10-Q 1 0001.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED MARCH 31, 2000 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) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO --- --- THE NUMBER OF SHARES OF COMMON STOCK, $.01PAR VALUE, OUTSTANDING AT MARCH 31, 2000 WAS 7,407,402. PAGE 1 OF 12 PAGES EXHIBIT INDEX IS ON PAGE 2 THE METAL ARTS COMPANY, INC. INDEX PART I FINANCIAL INFORMATION: Consolidated Condensed Balance Sheets, March 31, 2000 and June 30,1999. 4 and 5 Consolidated Condensed Statements of Operations, Three months and nine months ended March 31, 2000 and 1999. 6 Consolidated Condensed Statement of Cash Flows, and Three months and nine months ended March 31, 2000 and 1999. 7 Notes to Consolidated Condensed Financial Statements. 8 Management's Discussion and Analysis of Financial Condition and Results of Operations. 9 PART II OTHER INFORMATION 10 2 PART I FINANCIAL INFORMATION 3
THE METAL ARTS COMPANY, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) -------------------------------------------------------------------------------- ASSETS 3/31/00 6/30/99 ------- ------- CURRENT ASSETS Cash $ 143,238 $ 17,656 Trade accounts receivable - net 225,143 195,433 Current portion of due from NYSERDA 159,579 30,049 Stock subscription receivable 7,500 7,500 Current portion of deferred tax asset 7,400 7,400 Prepaid expenses and other current assets 2,103 15,787 --------------------------- 544,963 273,825 PROPERTY, PLANT and EQUIPMENT 1,658,953 1,480,60 Less accumulated depreciation (782,447) (713,147) --------------------------- 876,506 767,456 OTHER ASSETS Due from former shareholder 1,554 1,554 Due from shareholder 7,882 0 Due from NYSERDA, net of current portion 22,845 14,108 Cash value of life insurance 11,034 11,034 Operating rights - net 14,070 14,070 Deferred tax asset, net of current portion 167,100 167,100 Goodwill 234,839 0 Other assets 51,589 37,075 --------------------------- 510,913 244,941 --------------------------- TOTAL ASSETS $ 1,932,382 $ 1,286,222 ---------------------------
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THE METAL ARTS COMPANY, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) -------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) ------------------------------------------------- 3/31/00 6/30/99 ------- ------- CURRENT LIABILITIES Accounts payable - trade $ 583,138 $ 548,868 Accrued expenses 8,158 8,158 Accrued payroll and related taxes 105,520 97,922 Accrued commissions 584 580 Due to shareholder 0 23,500 Current portion of long-term debt 305,147 414,081 ------------------------- 1,002,547 1,093,109 LONG-TERM LIABILITIES Long-term debt, net of current portion 151,060 212,252 Other long-term liability 243,222 243,222 ------------------------- 394,282 455,474 MINORITY INTEREST IN SUBSIDIARY 0 100,461 STOCKHOLDERS' EQUITY (DEFICIENCY) Common stock - $.01 par value, 15,000,000 shares authorized; issued and outstanding: 7,520,802 at March 31, 2000 and June 30, 1999 75,208 75,208 Paid-in capital in excess of par value 2,458,984 2,458,984 Accumulated deficit (1,998,639) (2,897,014) ------------------------- 535,553 (362,822) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $ 1,932,382 $ 1,286,222 -------------------------
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THE METAL ARTS COMPANY, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) -------------------------------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, 2000 1999 2000 1999 -------------------------------------------------------- SALES - Net $ 417,068 $ 326,002 $ 1,239,898 $ 1,023,028 COST OF SALES (363,337) (234,469) (1,009,598) (853,100) GROSS MARGIN 53,731 91,533 230,300 169,928 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (57,188) (46,744) (180,484) (162,661) RESEARCH AND DEVELOPMENT 0 0 0 0 -------------------------------------------------------- OPERATING INCOME (LOSS) (3,457) 44,789 49,816 7,267 INTEREST EXPENSE (22,267) (17,937) (68,795) (51,040) INTEREST INCOME 790 1 793 76 R&D EQUIPMENT FUNDING 144,530 0 229,930 0 PROCEEDS OF LIFE INSURANCE CONTRACT 701,331 0 701,331 0 MINORITY INTEREST IN INCOME OF SUBSIDIARY 0 (15,500) (14,700) (12,500) -------------------------------------------------------- 824,384 (33,436) 848,559 (63,464) -------------------------------------------------------- NET INCOME (LOSS) FOR THE PERIOD $ 820,927 $ 11,353 $ 898,375 ($ 56,197) -------------------------------------------------------- WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 7,520,802 7,520,802 7,520,802 7,520,802 EARNINGS PER SHARE OF COMMON STOCK: Net income (loss) for the period $ 0.11 $ 0.00 $ 0.12 ($ 0.01) --------------------------------------------------------
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THE METAL ARTS COMPANY, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) -------------------------------------------------------------------------------- NINE MONTHS ENDED MARCH 31, 2000 1999 ---------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) for the period $ 898,375 ($ 56,197) ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES Depreciation and amortization 69,300 69,300 Research and development equipment funding (229,930) 0 Proceeds of life insurance contract (701,331) 0 Minority interest in income of subsidiary 14,700 12,500 Change in operating accounts: Accounts receivable (167,977) 49,493 Prepaid expenses and other (830) (3,315) Accounts payable 34,270 (50,632) Accrued expenses 0 37,172 Accrued payroll and commissions 7,602 31,501 ---------------------- (75,821) 89,822 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (178,350) (134,188) Research and development equipment funding 229,930 0 Purchase of goodwill (234,839) 0 Purchase of minority interest (115,161) 0 Repayment of advances to shareholder 0 19,734 Proceeds of advances from shareholder 0 10,500 Repayment of advances from shareholder (31,382) 0 Proceeds of life insurance contract 701,331 0 ---------------------- 371,529 (103,954) CASH FLOWS FROM FINANCING ACTIVITIES - Payments on long-term debt (170,126) (29,966) ---------------------- NET INCREASE (DECREASE) IN CASH 125,582 (44,098) CASH - BEGINNING 17,656 35,374 ---------------------- CASH - ENDING $ 143,238 ($ 8,724) ---------------------- Continued
7 THE METAL ARTS COMPANY, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. These statements should be read in conjunction with the audited financial statements and the notes thereto and with Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Form 10-K for the fiscal year ended June 30,1999. In the opinion of management, the accompanying consolidated condensed financial statements contain all adjustments of a normal recurring nature necessary for the fair presentation of the Company's financial position as of March 31, 2000 and the results of operations for the nine months ended March 31, 2000 and 1999. 2. The results of operations for the nine months ended March 31, 2000 are not necessarily indicative of the results to be expected for the full year. 3. Earnings (loss) per share of common stock are computed on the weighed average number of shares outstanding during the nine months ended March 31, 2000 and 1999. The weighted average number of shares outstanding at the end of each period is determined by totaling the number of shares outstanding at the end of each month in the period and dividing the sum by the number of months in the period. 8 THE METAL ARTS COMPANY, INC. ---------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATION ---------------------------------- Certain statements contained in this filing are "forward-looking statements" within the meaning of the Private Securities Litigation reform Act of 1995, such as statements relating to financial results and plans for future business development activities, and are thus prospective. Such forward-looking statements are subject to risks, uncertainties, and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, economic conditions, competition and other uncertainties detailed from time to time in the Company's Securities and Exchange Commission filings. LIQUIDITY AND CAPITAL RESOURCES NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY FUNDING The company signed an agreement with the New York State Energy Research and Development Authority (NYSERDA) dated June 22, 1995 for funding of $325,000 for its new technology. This was done as part of NYSERDA's Industrial Waste Minimization Program. The purpose of the funding is to provide money for the completion of research and development, test trials, commercial demonstrations and commercialization of the technology. To date, the company has received a total of $325,000 on this contract. On June 30, 1998, the company signed a new agreement with NYSERDA to demonstrate the use of Microsmooth(R) for hard anodizing in the amount of $55,000. To date the company has received a total of $50,000 on this contract. On August 12, 1998, the company signed an additional agreement with NYSERDA to demonstrate the Microsmooth(R) process on aluminum automobile wheels. This contract also includes funding from the US Department of Energy with the Aluminum Company of America (ALCOA) as a strategic partner in the effort. The funding from NYSERDA and US DOE totals $640,000. In addition, ALCOA has pledged $100,00 of in-kind material, services and cash. To date the Company has received $250,160 on this contract. OPERATING ACTIVITIES During Fiscal Year 1999 Metal Arts' 70% owned subsidiary, Coating Technology, Inc., experienced a drop in sales from $1,800,000 in F.Y. 1998 to $1,400,000, or 22%. This was caused by two factors: First, the Asia economic turmoil caused a slowdown in manufactured product in Western New York on which Coating Technology relies for its metal finishing operations. Second, the move to a new, larger, modern facility caused disruptions during the second and third quarters. During the first nine months of fiscal year 2000 Coating Technology returned to profitability as sales approached fiscal year 1998 levels. 9 MICROSMOOTH(R) The Company initially applied for a patent on Microsmooth(R), its proprietary activator for plating electroless nickel on aluminum in March, 1994. That application was then split into three separate applications; the chemical formula; the process and the resulting product. Subsequently, and as a result of significant chemical formula modifications, the original formula application was abandoned and a new patent application was filed in June, 1997. On May 19, 1998, the United States Patent office issued patent number 5,753,304 covering the Microsmooth(R) formula and the Microsmooth(R) process. A trademark was issued on the name, Microsmooth(R), on June 30, 1998. On July 30, 1997 the Company entered into an exclusive license agreement with Alyn Corporation, Inc. for Alyn to use the Microsmooth(R) process on Alyn's Boralyn(R) alternate computer memory disks. The company has received no royalties on this agreement to date. On May 3, 1999 the company entered into a subcontract and exclusive license agreement with Alcoa Inc., the largest aluminum company in the world. The subcontract section relates to the U.S. Department of Energy Award and the license section relates to the use of the Microsmooth(R) process for the chrome plating of certain aluminum truck and automobile wheels. If Metal Arts is successful in commercializing its new technology it will be necessary to raise additional capital. The amount of capital required will depend on how rapidly market acceptance might occur. If this does occur, it could result in growth in the company's sales and earnings over the next few years. The company will seek, if commercial sales commence, to raise additional capital in the form of receivables financing, warrant conversion or other investment mechanisms to sustain operations. 10 THE METAL ARTS COMPANY, INC. ---------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATION ---------------------------------- B. RESULTS OF OPERATIONS: The following table illustrates the major components of consolidated net sales and net income (loss). NINE MONTHS ENDED MARCH 31, 2000 1999 ------------------------------ CONSOLIDATED NET SALES Metal Arts $ 0 $ 0 Coating Technology 1,240,000 1,023,000 ------------------------------ 1,240,000 1,023,000 ------------------------------ CONSOLIDATED NET INCOME (LOSS) Metal Arts $ 849,500 ($ 85,200) Minority Interest (14,700) (12,500) Coating Technology 63,500 41,500 ------------------------------ $ 898,300 $ 56,200 ============================== THE METAL ARTS COMPANY, INC. ---------------------------- The net sales for the Company for the nine (9) months ended March 31, 2000 were $0 compared with $0 in the previous year. The Company showed a profit of $849,500 versus a loss of $85,200 in the previous year. COATING TECHNOLOGY, INC. ------------------------ Coating Technology's sales for the nine (9) months ended March 31, 2000 were$1,240,000 as compared with $1,023,000 in the previous year. The Company showed a profit of $63,500 as compared with a profit of $41,500 in the previous year. 11 THE METAL ARTS COMPANY, INC. ---------------------------- Part II - Other Information Item 6 - Exhibits and Reports on Form 8 - K A. Exhibits - None B. Reports on Form 8 - K - None Signatures: Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE METAL ARTS COMPANY, INC. ---------------------------- Date: MAY 15,2000 STANLEY J. DAHLE ------------- ---------------- Stanley J. Dahle President Date: MAY 15,2000 ALBERT A. CAUWELS ------------ ----------------- Albert A. Cauwels Secretary 12