SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1999 COMMISSION FILE NUMBER 0-9998
THE METAL ARTS COMPANY, INC.
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(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 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
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THE NUMBER OF SHARES OF COMMON STOCK, $.01PAR VALUE, OUTSTANDING AT MARCH 31,
1999 WAS 7,407,402.
PAGE 1 OF 12 PAGES
EXHIBIT INDEX IS ON PAGE 2
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THE METAL ARTS COMPANY, INC.
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INDEX
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PART I FINANCIAL INFORMATION:
Consolidated Condensed Balance Sheets,
March 31,1999 and June 30,1998. 4 and 5
Consolidated Condensed Statements of Operations,
Three months and nine months ended March 31,1999 and 1998. 6
Consolidated Condensed Statement of Cash Flows, and
Three months and nine months ended March 31, 1999 and 1998. 7
Notes to Consolidated Condensed Financial
Statements. 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9
PART II OTHER INFORMATION 10
<PAGE>
2
PART I FINANCIAL INFORMATION
4
<PAGE>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
------
3/31/99 6/30/98
--------------------------
CURRENT ASSETS
<S> <C> <C>
Cash ($ 8,724) $ 35,374
Trade accounts receivable - net 168,813 262,683
Current portion of due from NYSERDA 32,806 0
Current portion of deferred tax asset 35,000 35,000
Prepaid expenses and other current assets 6,998 34,474
---------------------------
234,893 367,531
PROPERTY, PLANT and EQUIPMENT 1,385,810 1,251,623
Less accumulated depreciation (646,182) (576,918)
---------------------------
739,592 674,705
OTHER ASSETS
Due from shareholder 0 19,734
Due from NYSERDA, net of current portion 11,571 0
Cash value of life insurance 7,893 7,893
Operating rights - net 15,410 15,410
Debt issuance costs - net 5,311 5,311
Deferred tax asset, net of current portion 147,800 147,800
Other assets 68,468 37,677
---------------------------
256,453 233,825
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TOTAL ASSETS $1,230,938 $1,276,061
===========================
</TABLE>
4
<PAGE>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED BALANCED SHEETS
(UNAUDITED)
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<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
3/31/99 6/30/98
--------------------------
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable - trade $ 278,482 329,114
Accrued expenses 47,221 10,049
Accrued payroll and related taxes 78,878 47,377
Accrued commissions 34,590 34,590
Due to shareholder 23,500 13,000
Current portion of long - term debt 402,012 402,012
--------------------------
864,683 836,142
LONG - TERM LIABILITIES
Long - term debt, net of current portion 153,817 183,784
Other long - term liability 243,222 243,222
Deferred tax liability 6,700 6,700
--------------------------
403,739 433,706
MINORITY INTEREST IN SUBSIDIARY 148,401 135,901
STOCKHOLDERS' EQUITY
Common stock - $.01 par value, 15,000,000 shares authorized;
Issued and outstanding: 7,520,802 at September 30, 1998 and
June 30, 1998, respectively 75,208 75,208
Paid - in capital in excess of par value 2,458,984 2,458,984
Accumulated deficit (2,720,077)
--------------------------
(2,663,880)
(185,885) (129,688)
--------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,230,938 $ 1,276,061
===========================
</TABLE>
5
<PAGE>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
SALES - Net $ 326,002 $ 479,698 $ 1,023,028 $ 1,419,077
COST OF SALES (234,469) (430,435) (853,100) (1,130,081)
--------------------------------------------------------
GROSS MARGIN 91,533 49,263 169,928 288,996
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 46,744 72,018 (162,661) (239,803)
RESEARCH AND DEVELOPMENT 0 (562) 0 (562)
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OPERATING INCOME (LOSS) 44,789 (23,317) 7,267 48,631
INTEREST EXPENSE (17,937) (8,223) (51,040) (24,213)
INTEREST INCOME 1 489 76 639
MINORITY INTEREST IN INCOME
OF SUBSIDIARY (15,500) 700 (12,500) (22,000)
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(33,436) (7,034) (63,464) (45,574)
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NET INCOME (LOSS) FOR THE PERIOD $ 11,353 ($ 30,351) ($ 56,197) ($ 3,057)
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WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,520,802 7,464,102 7,520,802 7,426,302
EARNINGS PER SHARE OF
COMMON STOCK:
Net income (loss) for the period $ 0.00 $ 0.00 ($ 0.01) $ 0.00
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</TABLE>
6
<PAGE>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1999 1998
--------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) for the period ($ 56,197) $ 3,057
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
Stock issued in payment of expenses 0 9,010
Rent expense offset against advances to unconsolidated subsidiary 0 3,000
Depreciation and amortization 69,300 69,300
Minority interest in income of subsidiary 12,500 22,000
Change in operating accounts:
Accounts receivable 49,493 (47,958)
Prepaid expenses and other (3,315) (54,196)
Accounts payable (50,632) 47,347
Accrued expenses 37,172 7,269
Accrued payroll and commissions 31,501 11,086
--------------------------
Deferred revenue 89,822 69,915
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (134,188)
Repayment of advances to shareholder 0 13,009
Advances from shareholder 10,500 20,000
Repayment of advances from shareholder 19,734 (7000)
--------------------------
(103,954) (45,739)
CASH FLOWS FINANCING ACTIVITIES - Payments on long - term debt 0 50,000
(29,966) (51,612)
(29,966)
(1,612)
NET INCREASE IN CASH (44,098) 22,564
--------------------------
CASH - BEGINNING 35,374 53,241
--------------------------
CASH - ENDING ($ 8,724) $ 75,805
--------------------------
</TABLE>
7
<PAGE>
THE METAL ARTS COMPANY, INC.
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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 30,1998. 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, 1999 and
the results of operations for the nine months ended March 31,1999 and 1998.
2. The results of operations for the nine months ended March 31,1999 are not
necessarily indicative of the results to be expected for the full year.
3. Earnings (loss) per share of common stock are computed on the weighed
average number of shares outstanding during the nine months ended March
31,1999 and 1998. 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.
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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 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 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.
On June 30, 1998, the company signed a new agreement with NYSERDA to demonstrate
the use of Microsmooth(R) for hard anodizing in the amount of $55,000.
On August 12, 1998, the company signed an additional agreement with NYSERDA to
demonstrate the Microsmooth(R) process on aluminum automobile wheels. This
contract also includes funding from the US Department of Energy with the
Aluminum Company of America (ALCOA) as a strategic partner in the effort. The
funding from NYSERDA and US DOE totals $640,000. In addition, ALCOA has pledged
$100,00 of in-kind material, services and cash.
OPERATING ACTIVITIES
Over the past three fiscal years, Coating Technology has shown steady growth in
sales and operating earnings. Cash flow, along with capital leases, 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 1999, Coating
Technology's sales have dropped but has operated profitably and with sufficient
resources to sustain operations.
9
<PAGE>
MICROSMOOTH(R)
The Company initially applied for a patent on Microsmooth(R), 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 May 19, 1998, the United States Patent office issued
patent number 5,753,304 covering the Microsmooth(R) formula and the
Microsmooth(R) process. A trademark was issued on the name, Microsmooth(R), on
June 30, 1998.
On July 30, 1997 the Company entered into an exclusive license agreement with
Alyn Corporation, Inc. for Alyn to use the Microsmooth(R) process on Alyn's
Boralyn(R) alternate computer memory disks. The Company will receive material
royalties from the Alyn Corporation to retain Alyn's exclusive worldwide rights
to the Microsmooth(R) 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.
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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,
1999 1998
------------------------------
CONSOLIDATED NET SALES
Metal Arts $ 0 $ 81,500
Coating Technology 1,023,000 1,337,500
------------------------------
$ 1,023,000 $ 1,419,000
------------------------------
CONSOLIDATED NET INCOME (LOSS)
Metal Arts ($ 85,200) ($ 48,000)
Minority Interest (12,500) (22,000)
Coating Technology 41,500 73,000
------------------------------
($ 56,200) $ 3,000
==============================
THE METAL ARTS COMPANY, INC.
- ----------------------------
The net sales for the Company for the nine (9) months ended March 31, 1999 were
$0 compared with $81,500 in the previous year. The Company showed a loss of
$85,200 versus a loss of $48,000 in the previous year.
COATING TECHNOLOGY, INC.
- ------------------------
Coating Technology's sales for the nine (9) months ended March 31, 1999 were
$1,023,000 as compared with $1,337,500 in the previous year. The Company showed
a profit of $41,500 as compared with a profit of $73,000 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.
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Date: MAY 15, 1999 /S/ STANLEY J. DAHLE
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Stanley J. Dahle
President
Date: MAY 15, 1999 /S/ ALBERT A. CAUWELS
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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-30-1999
<PERIOD-START> JUN-30-1998
<PERIOD-END> MAR-31-1999
<CASH> (8,700)
<SECURITIES> 0
<RECEIVABLES> 169,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 234,900
<PP&E> 1,385,800
<DEPRECIATION> 646,200
<TOTAL-ASSETS> 1,230,900
<CURRENT-LIABILITIES> 864,700
<BONDS> 0
<COMMON> 7,400,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,230,900
<SALES> 1,023,000
<TOTAL-REVENUES> 1,023,000
<CGS> 853,100
<TOTAL-COSTS> 1,015,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,000
<INCOME-PRETAX> (56,200)
<INCOME-TAX> 0
<INCOME-CONTINUING> (56,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (56,200)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
