10-K 1 t24376.txt ANNUAL REPORT AS OF 6/30/01 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 6/30/01 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) (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.) $424,255 (4,242,551 at $.10 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. 7,420,802 SHARES OF COMMON STOCK PAR VALUE $.01 PER SHARE Page 2 of 43 Exhibit Page Appears on Page 42 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 $1,223,837 as of the close of Fiscal 2001. 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, 7, 8 and 9 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 electroless-nickel 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 2001, Coating Technology spent approximately $25,000 on various compliance requirements. 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- 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) ---------------------------- 2001 2000 1999 ---- ---- ---- Metal Arts $ -0- $ -0- $ 10,000 Coating Technology 1,740,440 1,712,000 1,420,000 ---------- ---------- ---------- $1,740,440 $1,712,000 $1,430,000 ========== ========== ========== THE COMPANY'S PRODUCTS Metal Arts may enter the Specialty chemical business, marketing its new process for plating electroless nickel on aluminum. The process consists of Microsmooth (R), a patented activator and electroless nickel formulations, initially to manufacturers of aluminum wheels. Coating Technology is engaged in contract electroless and brite nickel and aluminum anodizing operations. Coating Technology services various industries through large, medium and small metal fabricating companies who in turn supply subassemblies and individual component parts to major manufacturers such as Xerox, Kodak, IBM, Cannon, Sun Microsystems, Cisco, Phillips, Heidelberg and others. It also provides other proprietary surface finishes to various contract customers. MANUFACTURING OPERATIONS Metal Arts' specialty chemical mixing operations will be conducted with newly acquired mixing equipment should the technology prove successful. 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- COMPETITION Should the Microsmooth (R) technology be commercialized, 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, 2001, Coating Technology had one customer which accounted for 23 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 23 in its Coating Technology operations, none of whom are union members. ITEM 2. PROPERTIES Coating Technology signed a ten year lease in 1997 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- 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, 2001, 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 "Pink Sheets" 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, 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 1/8 Second Quarter (October - December 2000) 1/4 1/8 Third Quarter (January - March 2001) 1/4 1/8 Fourth Quarter (April - June 2001) 1/4 1/8 FISCAL YEAR ENDED JUNE 30, 2002 First Quarter (July - September 2001) 1/8 1/16 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- As of October 1, 2001, 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- ITEM 6. SELECTED FINANCIAL DATA
June 30, June 30, June 30, June 30, June 30, 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Results of continuing operations: Net sales $ 1,740,440 $ 1,712,384 $ 1,429,561 $ 1,871,896 $ 1,656,961 Net income (loss) from $ (69,750) $ 850,282 $ (233,134) $ (156,988) $ (126,307) Per share: Net income (loss) from $ (.01) $ .11 $ (.03) $ (.02) $ (.02) Weighted average number of common shares outstanding 7,420,802 7,520,802 7,520,802 7,464,116 7,357,402 Cash dividends paid per common share - No dividends have been paid in the past. June 30, June 30, June 30, June 30, June 30, 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Balance sheet data (continuing operations): Total assets $1,615,347 $1,950,377 $1,286,222 $1,276,061 $1,064,636 Total liabilities 1,223,837 1,462,917 1,649,044 $1,405,749 $1,090,267 Long-term obligations 310,040 379,540 455,474 $ 433,706 $ 606,354 Minority interest -- -- 100,461 $ 135,901 $ 142,181 Working capital (623,227) (563,944) (819,284) $ (468,611) $ 5,627 Stockholders' equity (deficiency) 391,510 487,460 (362,822) $ (129,688) $ (25,631)
The following table illustrates the major components of consolidated net sales and net loss from continuing operations:
2001 2000 1999 ---- ---- ---- CONSOLIDATED NET SALES: Metal Arts $ -0- $ -0- $ 10,000 Coating Technology 1,740,440 1,712,000 1,420,000 ----------- ----------- ----------- $ 1,740,440 $ 1,712,000 $ 1,430,000 =========== =========== =========== CONSOLIDATED NET INCOME (LOSS): Metal Arts $ (124,000) $ 801,000 $ (150,000) Coating Technology 55,000 64,000 (118,000) Minority Interest -0- (15,000) 35,000 ----------- ----------- ----------- $ (69,000) $ 850,000 $ (233,000) =========== =========== ===========
-8- 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 2001 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 $55,000 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 $585,696 from NYSERDA/DOE and $10,000 from ALCOA, on this contract. On March 22, 2001, the Company signed a new agreement with NYSERDA to demonstrate the use of Microsmooth(R) for hard anodizing in the amount of $150,000. To date, the Company has received a total of $7,917 on this contract. -9- OPERATING ACTIVITIES Coating Technology has continued the FY 2000 sales and operating earnings trends. 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. 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 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- INDEX TO FINANCIAL STATEMENTS AND SCHEDULES Independent Auditors' Report 1 Consolidated Balance Sheets at June 30, 2001 and 2000 2 - 3 Consolidated Statements of Operations for the years ended June 30, 2001, 2000 and 1999 4 -5 Consolidated Statements of Changes in Stockholders' Equity (Deficiency) for the years ended June 30, 2001, 2000 and 1999 6 - 7 Consolidated Statements of Cash Flows for the years ended June 30, 2001, 2000 and 1999 8 - 9 Notes to Consolidated Financial Statements 10 - 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. -11- 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, 2001 and 2000, and the related consolidated financial statements listed in the accompanying index for each of the years in the three-year period ended June 30, 2001. 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 U.S. 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, 2001 and 2000, 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, 2001, in conformity with U.S. 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. August 14, 2001 -12-
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY Consolidated Balance Sheets June 30, 2001 and 2000 ASSETS 2001 2000 ---- ---- CURRENT ASSETS Cash $ 28,354 $ 95,349 Accounts receivable, trade - less allowance for uncollectible accounts of $10,000 in 2001 and 2000 185,351 278,842 Due from NYSERDA, current portion 28,412 100,446 Prepaid expenses and other current assets 1,453 1,796 Deferred tax asset - less valuation allowance of $30,900 in 2001 and $51,500 in 2000 47,000 43,000 ---------- ---------- 290,570 519,433 ---------- ---------- PROPERTY, PLANT AND EQUIPMENT 2,050,865 1,904,716 Less: Accumulated depreciation and amortization 1,117,593 898,074 ---------- ---------- 933,272 1,006,642 ---------- ---------- OTHER ASSETS Due from shareholder -- 1,554 Due from NYSERDA, long-term portion 25,892 24,544 Operating rights, net of accumulated amortization of $8,710 in 2001 and $7,370 in 2000 11,390 12,730 Other assets 37,196 41,291 Deferred tax asset - less valuation allowance of $253,100 in 2001 and $148,500 in 2000 113,500 125,000 Goodwill - net of accumulated amortization of $31,312 in 2001 and $15,656 in 2000 203,527 219,183 ---------- ---------- 391,505 424,302 ---------- ---------- $1,615,347 $1,950,377 ========== ==========
The accompanying Notes to Consolidated Financial Statements are an integral part these statements -13-
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) 2001 2000 ---- ---- CURRENT LIABILITIES Line of credit $ 68,615 $ -- Current portion of long-term debt 130,834 231,944 Current portion of capital lease obligations 70,007 60,180 Accounts payable, trade 516,241 667,244 Accrued expenses 2,716 5,833 Accrued payroll and related taxes 125,384 107,106 Due to shareholder -- 11,070 Net liabilities of discontinued operations -- 876,798 ----------- ----------- 913,797 1,960,175 ----------- ----------- LONG-TERM LIABILITIES Capital lease obligations, net of current portion 66,818 136,318 Other long-term liability 243,222 243,222 ----------- ----------- 310,040 379,540 ----------- ----------- STOCKHOLDERS' EQUITY (DEFICIENCY) Common stock - $.01 par value, 15,000,000 shares authorized: 7,420,802 shares issued in 2001 and 7,520,802 shares issued in 2000 74,208 75,208 Paid-in capital in excess of par value 2,458,784 2,458,984 Accumulated deficit (2,116,482) (2,923,530) ----------- ----------- 416,510 (389,338) Less: Treasury stock at cost - 50,000 shares in 2001 25,000 -- ----------- ----------- 391,510 (389,338) ----------- ----------- $ 1,615,347 $ 1,950,377 =========== ===========
-14-
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY Consolidated Statements of Operations For the Years Ended June 30, 2001, 2000 and 1999 2001 2000 1999 ---- ---- ---- NET SALES $ 1,740,440 $ 1,712,384 $ 1,429,561 COST OF GOODS SOLD 1,501,230 1,412,745 1,259,476 ----------- ----------- ----------- GROSS PROFIT 239,210 299,639 170,085 ----------- ----------- ----------- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 364,613 366,802 348,292 RESEARCH AND DEVELOPMENT -- -- 7,626 ----------- ----------- ----------- 364,613 366,802 355,918 ----------- ----------- ----------- LOSS FROM OPERATIONS (125,403) (67,163) (185,833) ----------- ----------- ----------- OTHER INCOME (EXPENSE) Life insurance proceeds -- 690,297 -- NYSERDA reimbursement 33,122 315,076 -- Legal settlement income 65,261 -- -- Interest expense (44,105) (69,011) (80,573) Miscellaneous 8,781 -- -- Interest income 519 2,708 82 Minority interest in income of subsidiary -- (14,700) 35,440 ----------- ----------- ----------- 63,578 924,370 (45,051) ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES (61,825) 857,207 (230,884) PROVISION FOR INCOME TAXES 7,925 6,925 2,250 ----------- ----------- ----------- NET INCOME (LOSS) FROM CONTINUING OPERATIONS (69,750) 850,282 (233,134) ----------- ----------- ----------- DISCONTINUED OPERATIONS Income (loss) from operations of The Bastian Company 79,265 (81,220) 76,629 Gain on disposal of The Bastian Company 797,533 -- -- ----------- ----------- ----------- 876,798 (81,220) 76,629 ----------- ----------- ----------- NET INCOME (LOSS) 807,048 769,062 (156,505) =========== =========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral part these statements -15-
2001 2000 1999 ---- ---- ---- EARNINGS PER SHARE Income (loss) from continuing operations $ (.01) $ .11 $ (.03) Income (loss) from discontinued operations .01 (.01) .01 Gain on the disposal of The Bastian Company .11 -- -- ----------- ----------- ----------- Earnings per share of common stock $ .11 $ .10 $ (.02)
-16-
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY Consolidated Statements of Changes in Stockholders' Equity (Deficiency) For the Years Ended June 30, 2001, 2000 and 1999 COMMON STOCK PAID-IN TOTAL NUMBER CAPITAL IN STOCKHOLDERS' OF EXCESS OF ACCUMULATED TREASURY EQUITY SHARES AMOUNT PAR VALUE DEFICIT STOCK (DEFICIENCY) ------ ------ --------- ------- ----- ------------ Balance at June 30, 1998 7,520,802 $ 75,208 $ 2,458,984 $(3,536,087) $ -- $(1,001,895) Net loss for the year -- -- -- (156,505) -- (156,505) ----------- ----------- ----------- ----------- ------------ ----------- Balance at June 30, 1999 7,520,802 75,208 2,458,984 (3,692,592) -- (1,158,400) Net income for the year -- -- -- -- -- -- 769,062 -- 769,062 ----------- ----------- ----------- ----------- ------------ ----------- Balance at June 30, 2000 7,520,802 75,208 2,458,984 (2,923,530) -- (389,338) Shares acquired by subsidiary (225,000) (2,250) (31,500) -- -- (33,750) Shares issued 125,000 1,250 31,300 -- -- 32,550 Purchase of treasury stock -- -- -- -- (25,000) (25,000) Net income for the year -- -- -- 807,048 -- 807,048 ----------- ----------- ----------- ----------- ------------ ----------- Balance at June 30, 2001 7,420,802 $ 74,208 $ 2,458,784 $(2,116,482) $ (25,000) $ 391,510 =========== =========== =========== =========== ============ ===========
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements -17-
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows For the Years Ended June 30, 2001, 2000 and 1999 2001 2000 1999 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) for the year $ 807,048 $ 769,062 $(156,505) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization 236,515 201,923 142,880 Common stock acquired by subsidiary (33,750) -- -- Deferred income taxes 7,500 6,500 1,600 Minority interest in income of subsidiary -- 14,700 (35,440) Gain on disposal of discontinued division (797,533) -- -- Net change in operating assets of discontinued operations (79,265) 81,220 (76,629) Life insurance proceeds -- (701,331) -- Change in operating accounts Accounts receivable 93,491 (83,409) 67,250 Due from NYSERDA 70,686 (80,833) (44,157) Stock subscription receivable -- 7,500 -- Prepaid expenses 343 13,991 11,187 Other assets 4,095 (4,216) 602 Accounts payable (151,003) 117,796 185,744 Accrued expenses (3,117) (2,325) (1,891) Accrued payroll and related taxes 18,278 9,184 50,545 --------- --------- --------- 173,288 349,762 145,186 --------- --------- --------- 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 (146,149) (424,113) (129,433) --------- --------- --------- (146,149) (61,748) (132,574) --------- --------- ---------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements -18-
2001 2000 1999 ---- ---- ---- CASH FLOWS FROM FINANCING ACTIVITIES Advances from (repayments to) shareholder (9,516) (12,430) 28,680 Net proceeds from line of credit 68,615 -- -- Purchase of treasury stock (25,000) -- -- Issuance of common stock 32,550 -- -- Payments on long-term debt (101,110) (146,389) (20,001) Payments on capital lease obligations (59,673) (51,502) (39,009) --------- --------- --------- (94,134) (210,321) (30,330) --------- --------- --------- INCREASE (DECREASE) IN CASH (66,995) 77,693 (17,718) CASH, BEGINNING 95,349 17,656 35,374 --------- --------- --------- CASH, ENDING $ 28,354 $ 95,349 $ 17,656 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for interest $ 47,084 $ 71,111 $ 82,464 ========= ========= ========= Cash paid during the year for income taxes $ 238 $ -- $ 325 ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Acquisition of property and equipment by issuance of capital lease $ -- $ -- $ 99,547 ========= ========= =========
-19- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2001, 2000 and 1999 1. BUSINESS DESCRIPTION The Company and its subsidiary are primarily engaged in the surface coatings and enhancement business. 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. The net liabilities and results of discontinued operations of the Bastian Company have been separately stated in the accompanying financial statements. 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. 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. GOODWILL 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. -20- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2001, 2000 and 1999 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) ------------------------------------------ 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. ADVERTISING The Company expenses the cost of advertising as it is incurred. SHIPPING AND HANDLING Shipping and handling costs are classified as cost of sales in the accompanying statements of operations. RECLASSIFICATIONS Certain reclassifications have been made to the 2000 and 1999 financial statements. The reclassifications do not affect 2000 and 1999 net income as originally reported. 3. DISPOSAL OF SUBSIDIARY On August 23, 2000 the company sold one of its subsidiaries, The Bastian Company. The sale was to a related party. Operating results from The Bastian Company through August 23, 2000 are shown separately in the accompanying income statement. Assets and liabilities of The Bastian Company consisted of the following: -21- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2001, 2000 and 1999 3. DISPOSAL OF SUBSIDIARY (Continued) ---------------------- Accounts receivable (net) $ 107,361 Prepaid expenses 2,900 Inventory 43,009 Property, plant and equipment (net) 198,905 Other assets 1,650 Goodwill (net) 209,246 ----------- Total assets 563,071 Notes payable 235,756 Accounts payable 352,792 Bank overdraft 23,549 Accrued expenses 463,191 Accrued payroll 364,581 ----------- Net liabilities $ (876,798) =========== Assets are shown at their net realizable values. The net liabilities sold have been separately classified in the accompanying balance sheet at June 30, 2000. 4 DUE FROM NYSERDA The Company has entered into various agreements 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 new processes. In another term of the agreement, the Company will be reimbursed by the United States Department of Energy (USDE) for purchases of equipment. Total funding from NYSERDA and the DOE under these agreements total $790,000. To date, the Company has received $608,613 under these agreements. 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. -22- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2001, 2000 and 1999 5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following: 2001 2000 ---- ---- Leasehold improvements $ 37,465 $ 36,061 Machinery and equipment 1,911,218 1,776,989 Furniture and fixtures 90,424 79,908 Vehicles 11,758 11,758 ------------- ------------ $2,050,865 $1,904,716 ========== ========== Depreciation and amortization expense for each of the three years in the period ended June 30, 2001 was $219,519, $184,927 and $136,229, respectively. 6. LONG-TERM DEBT Long-term debt consists of the following:
2001 2000 ---- ---- 8% convertible subordinated debentures were due and payable on June 30, 2001. During 2001, the due date was extended to June 30, 2002. The debentures are subordinated to the Company's senior indebtedness. See Note 11 for conversion provisions. $ 115,834 $ 182,500 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. 15,000 25,000 Note payable was secured by specific equipment. Interest accrued at 6%. The note was refinanced during 2000, with the full amount of interest and principal due by December 31, 2000. Final payment was made December, 2000. - 17,778 Installment note payable was due in monthly payments of $1,667, plus interest at prime plus 1.5% through October, 2000. The note was secured by a general lien on equipment, accounts receivable and inventory and was guaranteed by the stock-holders of Coating Technology, Inc. Final payment was made October, 2000. - 6,666 ------------ ------------ 130,834 231,944 Less: Current portion 130,834 231,944 ------------- ------------ Long-term debt, net of current portion $ - $ - ============= ============
-23- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2001, 2000 and 1999 6. LONG-TERM DEBT (Continued) -------------- The aggregate maturities for all long-term borrowings as of June 30, 2001 are as follows: YEAR AMOUNT 2002 $ 130,834 =========== 7. CAPITAL LEASE OBLIGATIONS The Company maintains various machinery and equipment held under capital lease obligations as follows: 2001 2000 ---- ---- 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. $ 136,825 $ 196,498 Less amount due within one year 70,007 60,180 ------------ ------------- Amount due after one year $ 66,818 $ 136,318 ============ =========== Minimum lease payments for all capital leases as of June 30, 2001 are as follows: YEAR AMOUNT 2002 $ 86,052 2003 63,931 2004 8,328 ------------ Total minimum lease payments 158,311 Less: Amount representing interest and sales tax 21,486 ----------- Present value of net minimum lease payments $ 136,825 =========== Assets held under capital leases are as follows: 2001 2000 ---- ---- Machinery and equipment $ 297,678 $ 297,678 Less: Accumulated depreciation 94,988 65,220 ----------- ----------- $ 202,690 $ 232,458 =========== =========== -24- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2001, 2000 and 1999 8. LINE OF CREDIT The Metal Arts Co., Inc. has entered into a line of credit agreement with a bank with maximum available borrowings of $30,000. The line of credit bears interest at 13.75%, is unsecured and is guaranteed by a shareholder of the Company. The outstanding balance on the line of credit is $19,999 at June 30, 2001. On February 26, 2001, Coating Technology, Inc. entered into a line of credit agreement with a bank with maximum available borrowings of $100,000. The line of credit bears interest at prime plus 1.5% is secured by all assets of Coating Technology, Inc. and is guaranteed by The Metal Arts Company, Inc. The outstanding balance on the line of credit is $48,616 at June 30, 2001. 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, 2001, options on 435,000 shares have been exercised at $.06 per share; leaving options on 415,000 shares available under the plan. 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, 2002. 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 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- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2001, 2000 and 1999 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, 2001 and 2000 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, 1999 and for the year ended June 30, 1999. 13. SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK During the year ended June 30, 2001, Coating Technology, Inc. had one customer who accounted for 23% of consolidated sales. 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. The Company grants credit to its customers, substantially all of whom are manufacturers located in Western New York. Two Coating Technology, Inc. customers comprised 31% of accounts receivable at June 30, 2001. Three Coating Technology, Inc. customers comprised 51% of accounts receivable at June 30, 2000. 14. INCOME TAXES Provision for income taxes was determined as follows:
2001 2000 1999 ---- ---- ---- Income (loss) before income taxes and discontinued operations $ (61,825) $857,207 $(230,884) Excess tax depreciation (8,521) (38,466) (18,439) State income tax (425) (425) (650) Minority interest in income of subsidiary - 14,700 (35,440) Net operating loss carryforward (utilized) 63,210 (161,158) 269,740 Life insurance proceeds - (690,297) - Other 7,561 18,439 15,673 ------------ ----------- ----------- Federal taxable income $ - $ - $ - ============ =============== ============== Federal statutory income tax $ - $ - $ - Federal alternative minimum tax credit - - - State income tax 425 425 650 Deferred 7,500 6,500 1,600 ------------ ------------ ----------- Provision for income taxes $ 7,925 $ 6,925 $ 2,250 =========== =========== ===========
-26- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2001, 2000 and 1999 14. INCOME TAXES (Continued) ------------ 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 $160,500 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, 2001, the Company has the following net operating loss deduction carryforwards available for federal income tax purposes: YEAR OF EXPIRATION AMOUNT ---------- ------ 2010 $ 189,000 2011 152,000 2012 124,000 2013 109,000 2019 269,000 2021 126,000 2022 46,000 ------------- $1,015,000 Coating Technology, Inc. has approximately $150,000 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: 2001 2000 ---- ---- Assets NOL carryforward $ 355,400 $ 328,600 NYS tax credit carryforwards 155,300 107,300 Allowance for doubtful accounts 2,200 2,200 Valuation allowance (284,000) (200,000) ----------- ----------- Net deferred tax assets 228,900 238,100 Liabilities Accelerated depreciation 68,400 70,100 ----------- ----------- $ 160,500 $ 168,000 =========== =========== -27- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2001, 2000 and 1999 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: 2001 2000 ---- ---- Net current deferred tax asset $ 47,000 $ 43,000 Net long-term deferred tax asset 113,500 125,000 ------------ ------------ $ 160,500 $ 168,000 ============ =========== 15. COMMITMENTS Coating Technology has entered into a ten-year lease agreement for its new manufacturing and office space. Monthly rental payments amounted to $5,958 through February 2001. At March 1, 2001 the monthly rental payments were increased to $6,791. In addition, the Company is also responsible for its own utilities. Minimum lease payments as of June 30, 2001 are as follows: YEAR AMOUNT 2002 $ 81,492 2003 81,492 2004 81,492 2005 81,492 2006 81,492 Thereafter 54,328 ------------ $ 461,788 =========== Consolidated rent expense for each of the years ended June 30, 2001, 2000 and 1999 was approximately $74,829, $71,496 and $141,982, respectively. 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, 2001, no fees were due under this agreement. -28- THE METAL ARTS COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2001, 2000 and 1999 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 $3,166 in 2001, $3,178 in 2000 and $2,659 in 1999. 17. RELATED PARTY TRANSACTIONS Amounts due to/from shareholder did not bear interest, were unsecured and had no fixed repayment terms. 18. LEGAL SETTLEMENT INCOME Legal settlement income represents proceeds received on a claim against the estate of a former employee. 19. CONTINGENCY The Company's SEC Form 10Q for the previous four quarters were not timely filed. The effect of the untimely filings cannot be determined. -29-
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, 2001, 2000 and 1999 Balance at Balance beginning Amounts Amounts at end NAME OF DEBTOR OF YEAR ADDITIONS COLLECTED WRITTEN OFF OF YEAR -------------- ------- --------- --------- ----------- ------- June 30, 2001 N/A $ - $ - $ - $ - $ - ==================== =================== ================== ================== ================== June 30, 2000 N/A $ - $ - $ - $ - $ - ==================== =================== ================== ================== ================== June 30, 1999 N/A $ - $ - $ - $ - $ - ==================== =================== ================== ================== ==================
-30-
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT For the Years Ended June 30, 2001, 2000 and 1999 Balance at Balance beginning Additions at end CLASSIFICATION OF YEAR AT COST RETIREMENTS OF YEAR -------------- ------- ------- ----------- ------- June 30, 2001 Leasehold improvements $ 36,061 $ 1,404 $ - $ 37,465 Machinery and equipment 1,776,989 134,229 - 1,911,218 Furniture and fixtures 79,908 10,516 - 90,424 Vehicles 11,758 - - 11,758 ---------------- ------------------ -------------------- ---------------------- $1,904,716 $146,149 $ - $2,050,865 ================ ================== ==================== ====================== 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 ================ ================== ==================== ======================
-31-
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT For the Years Ended June 30, 2001, 2000 and 1999 ADDITIONS BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS AND at end CLASSIFICATION OF YEAR EXPENSES RETIREMENTS OF YEAR -------------- ------- -------- ----------- ------- June 30, 2001 Leasehold improvements $ 24,499 2,680 $ - 27,179 Machinery and equipment 802,671 206,365 - 1,009,036 Furniture and fixtures 68,553 6,711 - 75,264 Vehicles 2,351 3,763 - 6,114 ----------------- -------------------- -------------------- -------------------- $ 898,074 $ 219,519 $ - $ 1,117,593 ================= ==================== ==================== ==================== 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 ================= ==================== ==================== ====================
-32-
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY SCHEDULE VII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the Years Ended June 30, 2001, 2000 and 1999 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, 2001 $ 10,000 $ - $ - $ 10,000 ================= ==================== ==================== ==================== June 30, 2000 $ 10,000 $ - $ - $ 10,000 ================= ==================== ==================== ==================== June 30, 1999 $ 110,000 $ - $ - $ 110,000 ================= ==================== ==================== ====================
-33-
THE METAL ARTS COMPANY, INC. AND SUBSIDIARY SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION For the Years Ended June 30, 2001, 2000 and 1999 ITEM CHARGED TO COSTS AND EXPENSES 2001 2000 1999 ---- ---- ---- Maintenance and repairs $ * $ 24,185 $ 52,726 ================== ===================== ====================== 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
-34- 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 64 President, Chief Executive Officer and Director Albert A. Cauwels 67 Director Ronald L. Feeley 63 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 6 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 11 years with 31 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, 2001. 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. -35- ITEM 11. EXECUTIVE COMPENSATION The aggregate direct remuneration accrued and paid by Metal Arts and Coating Technology, during the fiscal year ended June 30, 2001, 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 $ 65,000 $ 5,000 All Officers and All Officers $160,000 $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 2001. No executive earned more than $100,000 of total compensation. There is no executive committee and all compensation decisions are made by the Board of Directors. There were no loans made to officers, no directors fees and no long term compensation arrangements. There were no outstanding stock option grants to officers at year end. There are no employment agreements. -36- OPTION EXERCISE AND VALUE TABLE
Number of Securities In-the-Money Underlying Options/SARs Shares Unexercised at Fiscal Acquired Value Options/SARs Year-End ($)*** 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 2001 $95,000 $5,000 2000 95,000 5,000 1999 95,000 5,000 Albert A. Cauwels 2001 -0- -0- 2000 -0- -0- 1999 -0- -0- Ronald L. Feeley 2001 65,000 5,000 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. -37- 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, 2001, 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, 2001, 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 578,000 8 997 East Avenue Rochester, New York Albert A. Cauwels 406,551 5 28 Franklin Street Phelps, New York All officers and directors as a group (2) persons 1,825,551 25 (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. -38- 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 2001 Annual Report: 1 and 2. Consolidated Financial Statements and Schedules. (See "INDEX TO FINANCIAL STATEMENTS AND SCHEDULES.") 3. (See "INDEX TO EXHIBITS.") -39- 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: 6-28-02 By: STANLEY J. DAHLE ----------------- Stanley J. Dahle President and Chief Executive Officer Date: 06-28-02 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 06-28-02 STANLEY J. DAHLE and Director ---------------- Stanley J. Dahle ALBERT A. CAUWELS Director 06-28-02 ----------------- Albert A. Cauwels RONALD L. FEELEY Director 06-28-02 ---------------- Ronald L. Feeley -40- 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) 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(e) 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.) 22 Subsidiaries. The subsidiary of the company and the state of incorporation are as follows: (a) Coating Technology incorporated in the State of New York. -41-