<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarter Ended September 30, 1999
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____ to _____
Commission file number 0-30166
CONMAT TECHNOLOGIES, INC.
-------------------------
(Exact name of small business issuer as specified in its charter)
Florida 23-2999072
------- ----------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
Franklin Avenue and Grant Street, Phoenixville, Philadelphia, PA 19460
----------------------------------------------------------------------
(Address of Principal Executive Offices)
(610) 935-0225
--------------
(Registrant's telephone number, including area 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 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 [ ] NO [X]
Transitional Small Business Format: YES [ ] NO [X]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Common Stock, $0.001 par value, outstanding on November 10, 1999: 2,175,000
shares
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TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements 3
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Change in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
2
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Item 1. Financial Statements
CONMAT TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1999 & January 2, 1999
<TABLE>
<CAPTION>
ASSETS SEPT. 30, 1999 JAN. 2, 1999
------ -------------- ------------
(unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 55,641 $ 29,430
Accounts receivable - Trade, net of allowance for 4,624,494 2,622,261
doubtful accounts
Inventories 992,008 1,159,545
Prepaid expenses and other 60,342 14,768
Prepaid income taxes 14,777 35,577
---------- ----------
Total current assets $5,747,262 $3,861,581
Property, plant and equipment, at cost $1,929,871 $1,892,768
Less accumulated depreciation (824,165) 1,105,706 (703,945) 1,188,823
---------- ----------
Deferred income taxes 78,493 78,493
Other assets 406,518 386,128
---------- ----------
Total assets $7,337,979 $5,515,025
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $2,162,462 $1,398,632
Current portion of long-term debt 444,151 625,260
Current portion of capital lease obligations 101,783 103,744
Accounts payable 1,429,259 1,183,913
Accrued expenses 283,514 302,374
Dividends payable 30,000 0
---------- ----------
Total current liabilities 4,451,169 3,613,923
Long-term debt 2,887,118 2,075,775
Obligations under capital leases 111,339 151,761
Other liabilities 206,400 181,900
---------- ----------
Total liabilities 7,656,026 6,023,359
---------- ----------
Preferred stock, Series B - 166,667 shares issued and outstanding 500,000 500,000
Stockholders' equity (deficiency)
Preferred stock, $.001 par value 10,000,000 shares authorized
Series A preferred stock, 1,073,333 shares and 1,386,666
issued and outstanding, respectively 1,073 1,386
Common stock, $.0001 par value, 40,000,000 shares authorized, 2,250 2,250
2,250,000 shares issued and outstanding
Additional paid-in capital (472,175) (472,486)
Accumulated earnings (deficit) (299,195) (489,482)
Less note receivable for shares sold (50,000) (50,000)
---------- ----------
Total stockholders' equity (deficiency) (818,047) (1,008,332)
---------- ----------
Total liabilities and stockholders' equity $7,337,979 $5,515,025
========== ==========
</TABLE>
3
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CONMAT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
9 Months Ended 9 Months Ended 3 Months Ended 3 Months Ended
Sept. 30, 1999 Sept. 30, 1998 Sept. 30, 1999 Sept. 30, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue:
Sales to customers $8,797,902 $6,919,162 $2,804,880 $2,517,069
Cost of goods sold 6,240,828 5,171,466 1,864,001 1,769,007
---------- ---------- ---------- ----------
Gross profit 2,557,074 1,747,696 940,879 748,062
Selling, general and administrative expenses 1,775,822 1,651,921 646,607 669,357
Corporate expense 183,816 360,000 65,274 120,000
---------- ---------- ---------- ----------
Operating (loss) income 597,436 (264,225) 228,998 (41,295)
Interest expense (385,391) (340,830) (141,360) (123,191)
Rental income 141,241 141,044 44,367 44,450
---------- ---------- ---------- ----------
Profit (loss) before income tax expense 353,286 (464,011) 132,005 (120,036)
Income tax expense (133,000) 0 (52,700) 0
---------- ---------- ---------- ----------
NET EARNINGS (LOSS) $ 220,286 ($ 464,011) $ 79,305 ($ 120,036)
Dividend requirements on Series B preferred
stock 30,000 0 10,000 0
Basic earnings per share $0.08 $0.23 $0.03 $0.06
Weighted average number of common shares
outstanding 2,250,000 2,000,000 2,250,000 2,000,000
Diluted earnings per share $0.08 ($0.23) $0.02 ($0.06)
Weighted average number of common and
common equivalent shares outstanding 2,691,746 2,000,000 3,575,239 2,000,000
</TABLE>
4
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CONMAT TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------------
1999 1998
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 220,286 ($464,011)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization 197,353 244,899
Changes in assets and liabilities, net of effect from
acquisitions
(Increase) decrease in assets
Accounts receivable (1,849,212) 216,624
Inventories 167,537 312,158
Prepaid expenses (45,574) 58,342
Prepaid income taxes 132,700 0
Patents, (net) (15,242) (40,629)
Deferred finance charges (92,705) (166,661)
Increase (decrease) in liabilities
Accounts payable 245,346 40,597
Accrued expenses (106,258) (100,583)
Dividend payable 0 0
----------- ----------
Net cash provided by (used in)
operating expenses (1,145,769) 100,736
----------- ----------
Cash flows from investing activities:
Purchase of property and equipment (40,035) (163,528)
----------- ----------
Net cash used in investing activities (40,035) (163,528)
----------- ----------
Cash flows from financing activities:
Net (repayment) borrowing under lines of credit 763,830 141,482
Repayment of term notes (1,247,944) (1,520,907)
Repayment of capital lease obligations (87,538) (59,774)
Proceeds from mortgage obligation 1,878,178 0
Proceeds from capital lease obligations 45,000 138,420
Proceeds from term notes 0 1,800,000
Recapitalization costs (139,511) 0
Capital distribution 0 (250,000)
----------- ----------
Net cash provided by financing activities
1,212,015 249,221
----------- ----------
NET INCREASE IN CASH & CASH EQUIVALENTS 26,211 186,429
Cash and cash equivalents at beginning of year 29,430 63,840
----------- ----------
Cash and cash equivalents at end of period $ 55,641 $ 250,269
=========== ==========
</TABLE>
5
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ConMat Technologies, Inc and Subsidiary
NOTES TO FINANCIAL STATEMENTS
NOTE A - INTERIM FINANCIAL INFORMATION
The financial statements of ConMat Technologies, Inc. ("ConMat") as of September
30, 1999 and for the nine and three months ended September 30, 1999 and 1998 and
related footnote information are unaudited. All adjustments (consisting only of
normal recurring adjustments) have been made which, in the opinion of
management, are necessary for a fair presentation. Results of operations for the
nine months ended September 30, 1999 are not necessarily indicative of the
results that may be expected for any future period.
NOTE B - CHANGES IN SECURITIES
On June 29, 1999, Polychem Corporation, the wholly owned subsidiary of ConMat
("Polychem"), foreclosed on a note due it from The Eastwind Group, Inc.
("Eastwind") due to default by Eastwind on the obligation. As settlement,
Polychem took possession of 313,333 shares of Series A Convertible Preferred
Stock of ConMat which had been pledged as collateral. The transaction was
recorded as a reduction in outstanding Series A Convertible Preferred Shares.
NOTE C - EARNINGS (LOSS) PER SHARE
ConMat reports earnings per share in accordance with the provisions of SFAS No.
128, Earnings Per Share. SFAS No. 128 requires presentation of basic and diluted
earnings per share in conjunction with the disclosure of the methodology used in
computing such earnings per share. Basic earnings per share excludes dilution
and is computed by dividing income available to common shareholders by the
weighted average common shares outstanding during the period. Diluted earnings
per share takes into account the potential dilution that could occur if
securities or other contracts to issue common stock were exercised and converted
into common stock.
The following are basic and diluted earnings per share calculations for the
periods presented:
6
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Quarter Ended September 30, 1999
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Net Earnings.................... $79,305
Less Preferred Stock
Dividends....................... (10,000)
--------
Basic EPS
Income available to Common
stockholders.................... 69,305 2,350,000 $.03
====
Effect of dilutive securities
Convertible Preferred
Stock........................... 10,000 1,240,000
Warrants........................ 23,810
Options......................... 61,429
---------
Diluted EPS
Income available to Common
stockholders.................... $79,305 3,575,239 $.02
======== ========= ====
</TABLE>
Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
Income Shares Per Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Net Earnings.................... $220,286
Less Preferred Stock
Dividends....................... (30,000)
Basic EPS
Income available to Common
stockholders.................... 190,286 2,255,000 $.08
====
Effect of dilutive securities
Convertible Preferred Stock..... 30,000 413,333
Warrants........................ 7,937
Options......................... 20,476
---------
Diluted EPS
Income available to Common
stockholders ................... $220,286 2,691,746 $.08
======== ========= ====
</TABLE>
7
<PAGE>
Item 2. Management Discussion and Analysis of Financial Condition
an Results of Operations.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-QSB contains certain forward-looking statements regarding, among
other things, the anticipated financial and operating results of ConMat
Technologies, Inc. ("ConMat") and its wholly owned subsidiary, Polychem
Corporation (Polychem"). For this purpose, forward looking statements are any
statements contained herein that are not statements of historical fact and
include, but are not limited to, those preceded by or that include the words,
"believe", "may", "will", "estimate", "continue", "intend", "plan", "expect",
"anticipate" or similar expressions. In connection with the "safe harbor"
provisions in the Private Securities Litigation Reform Act of 1995, ConMat is
including this cautionary statement identifying important factors that could
cause ConMat's actual results to differ materially from those projected in
forward looking statements made by, or on behalf of ConMat. Although ConMat
believes that the forward-looking statements contained herein are reasonable, it
can give no assurance that ConMat's expectations will be met. All
forward-looking statements are expressly qualified in their entirety by this
cautionary statement.
Results of Operations
Three Month Periods Ended September 30, 1999 and September 30, 1998
The following table sets forth certain statement of operation items as a
percentage of total sales for the period indicated:
Three Months Ended Sept 30
--------------------------
1999 1998
---- ----
Sales.......................................... 100.0% 100.0%
Cost of Goods Sold............................. 66.5 70.3
Gross Profit................................... 33.5 29.7
Selling and Administrative..................... 23.0 26.6
Interest Expense.............................. 5.0 4.9
Other Expense.................................. 0.7 3.0
Income Tax..................................... 1.9 --
----- -----
Income (Loss).................................. 2.9 (4.8)
===== =====
8
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"Cost of Goods Sold" is determined as the sum of material costs, direct
manufacturing labor costs, and an allocation of utilities and other overhead
costs attributable to manufacturing activities.
Total revenues increased by $288,000 or 11.4% to $2,805,000 for the three months
ended September 30, 1999 ("Current Quarter") from $2,517,000 for the three
months September 30, 1998 ("Comparable Quarter"). This increase is attributable
to Polychem's successful effort to increase market penetration internationally
where it has previously done business as well as increased volume from the
domestic market. As a result of these efforts, Polychem entered the Current
Quarter with an order backlog of $6,134,000 compared to $4,766,000 for the
Comparable Quarter, an increase of 29%. This increased backlog is the basis for
increased revenues.
Gross profit increased by $193,000 or 25.8% to $941,000 for the Current Quarter
from $748,000 for the Comparable Quarter. Gross profit increased as a percentage
of sales to 33.5% for the Current Quarter from 29.7% for the Comparable Quarter.
These increases are a result of increased utilization of existing plant capacity
as the result of which increased production did not require substantial
increases in manufacturing costs, as well as the ongoing effect of several cost
saving measures implemented by management. These measures include improved
productivity as a result of mechanization through new equipment purchases. This
increase in productivity allows Polychem to maintain the same level of
production with lower direct labor costs (wages expended on skilled and
unskilled workers that are allocated directly to a particular unit). While
difficult to quantify, improved productivity arising from the purchase of new
automated machinery should yield approximately $25,000 to $37,500 in quarterly
cost savings. Further, Polychem has internalized previously outsourced
production resulting in lower material costs. Management estimates cost savings
of $12,500 to $25,000 quarterly from this reduced outsourcing.
Selling and administrative expenses decreased by $23,000, or 3.4% to $646,000
for the Current Quarter from $669,000 for the Comparable Quarter. As a
percentage of revenues, selling and administrative expenses decreased to 23.0%
for the Current Quarter from 26.6% of total revenues for the Comparable Quarter.
Management is closely monitoring selling and administrative expenses and expects
such expenses to decrease as a percentage of sales in future periods due to
expected increased revenues due to the realization of benefits from expenditures
made in late 1997 and early 1998 in an effort to increase Polychem's global
sales focus, including the hiring of additional sales personnel. As the efforts
of Polychem's global sales force progress, Polychem anticipates increased
revenues without significant increases in selling and
9
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administrative expenses. This is reflected in the decrease in selling and
administrative expenses as a percentage of revenues experienced in the Current
Quarter.
Interest expense for the Current Quarter increased $18,000 or 14.6%, to $141,000
from $123,000 for the Comparable Quarter. This higher cost reflects ConMat's
increased borrowing on its working capital line to finance increased receivables
and inventory arising from increased volume. Interest costs as a percentage of
total revenues increased to 5.0% in the Current Quarter compared to 4.9% in the
Comparable Quarter.
ConMat realized a profit of $79,000 and a net cash surplus of $18,000 for the
Current Quarter. For the Comparable Quarter, ConMat experienced a loss of
$205,000 and a net cash surplus of $269,000. The improved profitability is a
direct result of increased revenues. At the current level of revenues, ConMat is
operating above its break-even point. The decrease in net cash realized is the
result of both a single receivable of approximately $1.3 million for which
payment has been delayed by ninety days and the reduction of outstanding trade
payables of $265,000 from proceeds of the mortgage financing. ConMat expects to
collect a material portion of this receivable by year-end.
Nine Month Periods Ended September 30, 1999 and September 30, 1998
The following table sets forth certain statement of operation items as a
percentage of total sales for the period indicated:
Nine Months Ended Sept 30
-------------------------
1999 1998
---- ----
Sales....................................... 100.0% 100.0%
Cost of Goods Sold.......................... 70.9 74.7
Gross Profit................................ 29.1 25.3
Selling and Administrative.................. 20.2 23.8
Interest Expense............................ 4.4 4.8
Other Expense............................... 0.5 3.4
Income Tax.................................. 1.3 --
----- -----
Income (Loss)............................... 2.5 (6.7)
===== =====
10
<PAGE>
Total revenues increased by $1,878,000 or 27% to $8,798,000 for the nine months
ended September 30, 1999 ("Current Period") from $6,920,000 for the nine months
September 30, 1998 (Comparable Period"). This increase is attributable to
Polychem's successful effort to increase market penetration internationally
where it has previously done business as well as increased volume from the
domestic market. In the Current Period, Polychem realized revenues in excess of
$500,000 from international markets in which it had previously never consummated
sales. This included $400,000 in South America, primarily Columbia, and over
$100,000 in the Middle East, including Egypt and Dubai. Additionally, Polychem
realized increased domestic revenues, primarily out of the West and Southwestern
regions of the United States where there has been increased spending on water
treatment projects and where Polychem has a strong marketing presence.
Gross profit increased by $809,000 or 46.3% to $2,557,000 for the Current Period
from $1,748,000 for the Comparable Period. Gross profit increased as a
percentage of sales to 29.1% for the Current Period from 25.3% for the
Comparable Period. These increases are a result of increased utilization of
existing plant capacity as the result of which increased production did not
require substantial increases in manufacturing costs, as well as the ongoing
effect of several cost saving measures implemented by management. These measures
include improved productivity as a result of mechanization through new equipment
purchases. This increase in productivity allows Polychem to maintain the same
level of production with lower direct labor costs (wages expended on skilled and
unskilled workers that are allocated directly to a particular unit). While
difficult to quantify, improved productivity arising from the purchase of new
automated machinery should yield approximately $100,000 to $150,000 in annual
cost savings. Further, Polychem has internalized previously outsourced
production resulting in lower material costs. Management estimates cost savings
of $50,000 to $100,000 annually from this reduced outsourcing.
Selling and administrative expenses increased by $123,000, or 7.4% to $1,775,000
for the Current Period from $1,652,000 for the Comparable Period. This increase
reflects one-time charges of $88,000 related to the Polychem acquisition. As a
percentage of revenues, however, selling and administrative expenses decreased
to 20.2% for the Current Period from 23.8% of total revenues for the Comparable
Period. Management is closely monitoring selling and administrative expenses and
expects such expenses to decrease as a percentage of sales in future periods due
to expected increased revenues due to the realization of benefits from
expenditures made in late 1997 and early 1998 in an effort to increase
Polychem's global sales focus, including the hiring of additional sales
personnel. As the efforts of Polychem's global sales force progress, Polychem
anticipates increased revenues without significant increases in selling and
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administrative expenses. This is reflected in the decrease in selling and
administrative expenses as a percentage of revenues experienced in Current
Period.
Interest expense for the Current Period increased $45,000 or 13.2%, to $385,000
from $340,000 for the Comparable Period. This higher cost reflects ConMat's
increased borrowing on its working capital line to finance increased receivables
and inventory arising from increased volume. Interest costs as a percentage of
total revenues declined to 4.4% in the Current period compared to 4.8% in the
Comparable Period.
Liquidity and Capital Resources
ConMat realized a profit of $220,000 and a net cash surplus of $26,000 for the
Current Period. For the Comparable Period, ConMat experienced a loss of $464,000
and a net cash surplus of $186,000. The improved profitability is a direct
result of increased revenues. At the current level of revenues, ConMat is
operating above its break-even point. The decrease in net cash realized is the
result of both a large increase in accounts receivable resulting from increased
volume and a single receivable of approximately $1.3 million for which payment
has been delayed by ninety days. ConMat expects to collect a material portion of
this receivable by year-end.
ConMat's primary source of working capital is a credit facility of up to $5.0
million secured by Polychem's assets with borrowings limited to a percent of
eligible receivables and inventory. As of September 30, 1999, the maximum
borrowing amount was $2,548,000 and the outstanding balance was $2,162,000.
Management believes that ConMat has sufficient assets, equipment and facility to
attain and absorb forecasted growth in revenues. ConMat has no commitments for
significant capital expenditures in the foreseeable future. Management believes
that ConMat's cash and capital resources, together with cash flow from
operations, will be sufficient to finance current and forecasted operations
including its capital spending and research and development needs. ConMat is,
however, actively seeking potential strategic acquisitions and, depending on the
size and terms of any such acquisitions, additional financing, including equity
infusions for ConMat, may be required.
ConMat has completed a mortgage financing with the Public School Retirees
Pension Fund on Polychem's Phoenixville, Pennsylvania property. Proceeds of the
$1.88 million mortgage were used to prepay the majority of the balance of the
outstanding term loan to GE Capital and fund working capital needs. The
financing will result in lower debt service costs and eventually increased
capital reserves.
12
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In addition, at September 30, 1999, ConMat had significant net operating loss
carry forwards which expire in periods up to 2018. ConMat has recorded a
valuation allowance to reflect a net deferred tax asset that management believes
is realizable in future tax years from income from operations. Management's
expectations with respect to the realization of the net deferred tax asset are
based on the realization of a net profit for the Current Period, the current
operation of ConMat above its break-even point and Polychem's significant booked
order backlog. However, no assurances can be given that ConMat will generate
sufficient profits to utilize the net operating loss carry forwards. If ConMat
is unable to realize the net deferred tax asset, it will be charged off as an
expense and removed as an asset from ConMat's consolidated balance sheet.
During the nine months ended September 30, 1999, ConMat realized net cash from
all sources of $26,000. During the same period, ConMat saw an increase in
operating capital requirements of $1,116,000. This increased requirement was
generated primarily from an increase in accounts receivable of $1,849,000
resulting from increased revenues and delay in payment of a single $1.3 million
receivable. This increase in accounts receivable was offset by an increase in
accounts payable of $245,000. ConMat's operating capital needs for the nine
months ended September 30, 1999 was sufficiently financed by its current credit
facility. Cash flow from investing activities included expenditures for new
equipment of $40,000. Financing activities included proceeds from the mortgage
financing of 1,880,000 with a corresponding repayment of principal on
outstanding debt of $1,248,000. ConMat had net borrowings of $764,000 reflecting
primarily draws on its working capital line to fund its working capital
requirements.
Year 2000 Compliance
Changing from the year 1999 to 2000 has the potential to cause problems in data
processing and other date-sensitive systems. The Year 2000 date change can
affect any system that uses computer software programs or computer chips,
including automated equipment and machinery. The Year 2000 problem is the result
of computer programs using two digits rather than four to define the year. Any
of Polychem's programs that are time sensitive may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations. At Polychem, computer systems are used to run all
administrative and key design and manufacturing functions. Computer software and
computer chips also are used to run security systems, communications networks
and other essential equipment. Because of its reliance on these systems,
Polychem is following a process to assure that such systems are ready for the
Year 2000 date change.
In June 1998, Polychem entered into an agreement with IBM Corporation and IBM's
authorized software licensee for systems, CNA Systems, Incorporated. Polychem
entered into the agreement, in part, to initiate a Year 2000 plan to ensure that
Polychem's existing information
13
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systems were Year 2000 compliant. In connection with the agreement, Polychem has
upgraded its computer system from an IBM System 36 AS/400 and has purchased new
software applications relating to sales and marketing, manufacturing, financial
management, materials management, quality control and management information
support systems.
During the fourth quarter of 1998, Polychem commenced the editing and
reprogramming of its existing databases. During the first quarter of 1999,
Polychem commenced testing of inter- modular software applications, using the
revised databases. Polychem is currently running parallel with this system and
will complete its Year 2000 preparation by December 1, 1999. In connection with
the foregoing, Polychem has completed its assessment of which systems and
equipment are most prone to placing Polychem at risk if they are not Year 2000
compliant (i.e., mission critical systems).
Significant vendors have been requested to advise Polychem in writing of their
Year 2000 readiness, including actions to become compliant if they are not
already compliant. Vendors who provide significant technology-related services
to Polychem have modified their system to become Year 2000 compliant. The
monitoring of certain vendors will continue into the remainder of 1999.
Polychem has completed contingency plan for how Polychem would resume business
if unanticipated problems arise from non-performance by vendors.
Polychem spent $125,000 during the year ending December 31, 1998 and $45,000
during the nine months ended September 30, 1999, relating to costs incurred as a
result of its Year 2000 Plan. Polychem anticipates incurring approximately
$10,000 in additional costs related to the implementation of the Year 2000 plan.
Management presently believes the Year 2000 issue will not pose significant
operating problems for Polychem. However, if implementation and testing plans
are not completed in a satisfactory and timely manner by Polychem or third
parties on which Polychem is dependent, or other unforeseen problems arise, the
Year 2000 issue could potentially have an adverse effect on the operations of
Polychem.
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PART II
Item 1. Legal Proceedings.
ConMat is currently a defendant in a Pennsylvania state court
action filed on January 28, 1999, captioned John R. Thach v.
The Eastwind Group, et al. (Montgomery County C.C.P., Civil
Action No. 99- 01195). Plaintiff maintains that Eastwind, his
former employer, breached the terms of his severance agreement
and that the sale of Polychem to ConMat was part of a
conspiracy to avoid payments to him and has violated
Pennsylvania's Uniform Fraudulent Transfer Act. The plaintiff
seeks damages of at least $350,0000 and punitive damages of at
least $500,000. In addition, the plaintiff seeks to have the
acquisition of Polychem declared null and void and to have a
receiver appointed to oversee the affairs of Eastwind,
Polychem and ConMat. Among the other named defendants is Paul
A. DeJuliis, President of ConMat and the former Chief
Executive Officer of Eastwind.
Initially, the plaintiff sought a temporary restraining order
and preliminary injunction seeking to set aside the sale of
Polychem to ConMat. By Order dated February 19, 1999, the
Court denied plaintiff's request for injunctive relief. ConMat
and Paul A. DeJuliis subsequently filed preliminary objections
to the complaint seeking to have themselves dismissed as
parties to the action. The parties have submitted briefs
relating to ConMat's preliminary objections and a decision by
the Court is pending.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
15
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Item 5. Other Information.
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
----------- -----------
27. Financial Data Schedule
(b) ConMat did not file any reports on Form 8-K during
the quarter for which this report is filed.
16
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SIGNATURES
In accordance with 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, hereunto duly authorized.
CONMAT TECHNOLOGIES, INC.
Date: November 11, 1999 By:/s/ Paul A. DeJuliis
---------------------
Paul a. DeJuliis,
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 11, 1999 By:/s/ William Crighton
--------------------
William Crighton,
Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
<PAGE>
Exhibit Index
Exhibit
Number Description
------- -----------
27 Financial Data Schedule.
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THIS REPORT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1999 DEC-31-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998 SEP-30-1999 SEP-30-1998
<CASH> 55,641 0 55,641 0
<SECURITIES> 0 0 0 0
<RECEIVABLES> 4,624,494 0 4,624,494 0
<ALLOWANCES> 0 0 0 0
<INVENTORY> 992,008 0 992,008 0
<CURRENT-ASSETS> 5,747,262 0 5,747,262 0
<PP&E> 1,929,871 0 1,929,871 0
<DEPRECIATION> 824,185 0 824,165 0
<TOTAL-ASSETS> 7,337,979 0 7,337,979 0
<CURRENT-LIABILITIES> 4,451,169 0 4,451,169 0
<BONDS> 0 0 0 0
500,000 0 500,000 0
1,073 0 1,073 0
<COMMON> 2,250 0 2,250 0
<OTHER-SE> (814,724) 0 (814,724) 0
<TOTAL-LIABILITY-AND-EQUITY> 0 0 0 0
<SALES> 2,804,880 2,517,069 8,797,902 6,919,162
<TOTAL-REVENUES> 2,804,880 2,517,069 8,797,902 6,919,162
<CGS> 1,864,001 1,769,007 6,240,828 5,171,466
<TOTAL-COSTS> 1,864,001 1,769,007 6,240,828 5,171,466
<OTHER-EXPENSES> 667,514 744,907 1,818,397 1,870,877
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 141,360 123,191 385,391 340,830
<INCOME-PRETAX> 132,005 (120,036) 353,286 (464,011)
<INCOME-TAX> 52,700 0 133,000 0
<INCOME-CONTINUING> 79,305 (120,036) 220,286 (464,011)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 79,305 (120,036) 220,286 (464,011)
<EPS-BASIC> 0.02 (0.06) 0.08 (0.23)
<EPS-DILUTED> 0.02 (0.06) 0.08 (0.23)
</TABLE>
