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 December 31, 1997 Commission File Number 0-9998
THE METAL ARTS COMPANY, INC.
----------------------------
(Exact name of registrant as specified in its charter)
New York 06-0945588
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(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 December
31,1997 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
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PART I Financial Information:
Consolidated Condensed Balance Sheets,
December 31, 1997 and June 30, 1997. 4 and 5
Consolidated condensed Statements of
Operations, six months ended December 31,
1997 and 1996. 6
Consolidated Condensed Statement of
Cash Flows, six months ended
December 31,1997 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.
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CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
(UNAUDITED)
-----------
ASSETS
12/31/97 6/30/97
-------- -------
Current Assets:
<S> <C> <C>
Cash $ 51,036 $ 53,241
Trade accounts receivable - net 268,339 223,791
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 20,787 8,364
----------- -----------
366,762 347,359
PROPERTY, PLANT AND EQUIPMENT 966,616 929,629
Less accumulated depreciation (515,669) (469,469)
----------- -----------
450,947 460,160
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 57,227 30,543
----------- -----------
270,792 257,117
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TOTAL ASSETS $ 1,088,501 $ 1,064,636
=========== ===========
</TABLE>
(4)
<PAGE>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
12/31/97 6/30/97
-------- -------
CURRENT LIABILITIES
Current portion of long-term debt $ 56,613 $ 56,613
Accounts payable - trade 206,168 220,809
Accrued expenses 6,214 8,207
Accrued payroll and related taxes 26,193 21,702
Accrued commissions 34,248 34,401
---------------------------
329,436 341,732
LONG-TERM LIABILITIES
Long-term debt, net of current portion 328,387 348,332
Other long-term liability 243,222 243,222
Deferred tax liability 14,800 14,800
---------------------------
586,409 606,354
MINORITY INTEREST IN SUBSIDIARY 164,881 142,181
STOCKHOLDERS' EQUITY
Common stock- $.01 par value, 15,000,000 shares
authorized; issued and outstanding; 7,407,402 at
Dec. 31, 1997 and June 30, 1997 74,074 74,074
Paid-in capital in excess of par value 2,407,188 2,407,188
Accumulated deficit (2,473,487) (2,506,893)
---------------------------
7,775 (25,631)
---------------------------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 1,088,501 $ 1,064,636
==========================
(5)
<PAGE>
<TABLE>
<CAPTION>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES - NET $ 468,373 $ 374,471 $ 939,379 $ 781,747
COST OF SALES (345,016) (319,515) (699,646) (655,552)
-----------------------------------------------------------------
GROSS MARGIN 123,357 54,956 239,733 126,195
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (85,940) (67,775) (167,785)
-----------------------------------------------------------------
RESEARCH AND DEVELOPMENT 0 23,463 0 35,980
OPERATING INCOME (LOSS) 37,417 10,644 71,948 34,651
INTEREST EXPENSE (7,936) (8,545) (15,991) (18,203)
INTEREST INCOME 68 264 149 806
MINORITY INTEREST IN INCOME
OF SUBSIDIARY (11,050) (180) (22,700) (10,116)
-----------------------------------------------------------------
(18,918) (8,461) (38,542) (27,513)
-----------------------------------------------------------------
NET INCOME (LOSS)
FOR THE PERIOD $ 18,499 $ 2,183 $ 33,406 $ 7,138
=================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES
OUTSTANDING 7,407,402 7,357,402 7,404,402 7,332,402
EARNINGS PER SHARE OF
COMMON STOCK:
Net income (loss) for the period $ 0.00 $ 0.00 $ 0.00 $ 0.00
=================================================================
</TABLE>
(6)
<PAGE>
<TABLE>
<CAPTION>
METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) for the period $ 33,406 $ 7,138
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)
TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Rent expense offset against advances to former subsidiary 3,000 3,000
Depreciation and amortization 46,200 46,200
Minority interest in income of subsidiary 22,700 10,116
Change in operating accounts:
Accounts receivable (12,047) (13,336)
Prepaid expenses and other (39,107) (726)
Accounts payable (14,641) (32,529)
Accrued expenses (1,993) 9,900
Accrued payroll and commissions 4,220 (5,649)
-----------------------
41,718 24,114
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (36,987) (40,145)
Repayment of advance to shareholder 13,009 0
-----------------------
(23,978) (40,145)
CASH FLOWS FINANCING ACTIVITIES
Proceeds from issuance of common stock 0 6,000
Payments on long term debt (19,945) (20,007)
-----------------------
(19,945) (14,007)
-----------------------
NET INCREASE IN CASH (2,205 (30,038)
CASH - BEGINNING 53,241 112,215
-----------------------
CASH ENDING $ 51,036 $ 82,177
======================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash Paid for interest expense $ 15,991 $ 18,203
======================
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Accounts payable-trade staisfied $ 0 $ 44,000
Common stock issued 0 (44,000)
======================
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 June30, 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 Dec. 31, 1997 and the
results of operations for the six months ended Dec. 31, 1997and 1996
2. The results of operations for the six months ended Dec. 31, 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 six months ended Dec. 31,
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 $325,000 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 six 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 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.
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.
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 Microsmooth(TM) formula and an Allowance for the process.
(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).
Six Months Ended
December 31
1997 1996
---- ----
Consolidated Net Sales:
Metal Arts $ 80,000 $ 9,800
Coating Technology 859,000 772,000
---------------------------
$ 939,000 $ 781,800
===========================
Consolidated Net Income (Loss)
Metal Arts ($ 19,500) ($ 16,500)
Coating Technology 75,600 33,700
Minority Interest (22,700) (10,100)
---------------------------
$ 33,400 $ 7,100
===========================
THE METAL ARTS COMPANY, INC.
- ----------------------------
The net sales for the Company for the six (6) months ended December 31,1997 were
$80,000 compared with $9,800 in the previous year. The Company showed a loss of
$19,500 versus a loss of $16,500 the previous year.
COATING TECHNOLOGY, INC.
- ------------------------
Coating Technology's sales for the six (6) months ended December 31, 1997 were
$859,000 as compared with $772,000 in the previous year. The Company showed a
profit of $75,600 as compared with a profit of $33,700 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:February 6, 1998 /s/ Stanley J. Dahle
----------------- ---------------------
Stanley J. Dahle
President
Date:February 6, 1998 /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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 51,000
<SECURITIES> 0
<RECEIVABLES> 268,400
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 366,700
<PP&E> 966,600
<DEPRECIATION> 515,700
<TOTAL-ASSETS> 1,088,500
<CURRENT-LIABILITIES> 329,400
<BONDS> 0
<COMMON> 7,400,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,088,500
<SALES> 940,000
<TOTAL-REVENUES> 940,000
<CGS> 699,600
<TOTAL-COSTS> 867,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,000
<INCOME-PRETAX> 33,400
<INCOME-TAX> 0
<INCOME-CONTINUING> 33,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,400
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
