10-K/A 1 t22524.txt AMENDMENT TO 10K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A (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 -------- 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.) 800 ST. PAUL ST., ROCHESTER, NEW YORK 14605 ------------------------------------- ------------------------- (Address of principal executive offices) (Zip Code) (716) 546-7170 -------------- (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 ----- (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 ----- ------ 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 28 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 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. -3- INDEPENDENT AUDITORS' REPORT ---------------------------- The Board of Directors and Stockholders The Metal Arts Company, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of The Metal Arts Company, Inc. and Subsidiaries 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. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Metal Arts Company, Inc. and Subsidiaries 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. In our report dated September 24, 2000, our opinion on the June 30, 2000, 1999 and 1998 financial statements was qualified because of the effects of not consolidating the Company's Bastian subsidiary. As explained in Note 3, the Company has restated its June 30, 2000, 1999 and 1998 financial statements to include its Bastian subsidiary as required by generally accepted accounting principles. Accordingly, our present opinion on the June 30, 2000, 1999 and 1998 financial statements, as presented herein, differs from that previously expressed. 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, except as to the fourth paragraph above and Note 3, which are as of January 10, 2001 -4-
THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES --------------------------------------------- Consolidated Balance Sheets June 30, 2000 and 1999 ASSETS ------ 2000 1999 ---- ---- CURRENT ASSETS Cash $ 71,800 $ 7,343 Accounts receivable, trade - less allowance for uncollectible accounts of $35,000 in 2000 and 1999 386,203 304,912 Due from NYSERDA, current portion 100,446 30,049 Inventory 43,009 43,009 Stock subscription receivable -- 7,500 Prepaid expenses and other current assets 4,696 15,787 Deferred tax asset - less valuation allowance of $74,500 in 2000 and $27,300 in 1999 43,000 7,400 ---------- ---------- 649,154 416,000 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT 4,093,217 3,658,917 Less: Accumulated depreciation and amortization 2,887,670 2,691,083 ---------- ---------- 1,205,547 967,834 ---------- ---------- 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 42,941 37,075 Deferred tax asset - less valuation allowance of $555,500 in 2000 and $618,300 in 1999 125,000 167,100 Goodwill - net of accumulated amortization of $230,008 in 2000 and $203,752 in 1999 428,429 219,846 ---------- ---------- 635,198 464,787 ---------- ---------- $2,489,899 $1,848,621 ========== ==========
The accompanying Notes to Financial Statements are an integral part these statements -5-
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) ------------------------------------------------- 2000 1999 ---- ---- CURRENT LIABILITIES Current portion of long-term debt $ 467,700 $ 598,856 Current portion of capital lease obligations 60,180 50,981 Accounts payable, trade 1,020,036 818,790 Accrued expenses 469,024 503,265 Accrued payroll and related taxes 471,687 455,694 Due to shareholder 11,070 23,500 ---------- ---------- 2,499,697 2,451,086 ---------- ---------- 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 ---------- ---------- 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 (2,923,530) (3,692,592) ---------- ---------- (389,338) (1,158,400) ---------- ---------- $2,489,899 $1,848,621 ========== ==========
-6-
THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES --------------------------------------------- Consolidated Statements of Operations For the Years Ended June 30, 2000, 1999 and 1998 2000 1999 1998 ----- ----- ---- NET SALES $ 2,698,414 $ 2,382,385 $ 2,923,912 COST OF GOODS SOLD 2,209,169 1,958,245 2,255,372 ----------- ----------- ----------- GROSS PROFIT 489,245 424,140 668,540 ----------- ----------- ----------- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 683,786 626,335 775,319 RESEARCH AND DEVELOPMENT 7,626 3,572 ----------- ----------- ----------- ----------- 683,786 633,961 778,891 ----------- ----------- ----------- LOSS FROM OPERATIONS (194,541) (209,821) (110,351) ----------- ----------- ----------- OTHER INCOME (EXPENSE) Life insurance proceeds 690,297 -- -- Write-off of liabilities 46,156 100,942 -- NYSERDA reimbursement 315,076 -- 17,667 Interest expense (69,011) (80,573) (47,589) Interest income 2,710 82 745 Minority interest in income of subsidiary (14,700) 35,440 6,280 ----------- ----------- ----------- 970,528 55,891 (22,897) ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES 775,987 (153,930) (133,248) PROVISION FOR INCOME TAXES 6,925 2,575 14,975 ----------- ----------- ----------- NET INCOME (LOSS) FOR THE YEAR $ 769,062 $ (156,505) $ (148,223) =========== =========== =========== EARNINGS PER SHARE OF COMMON STOCK $ .10 $ (.02) $ (.02) =========== =========== ===========
The accompanying Notes to Financial Statements are an integral part these statements -7-
THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES --------------------------------------------- Consolidated Statements of Changes in Stockholders' Equity (Deficiency) For the Years Ended June 30, 2000, 1999 and 1998 COMMON STOCK ------------ NUMBER OF SHARES AMOUNT ------ ------ Balance at June 30, 1997 7,407,402 $ 74,074 Prior period adjustment - - --------------- ---------- Balance at June 30, 1997, restated 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 =============== ============
The accompanying Notes to Financial Statements are an integral part of these statements -8-
PAID-IN TOTAL CAPITAL IN STOCKHOLDERS' EXCESS OF ACCUMULATED EQUITY PAR VALUE DEFICIT (DEFICIENCY) --------- ------- ------------ Balance at June 30, 1997 $ 2,407,188 $ (2,506,893) $ (25,631) Prior period adjustment - (880,971) (880,971) ----------------- ------------ ------------- Balance at June 30, 1997, restated 2,407,188 (3,387,864) (906,602) Shares issued in payment of liabilities 51,796 - 52,930 - (148,223) (148,223) Net loss for the year ----------------- ------------ ------------ Balance at June 30, 1998 2,458,984 (3,536,087) (1,001,895) Net loss for the year - (156,505) (156,505) ----------------- ------------ ------------ Balance at June 30, 1999 2,458,984 (3,692,592) (1,158,400) Net income for the year - 769,062 769,062 ----------------- ------------ ------------ Balance at June 30, 2000 $ 2,458,984 $ (2,923,530) $ (389,338) ================= ============= ============
-9-
THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES --------------------------------------------- Consolidated Statements of Cash Flows For the Years Ended June 30, 2000, 1999 and 1998 2000 1999 1998 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) for the year $ 769,062 $(156,505) $(148,223) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization 224,183 173,945 148,481 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 (162,124) 22,037 2,802 Stock subscription receivable 7,500 -- -- Inventory -- (22,957) -- Prepaid expenses 11,091 11,187 (8,440) Other assets (5,866) 602 (7,134) Accounts payable 201,246 163,550 100,969 Accrued expenses (34,241) (63,966) 99,970 Accrued payroll and related taxes 15,993 51,321 50,647 --------- --------- --------- 346,713 145,374 246,792 --------- --------- --------- 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) -- Capital expenditures (434,300) (137,813) (123,863) Advances to shareholder 18,180 (6,725) --------- --------- --------- --------- (71,935) (122,774) (130,588) --------- --------- --------- 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) (188,524) Payments on capital lease obligations (51,502) (39,009) (10,668) --------- --------- --------- (210,321) (48,510) (136,192) --------- --------- --------- INCREASE (DECREASE) IN CASH 64,457 (25,910) (19,988)
The accompanying Notes to Financial Statements are an integral part of these statements -10-
2000 1999 1998 ---- ---- ---- CASH, BEGINNING 7,343 33,253 53,241 ----------- ------- --------- CASH, ENDING $ 71,800 $ 7,343 $ 33,253 =========== ======= ========= 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 $ -- $ 650 $ 7,134 =========== ======= ========= 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 =========== ======= =========
-11- -11- 9 THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES --------------------------------------------- Notes to Consolidated Financial Statements June 30, 2000, 1999 and 1998 1. BUSINESS DESCRIPTION -------------------- The Company and its subsidiaries are primarily engaged in the surface coatings and enhancement business and in the manufacture and sale of automobile identification products, employee recognition and identification products, medallions, tokens, plaques, emblematic jewelry, identification and convention badges, belt buckles and cloisonne products. Customers, substantially all of whom are manufacturers, are located primarily in Western New York. 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. PRINCIPLES OF CONSOLIDATION --------------------------- The consolidated financial statements include the accounts of the Company, its wholly owned subsidiary, Coating Technology, Inc. and its 89% owned subsidiary, The Bastian Company, Inc. All material intercompany items have been eliminated in consolidation. 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. REVENUE RECOGNITION ------------------- The Company records its revenues and expenses on the accrual basis of accounting. Revenues are recognized on the date goods are shipped. INVENTORY --------- Inventories are valued at the lower of cost (first-in, first-out method) or market. 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. -12- 10 THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2000, 1999 and 1998 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) ------------------------------------------ GOODWILL -------- Goodwill from the purchase of The Bastian Company, Inc. is being amortized over a 40-year period using the straight-line method. Goodwill from the purchase of the minority interest in Coating Technology, Inc. is being amortized over a 15-year period using the straight-line method. 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. 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. 3. PRIOR PERIOD ADJUSTMENT ----------------------- On June 7, 1995, the Company's Board of Directors approved the spin-off of its 89% owned subsidiary, The Bastian Company, Inc., in the form of a stock dividend to the Company's stockholders of record as of June 30, 1995. As of June 30, 2000, Bastian had 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 had not completed the pro rata distribution of the Bastian common shares and, as such, Bastian was still technically a subsidiary of the Company. -13- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES --------------------------------------------- Notes to Consolidated Financial Statements June 30, 2000, 1999 and 1998 3. PRIOR PERIOD ADJUSTMENT (Continued) ----------------------- The previously issued consolidated financial statements did not include the accounts of The Bastian Company, Inc. as required by generally accepted accounting principles. The Company believed that not consolidating the subsidiary provided for a more meaningful presentation of continuing operations. As required by generally accepted accounting principles, the Company has restated the financial statements for June 30, 2000, 1999 and 1998 to include its 89% owned subsidiary. Retained earnings as of June 30, 1997 have been adjusted to consolidate the prior years' net loss of The Bastian Company, Inc. See SUBSEQUENT EVENTS. ----------------- 4. 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. 5. INVENTORY --------- Inventories consist of the following: 2000 1999 ---- ---- Work-in-process $ 20,092 $ 20,052 Finished goods 22,917 22,957 ------------- ------------- $ 43,009 $ 43,009 ============ ============ -14- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES --------------------------------------------- Notes to Consolidated Financial Statements June 30, 2000, 1999 and 1998 6. PROPERTY, PLANT AND EQUIPMENT ----------------------------- Property, plant and equipment consists of the following: 2000 1999 ---- ---- Leasehold improvements $ 258,078 $ 258,078 Machinery and equipment 3,719,540 3,299,706 Furniture and fixtures 103,841 101,133 Vehicles 11,758 - ------------- ---------- $4,093,217 $3,658,917 ============= ========== Depreciation and amortization expense for each of the three years in the period ended June 30, 2000 was $196,587, $156,694 and $131,230, respectively. 7. 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
-15- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES --------------------------------------------- Notes to Consolidated Financial Statements June 30, 2000, 1999 and 1998 7. LONG-TERM DEBT (Continued) --------------
2000 1999 ---- ---- Various notes payable by The Bastian Company, Inc. to the City of Geneva due in monthly payments of $4,975, including interest from 5% to 6%. The notes are secured by a general lien on equipment, accounts receivable and inventory and are guaranteed by the officers of The Bastian Company, Inc. At June 30, 2000, the Company was in default on payment of these notes (see SUBSEQUENT EVENTS). 215,756 215,756 Demand note payable to a related party. The note is unsecured and bears interest at 8%. 20,000 20,000 --------------- ------------ 467,700 614,089 Less: Current portion 467,700 598,856 --------------- ------------ Long-term debt, net of current portion $ - $ 15,233 ================= ============
The aggregate maturities for all long-term borrowings as of June 30, 2000 are as follows: YEAR AMOUNT ---- ------ 2001 $ 467,700 =========== 8. 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 ============= ===========
-16- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES --------------------------------------------- Notes to Consolidated Financial Statements June 30, 2000, 1999 and 1998 8. CAPITAL LEASE OBLIGATIONS (Continued) ------------------------- 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 =========== =========== 9. 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. 10. 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. -17- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES --------------------------------------------- Notes to Consolidated Financial Statements June 30, 2000, 1999 and 1998 11. 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. 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. 12. 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. No minority interest is recognized for The Bastian Company, Inc. due to its shareholder's deficiency. 13. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK ------------------------------------------------------ During the year ended June 30, 2000, Coating Technology, Inc. had one customer who accounted for 12% of consolidated sales. During the year ended June 30, 2000, The Bastian Company, Inc. had one customer who accounted for 15% of consolidated sales. -18- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES --------------------------------------------- Notes to Consolidated Financial Statements June 30, 2000, 1999 and 1998 13. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK (Continued) ------------------------------------------------------ During the year ended June 30, 1999, Coating Technology, Inc. had one customer who accounted for 11% of consolidated sales. During the year ended June 30, 1999, The Bastian Company, Inc. had one customer who accounted for 21% of consolidated sales. During the year ended June 30, 1998, The Bastian Company, Inc. had one customer who accounted for 18% of consolidated sales. The Company grants credit to its customers, substantially all of whom are manufacturers located in Western New York. Two Coating Technology, Inc. customers comprised 30% of accounts receivable at June 30, 2000. One Coating Technology, Inc. customer comprised 12% and 13% of accounts receivable at June 30, 2000 and 1999, respectively. 14. INCOME TAXES ------------ Provision for income taxes was determined as follows:
2000 1999 1998 ---- ---- ---- Loss before income taxes $ 775,987 $(153,930) $(133,248) Excess tax depreciation (38,466) (18,439) 2,190 State income tax (425) (975) (975) Minority interest in income of subsidiary 14,700 (35,440) (6,280) Net operating loss carryforward (utilized) (79,938) 193,111 100,343 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 425 975 975 Deferred 6,500 1,600 14,000 --------------- --------------- ----------- Provision for income taxes $ 6,925 $ 2,575 $ 14,975 =============== =============== ===========
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. -19- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES --------------------------------------------- Notes to Consolidated Financial Statements June 30, 2000, 1999 and 1998 14. INCOME TAXES (Continued) ------------ 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. 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 $ 521,466 2005 262,697 2009 139,202 2010 525,264 2011 152,000 2012 124,000 2013 109,000 2019 269,000 ------------ $2,102,629 $1,227,787 of the net operating loss carryforward is attributable to The Bastian Company, Inc. See SUBSEQUENT EVENTS. ----------------- 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 $ 758,600 $ 776,100 Federal tax credit carryforwards - 1,000 NYS tax credit carryforwards 107,300 103,100 Allowance for doubtful accounts 2,200 2,200 Valuation allowance (630,000) (645,600) ------------ ------------ Net deferred tax assets 238,100 236,800 Liabilities Accelerated depreciation 70,100 62,300 ------------ ------------- $ 168,000 $ 174,500 =========== ===========
-20- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES --------------------------------------------- Notes to Consolidated Financial Statements June 30, 2000, 1999 and 1998 14. INCOME TAXES (Continued) ------------ 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: 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 ============ ============= 15. COMMITMENTS ----------- The Bastian Company, Inc. has a month to month lease with the City of Geneva. In addition to the monthly rental in the amount of $4,355, the Company is also responsible for its use of water and electricity. 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 $123,762, $193,222 and $214,735, 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. -21- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES --------------------------------------------- Notes to Consolidated Financial Statements June 30, 2000, 1999 and 1998 15. COMMITMENTS (Continued) ----------- 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. 16. 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. 17. TRANSACTIONS WITH RELATED PARTIES --------------------------------- Amounts due to/from shareholder do not bear interest, are unsecured and have no fixed repayment terms. 18. 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. If the sale had occurred on June 30, 2000, the consolidated balance sheet would have been as follows:
AS REPORTED PROFORMA IN ADJUSTMENTS ACCOMPANYING FOR PROFORMA FINANCIAL SUBSEQUENT BALANCE STATEMENTS EVENTS SHEET Total current assets $ 649,154 $ (129,721) $ 519,433 Total property, plant and equipment (net) 1,205,547 (198,905) 1,006,642 Total other assets 635,198 (210,896) 424,302 ------------ ------------ Total assets $2,489,899 $1,950,377 ========== ========== Total current liabilities $2,499,697 $(1,416,320) $1,083,377 Total non-current liabilities 379,540 - 379,540 Total shareholder's equity (deficit) (389,338) 876,798 487,460 ------------ ------------ Total liabilities and shareholder's equity $2,489,899 $1,950,377 =========== ============
-22- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES ---------------------------------------------
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 $ - $ - $ - $ - $ - ======== ======= ======= ======= ======
-23- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES ---------------------------------------------
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 $ 258,078 $ -- $ -- $ 258,078 Machinery and equipment 3,299,706 419,834 -- 3,719,540 Furniture and fixtures 101,133 2,708 -- 103,841 Vehicles -- 11,758 -- 11,758 ---------- ---------- --------- ---------- $3,658,917 $ 434,300 $ -- $4,093,217 ========== ========== ========= ========== June 30, 1999 Leasehold improvements $ 258,078 $ -- $ -- $ 258,078 Machinery and equipment 3,067,431 232,275 -- 3,299,706 Furniture and fixtures 96,048 5,085 -- 101,133 ---------- ---------- --------- ---------- $3,421,557 $ 237,360 $ -- $3,658,917 ========== ========== ========= ========== June 30, 1998 Leasehold improvements $ 250,801 $ 7,277 $ -- $ 258,078 Machinery and equipment 2,755,690 311,741 -- 3,067,431 Furniture and fixtures 93,072 2,976 -- 96,048 ----------------------------------------------- ---------- -------- ---------- ---------- $3,099,563 $ 321,994 $ -- $3,421,557 ========== ========== ========== =========
-25- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES --------------------------------------------- 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 BEGINNING COSTS AND AT END CLASSIFICATION YEAR EXPENSES RETIREMENTS OF YEAR -------------- ---- -------- ----------- ------- June 30, 2000 Leasehold improvements $ 67,512 $ 9,915 $ -- $ 77,427 Machinery and equipment 2,544,245 174,795 -- 2,719,040 Furniture and fixtures 79,326 9,526 -- 88,852 Vehicles -- 2,351 -- 2,351 --------- ---------- ---------- ---------- $ 2,691,083 $ 196,587 $ -- $2,887,670 =========== ========== ========== ========== June 30, 1999 Leasehold improvements $ 57,059 $ 10,453 $ -- $ 67,512 Machinery and equipment 2,409,023 135,222 -- 2,544,245 Furniture and fixtures 68,307 11,019 -- 79,326 ----------- ---------- ---------- ---------- $2,534,389 $ 156,694 $ -- $2,691,083 ========== ========== ========== ========== June 30, 1998 Leasehold improvements $ 47,030 $ 10,029 $ -- $ 57,059 Machinery and equipment 2,299,304 109,719 -- 2,409,023 Furniture and fixtures 56,825 11,482 -- 68,307 ---------- ---------- ---------- ---------- $2,403,159 $ 131,230 $ -- $2,534,389 ========== ========== ========== ==========
-25- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES --------------------------------------------- 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 $ 35,000 $ - $ - $ 35,000 ========= ======== ======== ======== June 30, 1999 $ 35,000 $ - $ - $ 35,000 ========= ======== ======== ======== June 30, 1998 $ 35,000 $ - $ - $ 35,000 ========= ======== ======== ========
-26- 24 THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES 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 $ 29,938 $ 60,400 $ 94,581 =========== ============ ============= Depreciation and amortization of Intangible assets, pre-operating costs and similar deferrals $ 27,596 * * =========== ============== ============== * * * Taxes, other than payroll and income taxes =========== ============== ============== * * * Royalties =========== ============== ============== * * * Advertising costs =========== ============== ============== * * * *Less than 1% of total sales
-27- PART I 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: 04-25-01 By: STANLEY J. DAHLE ----------------- Stanley J. Dahle President and Chief Executive Officer 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 --------- ----- ---- STANLEY J. DAHLE Chairman, President ---------------- Chief Executive Officer 04-25-01 Stanley J. Dahle and Director -28-