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 September 30, 1997 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 September
30, 1997 was 7,407,402.
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,
September 30, 1997 and June 30, 1997. 4 and 5
Consolidated condensed Statements of
Operations, three months ended September 30,
1997 and 1996. 6
Consolidated Condensed Statement of
Cash Flows, three months ended
September 30, 1997 and 1996. 7
Notes to Consolidated Condensed
Financial Statements. 8
Management's Discussion and Analysis
of Financial Condition and Results
of Operations. 9
Part II Other Information 10
(2)
<PAGE>
PART I FINANCIAL INFORMATION
---------------------------------------------------
(3)
<PAGE>
<TABLE>
<CAPTION>
THE METAL ARTS COMPANY, INC.
----------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
(UNAUDITED)
ASSETS
9/30/97 06/30/97
------- --------
Current Assets:
<S> <C> <C>
Cash $ 73,766 $ 53,241
Trade accounts receivable - net 246,626 223,791
Current portion of due from NYSERDA 10,000 32,501
Due from former subsidiary - net 1,362 2,862
Current portion of deferred tax asset 26,600 26,600
Prepaid expenses and other current assets 19,525 8,364
-------------------------
377,879 347,359
PROPERTY, PLANT AND EQUIPMENT 931,002 929,629
Less accumulated depreciation (492,569) (469,469)
-------------------------
438,433 460,160
OTHER ASSETS
Due from shareholders 0 13,009
Cash value of life insurance 7,893 7,893
Operating rights - net 16,750 16,750
Debt issuance costs - net 10,622 10,622
Deferred tax asset, net of current portion 178,300 178,300
Other assets 52,696 30,543
-------------------------
266,261 257,117
-------------------------
TOTAL ASSETS $ 1,082,573 $ 1,064,636
=========================
(4)
<PAGE>
THE METAL ARTS COMPANY, INC.
----------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
(UNAUDITED)
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
9/30/97 6/30/97
------- -------
CURRENT LIABILITIES
Current portion of long-term debt $ 56,613 $ 56,613
Accounts payable - trade 204,552 220,809
Accrued expenses 18,268 8,207
Accrued payroll and related taxes 17,250 21,702
Accrued commissions 33,933 34,401
Deferred revenue 12,500 0
----------------------------
343,116 341,732
LONG-TERM LIABILITIES
Long-term debt, net of current portion 338,329 348,332
Other long-term liability 243,222 243,222
Deferred tax liability 14,800 14,800
----------------------------
596,351 606,354
MINORITY INTEREST IN SUBSIDIARY 153,831 142,181
STOCKHOLDERS' EQUITY
Common stock- $.01 par value, 15,000,000 shares
authorized; issued and outstanding; 7,407,402 at
Sept. 30, 1997 and 7,407,402 at June 30, 1997 74,074 74,074
Paid-in capital in excess of par value 2,407,188 2,407,188
Accumulated deficit (2,491,987) (2,506,893)
----------------------------
(10,725) (25,631)
----------------------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 1,082,573 $ 1,064,636
============================
</TABLE>
(5)
<PAGE>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
---- ----
SALES - NET $ 471,006 $ 407,276
COST OF SALES (354,630) (336,037)
--------------------------
GROSS MARGIN 116,376 71,239
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (81,846) (59,748)
RESEARCH AND DEVELOPMENT 0 12,517
--------------------------
OPERATING INCOME (LOSS) 34,530 24,008
INTEREST EXPENSE (8,054) (9,658)
INTEREST INCOME 81 541
MINORITY INTEREST IN INCOME
OF SUBSIDIARY (11,650) (9,936)
--------------------------
(19,623) (19,053)
--------------------------
NET INCOME (LOSS)
FOR THE PERIOD $ 14,907 $ 4,955
==========================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES
OUTSTANDING 7,407,402 7,307,402
EARNINGS PER SHARE OF
COMMON STOCK:
Net income (loss) for the period $ 0.00 $ 0.00
==========================
(6)
<PAGE>
<TABLE>
<CAPTION>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) for the period $ 14,907 $ 4,955
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Rent expense offset against advances to
former subsidiary 1,500 1,500
Depreciation and amortization 23,100 23,100
Minority interest in income of subsidiary 1,650 9,936
Change in operating accounts:
Accounts receivable (334) (20,321)
Prepaid expenses and other (33,315) 4,460
Accounts payable (16,257) (21,123)
Accrued expenses 10,061 9,605
Accrued payroll and commissions (4,920) (1,681)
Deferred revenue 12,500 0
---------------------
18,892 10,431
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (1,373) (8,417)
Repayment of advance to shareholder 13,009 0
---------------------
1,636 (8,417)
CASH FLOWS FINANCING ACTIVITIES
Payments on long term debt (10,003) (10,003)
---------------------
NET INCREASE IN CASH 20,525 (7,990)
CASH - BEGINNING 53,241 112,215
---------------------
CASH ENDING $ 73,766 $ 104,225
====================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash Paid for interest expense $ 8,054 $ 9,658
====================
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Accounts payable-trade staisfied $ 0 $ 0
Common stock issued 0 0
Cash paid $ 0 $ 0
====================
</TABLE>
(7)
<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, 1997. 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 Sept. 30, 1997 and the results of operations
for the three months ended Sept.
30, 1997and 1996
2. The results of operations for the three months ended Sept. 30, 1997 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 three months ended Sept. 30, 1997 and
1996. 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.
(8)
<PAGE>
THE METAL ARTS COMPANY, INC.
----------------------------
Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operation
----------------------------------
Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, such
as statements relating to financial results and plans for future business
development activities, and are thus prospective. Such forward-looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. Potential risks and uncertainties
include, but are not limited to, economic conditions, competition and other
uncertainties detailed from time to time in the Company's Securities and
Exchange Commission filings.
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, complete all research and development,
conduct test trials with potential customers leading up to commercialization .
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. To date, the company has received a
total of $315,000 on this contract.
OPERATING ACTIVITIES
Over the past three fiscal years Coating Technology has shown steady growth in
sales and earnings. Cash flow, along with term loans from the company's
commercial bank, was adequate to provide for the acquisition of capital
equipment and provide the working capital necessary to run the business. In
addition, all relevant measures relating to: Debt to Equity; current ratio;
working capital; and net worth increased.
Through the first quarter of fiscal year 1997, Coating Technology operated
profitably with sufficient resources to sustain operations.
MICROSMOOTH (TM)
The Company initially applied for a patent on Microsmooth(TM), its proprietary
activator for plating electroless nickel on aluminum in March, 1994. That
application was then split into three separate applications; the chemical
formula; the process and; the resulting product.
(9)
<PAGE>
Subsequently, and as a result of significant chemical formula modifications, the
original formula application was abandoned and a new patent application was
filed in June, 1997.
On July 30, 1997 the Company entered into an exclusive license agreement with
Alyn Corporation, Inc. for Alyn to use the Microsmooth(TM) process on Alyn's
Boralyn alternate computer memory disks. The Company will receive material
royalties from the Alyn Corporation to retain Alyn's excluseve worldwide rights
to the Microsmooth(TM) technology on alternate computer memory disks.
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>
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).
Three Months Ended
September 30,
1997 1996
---- ----
Consolidated Net Sales:
Metal Arts $ 37,500 $ 0
Coating Technology 433,500 407,000
----------------------
$ 471,000 $ 407,000
======================
Consolidated Net Income (Loss):
Metal Arts ($ 12,250) ($ 18,100)
Coating Technology 38,800 33,000
Minority Interest (11,650) (9,900)
----------------------
$ 14,900 $ 5,000
======================
The Metal Arts Company, Inc.
- ----------------------------
The net sales for the Company for the three (3) months ended October 30,1997
were $37,500 compared with $0 in the previous year. The Company showed a loss of
$12,250 versus a loss of $18,100 the previous year.
Coating Technology, Inc.
- ------------------------
Coating Technology's sales for the three (3) months ended October 30, 1997 were
$433,505 as compared with $407,000 in the previous year. The Company showed a
profit of $38,800 as compared with a profit of $33,000 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: November 14, 1997
----------------- /s/ Stanley J. Dahle
--------------------
Stanley J. Dahle
President
Date: November 14, 1997
----------------- /s/ 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> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> OCT-30-1997
<CASH> 73,800
<SECURITIES> 0
<RECEIVABLES> 246,600
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 377,900
<PP&E> 931,000
<DEPRECIATION> 492,600
<TOTAL-ASSETS> 1,082,600
<CURRENT-LIABILITIES> 343,100
<BONDS> 0
<COMMON> 7,400,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,082,600
<SALES> 471,000
<TOTAL-REVENUES> 471,000
<CGS> 354,600
<TOTAL-COSTS> 436,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,000
<INCOME-PRETAX> 14,900
<INCOME-TAX> 0
<INCOME-CONTINUING> 14,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,900
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
