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, 2000 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.)
800 ST. PAUL STREET ROCHESTER, NEW YORK 14605
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(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 SEPTEMBER
30, 2000 WAS 7,520,802.
PAGE 1 OF 12 PAGES
EXHIBIT INDEX IS ON PAGE 2
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THE METAL ARTS COMPANY, INC.
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INDEX
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PART I FINANCIAL INFORMATION:
Consolidated Condensed Balance Sheets,
September 30, 2000 and June 30, 2000. 4 and 5
Consolidated Condensed Statements of Operations,
three months ended September 30, 2000 and 1999. 6
Consolidated Condensed Statement of Cash Flows, three months
ended September 30, 2000 and 1999. 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
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PART I FINANCIAL INFORMATION
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3
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<TABLE>
<CAPTION>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
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ASSETS
------
9/30/00 6/30/00
---------------------------
CURRENT ASSETS
<S> <C> <C>
Cash $ 54,188 $ 95,349
Trade accounts receivable - net 304,594 278,842
Current portion of due from NYSERDA 41,143 100,446
Current portion of deferred tax asset 43,000 43,000
Prepaid expenses and other current assets 1,778 1,796
--------------------------
444,703 519,433
PROPERTY, PLANT and EQUIPMENT 1,947,135 1,904,716
Less accumulated depreciation (931,075) (898,074)
--------------------------
1,016,060 1,006,642
OTHER ASSETS
Due from shareholder 1,554 1,554
Due from NYSERDA, net of current portion 27,209 24,544
Goodwill 219,183 219,183
Operating rights - net 12,730 12,730
Deferred tax asset, net of current portion 125,000 125,000
Other assets 45,822 41,291
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431,498 424,302
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TOTAL ASSETS $ 1,892,261 $ 1,950,377
==========================
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<CAPTION>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED BALANCED SHEETS
(UNAUDITED)
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
-------------------------------------------------
9/30/00 6/30/00
--------------------------
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable - trade $ 597,516 667,244
Accrued expenses 6,457 5,833
Accrued payroll and related taxes 130,161 107,106
Current portion of capital lease obligations 60,180 60,180
Due to shareholder 11,070 11,070
Current portion of long - term debt 224,944 231,944
--------------------------
1,030,328 1,083,377
LONG - TERM LIABILITIES
Other long - term liability 243,222 243,222
Capital lease obligations, net of current portion 122,314 136,318
--------------------------
365,536 379,540
STOCKHOLDERS' EQUITY
Common stock - $.01 par value, 15,000,000 shares authorized;
Issued and outstanding: 7,520,802 at September 30, 2000 and
June 30, 2000
75,208 75,208
Treasury Stock (25,000) 0
Paid - in capital in excess of par value 2,458,984 2,458,984
Accumulated deficit (2,012,795) (2,046,732)
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496,397 487,460
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,892,261 $ 1,950,377
==========================
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<TABLE>
<CAPTION>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
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THREE MONTHS
ENDED
SEPTEMBER 30,
2000 1999
--------------------------
<S> <C> <C>
SALES - Net $499,327 $354,404
COST OF SALES (408,631) (270,626)
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GROSS MARGIN 90,696 83,778
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES (60,559) (52,618)
RESEARCH AND DEVELOPMENT 0 0
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OPERATING INCOME (LOSS) 30,137 31,160
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INTEREST EXPENSE (13,590) (24,973)
INTEREST INCOME 232 0
R&D EQUIPMENT FUNDING 17,158 0
MINORITY INTEREST IN INCOME
OF SUBSIDIARY 0 (5,700)
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3,800 (30,673)
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NET INCOME (LOSS) FOR PERIOD $ 33,937 $ 487
-------------------------
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
--------------------------
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<TABLE>
<CAPTION>
THE METAL ARTS COMPANY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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THREE MONTHS ENDED
SEPTEMBER 30,
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) for the period $ 33,937 $ 487
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation and amortization 33,000 23,100
Minority interest in income of subsidiary 0 5,700
Change in operating accounts:
Accounts receivable 30,886 849
Prepaid expenses and other (4,513) 4,362
Accounts payable (69,727) (6,634)
Accrued expenses 624 0
Accrued payroll 23,055 7,812
--------------------
47,262 35,676
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (42,419) (22,602)
Purchase of treasury stock (25,000) 0
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(67,419) (22,602)
CASH FLOWS FINANCING ACTIVITIES - Payments on long-term debt (21,004) (16,586)
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NET INCREASE IN CASH (41,161) (3,512)
CASH - BEGINNING 95,349 17,656
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CASH - ENDING $ 54,188 $ 14,144
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SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for:
Interest expense $ 13,590 $ 24,973
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SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Accounts payable - trade satisfied $ 0 $ 0
Common stock issued
0 0
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Cash paid $ 0 $ 0
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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, 2000. 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, 2000 and the results
of operations for the six months ended September 30, 2000 and 1999.
2. The results of operations for the six months ended September 30,
2000 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, 2000 and 1999. 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.
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THE METAL ARTS COMPANY, INC.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATION
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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
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 Company 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.
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
$100,000 of in-kind material, services and cash. To date the company has
received $543,704 and $10,000 from Alcoa on this contract.
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.
9
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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
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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,
2000 1999
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CONSOLIDATED NET SALES
Metal Arts 0 $ 0
Coating Technology 499,000 354,000
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$ 499,000 $ 354,000
===========================
CONSOLIDATED NET INCOME (LOSS)
Metal Arts ($ 9,500) ($ 12,800)
Minority Interest 0 (5,700)
Coating Technology 43,500 19,000
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$ 34,000 $ 500
===========================
THE METAL ARTS COMPANY, INC.
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The net sales for the Company for the three (3) months ended September 30, 2000
were $0 compared with $0 in the previous year. The Company showed a loss of
$9,500 versus a loss of $12,800 in the previous year.
COATING TECHNOLOGY, INC.
------------------------
Coating Technology's sales for the three (3) months ended September 30, 2000
were $499,000 as compared with $354,000 in the previous year. The Company showed
a profit of $43,500 as compared with a profit of $19,000 in the previous year.
11
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THE METAL ARTS COMPANY, INC.
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Part II - Other Information
Item 6 - Exhibits and Reports on Form 8 - K
A. Exhibits - None
B. Reports on Form 8 - K - None
Signatures:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE METAL ARTS COMPANY, INC.
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Date: NOVEMBER 15, 1999 STANLEY J. DAHLE
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Stanley J. Dahle
President
Date: NOVEMBER 15, 1999 ALBERT A. CAUWELS
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Albert A. Cauwels
Secretary
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