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 6/30/00 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
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THE METAL ARTS COMPANY, INC.
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(Exact name of registrant as specified in its charter)
NEW YORK 06-0945588
------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
800 ST. PAUL ST., ROCHESTER, NEW YORK 14605
------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
(716) 546-7170
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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)
--------------------------------------------------------------------------------
(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
Page 2 of 43
Exhibit Page Appears on Page 42
<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 100
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 and electroplated nickel, aluminum anodizing and other surface
coating and enhancement operations.
Metal Arts had outstanding liabilities of $1,462,917 as of the close
of Fiscal 2000. 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, 6 and 7 of these Financial Statements for
information concerning specific liabilities.
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 aluminum wheel
market continues now. If successful in the U.S., it is the company's intention
to market the technology or license it internationally.
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 2000, Coating Technology spent approximately $123,000 on various
compliance requirements, including the cost of closure at its former metal
finishing facility. 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.
-3-
<PAGE>
THE COMPANY'S MARKET
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.
FISCAL YEARS (ENDING JUNE 30)
----------------------------
2000 1999 1998
---------- ---------- ----------
Metal Arts $ -0- $ 10,000 $ 82,000
Coating Technology 1,712,000 1,420,000 1,790,000
---------- ---------- ----------
$1,712,000 $1,430,000 $1,872,000
========== ========== ==========
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 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, Sun Microsystems, Cisco,
Phillips, Heidelberg and others. It also provides other surface finishes to
various contract customers.
MANUFACTURING OPERATIONS
Metal Arts' specialty chemical mixing operations will be conducted
with newly acquired mixing equipment.
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 800 St. Paul Street, Rochester, NY.
COMPLIANCE WITH GOVERNMENTAL REGULATIONS
The company believes that its present operations are in compliance
with the current requirements of OSHA, EPA, NYSDEC and all applicable local and
state regulations, utilizing an up-to-date waste treatment system.
-4-
<PAGE>
COMPETITION
Metal Arts will be competing initially in the aluminum wheel market
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, 2000, Coating Technology had
one customer which accounted for 20 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
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. 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 30
in its Coating Technology operations, none of whom are union members.
ITEM 2. PROPERTIES
Coating Technology has signed a ten year lease with a ten year option
to renew 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 business.
Metal Arts has added approximately $300,000 of new equipment for its
aluminum wheel demonstration. This equipment was paid for with funds from the
U.S. Department of Energy. At the conclusion of the project this equipment will
represent a significant enhancement for overall metal finishing operations.
-5-
<PAGE>
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, 2000, no annual meeting was
held and no shareholder votes took place. It is anticipated that no annual
meeting will take place in the next fiscal year.
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.
HIGH LOW
FISCAL YEAR ENDED JUNE 30, 1999
First Quarter (July - September 1998) 1/4 3/16
Second Quarter (October - December 1998) 1/4 3/16
Third Quarter (January - March 1999) 1/4 3/16
Fourth Quarter (April - June 1999) 5/8 1/4
FISCAL YEAR ENDED JUNE 30, 2000
First Quarter (July - September 1999) 1/4 3/16
Second Quarter (October - December 1999) 1/4 3/16
Third Quarter (January - March 2000) 1/4 3/16
Fourth Quarter (April - June 2000) 1/4 3/16
FISCAL YEAR ENDED JUNE 30, 2001
First Quarter (July - September 2000) 1/4 3/16
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.
-6-
<PAGE>
As of October 1, 2000, there were approximately 980 holders of record
of the common shares of Metal Arts and ten holders of record of the June 30,
1994 Debentures, which are potentially convertible into a total of 210,000
common shares of the company.
-7-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
June 30, June 30, June 30, June 30, June 30,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Results of operations:
<S> <C> <C> <C> <C> <C>
Net sales $ 1,712,384 $ 1,429,561 $ 1,871,896 $ 1,656,961 $ 1,629,538
Net income (loss) $ 850,282 $ (233,134) $ (156,988) $ (126,307) $ (147,294)
Per share:
Net income (loss) $ .11 $ (.03) $ (.02) $ (.02) $ (.02)
Weighted average number
of common shares
outstanding 7,520,802 7,520,802 7,464,116 7,357,402 7,307,402
</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,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Balance sheet data:
<S> <C> <C> <C> <C> <C>
Total assets $ 1,950,377 $ 1,286,222 $ 1,276,061 $ 1,064,636 $ 1,179,263
Total liabilities 1,462,917 1,548,583 $ 1,405,749 $ 1,090,267 $ 1,128,587
Long-term obligations 379,540 455,474 $ 433,706 $ 606,354 $ 660,168
Minority interest -- 100,461 $ 135,901 $ 142,181 $ 129,898
Working capital (563,944) (819,284) $ (468,611) $ 5,627 $ 59,777
Stockholders' equity
(deficiency) 487,460 (362,822) $ (129,688) $ (25,631) $ 50,676
</TABLE>
The following table illustrates the major components of consolidated net sales
and net loss:
2000 1999 1998
---- ---- ----
CONSOLIDATED NET SALES:
Metal Arts $ -0- $ 10,000 $ 82,000
Coating Technology 1,712,000 1,420,000 1,790,000
----------- ----------- -----------
$ 1,712,000 $ 1,430,000 $ 1,872,000
=========== =========== ===========
CONSOLIDATED NET INCOME (LOSS):
Metal Arts $ 801,000 $ (150,000) $ (143,000)
Coating Technology 64,000 (118,000) (20,000)
Minority Interest (15,000) 35,000 6,000
----------- ----------- -----------
$ 850,000 $ (233,000) $ (157,000)
=========== =========== ===========
-8-
<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 2000 Annual Report. Except where specific
reference is made in this Item 7 to the individual operations of Metal Arts or
its 100 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
On January 17, 2000 former Director and President of Coating
Technology, Geoffrey A. Rich, died at the age of 50. There were two insurance
policies in force at that time. The first, for $350,000, was, by prior
agreement, for the purpose of acquiring Mr. Rich's 30% interest in Coating
Technology. As a result, Metal Arts now owns 100% of Coating Technology. The
second, a key man policy, was in the face amount of $350,000, the beneficiary of
which was Metal Arts Company,
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 AND
U.S. 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 a part of NYSERDA's Industrial
Waste Minimization Program. The purpose of the funding was 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 at 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
$100,000 of in-kind material, services and cash. To date, the Company has
received $402,117 from NYSERDA/DOE and $10,000 from ALCOA, on this contract.
-9-
<PAGE>
OPERATING ACTIVITIES
Coating Technology has rebounded from FY 1999 in sales and operating
earnings. Cash flow was adequate to provide for the acquisition of capital
equipment and provide the working capital necessary to run the business.
Through the first quarter of fiscal year 2001, Coating Technology
operated profitably with sufficient resources to sustain operations.
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 December 1997. 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 ? alternate computer memory disks. To date, the Company has
received no royalties under the agreement.
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.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
-10-
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Independent Auditors' Report 1
Consolidated Balance Sheets at June 30, 2000 and 1999 2 - 3
Consolidated Statements of Operations for the years
ended June 30, 2000, 1999 and 1998 4
Consolidated Statements of Changes In Stockholders'
Equity (Deficiency) for the years ended
June 30, 2000, 1999 and 1998 5 - 6
Consolidated Statements of Cash Flows for the years
ended June 30, 2000, 1999 and 1998 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>
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, 2000 and 1999, and the related
consolidated financial statements listed in the accompanying index for each of
the years in the three-year period ended June 30, 2000. 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 subsidiary as required by generally
accepted accounting principles.
In our opinion, except for the effects of not consolidating its Bastian
subsidiary 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,
2000 and 1999, 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, 2000, 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.
September 24, 2000
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<PAGE>
<TABLE>
<CAPTION>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 2000 and 1999
ASSETS
2000 1999
---- ----
CURRENT ASSETS
<S> <C> <C>
Cash $ 95,349 $ 17,656
Accounts receivable, trade - less allowance for uncollectible
Accounts of $10,000 in 2000 and 1999 278,842 195,433
Due from NYSERDA, current portion 100,446 30,049
Stock subscription receivable -- 7,500
Due from unconsolidated subsidiary, less allowance for
uncollectible amount of $-0- in 2000 and $100,000 in 1999 -- --
Prepaid expenses and other current assets 1,796 15,787
Deferred tax asset - less valuation allowance of $51,500 in 2000
and $9,000 in 1999 43,000 7,400
---------- ----------
519,433 273,825
---------- ----------
PROPERTY, PLANT AND EQUIPMENT 1,904,716 1,480,603
Less: Accumulated depreciation and amortization 898,074 713,147
---------- ----------
1,006,642 767,456
---------- ----------
OTHER ASSETS
Due from shareholder 1,554 1,554
Due from NYSERDA, long-term portion 24,544 14,108
Cash value of life insurance -- 11,034
Operating rights, net of accumulated amortization of
$7,370 in 2000 and $6,030 in 1999 12,730 14,070
Other assets 41,291 37,075
Deferred tax asset - less valuation allowance of $148,500
in 2000 and $206,600 in 1999 125,000 167,100
Goodwill - net of accumulated amortization of $15,656
in 2000 219,183 --
---------- ----------
424,302 244,941
---------- -----------
$1,950,377 $ 1,286,222
========== ===========
</TABLE>
The accompanying Notes to Financial Statements
are an integral part these statements
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<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
2000 1999
---- ----
CURRENT LIABILITIES
<S> <C> <C>
Current portion of long-term debt $ 231,944 $ 363,100
Current portion of capital lease obligations 60,180 50,981
Accounts payable, trade 667,244 549,448
Accrued expenses 5,833 8,158
Accrued payroll and related taxes 107,106 97,922
Due to shareholder 11,070 23,500
----------- -----------
1,083,377 1,093,109
----------- -----------
LONG-TERM LIABILITIES
Long-term debt, net of current portion -- 15,233
Capital lease obligations, net of current portion 136,318 197,019
Other long-term liability 243,222 243,222
----------- -----------
379,540 455,474
----------- -----------
MINORITY INTEREST IN SUBSIDIARY -- 100,461
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common stock - $.01 par value, 15,000,000 shares authorized:
7,520,802 shares issued and outstanding in 2000 and 1999 75,208 75,208
Paid-in capital in excess of par value 2,458,984 2,458,984
Accumulated deficit (2,046,732) (2,897,014)
----------- -----------
487,460 (362,822)
----------- -----------
$ 1,950,377 $ 1,286,222
============ ========================
</TABLE>
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<PAGE>
4
<TABLE>
<CAPTION>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the Years Ended June 30, 2000, 1999 and 1998
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
NET SALES $ 1,712,384 $ 1,429,561 $ 1,871,897
COST OF GOODS SOLD 1,412,745 1,259,476 1,504,840
----------- ----------- -----------
GROSS PROFIT 299,639 170,085 367,057
----------- ----------- -----------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 366,802 348,292 465,258
RESEARCH AND DEVELOPMENT -- 7,626 3,572
----------- ----------- -----------
366,802 355,918 468,830
----------- ----------- -----------
LOSS FROM OPERATIONS (67,163) (185,833) (101,773)
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Life insurance proceeds 690,297 -- --
NYSERDA reimbursement 315,076 -- --
Interest expense (69,011) (80,573) (47,589)
Interest income 2,708 82 745
Minority interest in income of subsidiary (14,700) 35,440 6,280
----------- ----------- -----------
924,370 (45,051) (40,564)
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 857,207 (230,884) (142,337)
PROVISION FOR INCOME TAXES 6,925 2,250 14,650
----------- ----------- -----------
NET INCOME (LOSS) FOR THE YEAR $ 850,282 $ (233,134) $ (156,987)
=========== =========== ===========
EARNINGS PER SHARE OF COMMON STOCK $ 0.11 $ (0.03) $ (0.02)
=========== =========== ===========
</TABLE>
The accompanying Notes to Financial Statements
are an integral part these statements
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<PAGE>
5
<TABLE>
<CAPTION>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity (Deficiency)
For the Years Ended June 30, 2000, 1999 and 1998
COMMON STOCK
NUMBER
OF
SHARES AMOUNT
------ ------
<S> <C> <C>
Balance at June 30, 1997 7,407,402 $ 74,074
Shares issued in payment of liabilities 113,400 1,134
Net loss for the year -- --
--------- ---------
Balance at June 30, 1998 7,520,802 75,208
Net loss for the year -- --
--------- ---------
Balance at June 30, 1999 7,520,802 75,208
Net income for the year -- --
--------- ---------
Balance at June 30, 2000 7,520,802 $ 75,208
========= =========
</TABLE>
The accompanying Notes to Financial Statements
are an integral part of these statements
-16-
<PAGE>
<TABLE>
<CAPTION>
PAID-IN TOTAL
CAPITAL IN STOCKHOLDERS'
EXCESS OF ACCUMULATED EQUITY
PAR VALUE DEFICIT (DEFICIENCY)
--------- ------- ------------
<S> <C> <C>
$ 2,407,188 $(2,506,893) $ (25,631)
51,796 -- 52,930
-- (156,987) (156,987)
----------- ----------- -----------
2,458,984 (2,663,880) (129,688)
-- (233,134) (233,134)
----------- ----------- -----------
2,458,984 (2,897,014) (362,822)
-- 850,282 850,282
----------- ----------- -----------
$ 2,458,984 $(2,046,732) $ 487,460
=========== =========== ===========
</TABLE>
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<PAGE>
7
<TABLE>
<CAPTION>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended June 30, 2000, 1999 and 1998
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) for the year $ 850,282 $(233,134) $(156,987)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Rent expense offset against advances to
unconsolidated subsidiary -- -- 3,000
Depreciation and amortization 201,923 142,880 114,100
Deferred income taxes 6,500 1,600 14,000
Minority interest in income of subsidiary 14,700 (35,440) (6,280)
Life insurance proceeds (701,331) -- --
Change in operating accounts
Accounts receivable (164,242) 23,093 (6,391)
Stock subscription receivable 7,500 -- --
Prepaid expenses 13,991 11,187 (8,440)
Other assets (4,216) 602 (7,134)
Accounts payable 117,796 185,744 143,754
Accrued expenses (2,325) (1,891) 1,842
Accrued payroll and related taxes 9,184 50,545 25,675
--------- --------- ---------
349,762 145,186 117,139
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of goodwill (234,839) -- --
Acquisition of minority interest in subsidiary (115,161) -- --
Decrease (increase) in cash value of life insurance 712,365 (3,141) --
Repayments from (advances to) unconsolidated
subsidiary -- -- (138)
Capital expenditures (424,113) (129,433) (123,863)
Advances to shareholder -- 18,180 (6,725)
--------- --------- ---------
(61,748) (114,394) (130,726)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from (repayments to) shareholder (12,430) 10,500 13,000
Proceeds from long-term debt -- -- 50,000
Payments on long-term debt (146,389) (20,001) (56,612)
Payments on capital lease obligations (51,502) (39,009) (10,668)
--------- --------- ---------
(210,321) (48,510) (4,280)
--------- --------- ---------
</TABLE>
The accompanying Notes to Financial Statements
are an integral part of these statements
-18-
<PAGE>
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH 77,693 (17,718) (17,867)
CASH, BEGINNING 17,656 35,374 53,241
--------- --------- ---------
CASH, ENDING $ 95,349 $ 17,656 $ 35,374
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 71,111 $ 82,464 $ 45,739
========= ========= =========
Cash paid during the year for income taxes $ -- $ 325 $ 6,809
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Issuance of common stock $ -- $ -- $ 52,930
Payment of liabilities -- -- (35,260)
Payment of prepaid expenses -- -- (10,170)
Stock subscription receivable -- -- (7,500)
--------- --------- ---------
-- -- --
========= ========= =========
Acquisition of property and equipment
by issuance of capital lease $ -- $ 99,547 $ 198,131
========= ========= =========
</TABLE>
-19-
<PAGE>
9
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998
1. BUSINESS DESCRIPTION
The Company and its wholly 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 June 30, 2000, 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 is still technically a subsidiary of the Company
(see Note 2). See SUBSEQUENT EVENTS.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PURCHASE OF MINORITY INTEREST
On January 1, 2000 the Company purchased the 30% minority interest in
its subsidiary, Coating Technology. The total cost of the acquisition
was $350,000 which exceeded the minority interest at the time by
$234,839. The excess is being amortized on the straight line method
over 15 years.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly 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. as required by
generally accepted accounting principles. The Company believes that
not consolidating this subsidiary provides for a more meaningful
presentation of continuing operations (see Note 1). See SUBSEQUENT
EVENTS.
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.
-20-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
REVENUE RECOGNITION
The Company records its revenues and expenses on the accrual basis of
accounting. Revenues are recognized on the date goods are shipped.
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.
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.
DEBT ISSUANCE COSTS
Debt issuance costs are being amortized using the straight-line
method over the term of the related debt instrument, five years.
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.
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.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 financial
statements. The reclassifications do not affect 1999 net income as
originally reported.
-21-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998
3. DUE FROM NYSERDA
On August 12, 1998, the Company entered into an agreement with the
New York State Energy Research and Development Authority (NYSERDA).
Under the terms of the agreement, NYSERDA will share in the cost to
test a new process by paying up to $274,000, which represents 68% of
the actual development costs. NYSERDA shall pay the Company 90% of
its 68% share upon receipt of an invoice for a progress payment, and
final payment shall be made after completion of work and receipt of
the final report. In another term of the agreement, the Company will
be reimbursed by the United States Department of Energy (USDE) for
purchases of equipment of up to $366,000 which represents 97.6% of
actual equipment purchases. Through June 30, 2000, the Company has
recorded $252,226 of reimbursements from NYSERDA and $325,412 from
USDE.
In accordance with a previous agreement, the Company is obligated to
pay to NYSERDA 2% of sales of new technology to New York State
manufacturers and 4% of sales to non-New York State manufacturers.
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
Property, plant and equipment consists of the following:
2000 1999
---- ----
Leasehold improvements $ 36,061 $ 36,061
Machinery and equipment 1,776,989 1,366,856
Furniture and fixtures 79,908 77,686
Vehicles 11,758 --
---------- ----------
$1,904,716 $1,480,603
========== ==========
Depreciation and amortization expense for each of the three years in
the period ended June 30, 2000 was $184,927, $136,229 and $107,449,
respectively.
-22-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998
5. LONG-TERM DEBT
Long-term debt consists of the following:
2000 1999
---- ----
8% convertible subordinated debentures due and
payable on June 30, 2001. The debentures are
subordinated to the Company's senior
indebtedness. See Note 8 for conversion
provisions. $ 182,500 $ 275,000
Unsecured note payable. Interest accrues at 8%
and is payable monthly. Principal was due in full
on April 30, 1999. During 1999, the note was
refinanced and the principal is now payable on
demand. 25,000 50,000
Note payable secured by specific equipment.
Interest accrued at 5% and principal, in the
amount of $26,667, plus interest was payable each
December through 1998. This note was refinanced
during 1999. The note now accrues interest at 6%
and principal, in the amount of $8,889, plus
interest is payable December, 1999, June, 2000
and December, 2000. The note was refinanced
during 2000 with the full amount of interest and
principal due by December 31, 2000. 17,778 26,666
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. 6,666 26,667
--------- ----------
231,944 378,333
Less: Current portion 231,944 363,100
--------- ----------
Long-term debt, net of current portion $ -- $ 15,233
========= ==========
-23-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998
5. LONG-TERM DEBT (Continued)
--------------
The aggregate maturities for all long-term borrowings as of June 30,
2000 are as follows:
YEAR AMOUNT
2001 $ 231,944
===========
6. CAPITAL LEASE OBLIGATIONS
The Company maintains various machinery and equipment held under
capital lease obligations as follows:
2000 1999
---- ----
Various capital lease obligations due in monthly
installments ranging from $118 to $1,738,
including interest ranging from 14.5% to 17.7%
through January, 2004. Machinery and equipment
are collateral to the leases. $196,498 $ 248,000
Less amount due within one year 60,180 50,981
-------- ---------
Amount due after one year $136,318 $ 197,019
======== =========
Minimum lease payments for all capital leases as of June 30, 2000 are
as follows:
YEAR AMOUNT
2001 $ 86,052
2002 86,052
2003 63,749
2004 8,003
--------
Total minimum lease payments 243,856
Less: Amount representing
interest and sales tax 47,358
--------
Present value of net minimum
lease payments $ 196,498
=========
Assets held under capital leases are as follows:
2000 1999
---- ----
Machinery and equipment $ 297,678 $ 297,678
Less: Accumulated depreciation 65,220 35,452
------------ -----------
$ 232,458 $ 262,226
=========== ===========
-24-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998
7. OTHER LONG-TERM LIABILITY
The Company entered into a partnership on September 1, 1981.
The Company incurred a liability to certain vendors relating to
silver price fluctuations during the period of time that the
partnership 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.
8. 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, 2000,
options on 435,000 shares have been exercised at $.06 per share;
options on 150,000 shares at $.06 per share are outstanding and
exercisable and expire in December, 2002; leaving options on 265,000
shares available under the plan.
9. COMMON STOCK AND STOCK WARRANTS
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 will be 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, 2001.
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 has an outstanding warrant to purchase 60,000 common
shares at $.40 per share. The warrant was issued in connection with
the purchase of equipment in 1994 and expires December 31, 2001.
The Company also has an outstanding warrant to purchase 30,000 common
shares at $.40 per share. The warrant was issued in connection with
the refinancing of debt in 1999 and expires October 22, 2002.
-25-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998
9. 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.
10. MINORITY INTEREST
Coating Technology, Inc. is in the business of electroless nickel and
aluminum anodizing operations. On January 1, 2000, The Metal Arts
Company, Inc. purchased the 30% minority interest owned by another
party. The accounts of Coating Technology, Inc. for the years ended
June 30, 2000 and 1999 are included in the consolidated financial
statements of the Company. Recognition has been made of a minority
interest representing the 30% interest owned by another party for the
six months ended December 31, 2000 and for the years ended June 30,
1999 and 1998.
11. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
During the year ended June 30, 2000, Coating Technology, Inc. had one
customer who accounted for 20% of consolidated sales.
During the year ended June 30, 1999, Coating Technology, Inc. had one
customer who accounted for 18% of consolidated sales.
During the year ended June 30, 1998, Coating Technology, Inc. had two
customers who, in the aggregate, accounted for 24% of consolidated
sales.
The Company grants credit to its customers, substantially all of whom
are manufacturers located in Western New York. Three Coating
Technology, Inc. customers comprised 51% of accounts receivable at
June 30, 2000. Two Coating Technology, Inc. customers comprised 22%
of accounts receivable at June 30, 1999.
-26-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998
12. INCOME TAXES
Provision for income taxes was determined as follows:
2000 1999 1998
---- ---- ----
Loss before income taxes $ 857,207 $(230,884) $(142,337)
Excess tax depreciation (38,466) (18,439) 2,190
State income tax (425) (650) (650)
Minority interest in
income of subsidiary 14,700 (35,440) (6,280)
Net operating loss carryforward
(utilitized) (161,158) 269,740 109,107
Life insurance proceeds (690,297) -- --
Other 18,439 15,673 39,975
--------- --------- ---------
Federal taxable income $ -- $ -- $ 2,005
========= ========= =========
Federal statutory income tax $ -- $ -- $ 301
Federal alternative minimum
tax credit -- -- (301)
State income tax 425 650 650
Deferred 6,500 1,600 14,000
--------- --------- ---------
Provision for income taxes $ 6,925 $ 2,250 $ 14,650
========= ========= =========
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 $168,000 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.
-27-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998
12. INCOME TAXES (Continued)
At June 30, 2000, the Company has the following net operating loss deduction
carryforwards available for federal income tax purposes:
Year of
EXPIRATION AMOUNT
2003 $ 6,842
2009 8,000
2010 206,000
2011 152,000
2012 124,000
2013 109,000
2019 269,000
--------
$874,842
========
Coating Technology, Inc. has approximately $102,000 of New York State investment
tax credit carryforwards that expire in various years from 2004 to 2015 and
federal and New York State alternative minimum tax credit carryforwards of
approximately $5,300.
Deferred income taxes consist of:
2000 1999
---- ----
Assets
NOL carryforward $ 328,600 $ 346,100
Federal tax credit carryforwards -- 1,000
NYS tax credit carryforwards 107,300 103,100
Allowance for doubtful accounts 2,200 2,200
Valuation allowance (200,000) (215,600)
--------- ---------
Net deferred tax assets 238,100 236,800
Liabilities
Accelerated depreciation 70,100 62,300
--------- ---------
$ 168,000 $ 174,500
========== ==========
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:
-28-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998
12. INCOME TAXES (Continued)
2000 1999
-------- --------
Net current deferred tax asset $ 43,000 $ 7,400
Net long-term deferred tax asset 125,000 167,100
-------- --------
$168,000 $174,500
======== ========
13. COMMITMENTS
Coating Technology has entered into a ten-year lease agreement for its new
manufacturing and office space. The lease requires monthly rental payments of
$5,958 from September 1, 1997 until December 31, 2000. The annual rent as of
January 1, 2001, 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. Minimum lease payments as of June 30,
2000 are as follows:
YEAR AMOUNT
2001 $ 71,496
2002 71,496
2003 71,496
2004 71,496
2005 71,496
Thereafter 119,160
---------
$ 476,640
=========
Consolidated rent expense for each of the years ended June 30, 2000, 1999 and
1998 was approximately $71,496, $141,982 and $166,122, 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, 2000, 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, 2000, no fees were
due under this agreement.
-29-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 2000, 1999 and 1998
14. BENEFIT PLAN
Coating Technology, Inc. has a salary reduction plan pursuant to Section 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
Technology, Inc. may make additional contributions to the plan at its
discretion. Coating Technology, Inc.'s contributions to the plan amounted to
$3,178 in 2000, $2,659 in 1999 and $3,328 in 1998.
15. TRANSACTIONS WITH RELATED PARTIES
Amounts due to/from shareholder do not bear interest, are unsecured and have no
fixed repayment terms.
16. SUBSEQUENT EVENTS
On August 23, 2000 the Company transferred its shares of The Bastian Company,
Inc. There was no gain or loss on this transaction. Therefore as of that date
Bastian is no longer a subsidiary of The Metal Arts Company, Inc.
-30-
<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, 2000, 1999 and 1998
BALANCE AT BALANCE
BEGINNING AMOUNTS AMOUNTS AT END
NAME OF DEBTOR OF YEAR ADDITIONS COLLECTED WRITTEN OFF OF YEAR
-------------- ------- --------- --------- ----------- -------
June 30, 2000
N/A $ -- $ -- $ -- $ -- $ --
======= ====== ====== ====== ======
June 30, 1999
N/A $ -- $ -- $ -- $ -- $ --
======= ====== ====== ====== ======
June 30, 1998
N/A $ -- $ -- $ -- $ -- $ --
======= ====== ====== ====== ======
-31-
<PAGE>
21
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
For the Years Ended June 30, 2000, 1999 and 1998
BALANCE AT BALANCE
BEGINNING ADDITIONS AT END
CLASSIFICATION OF YEAR AT COST RETIREMENTS OF YEAR
-------------- ------- ------- ----------- -------
June 30, 2000
Leasehold improvements $ 36,061 $ -- $ -- $ 36,061
Machinery and equipment 1,366,856 410,133 -- 1,776,989
Furniture and fixtures 77,686 2,222 -- 79,908
Vehicles -- 11,758 -- 11,758
---------- ---------- ---------- ----------
$1,480,603 $ 424,113 $ -- $1,904,716
========== ========== ========== ==========
June 30, 1999
Leasehold improvements $ 36,061 $ -- $ -- $ 36,061
Machinery and equipment 1,139,632 227,224 -- 1,366,856
Furniture and fixtures 75,930 1,756 -- 77,686
---------- ---------- ---------- ----------
$1,251,623 $ 228,980 $ -- $1,480,603
========== ========== ========== ==========
June 30, 1998
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
========== ========== ========== ==========
-32-
<PAGE>
22
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
For the Years Ended June 30, 2000, 1999 and 1998
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND AT END
CLASSIFICATION OF YEAR EXPENSES RETIREMENTS OF YEAR
-------------- ------- -------- ----------- -------
June 30, 2000
Leasehold improvements $ 21,327 3,172 $ -- $ 24,499
Machinery and equipment 632,210 170,461 -- 802,671
Furniture and fixtures 59,610 8,943 -- 68,553
Vehicles -- 2,351 -- 2,351
-------- -------- -------- --------
$713,147 $184,927 $ -- $898,074
======== ======== ======== ========
June 30, 1999
Leasehold improvements $ 17,617 $ 3,710 $ -- $ 21,327
Machinery and equipment 510,068 122,142 -- 632,210
Furniture and fixtures 49,233 10,377 -- 59,610
-------- -------- -------- --------
$576,918 $136,229 $ -- $713,147
======== ======== ======== ========
June 30, 1998
Leasehold improvements $ 14,331 $ 3,286 $ -- $ 17,617
Machinery and equipment 416,231 93,837 -- 510,068
Furniture and fixtures 38,907 10,326 -- 49,233
-------- -------- -------- --------
$469,469 $107,449 $ -- $576,918
======== ======== ======== ========
-33-
<PAGE>
23
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
SCHEDULE VII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended June 30, 2000, 1999 and 1998
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
June 30, 2000 $ 10,000 $ -- $ -- $ 10,000
======== ======= ======= ========
June 30, 1999 $110,000 $ -- $ -- $110,000
======== ======= ======= ========
June 30, 1998 $110,000 $ -- $ -- $110,000
======== ======= ======= ========
-34-
<PAGE>
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
For the Years Ended June 30, 2000, 1999 and 1998
ITEM CHARGED TO COSTS AND EXPENSES
2000 1999 1998
---- ---- ----
Maintenance and repairs $ 24,185 $ 52,726 $ 86,719
======== ========= =========
Depreciation and amortization of
Intangible assets, pre-operating
costs and similar deferrals * * *
======== ========= =========
Taxes, other than payroll and income taxes * * *
======== ========= =========
Royalties * * *
======== ========= =========
Advertising costs * * *
======== ========= =========
*Less than 1% of total sales
-35-
<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 63 President,
Chief Executive Officer and
Director
Albert A. Cauwels 66 Director
Ronald L. Feeley 62 Director
Chief Executive Officer of Coating Technology
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. He
is a director of Coating Technology, Inc. Mr. Cauwels has been President of a
former subsidiary, Bastian Company, Inc., for the past 5 years.
RONALD L. FEELEY became a director in June 2000 after the death in
January, 2000 of former Director Geoffrey A. Rich. Mr. Feeley has served in
various capacities with Coating Technology for the past 10 years with 30 years
in this industry.
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, 2000. 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.
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ITEM 11. EXECUTIVE COMPENSATION
The aggregate direct remuneration accrued and paid by Metal Arts and
Coating Technology, during the fiscal year ended June 30, 2000, 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.
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
---------------- ---------------- ------- -----------------
Stanley J. Dahle President, $ 95,000 $ 5,000
CEO, and
Director
Albert A. Cauwels Secretary and $ -0- $ -0-
Director
Ronald L. Feeley Director $ 52,000 $ 5,000
All Officers and All Officers $147,000 $10,000
Directors as a and Directors
group (3) persons as a group
OTHER COMPENSATION
There was no other compensation of any kind paid to the officers and
directors during fiscal year 2000. No executive earned more than $100,000 of
total compensation. There is no executive committee and all compensation
decisions are made by the Board of Directors. There were no loans made to
officers, no directors fees and no long term compensation arrangements. There
were no outstanding stock option grants to officers at year end. There are no
employment agreements.
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OPTION EXERCISE AND VALUE TABLE
Number of
Securities In-the-Money
Underlying Options/SARs
Shares Unexercised at Fiscal
Acquired Value Options/SARs Year-End ($)***
On Exercise Realized*** at Fiscal Exercisable (E) /
Name (#) ($) Year-End (#) Unexercisable (U)
Exercisable (E) /
Unexercisable (U)
Stanley J. Dahle -0- -0- -0- -0-
Albert A. Cauwels -0- -0- -0- -0-
Ronald L. Feeley -0- -0- -0- -0-
(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.
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
SECURITIES OR
PROPERTY, INSURANCE
BENEFITS OR
FISCAL DIRECTORS FEES, REIMBURSEMENTS
NAME YEAR COMMISSIONS & BUSINESS PERSONAL BENEFITS
Stanley J. Dahle 2000 $95,000 $ 5,000
1999 95,000 5,000
1998 95,000 5,000
Albert A. Cauwels 2000 -0- -0-
1999 -0- -0-
1998 -0- -0-
Ronald L. Feeley 2000 52,000 5,000
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.
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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, 2000, 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, 2000,
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.
NAME AND ADDRESS OF AMOUNT BENEFICIALLY PERCENT
BENEFICIAL OWNER OWNED OF CLASS
--------------------- ------------------- --------
Stanley J. Dahle 1,419,000(a) 20
81 Country Club Drive
Rochester, New York
Clifford W. Charlson 598,000 8
997 East Avenue
Rochester, New York
Albert A. Cauwels 436,551 6
28 Franklin Street
Phelps, New York
All officers and directors
as a group (3) persons 1,855,551 30
(a) Includes 195,000 shares owned by Mr. Dahle's wife and children of which Mr.
Dahle disclaims any beneficial ownership.
As noted, Metal Arts owns 100 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.
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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 2000 Annual
Report:
1 and 2. Consolidated Financial Statements and Schedules. (See "INDEX TO
FINANCIAL STATEMENTS AND SCHEDULES.")
3. (See "INDEX TO EXHIBITS.")
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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: 10-13-00 By: STANLEY J. DAHLE
-----------------
Stanley J. Dahle
President and
Chief Executive Officer
Date: 10-13-00 By: 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 10-13-00
STANLEY J. DAHLE and Director
----------------
Stanley J. Dahle
ALBERT A. CAUWELS Director 10-13-00
-----------------
Albert A. Cauwels
RONALD L. FEELEY Director 10-13-00
----------------
Ronald L. Feeley
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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 the1989 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) The company's Stock Option Plan, as approved by the company's
shareholders on March 3, 1982. (Filed as Exhibit 10(a) to the
company's Form 10-K for the year ended July 3, 1982, and incorporated
herein by reference.)
10(b) First amendment to the Incentive Stock Option Plan of the Metal Arts
Company, Inc., approved at the 1989 Annual Meeting of shareholders.
10(c) Asset purchase agreement between Coating Technology and Rochester
Steel Treating Works, Inc. dated December 22, 1993. (Filed as Exhibit
10(c) to the company's 10-K for the year ended June 30, 1994 and
incorporated herein by reference.)
10(d) Option Agreement between the company and LeKem Inc., and Richard
Feagins dated February 28, 1994. (Filed as Exhibit 10(d) to the
company's Form 10-K for the year ended June 30, 1994 and incorporated
herein by reference.)
10(e) Agreement between Metal Arts Company and the New York State Energy
Research and Development Authority, dated June 22, 1995. (Filed as
Exhibit 10(e) to the company's Form 10-K for the year ended June 30,
1995, and incorporated herein by reference.)
10(f) 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 facility at 800 St. Paul St., Rochester, New
York. (Filed as exhibit (f) to the Company's Form 10-K for the year
ended June 30, 1999, and incorporated herein by reference.)
11 Description of computation of per share earnings. (See Note 2 of Notes
to Consolidated Financial Statements of the Metal Arts Company, Inc.)
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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.
23 Reports on Form 8-K:
(a) 8-K dated November 23, 1994
(b) 8-K dated June 9, 1995
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