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 DECEMBER 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 STREET 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 DECEMBER 31, 2000 WAS 7,520,802. 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, December 31, 2000 and June 30, 2000. 4 and 5 Consolidated Condensed Statements of Operations, six months ended December 31, 2000 and 1999. 6 Consolidated Condensed Statement of Cash Flows, six months ended December 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 ~~------ 9~~12/3031/00 6/30/00 --------------------------- CURRENT ASSETS Cash $ 5422,~~188~~983 $ 95,349 Trade accounts receivable - net ~~304~~248,~~594~~608 278,842 Current portion of due from NYSERDA 4126,~~143~~358 100,446 Current portion of deferred tax asset 43,000 43,000 Prepaid expenses and other current assets 1,778 1,796 -------------------------- ~~444~~342,~~703~~727 519,433 PROPERTY, PLANT and EQUIPMENT 1,~~947~~983,~~135~~302 1,904,716 Less accumulated depreciation (~~931~~963,~~075~~650) (898,074) -------------------------- 1,~~016~~019,~~060~~652 1,006,642 OTHER ASSETS Due from former shareholder 121,~~554~~293 1,554 Due from NYSERDA, net of current portion 2728,~~209~~363 24,544 Goodwill 219,183 219,183 Operating rights - net 12,730 12,730 Deferred tax asset, net of current portion 125,000 125,000 Other assets 4559,~~822~~749 41,291 -------------------------- ~~431~~466,~~498~~318 424,302 -------------------------- TOTAL ASSETS $ 1,~~892~~828,~~261~~697 $ 1,950,377 ==========================

THE METAL ARTS COMPANY, INC. CONSOLIDATED CONDENSED BALANCED SHEETS (UNAUDITED) -------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) ~~------------------------------------------------- 9~~12/3031/00 6/30/00 -------------------------- CURRENT LIABILITIES Accounts payable - trade $ ~~597~~561,~~516~~522 667,244 Accrued expenses 6,457 5,833 Accrued payroll and related taxes ~~130~~123,~~161~~749 107,106 Current portion of capital lease obligations 60,180 60,180 Due to shareholder 1121,070 11,070 Current portion of long - term debt ~~224~~231,~~944~~849 231,944 -------------------------- 1,~~030~~004,~~328~~827 1,083,377 LONG - TERM LIABILITIES Other long - term liability 243,222 243,222 Capital lease obligations, net of current portion ~~122~~51,~~314~~674 136,318 -------------------------- ~~365~~294,~~536~~896 379,540 STOCKHOLDERS' EQUITY Common stock - $.01 par value, 15,000,000 shares authorized; Issued and outstanding: 7,620,802 and 7,520,802 at ~~September~~December 3031, 2000 and June 30, 2000, 75respectively 76,208 75,208 Treasury Stock (25,000) 0 Paid - in capital in excess of par value 2,~~458~~482,984 2,458,984 Accumulated deficit (2,~~012~~005,~~795~~218) (2,046,732) -------------------------- ~~496~~528,~~397~~974 487,460 -------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,~~892~~828,~~261~~697 $ 1,950,377 ==========================

THE METAL ARTS COMPANY, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) -------------------------------------------------------------------------------- THREE MONTHS ENDED ~~SEPTEMBER~~SIX 30MONTHS ENDED DECEMBER 31, DECEMBER 31, 2000 1999 ~~--------------------------~~2000 1999 SALES - Net $~~499~~ 462,~~327~~725 $~~354~~ 468,~~404~~426 $ 962,052 $ 822,830 COST OF SALES (~~408~~314,~~631~~873) (~~270~~375,~~626~~635) (723,504) (646,261) -------------------------------------------------------- GROSS MARGIN 90147,~~696~~852 8392,~~778~~791 238,548 176,569 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (60160,~~559~~410 (70,678) (52220,~~618~~968) ~~RESEARCH~~(123,298) ~~AND DEVELOPMENT 0 0~~ ------------------------- ~~OPERATING INCOME (LOSS) 30,137 31,160~~ ------------------------------- OPERATING INCOME (LOSS) (12,558) 22,113 17,580 53,271 INTEREST EXPENSE (1315,~~590~~762) (2421,~~973~~555) (29,352) (46,528) INTEREST INCOME ~~232~~192 0 425 3 MISCELLANEOUS INCOME 19,739 0 19,739 0 R&D EQUIPMENT FUNDING 1715,~~158~~965 085,400 33,122 85,400 MINORITY INTEREST IN INCOME OF SUBSIDIARY 0 (59,000) 0 (14,700) -------------------------------------------------------- 320,~~800~~134 ~~(30~~54,~~673)~~845 23,934 24,175 -------------------------------------------------------- NET INCOME (LOSS) FOR PERIOD $ 337,~~937~~576 $ ~~487~~76,958 $ 41,514 $ 77,446 -------------------------------------------------------- WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 7,520,802 7,520,802 7,545,803 7,520,802 EARNINGS PER SHARE OF COMMON STOCK: Net income (loss) for the period $ 0.00 $ 0.0001 $ 0.01 $ 0.01 --------------------------------------------------------

6 THE METAL ARTS COMPANY, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) -------------------------------------------------------------------------------- SIX MONTHS ENDED DECEMBER 31, 2000 1999 ---------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) for the period $ 41,514 $ 77,446 ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES Depreciation and amortization 65,576 46,200 Minority interest in income of subsidiary 0 14,700 Change in operating accounts: Accounts receivable 100,503 (114,344) Prepaid expenses and other (18,440) (3,198) Accounts payable (105,722) 48,423 Accrued expenses 624 (40) Accrued payroll and commissions 16,643 6,969 ---------------------- 100,698 76,156 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (78,586) (48,694) Purchase of treasury stock (25,000) 0 ---------------------- Proceeds of advance from shareholder 10,000 1,500 Advance to former shareholder (19,739) 0 ---------------------- (113,325) (47,194) CASH FLOWS FINANCING ACTIVITIES - Payments on long-term debt (59,739) (34,061) ---------------------- (59,739) (34,061) NET INCREASE IN CASH (72,366) (5,099) CASH - BEGINNING 95,349 17,656 ---------------------- CASH - ENDING $ 22,983 $ 12,557 ---------------------- SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for Interest expense $ 29,352 $ 46,528 ---------------------- SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES Repayment of debenture $ 25,000 $ 0 Issuance of common stock (25,000) 0 ---------------------- Cash paid to retire debenture $ 0 $ 0 ---------------------- 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, 2000. In the opinion of management, the accompanying consolidated condensed financial statements contain all adjustments of a normal recurring nature necessary for the fair presentation of the Company's financial position as of December 31, 2000 and the results of operations for the six months ended December 31, 2000 and 1999. 2. The results of operations for the six months ended December 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 weighted average number of shares outstanding during the six months ended December 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 On January 17, 2000 former Director and President of Coating Technology, Geoffrey A. Rich, died at the age of 50. There were two insurance policies in force at that time. The first, for $350,000, was, by prior agreement, for the purpose of acquiring Mr. Rich's 30% interest in Coating Technology. As a result, Metal Arts Company now owns 100% of Coating Technology. The second, a key man policy, was in the face amount of $350,000, the beneficiary of which was Metal Arts Company. NEW YORK STATE ENERGY RESEARCH AND DEVELOPMENT AUTHORITY AND US DEPARTMENT OF ENERGY FUNDING The company signed an agreement with the New York State Energy Research and Development Authority (NYSERDA) dated June 22, 1995 for funding of $325,000 for its new technology. This was done as part of NYSERDA's Industrial Waste Minimization Program. The purpose of the funding is to provide money for the completion of research and development, test trials, commercial demonstrations and commercialization of the technology. To date, the company has received a total of $325,000 on this contract. On June 30, 1998, the company signed a new agreement with NYSERDA to demonstrate the use of Microsmooth(R) for hard anodizing in the amount of $55,000. To date the company has received a total of $50,000 on this contract. On August 12, 1998, the company signed an additional agreement with NYSERDA to demonstrate the Microsmooth(R) process on aluminum automobile wheels. This contract also includes funding from the US Department of Energy with the Aluminum Company of America (ALCOA) as a strategic partner in the effort. The funding from NYSERDA and US DOE totals $640,000. In addition, ALCOA has pledged $100,000 of in-kind material, services and cash. To date the company has received $584,846 and $10,000 from Alcoa on this contract. OPERATING ACTIVITIES Coating Technology has shown stronger results from FY 2000 in sales and operating earnings. Cash flow was adequate to provide for the acquisition of capital equipment and provide the working capital necessary to run the business. Through the first six months of fiscal year 2001, Coating Technology operated profitably with sufficient resources to sustain operations. 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). SIX MONTHS ENDED DECEMBER 31, 2000 1999 --------------------------- CONSOLIDATED NET SALES Metal Arts $ 0 $ 0 Coating Technology 962,000 823,000 --------------------------- $ 962,000 $ 823,000 =========================== CONSOLIDATED NET INCOME (LOSS) Metal Arts ($ 25,500) $ 43,000 Minority Interest 0 (15,000) Coating Technology 67,000 49,000 --------------------------- $ 41,500 $ 77,000 =========================== THE METAL ARTS COMPANY, INC. The net sales for the Company for the six (6) months ended December 31, 2000 were $0 compared with $0 in the previous year. The Company showed a loss of $25,500 versus a profit of $43,000 in the previous year. COATING TECHNOLOGY, INC. Coating Technology's sales for the six (6) months ended December 31, 2000 were $962,000 as compared with $823,000 in the previous year. The Company showed a profit of $67,000 as compared with a profit of $49,000 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: FEBRUARY 15, 2001 /S/ STANLEY J. DAHLE ------------------- -------------------- Stanley J. Dahle President Date: FEBRUARY 15, 2001 /S/ ALBERT A. CAUWELS ------------------ --------------------- Albert A. Cauwels Secretary 12

THE METAL ARTS COMPANY, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) -------------------------------------------------------------------------------- THREE MONTHS ENDED SEPTEMBER 30, 2000 1999 -------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) for the period $ 33,937 $ 487 ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES Depreciation and amortization 33,000 23,100 Minority interest in income of subsidiary 0 5,700 Change in operating accounts: Accounts receivable 30,886 849 Prepaid expenses and other (4,513) 4,362 Accounts payable (69,727) (6,634) Accrued expenses 624 0 Accrued payroll 23,055 7,812 -------------------- 47,262 35,676 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (42,419) (22,602) Purchase of treasury stock (25,000) 0 -------------------- (67,419) (22,602) CASH FLOWS FINANCING ACTIVITIES - Payments on long-term debt (21,004) (16,586) -------------------- NET INCREASE IN CASH (41,161) (3,512) CASH - BEGINNING 95,349 17,656 -------------------- CASH - ENDING $ 54,188 $ 14,144 -------------------- SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for: Interest expense $ 13,590 $ 24,973 -------------------- SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Accounts payable - trade satisfied $ 0 $ 0 Common stock issued 0 0 -------------------- Cash paid $ 0 $ 0 --------------------

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