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, 2001 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 MARCH 31, 2001 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, March 31, 2001 and June 30, 2000. 4 and 5 Consolidated Condensed Statements of Operations, nine months ended March 31, 2001 and 2000. 6 Consolidated Condensed Statement of Cash Flows, nine months ended March 31, 2001 and 2000. 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 PART I FINANCIAL INFORMATION -3-

THE METAL ARTS COMPANY, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) -------------------------------------------------------------------------------- ASSETS 123/31/0001 6/30/00 --------------------------- CURRENT ASSETS Cash $ 2231,~~983~~161 $ 95,349 Trade accounts receivable - net ~~248~~221,~~608~~638 278,842 Due from Shareholder 120,304 0 Current portion of due from NYSERDA ~~26,358~~0 100,446 Current portion of deferred tax asset 43,000 43,000 Prepaid expenses and other current assets 1,778 1,796 -------------------------- ~~342~~417,~~727~~881 519,433 PROPERTY, PLANT and EQUIPMENT 12,~~983~~034,~~302~~650 1,904,716 Less accumulated depreciation (~~963~~996,650) (898,074) -------------------------- 1,~~019~~038,~~652~~000 1,006,642 OTHER ASSETS Due from former shareholder ~~21,293~~0 1,554 Due from NYSERDA, net of current portion 2822,~~363~~892 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 5951,~~749~~977 41,291 -------------------------- ~~466,318 424,302 --------------------------~~ TOTAL ASSETS $ 1,~~828~~887,~~697~~663 $ 1,950,377 ==========================

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THE METAL ARTS COMPANY, INC. CONSOLIDATED CONDENSED BALANCED SHEETS (UNAUDITED) -------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) 123/31/0001 6/30/00 --------------------------- CURRENT LIABILITIES Accounts payable - trade $ ~~561~~574,~~522~~440 $ 667,244 Accrued expenses 6,457 5,833 Accrued payroll and related taxes ~~123~~149,~~749~~133 107,106 Current portion of capital lease obligations 60,180 60,180 Due to shareholder 2120,~~070~~874 11,070 Current portion of long - term debt ~~231~~229,~~849~~793 231,944 -------------------------- 1,~~004~~040,~~827~~877 1,083,377 LONG - TERM LIABILITIES Other long - term liability 243,222 243,222 Capital lease obligations, net of current portion 5141,~~674~~561 136,318 -------------------------- ~~294~~284,~~896~~783 379,540 STOCKHOLDERS' EQUITY Common stock - $.01 par value, 15,000,000 shares authorized; Issued and outstanding: 7,620,802 and 7,520,802 at ~~December~~March 31, ~~2000~~2001 and June 30, 2000, respectively 76,208 75,208 Treasury Stock (25,000) 0 Paid - in capital in excess of par value 2,482,984 2,458,984 Accumulated deficit (21,~~005~~972,~~218~~189) (2,046,732) -------------------------- ~~528~~562,~~974~~003 487,460 -------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,~~828~~887,~~697~~663 $1,950,377 ==========================

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THE METAL ARTS COMPANY, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) ---------------------------------------------------------------------------------------------- THREE MONTHS ENDED ~~SIX~~NINE MONTHS ENDED ~~DECEMBER~~MARCH 31, ~~DECEMBER~~MARCH 31, 2001 2000 ~~1999~~2001 2000 ~~1999~~-------------------------------------------------------- SALES - Net $ ~~462~~423,~~725~~195 $ ~~468~~417,~~426~~068 $ ~~962~~1,~~052~~385,246 $ ~~822~~1,~~830~~239,898 COST OF SALES (~~314~~429,~~873~~683) (~~375~~363,~~635~~337) (~~723~~1,~~504~~153,187) (~~646~~1,~~261~~009,598) -------------------------------------------------------- GROSS MARGIN ~~147~~(6,~~852~~488) 9253,~~791~~731 ~~238~~232,~~548~~059 ~~176~~230,~~569~~300 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (~~160~~50,~~410~~100) (7057,~~678~~188) (~~220~~271,~~968~~066) (~~123~~180,~~298~~484) RESEARCH AND DEVELOPMENT 0 0 0 0 -------------------------------------------------------- OPERATING INCOME (LOSS) (1256,~~558~~588) 22(3,~~113~~457) 17(39,~~580~~007) 5349,~~271~~816 INTEREST EXPENSE (159,~~762~~481) (2122,~~555~~267) (2938,~~352~~833) (4668,~~528~~795) INTEREST INCOME ~~192~~86 0790 ~~425~~511 3793 ~~MISCELLANEOUS INCOME 19,739 0 19,739 0~~ R&D EQUIPMENT FUNDING ~~15,965~~0 85144,~~400~~530 33,122 85229,~~400~~930 MINORITY INTEREST IN INCOME OF0 ~~SUBSIDIARY~~0 0 (914,~~000~~700) OF SUBSIDIARY SETTLEMENT PROCEEDS 99,011 0 ~~(14~~118,~~700)~~750 0 PROCEEDS OF LIFE INSURANCE CONTRACT 0 701,331 0 701,331 -------------------------------------------------------- 2089,~~134~~616 54824,~~845~~384 23113,~~934~~550 24848,~~175~~559 -------------------------------------------------------- NET INCOME (LOSS) FOR PERIOD $ 733,~~576~~028 ~~$ 76~~820,~~958~~927 $ 4174,~~514~~543 $ 77898,~~446~~375 -------------------------------------------------------- WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 7,~~520~~620,802 7,520,802 7,~~545~~570,~~803~~802 7,520,802 EARNINGS PER SHARE OF COMMON STOCK: Net income (loss) for the period $ 0.00 $ 0.0111 $ 0.01 $ 0.0112 --------------------------------------------------------

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-8- 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 March 31, 2000 and the results of operations for the nine months ended March 31, 2001 and 2000. 2. The results of operations for the nine months ended March 31, 2001 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 nine months ended March 31, 2001 and 2000. 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. -9- 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 an 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 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 $611,200 and $10,000 from Alcoa on this contract. On March 22, 2001 the Company signed an agreement with NYSERDA to further demonstrate the use of Microsmooth(R) for hard anodizing iN the amount of $150,000. This additional funding was granted based on the preliminary results of the 1998-1999 project. -10- 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 nine months of fiscal year 2001, Coating Technology operated profitably with sufficient resources to sustain operations. The Company's principal Financial Institution agreed to provide Coating Technology with a $100,000 line of credit. To date, the Company has drawn down $20,000 to purchase equipment. 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. 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. -11- 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, 2001 2000 -------------------------------- CONSOLIDATED NET SALES Metal Arts $ 0 $ 0 Coating Technology $1,385,000 1,240,000 ------------------------------- $1,385,000 1,240,000 =============================== CONSOLIDATED NET INCOME (LOSS) Metal Arts ($17,500) 849,500 Minority Interest 0 (14,700) Coating Technology 92,000 63,500 ------------------------------- $ 74,500 $898,300 =============================== THE METAL ARTS COMPANY, INC. The net sales for the Company for the nine (9) months ended March 31, 2001 were $0 compared with $0 in the previous year. The Company showed a loss of $17,500 versus a profit of $849,500 in the previous year. COATING TECHNOLOGY, INC. Coating Technology's sales for the nine (9) months ended March 31, 2001 were $1,385,000 as compared with $1,240,000 in the previous year. The Company showed a profit of $92,000 as compared with a profit of $63,500 in the previous year. -12- 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, 2001 STANLEY J. DAHLE -------------- ----------------- Stanley J. Dahle President Date: MAY 15, 2001 ALBERT A. CAUWELS ------------- ------------------ Albert A. Cauwels Secretary -13-

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