<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1996 Commission File Number 0-9998
THE METAL ARTS COMPANY, INC.
(Exact name of registrant as specified in its charter)
New York 06-0945588
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1 American Center, Geneva, New York 14456-1188
(Address of principal executive offices) (Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No ____
The number of shares of common stock, $.01 par value, outstanding at March
31, 1996 was 7,307,402.
Page 1 of 12 Pages
Exhibit Index is on Page 2
<PAGE>
THE METAL ARTS COMPANY, INC.
I N D E X
Part I Financial Information:
Consolidated Condensed Balance Sheets,
March 31, 1996 and June 30, 1995. 4 and 5
Consolidated Condensed Statements of
Operations, three and nine months
ended March 31, 1996 and 1995. 6
Consolidated Condensed Statement of
Cash Flows, nine months ended
March 31, 1996 and 1995. 7
Notes to Consolidated Condensed
Financial Statements. 9
Management's Discussion and Analysis
of Financial Condition and Results
of Operations. 10
Part II Other Information 11
(2)
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PART I FINANCIAL INFORMATION
(3)
<PAGE>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
ASSETS
3/31/96 6/30/95
Current Assets:
Cash $ 132,944 $ 78,592
Trade accounts receivable - net 231,790 230,564
Current portion of due from NYSERDA 25,725 80,730
Due from former subsidiary - net 15,000 0
Current portion of deferred tax asset 7,100 7,100
Prepaid expenses and other current assets 20,446 9,693
---------- ----------
433,005 406,679
Property, Plant and Equipment 882,466 828,150
Less: Accumulated depreciation (349,155) (288,032)
---------- ----------
533,311 540,118
Other Assets:
Due from NYSERDA, net of current portion 18,440 8,970
Cash value - life insurance 7,893 7,893
Operating rights - net 19,430 19,430
Debt issuance costs - net 21,243 21,243
Deferred tax asset, net of current portion 180,700 180,700
Other assets 29,966 17,955
---------- ----------
277,672 256,191
---------- ----------
$1,243,988 $1,202,988
========== ==========
(4)
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THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
3/31/96 6/30/95
Current Liabilities:
Current portion of long-term debt $ 28,898 $ 26,262
Accounts payable - trade 143,613 135,359
Accrued expenses 6,057 9,528
Accrued payroll and related taxes 28,972 27,717
Accrued commissions 34,269 34,970
----------- ----------
241,809 233,836
Long-term Liabilities:
Long-term debt, net of current portion 452,730 384,958
Other long-term liability 243,222 243,222
Deferred tax liability 18,000 18,000
----------- ----------
713,952 646,180
Minority interest in subsidiary 134,977 125,002
Stockholders' equity:
Common stock - $.01 par value, 15,000,000
shares authorized; issued and outstanding:
7,307,402 at March 31, 1996 and June 30, 1995 73,074 73,074
Paid-in capital in excess of par value 2,358,188 2,358,188
Accumulated deficit (2,278,012) (2,233,292)
----------- ----------
153,250 197,970
----------- ----------
$ 1,243,988 $ 1,202,988
=========== ===========
(5)
<PAGE>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
Net Sales $ 412,222 $ 423,677 $ 1,250,596 $ 1,153,869
Cost of goods sold 363,545 388,772 1,091,504 1,031,523
---------- ----------- ---------- -----------
Gross margin 48,677 34,905 159,092 122,346
Selling, general and
Administrative Expenses 86,494 5,291 204,643 94,538
Research and Development (19,094) 20,078 (36,049) 35,165
---------- ----------- ---------- -----------
Operating income (loss) (18,723) 9,536 (9,502) (7,357)
Other income (expense) 728 45 1,974 (807)
Interest expense (13,733) (7,366) (27,217) (13,417)
Minority interest in
Income of subsidiary 335 (15,156) (9,975) (25,700)
---------- ----------- ---------- -----------
(12,670) (22,477) (35,218) (39,924)
---------- ----------- ---------- -----------
Income (loss) from
continuing operations (31,393) (12,941) (44,720) (47,281)
Income (loss) from
discontinued operations 0 (83,845) 0 (92,682)
---------- ----------- ---------- -----------
Net income (loss) for
the period $ (31,393) $ (96,786) $ (44,720) $ (139,963)
========== =========== ========== ===========
Weighted average number
of common shares out-
standing 7,307,402 7,303,602 7,307,402 7,298,490
========== =========== ========== ===========
Earnings per share
of common stock:
Income (loss) from
continuing operations $ (.00) $ (.00) $ (.01) $ (.01)
Income (loss) from
discontinued operations .00 (.01) .00 (.01)
---------- ----------- ---------- -----------
Net income (loss)
for the period $ .00 $ (.01) $ (.01) $ (.02)
========== =========== ========== ===========
(6)
<PAGE>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
March 31,
1996 1995
Cash flows from operating activities;
Net income (loss) for the period $ (44,720) $(139,963)
Adjustments to reconcile net income
(loss) to net cash provided by
Operating Activities:
Depreciation and amortization 61,123 52,222
Minority interest in income of subsidiary 9,975 25,700
(Income) loss from discontinued operations 0 92,682
Change in operating accounts:
Accounts receivable 44,309 1,286
Prepaid expenses and other (22,764) (107,058)
Accounts payable 8,254 (9,638)
Accrued expenses (3,471) 164
Accrued payroll and commissions 554 (5,486)
--------- ---------
53,260 (90,091)
Cash flows from investing activities:
Advances to former subsidiary (15,000) (6,140)
Capital expenditures (54,316) (86,864)
--------- ---------
(69,316) (80,724)
Cash flows from financing activities:
Exercise of stock warrants 0 13,800
Sale of debentures 0 250,000
Payments on long-term debt (29,592) (19,555)
Proceeds from long-term debt 100,000 0
--------- ---------
70,408 244,245
--------- ---------
Net increase (decrease) in cash 54,352 73,430
Cash at beginning of period 78,592 13,349
--------- ---------
Cash at end of period $ 132,944 $ 86,779
========= =========
(7)
<PAGE>
Nine Months Ended
March 31,
1996 1995
Supplemental cash flow information:
Cash paid for interest expense $ 27,217 $ 13,417
========= =========
Supplemental schedule of non-cash financing activities:
Sale of debentures $ 0 $ 275,000
Payment of liabilities 0 (25,000)
--------- ---------
Cash received from sale of debentures $ 0 $ 250,000
========= =========
(8)
<PAGE>
THE METAL ARTS COMPANY, INC.
Notes to Consolidated Condensed Financial Statements
1. These statements should be read in conjunction with the audited financial
statements and the notes thereto and with Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's Form 10-K for the fiscal year ended June 30, 1995. In the opinion
of management, the accompanying consolidated condensed financial statements
contain all adjustments of a normal recurring nature necessary for the fair
presentation of the Company's financial position as of March 31, 1996 and
the results of operations for the nine months ended March 31, 1996 and 1995.
2. The results of operations for the nine months ended March 31, 1996 are
not necessarily indicative of the results to be expected for the full year.
3. Earnings (loss) per share of common stock is computed on the weighted
average number of shares outstanding during the nine months ended March 31,
1996 and 1995. The weighted average number of shares outstanding at the end
of each period is determined by totaling the number of shares outstanding at
the end of each month in the period and dividing the sum by the number of
months in the period.
(9)
<PAGE>
THE METAL ARTS COMPANY, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operation
Liquidity and Capital Resources
Private Placement of Debentures
The company sold, as of September 30, 1994, eleven debentures for a total of
$275,000. The purpose of the private placement was to acquire the technology
for plating electroless nickel on aluminum, conduct research, development and
test trials with potential customers leading up to commercialization in the
computer disk market.
New York State Energy Research and Development Authority Funding
The company signed an agreement with the New York State Energy Research and
Development Authority (NYSERDA) dated June 22, 1995 for funding of $325,000
for its new technology. This was done as a part of NYSERDA's Industrial
Waste Minimization Program. The purpose of the funding is to provide money
for the completion of research and development, test trials, commercial
demonstrations and commercialization of the technology.
During the quarter ended March 31, 1996 the company received a third payment
of $31,800 as a part of NYSERDA's funding program. The first payment of
$80,700 was received in the first quarter. This brings the total received to
date of $140,000.
Operating Activities
Over the past three fiscal years Coating Technology has shown steady growth
in sales and earnings. Cash flow was adequate to provide for the acquisition
of capital equipment and provide the working capital necessary to run the
business. There was a significant increase in cash generated during the
fiscal year 1995 over 1994 and 1993 as well as the cash balance at the end of
the year. In addition, all relevant measures relating to: Debt to Equity;
current ratio; working capital; and net worth increased substantially.
Through the first nine months of fiscal year 1996, Coating Technology
operated profitably with sufficient resources to sustain operations. As part
of an on-going upgrading of operating and laboratory measuring equipment, the
Company increased its working capital line by $100,000.
If Metal Arts is successful in commercializing its new technology it will be
necessary to raise additional capital. The amount of capital required will
depend on how rapidly market acceptance might occur. If this does occur it
could result in growth in the company's sales and earnings over the next few
years. The company will seek, if commercial sales commence, to raise
additional capital in the form of receivables financing, warrant conversion
or other investment mechanisms to sustain operations.
(10)
<PAGE>
Legal Proceedings
In June, 1995, a former subsidiary of the Registrant, Bastian Company, Inc.
("Bastian"), was indicted in Ontario County Court, New York, on a twenty-four
count indictment alleging unlawful possession of acute hazardous wastes in
violation of the New York State Environmental Conservation Law, falsification
of business records in violation of the New York State Penal Law, and
violating requirements imposed in an approved pretreatment program in
violation of the New york State Environmental Conservation Law. At the same
time, two of Bastian's officers and directors, Albert A. Cauwels ("Cauwels")
and Stanley J. Dahle ("Dahle"), and a non-officer employee, were indicted on
separate indictments on similar charges.
On April 2, 1996, Bastian pleaded guilty to two counts of the indictment,
Count One, a felony involving possession of acute hazardous wastes at a place
other than the site of generation, and Count Twenty-four, a felony of
knowingly violating a requirement imposed in an approved pretreatment
program, with the balance of the indictment being withdrawn and dismissed.
Bastian agreed to pay a forfeiture of $20,000 at the date of sentencing,
further agreed to remove certain drums containing hazardous waste from the
Bastian premises within sixty days of the date of sentencing, and also agreed
to enter into a compliance and audit plan on consent of the New York State
Department of Environmental Conservation and to appoint a corporate officer
as an environmental compliance officer.
The Bastian plea of guilty was qualified to the extent that it was made and
accepted under the statement that no actions or other conduct on the part of
Bastian, or on the part of any of the other individual defendants resulted in
emitting wastes, hazardous wastes or "pollutants" into the environment.
Also on April 2, 1996, Cauwels and Dahle each entered pleas of guilty.
Cauwels pleaded guilty to three misdemeanors on counts of unauthorized
possession of hazardous wastes, violating federal and state approved
pretreatment standards, and falsifying business records. Dahle pleaded
guilty to two misdemeanors on counts of unauthorized possession of hazardous
wastes and violating pretreatment standards. Cauwels and Dahle each agreed
to make a voluntary $5,000 contribution to the Geneva, New York, Wastewater
Treatment Plant at the time of sentencing, and the Court will impose a
conditional discharge on the misdemeanor pleas so long as each of Cauwels and
Dahle pay total fines of $20,000 within one year of sentencing. Cauwels and
Dahle also agree to perform 100 hours of community service.
(10A)
<PAGE>
The Metal Arts Company, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operation
B. RESULTS OF OPERATIONS:
The following table illustrates the major components of consolidated net
sales and net income (loss).
Nine Months Ended
March 31,
1996 1995
Consolidated Net Sales:
Metal Arts 500 0
Coating Technology $1,250,000 $1,154,000
Discontinued Operations 0 1,139,000
---------- ----------
$1,250,000 $2,293,000
Consolidated Net Income (Loss)
Metal Arts $ (77,700) $ (133,000)
Coating Technology 33,000 86,000
Discontinued Operations 0 (93,000)
---------- ----------
$ (44,700) $ (140,000)
---------- ----------
The Metal Arts Company, Inc.
The net sales for the Company for the nine (9) months ended March 31, 1996
were $500 compared with -0- in the previous year. The Company showed a loss
of $77,700 versus a loss of $133,000 the previous year.
Coating Technology, Inc.
Coating Technology's sales for the nine (9) months ended March 31, 1996 were
$1,250,000 as compared with $1,154,000 in the previous year. The Company
showed a profit of $33,000 as compared with a profit of $86,000 in the
previous year.
(11)
<PAGE>
THE METAL ARTS COMPANY, INC.
Part II - Other Information:
Item 6 - Exhibits and Reports on Form 8-K
A. Exhibits - None
B. Reports on Form 8-K - None
Signatures:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE METAL ARTS COMPANY, INC.
Date: May 9, 1996 Stanley J. Dahle
------------------
Stanley J. Dahle
President
Date: May 9, 1996 Albert A. Cauwels
------------------
Albert A. Cauwels
Secretary
(12)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> MAR-31-1996
<CASH> 133,000
<SECURITIES> 0
<RECEIVABLES> 232,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 433,000
<PP&E> 882,000
<DEPRECIATION> 349,000
<TOTAL-ASSETS> 1,244,000
<CURRENT-LIABILITIES> 242,000
<BONDS> 0
<COMMON> 7,300,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,244,000
<SALES> 1,250,000
<TOTAL-REVENUES> 1,250,000
<CGS> 1,092,000
<TOTAL-COSTS> 1,260,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,000
<INCOME-PRETAX> (44,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (44,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (44,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
