SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1998 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,
1998 was 7,407,402.
PAGE 1 OF 12 PAGES
EXHIBIT INDEX IS ON PAGE 2
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THE METAL ARTS COMPANY, INC.
----------------------------
INDEX
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PART I Financial Information:
Consolidated Condendsed Balance Sheets,
March 31, 1998 and June 30, 1997. 4 and 5
Consolidated Condensed Statements of
Operations, nine months ended March 31, 1998 and 1997. 6
Consolidated Condensed Statement of Cash Flows,
nine months ended March31, 1998 and 1997. 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)
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PART I FINANCIAL INFORMATION
<PAGE>
(3)
<PAGE>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS
------
3/31/98 6/30/97
----------------------------
CURRENT ASSETS
Cash $ 75,805 $ 53,241
Trade accounts receivable - net 304,250 223,791
Current portion of due from NYSERDA 0 32,501
Due from former subsidiary - net 0 2,862
Current portion of deferred tax asset 26,600 26,600
Prepaid expenses and other current assets 35,295 8,364
---------------------------
441,950 347,359
PROPERTY, PLANT and EQUIPMENT 1,001,377 929,629
Less accumulated depreciation (538,769) (469,469)
---------------------------
462,608 460,160
OTHER ASSETS
Due from shareholder 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 75,478 30,543
---------------------------
289,043 257,117
---------------------------
TOTAL ASSETS $1,193,601 $1,064,636
===========================
(4)
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THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFECIENCY)
-------------------------------------------------
3/31/98 6/30/97
--------------------------
CURRENT LIABILITIES
Accounts payable - trade $ 241,906 $ 220,809
Accrued expenses 15,476 8,207
Accrued payroll and related taxes 32,635 21,702
Accrued commissions 34,554 34,401
Due to former subsidiary - net 138 0
Current portion of long-term debt 56,613 56,613
-------------------------
381,322 341,732
LONG -TERM LIABILITIES
Due to shareholder 13,000 0
Long-term debt, net of current portion 346,720 348,332
Other long-term liability 243,222 243,222
Deferred tax liability 14,800 14,800
-------------------------
617,742 606,354
MINORITY INTEREST IN SUBSIDIARY 164,181 142,181
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock - $.01 par value, 15,000,000 shares
authorized; issued and outstanding: 7,520,802 at
March 31, 1998 and 7,407,402 at June 30, 1997 75,208 74,074
Paid-in capital in excess of par value 2,458,984 2,407,188
Accumulated deficit (2,503,836) (2,506,893)
-------------------------
30,356 (25,631)
-------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) $ 1,193,601 $ 1,064,636
==========================
(5)
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THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------------------------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
SALES - Net $ 479,698 $ 431,115 $ 1,419,077 $ 1,212,862
COST OF SALES (430,435) (305,501) (1,130,081) (1,006,053)
--------------------------------------------------------
GROSS MARGIN 49,263 80,614 288,996 206,499
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (72,018) (72,975) (239,803) (200,499)
RESEARCH AND DEVELOPMENT (562) 4,888 (562) 40,868
--------------------------------------------------------
OPERATING INCOME (LOSS) (23,317) 12,527 48,631 47,178
INTEREST EXPENSE (8,223) (8,945) (24,213) (27,148)
INTEREST INCOME 489 76 639 882
MINORITY INTEREST IN INCOME
OF SUBSIDIARY 700 (1,434) (22,000) (11,550)
--------------------------------------------------------
(7,034) (10,303) (45,574) (37,816)
--------------------------------------------------------
NET INCOME (LOSS) FOR THE PERIOD ($ 30,351) $ 2,224 $ 3,057 $ 9,362
========================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,464,102 7,407,402 7,426,302 7,357,402
EARNINGS PER SHARE OF
COMMON STOCK:
NET INCOME (LOSS) FOR THE $ 0.00 $ 0.00 $ 0.00 $ 0.00
PERIOD =========================================================
</TABLE>
(6)
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THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
MARCH 31,
1998 1997
-----------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) for the period $ 3,057 $ 9,362
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
Stock issued in payment of expenses 9,010 0
Rent expense offset against advances to
former subsidiary 3,000 4,500
Depreciation and amortization 69,300 69,300
Minority interest in income of subsidiary 22,000 11,550
Change in operating accounts;
Accounts receivable (47,958) (63,858)
Prepaid expenses and other (54,196) 5,000
Accounts payable 47,347 (31.028)
Accrued expenses 7,269 17,026
Accrued payroll and commissions 11,086 4,798
----------------------
69,915 26,650
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (71,748) (40,770)
Repayment of advances from shareholder 13,009 0
Proceeds of advances from shareholder 20,000 0
Repayment of advances from shareholder (7,000) 0
----------------------
(45,739) (40,770)
CASH FLOWS FINANCING ACTIVITIES
Proceeds from issuance of common stock 0 6,000
Proceeds of long-term debt 50,000 0
Payments on long-term debt (51,612) (56,676)
----------------------
(1,612) (50,676)
----------------------
NET INCREASE (DECREASE) IN CASH 22,564 (64,796)
CASH - BEGINNING 53,241 112,215
CASH - ENDING $ 75,805 $ 47,419
=======================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest expense $ 24,213 $ 27,148
-----------------------
SCHEDULE OF NON-CASH INVESTING FINANCING
ACTIVITIES
Value of stock issued $ 52,930 $ 50,000
Payment of liabilities (26,250) (44,000)
Payment of expenses (9,010) 0
Payment of deferred expense (10,170) 0
Stock subscription receivable (7,500) 0
-----------------------
Cash received from issuance of common stock $ 0 $ 6,000
=======================
(7)
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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 March 31, 1998 and the results of operations
for the nine months ended March 31, 1998 and 1997.
2. The results of operations for the nine months ended March 31, 1998 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, 1998 and
1997. 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 period.
(8)
<PAGE>
THE METAL ARTS COMPANY, INC.
----------------------------
MANAGEMENTS'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 Septemeber 30, 1994, eleven debentures for a total of
$275,000. The purpose of the private placement was to acquire the tecnology 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 $325,000 on this contract.
OPERATING ACTIVITIES
Over the past three 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 nine months of fiscal year 1998, Coating Technology operated
profitably with sufficient resources to sustain operations.
MICROSMOOTH TM
The Company initially applied for a patent on MicrosmoothTM, 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.
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 MicrosmoothTM process on Alyn's
Boralyn alternate computer memory disks. The Company will receive material
royalties from the Alyn Corporation to retain Alyn's exclusive worldwide rights
to the MicrosmoothTM technology on alternate computer memory disks.
In order to commercialize its new technology it will be necessary for Metal Arts
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.
(9)
<PAGE>
On December 8, 1997, the Company was notified by the United States Patent and
Trademark Office that a Notice of Allowance had been granted the Company
covering its MicrosmoothTM formula and an Allowance for the process. In
addition, the Patent Office has notified the Company that it has accepted for
Trademark its application for the trade name, MicrosmoothTM.
On March 28, 1998, the Company was informed by the U.S. Department of Energy
that it was the winner of one of ten 1998 DOE awards to demonstrate the
MicrosmoothTM process on aluminum automobile wheels. The amount of the cash
grant is $400,000. In addition, The New York State Energy Research and
Development Authority has indicated additional grants totalling $325,000 for two
projects, significantly supplementing the DOE grant. The Aluminum Company of
America (ALCOA) will partner with Metal Arts Company in this two year program.
(10)
<PAGE>
THE METAL ARTS COMPANY, INC.
----------------------------
MANAGEMENTS' 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).
1998 1997
------------------------------
Consolidated Net Sales:
Metal Arts $ 81,500 $ 44,000
Coating Technology 1,337,500 1,168,900
------------------------------
$ 1,419,000 $ 1,212,900
==============================
Consolidated Net Income (Loss)
Metal Arts (48,000) ($ 17,700)
Coating Technology 73,000 38,500
Minority Interest (22,000) (11,500)
-------------------------------
$ 3,000 $ 9,300
-------------------------------
THE METAL ARTS COMPANY, INC.
- ----------------------------
The net sales for the Company for the nine (9) months ended March 31, 1998 were
$81,500 as compared with $44,000 in the previous year. The Company showed a loss
of $48,000 versus a loss of $17,700 in the previous year.
COATING TECHNOLOGY, INC.
- ------------------------
Coating Technology's sales for the nine (9) months ended March 31, 1998 were
$1,337,500 as compared with $1,168,900 in the previous year. The Company showed
a profit of $73,000 as compared with a profit of $38,500 in the previous year.
(11)
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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 12, 1998 /S/ STANLEY J. DAHLE
--------------------
Stanley J. Dahle
President
Date: May 12, 1998 /S/ ALBERT A. CAUWELS
---------------------
Albert A. Cauwels
Secretary
`
(12)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 75,800
<SECURITIES> 0
<RECEIVABLES> 304,200
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 442,000
<PP&E> 1,001,000
<DEPRECIATION> 539,000
<TOTAL-ASSETS> 1,194,000
<CURRENT-LIABILITIES> 381,000
<BONDS> 0
<COMMON> 7,400,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,194,000
<SALES> 1,420,000
<TOTAL-REVENUES> 1,420,000
<CGS> 1,130,000
<TOTAL-COSTS> 1,370,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,000
<INCOME-PRETAX> 3,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
