primarily from sales to commercial customers, the U.S. government and state agencies. The Company does not require collateral and has not historically experienced significant credit losses related to receivables from individual customers or groups of customers in any particular industry or geographic area.

The Company has cash deposits in excess of federally insured limits but does not believe them to be at risk.

Research and Development Costs

The Company expenses research and development costs as incurred. The Company incurred research and development costs of approximately $1.5 million and $1.4 million, which was entirely related to MTI Instruments, for the years ended December 31, 2020 and 2019, respectively.

Advertising Costs

The Company expenses advertising costs as incurred. The Company incurred advertising costs of approximately $39 thousand and $45 thousand, which was entirely related to MTI Instruments, for the years ended December 31, 2020 and 2019, respectively.

Other Comprehensive Income

The Company had no other comprehensive income items for the years ended December 31, 2020 and 2019.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets and operating lease liability on our consolidated balance sheets. The Company did not have any finance leases as of December 31, 2020 or December 31, 2019.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU assets also include any lease payments made and excludes lease incentives and initial direct costs incurred. The Company's lease terms may include options to extend or terminate its leases when it is reasonably certain that the Company will exercise those options. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. For real estate leases, the Company accounts for lease components together with non-lease components (e.g. common-area maintenance).

Accounting Updates Not Yet Effective

Changes to U.S. GAAP are established by the Financial Accounting Standards Board (the FASB) in the form of accounting standard updates (ASUs) to the FASB's Accounting Standards Codification (ASC). The Company considered the applicability and impact of all ASUs. ASUs not mentioned below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.

 

F-13


In June 2016, the FASB issued ASU 2016-13 (Financial Instruments - Credit Losses (Topic 326)) and its subsequent amendments to the initial guidance within ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11 and ASU 2020-02, respectively (collectively, Topic 326). Topic 326 changes how entities will measure credit losses for most financial assets and certain other instruments that are not accounted for at fair value through net income. This standard replaces the existing incurred credit loss model and establishes a single credit loss framework based on a current expected credit loss model for financial assets carried at amortized cost, including loans and held-to- maturity debt securities. The current expected loss model requires an entity to estimate credit losses expected over the life of the credit exposure upon initial recognition of that exposure when the financial asset is originated or acquired, which will generally result in earlier recognition of credit losses. This standard also requires expanded credit quality disclosures. For available-for-sale debt securities, entities will be required to record allowances rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. This standard also simplifies the accounting model for purchased credit-impaired debt securities and loans. This standard will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2018-19 clarifies that receivables arising from operating leases are accounted for using lease guidance and not as financial instruments. ASU 2019-04 clarifies that equity instruments without readily determinable fair values for which an entity has elected the measurement alternative should be remeasured to fair value as of the date that an observable transaction occurred. ASU 2019-05 provides an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. This standard should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. This standard will be effective for the Company for annual and interim reporting periods beginning on or after December 15, 2022, and while early adoption is permitted, the Company does not expect to elect that option. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements, including assessing and evaluating assumptions and models to estimate losses. Upon adoption of this standard on January 1, 2023, the Company will be required to record a cumulative effect adjustment to retained earnings for the impact as of the date of adoption. The impact will depend on the Company's portfolio composition and credit quality at the date of adoption, as well as forecasts at that time.

In December 2019, the FASB issued ASU 2019-12 (Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes). This standard removes exceptions to the general principles in Topic 740 for allocating tax expense between financial statement components, accounting basis differences stemming from an ownership change in foreign investments and interim period income tax accounting for year-to-date losses that exceed projected losses. The standard will be effective for the Company for annual reporting periods beginning after December 15, 2020 and interim periods within those fiscal years, and while early adoption is permitted, the Company does not expect to elect that option. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements. At this time, the Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01 (Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)). This standard clarifies certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. This standard will reduce diversity in practice and increasing comparability of the accounting for these interactions. The standard will be effective for the Company for annual reporting periods beginning after December 15, 2020 and interim periods within those fiscal years, and while early adoption is permitted, the Company does not expect to elect that option. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements. At this time, the Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

Accounting Updates Recently Adopted by the Company

On January 1, 2020, the Company adopted ASU No. 2018-18 (Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606). A collaborative arrangement is a contractual arrangement under which two or more parties actively participate in a joint operating activity and are exposed to significant risk and rewards that depend on the activity's commercial success. This standard clarifies when certain transactions between collaborative arrangement participants should be accounted for under ASC 606 and incorporates unit-of-account guidance consistent with ASC 606 to aid in this determination. The adoption of this standard did not have a material impact on its consolidated financial statements.

There have been no other significant changes in the Company's reported financial position or results of operations and cash flows as a result of its adoption of new accounting pronouncements or changes to its significant accounting policies that were disclosed in its consolidated financial statements for the fiscal year ended December 31, 2020.

3.                   Accounts Receivable

Accounts receivables consist of the following at:

(Dollars in thousands)

December 31, 2020

    

December 31, 2019

 

U.S. and State Government

$

2

$

57

Commercial

909

653

Allowance for doubtful accounts

-

-

Other

64

35

 Total

$

975

$

745

 

F-14


4.                   Inventories

Inventories consist of the following at:

(Dollars in thousands)

December 31, 2020

  

December 31, 2019

Finished goods

$

371

$

302

Work in process

139

279

Raw materials

318

343

 Total

$

828

$

924

 

5.                   Property, Plant and Equipment

Property, plant and equipment consist of the following at:

(Dollars in thousands)

December 31, 2020

  

December 31, 2019

           

Leasehold improvements

$

262

$

39

Computers and related software

1,603

1,026

Machinery and equipment

885

915

Office furniture and fixtures

38

40

2,788

2,020

Less: Accumulated depreciation

1,941

1,846

$

847

$

174

Depreciation expense was $159 thousand and $87 thousand for the years ended December 31, 2020 and 2019, respectively. Repairs and maintenance expense was $32 thousand and $18 thousand for the years ended December 31, 2020 and 2019, respectively.

6.                   Income Taxes

Income tax benefit for each of the years ended December 31 consists of the following:

 (Dollars in thousands)

 

2020

    

 

2019

 

Federal

$

-

$

33

State

(4

)

(5

)

Deferred

396

-

Total

$

392

$

28

The significant components of deferred income tax benefit from operations for each of the years ended December 31 consists of the following:

(Dollars in thousands)

     2020

     

 2019

 

Deferred tax (expense) benefit

$

83

$

(101

)

Net operating loss carry forward

(330

)

(74

)

Valuation allowance

643

175

$

396

$

-

 

F-15


 

The Company's effective income tax rate from operations differed from the Federal statutory rate for each of the years ended December 31 as follows:

 

2020

 

2019

Federal statutory tax rate

21

%

21

%

Change in valuation allowance

(43

)

(54

)

State taxes, net of federal benefit

0

1

Expiration of stock option

1

14

Federal tax benefits, R&D

(3

)

9

Other Deferred Adjustments

(1

)

--

Tax rate

(25

)%

(9

)%

 

Deferred Tax Assets:

Deferred tax assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates. Temporary differences, net operating loss carryforwards and tax credit carryforwards that give rise to deferred tax assets and liabilities are summarized as follows as of December 31:

(Dollars in thousands)

 2020

  

 2019

 

Deferred tax assets:

    Inventory valuation

$

49

$

43

    Vacation pay

 20

 22

    Bonus Accrual

-

-

    Warranty and other sale obligations

5

3

    Deferred revenue

10

10

    Allowance for related party note receivable

69

65

    Net operating loss

10,187

10,518

    Property, plant and equipment

(20

)

(10

    Stock options

36

72

    Research and development tax credit

120

32

10,476

10,755 

Valuation allowance

(9,717

)

(10,360

)

Net deferred tax assets

$

759

$

395

 

Valuation Allowance:

The Company believes that the accounting estimate for the valuation of deferred tax assets is a critical accounting estimate because judgment is required in assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns. The Company based the estimate of deferred tax assets and liabilities on current tax laws and rates and, in certain cases, business plans and other expectations about future outcomes.

As a result of its assessment in 2020, the Company released a portion of its valuation allowance against its deferred tax assets. The partial release of the valuation allowance caused an incremental tax benefit of $643 thousand to be recognized in 2020. The release of a portion of the valuation allowance was based upon the Company's recent cumulative income history and projected future taxable income causing the Company to evaluate what portion of the Company's deferred tax assets it believes are more likely than not to be realized. The Company has determined that it will generate sufficient levels of pre-tax earnings in the future to realize the net deferred tax assets recorded on the balance sheet as of December 31, 2020. The Company has projected such pre-tax earnings utilizing a combination of historical and projected results, taking into consideration existing levels of permanent differences, non-deductible expense and the reversal of significant temporary differences.

 

F-16


The valuation allowance at December 31, 2020 and 2019 was $9.9 million and $10.4 million, respectively. Activity in the valuation allowance for deferred tax assets is as follows as of December 31:

(Dollars in thousands) 

 2020

     

 2019

 

Valuation allowance, beginning of year

$

10,360

$

10,535

Allowance for related party note receivable

(65

)

 3

Inventory

(43

)

(7

)

Net operating (loss) income

(406

)

(74

)

Property, plant and equipment

10

7

Stock options

(72

)

(35

)

Research and development credit

(32

)

(82

)

Warranty and other sales obligations

(3

)

(2

)

Deferred revenue

(10

)

10

Accrued compensation

(22

)

5

Valuation allowance, end of year

$

9,717

$

10,360

 

Net operating losses:

At December 31, 2020, the Company has unused Federal net operating loss carryforwards of approximately $49 million. Of these, none will expire in 2021, with the remainder expiring through 2035.

The Company's and/or its subsidiaries' ability to utilize their net operating loss carryforwards may be significantly limited by Section 382 of the IRC of 1986, as amended, if the Company or any of its subsidiaries undergoes an "ownership change" as a result of changes in the ownership of the Company's or its subsidiaries' outstanding stock pursuant to the exercise of the warrants or otherwise.

Unrecognized tax benefits:

The Company has $710 thousand unrecognized tax benefits at December 31, 2020 and 2019. These unrecognized tax benefits relate to former subsidiaries of the Company and a prior investment in a partnership.

In future periods, if these unrecognized benefits become supportable, the Company may not recognize a change in its effective tax rate as long as it remains in a partial valuation allowance position. Additionally, the Company does not have uncertain tax positions that it expects will increase or decrease within twelve months of this reporting date. The Company recognizes interest and penalties related to uncertain tax positions as a component of tax expense. The Company did not recognize any interest or penalties in 2020 and 2019.

The Company files income tax returns, including returns for its subsidiaries, with federal and state jurisdictions. The Company is no longer subject to IRS or state examinations for any periods prior to 2017, although carryforward attributes that were generated prior to 2017 may still be adjusted upon examination by the IRS if they either have been or will be used in a future period.

7.                   Accrued Liabilities

Accrued liabilities consist of the following at:

(Dollars in thousands)

December 31, 2020

   

December 31, 2019

Salaries, wages and related expenses

$

344

$

238

Liability to shareholders for previous acquisition

                    363

                    363

Legal and professional fees

146

65

Warranty and other sale obligations

22

16

Commissions

4

3

Other

140

76

 Total

$

                  1,019

$

                 761

 

8.                   Stockholders' Equity

Common Stock

The Company has one class of common stock, par value $.01. Each share of the Company's common stock is entitled to one vote on all matters submitted to stockholders. As of December 31, 2020 and 2019, there were 9,734,607 and 9,570,677 shares of common stock issued and outstanding, respectively.

Dividends

Dividends are recorded when declared by the Company's Board of Directors. During 2019, the Company declared and paid a special dividend of $3.5 million or $0.37 per common share. A portion of dividends are charged against paid in capital because the Company does not have sufficient retained earnings.  There were no dividends declared or paid during 2020.

F-17


 

Reservation of Shares

The Company had reserved common shares for future issuance as follows as of December 31, 2020:

Stock options outstanding

398,750

Common stock available for future equity awards or issuance of options

11,125

Number of common shares reserved

409,875

9.                   Retirement Plan

The Company maintains a voluntary savings and retirement plan under IRC Section 401(k) covering substantially all employees. Employees must complete six months of service and have attained the age of twenty-one prior to becoming eligible for participation in the plan. The Company plan allows eligible employees to contribute a percentage of their compensation on a pre-tax basis and the Company matches employee contributions, on a discretionary basis, currently in an amount equal to 100% of the first 3% and 50% of the next 2% of the employee's salary, subject to annual tax deduction limitations. Effective January 1, 2017, Company matching contributions are vested immediately. Company matching contributions were $77 thousand and $81 thousand for 2020 and 2019, respectively. The Company may also make additional discretionary contributions in amounts as determined by management and the Board of Directors. There were no additional discretionary contributions by the Company for the years 2020 or 2019.

10.                Net income per Share

The following table sets forth the reconciliation of the numerators and denominators of the basic and diluted per share computations for continuing operations for the years ended December 31:

(Dollars in thousands, except shares)

2020

2019

 

Numerator:

Net income

$

1,946

$

323

Denominator:

Basic EPS:

Common shares outstanding, beginning of period

9,570,677

9,437,177

Weighted average common shares issued during the period

11,209

111,283

Denominator for basic earnings per common shares -

Weighted average common shares

9,581,886

9,548,460

 

Diluted EPS:

Common shares outstanding, beginning of period

9,570,677

9,437,177

Common stock equivalents - options

52,617

54,088

Weighted average common shares issued during the period

11,209

111,283

Denominator for diluted earnings per common shares -

Weighted average common shares

9,634,503

9,602,548

Not included in the computation of earnings per share, assuming dilution, for the year ended December 31, 2020, were options to purchase 237,000 shares of the Company's common stock. These potentially dilutive items were excluded even though the average market price of the common stock exceeded the exercise prices for a portion of the options because the calculation of incremental shares resulted in an anti-dilutive effect.

Not included in the computation of earnings per share, assuming dilution, for the year ended December 31, 2019, were options to purchase 313,000 shares of the Company's common stock. These potentially dilutive items were excluded even though the average market price of the common stock exceeded the exercise prices for a portion of the options because the calculation of incremental shares resulted in an anti-dilutive effect.

11.                Stock Based Compensation

Stock-based incentive awards are provided to employees and directors under the terms of the Company's 2006 Equity Incentive Plan (2006 Plan), which was amended and restated effective June 30, 2011, September 16, 2009 and October 20, 2016, 2012 Equity Incentive Plan (the 2012 Plan), which was amended and restated as of October 20, 2016, and 2014 Equity Incentive Plan (the 2014 Plan) (collectively, the Plans). Awards under the Plans have generally included at-the-money options and restricted stock grants.

The 2006 Plan was adopted by the Company's Board of Directors on March 16, 2006 and approved by stockholders on May 18, 2006. The 2006 Plan was amended and restated by the Board of Directors effective September 16, 2009, June 30, 2011 and October 20, 2016. The September 16, 2009 amendment increased the initial aggregate number of 250,000 shares of common stock that may be awarded or issued to 600,000, the June 30, 2011 amendment increased the aggregate number of shares of common stock that may be awarded or issued under the 2006 Plan to 1,200,000, and the October 2016 amendment allowed for the award agreement or another agreement entered into between the Company and the award grantee to vary the method of exercise of options issued under the 2006 Plan and the provisions governing expiration of options or other awards under the 2006 Plan following termination of the award recipient. The number of shares that may be awarded under the 2006 Plan and awards outstanding has been adjusted for stock splits and other similar events. Under the 2006 Plan, the Board of Directors is authorized to issue stock options, stock appreciation rights, restricted stock, and other stock-based incentives to officers, employees and others. In connection with seeking stockholder approval of the 2012 Plan, the Company agreed not to make further awards under the 2006 Plan.

 

F-18


 

The 2012 Plan was adopted by the Company's Board of Directors on April 14, 2012 and approved by its stockholders on June 14, 2012. The 2012 Plan was amended and restated by the Board of Directors effective October 20, 2016. The October 2016 amendment allowed for the award agreement or another agreement entered into between the Company and the award grantee to vary the method of exercise of options issued under the 2012 Plan and an agreement entered into between the Company and the award grantee to vary the provisions governing expiration of options or other awards under the 2012 Plan following termination of the award recipient. The 2012 Plan provides an initial aggregate number of 600,000 shares of common stock that may be awarded or issued. The number of shares that may be awarded under the 2012 Plan and awards outstanding may be subject to adjustment on account of any recapitalization, reclassification, stock split, reverse stock split and other dilutive changes in our common stock. Under the 2012 Plan, the Board of Directors is authorized to issue stock options (incentive and nonqualified), stock appreciation rights, restricted stock, restricted stock units and other stock-based awards to employees, officers, directors, consultants and advisors of the Company and its subsidiaries. Incentive stock options may only be granted to employees of the Company and its subsidiaries.

The 2014 Plan was adopted by the Company's Board of Directors on March 12, 2014 and approved by its stockholders on June 11, 2014. The 2014 Plan provides an initial aggregate number of 500,000 shares of common stock that may be awarded or issued. The number of shares that may be awarded under the 2014 Plan and awards outstanding may be subject to adjustment on account of any stock dividend, spin-off, stock split, reverse stock split, split-up, recapitalization, reclassification, reorganization, combination or exchange of shares, merger, consolidation, liquidation, business combination, exchange of shares or the like. Under the 2014 Plan, the Board-appointed administrator of the 2014 Plan is authorized to issue stock options (incentive and nonqualified), stock appreciation rights, restricted stock, restricted stock units, phantom stock, performance awards and other stock-based awards to employees, officers and directors of, and other individuals providing bona fide services to or for, the Company or any affiliate of the Company. Incentive stock options may only be granted to employees of the Company and its subsidiaries.

In connection with the sale of shares of common stock to Brookstone, the Company entered into an Option Exercise and Stock Transfer Restriction Agreement (collectively, the Option and Transfer Agreements) with its Chief Executive Officer, its Chief Financial Officer and each of its non-employee directors (collectively, the Insiders). The Option and Transfer Agreements amend the stock option grant agreements between the Company and each Insider with respect to an option granted under and modify the terms of any option to purchase common stock held by each such Insider (collectively, Options) granted under, the Plans. The Option and Transfer Agreements restrict the aggregate amount of shares of common stock for which the Insiders may exercise Options during calendar years 2016, 2017, 2018 and 2019, and provide for a modified procedure for exercising Options in order to ensure the limit on the aggregate amount of Options that may be exercised in any such year is not exceeded. Such amendments and modifications also operate to, except with respect to the termination of Options in connection with an Insider's termination of employment or service in connection with misconduct as described in the Option and Transfer Agreements, (i) remove all references to an expiration of the exercisability of such Options within a special, delineated time period following the termination of service to or employment by the Company, and (ii) provide that all vested Options are exercisable by the Insider until default expiration under the applicable Plan (i.e., ten years from the date of grant). If an Option and Transfer Agreement is terminated, the limitations on Option exercises described above will terminate, but the exercisability of the Insider's vested Options until default expiration under the applicable Plan and stock option agreement (i.e., ten years from the date of grant) will survive indefinitely.

On January 14, 2020, the Company awarded to members of the Company's Investment Committee and to the Company's CEO special one-time restricted stock awards totaling 68,930 shares of common stock (67,930 from the 2012 Plan and 1,000 from the 2014 Plan) valued at $0.99 per share based on the closing market price of the Company's common stock on the date of grant. The shares will be restricted until vested and vest in two annual installments, with half vesting on the first anniversary of the award date and the remainder vesting on the second anniversary of the award date.

During 2020, the Company granted options to purchase 25,000 shares of the Company's common stock from the 2014 Plan, which generally vest 25% on each of the first four anniversaries of the date of the award. The exercise price of these options is $0.70 per share and was based on the closing market price of the Company's common stock on the day prior to the date of grant. Using a Black-Scholes Option Pricing Model, the weighted average fair value of these options is $0.57 per share and was estimated at the date of grant.

During 2020, the Company granted options to purchase 25,000 shares of the Company's common stock from the 2012 Plan, which generally vest 25% on each of the first four anniversaries of the date of the award. The exercise price of these options is $0.75 per share and was based on the closing market price of the Company's common stock on the date of grant. Using a Black-Scholes Option Pricing Model, the weighted average fair value of these options is $0.61 per share and was estimated at the date of grant.

On December 21, 2020, the Company awarded to its CFO and the President of MTI Instruments restricted stock awards totaling 15,000 shares of common stock from the 2014 Plan valued at $3.63 per share based on the closing market price of the Company's common stock on the date of grant. The shares will be restricted until vested and vest in three annual installments beginning on the first anniversary of the award date.

During 2019, the Company granted options to purchase 15,000 shares of the Company's common stock from the 2014 Plan, which generally vest 25% on each of the first four anniversaries of the date of the award. The exercise price of these options is $0.83 per share and was based on the closing market price of the Company's common stock on the day prior to the date of grant. Using a Black-Scholes Option Pricing Model, the weighted average fair value of these options is $0.66 per share and was estimated at the date of grant.

 

F-19


 

Stock-based compensation expense for the years ended December 31, 2020 and 2019 was generated from stock option and restricted stock awards. Stock options are awards that allow holders to purchase shares of the Company's common stock at a fixed price. Under the 2014 and 2012 Plans, stock options issued to employees generally vest 25% over four years. Options issued to non-employee members of the MTI Board of Directors generally vest 25% over four years. Certain options granted may be fully or partially exercisable immediately, may vest on other than a four-year schedule or vest upon attainment of specific performance criteria. Restricted stock awards generally vest one to three years after the date of grant, although certain awards may vest immediately or vest upon attainment of specific performance criteria. Option exercise prices are generally equivalent to the closing market value price of the Company's common stock on the date of grant. Unexercised options generally terminate ten years after date of grant.

The following table presents the weighted-average assumptions used for options granted under the 2014 Plan:

2020

2019

Option term (years)

6.25

6.26

Volatility

106.22

%

99.99

%

Risk-free interest rate

0.31

%

1.37

%

Dividend yield

0

%

0

%

Weighted-average fair value per option granted

$

0.57

$

0.66

The following table presents the weighted-average assumptions used for options granted under the 2012 Plan:

2020

Option term (years)

6.25

Volatility

106.46

%

Risk-free interest rate

0.28

%

Dividend yield

0

%

Weighted-average fair value per option granted

$

0.61

Share-based compensation expense recognized in the Consolidated Statements of Operations is based on awards ultimately expected to vest, therefore, awards are reduced for estimated forfeitures. The revised accounting standard requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Total share-based compensation expense, related to the Company's share-based awards, recognized for the years ended December 31, was comprised as follows:

 2020

 2019

(Dollars in thousands)

Cost of product revenue

$

1

$

1

Research and product development

7

4

Selling, general and administrative

46

26

Share-based compensation expense

$

54

$

31

Total unrecognized compensation costs related to non-vested stock options as of December 31, 2020 and December 31, 2019 is $78 thousand and $96 thousand, respectively, and is expected to be recognized over a weighted-average remaining vesting period of approximately 2.55 years and 3.02 years, respectively.

Presented below is a summary of the Company's stock option activity for the Plans for the years ended December 31:

2020

    

2019

Shares under option, beginning

527,875

720,624

Granted

50,000

15,000

Exercised

(83,000

)

(133,500

)

Forfeited

   (27,750

)

-

Expired/canceled

(68,375

)

(74,249

)

Shares under option, ending

398,750

527,875

Options exercisable

276,000

392,375

Remaining shares available for granting of options

11,125

68,930

 

F-20


 

The weighted average exercise price for the Company's stock option activity for the Plans is as follows for each of the years ended December 31:

2020

    

2019

    

Shares under option, beginning

$ 0.89

$ 0.86

Granted

$ 0.73

$ 0.83

Exercised

$ 1.00

$ 0.56

Forfeited

$ 0.90

-

Expired/canceled

$ 0.73

$ 1.15

Shares under option, ending

$ 0.87

$ 0.89

Options exercisable, ending

$ 0.89

$ 0.89

The following table summarizes information for options outstanding and exercisable for the Plans as of December 31, 2020:

                                                  Outstanding

Exercisable

Weighted Average

Weighted

Weighted Average

Weighted

Exercise

Remaining

Average

Remaining

Average

Price Range

Number

    

Contractual Life

    

Exercise Price

    

Number 

Contractual Life

    

Exercise Price

$0.29 - $1.08

349,750

6.18

$

0.82

     227,000

4.84

       $

0.82

$1.09 - $1.20

49,000

4.17

$

1.20

       49,000

4.17

$

1.20

398,750

5.93

$

0.87

     276,000

4.72

       $

0.89

The aggregate intrinsic value (i.e. the difference between the closing stock price and the price to be paid by the option holder to exercise the option) is $1.5 million for the Company's outstanding options and $1.1 million for the exercisable options as of December 31, 2020. The amounts are based on the Company's closing stock price of $4.71 as of December 31, 2020.

Non-vested restricted stock activity is as follows for the year ended December 31:

2020

Restricted
Stock

 

2020
Weighted
Average

Grant Date

Fair Value

 

Non-vested restricted stock balance, beginning January 1

-

                  $0.00

Non-vested restricted stock granted

83,930

$1.46

Vested restricted stock

-

                  $0.00

Non-vested restricted stock forfeited/expired

(3,000

)

             $0.99

Non-vested restricted stock balance, ending December 31

80,930

                  $1.48

At December 31, 2020, there was $94 thousand of unrecognized compensation cost related to restricted stock awards. This cost is expected to be recognized over a remaining period of 2.15 years.

12.                Commitments and Contingencies

Commitments:

Leases

The Company determines whether an arrangement is a lease at inception. The Company and its subsidiary have operating leases for certain manufacturing, laboratory, office facilities and certain equipment. The leases have remaining lease terms of less than one year to less than five years. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. As of December 31, 2020 and December 31, 2019, the Company has no assets recorded under finance leases.

Lease expense for these leases is recognized on a straight-line basis over the lease term. For the twelve months ended December 31, total lease costs are comprised of the following:

(Dollars in thousands)

 

 

 

2020

 

 

2019

Operating lease cost

$

308

 

$

222

Short-term lease cost

2

 

-

Total net lease cost

$

310

 

$

222

 

F-21


 

Short-term leases are leases having a term of twelve months or less. The Company recognizes short-term leases on a straight-line basis and does not record a related lease asset or liability for such leases.

Supplemental cash flows information related to leases for the twelve months ended December 31 was as follows: 

 (Dollars in thousands)

 

 

   

 

 

2020

2019

Cash paid for amounts included in the measurement
of lease liabilities:

 

    Operating cash flows from operating leases

$

304

$

222

 

Non-Cash Activity Right-of-use assets obtained in
exchange for lease obligations:

    Operating leases

504

966

Supplemental balance sheet information for the twelve months ended December 31 was as follows: 

(Dollars in thousands, except lease term and discount rate)

 

 

 

 

2020

2019

Operating leases:

    Operating lease ROU asset

$

1,203 

$

947 

 

    Current operating lease liabilities

$

316

$

171

    Non-current operating lease liabilities

891

776

     Total operating lease liabilities

$

1,207

$

947

 

Operating leases:

    ROU assets

$

1,452

$

1,164

   Asset lease expense

(249

)

(217

)

      ROU assets, net

$

1,203

$

947

 

 Weighted Average Remaining Lease Term (in years):

     Operating leases

                 3.62

                4.92

 

 Weighted Average Discount Rate:

     Operating leases

5.12

%

5.85

%

 

Maturities of operating lease liabilities are as follows for the year ending December 31:

 (Dollars in thousands)

 

 

 

 

2020

2021

$

 371

2022

 

375

2023

337

2024

245

2025

 -

Total lease payments

1,328

 Less: imputed interest

121

     Total lease obligations

1,207

 Less: current obligations

316

     Long-term lease obligations

891

As of December 31, 2020, there were no additional operating lease commitments that had not yet commenced.

Warranties

Product warranty liabilities are included in "Accrued liabilities" in the Consolidated Balance Sheets. Below is a reconciliation of changes in product warranty liabilities:

 

F-22


(Dollars in thousands)

Twelve Months Ended
December 31,

2020

 

2019

Balance, January 1

$

16

$

24

Accruals for warranties issued

22

16

Accruals for pre-existing warranties

(12

)

(15

)

Settlements made (in cash or in kind)

(4

)

(9

)

Balance, end of period

$

22

$

16

Contingencies:

Legal

We are subject to legal proceedings, claims and liabilities which arise in the ordinary course of business. When applicable, we accrue for losses associated with legal claims when such losses are probable and can be reasonably estimated. These accruals are adjusted as additional information becomes available or circumstances change. Legal fees are charged to expense as they are incurred.

The Company has been named as a party in the December 19, 2019 United States Environmental Protection Agency (EPA) Demand Letter regarding the Malta Rocket Fuel Area Superfund Site (Site) located in Malta and Stillwater, New York in connection with an alleged release of hazardous materials into the environment. The EPA is seeking reimbursement of response costs from all named parties in the amount of approximately $358,000 plus interest in connection with the investigation and disposal activities associated with the various drum caches discovered at the Site, issuance of the Explanation of Significant Differences ("ESD") of the Site, and implementation of the work contemplated by the ESD. The Company considers the likelihood of a material adverse outcome to be remote and does not currently anticipate that any expense or liability it may incur as a result of these matters in the future will be material to the Company's financial condition.

13.                Related Party Transactions

MeOH Power, Inc.

On December 18, 2013, MeOH Power, Inc. and the Company executed a Senior Demand Promissory Note (the Note) in the amount of $380 thousand to secure the intercompany amounts due to the Company from MeOH Power, Inc. upon the deconsolidation of MeOH Power, Inc. Interest accrues on the Note at the Prime Rate in effect on the first business day of the month, as published in the Wall Street Journal. At the Company's option, all or part of the principal and interest due on this Note may be converted to shares of common stock of MeOH Power, Inc. at a rate of $0.07 per share. Interest began accruing on January 1, 2014. The Company recorded a full allowance against the Note. As of December 31, 2020 and December 31, 2019, $321 thousand and $312 thousand, respectively, of principal and interest are available to convert into shares of common stock of MeOH Power, Inc. Any adjustments to the allowance are recorded as miscellaneous expense during the period incurred.

Legal Services

During the years ended December 31, 2020 and December 31, 2019, the Company incurred $95 thousand and $54 thousand, respectively, to Couch White, LLP for legal services associated with contract review. A partner at Couch White, LLP is an immediate family member of one of our Directors.

Soluna Transactions

On January 8, 2020, the Company formed EcoChain as a wholly-owned subsidiary to pursue a new business line focused on cryptocurrency and the blockchain ecosystem. In connection with this new business line, EcoChain established a facility to mine cryptocurrencies and integrate with the blockchain network. Pursuant to an Operating and Management Agreement dated January 13, 2020, by and between EcoChain and Soluna, a Canadian company that develops vertically-integrated, utility-scale computing facilities focused on cryptocurrency mining and cutting-edge blockchain applications, Soluna assisted the Company in developing, and is now operating, the cryptocurrency mining facility. The Operating and Management Agreement requires, among other things, that Soluna provide developmental and operational services, as directed by EcoChain, with respect to the cryptocurrency mining facility in exchange for EcoChain's payment to Soluna of a one-time management fee of $65 thousand and profit-based success payments in the event EcoChain achieves explicit profitability thresholds. Once aggregate earnings before interest, taxes, depreciation and amortization of the mine exceeds the total amount of funding provided by the Company to Soluna (whether pursuant to this agreement or otherwise) for the purposes of creating, developing, assembling and constructing the mine (the Threshold), Soluna is entitled to ongoing success payments of 20.0% of the earnings before interest, taxes, depreciation and amortization of the mine. As of December 31, 2020, no additional payments have been made or due, as the Threshold has not been achieved. Pursuant to the Operating and Management Agreement, during the developmental phase of the cryptocurrency mining facility, which ended on March 14, 2020, Soluna gathered and analyzed information with respect to EcoChain's cryptocurrency mining efforts and produced budgets, financial models, and technical and operational plans, including a detailed business plan, that it delivered to EcoChain in March 2020 (the "Deliverables"), all of which was designed to assist with the efficient implementation of a cryptocurrency mine. The agreement provided that, following EcoChain's acceptance of the Deliverables, which occurred on March 23, 2020, Soluna, on behalf of EcoChain, would commence operations of the cryptocurrency mine in a manner that will allow EcoChain to mine and sell cryptocurrency. In that regard, on May 21, 2020, EcoChain acquired the intellectual property of GigaWatt and certain other property and rights of GigaWatt associated with GigaWatt's operation of a crypto-mining operation located in Washington State. The acquired assets formed the cornerstone of EcoChain's cryptocurrency mining operation. EcoChain sells for U.S. dollars all cryptocurrency it mines and is not in the business of accumulating cryptocurrency on its balance sheet for speculative gains.  On October 22, 2020, the Company loaned Soluna $112 thousand to acquire additional assets from the bankruptcy trustee for Giga Watt assets and Soluna further transferred title of the assets to EcoChain, which satisfied the note.  On November 19, 2020 EcoChain and Soluna entered into an additional Operating and Management agreement related to a target located in the Southeast United States.  In accordance with the terms of the agreement EcoChain paid to Soluna $150 thousand. On December 1, 2020, EcoChain and Soluna entered into an additional Operating and Management agreement for a target located in the West Region, $38 thousand was paid to Soluna in accordance with this agreement, this target subsequently did not meet the business requirements to continue pursuing the investment.   Each Operating and Management agreement requires that Soluna shall provide project sourcing services including acquisition negotiations, establishing an operating model, investments/financing timeline and project development path.   

F-23


Simultaneously with entering into the Operating and Management Agreement with Soluna, the Company, pursuant to a purchase agreement it entered into with Soluna, made a strategic investment in Soluna by purchasing 158,730 Class A Preferred Shares of Soluna for an aggregate purchase price of $500 thousand on January 13, 2020. After acceptance of the Deliverables, as required by the terms of the purchase agreement, on March 23, 2020, the Company purchased an additional 79,365 Class A Preferred Shares of Soluna for an aggregate purchase price of $250 thousand. The Company also has the right, but not the obligation, to purchase additional equity securities of Soluna and its subsidiaries (including additional Class A Preferred Shares of Soluna) if Soluna secures certain levels or types of project financing with respect to its own wind power generation facilities. The Company has additionally entered into a Side Letter Agreement, dated January 13, 2020, with Soluna Technologies Investment I, LLC, a Delaware limited liability company that owns, on a fully diluted basis, 61.5% of Soluna and is controlled by a Brookstone Partners-affiliated director of the Company. The Side Letter Agreement provides for the transfer to the Company of additional Class A Preferred Shares of Soluna in the event Soluna issues additional equity below agreed-upon valuation thresholds.

Several of Soluna's equityholders are affiliated with Brookstone Partners, the investment firm that holds an equity interest in the Company through Brookstone Partners Acquisition XXIV, LLC. The Company's two Brookstone-affiliated directors also serve as directors and, in one case, as an officer, of Soluna and also have ownership interest in Soluna. In light of these relationships, the various transactions by and between the Company and EcoChain, on the one hand, and Soluna, on the other hand, were negotiated on behalf of the Company and EcoChain via an independent investment committee of the Company's Board of Directors and separate legal representation. The transactions were subsequently unanimously approved by both the independent investment committee and the full Board of Directors of the Company.

Three of our directors have various affiliations with Soluna.

Chief Executive Officer and Director Michael Toporek (i) owns 90% of the equity of Soluna Technologies Investment I, LLC, which owns 61.5% of Soluna and (ii) owns 100% of the equity of MJT Park Investors, Inc., which owns 3.2% of Soluna, in each case on a fully-diluted basis. Mr. Toporek does not own directly, or indirectly, equity interest in Tera Joule, LLC, which owns 8.5% of Soluna; however, as a result of his 100% ownership of Brookstone IAC, Inc., which is the manager of Tera Joule, LLC, he has dispositive power over the equity interests that Tera Joule owns in Soluna.

Director Matthew E. Lipman serves as a director and as acting Secretary and Treasurer of Soluna. Mr. Lipman does not own directly, or indirectly, equity interest in Tera Joule, LLC, which owns 8.5% of Soluna; however, as a result of his position as a director and officer of Brookstone IAC, Inc., which is the manager of Tera Joule, LLC, he has dispositive power over the equity interests that Tera Joule owns in Soluna.

As a result, the approximate dollar value of the amount of Mr. Toporek's and Mr. Lipman's interest in the Company's transactions with Soluna through December 31, 2020, are $631 thousand and $0, respectively.

The Company's investment in Soluna is carried at the cost of investment and is $750 thousand as of December 31, 2020. The Company owns approximately 1.86% of Soluna's stock, calculated on a fully-diluted basis, as of December 31, 2020. 

William P. Phelan, a director of the Company, serves as a director of Soluna.

14.                Geographic and Segment Information

The Company sells its products on a worldwide basis with its principal markets listed in the table below where information on product revenue is summarized by geographic area for the Company as a whole for each of the years ended December 31:

(Dollars in thousands) 

2020

    

2019

    

Product revenue:

United States

$

6,670

$

4,248

Association of South East Asian Nations (ASEAN)

1,510

1,714

Europe, the Middle East and Africa (EMEA)

713

463

North America

111

129

South America

-

17

Total product revenue

$

9,004

$

6,571

 

F-24


Revenues are attributed to regions based on the location of customers. In 2020 and 2019, approximately 25.9% and 35.3%, respectively, of our product revenues was from customers outside of the United States.

Long-lived assets of $847 thousand and $174 thousand at December 31, 2020 and 2019, respectively, consist of property, plant and equipment all located within the United States.

At MTI Instruments, the largest commercial customer in 2020 was a U.S. supplier that builds and executes custom solutions for industry and government markets, which accounted for 9.1% of total product revenue. At MTI Instruments, the largest commercial customer in 2019 was a U.S. manufacturer of support solutions to the aerospace and energy markets, which accounted for 11.0% of total product revenue. The U.S. Air Force continues to be the largest government customer, accounting for 42.9% and 20.8% of total product revenue in 2020 and 2019, respectively.

The Company operates in two business segments, Test and Measurement Instrumentation and Cryptocurrency. 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 Cryptocurrency segment is focused on cryptocurrency and the blockchain ecosystem. The Company's principal operations in both segments are located in North America.

The accounting policies of the Test and Measurement Instrumentation and Cryptocurrency segments are similar to those described in the summary of significant accounting policies herein and in the Company's Annual Report. 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. In addition, segments' non-cash items include any depreciation and amortization in reported profit or loss.

(Dollars in thousands)

Test and
Measurement
Instrumentation

Cryptocurrency

Other

Condensed
Consolidated
Totals

Year ended December 31, 2020

Product revenue

$

9,004

$

-

$

-

$

9,004

Cryptocurrency revenue

-

595

-

595

Research and product development expenses

1,491

-

-

1,491

Selling, general and administrative expenses

1,752

445

1,387

3,584

Segment profit / (loss) from operations before
income taxes

2,498

(209

)

(735

)

1,554

Segment profit / (loss)  

2,498

(209

)

(343

)

1,946

Total assets

2,676

1,373

4,598

8,647

Capital expenditures

30

805

-

835

Depreciation and amortization

79

80

-

159

The following table presents the details of "Other" segment loss:

(Dollars in thousands)

Year Ended
December 31,

2020

Corporate and other (expenses) income:

 Salaries and benefits

(608

)

  Income tax (expense) benefit

392

 Other income (expense), net

(127

)

Total expense

$

(343

)

 

15.                Line of Credit

On May 7, 2020, in connection with receipt of the $3.3 million United States Air Force delivery order, MTI Instruments obtained a $300 thousand secured line of credit from Pioneer Bank that will, among other things, assist with MTI Instruments' timely fulfillment of the delivery order. The line of credit may be drawn in the discretion of MTI Instruments and bears interest at a rate of Prime +1% per annum. Accrued interest is due monthly, and principal is payable over a period of 30 days following lender's demand. The line of credit is secured by the assets of MTI Instruments and is guaranteed by the Company. As of December 31, 2020, there were no amounts outstanding under the line of credit.

 

F-25


 

16.                Subsequent Events

In accordance with U.S. GAAP, the Company has evaluated subsequent events for disclosure between the consolidated balance sheet date of December 31, 2020 and March 30, 2021, the date the financial statements were available to be issued.

On January 14, 2021, EcoChain established a subsidiary, EcoChain Wind LLC, a Nevada limited liability company, for the purpose of acquiring real property in the Southeastern United States for purposes of building cryptocurrency mining operations at a green data center (the "Facility"). EcoChain signed an agreement, dated January 21, 2021, relating to the acquisition of this property, and closed the acquisition on March 4, 2021.

On February 22, 2021, EcoChain executed and entered into an Industrial Power Contract with a power providing cooperative pursuant to which EcoChain will be provided with electric power and energy for use in the Facility. This agreement, and the electric power and energy to be provided to EcoChain, pursuant thereto, will commence upon the completion of the Facility, which is expected to occur on or around the third or fourth quarter of 2021, and will continue for an initial term of five years, with automatic renewals unless EcoChain elects to sooner terminate. EcoChain has agreed to pay the provider for the electric power and energy provided in accordance with the applicable monthly rates, charges and provisions agreed to from time to time between the power provider and the Tennessee Valley Authority ("TVA"), which is subject to modification or adjustment, from time to time, as agreed to between the power provider and the TVA.

On February 22, 2021, we filed a definitive proxy statement on Schedule 14A providing notice of a Special Meeting of Shareholders of the Company that was held on March 25, 2021 (the "Special Meeting"). The Special Meeting was held: (i) to approve the Redomestication; (ii) to approve an amendment (the "Amendment") to the Company's restated certificate of incorporation, as amended ("Certificate of Incorporation") to effect, in the discretion of the Board, a reverse stock split of the Company's common stock at any time prior to the 2022 annual meeting of shareholders at a reverse split ratio in the range of between 1-for-2 and 1-for-10, which specific ratio will be determined by our Board (the "Reverse Stock Split"). The Amendment will not be implemented and the Reverse Stock Split will not occur unless the Board determines that the Reverse Stock Split is necessary to satisfy the initial or continued listing standards or requirements of Nasdaq or another national securities exchange and it is in the best interests of the Company and its shareholders to implement the Reverse Stock Split; and to approve the adoption of the Company's 2021 Plan.At the Special Meeting on March 25, 2021, the Company's shareholders approved each of these matters. 

On February 23, 2021, the Board, pursuant to its powers under the Company's Certificate of Incorporation and amended and restated by-laws ("Bylaws"), appointed William Hazelip as a member of the Board to fill an existing vacancy in the Board, effective February 23, 2021. Mr. Hazelip will serve with directors serving on the class of directors whose terms expire in 2023, and until the 2023 annual meeting of the Company's shareholders, at which time, if nominated, he will stand for election for a three-year term until the third annual meeting of the Company's shareholders following his election, or his earlier resignation, retirement, or other termination of service.

On February 24, 2021, the Board, pursuant to its powers under the Company's Certificate of Incorporation and Bylaws, appointed Alykhan Madhavji as a member of the Board to fill an existing vacancy in the Board, effective February 24, 2021. Mr. Madhavji will serve with directors serving on the class of directors whose terms expire in 2022, and until the 2022 annual meeting of the Company's shareholders, at which time, if nominated, he will stand for election for a three-year term until the third annual meeting of the Company's shareholders following his election, or his earlier resignation, retirement, or other termination of service.

 

F-26

 

 

Exhibit 2.1

 

AGREEMENT AND PLAN OF MERGER

 

This AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as of March 26, 2021 by and between Mechanical Technology, Incorporated, a New York corporation ("MKTY-NY") and Mechanical Technology, Incorporated, a company organized under the laws of the State of Nevada and a wholly-owned subsidiary of MKTY-NY ("MKTY-NV").

 

RECITALS:

 

WHEREAS, MKTY-NY owns all of the issued and outstanding shares of capital stock of MKTY-NV.

 

WHEREAS, MKTY-NY desires to reorganize as a Nevada corporation by the merger of MKTY-NY with and into MKTY-NV (the "Merger"), with MKTY-NV continuing as the surviving corporation of the Merger.

 

WHEREAS, the board of directors of MKTY-NY (the "MKTY-NY Board") has (i) determined that this Agreement and the Merger are advisable and in the best interests of MKTY-NY and its shareholders, (ii) approved and adopted this Agreement and the Merger, (iii) resolved to submit this Agreement and the Merger to MKTY-NY's shareholders for their approval, and (iv) resolved to recommend to MKTY-NY's shareholders that they vote in favor of the adoption and approval of this Agreement and the Merger.

 

WHEREAS, the board of directors of MKTY-NV has (i) determined that this Agreement and the Merger are advisable and in the best interests of MKTY-NV and its sole stockholder, MKTY-NY, and (ii) approved and adopted this Agreement and the Merger.

 

NOW THEREFORE, in consideration of the foregoing and of the covenants and agreements contained herein, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, MKTY-NY and MKTY-NV hereby agree as follows:

 

1.             THE MERGER. In accordance with the Nevada Revised Statutes, as amended (the "NRS"), and the New York Business Corporation Law, as amended (the "NYBCL"), and subject to, and upon the terms and conditions of, this Agreement, MKTY-NY shall be merged with and into MKTY-NV, the separate corporate existence of MKTY-NY shall cease, and MKTY-NV shall continue as the surviving corporation of the Merger (the "Surviving Corporation"). The name of the Surviving Corporation shall be "Mechanical Technology, Incorporated." At the Effective Time as defined below, the effects of the Merger shall be as provided in this Agreement and in the applicable provisions of the NRS and NYBCL. Without limiting the generality of the foregoing, at the Effective Time, all the property, rights, privileges, powers and franchises of MKTY-NY and MLTY-NV shall vest in the Surviving Corporation, and all debts, liabilities and duties of MKTY-NY and MKTY-NV shall become the debts, liabilities and duties of the Surviving Corporation, all as provided in the applicable provisions of the NRS and NYBCL.

 

2.             EFFECTIVE TIME. On the date of the closing of the Merger, MKTY-NY and MKTY-NV shall file a certificate of merger with the Department of State of the State of New York (the "NY Certificate") and articles of merger with the Secretary of State of the State of Nevada (the "NV Articles"), in such forms as required by, and executed in accordance with the relevant provisions of, the NYBCL and the NRS, respectively. The Merger shall become effective upon the later filing of the NY Certificate or the NV Articles, or at such later time as specified in the NY Certificate and NV Articles (the date and time the Merger becomes effective being referred to herein as the "Effective Time").

 

3.             ARTICLES OF INCORPORATION. At the Effective Time, the articles of incorporation of MKTY-NV as in force and effect immediately prior to the Effective Time, a copy of which is attached hereto as Exhibit A, shall be, at the Effective Time, the articles of incorporation of the Surviving Corporation (the "Surviving Corporation Articles") until thereafter duly amended in accordance with the provisions thereof and applicable law.

 

4.             BYLAWS. At the Effective Time, the bylaws of MKTY-NV as in force and effect immediately prior to the Effective Time, a copy of which is attached hereto as Exhibit B, shall be, at the Effective Time, the bylaws of the Surviving Corporation (the "Surviving Corporation Bylaws") until thereafter duly amended in accordance with the provisions thereof and applicable law.

 


 

5.             DIRECTORS. The parties shall take all actions necessary so that the directors of MKTY-NY in office immediately prior to the Effective Time shall be the directors of the Surviving Corporation at the Effective Time and will continue to hold office from the Effective Time until the earlier of their resignation or removal or until their successors are duly elected or appointed and qualified in the manner provided in the Surviving Corporation Articles and the Surviving Corporation Bylaws, or as otherwise provided by law.

 

6.             OFFICERS. The parties shall take all actions necessary so that the officers of MKTY-NY in office immediately prior to the Effective Time shall be the officers of the Surviving Corporation at the Effective Time and will continue to hold office from the Effective Time until the earlier of their resignation or removal or until their successors are duly elected or appointed and qualified in the manner provided in the Surviving Corporation Articles and the Surviving Corporation Bylaws, or as otherwise provided by law.

 

7.             ADDITIONAL ACTIONS. If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm, of record or otherwise, in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of either MKTY-NY or MKTY-NV acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger or otherwise to carry out this Agreement, the officers and directors of the Surviving Corporation shall be authorized to execute and deliver, in the name and on behalf of each of MKTY-NY and MKTY-NV, all such deeds, bills of sale, assignments and assurances and to take and do, in the name and on behalf of each of MKTY-NY and MKTY-NV or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Corporation or otherwise to carry out this Agreement.

 

8.             CONVERSION OF CAPITAL SECURITIES. At the Effective Time, by virtue of the Merger and without any action on the part of MKTY-NY, MKTY-NV or any holder of any securities thereof:

 

(a) Each share of common stock, par value $0.01 per share, of MKTY-NY (the "MKTY-NY Common Stock") issued and outstanding immediately prior to the Effective Time shall be converted into one validly issued, fully paid and nonassessable share of common stock, par value $0.001 per share, of the Surviving Corporation (the "MKTY-NV Common Stock").

 

(b) Each share of MKTY-NV Common Stock issued and outstanding immediately prior to the Effective Time shall be cancelled and extinguished without any consideration paid therefor.

 

9.             TREATMENT OF MKTY-NY OPTIONS, WARRANTS AND STOCK-BASED AWARDS.

 

(a) Effective as of the Effective Time, automatically and without any action on the part of the holder thereof: (i) each option to purchase shares of MKTY-NY Common Stock granted under any of its stock incentive plan (collectively, the "MKTY-NY Equity Plans") or otherwise (each option so issued, a "MKTY-NY Option") that is outstanding immediately prior to the Effective Time, whether or not then vested or exercisable, shall cease to represent a right to acquire shares of MKTY-NY Common Stock and shall be converted into an option to purchase shares of MKTY-NV Common Stock, on substantially the same terms and conditions (including exercise prices and vesting schedules) as applied to such MKTY-NY Option immediately prior to the Effective Time (each as so converted, a "MKTY-NV Option") and (ii) each right of any kind, vested or unvested, contingent or accrued, to receive shares of MKTY-NY Common Stock or benefits measured in whole or in part by reference to the value of MKTY-NY Common Stock whether granted under the MKTY-NY Equity Plans or otherwise outstanding as of the Effective Time, other than MKTY-NY Options (each, an "MKTY-NY Stock-Based Award"), shall, in each case, be converted into a substantially similar award for, or with respect to, shares of MKTY-NV Common Stock on substantially the same terms and conditions (including vesting schedules) as applied to such MKTY-NY Stock-Based Award immediately prior to the Effective Time (each as so converted, a "MKTY-NV Stock-Based Award").

 

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(b) [Reserved].

 

(c) Prior to the Effective Time, MKTY-NY and MKTY-NV shall each take all corporate action necessary to provide for the treatment of the MKTY-NY Options, the MKTY-NV Options, the MKTV-NY Stock-Based Awards and the MKTY-NV Stock-Based Awards, as set forth in this Section 9.

 

10.          EXCHANGE MECHANICS.

 

(a) At and after the Effective Time, each share certificate which immediately prior to the Effective Time represented outstanding shares of MKTY-NY Common Stock (an "MKTY-NY Stock Certificate") shall be deemed for all purposes to evidence ownership of, and to represent, the number of shares of MKTY-NV Common Stock into which the shares of MKTY-NY Common Stock represented by such MKTY-NY Stock Certificate immediately prior to the Effective Time have been converted pursuant to this Agreement. The registered holder of any MKTY-NY Stock Certificate outstanding immediately prior to the Effective Time, as such holder appears in the books and records of MKTY-NY (or of the transfer agent in respect of the MKTY-NY Common Stock), immediately prior to the Effective Time, shall, until such MKTY-NY Stock Certificate is surrendered for transfer or exchange, have and be entitled to exercise any voting and other rights with respect to and to receive any dividends or other distributions on the shares of MKTY-NV Common Stock into which the shares of MKTY-NY Common Stock represented by any such MKTY-NY Stock Certificate have been converted pursuant to this Agreement.

 

(b) Each holder of an MKTY-NY Stock Certificate shall, upon the surrender of such MKTY-NY Stock Certificate to the Surviving Corporation (or the transfer agent in respect of the MKTY-NY Common Stock) for cancellation after the Effective Time, be entitled to receive from the Surviving Corporation (or the transfer agent in respect of the MKTY-NV Common Stock), a certificate (an "MKTY-NV Stock Certificate") representing the number of shares of MKTY-NV Common Stock into which the shares of MKTY-NY Common Stock represented by such MKTY-NY Stock Certificate have been converted pursuant to this Agreement. If any such MKTY-NV Stock Certificate is to be issued in a name other than that in which the MKTY-NY Stock Certificate surrendered for exchange is registered, such exchange shall be conditioned upon (i) the MKTY-NY Stock Certificate so surrendered being properly endorsed or otherwise in proper form for transfer and (ii) the person requesting such exchange either paying any transfer or other taxes required by reason of the issuance of the MKTY-NV Stock Certificate in a name other than that of the registered holder of the MKTY-NY Stock Certificate surrendered, or establishing to the satisfaction of the Surviving Corporation, or the transfer agent in respect of the MKTY-NV Common Stock, that such tax has been paid or is not applicable.

 

(c) Where no MKTY-NY Stock Certificate has been issued in the name of a holder of shares of MKTY-NY Common Stock, a "book entry" (i.e., a computerized or manual entry) shall be made in the stockholder records of the Surviving Corporation to evidence the issuance to such holder of an equal number of shares of MKTY-NV Common Stock.

 

11.          STOCKHOLDER APPROVAL. This Agreement has been submitted to a vote of the shareholders of MKTY-NY for their consideration and was adopted and approved at a meeting of such shareholders in accordance with the provisions of Section 903 of the NYBCL.

 

12.          [RESERVED].

 

13.          TERMINATION. This Agreement may be terminated, and the Merger and the other transactions provided for herein may be abandoned, at any time prior to the Effective Time, by action of the MKTY-NY Board. Subject to the provisions of applicable law, at any time prior to the Effective Time, the parties hereto may modify, amend or supplement this Agreement in writing, whether before or after the adoption of this Agreement by the stockholders of MKTY-NY; provided, however, that after any such adoption, there shall not be made any amendment that by law requires the further approval by the stockholders of MKTY-NY without such further approval.

 

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15.          GOVERNING LAW. This Agreement and all claims and causes of action hereunder shall be governed by, and construed in accordance with, the laws of the State of Nevada, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws, except that the NYBCL shall apply to the Merger, and any other provisions set forth herein that are governed by the NYBCL.

 

16.          FOREIGN QUALIFICATION; SERVICE OF PROCESS. In the event that the Surviving Corporation continues to conduct business within the State of New York, concurrent with or immediately after the closing of the Merger, the Surviving Corporation shall register as a foreign corporation qualified to business within the State of New York and agrees that it may be served with process in the State of New York in any proceeding for enforcement of any obligation of any constituent corporation of the State of New York, as well as for enforcement of any obligation of the Surviving Corporation arising from the Merger, and does hereby irrevocably appoint the Secretary of State of the State of New York as its agent to accept service of process in any such suit or proceeding. The address to which a copy of such process shall be mailed by the Secretary of State of the State of New York is 325 Washington Avenue Extension, Albany, New York 12205.

 

17.          PLAN OF REORGANIZATION. Each party to this Agreement agrees to treat the Merger for all income tax purposes as a "reorganization" within the meaning of Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.

 

18.          COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which when executed shall be deemed to be an original but all of which shall constitute one and the same agreement.

 

19.          ENTIRE AGREEMENT. This Agreement, including the documents and instruments referred to herein, constitutes the entire agreement and supersedes all other prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof.

 

20.          SEVERABILITY. The provisions of this Agreement are severable, and in the event any provision hereof is determined to be invalid or unenforceable, such invalidity or unenforceability shall not in any way affect the validity or enforceability of the remaining provisions hereof.

 

21.          ASSIGNMENT; BINDING EFFECT; BENEFIT. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement.

 

[Signature Page Follows]

 

 

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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.

 

 

                                                                                               

MKTY-NY:

                                                                                               

 

MECHANICAL TECHNOLOGY, INCORPORATED

 

By: /s/ Michael Toporek                                              

                Name: Michael Toporek

                Title: Chief Executive Officer

                                                                                                               

MKTY-NV:

                                                                                               

 

MECHANICAL TECHNOLOGY, INCORPORATED

 

By:/s/ Michael Toporek                                            

                Name: Michael Toporek

                Title: President

 

 

 

 

 

5

Exhibit 3.1

 

 


 

 

 


 

11.  MANAGEMENT:

 

The number of directors constituting the entire Board of Directors shall be not less than one nor more than nine as fixed from time to time by vote of a majority of the entire Board of Directors, provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office, and provided further, that the number of directors constituting the entire Board of Directors shall be one until otherwise fixed by a majority of the entire Board of Directors. The Board of Directors shall be divided into three classes, as nearly equal in numbers as the then total number of directors constituting the entire Board of Directors permits with the term of office of one class expiring each year.  Any vacancies in the Board of Directors for any reason, and any directorships resulting from any increase in the number of directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next election of the class for which such directors shall have been chosen and until their successors shall be elected and qualified.  Subject to the foregoing, at each annual meeting of shareholders the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting.

 

Notwithstanding any other provision of these Articles of Incorporation or the bylaws of the corporation (and notwithstanding the fact that some lesser percentage may be specified by law, these Articles of Incorporation or the bylaws of the Corporation), any director or the entire Board of Directors of the corporation may be removed at any time, but only for cause or after the affirmative vote of 75% or more of the outstanding shares of stock entitled to vote for the election of directors at a meeting called for that purpose or after the affirmative vote of 75% of the entire Board of Directors.

 

12.  LIMITED LIABILITY OF OFFICERS AND DIRECTORS

 

Except as hereinafter provided, the officers and directors of the Corporation shall not be personally liable to the Corporation or its stockholders for damages for breach of fiduciary duty as a director or officer.  This limitation on personal liability shall not apply to acts or omissions which involve intentional misconduct, fraud, knowing violation of law, or unlawful distribution prohibited by NRS § 78.300.

 

13.  INDEMNIFICATION OF OFFICERS AND DIRECTORS

 

Section 1. The Corporation shall indemnify, to the fullest extent permitted by the Nevada Revised Statutes, any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, except an action by or in the right of the Corporation, by reason of the fact that the person is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys' fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by the person in connection with the action if the person:

 

(a) Is not liable pursuant to NRS § 78.138; or

 

(b) Acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful.

 


 

 

The termination of any action, suit, or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person is liable pursuant to NRS § 78.138 or did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, or that, with respect to any criminal action or proceeding, he or she had reasonable cause to believe that the conduct was unlawful.

 

Section 2.  The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another Corporation, partnership, joint venture, trust, or other enterprise against expenses, including attorneys' fees, judgments, fines, and amounts paid in settlement actually and reasonably incurred by the person in connection with the action if the person:

 

(a)  Is not liable pursuant to NRS § 78.138; or

 

(b) Acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation.

 

Indemnification may not be made for any claim, issue, or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

 

Section 3.  To the extent that a director, officer, employee, or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in Sections 1 and 2 of this Article XI, or in defense of any claim, issue, or matter therein, the Corporation shall indemnify him or her against expenses, including attorneys' fees, actually and reasonably incurred by him or her in connection with the defense.

 

14.  TRANSACTIONS WITH STOCKHOLDERS

 

Section 1.  Combinations with Interested Stockholders. The Corporation elects not to be governed by the provisions of NRS § 78.411 through NRS § 78.444, inclusive, of the Nevada Revised Statutes.

 

15.  AMENDMENT OF ARTICLES

 

The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation or its bylaws in the manner now or thereafter prescribed by statute or by these Articles of Incorporation or by the Corporation's bylaws, and all rights conferred upon the stockholders are granted subject to this reservation.

 

Exhibit 3.2

 

BYLAWS

OF

MECHANICAL TECHNOLOGY, INCORPORATED

a Nevada corporation

 

ARTICLE I

 

OFFICES

 

Section 1.1 Principal Office. The principal office and place of business of Mechanical Technology, Incorporated, a Nevada corporation (the "Corporation"), shall be established from time to time by resolution of the board of directors of the Corporation (the "Board of Directors").

 

Section 1.2 Other Offices. Other offices and places of business either within or without the State of Nevada may be established from time to time by resolution of the Board of Directors or as the business of the Corporation may require. The street address of the Corporation's registered agent is the registered office of the Corporation in Nevada.

 

ARTICLE II

 

STOCKHOLDERS

 

Section 2.1 Annual Meeting. The annual meeting of the stockholders of the Corporation shall be held on such date and at such time as may be designated from time to time by the Board of Directors. At the annual meeting, directors shall be elected and any other business may be transacted as may be properly brought before the meeting pursuant to these Bylaws (as amended from time to time, these "Bylaws").

 

Section 2.2 Special Meetings.

 

(a)   Subject to any rights of stockholders set forth in the articles of incorporation of the Corporation (as amended from time to time, the "Articles of Incorporation"), special meetings of the stockholders may be called only by the chairman of the board or the chief executive officer, or, if there be no chairman of the board and no chief executive officer, by the president, and shall be called by the secretary upon the written request of at least a majority of the Board of Directors or the holders of not less than a majority of the voting power of the Corporation's stock entitled to vote. Such request shall state the purpose or purposes of the meeting.

 

(b)   No business shall be acted upon at a special meeting of stockholders except as set forth in the notice of the meeting.

 

Section 2.3 Place of Meetings. Any meeting of the stockholders of the Corporation may be held at the Corporation's registered office in the State of Nevada or at such other place in or out of the State of Nevada and the United States as may be designated in the notice of meeting. A waiver of notice signed by all stockholders entitled to vote thereat may designate any place for the holding of such meeting. The Board of Directors may, in its sole discretion, determine that any meeting of the stockholders shall be held by means of electronic communications or other available technology in accordance with Section 2.10.

 

Section 2.4 Notice of Meetings; Waiver of Notice.

 

(a)   The chief executive officer, if any, the president, any vice president, the secretary, an assistant secretary or any other individual designated by the Board of Directors shall sign and deliver or cause to be delivered to the stockholders written notice of any stockholders' meeting not less than ten (10) days, but not more than sixty (60) days, before the date of such meeting. The notice shall state the place, date and time of the meeting, the means of electronic communication, if any, by which the stockholders or the proxies thereof shall be deemed to be present and vote and, in the case of a special meeting, the purpose or purposes for which the meeting is called. The notice shall be delivered in accordance with, and shall contain or be accompanied by such additional information as may be required by, the Nevada Revised Statutes ("NRS"), including, without limitation, NRS 78.379, 92A.120 or 92A.410.

 

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(b)   In the case of an annual meeting, any proper business may be presented for action, except that (i) if a proposed plan of merger, conversion or exchange is submitted to a vote, the notice of the meeting must state that the purpose, or one of the purposes, of the meeting is to consider the plan of merger, conversion or exchange and must contain or be accompanied by a copy or summary of the plan; and (ii) if a proposed action creating dissenter's rights is to be submitted to a vote, the notice of the meeting must state that the stockholders are or may be entitled to assert dissenter's rights under NRS 92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.

 

(c)    A copy of the notice shall be personally delivered or mailed postage prepaid to each stockholder of record entitled to vote at the meeting (unless the NRS requires delivery to all stockholders of record, in which case such notice shall be delivered to all such stockholders) at the address appearing on the records of the Corporation. Upon mailing, service of the notice is complete, and the time of the notice begins to run from the date upon which the notice is deposited in the mail. If the address of any stockholder does not appear upon the records of the Corporation or is incomplete, it will be sufficient to address any notice to such stockholder at the registered office of the Corporation. Notwithstanding the foregoing and in addition thereto, any notice to stockholders given by the Corporation pursuant to Chapters 78 or 92A of the NRS, the Articles of Incorporation or these Bylaws, may be given pursuant to the forms of electronic transmission listed herein, if such forms of transmission are consented to in writing by the stockholder receiving such electronically transmitted notice and such consent is filed by the secretary in the corporate records. Notice shall be deemed given (i) by facsimile when directed to a number consented to by the stockholder to receive notice, (ii) by electronic mail when directed to an e-mail address consented to by the stockholder to receive notice, (iii) by posting on an electronic network together with a separate notice to the stockholder of the specific posting on the later of the specific posting or the giving of the separate notice or (iv) by any other electronic transmission as consented to by and when directed to the stockholder. The stockholder consent necessary to permit electronic transmission to such stockholder shall be deemed revoked and of no force and effect if (A) the Corporation is unable to deliver by electronic transmission two consecutive notices given by the Corporation in accordance with the stockholder's consent and (B) the inability to deliver by electronic transmission becomes known to the secretary, assistant secretary, transfer agent or other agent of the Corporation responsible for the giving of notice.

 

(d)   The written certificate of an individual signing a notice of meeting, setting forth the substance of the notice or having a copy thereof attached thereto, the date the notice was mailed or personally delivered to the stockholders and the addresses to which the notice was mailed, shall be prima facie evidence of the manner and fact of giving such notice and, in the absence of fraud, an affidavit of the individual signing a notice of a meeting that the notice thereof has been given by a form of electronic transmission shall be prima facie evidence of the facts stated in the affidavit.

 

(e)    Any stockholder may waive notice of any meeting by a signed writing or by transmission of an electronic record, either before or after the meeting. Such waiver of notice shall be deemed the equivalent of the giving of such notice.

 

Section 2.5 Determination of Stockholders of Record.

 

(a)   For the purpose of determining the stockholders entitled to (i) notice of and to vote at any meeting of stockholders or any adjournment thereof, (ii) receive payment of any distribution or the allotment of any rights, or (iii) exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting, if applicable.

 

(b)   The Board of Directors may adopt a resolution prescribing a date upon which the stockholders of record entitled to give written consent must be determined. The date set by the Board of Directors must not precede or be more than ten (10) days after the date the resolution setting such date is adopted by the Board of Directors. If the Board of Directors does not adopt a resolution setting a date upon which the stockholders of record entitled to give written consent must be determined and

 

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(i)     no prior action by the Board of Directors is required by the NRS, then the date shall be the first date on which a valid written consent is delivered to the Corporation in accordance with the NRS and these Bylaws; or

 

(ii)   prior action by the Board of Directors is required by the NRS, then the date shall be the close of business on the date that the Board of Directors adopts the resolution.

 

(c)   If no record date is fixed pursuant to Section 2.5(a) or Section 2.5(b), the record date for determining stockholders: (i) entitled to notice of and to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (ii) for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at any meeting of stockholders shall apply to any postponement of any meeting of stockholders to a date not more than sixty (60) days after the record date or to any adjournment of the meeting; provided that the Board of Directors may fix a new record date for the adjourned meeting and must fix a new record date if the meeting is adjourned to a date more than 60 days later than the date set for the original meeting.

 

Section 2.6 Quorum; Adjourned Meetings.

 

(a)   Unless the Articles of Incorporation provide for a different proportion, stockholders holding at least thirty-three and one-third percent (33 1/3%) of the voting power of the Corporation's capital stock, represented in person or by proxy (regardless of whether the proxy has authority to vote on all matters), are necessary to constitute a quorum for the transaction of business at any meeting. If, on any issue, voting by classes or series is required by the laws of the State of Nevada, the Articles of Incorporation or these Bylaws, at least thirty-three and one-third percent (33 1/3%) of the voting power, represented in person or by proxy (regardless of whether the proxy has authority to vote on all matters), within each such class or series is necessary to constitute a quorum of each such class or series.

 

(b)  If a quorum is not represented, a majority of the voting power represented or the person presiding at the meeting may adjourn the meeting from time to time until a quorum shall be represented. At any such adjourned meeting at which a quorum shall be represented, any business may be transacted which might otherwise have been transacted at the adjourned meeting as originally called. When a stockholders' meeting is adjourned to another time or place hereunder, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. However, if a new record date is fixed for the adjourned meeting, notice of the adjourned meeting must be given to each stockholder of record as of the new record date. The stockholders present at a duly convened meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the departure of enough stockholders to leave less than a quorum of the voting power.

 

Section 2.7 Voting.

 

(a)     Unless otherwise provided in the NRS, the Articles of Incorporation or any resolution providing for the issuance of preferred stock adopted by the Board of Directors pursuant to authority expressly vested in it by the provisions of the Articles of Incorporation, each stockholder of record, or such stockholder's duly authorized proxy, shall be entitled to one (1) vote for each share of voting stock standing registered in such stockholder's name at the close of business on the record date or the date established by the Board of Directors in connection with stockholder action by written consent.

 

(b)    Except as otherwise provided herein, all votes with respect to shares (including pledged shares) standing in the name of an individual at the close of business on the record date or the date established by the Board of Directors in connection with stockholder action by written consent shall be cast only by that individual or such individual's duly authorized proxy. With respect to shares held by a representative of the estate of a deceased stockholder, or a guardian, conservator, custodian or trustee, even though the shares do not stand in the name of such holder, votes may be cast by such holder upon proof of such representative capacity. In the case of shares under the control of a receiver , the receiver may vote such shares even though the shares do not stand of record in the name of the receiver but only if and to the extent that the order of a court of competent jurisdiction which appoints the receiver contains the authority to vote such shares. If shares stand of record in the name of a minor, votes may be cast by the duly appointed guardian of the estate of such minor only if such guardian has provided the Corporation with written proof of such appointment.

 

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(c)   With respect to shares standing of record in the name of another corporation, partnership, limited liability company or other legal entity on the record date, votes may be cast: (i) in the case of a corporation, by such individual as the bylaws of such other corporation prescribe, by such individual as may be appointed by resolution of the board of directors of such other corporation or by such individual (including, without limitation, the officer making the authorization) authorized in writing to do so by the chairman of the board, if any, the chief executive officer, if any, the president or any vice president of such corporation; and (ii) in the case of a partnership, limited liability company or other legal entity, by an individual representing such stockholder upon presentation to the Corporation of satisfactory evidence of his or her authority to do so.

 

(d)   Notwithstanding anything to the contrary contained herein and except for the Corporation's shares held in a fiduciary capacity, the Corporation shall not vote, directly or indirectly, shares of its own stock owned or held by it, and such shares shall not be counted in determining the total number of outstanding shares entitled to vote.

 

(e)   Any holder of shares entitled to vote on any matter may cast a portion of the votes in favor of such matter and refrain from casting the remaining votes or cast the same against the proposal, except in the case of elections of directors. If such holder entitled to vote does vote any of such stockholder's shares affirmatively and fails to specify the number of affirmative votes, it will be conclusively presumed that the holder is casting affirmative votes with respect to all shares held.

 

(f)    With respect to shares standing of record in the name of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, husband and wife as community property, tenants by the entirety, voting trustees or otherwise and shares held by two or more persons (including proxy holders) having the same fiduciary relationship in respect to the same shares, votes may be cast in the following manner:

 

(i)                  If only one person votes, the vote of such person binds all.

 

(iii)  If more than one person casts votes, the act of the majority so voting binds all.

 

(iv)   If more than one person casts votes, but the vote is evenly split on a particular matter, the votes shall be deemed cast proportionately, as split.

 

(g)    If a quorum is present, unless the Articles of Incorporation, these Bylaws, the NRS, or other applicable law provide for a different proportion, action by the stockholders entitled to vote on a matter, other than the election of directors, is approved by and is the act of the stockholders if the number of votes cast in favor of the action exceeds the number of votes cast in opposition to the action, unless voting by classes or series is required for any action of the stockholders by the laws of the State of Nevada, the Articles of Incorporation or these Bylaws, in which case the number of votes cast in favor of the action by the voting power of each such class or series must exceed the number of votes cast in opposition to the action by the voting power of each such class or series.

 

(h)    If a quorum is present, directors shall be elected by a plurality of the votes cast.

 

Section 2.8 Actions at Meetings Not Regularly Called; Ratification and Approval.

 

(a)   Whenever all persons entitled to vote at any meeting consent, either by: (i) a writing on the records of the meeting or filed with the secretary, (ii) presence at such meeting and oral consent entered on the minutes, or (iii) taking part in the deliberations at such meeting without objection, such meeting shall be as valid as if a meeting were regularly called and noticed.

 

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(b)   At such meeting any business may be transacted which is not excepted from the written consent or to the consideration of which no objection for want of notice is made at the time.

 

(c)   If any meeting be irregular for want of notice or of such consent, provided a quorum was present at such meeting, the proceedings of the meeting may be ratified and approved and rendered likewise valid and the irregularity or defect therein waived by a writing signed by all parties having the right to vote at such meeting.

 

(d)  Such consent or approval may be by proxy or power of attorney, but all such proxies and powers of attorney must be in writing.

 

Section 2.9 Proxies. At any meeting of stockholders, any holder of shares entitled to vote may designate, in a manner permitted by the laws of the State of Nevada, another person or persons to act as a proxy or proxies. If a stockholder designates two or more persons to act as proxies, then a majority of those persons present at a meeting has and may exercise all of the powers conferred by the stockholder or, if only one is present, then that one has and may exercise all of the powers conferred by the stockholder, unless the stockholder's designation of proxy provides otherwise. Every proxy shall continue in full force and effect until its expiration or revocation in a manner permitted by the laws of the State of Nevada.

 

Section 2.10 Meetings Through Electronic Communications. Stockholders may participate in a meeting of the stockholders by any means of electronic communications, videoconferencing, teleconferencing or other available technology permitted under the NRS (including, without limitation, a telephone conference or similar method of communication by which all individuals participating in the meeting can hear each other) and utilized by the Corporation. If any such means are utilized, the Corporation shall, to the extent required under the NRS, implement reasonable measures to (a) verify the identity of each person participating through such means as a stockholder and (b) provide the stockholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to communicate, and to read or hear the proceedings of the meeting in a substantially concurrent manner with such proceedings. Participation in a meeting pursuant to this Section 2.10 constitutes presence in person at the meeting.

 

Section 2.11 Action Without a Meeting. Any action required or permitted to be taken at a meeting of the stockholders may be taken without a meeting if, before or after the action, a written consent thereto is signed by the holders of the voting power that would be required to approve such action at a meeting. A meeting of the stockholders need not be called or noticed whenever action is taken by written consent. The written consent may be signed in multiple counterparts, including, without limitation, facsimile counterparts, and shall be filed with the minutes of the proceedings of the stockholders.

 

Section 2.12 Organization.

 

(a)   Meetings of stockholders shall be presided over by the chairman of the board, or, in the absence of the chairman, by the vice chairman of the board, if any, or if there be no vice chairman or in the absence of the vice chairman, by the chief executive officer, if any, or if there be no chief executive officer or in the absence of the chief executive officer, by the president, or, in the absence of the president, or, in the absence of any of the foregoing persons, by a chairman designated by the Board of Directors, or, in the absence of such designation by the Board of Directors, by a chairman chosen at the meeting by the stockholders entitled to cast a majority of the votes which all stockholders present in person or by proxy are entitled to cast. The secretary, or in the absence of the secretary an assistant secretary, shall act as secretary of the meeting, but in the absence of the secretary and any assistant secretary the chairman of the meeting may appoint any person to act as secretary of the meeting. The order of business at each such meeting shall be as determined by the chairman of the meeting. The chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts and things as are necessary or desirable for the proper conduct of the meeting, including, without limitation, (i) the establishment of procedures for the maintenance of order and safety, (ii) limitation on participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies and such other persons as the chairman of the meeting shall permit, (iii) limitation on the time allotted for consideration of each agenda item and for questions or comments by meeting participants, (iv) restrictions on entry to such meeting after the time prescribed for the commencement thereof and (v) the opening and closing of the voting polls. The Board of Directors, in its discretion, or the chairman of the meeting, in his or her discretion, may require that any votes cast at such meeting shall be cast by written ballot.

 

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(b)  The chairman of the meeting may appoint one or more inspectors of elections. The inspector or inspectors may (i) ascertain the number of shares outstanding and the voting power of each; (ii) determine the number of shares represented at a meeting and the validity of proxies or ballots; (iii) count all votes and ballots; (iv) determine any challenges made to any determination made by the inspector(s); and (v) certify the determination of the number of shares represented at the meeting and the count of all votes and ballots.

 

Section 2.13 Absentees' Consent to Meetings. Transactions of any meeting of the stockholders are as valid as though had at a meeting duly held after regular call and notice if a quorum is represented, either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not represented in person or by proxy (and those who, although present, either object at the beginning of the meeting to the transaction of any business because the meeting has not been lawfully called or convened or expressly object at the meeting to the consideration of matters not included in the notice which are legally or by the terms of these Bylaws required to be included therein), signs a written waiver of notice and/or consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents, and approvals shall be filed with the corporate records and made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called, noticed or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters not properly included in the notice, to the extent such notice is required, if such objection is expressly made at the time any such matters are presented at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of stockholders need be specified in any written waiver of notice or consent, except as otherwise provided in these Bylaws.

 

ARTICLE III

 

DIRECTORS

 

Section 3.1 General Powers; Performance of Duties. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, except as otherwise provided in Chapter 78 of the NRS or the Articles of Incorporation.

 

Section 3.2 Number, Tenure and Qualifications. The Board of Directors shall consist of at least one (1) individual and not more than nine (9) individuals. The number of directors within the foregoing fixed minimum and maximum may be established and changed from time to time by resolution adopted by the Board of Directors or the stockholders without amendment to these Bylaws or the Articles of Incorporation; provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office, and provided further, that the number of directors constituting the entire Board of Directors shall be one until otherwise fixed by a majority of the entire Board of Directors. The Board of Directors shall be and is divided into three classes: Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third (1/3) of the total number of directors constituting the entire Board of Directors, but no less than one-fourth (1/4) of the total number of directors constituting the entire Board of Directors. The allocation of directors among classes shall be determined by resolution of the Board of Directors with the term of office of one class expiring each year. Any vacancies in the Board of Directors for any reason, and any directorships resulting from any increase in the number of directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next election of the class for which such directors shall have been chosen and until their successors shall be elected and qualified or until their earlier death, retirement, disqualification, resignation or removal. Subject to the foregoing, at each annual meeting of stockholders the successors to the class of directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting. No reduction of the number of directors shall have the effect of removing any director prior to the expiration of his or her term of office. No provision of this Section 3.2 shall restrict the right of the Board of Directors to fill vacancies or the right of the stockholders to remove directors as is hereinafter provided.

 

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Section 3.3 Chairman of the Board. The Board of Directors may elect a chairman of the board from the members of the Board of Directors, who shall preside at all meetings of the Board of Directors and stockholders at which he or she shall be present and shall have and may exercise such powers as may, from time to time, be assigned to him or her by the Board of Directors, these Bylaws or as provided by law. If no chairman of the board is appointed or if the chairman is absent from a Board meeting, then the Board of Directors may appoint a chairman for the sole purpose of presiding at any such meeting. If no chairman of the board is appointed or if the chairman is absent from any stockholder meeting, then the president shall preside at such stockholder meeting. If the president is absent from any stockholder meeting, the stockholders may appoint a substitute chairman solely for the purpose of presiding over such stockholder meeting.

 

Section 3.4 Removal and Resignation of Directors. Subject to any rights of the holders of preferred stock, if any, and except as otherwise provided in the NRS or the Articles of Incorporation, any director may be removed from office with or without cause by the affirmative vote of the holders of not less than two-thirds (2/3) of the voting power of the issued and outstanding stock of the Corporation entitled to vote generally in the election of directors (voting as a single class), excluding stock entitled to vote only upon the happening of a fact or event unless such fact or event shall have occurred. Any director may resign effective upon giving written notice, unless the notice specifies a later time for effectiveness of such resignation, to the chairman of the board, if any, the president or the secretary, or in the absence of all of them, any other officer of the Corporation.

 

Section 3.5 Vacancies; Newly Created Directorships. Subject to any rights of the holders of preferred stock, if any, any vacancies on the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office, or other cause, and newly created directorships resulting from any increase in the authorized number of directors, may be filled by a majority vote of the directors then in office or by a sole remaining director, in either case though less than a quorum, and the director(s) so chosen shall hold office for a term expiring at the next annual meeting of stockholders and when their successors are elected or appointed, at which the term of the class to which he or she has been elected expires, or until his or her earlier resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent directors.

 

Section 3.6 Annual and Regular Meetings. Immediately following the adjournment of, and at the same place as, the annual or any special meeting of the stockholders at which directors are elected, the Board of Directors, including directors newly elected, shall hold its annual meeting without call or notice, other than this provision, to elect officers and to transact such further business as may be necessary or appropriate. The Board of Directors may provide by resolution the place, date and hour for holding regular meetings between annual meetings, and if the Board of Directors so provides with respect to a regular meeting, notice of such regular meeting shall not be required.

 

Section 3.7 Special Meetings. Subject to any rights of the holders of preferred stock, if any, and except as otherwise required by law, special meetings of the Board of Directors may be called only by the chairman of the board, if any, or if there be no chairman of the board, by the chief executive officer, if any, or by the president or the secretary, and shall be called by the chairman of the board, if any, the chief executive officer, if any, the president, or the secretary upon the request of at least a majority of the Board of Directors. If the chairman of the board, or if there be no chairman of the board, each of the chief executive officer, the president, and the secretary, fails for any reason to call such special meeting, a special meeting may be called by a notice signed by at least a majority of the Board of Directors.

 

Section 3.8 Place of Meetings. Any regular or special meeting of the Board of Directors may be held at such place as the Board of Directors, or in the absence of such designation, as the notice calling such meeting, may designate. A waiver of notice signed by the directors may designate any place for the holding of such meeting.

 

Section 3.9 Notice of Meetings. Except as otherwise provided in Section 3.6, there shall be delivered to each director at the address appearing for him or her on the records of the Corporation, at least forty-eight (48) hours before the time of such meeting, a copy of a written notice of any meeting (a) by delivery of such notice personally, (b) by mailing such notice postage prepaid, (c) by facsimile, (d) by overnight courier, (e) by telegram, or (f) by electronic transmission or electronic writing, including, without limitation, e-mail. If mailed to an address inside the United States, the notice shall be deemed delivered two (2) business days following the date the same is deposited in the United States mail, postage prepaid. If mailed to an address outside the United States, the notice shall be deemed delivered four (4) business days following the date the same is deposited in the United States mail, postage prepaid. If sent via overnight courier, the notice shall be deemed delivered the business day following the delivery of such notice to the courier. If sent via facsimile, the notice shall be deemed delivered upon sender's receipt of confirmation of the successful transmission. If sent by electronic transmission (including, without limitation, e-mail), the notice shall be deemed delivered when directed to the e-mail address of the director appearing on the records of the Corporation and otherwise pursuant to the applicable provisions of NRS Chapter 75. If the address of any director is incomplete or does not appear upon the records of the Corporation it will be sufficient to address any notice to such director at the registered office of the Corporation. Any director may waive notice of any meeting, and the attendance of a director at a meeting and oral consent entered on the minutes of such meeting shall constitute waiver of notice of the meeting unless such director objects, prior to the transaction of any business, that the meeting was not lawfully called, noticed or convened. Attendance for the express purpose of objecting to the transaction of business thereat because the meeting was not properly called or convened shall not constitute presence or a waiver of notice for purposes hereof.

 

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Section 3.10 Quorum; Adjourned Meetings.

 

(a)    A majority of the directors in office, at a meeting duly assembled, is necessary to constitute a quorum for the transaction of business.

 

(b)   At any meeting of the Board of Directors where a quorum is not present, a majority of those present may adjourn, from time to time, until a quorum is present, and no notice of such adjournment shall be required. At any adjourned meeting where a quorum is present, any business may be transacted which could have been transacted at the meeting originally called.

 

Section 3.11 Manner of Acting. Except as provided in Section 3.13, the affirmative vote of a majority of the directors present at a meeting at which a quorum is present is the act of the Board of Directors.

 

Section 3.12 Meetings Through Electronic Communications. Members of the Board of Directors or of any committee designated by the Board of Directors may participate in a meeting of the Board of Directors or such committee by any means of electronic communications, videoconferencing, teleconferencing or other available technology permitted under the NRS (including, without limitation, a telephone conference or similar method of communication by which all individuals participating in the meeting can hear each other) and utilized by the Corporation. If any such means are utilized, the Corporation shall, to the extent required under the NRS, implement reasonable measures to (a) verify the identity of each person participating through such means as a director or member of the committee, as the case may be, and (b) provide the directors or members of the committee a reasonable opportunity to participate in the meeting and to vote on matters submitted to the directors or members of the committee, including an opportunity to communicate, and to read or hear the proceedings of the meeting in a substantially concurrent manner with such proceedings. Participation in a meeting pursuant to this Section 3.12 constitutes presence in person at the meeting.

 

Section 3.13 Action Without Meeting. Any action required or permitted to be taken at a meeting of the Board of Directors or of a committee thereof may be taken without a meeting if, before or after the action, a written consent thereto is signed by all of the members of the Board of Directors or the committee. The written consent may be signed manually or electronically (or by any other means then permitted under the NRS), and may be so signed in counterparts, including, without limitation, facsimile or e-mail counterparts, and shall be filed with the minutes of the proceedings of the Board of Directors or committee.

 

Section 3.14 Powers and Duties.

 

(a)   Except as otherwise restricted by Chapter 78 of the NRS or the Articles of Incorporation, the Board of Directors has full control over the business and affairs of the Corporation. The Board of Directors may delegate any of its authority to manage, control or conduct the business of the Corporation to any standing or special committee, or to any officer or agent, and to appoint any persons to be agents of the Corporation with such powers, including the power to subdelegate, and upon such terms as it deems fit.

 

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(b)  The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his or her discretion, may submit any contract or act for approval or ratification at any annual meeting of the stockholders or any special meeting properly called and noticed for the purpose of considering any such contract or act, provided a quorum is present.

 

(c)   The Board of Directors may, by resolution passed by at least a majority of the Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Subject to applicable law and to the extent provided in the resolution of the Board of Directors, any such committee shall have and may exercise all the powers of the Board of Directors in the management of the business and affairs of the Corporation. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. The committees shall keep regular minutes of their proceedings and report the same to the Board of Directors when required.

 

Section 3.15 Compensation. The Board of Directors, without regard to personal interest, may establish the compensation of directors for services in any capacity. If the Board of Directors establishes the compensation of directors pursuant to this Section 3.15, such compensation is presumed to be fair to the Corporation unless proven unfair by a preponderance of the evidence.

 

Section 3.16 Organization. Meetings of the Board of Directors shall be presided over by the chairman of the board, or in the absence of the chairman of the board by the vice chairman, if any, or in his or her absence by a chairman chosen at the meeting. The secretary, or in the absence of the secretary an assistant secretary, shall act as secretary of the meeting, but in the absence of the secretary and any assistant secretary, the chairman of the meeting may appoint any person to act as secretary of the meeting. The order of business at each such meeting shall be as determined by the chairman of the meeting.

 

ARTICLE IV

 

OFFICERS

 

Section 4.1 Election. The Board of Directors shall elect or appoint a president, a secretary and a treasurer or the equivalents of such officers. Such officers shall serve until their respective successors are elected and appointed and shall qualify or until their earlier resignation or removal. The Board of Directors may from time to time, by resolution, elect or appoint such other officers and agents as it may deem advisable, who shall hold office at the pleasure of the Board of Directors, and shall have such powers and duties and be paid such compensation as may be directed by the Board of Directors. Any individual may hold two or more offices.

 

Section 4.2 Removal; Resignation. Any officer or agent elected or appointed by the Board of Directors may be removed by the Board of Directors with or without cause. Any officer may resign at any time upon written notice to the Corporation. Any such removal or resignation shall be subject to the rights, if any, of the respective parties under any contract between the Corporation and such officer or agent.

 

Section 4.3 Vacancies. Any vacancy in any office because of death, resignation, removal or otherwise may be filled by the Board of Directors for the unexpired portion of the term of such office.

 

Section 4.4 Chief Executive Officer. The Board of Directors may elect a chief executive officer who, subject to the supervision and control of the Board of Directors, shall have the ultimate responsibility for the management and control of the business and affairs of the Corporation and perform such other duties and have such other powers which are delegated to him or her by the Board of Directors, these Bylaws or as provided by law.

 

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Section 4.5 President. The president, subject to the supervision and control of the Board of Directors, shall in general actively supervise and control the business and affairs of the Corporation. The president shall keep the Board of Directors fully informed as the Board of Directors may request and shall consult the Board of Directors concerning the business of the Corporation. The president shall perform such other duties and have such other powers which are delegated and assigned to him or her by the Board of Directors, the chief executive officer, if any, these Bylaws or as provided by law. The president shall be the chief executive officer of the Corporation unless the Board of Directors shall elect or appoint different individuals to hold such positions.

 

Section 4.6 Vice Presidents. The Board of Directors may elect one or more vice presidents. In the absence or disability of the president, or at the president's request, the vice president or vice presidents, in order of their rank as fixed by the Board of Directors, and if not ranked, the vice presidents in the order designated by the Board of Directors, or in the absence of such designation, in the order designated by the president, shall perform all of the duties of the president, and when so acting, shall have all the powers of, and be subject to all the restrictions on, the president. Each vice president shall perform such other duties and have such other powers which are delegated and assigned to him or her by the Board of Directors, the president, these Bylaws or as provided by law.

 

Section 4.7 Secretary. The secretary shall attend all meetings of the stockholders, the Board of Directors and any committees thereof, and shall keep, or cause to be kept, the minutes of proceedings thereof in books provided for that purpose. He or she shall keep, or cause to be kept, a register of the stockholders of the Corporation and shall be responsible for the giving of notice of meetings of the stockholders, the Board of Directors and any committees thereof, and shall see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law. The secretary shall be custodian of the corporate seal, if any, the records of the Corporation, the stock certificate books, transfer books and stock ledgers, and such other books and papers as the Board of Directors or any appropriate committee may direct. The secretary shall perform all other duties commonly incident to his or her office and shall perform such other duties which are assigned to him or her by the Board of Directors, the chief executive officer, if any, the president, these Bylaws or as provided by law.

 

Section 4.8 Assistant Secretaries. An assistant secretary shall, at the request of the secretary, or in the absence or disability of the secretary, perform all the duties of the secretary. He or she shall perform such other duties as are assigned to him or her by the Board of Directors, the chief executive officer, if any, the president, these Bylaws or as provided by law.

 

Section 4.9 Treasurer. The treasurer, subject to the order of the Board of Directors, shall have the care and custody of, and be responsible for, all of the money, funds, securities, receipts and valuable papers, documents and instruments of the Corporation, and all books and records relating thereto. The treasurer shall keep, or cause to be kept, full and accurate books of accounts of the Corporation's transactions, which shall be the property of the Corporation, and shall render financial reports and statements of condition of the Corporation when so requested by the Board of Directors, the chairman of the board, if any, the chief executive officer, if any, or the president. The treasurer shall perform all other duties commonly incident to his or her office and such other duties as may, from time to time, be assigned to him or her by the Board of Directors, the chief executive officer, if any, the president, these Bylaws or as provided by law. The treasurer shall, if required by the Board of Directors, give bond to the Corporation in such sum and with such security as shall be approved by the Board of Directors for the faithful performance of all the duties of the treasurer and for restoration to the Corporation, in the event of the treasurer's death, resignation, retirement or removal from office, of all books, records, papers, vouchers, money and other property in the treasurer's custody or control and belonging to the Corporation. The expense of such bond shall be borne by the Corporation. If a chief financial officer of the Corporation has not been appointed, the treasurer may be deemed the chief financial officer of the Corporation.

 

Section 4.10 Assistant Treasurers. An assistant treasurer shall, at the request of the treasurer, or in the absence or disability of the treasurer, perform all the duties of the treasurer. He or she shall perform such other duties which are assigned to him or her by the Board of Directors, the chief executive officer, if any, the president, the treasurer, these Bylaws or as provided by law. The Board of Directors may require an assistant treasurer to give a bond to the Corporation in such sum and with such security as it may approve, for the faithful performance of the duties of the assistant treasurer, and for restoration to the Corporation, in the event of the assistant treasurer's death, resignation, retirement or removal from office, of all books, records, papers, vouchers, money and other property in the assistant treasurer's custody or control and belonging to the Corporation. The expense of such bond shall be borne by the Corporation.

 

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Section 4.11 Execution of Negotiable Instruments, Deeds and Contracts. All (a) checks, drafts, notes, bonds, bills of exchange, and orders for the payment of money of the Corporation, (b) deeds, mortgages, proxies, powers of attorney and other written contracts, documents, instruments and agreements to which the Corporation shall be a party and (c) assignments or endorsements of stock certificates, registered bonds or other securities owned by the Corporation shall be signed in the name of the Corporation by such officers or other persons as the Board of Directors may from time to time designate. The Board of Directors may authorize the use of the facsimile signatures of any such persons. Any officer of the Corporation shall be authorized to attend, act and vote, or designate another officer or an agent of the Corporation to attend, act and vote, at any meeting of the owners of any entity in which the Corporation may own an interest or to take action by written consent in lieu thereof. Such officer or agent, at any such meeting or by such written action, shall possess and may exercise on behalf of the Corporation any and all rights and powers incident to the ownership of such interest.

 

ARTICLE V

 

CAPITAL STOCK

 

Section 5.1 Issuance. Shares of the Corporation's authorized capital stock shall, subject to any provisions or limitations of the laws of the State of Nevada, the Articles of Incorporation or any contracts or agreements to which the Corporation may be a party, be issued in such manner, at such times, upon such conditions and for such consideration as shall be prescribed by the Board of Directors.

 

Section 5.2 Stock Certificates and Uncertificated Shares.

 

(a)   Every holder of stock in the Corporation shall be entitled to have a certificate signed by or in the name of the Corporation by (i) the chief executive officer, if any, the president or a vice president, and (ii) the secretary, an assistant secretary, the treasurer or the chief financial officer, if any, of the Corporation (or any other two officers or agents so authorized by the Board of Directors), certifying the number of shares of stock owned by him, her or it in the Corporation; provided that the Board of Directors may authorize the issuance of uncertificated shares of some or all of any or all classes or series of the Corporation's stock. Any such issuance of uncertificated shares shall have no effect on existing certificates for shares until such certificates are surrendered to the Corporation, or on the respective rights and obligations of the stockholders. Whenever any such certificate is countersigned or otherwise authenticated by a transfer agent or a transfer clerk and by a registrar (other than the Corporation), then a facsimile of the signatures of any corporate officers or agents, the transfer agent, transfer clerk or the registrar of the Corporation may be printed or lithographed upon the certificate in lieu of the actual signatures. In the event that any officer or officers who have signed, or whose facsimile signatures have been used on any certificate or certificates for stock, cease to be an officer or officers because of death, resignation or other reason, before the certificate or certificates for stock have been delivered by the Corporation, the certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed the certificate or certificates, or whose facsimile signature or signatures have been used thereon, had not ceased to be an officer or officers of the Corporation.

 

(b)  Within a reasonable time after the issuance or transfer of uncertificated shares, the Corporation shall send to the registered owner thereof a written statement certifying the number and class (and the designation of the series, if any) of the shares owned by such stockholder in the Corporation and any restrictions on the transfer or registration of such shares imposed by the Articles of Incorporation, these Bylaws, any agreement among stockholders or any agreement between the stockholders and the Corporation, and, at least annually thereafter, the Corporation shall provide to such stockholders of record holding uncertificated shares, a written statement confirming the information contained in such written statement previously sent. Except as otherwise expressly provided by the NRS, the rights and obligations of the stockholders of the Corporation shall be identical whether or not their shares of stock are represented by certificates.

 

 

11


 

 

(c)   Each certificate representing shares shall state the following upon the face thereof: the name of the state of the Corporation's organization; the name of the person to whom issued; the number and class of shares and the designation of the series, if any, which such certificate represents; the par value of each share, if any, represented by such certificate or a statement that the shares are without par value. Certificates of stock shall be in such form consistent with law as shall be prescribed by the Board of Directors. No certificate shall be issued until the shares represented thereby are fully paid. In addition to the foregoing, all certificates evidencing shares of the Corporation's stock or other securities issued by the Corporation shall contain such legend or legends as may from time to time be required by the NRS or such other federal, state or local laws or regulations then in effect.

 

Section 5.3 Surrendered; Lost or Destroyed Certificates. All certificates surrendered to the Corporation, except those representing shares of treasury stock, shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been canceled, except that in the case of a lost, stolen, destroyed or mutilated certificate, a new one may be issued therefor. However, any stockholder applying for the issuance of a stock certificate in lieu of one alleged to have been lost, stolen, destroyed or mutilated shall, prior to the issuance of a replacement, provide the Corporation with his, her or its affidavit of the facts surrounding the loss, theft, destruction or mutilation and, if required by the Board of Directors, an indemnity bond in an amount not less than twice the current market value of the stock, and upon such terms as the treasurer or the Board of Directors shall require which shall indemnify the Corporation against any loss, damage, cost or inconvenience arising as a consequence of the issuance of a replacement certificate.

 

Section 5.4 Replacement Certificate. When the Articles of Incorporation are amended in any way affecting the statements contained in the certificates for outstanding shares of capital stock of the Corporation or it becomes desirable for any reason, in the discretion of the Board of Directors, including, without limitation, the merger of the Corporation with another Corporation or the conversion or reorganization of the Corporation, to cancel any outstanding certificate for shares and issue a new certificate therefor conforming to the rights of the holder, the Board of Directors may order any holders of outstanding certificates for shares to surrender and exchange the same for new certificates within a reasonable time to be fixed by the Board of Directors. The order may provide that a holder of any certificate(s) ordered to be surrendered shall not be entitled to vote, receive distributions or exercise any other rights of stockholders of record until the holder has complied with the order, but the order operates to suspend such rights only after notice and until compliance.

 

Section 5.5 Transfer of Shares. No transfer of stock shall be valid as against the Corporation except on surrender and cancellation of any certificate(s) therefor accompanied by an assignment or transfer by the registered owner made either in person or under assignment. Upon receipt of proper transfer instructions from the registered owner of uncertificated shares, such uncertificated shares shall be cancelled and issuance of new, equivalent uncertificated shares or certificated shares shall be made to the stockholder entitled thereto and the transaction shall be recorded on the transfer books of the Corporation. Whenever any transfer shall be expressly made for collateral security and not absolutely, the collateral nature of the transfer shall be reflected in the entry of transfer in the records of the Corporation.

 

Section 5.6 Transfer Agent; Registrars. The Board of Directors may appoint one or more transfer agents, transfer clerks and registrars of transfer and may require all certificates for shares of stock to bear the signature of such transfer agents, transfer clerks and/or registrars of transfer.

 

Section 5.7 Miscellaneous. The Board of Directors shall have the power and authority to make such rules and regulations not inconsistent herewith as it may deem expedient concerning the issue, transfer, and registration of certificates for shares of the Corporation's stock.

 

ARTICLE VI

 

DISTRIBUTIONS

 

Distributions may be declared, subject to the provisions of the laws of the State of Nevada and the Articles of Incorporation, by the Board of Directors and may be paid in cash, property, shares of corporate stock, or any other medium. The Board of Directors may fix in advance a record date, in accordance with and as provided in Section 2.5, prior to the distribution for the purpose of determining stockholders entitled to receive any distribution.

 

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ARTICLE VII

 

RECORDS; REPORTS; SEAL; AND FINANCIAL MATTERS

 

Section 7.1 Records. All original records of the Corporation shall be kept at the principal office of the Corporation by or under the direction of the secretary or at such other place or by such other person as may be prescribed by these Bylaws or the Board of Directors.

 

Section 7.2 Corporate Seal. The Board of Directors may, by resolution, authorize a seal, and the seal may be used by causing it, or a facsimile, to be impressed or affixed or reproduced or otherwise. Except as otherwise specifically provided herein, any officer of the Corporation shall have the authority to affix the seal to any document requiring it.

 

Section 7.3 Fiscal Year-End. The fiscal year-end of the Corporation shall be such date as may be fixed from time to time by resolution of the Board of Directors.

 

Section 7.4 Reserves. The Board of Directors may create, by resolution, such reserves as the directors may, from time to time, in their discretion, deem proper to provide for contingencies, to equalize distributions or to repair or maintain any property of the Corporation, or for such other purpose as the Board of Directors may deem beneficial to the Corporation, and the Board of Directors may modify or abolish any such reserves in the manner in which they were created.

 

ARTICLE VIII

 

INDEMNIFICATION

 

Section 8.1 Indemnification and Insurance.

 

(a)     Indemnification of Directors and Officers.

 

(i)                  For purposes of this Article VIII, (A) "Indemnitee" shall mean each director or officer who was or is a party to, or is threatened to be made a party to, or is otherwise involved in, any Proceeding (as hereinafter defined), by reason of the fact that he or she is or was a director or officer of the Corporation, or is or was serving in any capacity at the request of the Corporation as a director, officer, employee, agent, partner, member, manager or fiduciary of, or in any other capacity for, another corporation or any partnership, joint venture, limited liability company, trust, or other enterprise; and (B) "Proceeding" shall mean any threatened, pending, or completed action, suit or proceeding (including, without limitation, an action, suit or proceeding by or in the right of the Corporation), whether civil, criminal, administrative or investigative.

 

(ii)                Each Indemnitee shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the laws of the State of Nevada against all expense, liability and loss (including, without limitation, attorneys' fees, judgments, fines, taxes, penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by the Indemnitee in connection with any Proceeding; provided that such Indemnitee either is not liable pursuant to NRS 78.138 or acted in good faith and in a manner such Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any Proceeding that is criminal in nature, had no reasonable cause to believe that his or her conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent does not, of itself, create a presumption that the Indemnitee is liable pursuant to NRS 78.138 or did not act in good faith and in a manner in which he or she reasonably believed to be in or not opposed to the best interests of the Corporation, or that, with respect to any criminal proceeding, he or she had reasonable cause to believe that his or her conduct was unlawful. The Corporation shall not indemnify an Indemnitee for any claim, issue or matter as to which the Indemnitee has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the Corporation or for any amounts paid in settlement to the Corporation, unless and only to the extent that the court in which the Proceeding was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the Indemnitee is fairly and reasonably entitled to indemnity for such amounts as the court deems proper. Except as so ordered by a court and for advancement of expenses pursuant to this Section 8.1, indemnification may not be made to or on behalf of an Indemnitee if a final adjudication establishes that his or her acts or omissions involved intentional misconduct, fraud or a knowing violation of law and was material to the cause of action. Notwithstanding anything to the contrary contained in these Bylaws, no director or officer may be indemnified for expenses incurred in defending any threatened, pending, or completed action, suit or proceeding (including without limitation, an action, suit or proceeding by or in the right of the Corporation), whether civil, criminal, administrative or investigative, that such director or officer incurred in his or her capacity as a stockholder.

 

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(iii)              Indemnification pursuant to this Section 8.1 shall continue as to an Indemnitee who has ceased to be a director or officer of the Corporation, or a director, officer, employee, agent, partner, member, manager or fiduciary of, or to serve in any other capacity for, another corporation or any partnership, joint venture, limited liability company, trust, or other enterprise, and shall inure to the benefit of his or her heirs, executors and administrators.

 

(iv)               The expenses of Indemnitees must be paid by the Corporation or through insurance purchased and maintained by the Corporation or through other financial arrangements made by the Corporation, as such expenses are incurred and in advance of the final disposition of the Proceeding, upon receipt of an undertaking by or on behalf of such Indemnitee to repay the amount if it is ultimately determined by a court of competent jurisdiction that he or she is not entitled to be indemnified by the Corporation. To the extent that an Indemnitee is successful on the merits or otherwise in defense of any Proceeding, or in the defense of any claim, issue or matter therein, the Corporation shall indemnify him or her against expenses, including attorneys' fees, actually and reasonably incurred by him or her in connection with the defense.

 

(b)   Indemnification of Employees and Other Persons. The Corporation may, by action of its Board of Directors and to the extent provided in such action, indemnify employees and other persons as though they were Indemnitees.

 

(c)   Non-Exclusivity of Rights. The rights to indemnification provided in this Article VIII shall not be exclusive of any other rights that any person may have or hereafter acquire under any statute, provision of the Articles of Incorporation or these Bylaws, agreement, vote of stockholders or directors, or otherwise.

 

(d)   Insurance. The Corporation may purchase and maintain insurance or make other financial arrangements on behalf of any Indemnitee for any liability asserted against him or her and liability and expenses incurred by him or her in his or her capacity as a director, officer, employee, member, managing member or agent, or arising out of his or her status as such, whether or not the Corporation has the authority to indemnify him or her against such liability and expenses.

 

(e)   Other Financial Arrangements. The other financial arrangements which may be made by the Corporation may include the following: (i) the creation of a trust fund; (ii) the establishment of a program of self-insurance; (iii) the securing of its obligation of indemnification by granting a security interest or other lien on any assets of the Corporation; and (iv) the establishment of a letter of credit, guarantee or surety. No financial arrangement made pursuant to this subsection may provide protection for a person adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable for intentional misconduct, fraud, or a knowing violation of law, except with respect to advancement of expenses or indemnification ordered by a court.

 

(f)    Other Matters Relating to Insurance or Financial Arrangements. Any insurance or other financial arrangement made on behalf of a person pursuant to this Section 8.1 may be provided by the Corporation or any other person approved by the Board of Directors, even if all or part of the other person's stock or other securities is owned by the Corporation. In the absence of fraud, (i) the decision of the Board of Directors as to the propriety of the terms and conditions of any insurance or other financial arrangement made pursuant to this Section 8.1 and the choice of the person to provide the insurance or other financial arrangement is conclusive; and (ii) the insurance or other financial arrangement is not void or voidable and does not subject any director approving it to personal liability for his action; even if a director approving the insurance or other financial arrangement is a beneficiary of the insurance or other financial arrangement.

 

14


Section 8.2 Amendment. The provisions of this Article VIII relating to indemnification shall constitute a contract between the Corporation and each of its directors and officers which may be modified as to any director or officer only with that person's consent or as specifically provided in this Section 8.2. Notwithstanding any other provision of these Bylaws relating to their amendment generally, any repeal or amendment of this Article VIII which is adverse to any director or officer shall apply to such director or officer only on a prospective basis, and shall not limit the rights of an Indemnitee to indemnification with respect to any action or failure to act occurring prior to the time of such repeal or amendment. Notwithstanding any other provision of these Bylaws (including, without limitation, Article X), no repeal or amendment of these Bylaws shall affect any or all of this Article VIII so as to limit or reduce the indemnification in any manner unless adopted by (a) the unanimous vote of the directors of the Corporation then serving, or (b) by the stockholders as set forth in Article X; provided that no such amendment shall have a retroactive effect inconsistent with the preceding sentence.

 

ARTICLE IX

 

CHANGES IN NEVADA LAW

 

References in these Bylaws to the laws of the State of Nevada or the NRS or to any provision thereof shall be to such law as it existed on the date these Bylaws were adopted or as such law thereafter may be changed; provided that (i) in the case of any change which expands the liability of directors or officers or limits the indemnification rights or the rights to advancement of expenses which the Corporation may provide in Article VIII, the rights to limited liability, to indemnification and to the advancement of expenses provided in the Articles of Incorporation and/or these Bylaws shall continue as theretofore to the extent permitted by law and (ii) if such change permits the Corporation, without the requirement of any further action by stockholders or directors, to limit further the liability of directors or limit the liability of officers or to provide broader indemnification rights or rights to the advancement of expenses than the Corporation was permitted to provide prior to such change, then liability thereupon shall be so limited and the rights to indemnification and the advancement of expenses shall be so broadened to the extent permitted by law.

 

ARTICLE X

 

AMENDMENT OR REPEAL

 

Section 10.1 Amendment of Bylaws.

 

(a)     Board of Directors. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to amend or repeal these Bylaws or to adopt new bylaws.

 

(b)    Stockholders. Notwithstanding Section 10.1(a), these Bylaws may be amended or repealed in any respect, and new bylaws may be adopted, in each case by the affirmative vote of the holders of at least a majority of the outstanding voting power of the Corporation, voting together as a single class.

 

*****

 

CERTIFICATION

 

The undersigned, as the duly elected Secretary of Mechanical Technology, Incorporated, a Nevada corporation (the "Corporation"), does hereby certify that the foregoing Bylaws were adopted as the bylaws of the Corporation by the Board of Directors of the Corporation as of  March 29, 2021.

 

/s/ Jessica L. Thomas                                    

____________________________________

Jessica L. Thomas, Secretary                       

 

 

 

15

Exhibit 3.3

 


 



 



 Exhibit 3.4

 

CERTIFICATE OF MERGER

 

OF

 

MECHANICAL TECHNOLOGY, INCORPORATED

(A NEW YORK CORPORATION)

 

INTO

 

MECHANICAL TECHNOLOGY, INCORPORATED

(A NEVADA CORPORATION) 

 

                    UNDER SECTION 907 OF THE BUSINESS CORPORATION LAW

 

 

                        It is hereby certified, upon behalf of each of the constituent corporations herein named, as follows: 

 

                        FIRST:  The Board of Directors of each of the constituent corporations has duly adopted a plan of merger setting forth the terms and conditions of the merger of said corporations. 

 

                        SECOND:  The name of the foreign constituent corporation, which is to be the surviving corporation, and which is hereinafter sometimes referred to as the "surviving constituent corporation", is Mechanical Technology, Incorporated.  The jurisdiction of its incorporation is Nevada; and the date of its incorporation therein is March 24, 2021. 

 

The Application for Authority in the State of New York of the surviving constituent corporation to transact business as a foreign corporation therein is being filed simultaneously with the filing of this Certificate with the Department of State of the State of New York.

 

                        THIRD:  The name of the domestic constituent corporation, which is being merged into the surviving constituent corporation, and which is hereinafter sometimes referred to as the "merged constituent corporation", is Mechanical Technology, Incorporated.  The date upon which its certificate of incorporation was filed by the Department of State is October 4, 1961. 

 

                        FOURTH:  As to each constituent corporation, the plan of merger sets forth the designation and number of outstanding shares of each class and series, the specification of the classes and series entitled to vote on the plan of merger, and the specification of each class and series entitled to vote as a class on the plan of merger, as follows: 

 

 

 


 

 

 

Mechanical Technology, Incorporated (the surviving constituent corporation)

 

Designation of
each outstanding
class and series
of shares
Number of
outstanding
shares of
each class
Designation
of class and 
series entitled
to vote
Classes and
series entitled
to vote as a 
class
       
Common stock 100       Common stock N/A
       
       

Mechanical Technology, Incorporated (the merged constituent corporation)

       
Designation of
each outstanding
class and series 
of shares 
Number of
outstanding 
shares of
each class
Designation
of class and
series entitled
to vote
Classes and
series entitled
 to vote as a 
class
       
Common stock  9,821,857  Common stock N/A

                                                            

 

The number of the aforesaid outstanding shares is subject to change prior to the effective date of the merger by reason of the exercise of outstanding options to purchase additional shares of said class and the issue of additional shares.

           

                        FIFTH:  The merger herein certified was authorized in respect of the merged constituent corporation by the vote of holders of outstanding shares of the corporation entitled to vote on the plan of merger under the certificate of incorporation, having not less than the minimum requisite proportion of votes and by the class vote of the holders of outstanding shares having not less than the minimum requisite proportion of votes of each class which are denied voting power under the certificate of incorporation but which are entitled to vote by class under paragraph (a) (2) of section 903 of the Business Corporation Law of the State of New York.

 

                        SIXTH:  The merger herein certified is permitted by the laws of the jurisdiction of incorporation of the surviving constituent corporation and is in compliance with said laws. 

                       

                        SEVENTH:  The surviving constituent corporation agrees that it may be served with process in the State of New York in any action or special proceeding for the enforcement of any liability or obligation of the merged constituent corporation, for the enforcement of any liability or obligation of the surviving constituent corporation for which the surviving constituent corporation is previously amenable to suit in the State of New York, and for the enforcement, as provided in the Business Corporation Law of the State of New York, of the right of shareholders of the merged constituent corporation to receive payment for their shares against the surviving constituent corporation. 

 

                        EIGHTH:  The surviving constituent corporation agrees that, subject to the provisions of section 623 of the Business Corporation Law of the State of New York, it will promptly pay to the shareholders of the merged constituent corporation the amount, if any, to which they shall be entitled under the provisions of the Business Corporation Law of the State of New York relating to the rights of shareholders to receive payment for their shares. 

 


 

 

                        NINTH:  The surviving constituent corporation hereby designates the Secretary of State of the State of New York as its agent upon whom process against it may be served in the manner set forth in paragraph (b) of section 306 of the Business Corporation Law of the State of New York in any action or special proceeding.  The post office address within the State of New York to which the said Secretary of State shall mail a copy of any process against the surviving corporation served upon him is:  Mechanical Technology, Incorporated, 325 Washington Avenue Extension, Albany, NY 12205.

 

                        TENTH:  Each of the constituent domestic corporations hereby certifies that all fees and taxes (including penalties and interest) administered by the Department of Taxation and Finance of the State of New York which are now due and payable by each constituent domestic corporation have been paid and a cessation franchise tax report (estimated or final) through the anticipated date of merger has been filed by each constituent domestic corporation.  The said report, if estimated, is subject to amendment.  The surviving foreign corporation agrees that it will within thirty days after the filing of the certificate of merger file the cessation tax report, if an estimated report was previously filed, and promptly pay to the Department of Taxation and Finance of the State of New York all fees and taxes (including penalties and interest), if any, due to the said Department of Taxation and Finance by each constituent domestic corporation.

 

Signed on March 26, 2021.                          

Mechanical Technology, Incorporated

(a New York corporation)

                                                                                   

By:_/s/ Michael Toporek___________

Name: Michael Toporek

Title: Chief Executive Officer

 

 

 

Mechanical Technology, Incorporated

(a Nevada corporation)

                                                                                   

By: _/s/ Michael Toporek___________

Name: Michael Toporek

Title: President

 

 

 


 

 

 

 

 

 

 

 

Certificate of Merger

 

of

 

Mechanical Technology, Incorporated,

a New York corporation

 

into

 

Mechanical Technology, Incorporated,

a Nevada corporation

 

 

 

 

Under Section 907 of the Business Corporation Law.

 

 

 

 

 

 

Filed by:   Natalie S. Lederman, Sullivan & Worcester LLP

    (Name)

  1633 Broadway, 32nd Floor                                 

  (Mailing address)

                 New York, NY 10019                                              

 (City, State and Zip code)

 

Exhibit 10.41

 

Mechanical Technology, Incorporated
 
2021 STOCK INCENTIVE PLAN

 

1.

PURPOSE

 

The purpose of the Mechanical Technology, Incorporated Stock Incentive Plan (this "Plan") is to promote the interests of Mechanical Technology, Incorporated (the "Company") and its stockholders by allowing the Company to attract and retain senior managers, employees, directors, consultants, professionals and service providers who provide services to the Company or any of its subsidiaries, provided that such services are bona fide services that are not of a capital-raising nature ("Eligible Persons"). This Plan is expected to contribute to the attainment of these objectives by enabling the Company to pay Eligible Persons utilizing shares of common stock, par value $0.01 per share, of the Company ("Shares") in addition to cash and to grant to such Eligible Persons Shares which are restricted as provided in Section 6 of this Plan ("Restricted Stock"). In addition, this Plan is expected to contribute to the attainment of these objectives by providing for the grants to Eligible Persons of (i) the right to receive Shares at a specific future time ("RSUs") and (ii) stock options ("Options"), which Options may be exercised for Shares.

 

2.

ADMINISTRATION

 

This Plan shall be administered by the Compensation Committee of the Board of Directors (the Committee"), unless the Company does not have a Compensation Committee, in which case this Plan shall be administered by the Board of Directors of the Company (the "Board"). Subject to the provisions of this Plan, the Committee shall be authorized to interpret this Plan; to establish, amend and rescind any rules and regulations relating to this Plan; and to make all determinations necessary or advisable for the administration of this Plan. The determinations of the Committee in the administration of this Plan, as described herein, shall be final and conclusive. Each of the Chief Executive Officer, the Chief Financial Officer and the Secretary of the Company shall be authorized to implement this Plan in accordance with its terms and to take such actions of a ministerial nature as shall be necessary to effectuate the intent and purposes of this Plan. The validity, construction and effect of this Plan and any rules and regulations relating to this Plan shall be determined in accordance with the laws of the State of New York.

 

3.

ELIGIBILITY

 

The class of individuals eligible to receive Restricted Stock, Restricted Stock Units or Options (the "Awards") under this Plan shall be persons who are Eligible Persons (as defined above). Any holder of an Award granted under this Plan shall hereinafter be referred to as a "Participant" or collectively as "Participants."  

 

 

1


 

4.

SHARES SUBJECT TO THIS PLAN

 

(a)

Share Reserve and Limitation of Grants.  Subject to adjustment as provided in Section 7 hereof, the maximum aggregate number of Shares that may be issued under this Plan (i) pursuant to the exercise of Options, (ii) as Restricted Stock and (iii) as available pursuant to RSUs shall be limited to (A) during the Company's fiscal year ending December 31, 2021 (the "2021 Fiscal Year"), 1,460,191 Shares and (B) beginning with the Company's fiscal year ending December 31, 2022 (the "2022 Fiscal Year"), fifteen percent (15%) of the number of Shares outstanding, which calculation shall be made on the first trading day of a new fiscal year; provided that, (A) during the 2021 Fiscal Year, no more than 778,769 Shares may be issued pursuant to Award grants and (B) during any fiscal year of the Company beginning with the 2022 Fiscal Year and thereafter, no more than eight percent (8%) of the number of Shares outstanding may be issued pursuant to Award grants in any fiscal year. Subject to adjustment as provided in Section 7 hereof, and notwithstanding any provision hereto to the contrary, (i) Shares subject to this Plan shall include Shares forfeited in a prior year as provided herein and (ii) the number of Shares that may be issued under this Plan may never be less than the number of Shares that are then outstanding under Award grants. For purposes of determining the number of Shares available under this Plan, Shares withheld by the Company to satisfy applicable tax withholding obligations pursuant to Section 10(e) of this Plan shall be deemed issued under this Plan.

 

(b)

Reversion of Shares. In the event that, prior to the date this Plan shall terminate in accordance with Section 8 hereof, any Award granted under this Plan expires unexercised or unvested or is terminated, surrendered or cancelled without the delivery of Shares, or any shares of Restricted Stock are forfeited back to the Company, then the Shares of subject to such Award may be made available for subsequent Awards under the terms of this Plan.

   

5.

GRANT, TERMS AND CONDITIONS OF OPTIONS

 

(a) In General.  The Committee may grant Awards in the form of Options.  Every Option shall be evidenced by an Option agreement in such form as the Committee shall approve from time to time, specifying the number of Shares that may be purchased pursuant to the Option, the time or times at which the Option shall become exercisable in whole or in part and such other terms and conditions as the Committee shall approve, and containing or incorporating by reference the terms and conditions set forth in this Section 5. 

 

(b)  Duration.  The duration of each Option shall be as specified by the Committee.

(c)  Exercise Price.  The exercise price of each Option shall be any lawful consideration, as specified by the Committee in its discretion; provided, however, that the exercise price shall be at least one hundred percent (100%) of the Fair Market Value of the Shares on the date on which the Committee awards the Option, which shall be considered the date of grant of the Option for purposes of fixing the price.

 

2


 

For purposes of this Plan and except as may be otherwise explicitly provided in this Plan or in any Award agreement, the Fair Market Value of a share of Common Stock at any particular date shall be determined according to the following rules:

(i)   If the Shares are not at the time listed or admitted to trading on any national securities exchange or the Nasdaq Stock Market ("Nasdaq") or any of the OTC Markets ("OTC Markets"), then Fair Market Value shall be determined in good faith by the Board, which may take into consideration (1) the price paid for the Shares in the most recent trade of a substantial number of Shares known to the Board to have occurred at arm's length between willing and knowledgeable investors, (2) an appraisal by an independent party or (3) any other method of valuation undertaken in good faith by the Board, or some or all of the above as the Board shall in its discretion elect;

(ii)  If the Shares of are at the time listed or admitted to trading on any national securities exchange or NASDAQ, then Fair Market Value shall mean the Closing Price for the Shares on such date.  The "Closing Price" on any date shall mean the last sale price for the Shares, regular way, or, in case no such sale takes place on that day, the average of the closing bid and asked prices, regular way, for the Shares, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the national securities exchange or Nasdaq; or

(iii)  If the Shares are at the time traded in the OTC Markets, the average of the closing bid and asked prices, regular way, for the Shares, in either case as reported in the OTC Markets with respect to securities listed or admitted to trading in the OTC Markets.

(d) Method of Exercise.  Options may be exercised by delivery to the Company of a notice of exercise in a form, which may be electronic, approved by the Committee, together with payment in full in the manner specified in Section 5(f) of the exercise price for the number of Shares for which the Option is exercised.  Shares subject to the Option will be delivered by the Company as soon as practicable following exercise and payment of the exercise price.  If the Participant fails to pay for or to accept delivery of all or any part of the number of specified in the notice upon tender of delivery thereof, the right to exercise the Option with respect to those Shares shall be terminated, unless the Committee otherwise agrees.

(e)  Broker-Assisted Exercises.  To the extent permitted by law, any Option may permit payment of the exercise price and payment of any applicable tax withholding from the proceeds of sale through a broker or bank on a date satisfactory to the Committee of some or all of the Shares to which such exercise relates.  In such case, the Committee will establish rules and procedures relating to such broker- (or bank-) assisted exercises in a manner intended to comply with the requirements of Section 402 of the Sarbanes-Oxley Act of 2002 and Section 409A including as to all Options, without limitation, the time when the election to exercise an option in such manner may be made, the time period by which the broker or bank must remit payment of the exercise price and applicable tax withholding, the interest or other earnings attributable to the payment and the method of funding, if any, attributable to the payment.

(f)  Payment.  The Committee will determine the methods by which the exercise price of an Option may be paid, the form of payment and the methods by which Shares will be delivered or deemed to be delivered to Participants.  As determined by the Committee, payment of the exercise price of an Option may be made, in whole or in part, in the form of:  (1) cash or cash equivalents; (2) delivery (by either actual delivery or attestation) of previously-acquired Shares based on the Fair Market Value of the Shares on the date the Option is exercised; (3) withholding of Shares from the Option based on the Fair Market Value of Shares on the date the Option is exercised; (4) broker-assisted or bank-assisted market sales; or (5) any other "cashless exercise" arrangement satisfactory to the Committee.

 

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(g)  Vesting.  An Option may be exercised so long as it is vested and outstanding from time to time, in whole or in part, in the manner and subject to the conditions that the Committee in its discretion may provide in the Option agreement. 

(h)  Effect of Cessation of Employment or Service Relationship.  The Committee shall determine in its discretion and specify in each Option agreement the effect, if any, of the termination of the Participant's employment or other service relationship upon the exercisability of the Option.

(i)  Transferability of Options.  An Option shall not be assignable or transferable by the Participant except by will or by the laws of descent and distribution.  During the life of the Participant, an Option shall be exercisable only by him, by a conservator or guardian duly appointed for him by reason of his incapacity or by the person appointed by the Participant in a durable power of attorney acceptable to the Company's counsel.  Notwithstanding the preceding sentences of this Section 5(i), the Committee may in its discretion permit the Participant to transfer an Option to a member of the Immediate Family (as defined below) of the Participant, to a trust solely for the benefit of the Participant and the Participant's Immediate Family or to a partnership or limited liability company whose only partners or members are the Participant and members of the Participant's Immediate Family.  "Immediate Family" shall mean, with respect to any Participant, the Participant's child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, and shall include adoptive relationships.

(j) No Rights as Stockholder.  A Participant shall have no rights as a stockholder with respect to any Shares covered by an Option until becoming the record holder of the Shares.  No adjustment shall be made for dividends or other rights for which the record date is earlier than the date the certificate is issued, other than as required or permitted pursuant to Section 7.

 

 

 6.

TERMS AND CONDITIONS OF RESTRICTED STOCK AND RSUS

(a) Restricted Stock and RSUs.  The Committee may grant Awards in the form of shares of Restricted Stock and/or RSUs (collectively, referred to as "Stock Awards").  Restrictions on Restricted Stock may include the right of the Company to repurchase all or part of the Shares at their issue price or other stated or formula price (or to require forfeiture of the Shares if issued at no cost) from the Participant in the event that conditions specified by the Committee in the applicable Award agreement are not satisfied prior to the end of the applicable restriction period or periods established by the Committee for the Stock Award.

 

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(b) Form of Payment.  RSUs shall be paid in Shares.

(c) Procedures Relating to Stock Awards.  A Restricted Stock agreement or RSU agreement shall evidence the applicable Award and shall contain such terms and conditions as the Committee shall provide.

A holder of a Stock Award without restrictions or Restricted Stock shall, subject to the terms of any applicable agreement, have all of the rights of a stockholder of the Company, including the right to vote the Shares and (except as provided below) the right to receive any dividends.  Certificates representing Restricted Stock shall be imprinted with a legend to the effect that the Shares represented may not be sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of except in accordance with the terms of the applicable agreement.  (If shares of Restricted Stock are held in book entry form, statements evidencing those shares shall include a similar legend.)  The Participant shall be required to deposit any stock certificates with an escrow agent designated by the Committee, together with a stock power or other instrument of transfer appropriately endorsed in blank.  With respect to such Shares, the Committee shall provide that dividends will not be paid with respect to unvested Restricted Stock until the time (if at all) the Restricted Stock vests, and the Company will retain such dividends and pay them to the Participant upon vesting.

Except as otherwise provided in this Section 6, Restricted Stock shall become freely transferable by the Participant after all conditions and restrictions applicable to the Shares have been satisfied or lapse (including satisfaction of any applicable tax withholding obligations).

(d)  Additional Matters Relating to RSUs.

(i)  Each grant of RSUs shall constitute the agreement by the Company to issue or transfer Shares to the Participant in the future in consideration of the performance of services, subject to the fulfillment during the period established by the Committee and set forth in the RSU agreement (the "Deferral Period") of such conditions as the Committee may specify.

 

(ii)  Each grant of RSUs may be made without additional consideration from the Participant or in consideration of a payment by the Participant that is less than the Fair Market Value on the date of grant.

 

(iii)  Each grant shall provide that the RSUs covered thereby shall be subject to a Deferral Period, which shall be fixed by the Committee on the date of grant, and any grant or sale may provide for the earlier termination of such Deferral Period in the event of a Change in Control of the Company or other similar transaction or event.  For the purposes of this Plan, "Change in Control" shall mean a merger or consolidation in which securities constituting more than 50% of the total combined voting power of the Company's outstanding securities are transferred to a person or persons that do not own more than 50% of the combined voting power of the Company's securities immediately prior to such transaction, or the sale, transfer or other disposition of all or substantially all of the Company's assets to a non-affiliate of the Company.

 

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(iv) During the Deferral Period, the Participant shall not have any right to transfer any rights under the subject Award, shall not have any rights of ownership in the Shares issuable pursuant to the RSUs and shall not have any right to vote such Shares, but the Committee may on or after the date of grant, authorize the payment of dividend or other distribution equivalents on such Shares in cash or additional Shares on a current, deferred or contingent basis.

 

(v)  Each grant of RSUs shall be evidenced by an agreement delivered to and accepted by the Participant and containing such terms and provisions as the Committee may determine consistent with this Plan.

(vi)  Each agreement underlying a Stock Award shall set forth the extent to which the Participant shall have the right to retain the Award following termination of the Participant's employment or other service relationship with the Company and the rights, if any, of the Participant upon a Change in Control, which may include, among other things, the acceleration of vesting of a Stock Award.  Whether any such right shall apply to a particular Award shall be determined in the sole discretion of the Committee.

   

7.

ADJUSTMENT AND CHANGES IN SHARES

 

If, after the Effective Date (as defined below), there is a stock dividend or stock split, recapitalization (including payment of an extraordinary dividend), merger, consolidation, combination, spin-off, distribution of assets to stockholders, exchange of shares, or other similar corporate change affecting the Shares, the Board shall appropriately adjust the aggregate number of Shares (including Shares underlying Options) available for Awards under this Plan or subject to outstanding Awards, and any other factors, limits or terms affecting any outstanding or subsequently issuable Awards as may be appropriate.

 

8.

EFFECTIVE DATE, DURATION OF PLAN AMENDMENT AND TERMINATION

 

This Plan shall become effective on the date of the adoption of this Plan by the Board (the "Effective Date"). This Plan shall automatically terminate on the tenth (10th) anniversary of this Plan's Effective Date. The Board may terminate, suspend or amend this Plan at any time without stockholder approval except to the extent that stockholder approval is required to satisfy applicable requirements imposed by (a) Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any successor rule or regulation; or (b) the rules of any exchange on or through which the Shares are then listed or traded. For the avoidance of doubt, this Plan shall be effective upon adoption by the Board, and shall be submitted to the stockholders of the Company for approval within twelve (12) months after adopted by Board. In the event that the stockholders of the Company shall not approve this Plan within such twelve (12) month period, this Plan shall terminate.  If this Plan is terminated, as a result of not having been approved by stockholders during such 12-month period, automatic termination on the tenth (10) anniversary as provided in this Section 8 or pursuant to any other terms of this Plan, notwithstanding such termination, all Awards granted prior to such termination shall continue until they are terminated by their terms.

 

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9.

APPLICABLE LAW AND REGISTRATION

The grant of Awards and the issuance of Shares (including Restricted Stock, Shares underlying Options, upon their exercise, and Shares issued in connection with RSUs) shall be subject to all applicable laws, rules and regulations and to such approvals of any governmental agencies or securities exchanges as may be required. Notwithstanding the foregoing, no Shares, Restricted Stock, RSUs or Options shall be issued under this Plan unless the Company is satisfied that such issuance will be in compliance with applicable federal and state securities laws. Shares issued under this Plan may be subject to such stop transfer orders and other restrictions as the Board may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any exchange on or through which the Shares are then listed or traded, or any applicable federal or state securities law. The Board may cause a legend or legends to be placed on any stock certificates issued under this Plan to make appropriate reference to restrictions within the scope of this Section 9 or other provisions of this Plan.  To the extent not preempted by Federal law, this Plan and all agreements hereunder shall be construed in accordance with and governed by the laws of the State of New York, without regard to the principles of conflicts of law.

 

10.

MISCELLANEOUS

(a)  Transferability of Awards.  Except as otherwise provided herein, Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution and, during the life of the Participant, shall be exercisable only by the Participant.

(b)  Documentation.  Each Award shall be evidenced in such form (written, electronic or otherwise) as the Committee shall determine.  Each Award may contain terms and conditions in addition to those set forth in this Plan.

(c)  No Guarantee of Employment or Continuation of Service Relationship.  Neither this Plan nor any Award agreement shall give an employee or other service provider the right to continue in the employment of or to continue to provide services to the Company or a subsidiary, or give the Company or a subsidiary the right to require continued employment or services.

(d)  Rounding Conventions.  The Committee may, in its sole discretion and taking into account any requirements of the Code, including without limitation, as applicable, Sections 422 through 424 and 409A of the Code, determine the effect of vesting, stock dividend, and any other adjustments on shares and any cash amount payable hereunder, and may provide that no fractional shares will be issued (rounding up or down as determined by the Committee) and that cash amounts be rounded down to the nearest whole cent.

(e)  Tax Withholding.  To the extent required by law, the Company (or a subsidiary) shall withhold or cause to be withheld income and other taxes with respect to any income recognized by a Participant by reason of the exercise, vesting or settlement of an Award, and as a condition to the receipt of any Award the Participant shall agree that if the amount payable to him or her by the Company and any subsidiary in the ordinary course is insufficient to pay such taxes, then he or she shall upon the request of the Company pay to the Company an amount sufficient to satisfy its tax withholding obligations. Without limiting the foregoing, the Committee may in its discretion permit any Participant's withholding obligation to be paid in whole or in part in the form of Shares by withholding from the Shares to be issued or by accepting delivery from the Participant of Shares already owned by him or her.  If payment of withholding taxes is made in whole or in part in Shares, the Participant shall deliver to the Company certificates registered in his or her name representing Shares legally and beneficially owned by him or her, fully vested and free of all liens, claims, and encumbrances of every kind, duly endorsed or accompanied by stock powers duly endorsed by the record holder of the shares represented by such certificates.  If the Participant is subject to Section 16(a) of the Exchange Act, his or her ability to pay any withholding obligation in the form of Shares shall be subject to any additional restrictions as may be necessary to avoid any transaction that might give rise to liability under Section 16(b) of the Exchange Act.

 

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(f)  Use of Proceeds.  The proceeds from the sale of Shares pursuant to Awards shall constitute general funds of the Company.

(g)  Awards to Non-United States Persons.  Awards may be made to Participants who are foreign nationals or employed outside the United States on such terms and conditions different from those specified in this Plan as the Committee considers necessary or advisable to achieve the purposes of this Plan or to comply with applicable laws.  The Board shall have the right to amend this Plan, consistent with its authority to amend this Plan as set forth in Section 8, to obtain favorable tax treatment for Participants, and any such amendments shall be evidenced by an Appendix to this Plan.  The Board may delegate this authority to the Committee.

(h)  Compliance with Section 409A.  It is the intention of the Company that no payment or entitlement pursuant to this Plan will give rise to any adverse tax consequences to any person pursuant to Section 409A of the Code.  The Committee shall interpret and apply this Plan to that end, and shall not give effect to any provision therein in a manner that reasonably could be expected to give rise to adverse tax consequences under Section 409A.

 

 

 

8

Exhibit 10.42

 

MECHANICAL TECHNOLOGY, INCORPORATED

 

2021 Stock Incentive Plan

 

Option Agreement

This Option Agreement (this "Agreement") for the award of an Option, pursuant to the Mechanical Technology, Incorporated 2021 Stock Incentive Plan, as amended and in effect from time to time (the "Plan"), is made as of date set forth below (the "Grant Date"), by and between Mechanical Technology, Incorporated (the "Company") and the individual identified below the optionee (the "Optionee").  Initially capitalized terms not otherwise defined in this Agreement shall have the meanings given to those terms in the Plan.  The Terms and Conditions attached hereto are also a part hereof.

 

 

Name of the Optionee:

 

Grant Date:

 

Number of shares of the Company's Common Stock (the "Option Shares") available pursuant to the Option granted pursuant to this Agreement:

 

Exercise Price:

 

Grant Type:

Nonstatutory Option

Vesting Schedule:

 

 

 

 

 

 

 

 

Date of expiration of option ("Expiration Date")

 

 

 

                                                           

Signature of Optionee

 

[Name

    Address]

MECHANCAL TECHNOLOGY, INCORPORATED

 

By:                                                     

            Name:

            Title: 

 

 

 

 


MECHANICAL TECHNOLGY, INCORPORATED

 

Option Agreement - Terms and Conditions

 

Mechanical Technology, Incorporated (the "Company") agrees to award to the Optionee, and the Optionee agrees to accept from the Company, and Option for the number of Option Shares specified on the cover page hereof, on the following terms:

 

1.               Grant Under Plan.  Option Agreement (the "Agreement") is made pursuant to and is governed by the Company's 2021 Stock Incentive Plan, as amended and in effect from time to time (the "Plan"), and, unless the context otherwise requires, capitalized terms used herein shall have the same meanings as in the Plan.

 

2.         Term and Exercisability of Option.  This Option shall expire at 5:00 p.m. Eastern Time on the Expiration Date shown on the cover page hereof, unless the Option expires earlier pursuant to this Section 2 or any provision of the Plan.  At any time before its expiration, this Option may be exercised to the extent vested, as shown on the cover page hereof, provided that:

 

(a)               the Optionee's Business Relationship must be in effect on a given date in order for any scheduled increment in vesting, as set forth in the Vesting Schedule shown in on the to become effective;

 

(b)               this Option may not be exercised after following the date of termination of the Business Relationship between the Optionee and the Company;

 

(c)               in the event the Business Relationship is terminated for any reason (whether voluntary or involuntary), (i) the Optionee's right to vest in the Option will, except as explicitly provided by the Committee or the Board, terminate as of the date of termination of the Business Relationship (and such right shall not be extended by any notice period mandated under local law), (ii) the Optionee's continuing right (if any) to exercise the Option after termination of the Relationship will be measured from the date of termination of the Business Relationship (and such right will not be extended by any notice period mandated under local law) and (iii) the Committee or the Board shall have the exclusive discretion to determine when the Business Relationship has terminated for purposes of this Option (including determining when the Optionee is no longer considered to be providing active service while on a leave of absence).

 

For purposes of this Section 2, (i) the term "Company" refers to the Company and its subsidiaries (each a "Subsidiary" and collectively, the "Subsidiaries") and (ii) "Business Relationship" means service to the Company or its successor in the capacity of an employee, officer, director, consultant or advisor.  For purposes hereof, a Business Relationship shall not be considered as having terminated during any military leave, sick leave, or other leave of absence if approved in writing by the Company and if such written approval, or applicable law, contractually obligates the Company to continue the Business Relationship of the Optionee after the approved period of absence (an "Approved Leave of Absence").  In the event of an Approved Leave of Absence, vesting of Options shall be suspended (and all subsequent vesting dates shall be postponed by the length of the period of the Approved Leave of Absence) unless otherwise provided in the Company's written approval of the leave of absence that specifically refers to this Agreement.  A Business Relationship shall also include a consulting arrangement between the Optionee and the Company that immediately follows termination of employment, but only if so stated in a written consulting agreement executed by the Company that specifically refers to this Agreement.

 

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It is the Optionee's responsibility to be aware of the date that the Option expires.

3.         Method of Exercise.  Prior to its expiration and to the extent that the right to purchase Option Shares has vested hereunder, this Option may be exercised in whole or in part from time to time by notice provided in a manner consistent with the requirements of Section 5(d) of the Plan, accompanied by payment in full of the Exercise Price by means of payment acceptable to the Company in accordance with Section 5(f) of the Plan.

As soon as practicable after its receipt of notice, the Company shall, without transfer or issue tax to the Optionee (or other person entitled to exercise this Option), (a) deliver to the Optionee (or other person entitled to exercise this Option), at the principal executive offices of the Company or such other place as shall be mutually acceptable, a stock certificate or certificates for such Option Shares out of theretofore authorized but unissued shares or treasury shares of its Common Stock as the Company may elect or (b) issue shares of its Common Stock in book entry form; provided, however, that the time of delivery or issuance may be postponed by the Company for such period as may be required for it with reasonable diligence to comply with any applicable requirements of law; and provided, further, that any Option Shares delivered or issued shall remain subject to any applicable securities laws or trading restrictions imposed pursuant to the terms of this Agreement and the Plan.

If the Optionee (or other person entitled to exercise this Option) fails to pay for and accept delivery of all of the Option Shares specified in the notice upon tender of delivery thereof, his or her right to exercise this Option with respect to such Option Shares not paid for may be terminated by the Company.

4.         Withholding Taxes.  The Company may withhold any and all applicable taxes, as required connection with the grant and/or exercise of the Option by the Optionee, as provided in Section 10(e) of the Plan.

 

5.         Non-assignability of Option.  This Option shall not be assignable or transferable by the Optionee except by will or by the laws of descent and distribution or as permitted by the Committee or the Board in its discretion pursuant to the terms of the Plan.  During the life of the Optionee, this Option shall be exercisable only by him or her, by a conservator or guardian duly appointed for him or her by reason of the Optionee's incapacity or by the person appointed by the Optionee in a durable power of attorney acceptable to the Company's counsel.

6.         Compliance with Securities Act; Lock-Up Agreement.  The Company shall not be obligated to sell or issue any Option Shares or other securities pursuant to the exercise of this Option unless the Option Shares or other securities with respect to which this Option is being exercised are at that time effectively registered or exempt from registration under the Securities Act and applicable state or provincial securities laws/any applicable securities laws.  In the event Option Shares or other securities shall be issued that shall not be so registered, the Optionee hereby represents, warrants and agrees that he or she will receive such Option Shares or other securities for investment and not with a view to their resale or distribution, and will execute an appropriate investment letter satisfactory to the Company and its counsel.  The Optionee further hereby agrees that as a condition to the purchase of Option Shares upon exercise of this Option, he or she will execute an agreement in a form acceptable to the Company to the effect that the Option Shares shall be subject to any underwriter's lock-up agreement in connection with a public offering of any securities of the Company that may from time to time apply to shares held by officers and employees of the Company, and such agreement or a successor agreement must be in full force and effect.

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7.         Legends.  The Optionee hereby acknowledges that the stock certificate or certificates (or entries in the case of book entry form) evidencing Option Shares or other securities issued pursuant to any exercise of this Option may bear a legend (or provide a restriction) setting forth the restrictions on their transferability described in Section 6 hereof, if such restrictions are then in effect.

8.         Rights as Stockholder.  The Optionee shall have no rights as a stockholder with respect to any Option Shares until the date of issuance of a stock certificate (or appropriate entry is made in the case of book entry form) to him or her for such Option Shares.  No adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued (or appropriate entry is made in the case of book entry form).

9.         Effect upon Employment and Performance of Services.  Nothing in this Agreement or the Plan shall be construed to impose any obligation upon the Company or any affiliate to employ or utilize the services of the Optionee or to retain the Optionee in its employ or to engage or retain the services of the Optionee.

10.  Time for Acceptance.  Unless the Optionee shall evidence his or her acceptance of this Option by electronic or other means prescribed by the Committee or the Board within sixty (60) days after its delivery, the Option shall be null and void (unless waived by the Committee or the Board).

11.       Electronic Delivery.  The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means.  The Optionee consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

12.       Nature of Award.  By accepting this Option, the Optionee acknowledges, understands and agrees that:

(a)        the Plan is established voluntarily by the Company, is discretionary in nature and may be modified, amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan and this Agreement;

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(b)        the grant of this Option is voluntary and occasional and does not create any contractual or other right to receive future awards under the Plan or benefits in lieu of Plan awards, even if Options or other Plan awards have been granted in the past;

(c)        all decisions with respect to future Option grants or Plan awards will be at the sole discretion of the Committee or the Board;

(d)       he or she is voluntarily participating in the Plan;

(e)        the future value of Option Shares underlying the Option is unknown and cannot be predicted with certainty;

(f)        if the Option Shares do not increase in value, the Option, as measured by the difference between the Fair Market Value of the Option Shares and the Grant Price, will have no value;

(g)        if the Optionee exercises the Option and acquires Option Shares, the value of such Option Shares may increase or decrease in value;

(h)        if the Optionee resides and/or works outside the United States, the following additional provisions shall apply:

(i)         the Option and any Option Shares acquired under the Plan do not replace any pension or retirement rights or compensation;

(ii)        the Option and any Option Shares acquired under the Plan (including the value attributable to each) do not constitute compensation of any kind for services of any kind rendered to the Company and/or any Subsidiary thereof and are outside the scope of the Optionee's employment contract, if any;

(iii) the Option and any Option Shares acquired under the Plan (including the value attributable to each) are not part of normal or expected compensation or salary, including, but not limited to, for purposes of calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, service awards, pension or retirement or welfare benefits or similar payments unless such other arrangement explicitly provides to the contrary;

(iv)       no claim or entitlement to compensation or damages shall arise from forfeiture of the Option resulting from a termination of the Business Relationship for any reason and in consideration of the grant of the Option, the Optionee irrevocably agrees never to institute a claim against the Company and/or any Subsidiary, waives his or her ability to bring such claim and releases the Company and/or its Subsidiaries from any claim; if, notwithstanding the foregoing, such claim is allowed by a court of competent jurisdiction, then by accepting this Option, the Optionee is deemed irrevocably to have agreed not to pursue such claim and agrees to execute any and all documents necessary to request dismissal or withdrawal of such claims; and

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(i)         the Company shall not be liable for any foreign exchange rate fluctuation between the Optionee's local currency and the United States dollar that may affect the value of the Option or any amounts due pursuant to the exercise of the Option or the subsequent sale of any shares of Common Stock acquired upon settlement.

13.       Section 409A of the Internal Revenue Code.  The Options granted hereunder are intended to avoid the potential adverse tax consequences to the Optionee of Section 409A of the Internal Revenue Code of 1986, as amended, and the Committee or the Board may make such modifications to this Agreement as it deems necessary or advisable to avoid such adverse tax consequences.

 

14.       General Provisions.

(a)        Amendment; Waivers.  This Agreement, including the Plan, contains the full and complete understanding and agreement of the parties hereto as to the subject matter hereof, and except as otherwise permitted by the express terms of the Plan, this Agreement and applicable law, it may not be modified or amended nor may any provision hereof be waived without a further written agreement duly signed by each of the parties; provided, however, that a modification or amendment that does not materially diminish the rights of the Optionee hereunder, as they may exist immediately before the effective date of the modification or amendment, shall be effective upon written notice of its provisions to the Optionee, to the extent permitted by applicable law.  The waiver by either of the parties hereto of any provision hereof in any instance shall not operate as a waiver of any other provision hereof or in any other instance.  The Optionee shall have the right to receive, upon request, a written confirmation from the Company information set forth in the table on the cover page of this Agreement.

(b)       Binding Effect.  This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, representatives, successors and assigns.

(c)        Severability.  The invalidity, illegality or unenforceability of any provision of this Agreement shall in no way affect the validity, legality or enforceability of any other provision.

 

(c)        Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada, without regard to the principles of conflicts of law.

(d)       Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the limitations set forth herein.

(e)  Construction.  This Agreement is to be construed in accordance with the terms of the Plan.  In case of any conflict between the Plan and this Agreement, the Plan shall control.  The titles of the sections of this Agreement and of the Plan are included for convenience only and shall not be construed as modifying or affecting their provisions.  The masculine gender shall include both sexes; the singular shall include the plural and the plural the singular unless the context otherwise requires.  Capitalized terms not defined herein shall have the meanings given to them in the Plan.

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(f)  Data PrivacyBy entering into this Agreement and except as otherwise provided in any data transfer agreement entered into by the Company, the Optionee: (i) authorizes the Company, and any agent of the Company administering the Plan or providing Plan recordkeeping services, to disclose to the Company such information and data as the Company shall request in order to facilitate the grant of options and the administration of the Plan; (ii) waives any data privacy rights he or she may have with respect to such information; and (iii) authorizes the Company to store and transmit such information in electronic form.  For purposes of this Section 13(f), the term "Company" refers to the Company, its Subsidiaries and any other affiliate.

(g)  Notices.  All notices hereunder shall be in writing and shall be deemed given when sent by certified or registered mail, postage prepaid, return receipt requested, if to the Optionee, to the address set forth on the cover page of this Agreement or at the address shown on the records of the Company, and if to the Company, to the Company's principal executive offices, attention of the Corporate Secretary. 

 

 

 

 

 

 

 

 

 

6


EXHIBIT A

 

Mechanical Technology, Incorporated 2021 Stock  Incentive Plan

 

Attached

 Exhibit 10.43

 

MECHANICAL TECHNOLGY, INCORPORTED

2021 Stock Incentive Plan

 

Restricted Stock Agreement

Mechanical Technology, Incorporated (the "Company") hereby enters into this Restricted Stock Agreement, dated as of the date set forth below, with the Recipient named herein (the "Agreement") and grants to the Recipient the shares of Restricted Stock specified herein pursuant to the Mechanical Technology, Incorporated 2021 Stock Incentive Plan, as amended and in effect from time to time.  The Terms and Conditions attached hereto are also a part hereof.

 

Name of recipient (the "Recipient"):

 

Date of this Restricted Stock grant:

 

Number of shares of Restricted Stock granted pursuant to this Agreement:

 

Vesting Start Date:

 

Number of shares of Restricted Stock that are vested on the Vesting Start Date:

 

Number of shares of Restricted Stock that are unvested on the Vesting Start Date:

 

Consideration payable for shares of Restricted Stock, if any:

 

Right to Repurchase Unvested shares of Restricted Stock

 

 

Vesting Schedule:

 

First Vesting Date:

 

Next Vesting Date:

 

Next Vesting Date:

 

 

 

 

                                                           

Signature of Recipient

 

[Name

    Address]

MECHANCAL TECHNOLOGY, INCORPORATED

 

By:                                                     

            Name:

            Title: 

 


MECHANICAL TECHNOLGY, INCORPORATED

 

Restricted Stock Agreement - Terms and Conditions

 

Mechanical Technology, Incorporated (the "Company") agrees to award to the recipient specified on the cover page hereof (the "Recipient"), and the Recipient agrees to accept from the Company, the number of shares of Restricted Stock on the following terms:

 

1.                  Grant Under Plan.  This Restricted Stock Agreement (the "Agreement") is made pursuant to and is governed by the Company's 2021 Stock Incentive Plan, as amended and in effect from time to time (the "Plan"), and, unless the context otherwise requires, capitalized terms used herein shall have the same meanings as in the Plan.

 

2.      Vesting if Business Relationship Continues.

 

(a)               Vesting Schedule.  If the Recipient has maintained continuously a Business Relationship with the Company through each date specified on the cover page hereof, a portion of the Restricted Stock shall vest on such date in such amounts as are set forth opposite each such date on the cover page hereof. If the Recipient's Business Relationship with the Company is terminated by the Company or by the Recipient for any reason, whether voluntarily or involuntarily, no additional shares of Restricted Stock shall become vested under any circumstances with respect to the Recipient.  Any determination under this Agreement as to Business Relationship status or other matters referred to above shall be made in good faith by the Committee or Board, whose decision shall be final and binding on all parties.

 

"Business Relationship" means service to the Company or its successor in the capacity of an employee, officer, director, consultant or advisor.

 

(b)        Termination of Business Relationship.  For purposes hereof, a Business Relationship shall not be considered as having terminated during any military leave, sick leave, or other leave of absence if approved in writing by the Company and if such written approval, or applicable law, contractually obligates the Company to continue the Business Relationship of the Recipient after the approved period of absence (an "Approved Leave of Absence").  In the event of an Approved Leave of Absence, vesting of shares of Restricted Stock shall be suspended (and all subsequent vesting dates shall be postponed by the length of the period of the Approved Leave of Absence) unless otherwise provided in the Company's written approval of the leave of absence that specifically refers to this Agreement.  A Business Relationship shall also include a consulting arrangement between the Recipient and the Company that immediately follows termination of employment, but only if so stated in a written consulting agreement executed by the Company that specifically refers to this Agreement.

 

 

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(c)        Acceleration.  The Committee or Board may at any time provide that all or any portion of the shares of Restricted Stock awarded pursuant to this Agreement shall become free of some or all restrictions, or otherwise realizable in full or in part, as the case may be, despite the fact that the foregoing actions may cause the application of Sections 280G and 4999 of the Code if a change in control of the Company occurs.

 

(d)       Notwithstanding the other sections of this Section 2, if there is a Change of Control (as defined herein), all remaining unvested shares of Restricted Stock shall be immediately vest upon the Change of Control.   "Change in Control" shall mean a merger or consolidation in which securities constituting more than 50% of the total combined voting power of the Company's outstanding securities are transferred to a person or persons that do not own more than 50% of the combined voting power of the Company's securities immediately prior to such transaction, or the sale, transfer or other disposition of all or substantially all of the Company's assets to a non-affiliate of the Company.

 

3.         Restrictions on Transfer.  The Recipient shall not sell, assign, transfer, pledge, encumber or dispose of all or any of his or her shares of Restricted Stock.

 

            4.         Rights as a Stockholder.  Upon receipt of a Restricted Stock award the Recipient shall have all rights as a stockholder of the Company as provided in Section 6(c) of the Plan.

 

5.         Withholding Taxes.  The Company may withhold any and all applicable taxes required to be by the Company, in connection with the issuance or vesting of the shares of Restricted Stock to the Recipient, as provided in the Plan.

 

Recipient further agrees to take any further actions and execute any additional documents as may be necessary to effectuate the provisions of this Section 5 and the Recipient hereby grants the Company an irrevocable power of attorney to sign such additional documents on the Recipient's behalf if the Company is unable after reasonable efforts to obtain Recipient's signature on such additional documents.  This power of attorney is coupled with an interest and is irrevocable by the Recipient.

 

6.         Provision of Documentation to Recipient.  By signing the cover page of this Agreement, the Recipient acknowledges receipt of a copy of this entire Agreement, a copy of the Plan, and a copy of the Plan's related prospectus.

 

7.         Section 409A of the Internal Revenue Code.  The shares of Restricted Stock granted hereunder are intended to avoid the potential adverse tax consequences to the Recipient of Section 409A of the Internal Revenue Code of 1986, as amended, and the Committee or Board may make such modifications to this Agreement as it deems necessary or advisable to avoid such adverse tax consequences.

  

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8.            Miscellaneous.

 

(a)        Notices.  All notices hereunder shall be in writing and shall be deemed given when sent by certified or registered mail, postage prepaid, return receipt requested, if to the Recipient, to the address set forth on the cover page hereof or at the address shown on the records of the Company, and if to the Company, to the Company's principal executive offices, attention of the Corporate Secretary. 

 

(b)        Entire Agreement; Modification.  This Agreement constitutes the entire agreement between the parties relative to the subject matter hereof, and supersedes all proposals, written or oral, and all other communications between the parties relating to the subject matter of this Agreement.  This Agreement may be modified, amended or rescinded only by a written agreement executed by both parties' signatories to this Agreement.  In the event of a conflict between the terms of this Agreement and the Plan, the terms of the Plan shall control.

 

(c)        Severability.  The invalidity, illegality or unenforceability of any provision of this Agreement shall in no way affect the validity, legality or enforceability of any other provision.

 

(d)       Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the limitations set forth herein.

 

(e)        Governing Law.  This Agreement shall be governed by and interpreted in accordance with the laws of Nevada without giving effect to the principles of the conflicts of laws thereof.

 

(g)        Construction.  This  Agreement is to be construed in accordance with the terms of the Plan.  In case of any conflict between the Plan and this Agreement, the Plan shall control.  The titles of the sections of this Agreement and of the Plan are included for convenience only and shall not be construed as modifying or affecting their provisions.  The masculine gender shall include both sexes; the singular shall include the plural and the plural the singular unless the context otherwise requires.  Capitalized terms not defined herein shall have the meanings given to them in the Plan.

(g)  Data PrivacyBy entering into this Agreement and except as otherwise provided in any data transfer agreement entered into by the Company, the Recipient:  (i) authorizes the Company, and any agent of the Company administering the Plan or providing Plan recordkeeping services, to disclose to the Company such information and data as the Company shall request in order to facilitate the issuance of Restricted Stock and the administration of the Plan; (ii) waives any data privacy rights he or she may have with respect to such information; and (iii) authorizes the Company to store and transmit such information in electronic form.  For purposes of this Section 13(f), the term "Company" refers to the Company, its Subsidiaries and any other affiliate.

 

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(h)        No Obligation to Continue Business Relationship.  Neither the Plan, nor this Agreement, nor any provision hereof imposes any obligation on the Company to continue a Business Relationship with the Recipient.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Exhibit 10.44

MECHANICAL TECHNOLGY, INCORPORTED

 

2021 Stock Incentive Plan

 

Restricted Stock Unit Agreement

 

Mechanical Technology, Incorporated (the "Company") hereby enters into this Restricted Stock Unit Agreement, dated as of the date set forth below, with the Recipient named herein (the "Agreement") and grants to the Recipient the Restricted Stock Units ("RSUs") specified herein pursuant to the Mechanical Technology, Incorporated 2021 Stock Incentive Plan, as amended and in effect from time to time.  The Terms and Conditions attached hereto are also a part hereof.

 

Name of recipient (the "Recipient"):

 

Date of this RSU grant:

 

Number of shares of the Company's Common Stock (the "Underlying Shares") underlying the equivalent number of restricted stock units (the "RSUs") granted pursuant to this Agreement:

 

Additional Consideration Payable upon Grant of RSUs, if any:

 

Right to Dividends during Deferral Period:

The Committee may on or after the date of grant, authorize the payment of dividends or other distribution equivalents on Shares in cash or additional Shares on a current, deferred or contingent basis.

 

Deferral Period:

 

[_____] Underlying Shares

[Date]

[          ] Underlying Shares

[Date]

[          ] Underlying Shares

[Date]

                                                                                                                                                           

 

 

                                                           

Signature of Recipient

 

[Name

    Address]

MECHANCAL TECHNOLOGY,
INCORPORATED

 

By:                                                     

            Name:

            Title: 

 

 

 

 

 


MECHANICAL TECHNOLGY, INCORPORATED

 

Restricted Stock Unit Agreement - Terms and Conditions

 

Mechanical Technology, Incorporated (the "Company") agrees to award to the recipient specified on the cover page hereof (the "Recipient"), and the Recipient agrees to accept from the Company, the number of restricted stock units (the "RSUs") specified on the cover page hereof representing an equivalent number of shares of the Company's Common Stock (the "Underlying Shares"), on the following terms:

 

1.                  Grant Under Plan.  This Restricted Stock Unit Agreement (the "Agreement") is made pursuant to and is governed by the Company's 2021 Stock Incentive Plan, as amended and in effect from time to time (the "Plan"), and, unless the context otherwise requires, capitalized terms used herein shall have the same meanings as in the Plan.

 

2.      Vesting of Deferral Period if Business Relationship Continues.

 

(a)               Vesting Schedule.  If the Recipient has maintained continuously a Business Relationship with the Company through each date specified on the cover page hereof, a portion of the RSUs shall vest on such date in such amounts as are set forth opposite each such date on the cover page hereof. If the Recipient's Business Relationship with the Company is terminated by the Company or by the Recipient for any reason, whether voluntarily or involuntarily, no additional RSUs shall become vested RSUs under any circumstances with respect to the Recipient.  Any determination under this Agreement as to Business Relationship status or other matters referred to above shall be made in good faith by the Committee or the Board, whose decision shall be final and binding on all parties.

 

"Business Relationship" means service to the Company or its successor in the capacity of an employee, officer, director, consultant or advisor.

 

(b)        Termination of Business Relationship.  For purposes hereof, a Business Relationship shall not be considered as having terminated during any military leave, sick leave, or other leave of absence if approved in writing by the Company and if such written approval, or applicable law, contractually obligates the Company to continue the Business Relationship of the Recipient after the approved period of absence (an "Approved Leave of Absence").  In the event of an Approved Leave of Absence, vesting of RSUs shall be suspended (and all subsequent vesting dates shall be postponed by the length of the period of the Approved Leave of Absence) unless otherwise provided in the Company's written approval of the leave of absence that specifically refers to this Agreement.  A Business Relationship shall also include a consulting arrangement between the Recipient and the Company that immediately follows termination of employment, but only if so stated in a written consulting agreement executed by the Company that specifically refers to this Agreement.

 

 

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(c)        Acceleration.  The Committee or the Board may at any time provide that the deferral period for any RSUs awarded pursuant to this Agreement shall become immediately vested, despite the fact that the foregoing actions may cause the application of Sections 280G and 4999 of the Code if a change in control of the Company occurs.

 

3.         Issuance of Underlying Shares.  With respect to any RSUs that become vested RSUs pursuant to Section 2, subject to Section 5, the Company shall issue to the Recipient, as soon as practicable following the applicable vesting date specified on the cover page hereof, the number of Underlying Shares equal to the number of RSUs vesting on such vesting date, provided that, if the vesting date of any portion of the RSUs shall occur during either a regularly scheduled or special "blackout period" of the Company wherein Recipient is precluded from selling shares of the Company's Common Stock, the receipt of the corresponding Underlying Shares issuable with respect to such vesting date pursuant to this Agreement shall be deferred until after the expiration of such blackout period.  The Underlying Shares the receipt of which was deferred as provided above shall be issued to Recipient as soon as practicable after the expiration of the blackout period.

 

4.         Restrictions on Transfer.  The Recipient shall not sell, assign, transfer, pledge, encumber or dispose of all or any of his or her RSUs.

 

5.         Withholding Taxes.  The Company may withhold any and all applicable taxes required to be by the Company, in connection with the issuance or vesting of the shares of Restricted Stock to the Recipient, as provided in the Plan.

 

Recipient further agrees to take any further actions and execute any additional documents as may be necessary to effectuate the provisions of this Section 5 and the Recipient hereby grants the Company an irrevocable power of attorney to sign such additional documents on the Recipient's behalf if the Company is unable after reasonable efforts to obtain Recipient's signature on such additional documents.  This power of attorney is coupled with an interest and is irrevocable by the Recipient.

 

6.         Provision of Documentation to Recipient.  By signing the cover page of this Agreement, the Recipient acknowledges receipt of a copy of this entire Agreement, a copy of the Plan, and a copy of the Plan's related prospectus.

 

7.         Section 409A of the Internal Revenue Code.  The RSUs granted hereunder are intended to avoid the potential adverse tax consequences to the Recipient of Section 409A of the Internal Revenue Code of 1986, as amended, and the Committee or the Board may make such modifications to this Agreement as it deems necessary or advisable to avoid such adverse tax consequences.

 

8.            Rights as Stockholder.  The Recipient shall have no rights as a stockholder of the Company with respect to any RSUs covered by this Agreement until the issuance of the Underlying Shares. 

 

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9.            Miscellaneous.

 

(a)        Notices.  All notices hereunder shall be in writing and shall be deemed given when sent by certified or registered mail, postage prepaid, return receipt requested, if to the Recipient, to the address set forth on the cover page hereof or at the address shown on the records of the Company, and if to the Company, to the Company's principal executive offices, attention of the Corporate Secretary. 

 

(b)        Entire Agreement; Modification.  This Agreement constitutes the entire agreement between the parties relative to the subject matter hereof, and supersedes all proposals, written or oral, and all other communications between the parties relating to the subject matter of this Agreement.  This Agreement may be modified, amended or rescinded only by a written agreement executed by both parties' signatories to this Agreement.  In the event of a conflict between the terms of this Agreement and the Plan, the terms of the Plan shall control.

 

(c)        Fractional RSUs or Underlying Shares.  All fractional RSUs or Underlying Shares resulting from the adjustment provisions contained in the Plan shall be rounded down to the nearest whole unit or share.

 

(d)       Severability.  The invalidity, illegality or unenforceability of any provision of this Agreement shall in no way affect the validity, legality or enforceability of any other provision.

 

(e)        Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, subject to the limitations set forth herein.

 

(f)        Governing Law.  This Agreement shall be governed by and interpreted in accordance with the laws of Nevada without giving effect to the principles of the conflicts of laws thereof.

 

(g)        Construction.  This  Agreement is to be construed in accordance with the terms of the Plan.  In case of any conflict between the Plan and this Agreement, the Plan shall control.  The titles of the sections of this Agreement and of the Plan are included for convenience only and shall not be construed as modifying or affecting their provisions.  The masculine gender shall include both sexes; the singular shall include the plural and the plural the singular unless the context otherwise requires.  Capitalized terms not defined herein shall have the meanings given to them in the Plan.

(h)  Data PrivacyBy entering into this Agreement and except as otherwise provided in any data transfer agreement entered into by the Company, the Recipient:  (i) authorizes the Company, and any agent of the Company administering the Plan or providing Plan recordkeeping services, to disclose to the Company such information and data as the Company shall request in order to facilitate the grant of RSUs or the issuance of Shares in connection with RSUs and the administration of the Plan; (ii) waives any data privacy rights he or she may have with respect to such information; and (iii) authorizes the Company to store and transmit such information in electronic form.  For purposes of this Section 13(f), the term "Company" refers to the Company, its Subsidiaries and any other affiliate.

 

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(i)         No Obligation to Continue Business Relationship.  Neither the Plan, nor this Agreement, nor any provision hereof imposes any obligation on the Company to continue a Business Relationship with the Recipient.

 

 

 

 

 

 

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Exhibit 21

SUBSIDIARIES OF MECHANICAL TECHNOLOGY, INCORPORATED

Subsidiary Name

Jurisdiction of Incorporation or Organization

Turbonetics Energy, Inc.

New York

MTI Instruments, Inc.

New York

EcoChain, Inc.

Delaware


SUBSIDIARIES OF ECOCHAIN, INC.

Subsidiary Name

Jurisdiction of Incorporation or Organization

EcoChain Wind LLC

Nevada

EcoChain Block LLC

Nevada


Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael Toporek, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Mechanical Technology, Incorporated;

 

2.

     

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)

     

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.

I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

   

March 30, 2021

/s/ Michael Toporek

Michael Toporek

Chief Executive Officer

(Principal Executive Officer)

 

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jessica L. Thomas, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Mechanical Technology, Incorporated;

 

2.

     

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)

     

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5.

I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

   

March 30, 2021

/s/ Jessica L. Thomas

Jessica L. Thomas

Chief Financial Officer

(Principal Financial Officer)

Exhibit 32.1

Mechanical Technology, Incorporated
Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. Section 1350)

In connection with the Annual Report on Form 10-K of Mechanical Technology, Incorporated (the "Company") for the year ended December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael Toporek, Chief Executive Officer of the Company, certify, pursuant to the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, (18 U.S.C. Sections 1350(a) and (b)), that, to my knowledge:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

    

(2)

    

The information in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

March 30, 2021

/s/ Michael Toporek

Michael Toporek

Chief Executive Officer

(Principal Executive Officer)

This certification is made solely for the purpose of 18 U.S.C. Section 1350, and is not being filed as part of the Report or as a separate disclosure document, and may not be disclosed, distributed or used by any person for any reason other than as specifically required by law.

Exhibit 32.2

Mechanical Technology, Incorporated
Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. Section 1350)

In connection with the Annual Report on Form 10-K of Mechanical Technology, Incorporated (the "Company") for the year ended December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jessica L. Thomas, Chief Financial Officer of the Company, certify, pursuant to the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, (18 U.S.C. Sections 1350(a) and (b)), that, to my knowledge:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

    

(2)

    

The information in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

March 30, 2021

/s/ Jessica L. Thomas

Jessica L. Thomas

Chief Financial Officer

(Principal Financial Officer)

This certification is made solely for the purpose of 18 U.S.C. Section 1350, and is not being filed as part of the Report or as a separate disclosure document, and may not be disclosed, distributed or used by any person for any reason other than as specifically required by law.