SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required)
For the fiscal year ended 6/30/98 or
( ) Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No Fee Required)
For the transition period from ________ to ________
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)
(315) 789-2200
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
NONE
------------------- -------------------
------------------- -------------------
Securities registered pursuant to Section 12(g) of the Act:
NONE
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(Title of Class)
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(Title of Class)
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
--- ----
<PAGE>
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to the
date of filing. (See definition of affiliate in Rule 405.) $1,060,637 (4,242,551
at $.25 Per share)
Note. If a determination as to whether a particular person or entity is
an affiliate cannot be made without involving unreasonable effort and expense,
the aggregate market value of the common stock held by non-affiliates may be
calculated on the basis of assumptions reasonable under the circumstances,
provided that the assumptions are set forth in this form.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE PRECEDING
FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
----- ------
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
7,520,802 SHARES OF COMMON STOCK
--------------------------------
PAR VALUE $.01 PER SHARE
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Page 2 of 44
Exhibit Page Appears on Page 43
<PAGE>
PART I
ITEM 1. BUSINESS
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.
GENERAL
Metal Arts Company, Inc. established in 1913 ("Metal Arts" or the
"Company"), has operated as a holding company. Except where specific reference
is made in this Part I to the individual operations of Metal Arts or its 70
percent owned subsidiary Coating Technology, Inc., references in the Part I to
the "Company" are intended to be a reference to the collective operations of
Metal Arts and Coating Technology. Coating Technology engages in contract
electroless nickel, aluminum anodizing, electroless nickel and gold plating of
circuit boards and other surface coating and enhancement operations.
Metal Arts had outstanding liabilities of $1,405,749 as of the close of
Fiscal 1998. A detailed description of these liabilities is set forth in the
Financial Statements and Supplementary Data annexed as Item 8 to this Form 10-K.
Specific reference is made to Notes 1 and 5 of these Financial Statements for
information concerning specific liabilities.
On June 30, 1994, the company undertook to offer twenty(20) of its
$25,000 Principal Amount 8% Convertible Subordinated Debentures due June 30,
1999 ( the "Debentures"). The Debentures are convertible into common stock of
the company at $.75 through June 30, 1996, $.95 per share from July 1, 1996
through June 30, 1988 and $1.25 per share thereafter, and grant the holder a
warrant to purchase an equal number of common shares at $.85. As of September
30, 1994, eleven (11) Debentures had been subscribed for a total of $275,000.
The Debentures were offered and issued under Section 4.2 of the Securities Act
of 1993 and the rules and regulations thereunder.
The proceeds from the Debenture were used to acquire a new Patented
Technology for the plating of electroless nickel on aluminum and to
commercialize that technology, initially to the Computer Hard Disk and Aluminum
Automobile Wheel Markets. The Company's proprietary specialty chemicals consist
of Microsmooth(R), a patented aluminum activator solution used in conjunction
with a proprietary electroless-nickel bath for plating on aluminum. Both the
products and process are proprietary, rendering a smoother surface with enhanced
corrosion protection, elimination of several toxic chemicals, while reducing
plating and waste treatment costs. Marketing efforts to the computer memory disk
and aluminum wheel markets continue now. If successful in the U.S., it is the
company's intention to market the technology or license it internationally.
The technology was acquired for $50,000 cash, which was paid as of
September 30, 1995. In addition, the seller has received 100,000 shares of Metal
Arts common stock and an additional 100,000 shares of Metal Arts common stock
upon the issuance of the patent.
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<PAGE>
As a result of this acquisition, Metal Arts will become an operating
company, marketing its proprietary specialty chemicals to end users nationally.
Compliance with environmental laws and regulations has a material and
on-going impact on the company. The company must comply and the costs are both
capital and operational. It has a positive impact in that certain companies that
cannot comply are at a disadvantage, operationally. It has a negative impact in
that the costs of compliance affects capital resources and cash flow. During the
fiscal year 1998, Coating Technology spent approximately $55,000 on various
compliance requirements. As new technologies and methods are available to the
company, additional capital and operational costs will be incurred to comply
with and/or reduce on-going expenses of waste treatment.
THE COMPANY'S MARKETS
During the past three fiscal years, substantially all of the company's
sales were attributable to the operations of Coating Technology. Coating
Technology provides surface coating services for various regional industries.
<TABLE>
<CAPTION>
FISCAL YEARS (ENDING JUNE 30)
-----------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Metal Arts $ 82,000 $ 44,000 $ --
Coating Technology 1,790,000 1,613,000 1,630,000
---------- ---------- ----------
$1,872,000 $1,657,000 $1,630,000
========== ========== ==========
</TABLE>
THE COMPANY'S PRODUCTS
Metal Arts is entering the Specialty chemical business, marketing its
new process for plating electroless nickel on aluminum. The process consists of
Microsmooth (R), a patented activator and a proprietary high-phosphorus
electroless nickel formulation, initially to manufacturers of computer hard
disks and aluminum wheels. Coating Technology is engaged in contract electroless
and brite nickel and aluminum anodizing operations. Coating Technology services
the office products industry through large, medium and small metal fabricating
companies who in turn supply subassemblies and individual component parts to
major office product manufacturers such as Xerox, Kodak, IBM, Cannon and others.
In addition, Coating Technology provides electroless nickel and gold plating for
the circuit board industry. It also provides other surface finishes to various
contract customers.
MANUFACTURING OPERATIONS
Metal Arts' specialty chemical mixing operations will initially be
conducted with existing equipment at Coating Technology.
SURFACE COATING OPERATIONS
Coating Technology engages in the Surface Coatings and Enhancements
business. It is a leading regional Electroless Nickel Plater, a plating
technique that deposits nickel on metal without the use of an applied electrical
current. The process is used to prevent corrosion, enhance smoothness and
improve overall surface quality on various metals including aluminum, copper and
steel. It is now a leading regional anodizer. All surface finishing operations
are conducted at its facility at 1600 N. Clinton Ave Rochester, NY. As of
January 1, 1999, all surface finishing operations will be moved to a new
facility at 800 St. Paul St. Rochester, NY.
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<PAGE>
COMPLIANCE WITH GOVERNMENTAL REGULATIONS
The company believes that its present operations are in compliance with
the current requirements of OSHA, EPA and all applicable local and state
regulations, utilizing an up-to-date waste treatment system.
COMPETITION
Metal Arts will be competing initially in the computer memory disk and
aluminum wheel markets where established, substantially larger companies
dominate. There are approximately 20 companies that sell plating chemicals to
these markets. Metal Arts will compete on the basis of an improved technology
that will save its potential customers material, labor and waste treatment
costs.
Coating Technology competes with several regional plating firms
including two that are larger and several of the same or smaller size. The
company competes on the basis of superior service and, in certain instances, on
the basis of proprietary technology or equipment.
CUSTOMERS
During the fiscal year ended June 30, 1998, Coating Technology had two
customers which accounted for 24 percent of its sales, one of which accounted
for 14 percent of its sales.
INVENTORY REQUIREMENTS
Coating Technology does not maintain an inventory other than its normal
chemical plating and surface finishing solutions which are sourced as needed and
are readily available.
SOURCES OF RAW MATERIALS
Metal Arts will be able to source all components for its proprietary
electroless nickel process, readily, from multiple sources at competitive
prices. The company can accommodate raw material requirements out of current
working capital during the initial stages of commercialization. It will be
necessary to enhance its working capital either out of cash flow or other
external means if sales increase substantially. Coating Technology sources its
raw materials on regular trade terms and has the working capital required to
sustain current operations and continue to grow at its current rate. There are
no rights of return, or extended payment terms for Coating Technology, nor are
any anticipated for Metal Arts. Coating Technology sources all chemicals and
related supplies from local and national companies at competitive prices.
EMPLOYEES
The company employs one executive in its Metal Arts operations and 25
in its Coating Technology operations, none of whom are union members.
-5-
<PAGE>
ITEM 2. PROPERTIES
Coating Technology leases approximately 22,000 square feet at an
initial rental of $2.95 per square foot escalating to $4.95 by the end of the
first five year term on September 1, 1996, which was extended on the same terms
until December 31, 1998. This is a "gross" lease with responsibility for payment
of utilities. The Company has signed a ten year lease for approximately 40,000
square feet of factory and office space in a superior building initially at
$2.00 per square foot with responsibility for utilities.
The plant includes surface finishing machinery and equipment which the
company believes are adequate to satisfy the requirements of Metal Arts' and
Coating Technology's present and proposed future businesses.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings at the present time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal year ended June 30, 1998, no annual meeting was held
and no shareholder votes took place. It is anticipated that the next annual
meeting will take place in the next few months.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON SHARES
AND RELATED STOCKHOLDER MATTERS
The common shares of Metal Arts have been traded in the
over-the-counter market since its initial public offering on January 22, 1981,
and are now traded on the NASDAQ "Bulletin Board" under the symbol MTRT.
The following table sets forth, for the calendar quarters indicated,
the range of high and low bid quotations on the NASDAQ National Market System,
as reported by the National Quotation Bureau, Inc.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1997 HIGH LOW
- ------------------------------- ---- ---
<S> <C> <C>
First Quarter (July - September 1996) 9/16 5/16
Second Quarter (October - December 1996) 7/16 5/16
Third Quarter (January - March 1997) 5/16 3/16
Fourth Quarter (April - June 1997) 7/16 5/16
FISCAL YEAR ENDED JUNE 30, 1998
- -------------------------------
First Quarter (July - September 1997) 7/8 1/2
Second Quarter (October - December 1997) 9/16 1/4
Third Quarter (January - March 1998) 1/4 3/16
Fourth Quarter (April - June 1998) 1/4 3/16
FISCAL YEAR ENDED JUNE 30, 1999
- -------------------------------
First Quarter (July - September 1998) 1/4 3/16
</TABLE>
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<PAGE>
For a recent reported quotation for the company's common shares, see
the cover page of this Form 10-K. The quotations listed above reflect
inter-dealer prices, without retail markup, markdown, or commissions and may not
necessarily represent actual transactions.
To date, the company has not paid a dividend on its common shares. The
payment of future dividends is subject to the company's earnings and financial
position and such other factors, including contractual restrictions, as the
Board of Directors may deem relevant and it is unlikely that dividends will be
paid in the foreseeable future.
As of October 1, 1998, there were approximately 980 holders of record
of the common shares of Metal Arts, approximately 20 holders of record of
warrants issued (and extended to December 31, 1998) as part of the 1988 Private
Placement (23,000 have been exercised and 552,000 are left), and eleven holders
of record of the June 30, 1994 Debentures, which are potentially convertible
into a total of 366,663 common shares of the company.
In June, 1995, the Board of Directors of The Metal Arts Company, Inc.
(the "Company"), voted to distribute to the Company's shareholders, pro rata,
the Company's holdings of the common shares of its then subsidiary, Bastian
Company, Inc. ("Bastian"). As of June, 1995, the Company held approximately
356,000 of the then outstanding 400,000 common shares of Bastian, or
approximately 89% of the then issued and outstanding common shares of Bastian.
Bastian has advised the Company that Bastian believes it has an aggregate of
approximately 260 holders of its common shares. The Company has approximately
980 holders of its own common shares. The Company's management believes that the
value of the Bastian common shares then owned by the Company, both as of the
date of the decision to distribute those shares, and as of the date of this
Report, was negligible both in the aggregate and on a per share basis.
Bastian has advised the Company that Bastian has not filed a
registration statement with the Securities and Exchange Commission to register
the Bastian common shares pursuant to The Securities Exchange Act of 1934, as
amended (the "1934 Act"), and has not taken any other steps to comply with
federal or state securities statutes. As such, since the Company believes that
such registration under the 1934 Act, and other actions under federal and state
securities statutes, may be required prior to the time that the Bastian common
shares are distributed to the Company's shareholders, the Company has not
completed the pro rata distribution of the Bastian common shares which was
declared in June 1995. Management of the Company is unable to determine when, or
if Bastian will register the Bastian common shares pursuant to the 1934 Act, but
will further advise the Company's shareholders at the time that any further
determination is made with regard to the distribution of the Bastian common
shares.
At this time, management of the Company believes that all of the
Company's shareholders have a right to receive their pro rata distribution of
the Bastian common shares, subject, however, to the completion of the necessary
1934 Act registration being filed and becoming effective and certain other
securities requirements being fulfilled.
-7-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
June 30, June 30, June 30, June 30, June 30,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Results of operations:
<S> <C> <C> <C> <C> <C>
Net sales $ 1,871,896 $ 1,656,961 $ 1,629,538 $ 1,573,276 $ 1,258,500
Income (loss) before
cumulative effect of
accounting changes $ (156,988) $ (126,307) $ (147,294) $ (400,722) $ 131,318
Cumulative effect of
accounting change $ -- $ -- $ -- $ -- $ 176,400
Net income (loss) $ (156,988) $ (126,307) $ (147,294) $ (400,722) $ 307,718
Per share:
Income (loss)
before cumulative
effect of accounting
change $ (.02) $ (.02) $ (.02) $ (.05) $ .02
Cumulative effect of
accounting change $ -- $ -- $ -- $ -- $ .03
Net income (loss) $ (.02) $ (.02) $ (.02) $ (.05) $ .05
Weighted average number
of common shares
outstanding 7,464,116 7,357,402 7,307,402 7,294,002 6,766,352
</TABLE>
Cash dividends paid per common share - No dividends have been paid in the past.
<TABLE>
<CAPTION>
June 30, June 30, June 30, June 30, June 30,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Balance sheet data:
<S> <C> <C> <C> <C> <C>
Total assets $ 1,276,061 $ 1,064,636 $ 1,179,263 $ 1,202,988 $ 1,009,783
Total liabilities $ 1,405,749 $ 1,090,267 $ 1,128,587 $ 1,005,018 $ 966,673
Long-term
obligations $ 433,706 $ 606,354 $ 660,168 $ 646,180 $ 588,341
Minority interest $ 135,901 $ 142,181 $ 129,898 $ 125,002 $ 99,406
Working capital $ (468,611) $ 5,627 $ 59,777 $ 172,843 $ 54,156
Stockholders' equity
(deficiency) $ (129,688) $ (25,631) $ 50,676 $ 197,970 $ 43,110
</TABLE>
-8-
<PAGE>
The following table illustrates the major components of consolidated net sales
and net loss:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
CONSOLIDATED NET SALES:
<S> <C> <C> <C>
Metal Arts $ 82,000 $ 44,000 $ --
Coating Technology 1,790,000 1,613,000 1,630,000
----------- ----------- -----------
$ 1,872,000 $ 1,657,000 $ 1,630,000
=========== =========== ===========
CONSOLIDATED NET LOSS:
Metal Arts $ (143,000) $ (155,000) $ (158,000)
Coating Technology (20,000) 41,000 16,000
Minority Interest 6,000 (12,000) (5,000)
----------- ----------- -----------
$ (157,000) $ (126,000) $ (147,000)
=========== =========== ===========
</TABLE>
-9-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following Management Discussion and Analysis should be read in
conjunction with this entire Form 10-K 1998 Annual Report. Except where specific
reference is made in this Item 7 to the individual operations of Metal Arts or
its 70 percent owned subsidiary, Coating Technology, references in this Item 7
to the "Company" are intended to be a reference to the joint operations of all
of Metal Arts, and Coating Technology.
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.
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
$100,000 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 quarter of fiscal year 1999, Coating Technology
operated profitably with sufficient resources to sustain operations.
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<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, 1998. On May 19, 1998, the United Stated 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 7 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.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
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<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Balance Sheets at June 30, 1998 and 1997 . . . . . . . . . . 2 - 3
Consolidated Statements of Operations for the years
ended June 30, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . . . . .4
Consolidated Statements of Changes In Stockholders'
Equity (Deficiency) for the years ended
June 30, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . . . 5 - 6
Consolidated Statements of Cash Flows for the years
ended June 30, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . . 7 - 8
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . .9 - 19
Financial Schedules
II - Amounts Receivable from Related Parties and
Underwriters, Promoters, and Employees
Other Than Related Parties . . . . . . . . . . . . . . . . . . . 20
V - Property, Plant and Equipment . . . . . . . . . . . . . . . . . . .21
VI - Accumulated Depreciation and Amortization of
Property, Plant and Equipment . . . . . . . . . . . . . . . . . 22
VII - Valuation and Qualifying Accounts and Reserves . . . . . . . . . . 23
X - Supplementary Income Statement Information . . . . . . . . . . . . 24
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or the notes thereto.
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<PAGE>
DAVIE
KAPLAN
CHAPMAN
BRAVERMAN
CERTIFIED PUBLIC ACCOUNTANTS
BUSINESS AND FINANCIAL CONSULTANTS
28 Main St. E, Suite 1000
Rochester, New York 14614
Tel: 716-454-4161
Fax: 716-454-2573
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Stockholders
The Metal Arts Company, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of The Metal Arts
Company, Inc. and Subsidiary as of June 30, 1998 and 1997, and the related
consolidated financial statements listed in the accompanying index for each of
the years in the three-year period ended June 30, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Notes 1 and 2 to the financial statements, the Company has
elected not to consolidate its Bastian and Ocean State subsidiaries as required
by generally accepted accounting principles.
In our opinion, except for the effects of not consolidating its Bastian and
Ocean State subsidiaries as discussed in the preceding paragraph, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of The Metal Arts Company, Inc. and
Subsidiary as of June 30, 1998 and 1997, and the results of their operations,
changes in their stockholders' equity (deficiency) and their cash flows for each
of the years in the three-year period ended June 30, 1998, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial schedules listed in the
accompanying index are presented for purposes of additional analysis and are not
a required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ DAVIE KAPLAN CHAPMAN BRAVERMAN, P.C.
----------------------------------------
October 9, 1998
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A Professional Corporation
Member - BKR International
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
-------------------------------------------
Consolidated Balance Sheets
June 30, 1998 And 1997
<TABLE>
<CAPTION>
ASSETS
------
Current assets: 1998 1997
---------- ----------
<S> <C> <C>
Cash $ 35,374 $ 53,241
Accounts receivable, trade - less allowance for
uncollectible accounts of $10,000 in 1998
and 1997 (Notes 5 and 10) 262,683 223,791
Due from NYSERDA, current portion (Note 3) -- 32,501
Due from unconsolidated subsidiary, less allowance
for uncollectible amount of $100,000 in 1998
and 1997 (Note 15) -- 2,862
Stock subscription receivable 7,500 --
Prepaid expenses and other current assets 26,974 8,364
Deferred tax asset - less valuation allowance
of $22,800 in 1998 and $37,100 in 1997
(Notes 2 and 11) 35,000 26,600
---------- ----------
367,531 347,359
---------- ----------
Property, plant and equipment (Notes 2, 4 and 5) 1,251,623 929,629
Less: Accumulated depreciation and amortization 576,918 469,469
---------- ----------
674,705 460,160
---------- ----------
Other assets:
Due from shareholder (Note 15) 19,734 13,009
Cash value of life insurance 7,893 7,893
Operating rights, net of accumulated amortization of
$4,690 in 1998 and $3,350 in 1997 (Notes 2 and 8) 15,410 16,750
Debt issuance costs, net of accumulated amortization
of $21,243 in 1998 and $15,931 in 1997 (Note 2) 5,311 10,622
Other assets 37,677 30,543
Deferred tax asset - less valuation allowance of $130,300
in 1998 and $309,200 in 1997 (Notes 2 and 11) 147,800 178,300
---------- ----------
233,825 257,117
---------- ----------
$1,276,061 $1,064,636
========== ==========
</TABLE>
The accompanying Notes to Financial Statements
are an integral part of these statements.
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<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities: 1998 1997
----------- -----------
<S> <C> <C>
Current portion of long-term debt (Note 5) $ 402,012 $ 56,613
Accounts payable, trade 329,114 220,809
Accrued expenses 10,049 8,207
Accrued payroll and related taxes 47,377 21,702
Accrued commissions 34,590 34,401
Due to shareholder (Note 15) 13,000 --
----------- -----------
836,142 341,732
----------- -----------
Long-term liabilities:
Long-term debt, net of current portion (Note 5) 183,784 348,332
Other long-term liability (Note 6) 243,222 243,222
Deferred tax liability (Notes 2 and 11) 6,700 14,800
----------- -----------
433,706 606,354
----------- -----------
Minority interest in subsidiary (Note 9) 135,901 142,181
----------- -----------
Commitments and contingencies (Notes 12 and 13)
Stockholders' equity (deficiency) (Notes 3, 5, 7 and 8):
Commonstock - $.01 par value, 15,000,000
shares authorized; 7,520,802 and
7,407,402 shares issued
and outstanding in 1998 and 1997,
respectively 75,208 74,074
Paid-in capital in excess of par value 2,458,984 2,407,188
Accumulated deficit (2,663,880) (2,506,893)
----------- -----------
(129,688) (25,631)
----------- -----------
$ 1,276,061 $ 1,064,636
=========== ===========
</TABLE>
-15-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
Consolidated Statements Of Operations
For The Years Ended June 30, 1998, 1997 And 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales (Note 10) $ 1,871,897 $ 1,656,961 $ 1,629,538
Cost of goods sold 1,504,840 1,322,482 1,377,353
----------- ----------- -----------
Gross profit 367,057 334,479 252,185
----------- ----------- -----------
Selling, general and administrative expenses 465,258 389,006 334,440
Research and development 3,572 25,063 28,209
----------- ----------- -----------
468,830 414,069 362,649
----------- ----------- -----------
Loss from operations (101,773) (79,590) (110,464)
----------- ----------- -----------
Other income (expense):
Allowance for uncollectible accounts -- -- (6,000)
Interest expense (47,589) (36,947) (38,547)
Interest income 745 1,046 2,813
Minority interest in income of subsidiary
(Note 9) 6,280 (12,283) (4,896)
----------- ----------- -----------
(40,564) (48,184) (46,630)
----------- ----------- -----------
Loss before income taxes (142,337) (127,774) (157,094)
Provision for income taxes (Notes 2 and 11) 14,650 (1,467) (9,800)
----------- ----------- -----------
Net loss for the year $ (156,987) $ (126,307) $ (147,294)
=========== =========== ===========
Earnings per share of common stock (Note 2) $ (.02) $ (.02) $ (.02)
=========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statements
are an integral part of these statements.
-16-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
-------------------------------------------
Consolidated Statements Of Changes In Stockholders' Equity (Deficiency)
For The Years Ended June 30, 1998, 1997 And 1996
<TABLE>
<CAPTION>
COMMON STOCK
------------
NUMBER
OF
SHARES AMOUNT
------ ------
<S> <C> <C>
Balance at June 30, 1995 7,307,402 $73,074
Net loss for the year -- --
--------- -------
Balance at June 30, 1996 7,307,402 73,074
Issuance of common stock 100,000 1,000
Net loss for the year -- --
--------- -------
Balance at June 30, 1997 7,407,402 74,074
Issuance of common stock 113,400 1,134
Net loss for the year -- --
--------- -------
Balance at June 30, 1998 7,520,802 $75,208
========= =======
</TABLE>
The accompanying Notes to Financial Statements
are an integral part of these statements.
-17-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
-------------------------------------------
Consolidated Statements Of Changes In Stockholders' Equity (Deficiency)
For The Years Ended June 30, 1998, 1997 And 1996
<TABLE>
<CAPTION>
PAID-IN TOTAL
CAPITAL IN STOCKHOLDERS'
EXCESS OF ACCUMULATED EQUITY
PAR VALUE DEFICIT (DEFICIENCY)
--------- ------- ------------
<S> <C> <C> <C>
Balance at June 30, 1995 $2,358,188 $(2,233,292) $ 197,970
Net loss for the year - (147,294) (147,294)
---------------- ------------ ---------
Balance at June 30, 1996 2,358,188 (2,380,586) 50,676
Issuance of common stock 49,000 - 50,000
Net loss for the year - (126,307) (126,307)
---------------- ------------ ---------
Balance at June 30, 1997 2,407,188 (2,506,893) (25,631)
Issuance of common stock 51,796 - 52,930
Net loss for the year - (156,987) (156,987)
---------------- ------------- ---------
Balance at June 30, 1998 $2,458,984 $(2,663,880) $(129,688)
========== =========== =========
</TABLE>
-18-
<PAGE>
THE METAL ARTS COMPANY, INC AND SUBSIDIARY
------------------------------------------
Consolidated Statements Of Cash Flows
For The Years Ended June 30, 1998, 1997 And 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net loss for the year $(156,987) $(126,307) $(147,294)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Rent expense offset against advances to
unconsolidated subsidiary 3,000 6,000 6,000
Bad debt expense -- -- 6,000
Depreciation and amortization 114,100 100,230 94,508
Deferred income taxes 14,000 (8,900) (11,400)
Minority interest in income of subsidiary (6,280) 12,283 4,896
Change in operating accounts:
Accounts receivable (6,391) (1,625) 59,597
Prepaid expenses (8,440) 21,155 (19,826)
Other assets (7,134) (64) (12,524)
Accounts payable 143,565 56,596 72,854
Accrued expenses 1,842 (1,205) (116)
Accrued payroll and related taxes 25,675 1,977 (7,992)
Accrued commissions 189 (91) (478)
--------- --------- ---------
Net cash provided by operating activities 117,139 60,049 44,225
--------- --------- ---------
Cash flows from investing activities:
Repayments from (advances to) unconsolidated
subsidiary (138) 138 (15,000)
Capital expenditures (123,863) (45,472) (56,007)
Advances to shareholder (6,725) (13,009) --
--------- --------- ---------
Net cash used for investing activities (130,726) (58,343) (71,007)
--------- --------- ---------
Cash flows from financing activities:
Issuance of common stock -- 6,000 --
Advances from shareholder 13,000 -- --
Proceeds from long-term debt 50,000 -- 100,000
Payments on long-term debt (67,280) (66,680) (39,595)
--------- --------- ---------
Net cash provided by (used for) financing activities (4,280) (60,680) 60,405
--------- --------- ---------
</TABLE>
The accompanying Notes to Financial Statements
are an integral part of these statements.
-19-
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net increase (decrease) in cash $ (17,867) $ (58,974) $ 33,623
Cash at beginning of year 53,241 112,215 78,592
--------- --------- --------
Cash at end of year $ 35,374 $ 53,241 $112,215
========= ========= ========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 45,739 $ 38,076 $ 37,458
========= ========= ========
Cash paid during the year for income taxes $ 6,809 $ 1,849 $ 29,209
========= ========= ========
Supplemental disclosure of non-cash investing and financing activities:
Issuance of common stock $ 52,930 $ 50,000 $ --
Payment of liabilities (35,260) (44,000) --
Payment of prepaid expenses (10,170) -- --
Stock subscription receivable (7,500) -- --
--------- --------- --------
Cash received from issuance of
common stock $ -- $ 6,000 $ --
========= ========= ========
Acquisition of property and equipment
by issuance of long-term debt $ 198,131 $ -- $ --
========= ========= ========
</TABLE>
-20-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
-------------------------------------------
Notes To Consolidated Financial Statements
June 30, 1998, 1997 And 1996
1. BUSINESS DESCRIPTION
--------------------
The Company and its 70% owned subsidiary, Coating Technology, Inc., are
primarily engaged in the surface coatings and enhancements business.
Customers, substantially all of whom are manufacturers, are located
primarily in Western, New York.
Prior to June 30, 1995, the Company owned 89% of The Bastian Company, Inc.
(Bastian) and 100% of Ocean State Enameling, Inc. (Ocean State). On June
7, 1995, the Company's Board of Directors approved the sale of the
Company's interest in Ocean State at its original investment amount of
$500 to Bastian. In addition, the spin-off of Bastian in the form of a
stock dividend to the Company's stockholders of record as of June 30, 1995
was approved. As of October 9, 1998, Bastian has not filed a registration
statement with the Securities and Exchange Commission to register the
Bastian common shares pursuant to the Securities Exchange Act of 1934.
Therefore, the Company has not completed the pro rata distribution of the
Bastian common shares and, as such, Bastian and Ocean State are still
technically subsidiaries of the Company. (See Note 2)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -- ------------------------------------------
a) PRINCIPLES OF CONSOLIDATION
---------------------------
The consolidated financial statements include the accounts of the
Company and its 70% owned subsidiary, Coating Technology, Inc. All
material intercompany items have been eliminated in consolidation.
The consolidated financial statements do not include the accounts of
its 89% owned subsidiary, The Bastian Company, Inc. and its 100%
owned subsidiary, Ocean State Enameling, Inc., as required by
generally accepted accounting principles. The Company believes that
not consolidating these subsidiaries provides for a more meaningful
presentation of continuing operations. (See Note 1)
b) USE OF ESTIMATES
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
c) REVENUE RECOGNITION
-------------------
The Company records its revenues and expenses on the accrual basis
of accounting. Revenues are recognized on the date goods are
shipped.
-21-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
-------------------------------------------
Notes To Consolidated Financial Statements
June 30, 1998, 1997 And 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
------------------------------------------------------
d) PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment are carried at cost. Depreciation is
computed on the straight-line method over a period of 5 to 39
years. Accelerated methods are used for tax purposes by Coating
Technology, Inc.
e) OPERATING RIGHTS
----------------
During 1995, the Company acquired the rights to a new technology,
which is a new process for plating electroless nickel on aluminum.
These operating rights are being amortized using the straight-line
method over 15 years.
f) DEBT ISSUANCE COSTS
-------------------
Debt issuance costs are being amortized using the straight-line
method over the term of the related debt instrument, five years.
g) INCOME TAXES
------------
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently
due plus deferred taxes related primarily to differences between the
bases of certain assets and liabilities for financial and tax
reporting. The deferred taxes represent the future tax return
consequences of those differences, which will either be taxable when
the assets and liabilities are recovered or settled.
h) EARNINGS PER SHARE
------------------
Earnings per common share were computed by dividing net income by
the weighted average number of shares of common stock outstanding
during the year. Options to purchase common stock have a negligible
effect on earnings per share.
3. DUE FROM NYSERDA
----------------
On June 22, 1995, the Company entered into an agreement with the New York
State Energy Research and Development Authority (NYSERDA). Under the terms
of the agreement, NYSERDA shared in the cost to develop a new technology
by paying $325,010, which represented 59.8% of the actual development
costs. NYSERDA paid the Company 90% of its 59.8% share upon receipt of an
invoice for a progress payment. Final payment was made after completion of
work and receipt of the final report. The Company has recorded $325,010 of
reimbursements from NYSERDA through June 30, 1997.
-22-
<PAGE>
11
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
-------------------------------------------
Notes To Consolidated Financial Statements
June 30, 1998, 1997 And 1996
3. DUE FROM NYSERDA (continued)
----------------------------
In accordance with the agreement, the Company is obligated to pay to
NYSERDA 2% of sales of the new technology manufactured in New York State
and 4% of sales manufactured outside of New York State. The Company's
obligation to make payments to NYSERDA shall commence upon the earlier of
the two following events; 1) sales exceed $500,000; 2)
two years after the Company's receipt of final payment under the contract.
NYSERDA possesses certain rights to contract data and certain liquidation
or dissolution preferences pursuant to the contract.
4. PROPERTY, PLANT AND EQUIPMENT
-----------------------------
<TABLE>
<CAPTION>
Property, plant and equipment consists of the following: 1998 1997
---- ----
<S> <C> <C>
Leasehold improvements $ 36,061 $ 28,784
Machinery and equipment 1,139,632 827,891
Furniture and fixtures 75,930 72,954
---------- --------
$1,251,623 $929,629
========== ========
</TABLE>
Depreciation and amortization expense for each of the three years in
the period ended June 30, 1998 was $107,449, $93,579 and $87,858,
respectively.
5. LONG-TERM DEBT
--------------
<TABLE>
<CAPTION>
Long-term debt consists of the following: 1998 1997
---- ----
<S> <C> <C>
8% convertible subordinated debentures due and payable on June 30, 1999.
The debentures are subordinated to the Company's senior indebtedness. See
Note 8 for
conversion provisions. $275,000 $275,000
Note payable secured by specific equipment. Interest
accrues at 5%. Principal, in the amount of $26,667,
plus interest is payable each December through 1998. 26,666 53,333
Installment note payable in monthly payments of $1,667, plus interest at
prime plus 1.5%, through October 2000. The note is secured by a general
lien on equipment, accounts receivable and inventory and is guaranteed by
the stockholders of Coating
Technology, Inc. 46,667 66,666
</TABLE>
-23-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
June 30, 1998, 1997 And 1996
<TABLE>
<CAPTION>
5. LONG-TERM DEBT (continued) 1998 1997
-------------- ----- ----
<S> <C> <C>
Installment note payable in monthly payments of $1,667, plus interest at
prime plus 2%, through December 1997. The note was secured by a general
lien on equipment and accounts receivable
and was guaranteed by the stockholders of Coating Technology, Inc. - 9,946
Unsecured note payable. Interest accrues at 8% and is payable
monthly. Principal is due in full on April 30, 1999. 50,000 -
Capital lease payable. Due in 60 monthly payments of $1,738, including
interest at 14.5%, through January 2003. The lease is secured by specific
equipment and is personally guaranteed by
the minority shareholder of Coating Technology. 69,567 -
Capital lease payable. Due in 60 monthly payments of $1,405, including
interest at 14.5%, through January 2003. The lease is secured by specific
equipment and is personally guaranteed
by the minority shareholder of Coating Technology. 56,233 -
Capital lease payable. Due in 60 monthly payments of $1,478, including
interest at 16.9%, through February 2003. The lease is secured by specific
equipment and is personally guaranteed
by the minority shareholder of Coating Technology. 57,013 -
Capital lease payable. Due in 60 monthly payments of $118, including
interest at 17.7%, through February 2003. The lease is secured by specific
equipment and is personally guaranteed
by the minority shareholder of Coating Technology. 4,650 -
-------- ----------
585,796 404,945
Less: Current portion 402,012 56,613
-------- ----------
Long-term debt, net of current portion $183,784 $348,332
======== ==========
</TABLE>
The aggregate maturities for all long-term borrowings as of June 30, 1998
are as follows:
<TABLE>
<S> <C>
1999 $402,012
2000 55,296
2001 47,729
2002 47,779
2003 32,980
--------
$585,796
========
</TABLE>
-24-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
June 30, 1998, 1997 And 1996
6. OTHER LONG-TERM LIABILITY
-------------------------
The Company entered into a partnership (Sunshine Bullion Co.) on September
1, 1981.
The Company incurred a liability to certain vendors relating to silver
price fluctuations during the period of time that Sunshine Bullion Co. was
operating. The Company has denied responsibility for these amounts. The
vendors obtained a judgement against the Company in 1983, but no
collection effort has been made since that time.
7. INCENTIVE STOCK OPTION PLAN
---------------------------
The Company has an incentive stock option plan for key employees,
reserving 850,000 shares of common stock for issuance upon the exercise of
options granted under the plan. The options expire 10 years from date of
grant (5 years for grantees who hold 10% or more of the Company voting
power) and are exercisable one year from the date of the grant on a
cumulative basis at the rate of 25% of the total number of shares covered
by the grant. As of June 30, 1998, options on 435,000 shares have been
exercised at $.06 per share, leaving options on 415,000 shares available
under the plan.
8. COMMON STOCK AND STOCK WARRANTS
-------------------------------
In December 1988, the Company sold 575,000 $.01 par value common shares
and warrants to purchase 575,000 additional common shares. The selling
price was $.50 per newly issued share. The warrants were exercisable for
two years at $.60 per common share. The sale of common stock and warrants
was made by means of a private placement. The 575,000 newly issued shares
constituted the minimum offering under terms of the private placement.
552,000 warrants were outstanding as of June 30, 1998. The Company has
extended the exercise period for these warrants to December 31, 1998.
During the year ended June 30, 1995, the Company issued convertible
subordinated debentures. These debentures are redeemable by the Company
upon at least 30 days notice at any time after December 30, 1995, and are
convertible into common shares of the Company. The holders of the
debentures may convert the debentures into common shares of the Company at
any time prior to 5:00 pm on June 30, 1999. The conversion price is $.75
per share through June 30, 1996, $.95 per share from July 1, 1996 through
June 30, 1998, and $1.25 per share thereafter.
Accompanying each $25,000 debenture is a non-detachable warrant. Each
non-detachable warrant enables the holder to purchase up to an additional
33,333 shares at an exercise price of $.85 per share. The warrants can
only be exercised coincidentally with the conversion of the debenture.
The Company also has an outstanding warrant to purchase 60,000 common
shares at $.06 per share. The warrant was issued in connection with the
purchase of equipment in 1994 and expires December 31, 1998.
-25-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
June 30, 1998, 1997 And 1996
8. COMMON STOCK AND STOCK WARRANTS (continued)
-------------------------------
During the year ended June 30, 1995, the Company acquired the operating
rights to a new chemical process. As part of the purchase price, the
Company was obligated to issue 100,000 common shares upon the transfer of
clear title to certain patent pending rights and receipt of $.06 per
share. An additional 100,000 common shares must be issued when the patent
is accepted. Also, 300,000 common shares must be issued based upon the
Company attaining certain sales levels of the new chemical process. All
common shares issued under this agreement require payment of $.06 per
share.
9. MINORITY INTEREST
-----------------
Coating Technology, Inc. is in the business of electroless nickel and
aluminum anodizing operations. The accounts of Coating Technology, Inc.
for the years ended June 30, 1998 and 1997 are included in the
consolidated financial statements of the Company with recognition of a
minority interest representing the 30% interest owned by another party.
Summarized balance sheet data of Coating Technology, Inc. as of June 30,
1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Current assets $ 283,000 $276,000
Property and equipment, net 668,000 451,000
Other assets 69,000 54,000
----------- ---------
$1,020,000 $781,000
========== ========
Current liabilities $ 379,000 $223,000
Long-term liabilities 191,000 88,000
----------- ---------
570,000 311,000
Shareholders' equity 450,000 470,000
----------- --------
$1,020,000 $781,000
========== ========
</TABLE>
Summarized income statement data of Coating Technology, Inc. for the years
ended June 30, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues $1,790,000 $1,613,000 $1,630,000
Costs and expenses 1,810,000 1,572,000 1,614,000
---------- ---------- ----------
Net income (loss) $ (20,000) $ 41,000 $ 16,000
=========== =========== ===========
</TABLE>
-26-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
June 30, 1998, 1997 And 1996
9. MINORITY INTEREST (continued)
-----------------------------
Depreciation expense for Coating Technology, Inc. for the years ended June
30, 1998, 1997 and 1996 amounted to $105,820, $91,303 and $86,081,
respectively.
Capital expenditures for Coating Technology, Inc. for the years ended June
30, 1998, 1997 and 1996 amounted to $321,994, $45,472 and $48,922,
respectively.
10. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
------------------------------------------------------
During the year ended June 30, 1998, Coating Technology, Inc. had two
customers who accounted for 24% of consolidated sales.
During the year ended June 30, 1997, Coating Technology, Inc. had two
customers who, in the aggregate, accounted for 26% of consolidated sales.
During the year ended June 30, 1996, Coating Technology, Inc. had two
customers who, in the aggregate, accounted for 21% of consolidated sales.
The Company grants credit to its customers, substantially all of whom are
manufacturers located in Western New York. Two Coating Technology, Inc.
customers comprised 22% and 21% of accounts receivable at June 30, 1998
and 1997, respectively. One Metal Arts customer comprised 11% of accounts
receivable at June 30, 1998.
11. INCOME TAXES
------------
Provision for income taxes was determined as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Loss before income taxes $(142,337) $(127,774) $(157,094)
Excess tax depreciation 2,190 (1,565) (26,926)
State income tax (650) (2,833) (1,600)
Minority interest in income of subsidiary (6,280) 12,283 4,896
Net operating loss of Metal Arts 109,107 124,588 152,267
Allowance for doubtful accounts - - 6,000
Other 39,975 53,337 22,480
---------- ---------- ------------
Federal taxable income $ 2,005 $ 58,036 $ 23
========== ========== ============
</TABLE>
-27-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
Notes To Consolidated Financial Statements
June 30, 1998, 1997 And 1996
11. INCOME TAXES (continued)
------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal statutory income tax $ 301 $ 9,509 $ 3
Federal alternative minimum tax credit (301) (4,901) (3)
State income tax 650 2,833 1,600
Other - (8) -
Deferred 14,000 (8,900) (11,400)
------- ------- --------
Provision for income taxes $14,650 $(1,467) $ (9,800)
======= ======= =========
</TABLE>
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 109 (FASB 109), "Accounting for Income Taxes" requires that
an asset be recorded for the expected realizable value of net operating
loss carryforwards and tax credits and a corresponding valuation allowance
for the amount of tax benefits not expected to be realized.
The Company has recorded a deferred tax asset of $182,800 reflecting the
benefit of net operating loss carryforwards and investment tax credit
carryforwards. Realization is dependent on generating sufficient taxable
income prior to expiration of the net operating loss and investment tax
credit carryforwards. Although realization is not assured, management
believes it is more likely than not that all of the deferred tax asset
will be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of
future taxable income during the carryforward period are reduced.
At June 30, 1998, the Company had available net operating loss
deduction carryforwards for Federal income tax purposes which expire as
follows:
2001 $ 8,000
2003 160,000
2009 8,000
2010 206,000
2011 152,000
2012 124,000
2013 108,000
--------
$766,000
========
Coating Technology, Inc. has approximately $88,500 of New York State
investment tax credit carryforwards that expire in various years from 2004
to 2013 and Federal and New York State alternative minimum tax credit
carryforwards of approximately $5,300.
-28-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
-------------------------------------------
Notes To Consolidated Financial Statements
June 30, 1998, 1997 And 1996
11. INCOME TAXES (continued)
------------
<TABLE>
<CAPTION>
Deferred income taxes consist of: 1998 1997
---- ----
<S> <C> <C>
Assets
NOL carryforward $ 291,500 $ 514,700
Federal tax credit carryforwards 1,000 1,800
NYS tax credit carryforwards 92,800 76,500
Allowance for doubtful accounts 2,200 2,200
Less: Valuation allowance (153,100) (346,300)
--------- ---------
Net deferred tax assets 234,400 248,900
Liabilities
Accelerated depreciation (58,300) (58,800)
---------- ----------
$ 176,100 $ 190,100
========= =========
</TABLE>
Deferred taxes are classified as current or non-current, depending on the
classification of the assets and liabilities to which they relate.
Deferred taxes arising from temporary differences that are not related to
an asset or liability are classified as current or non-current depending
on the periods in which the temporary differences are expected to reverse.
The net deferred tax asset is presented on the balance sheet as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net current deferred tax asset - Metal Arts $ 35,000 $ 26,600
Net long-term deferred tax asset - Metal Arts 147,800 178,300
Net long-term deferred tax liability - Coating Technology (6,700) (14,800)
---------- ---------
$176,100 $190,100
======== ========
</TABLE>
12. COMMITMENTS
-----------
Coating Technology, Inc. had a lease agreement through January 31, 1998.
This lease has been extended, on a month-to-month basis, until the Company
completes the transition to its new facility. In addition to monthly
rental payments of $8,709, Coating Technology, Inc. is also responsible
for its own utilities and general maintenance.
During 1997, Coating Technology entered into a ten year lease agreement
for its new manufacturing and office space. The lease requires 28 monthly
rental payments of $5,958, beginning September 1, 1997. The annual rent as
of January 1, 2000, and each January 1st thereafter, shall be increased by
the percentage increase in the consumer price index for the previous
calendar year, but in no event, more than three percent in any year. In
addition, the Company is also responsible for its own utilities.
-29-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
-------------------------------------------
Notes To Consolidated Financial Statements
June 30, 1998, 1997 And 1996
12. COMMITMENTS (continued)
-----------
Effective July 1, 1995, the Company rents office space from its
unconsolidated subsidiary on a month-to-month basis for $500 per month.
Consolidated rent expense for each of the years ended June 30, 1998, 1997
and 1996 was approximately $166,000, $111,000 and $109,000, respectively.
During the year ended June 30, 1995, the Company entered into a royalty
agreement in conjunction with the purchase of the operating rights to a
new chemical process. The agreement requires royalty payments of 2% of
gross sales of the new chemical process throughout the former owner's
lifetime. As of June 30, 1998, no royalties were due under this agreement.
In addition, the Company entered into a licensing agreement for an
existing chemical process. The agreement requires licensing fees equal to
50% of the Company's net profit on sales of this process. As of June 30,
1998, no fees were due under this agreement.
13. CONTINGENCIES
-------------
The Company is the guarantor of debt owed to the City of Geneva, N.Y. by
its unconsolidated subsidiary, Bastian, in the approximate amount of
$280,000. Bastian is currently in default on its debt payments to the City
of Geneva.
Bastian has incurred substantial losses in recent years and has a
deficiency of stockholders' equity. Although Bastian has taken steps to
return to profitability, it is at least reasonably possible that Bastian
will not become profitable in the near future. If not, the Company may
become responsible for repayment of at least a portion of the amount owed
to the City of Geneva. As of June 30, 1998, the Company has not recorded a
liability relating to this contingency in its financial statements.
14. BENEFIT PLAN
------------
During 1996, Coating Technology, Inc. started a salary reduction plan
pursuant 401(k) of the Internal Revenue Code that covers all eligible
employees. Employees are eligible for participation in the plan after the
completion of six months of service and attainment of age twenty-one.
Under terms of the plan, the Company contributes up to 1.25% of each
participant's compensation. Also, Coating may make additional
contributions to the plan at its discretion. Coating's contributions to
the plan amounted to $3,328 in 1998 and $3,135 in 1997.
-30-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
-------------------------------------------
Notes To Consolidated Financial Statements
June 30, 1998, 1997 And 1996
15. TRANSACTIONS WITH RELATED PARTIES
---------------------------------
As of June 30, 1998, the Company was owed $100,000 from Bastian for
advances. The Company has a second security interest in virtually all of
the assets in Bastian. Due to the financial condition of Bastian, the
Company reserved $100,000 for possible uncollectibility.
Amounts due to/from shareholder do not bear interest, are unsecured and
have no fixed repayment terms.
16. CAPITAL LEASES
--------------
Assets held under capital leases as of June 30, 1998 are as follows:
Machinery and equipment $198,131
Less: Accumulated depreciation 8,255
--------
$189,876
========
Minimum lease payments for all capital leases as of June 30, 1998
are as follows:
1999 $ 56,879
2000 56,879
2001 56,879
2002 56,879
2003 34,776
---------
Total minimum lease payments 262,292
Less: Amount representing interest and sales tax 74,829
---------
Present value of net minimum lease payments $187,463
=========
-31-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
-------------------------------------------
SCHEDULE II - AMOUNTS RECEIVABLE FROM
RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
For The Years Ended June 30, 1998, 1997 And 1996
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AMOUNTS AMOUNTS AT END
NAME OF DEBTOR OF YEAR ADDITIONS COLLECTED WRITTEN OFF OF YEAR
- -------------- ------- --------- --------- ----------- -------
<S> <C> <C> <C> <C> <C>
June 30, 1998
N/A $ - $ - $ - $ - $ -
======= ======= ======= ======= =======
June 30, 1997
N/A $ - $ - $ - $ - $ -
======= ======= ======= ======= =======
June 30, 1996
N/A $ - $ - $ - $ - $ -
======= ======= ======= ======= =======
</TABLE>
-32-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
-------------------------------------------
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
For The Years Ended June 30, 1998, 1997 And 1996
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING ADDITIONS AT END
CLASSIFICATION OF YEAR AT COST RETIREMENTS OF YEAR
- -------------- ------- ------- ----------- -------
June 30, 1998
<S> <C> <C> <C> <C>
Leasehold improvements $ 28,784 $ 7,277 $ -- $ 36,061
Machinery and equipment 827,891 311,741 -- 1,139,632
Furniture and fixtures 72,954 2,976 -- 75,930
-------- -------- ---------- ----------
$929,629 $321,994 $ -- $1,251,623
======== ======== ========== ==========
June 30, 1997
Leasehold improvements $ 28,784 $ -- $ -- $ 28,784
Machinery and equipment 794,998 32,893 -- 827,891
Furniture and fixtures 60,375 12,579 -- 72,954
-------- -------- ---------- ----------
$884,157 $ 45,472 $ -- $ 929,629
======== ======== ========== ==========
June 30, 1996
Leasehold improvements $ 26,052 $ 2,732 $ -- $ 28,784
Machinery and equipment 759,582 35,416 -- 794,998
Furniture and fixtures 42,516 17,859 -- 60,375
-------- -------- ---------- ----------
$828,150 $ 56,007 $ -- $ 884,157
======== ======== ========== ==========
</TABLE>
-33-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
-------------------------------------------
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
For The Years Ended June 30, 1998, 1997 And 1996
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
CLASSIFICATION OF YEAR EXPENSES RETIREMENTS OF YEAR
- -------------- ------- -------- ----------- -------
June 30, 1998
<S> <C> <C> <C> <C>
Leasehold improvements $ 14,331 $ 3,286 $ -- $ 17,617
Machinery and equipment 416,231 98,837 -- 510,068
Furniture and fixtures 38,907 10,326 -- 49,233
-------- -------- -------- --------
$469,469 $107,449 $ -- $576,918
======== ======== ======== ========
June 30, 1997
Leasehold improvements $ 11,348 $ 2,983 $ -- $ 14,331
Machinery and equipment 336,107 80,124 -- 416,231
Furniture and fixtures 28,435 10,472 -- 38,907
-------- -------- -------- --------
$375,890 $ 93,579 $ -- $469,469
======== ======== ======== ========
June 30, 1996
Leasehold improvements $ 8,606 $ 2,742 $ -- $ 11,348
Machinery and equipment 259,542 76,565 -- 336,107
Furniture and fixtures 19,884 8,551 -- 28,435
-------- -------- -------- --------
$288,032 $ 87,858 $ -- $375,890
======== ======== ======== ========
</TABLE>
-34-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
-------------------------------------------
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For The Years Ended June 30, 1998, 1997 And 1996
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS OF YEAR
- ----------- ------- -------- ---------- -------
Allowance for doubtful
accounts - deducted from
accounts and notes receivable
in the balance sheet
<S> <C> <C> <C> <C>
June 30, 1998 $110,000 $ - $ - $110,000
======== ============ ========= ========
June 30, 1997 $110,000 $ - $ - $110,000
======== ============ ========= ========
June 30, 1996 $104,000 $ 6,000 $ - $110,000
======== ============ ========= ========
</TABLE>
-35-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
-------------------------------------------
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
For The Years Ended June 30, 1998, 1997 And 1996
<TABLE>
<CAPTION>
ITEM CHARGED TO COSTS AND EXPENSES
----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Maintenance and repairs $86,719 $71,181 $66,478
======= ======= =======
Depreciation and amortization
of intangible assets, pre-
operating costs and similar
deferrals $ * $ * $ *
=== === ===
Taxes, other than payroll and
income taxes $ * $ * $ *
=== === ===
Royalties $ * $ * $ *
=== === ===
Advertising costs $ * $ * $ *
=== === ===
<FN>
* Less than 1% of total sales
</FN>
</TABLE>
-36-
<PAGE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
During the two most recent fiscal years, there have been no changes in, or
disagreements with, accountants on accounting and financial disclosures.
PART II
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of Metal Arts are listed below,
followed by a brief description of their business experience for at least the
last five years. These persons also hold officer and director positions with
Coating Technology.
NAME AGE POSITIONS WITH METAL ARTS
- ---- --- -------------------------
Stanley J. Dahle 61 President,
Chief Executive Officer and
Director
Albert A. Cauwels 64 Secretary and Director
Geoffrey A. Rich 49 Director
STANLEY J. DAHLE has been President of Metal Arts since October, 1981 and
Chairman since 1990. He was Executive Vice President of Metal Arts since its
inception in June, 1976, until October, 1981. Mr. Dahle has also served in
various other offices for Metal Arts since its inception. He is a director of
Coating Technology.
ALBERT A. CAUWELS became a director of Metal Arts in June, 1984 and serves
as Secretary. He is a director of Coating Technology, Inc.
GEOFFREY A. RICH has been President of Coating Technology since its
inception in 1989 and Chief Executive Officer since 1995. He has been a director
of Metal Arts since December, 1990.
None of Metal Arts' Directors is a Director of any company with a class of
securities registered pursuant to Section 12 of the Securities & Exchange Act of
1934, as amended, or of any company registered under the Investment Company Act
of 1940, as amended. There is no family relationship among any members of the
Board of Directors or the Executive Officers or significant employees of Metal
Arts. The Board of Directors met 4 times during the fiscal year ended June 30,
1998. At the present time, the company has no Audit, Compensation or Nominating
Committees. All Directors and Executive Officers have been elected to serve as
Directors and Executive Officers until the next annual meeting of shareholders
of Metal Arts or until their successors have been elected and qualified. There
are no arrangements or understandings between any Director or Executive Officer
and any other persons pursuant to which any such Directors or Executive Officers
was or is to be selected as a Director or nominee for Director.
-37-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The aggregate direct remuneration accrued and paid by Metal Arts and
Coating Technology, during the fiscal year ended June 30, 1998, to each of Metal
Arts' Officers and Directors whose aggregate remuneration exceeded $50,000, and
to all Directors and Officers of Metal Arts as a group, is set forth in the
following table.
<TABLE>
<CAPTION>
CASH AND CASH-EQUIVALENT FORM
OF REIMBURSEMENT
SALARIES,
FEES, SECURITIES OR
DIRECTOR'S PROPERTY,
FEES, INSURANCE
NAME OF INDIVIDUAL COMMISSIONS BENEFITS OR
OR NUMBER OF CAPACITIES IN AND REIMBURSEMENTS,
PERSONS IN GROUP WHICH SERVED (1) BONUSES PERSONAL BENEFITS
- ---------------- ---------------- ------- -----------------
<S> <C> <C> <C>
Stanley J. Dahle President, $ 95,000 $ 5,000
CEO, and
Director
Albert A. Cauwels Secretary and $ -0- $ -0-
Director
Geoffrey A. Rich Director $ 80,000 $ 5,000
All Officers and All Officers $175,000 $ 10,000
Directors as a and Directors
group (3) persons as a group
</TABLE>
OTHER COMPENSATION
There was no other compensation of any kind paid to the officers and
directors during fiscal year 1998. No executive earned more than $100,000 of
total compensation. There is no executive committee and all compensation
decisions are made by the Board of Directors. There were no loans made to
officers, no directors fees and no long term compensation arrangements. There
were no outstanding stock option grants to officers at year end. There are no
employment agreements.
-38-
<PAGE>
OPTION EXERCISE AND VALUE TABLE
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES IN-THE-MONEY
UNDERLYING OPTIONS/SARS
SHARES UNEXERCISED AT FISCAL
ACQUIRED VALUE OPTIONS/SARS YEAR-END ($)***
ON EXERCISE REALIZED*** AT FISCAL EXERCISABLE (E) /
NAME (#) ($) YEAR-END (#) UNEXERCISABLE (U)
EXERCISABLE (E) /
UNEXERCISABLE (U)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stanley J. Dahle -0- -0- -0- -0-
Albert A. Cauwels -0- -0- -0- -0-
Geoffrey A. Rich -0- -0- -0- -0-
<FN>
(1) These capacities include the capacities in which each such individual served
Metal Arts and Coating Technology as officers and directors as set forth in the
preceding table in Item 10 of this Form 10-K.
</FN>
</TABLE>
Non-Management directors are paid a fee of $250 per meeting attended.
There are no such directors at this time. During the past fiscal year, fees
aggregating $-0- were paid. Directors who are also full time employees are not
paid director's fees.
OFFICER COMPENSATION FOR THE PRECEDING THREE FISCAL YEARS
<TABLE>
<CAPTION>
SECURITIES OR
PROPERTY, INSURANCE
BENEFITS OR
FISCAL DIRECTORS FEES, REIMBURSEMENTS
NAME YEAR COMMISSIONS & BUSINESS PERSONAL BENEFITS
- ---- ---- ---------------------- -----------------
<S> <C> <C> <C>
Stanley J. Dahle 1998 $95,000 $5,000
1997 95,000 5,000
1996 85,650 5,000
Albert A. Cauwels 1998 -0- -0-
1997 -0- -0-
1996 -0- -0-
Geoffrey A. Rich 1998 80,000 5,000
1997 80,000 5,000
1996 73,400 5,000
</TABLE>
STOCK OPTION PLAN
On March 3, 1982, Metal Arts adopted an incentive stock option plan
(the "Plan" or the "Stock Option Plan") pursuant to Section 422A of the Internal
Revenue Code. Under the Plan, as amended, Metal Arts' Board of Directors may
grant options to key employees (including executive officers of Metal Arts) to
purchase up to an aggregate 850,000 common shares.
-39-
<PAGE>
Such options expire 10 years from the date of the grant (but must be
exercised within 5 years of the date of grant for grantees who hold 10 percent
or more of the common shares) and are exercisable one year from the date of the
grant on a cumulative basis at the rate of 25 percent of the total number of
common shares subject to the option granted. Options must be granted at no less
than fair market value (but not less than 110 percent of fair market value for
grantees who hold 10 percent or more of the common shares). During the Fiscal
Year ended June 30, 1998, no options were exercised. There are currently
available under the plan 415,000 common shares for future grants. Metal Arts'
management believes that the availability of the Plan, and the grants of the
options, will enable the Company to attract and hold valuable employees by
providing them with incentives to foster growth.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information as of October 1, 1998,
with respect to all directors, officers, and persons who are known by Metal Arts
to be the beneficial owners of more than five percent (5%) of the common shares
of Metal Arts. The common shares are the only voting securities of Metal Arts.
All persons listed below have sole voting and investment power with respect to
their common shares unless otherwise indicated.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT BENEFICIALLY PERCENT
BENEFICIAL OWNER OWNED OF CLASS
---------------- ----- --------
<S> <C> <C>
Stanley J. Dahle 1,419,000(a) 20
81 Country Club Drive
Rochester, New York
Clifford W. Charlson 598,000(b) 8
987 East Avenue
Rochester, New York
Albert A. Cauwels 486,551 6.8
28 Franklin Street
Phelps, New York
Geoffrey A. Rich 225,000 3.2
2856 Gildersleeve Road
Walworth, New York
All officers and directors
as a group (3) persons 2,130,551 30
<FN>
(a) Includes 102,000 shares owned by Mr. Dahle's wife and children of which
Mr. Dahle disclaims any beneficial ownership.
(b) Includes 18,000 common shares owned by Mr. Charlson's children of which
Mr. Charlson disclaims any beneficial
interest.
</FN>
</TABLE>
-40-
<PAGE>
As noted, Metal Arts owns 70 percent of Coating Technology, and
therefore, Coating Technology is considered to be a subsidiary of Metal Arts. No
member of management of Metal Arts owns any common shares of Coating Technology.
No one person other than Metal Arts owns in the aggregate in excess of 5 percent
of the common shares of Coating Technology, except Geoffrey A. Rich, who owns 30
percent of the common shares of Coating Technology.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as a part of this Form 10-K 1998
Annual Report:
1 and 2. Consolidated Financial Statements and Schedules. (See "INDEX TO
FINANCIAL STATEMENTS AND SCHEDULES.")
3. (See "INDEX TO EXHIBITS.")
-41-
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15 (d) 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: 10-15-98 By: /s/ STANLEY J. DAHLE
--------------------------
Stanley J. Dahle
President and
Chief Executive Officer
Date: 10-15-98 By: /s/ ALBERT A. CAUWELS
--------------------------
Albert A. Cauwels
Secretary and Director
Pursuant to the requirement of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
Chairman, President
Chief Executive Officer 10-15-98
/s/STANLEY J. DAHLE and Director
Stanley J. Dahle
/s/ALBERT A. CAUWELS Secretary and Director 10-15-98
Albert A. Cauwels
/s/ GEOFFREY A. RICH Director 10-15-98
Geoffrey A. Rich
-42-
<PAGE>
EXHIBITS
3(a) Certificate of Incorporation of Registrant and Amendments thereto.
(Filed as Exhibits 2 (a-c, e) to Registration Statement No. 2-69789-NY
(the "Registration Statement") and incorporated herein by reference.)
3(a)(1) Certificate of Amendment to the Certificate of Incorporation of
Registrant as approved at the 1989 Annual Meeting.
3(b) By-laws of Registrant. (Filed as Exhibit 2(d) to the Registration
Statement and incorporated herein by reference.)
4(a) Secured Promissory Note dated November 30, 1992, between Coating
Technology and M&T Bank. (Filed as Exhibit 4(i) to the company's Form
10-K for the year ended June 30, 1993 and incorporated herein by
reference.)
4(b) Secured Promissory Note dated December 10, 1993, between Coating
Technology and M&T Bank. (Filed as Exhibit 4(j) to the company's Form
10-K for the year ended June 30, 1994 and incorporated herein by
reference.)
10(a) Lease agreement dated September 1, 1991, between John Albiston, William
B. Mendick, Andrew Gallina and Raymond C. Shaheen, as Landlords, and
Coating Technology as Tenant, relating to its facility in Rochester,
New York. (Filed as Exhibit 10(a) to the company's Form 10-K for the
year ended June 30, 1992, and incorporated herein by reference.)
10(b) The company's Stock Option Plan, as approved by the company's
shareholders on March 3, 1982. (Filed as Exhibit 10(b) to the company's
Form 10-K for the year ended July 3, 1982, and incorporated herein by
reference.)
10(c) First amendment to the Incentive Stock Option Plan of the Metal Arts
Company, Inc., approved at the 1989 Annual Meeting of shareholders.
10(d) Asset purchase agreement between Coating Technology and Rochester Steel
Treating Works, Inc. dated December 22, 1993. (Filed as Exhibit 10(d)
to the company's 10-K for the year ended June 30, 1994 and incorporated
herein by reference.)
10(e) Option Agreement between the company and LeKem Inc., and Richard
Feagins dated February 28, 1994. (Filed as Exhibit 10(e) to the
company's Form 10-K for the year ended June 30, 1994 and incorporated
herein by reference.)
10(f) Agreement between Metal Arts Company and the New York State Energy
Research and Development Authority, dated June 22, 1995. (Filed as
Exhibit 10(f) to the company's Form 10-K for the year ended June 30,
1995, and incorporated herein by reference.)
10(g) Lease agreement dated February 19, 1998 between O'Brien and Gere
Property Development, Inc. as Landlord and Coating Technology, Inc. as
Tenant relating to its new facility at 800 St. Paul St., Rochester, New
York. (Filed as exhibit (g) to the Company's Form 10-K for the year
ended June 30, 1998, and incorporated herein by reference.)
-43-
<PAGE>
11 Description of computation of per share earnings. (See Note 2 of Notes
to Consolidated Financial Statements of the Metal Arts Company, Inc.)
22. Subsidiaries. The subsidiaries of the company and the state of
incorporation are as follows:
a. Coating Technology incorporated in the State of New York.
b. Metal Arts Acquisitions, Inc. incorporated in the State of
New York.
(b) Reports on Form 8-K:
8-K dated November 23, 1994
8-K dated June 9, 1995
(c) See Item 14(a) (3), above.
(d) See Item 14(a) (2), above.
-44-
<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> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 35,400
<SECURITIES> 0
<RECEIVABLES> 262,700
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 367,500
<PP&E> 1,251,600
<DEPRECIATION> 576,900
<TOTAL-ASSETS> 1,276,000
<CURRENT-LIABILITIES> 836,100
<BONDS> 0
<COMMON> 75,200
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,276,000
<SALES> 1,871,900
<TOTAL-REVENUES> 1,871,900
<CGS> 1,504,800
<TOTAL-COSTS> 1,973,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,600
<INCOME-PRETAX> (142,300)
<INCOME-TAX> (14,700)
<INCOME-CONTINUING> (157,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (157,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
