Speaking at the annual shareholders meeting Tuesday, Chairman and Chief Executive Steven Fischer said MTI is ahead of competitors, despite word last week that its prototype for use with U.S. military remote sensors will not be as powerful as originally announced.

Fuel cells create electricity through a chemical reaction. While MTI expects its units to be lighter and longer-lasting than batteries, the company said it has struggled in developing cells with enough power at the small sizes needed for the commercial market.

Last week, MTI said it would not sign a development deal this year with a major electronics supplier, as originally planned. Instead, MTI said it needs more time to figure out just which piece of the $15 billion small-electronics power-supply market it can break into first.

"There are no show-stoppers," Fischer said after the morning meeting, held at the company's corporate headquarters off New Karner Road in Colonie. "The team is working on solving them."

Investors didn't seem as certain.

Shareholders peppered management with pointed technical questions. And shares (Nasdaq: MKTY) fell after the meeting, to as low as $3.09, before rallying to close at $3.42, a 17-cent gain on the day.

The company's MTI Instruments subsidiary -- which makes precision instruments such ass those that measure vibrations in jet engines -- reported a 36 percent gain in sales in 2004. Overall, the company ended the year with $14.8 million in cash and no debt.

But it lost $4.2 million in 2004, and said it has a $1.5 million-per-month cash burn rate.

Walter Nasdeo, an energy analyst with the New York City-based investment firm Ardour Capital Partners LLC, lowered his "buy" rating on the company to a "sell" in May. On Tuesday, he said he had more questions for MTI before reconsidering.

"They set a very high bar," he said of past achievements, such as shipping the first Mobion fuel cells last year for powering hand-held inventory-control units.

But after the first 50, MTI said it would sell no more in that market segment and would focus instead on military prototypes. Then it missed milestones.

"People don't take well to that," Nasdeo said. "I'm going to need to see a lot out of this company to get behind them again."

But William Acker, CEO of subsidiary MTI MicroFuel Cells Inc., said the stumbles have helped the company.

"By virtue of hitting those challenges first, you get to solve them first, and get key sustainable intellectual property around that," he said.

MTI has 21 U.S. patents in hand and 55 pending; 20 more are filed internationally.

On Tuesday, the company also announced that Fletcher International Ltd. had exercised its right to buy from MTI almost 1.8 million shares of Latham-based Plug Power Inc. at 72.3 cents apiece, or about $1.3 million.

Fletcher landed the rights to the deeply discounted shares as part of earlier investment deals with MTI. MTI co-founded Plug, a maker of larger fuel cells, in 1997.

With Fletcher's purchase rights exhausted, MTI released about 900,000 shares of Plug common stock from escrow, giving it about 3.8 million unrestricted shares. Plug (Nasdaq: PLUG) closed Tuesday at $7.42, up 38 cents.