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 DECEMBER 31, 1998 COMMISSION FILE NUMBER 0-9998
THE METAL ARTS COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 06-0945588
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(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1 AMERICAN CENTER GENEVA, NEW YORK 14456 - 1188
- ---------------------------------- ------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING 12 MONTHS (OR 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, $.01PAR VALUE, OUTSTANDING AT DECEMBER 30,
1998 WAS 7,407,402.
PAGE 1 OF 12 PAGES
EXHIBIT INDEX IS ON PAGE 2
<PAGE>
THE METAL ARTS COMPANY, INC.
----------------------------
INDEX
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PART I FINANCIAL INFORMATION:
Consolidated Condensed Balance Sheets,
December 31,1998 and June 30,1998. 4 and 5
Consolidated Condensed Statements of Operations,
three months and six months ended December 31,
1998 and 1997. 6
Consolidated Condensed Statement of Cash Flows,
Three months and six months ended December 31,
1998 and 1997. 7
Notes to Consolidated Condensed Financial
Statements. 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9
PART II OTHER INFORMATION 10
2
<PAGE>
PART I FINANCIAL INFORMATION
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3
<PAGE>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
------
12/31/98 6/30/98
---------------------------
CURRENT ASSETS
<S> <C> <C>
Cash ($ 303) $ 35,374
Trade accounts receivable - net 155,268 262,683
Current portion of due from NYSERDA 28,396 0
Current portion of deferred tax asset 35,000 35,000
Prepaid expenses and other current assets 7,301 34,474
---------------------------
225,662 367,531
PROPERTY, PLANT and EQUIPMENT 1,363,421 1,251,623
Less accumulated depreciation (624,119) (576,918)
---------------------------
739,302 674,705
OTHER ASSETS
Due from shareholder 0 19,734
Due from NYSERDA, net of current portion 6,374 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 73,611 37,677
---------------------------
256,399 233,825
---------------------------
TOTAL ASSETS $1,221,363 $1,276,061
===========================
</TABLE>
4
<PAGE>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED BALANCED SHEETS
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
-------------------------------------------------
12/31/98 6/30/98
--------------------------
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable - trade $ 305,169 329,114
Accrued expenses 46,312 10,049
Accrued payroll and related taxes 66,057 47,377
Accrued commissions 34,041 34,590
Due to shareholder 23,500 13,000
Current portion of long - term debt 402,012 402,012
--------------------------
877,091 836,142
LONG - TERM LIABILITIES
Long - term debt, net of current portion 158,689 183,784
Other long - term liability 243,222 243,222
Deferred tax liability 6,700 6,700
--------------------------
408,611 433,706
MINORITY INTEREST IN SUBSIDIARY 139,901 135,901
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 (2,731,432) (2,663,880)
--------------------------
(197,240) (129,688)
--------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,221,363 $ 1,276,061
==========================
</TABLE>
5
<PAGE>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
--------------------------------------------------------
<S> <C> <C> <C> <C>
SALES - Net $ 322,751 $ 468,373 $ 697,026 $ 939,379
COST OF SALES (298,765) (345,016) (618,630) (699,646)
--------------------------------------------------------
GROSS MARGIN 23,986 123,357 78,396 239,733
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 54,394 (85,940) (115,918) (167,785)
RESEARCH AND DEVELOPMENT 0 0
--------------------------------------------------------
OPERATING INCOME (LOSS) (30,408) 37,417 (37,522) 71,948
INTEREST EXPENSE (17,210) (7,936) (33,104) (15,991)
INTEREST INCOME 33 68 75 149
MINORITY INTEREST IN INCOME
OF SUBSIDIARY 6,300 (11,050) 3,000 (22,700)
--------------------------------------------------------
(10,877) (18,918) (30,029) (38,542)
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NET INCOME (LOSS) FOR PERIOD ($ 41,285) $ 18,499 ($ 67,551) $ 33,406
--------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,520,802 7,407,402 7,520,802 7,407,402
EARNINGS PER SHARE OF
COMMON STOCK:
Net income (loss) for the period $ 0.00 $ 0.00 $ 0.00 $ 0.00
--------------------------------------------------------
</TABLE>
6
<PAGE>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
1998 1997
----------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) for the period ($ 67,551) $ 33,406
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
Rent expense offset against advances to
unconsolidated subsidiary 0 3,000
Depreciation and amortization 47,200 46,200
Minority interest in income of subsidiary (3,000) 22,700
Change in operating accounts:
Accounts receivable 72,645 (12,047)
Prepaid expenses and other (8,761) (39,107)
Accounts payable (23,945) (14,641)
Accrued expenses 36,263 (1,993)
Accrued payroll and commissions 18,131 4,200
----------------------
70,982 41,718
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (111,798) (36,987)
Proceeds of advance from shareholder 10,500 0
Repayment of advances from shareholder 19,734 13,009
----------------------
(81,564) (23,978)
CASH FLOWS FINANCING ACTIVITIES
Proceeds from issuance of common stock 0 0
Payments on long-term debt (25,095) (19,945)
----------------------
(25,095) (19,945)
NET INCREASE (DECREASE) IN CASH (35,677) (2,205)
CASH - BEGINNING 35,374 53,241
----------------------
CASH - ENDING ($ 303) $ 51,036
======================
</TABLE>
7
<PAGE>
THE METAL ARTS COMPANY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. These statements should be read in conjunction with the audited
financial statements and the notes thereto and with Management's
Discussion and Analysis of Financial Condition and Results of
Operations included in the Company's Form 10-K for the fiscal year
ended June 30,1998. 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 December 31,1998 and the results of
operations for the six months ended December 31,1998 and 1997.
2. The results of operations for the six months ended December 31,1998 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 weighted
average number of shares outstanding during the six months ended
December 31,1998 and 1997. The weighted average number of shares
outstanding at the end of each period is determined by totaling the
number of shares outstanding at the end of each month in the period and
dividing the sum by the number of months in the period.
8
<PAGE>
THE METAL ARTS COMPANY, INC.
----------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATION
----------------------------------
Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation reform Act of 1995, such
as statements relating to financial results and plans for future business
development activities, and are thus prospective. Such forward-looking
statements are subject to risks, uncertainties, and other factors, which could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. Potential risks and uncertainties
include, but are not limited to, economic conditions, competition and other
uncertainties detailed from time to time in the Company's Securities and
Exchange Commission filings.
LIQUIDITY AND CAPITAL RESOURCES
PRIVATE PLACEMENT OF DEBENTURES
The company sold, as of September 30, 1994, eleven debentures for a total of
$275,000. The purpose of the private placement was to acquire the technology for
plating electroless nickel on aluminum, complete all research and development,
conduct test trials with potential customers leading up to commercialization.
NEW YORK STATE ENERGY 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 half of fiscal year 1999, Coating Technology
operated with a small loss but 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.
----------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATION
----------------------------------
B. RESULTS OF OPERATIONS:
The following table illustrates the major components of consolidated
net sales and net income (loss).
SIX MONTHS ENDED
DECEMBER 31,
1998 1997
---------------------------
CONSOLIDATED NET SALES
Metal Arts $ 0 $ 80,000
Coating Technology 697,000 859,500
---------------------------
$ 697,000 $ 939,000
CONSOLIDATED NET INCOME (LOSS)
Metal Arts ($ 60,800) ($ 19,500)
Minority Interest 3,000 (22,700)
Coating Technology (9,700) 75,600
---------------------------
($ 67,500) $ 33,400
===========================
THE METAL ARTS COMPANY, INC.
- ----------------------------
The net sales for the Company for the six (6) months ended December 31, 1998
were $0 compared with $80,000 in the previous year. The Company showed a loss of
$60,800 versus a loss of $19,500 in the previous year.
COATING TECHNOLOGY, INC.
- ------------------------
Coating Technology's sales for the six (6) months ended December 31, 1998 were
$697,000 as compared with $859,000 in the previous year. The Company showed a
loss of $9,700 as compared with a profit of $75,600 in the previous year.
11
<PAGE>
THE METAL ARTS COMPANY, INC.
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8 - K
A. Exhibits - None
B. Reports on Form 8 - K - None
Signatures:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE METAL ARTS COMPANY, INC.
----------------------------
Date: FEBRUARY 15, 1999 /s/ STANLEY J. DAHLE
------------------- --------------------
Stanley J. Dahle
President
Date: FEBRUARY 15, 1999 /s/ ALBERT A. CAUWELS
------------------ ---------------------
Albert A. Cauwels
Secretary
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUN-30-1998
<PERIOD-END> DEC-31-1998
<CASH> (303)
<SECURITIES> 0
<RECEIVABLES> 155,300
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 225,700
<PP&E> 1,363,400
<DEPRECIATION> 624,000
<TOTAL-ASSETS> 1,221,400
<CURRENT-LIABILITIES> 877,000
<BONDS> 0
<COMMON> 7,400,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,221,400
<SALES> 697,000
<TOTAL-REVENUES> 697,000
<CGS> 618,000
<TOTAL-COSTS> 734,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,104
<INCOME-PRETAX> (67,500)
<INCOME-TAX> 0
<INCOME-CONTINUING> (67,500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (67,500)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
