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 SEPTEMBER 30, 1999 COMMISSION FILE NUMBER 0-9998
THE METAL ARTS COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 06-0945588
-------- ----------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1 AMERICAN CENTER GENEVA, NEW YORK 14456 - 1188
- ---------------------------------- ------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
DURING THE PRECEDING 12 MONTHS (OR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
THE NUMBER OF SHARES OF COMMON STOCK, $.01PAR VALUE, OUTSTANDING AT SEPTEMBER
30, 1999 WAS 7,407,402.
PAGE 1 OF 12 PAGES
EXHIBIT INDEX IS ON PAGE 2
<PAGE>
THE METAL ARTS COMPANY, INC.
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INDEX
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PART I FINANCIAL INFORMATION:
Consolidated Condensed Balance Sheets,
September 30,1999 and June 30,1999. 4 and 5
Consolidated Condensed Statements of Operations,
three months ended September 30, 1999 and 1998. 6
Consolidated Condensed Statement of Cash Flows, three
months ended September 30, 1999 and 1998. 7
Notes to Consolidated Condensed Financial
Statements. 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9
PART II OTHER INFORMATION 10
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
------
9/30/99 6/30/99
------- -------
CURRENT ASSETS
<S> <C> <C>
Cash $ 14,144 $ 17,656
Trade accounts receivable - net 196,851 195,433
Current portion of due from NYSERDA 23,454 30,049
Current portion of deferred tax asset 7,400 7,400
Stock subscription receivable 7,500 7,500
Prepaid expenses and other current assets 2,103 15,787
----------- -----------
251,452 273,825
PROPERTY, PLANT and EQUIPMENT 1,503,205 1,480,603
Less accumulated depreciation (736,247) (713,147)
----------- -----------
766,958 767,456
OTHER ASSETS
Due from shareholder 1,554 1,554
Due from NYSERDA, net of current portion 18,436 14,108
Cash value of life insurance 11,034 11,034
Operating rights - net 14,070 14,070
Deferred tax asset, net of current portion 167,100 167,100
Other assets 46,397 37,075
----------- -----------
258,591 244,941
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TOTAL ASSETS $ 1,277,001 $1,286,222
=========== ============
</TABLE>
4
<PAGE>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED BALANCED SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
-------------------------------------------------
9/30/99 6/30/99
------- -------
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable - trade $ 542,234 548,868
Accrued expenses 8,158 8,158
Accrued payroll and related taxes 105,734 97,922
Accrued commissions 580
580
Due to shareholder 23,500 23,500
Current portion of long - term debt 422,647 414,081
---------- ----------
1,102,853 1,093,109
LONG - TERM LIABILITIES
Long - term debt, net of current portion 187,100 212,252
Other long - term liability 243,222 243,222
Deferred tax liability 0 0
---------- ----------
430,322 455,474
MINORITY INTEREST IN SUBSIDIARY 106,161 100,461
STOCKHOLDERS' EQUITY
Common stock - $.01 par value, 15,000,000
shares authorized; Issued and outstanding:
7,520,802 at September 30, 1999 and
June 30, 1999, respectively 75,208 75,208
Paid - in capital in excess of par value 2,458,984 2,458,984
Accumulated deficit (2,896,527) (2,897,014)
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(362,335) (362,822)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,277,001 $ 1,286,222
=========== ===========
</TABLE>
5
<PAGE>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
THREE MONTHS
ENDED
SEPTEMBER 30,
1999 1998
----------- -------------
<S> <C> <C>
SALES - Net $ 354,404 $ 374,275
COST OF SALES (270,626)
----------- -----------
GROSS MARGIN 83,778 54,410
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 52,618 (61,526)
RESEARCH AND DEVELOPMENT 0 0
----------- -----------
OPERATING INCOME (LOSS) 31,160 (7,116)
INTEREST EXPENSE (24,973) (15,893)
INTEREST INCOME 0 42
MINORITY INTEREST IN INCOME
OF SUBSIDIARY 5,700 (3,300)
----------- -----------
(30,673) (19,151)
NET INCOME (LOSS) FOR PERIOD $ 487 ($ 26,267)
----------- -----------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,520,802 7,520,802
EARNINGS PER SHARE OF
COMMON STOCK:
Net income (loss) for the period $ 0.00 $ 0.00
----------- -----------
</TABLE>
6
<PAGE>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
-------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) for the period $ 487 ($26,267)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization 23,100 23,100
Minority interest in income of subsidiary 5,700 3,300
Change in operating accounts:
Accounts receivable 849 49,600
Prepaid expenses and other 4,362 (4,868)
Accounts payable (6,634) (73,178)
Accrued expenses 0 30,193
Accrued payroll and commissions 7,812 8,990
-------- --------
35,676 10,870
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (22,602) (39,734)
Repayment of advances to shareholder 0 (13,000)
Advances from shareholder 0 15,000
Repayment of advances from shareholder 0 19,734
-------- --------
(22,602) (18,000)
CASH FLOWS FINANCING ACTIVITIES
Proceeds from issuance of common stock 0 0
Payments on long-term debt (16,586) (12,501)
NET INCREASE IN CASH (3,512) (19,631)
CASH - BEGINNING 17,656 35,374
-------- --------
CASH - ENDING $ 14,144 $ 15,743
======== ========
</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 30,1999. 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 September 30, 1999 and the results
of operations for the six months ended September 30,1999 and 1998.
2. The results of operations for the six months ended September 30,1999
are not necessarily indicative of the results to be expected for the
full year.
3. Earnings (loss) per share of common stock are computed on the weighted
average number of shares outstanding during the six months ended
September 30, 1999 and 1998. The weighted average number of shares
outstanding at the end of each period is determined by totaling the
number of shares outstanding at the end of each month in the period and
dividing the sum by the number of months in the period.
8
<PAGE>
THE METAL ARTS COMPANY, INC.
----------------------------
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
NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY AND US DEPARTMENT
OF ENERGY 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. To date
the company has received a total of $50,000 on this contract.
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. To date the company has received
$116,757 on this contract.
OPERATING ACTIVITIES
During Fiscal Year 1999 Metal Arts' 70% owned subsidiary, Coating Technology,
Inc. experienced a drop in sales from $1,800,000 in F.Y. 1998 to $1,400,000, or
22%. This was caused by two factors. First, the Asia economic turmoil caused a
slowdown in manufactured product in Western New York on which Coating Technology
relies for its metal finishing operations. Second, the move to a new, larger,
modern facility caused disruptions during the second and third quarters. During
the first quarter of fiscal year 2000 Coating Technology returned to
profitability as sales approached fiscal year 1998 levels.
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 has received no
royalties on this agreement to date. On May 3, 1999 the Company entered into a
subcontract and exclusive license agreement with Alcoa Inc., the largest
aluminum company in the world. The subcontract section relates to the U.S.
Department of Energy Award and the license section relates to the use of the
Microsmooth(R) process for the chrome plating of certain aluminum truck and
automobile wheels.
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).
THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
---- ----
CONSOLIDATED NET SALES
Metal Arts $ 0 $ 0
Coating Technology 354,000 374,000
--------- ---------
$ 354,000 $ 374,000
========= =========
CONSOLIDATED NET INCOME (LOSS)
Metal Arts ($ 12,800) ($ 34,000)
Minority Interest (5,700)
(3,300)
Coating Technology 19,000 11,000
--------- ---------
$ 500 ($ 26,300)
========= =========
THE METAL ARTS COMPANY, INC.
- ----------------------------
The net sales for the Company for the three (3) months ended September 30, 1999
were $0 compared with $0 in the previous year. The Company showed a loss of
$12,800 versus a loss of $34,000 in the previous year.
COATING TECHNOLOGY, INC.
- ------------------------
Coating Technology's sales for the three (3) months ended September 30, 1999
were $354,000 as compared with $374,000 in the previous year. The Company showed
a profit of $19,000 as compared with a profit of $11,000 in the previous year.
11
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: NOVEMBER 20, 1999 STANLEY J. DAHLE
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Stanley J. Dahle
President
Date: NOVEMBER 20, 1999 ALBERT A. CAUWELS
------------------ -----------------
Albert A. Cauwels
Secretary
<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> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 14,100
<SECURITIES> 0
<RECEIVABLES> 196,900
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 251,500
<PP&E> 1,503,200
<DEPRECIATION> 736,200
<TOTAL-ASSETS> 1,277,000
<CURRENT-LIABILITIES> 1,102,550
<BONDS> 0
<COMMON> 7,400,000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,277,000
<SALES> 354,400
<TOTAL-REVENUES> 354,400
<CGS> 270,600
<TOTAL-COSTS> 323,200
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,970
<INCOME-PRETAX> 500
<INCOME-TAX> 0
<INCOME-CONTINUING> 500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 500
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
