<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, 2000
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
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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, 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 [X] NO [ ]
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, 2000: 2,258,333
shares
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
September 30, 2000 and December 31, 1999 3
Consolidated Condensed Statements of Operations -
Three and Nine Months Ended September 30,
2000 and 1999 4
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended September 30, 2000 and 1999 5-6
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES
</TABLE>
2
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PART I
Item 1. Financial Statements.
ConMat Technologies, Inc. and Subsidiary
Consolidated Condensed Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
----------- -----------
Current Assets: (Unaudited) (Audited)
<S> <C> <C>
Cash and cash equivalents $ 227,610 $ 101,592
Accounts receivable - net 4,118,590 4,569,426
Inventories 1,429,726 1,275,042
Prepaid expenses 171,694 58,341
----------- -----------
Total Current Assets 5,947,620 6,004,401
Property, Plant & Equipment - net 1,128,130 1,010,748
Deferred Income Taxes 78,493 78,493
Other Assets 275,881 264,696
----------- -----------
Total Assets $ 7,430,124 $ 7,358,338
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit $ 1,928,067 $ 2,127,628
Current portion of long-term debt 608,804 444,641
Current portion of capital lease obligations 71,967 95,461
Accounts payable 2,247,275 1,722,364
Accrued expenses 518,116 447,778
----------- -----------
Total Current Liabilities 5,374,229 4,837,872
Long-Term Debt 2,440,944 2,775,771
Obligations Under Capital Leases 39,372 86,625
Other Liabilities 176,235 176,900
----------- -----------
Total Liabilities 8,030,780 7,877,168
=========== ===========
Series B Preferred Stock - $.001 par value, 166,667
shares issued and outstanding 500,000 500,000
Stockholders' Equity (Deficiency):
Series A preferred stock - $.001 par value, 10,000,000
shares authorized, 735,000 and 1,073,000 shares
issued and outstanding 735 1,073
Series C preferred stock - $.001 par value, 382,500
shares authorized, issued and outstanding 383 0
Common stock - $.001 par value, 40,000,000 shares
authorized, 2,541,666 and 2,250,000 shares issued,
2,258,333 and 2,250,000 outstanding 2,542 2,250
Additional paid-in capital (653,914) (666,986)
Accumulated deficit (400,402) (305,167)
Less: Note receivable for shares sold (50,000) (50,000)
----------- -----------
Total Stockholders' Deficiency (1,100,656) (1,018,830)
----------- -----------
Total Liabilities and Stockholders' Deficiency $ 7,430,124 $ 7,358,338
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements
3
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ConMat Technologies, Inc. and Subsidiary
Consolidated Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Sept 30, Nine Months Ended Sept 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales to Customers $ 3,420,121 $ 2,935,842 $ 9,698,143 $ 9,117,533
Cost of Goods Sold 2,790,283 1,916,339 7,469,936 6,431,022
----------- ----------- ----------- -----------
Gross Profit 629,838 1,019,503 2,228,207 2,686,511
Selling, General and Administrative Expenses 585,698 725,231 1,710,427 1,905,259
Corporate Expenses 204,714 65,274 404,520 183,816
----------- ----------- ----------- -----------
Operating (Loss) Income (160,574) 228,998 113,260 597,436
Other Income (Expense):
Interest expense (127,151) (141,360) (382,980) (385,391)
Rental income 57,061 44,367 182,685 141,241
----------- ----------- ----------- -----------
(Loss) Income Before Tax Expense (230,664) 132,005 (87,035) 353,286
Income Tax (Benefit) Expense (92,000) 52,700 (21,800) 133,000
----------- ----------- ----------- -----------
Net (Loss) Income $ (138,664) $ 79,305 $ (65,235) $ 220,286
=========== =========== =========== ===========
Net (loss) earnings per Common Share:
Basic $ (0.07) $ 0.03 $ (0.04) $ 0.08
=========== =========== =========== ===========
Diluted $ (0.07) $ 0.02 $ (0.04) $ 0.08
=========== =========== =========== ===========
Weighted average number of common shares outstanding:
Basic 2,256,355 2,350,000 2,224,316 2,255,000
=========== =========== =========== ===========
Diluted 2,256,355 3,675,239 2,224,316 2,696,746
=========== =========== =========== ===========
</TABLE>
See notes to consolidated condensed financial statements
4
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ConMat Technologies, Inc. and Subsidiary
Consolidated Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net (loss) earnings $ (65,235) $ 220,286
Adjustments to reconcile to net cash provided by (used in)
operating activities:
Depreciation and amortization 212,425 197,353
Changes in assets and liabilities:
(Increase) decrease in assets
Accounts receivable 450,836 (1,849,212)
Inventories (154,679) 167,537
Prepaid expenses (113,353) 87,126
Other assets (28,853) (107,947)
Increase (decrease) in liabilities
Accounts payable 524,912 245,346
Accrued expenses 41,668 (106,258)
----------- -----------
Net Cash Provided By (Used In) Operating Activities 867,721 (1,145,769)
Cash Flows from Investing Activities:
Purchase of property and equipment (279,138) (40,035)
----------- -----------
Net Cash Used In Investing Activities (279,138) (40,035)
Cash Flows from Financing Activities:
Net borrowings (repayments) under lines of credit (199,561) 763,830
Repayments of term notes (170,665) (1,247,944)
Repayments of capital lease obligations (70,748) (87,538)
Proceeds from sale of common stock 47,500
Offering costs associated with Series C preferred stock (59,091)
Payments of Series B preferred dividends (10,000)
Proceeds from mortgage obligation 1,878,178
Proceeds from capital lease obligations 45,000
Recapitalization costs (139,511)
----------- -----------
Net Cash (Used In) Provided By Financing Activities (462,565) 1,212,015
Net Increase in Cash & Cash Equivalents 126,018 26,211
Cash and Cash Equivalents at Beginning of Period 101,592 29,430
----------- -----------
Cash and Cash Equivalents at End of Period $ 227,610 $ 55,641
=========== ===========
Supplemental Cash Flow Information:
Cash paid for interest $ 382,981 $ 385,391
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements
5
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ConMat Technologies, Inc. and Subsidiary
Consolidated Condensed Statements of Cash Flows - continued
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30
2000 1999
-------------- ------------
<S> <C> <C>
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Issuance of Series C preferred stock in exchange redemption of
Series A preferred stock and common stock:
Issued:
Series C preferred stock 383 0
Additional paid-in capital 1,199,097 0
Redeemed:
Series A preferred stock (285) 0
Common stock (75) 0
Additional paid-in capital (1,199,120) 0
Conversion of 53,333 shares of Series A preferred stock to
53,333 shares of common stock:
Common stock 53 0
Series A preferred stock (53) 0
Conversion of 313,333 shares of Series A preferred stock to
313,333 shares of common stock:
Common stock 314 0
Series A preferred stock (314) 0
</TABLE>
See notes to consolidated condensed financial statements
6
<PAGE>
ConMat Technologies, Inc and Subsidiary
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE A - INTERIM FINANCIAL INFORMATION
The financial statements of ConMat Technologies, Inc. as of September
30, 2000 and 1999, and for the three and nine months then ended 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 three and nine
months ended September 30, 2000 are not necessarily indicative of the results
that may be expected for any future period. The balance sheet at December 31,
1999 was derived from audited financial statements.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes included in the Company's Annual Report on Form
10K-SB for the year ended December 31, 1999. The results of operations for the
nine months ended September 30, 2000 are not necessarily indicative of the
operating results, which may be achieved for the full year.
NOTE B - FINANCIAL STATEMENT RECLASSIFICATIONS
The financial statements of ConMat Technologies, Inc. as of September
30, 2000 and for the three and nine months then ended contains reclassifications
relating to freight expense and sales commissions. In the past, the Company had
recorded these items as deductions from gross revenues. For the three months
ended September 30, 1999 the effect of these reclassifications was an increase
in Net Sales to Customers of $131,000 with offsetting increases to Cost of Goods
Sold of $52,000 and Selling Expenses of $79,000. For the nine months ended
September 30, 1999 the effect of these reclassifications was an increase in Net
Sales to Customers of $320,000 with offsetting increases to Cost of Goods Sold
of $190,000 and Selling Expenses of $130,000. The effect of the
reclassifications on the first six months of 2000 was to increase Net Sales to
Customers by $248,000 with offsetting increases to Cost of Goods Sold of
$197,000 and Selling Expenses of $51,000.
NOTE C - CHANGES IN SECURITIES
On February 29, 2000, pursuant to an Exchange Agreement between ConMat
and Odyssey Capital Group, L. P., ConMat issued 382,500 shares of ConMat Series
C Preferred Stock and a warrant to purchase 382,500 shares of ConMat common
stock to Odyssey in exchange for 285,000 shares of ConMat Series A Preferred
Stock and 75,000 shares of ConMat common stock which were owned by Odyssey. As
additional consideration to ConMat, Odyssey agreed to provide, subject to
ConMat's financial performance, additional financing of $1,500,000 to ConMat in
the future by purchasing subordinated notes with attached warrants or
convertible preferred stock. Odyssey also agreed to assist ConMat in obtaining
additional financing to the extent ConMat's growth or acquisitions require such.
NOTE D - 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
7
<PAGE>
and diluted earnings per share in conjunction with the disclosure of the
methodology used in computing such earnings per share. Basic earnings per share
exclude 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. However, no potential common shares
are included in the computation of diluted per share amounts when there is a
loss from continuing operations.
The following are basic and diluted (loss) earnings per share calculations for
the periods presented.
<TABLE>
<CAPTION>
Three Months Ended Sept 30 Nine Months Ended Sept 30
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(Loss) Earnings per Share - Basic:
Net (loss) income $ (138,664) $ 79,305 $ (65,235) $ 220,286
Dividends on preferred shares (10,000) (10,000) (30,000) (30,000)
----------- ----------- ----------- -----------
(Loss) income on common shares (148,664) 69,305 (95,235) 190,286
=========== =========== =========== ===========
Weighted average shares outstanding 2,256,355 2,350,000 2,224,316 2,255,000
=========== =========== =========== ===========
Basic (Loss) Earnings Per Share $ (0.07) $ 0.03 $ (0.04) $ 0.08
=========== =========== =========== ===========
(Loss) Earnings per Share - Diluted:
(Loss) income on common shares $ (148,664) $ 69,305 $ (95,235) $ 190,286
Dividends on preferred shares 10,000 30,000
----------- ----------- ----------- -----------
(Loss) income on common shares after
assumed conversions $ (148,664) $ 79,305 $ (95,235) $ 220,286
=========== =========== =========== ===========
Weighted average shares outstanding 2,256,355 2,350,000 2,224,316 2,255,000
Dilutive effect of preferred stock 1,240,000 2,224,316 413,333
Dilutive effect of stock options and warrants 0 85,239 99,554 28,413
----------- ----------- ----------- -----------
Diluted average shares outstanding 2,256,355 3,675,239 3,151,832 2,696,746
=========== =========== =========== ===========
Diluted (Loss) Earnings Per Share $ (0.07) $ 0.02 $ (0.04) $ 0.08
=========== =========== =========== ===========
</TABLE>
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
FORWARD LOOKING STATEMENTS
Some of the statements contained in this report discuss future
expectations, contain projections of results of operations or financial
condition or state other "forward-looking" information. Those statements are
subject to known and unknown risks, uncertainties and other factors that could
cause the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and was
derived using numerous assumptions.
Important factors that may cause actual results to differ from
projections include, for example:
o general economic conditions, including their impact on capital
expenditures;
o business conditions in the materials technology and wastewater
treatment industries;
o the regulatory environment;
o rapidly changing technology and evolving industry standards;
o new products and services offered by competitors; and
o price pressures.
In addition, in this report, the words "believe", "may", "will",
"estimate", "continue", "anticipate", "intend", "expect", "plan", and similar
expressions, as they relate to the business or management of ConMat
Technologies, Inc. or its wholly-owned subsidiary, Polychem Corporation, are
intended to identify forward-looking statements.
ConMat undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise after the date of this report. In light of these risks and
uncertainties, the forward-looking events and circumstances discussed in this
report may not occur and actual results could differ materially from those
anticipated or implied in the forward-looking statements.
Results of Operations
Three Month Periods Ended September 30, 2000 and 1999
The following table sets forth certain statement of operation items as
a percentage of net sales for the period indicated:
Three Months Ended Sept 30
---------------------------------
2000 1999
--------- ---------
Net Sales 100.0 % 100.0 %
Cost of Goods Sold 81.6 65.3
Gross Profit 18.4 34.7
Selling and Administration 17.1 24.7
Interest Expense 3.7 4.8
Other Expense 4.3 0.7
Income Tax (Benefit) Expense (2.7) 1.8
--------- ---------
Net (Loss) Income (4.0) % 2.7 %
========= =========
9
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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 $484,000 or 16.5% to $3,420,121 for the three
months ended September 30, 2000 from $2,936,000 for the three months ended
September 30, 1999. Polychem ended the third quarter of 2000 with an order
backlog of $9,700,000 compared to $5,800,000 at the end of the comparable
quarter in 1999, an increase of 67.2%. The large increase in backlog is the
result of enhanced sales and marketing efforts in conjunction with increased
focus on quality and customer service.
Gross profit decreased by $390,000 or 38.2% to $630,000 for the
three-month period ended September 30, 2000 from $1,020,000 for the comparable
quarter in 1999. Gross profit decreased as a percentage of sales to 18.4% for
the three-month period ended September 30, 2000 from 34.7% for the comparable
quarter in 1999. Polychem's cost of goods sold as a percentage of sales
increased from 65.3% in 1999's third quarter to 81.6% in the quarter just ended.
The decrease in gross margin is the direct result of several large customer
orders with significant unexpected manufacturing inefficiencies. These customer
orders were from projects bid in 1999 and anticipated the ability to develop
special tooling and molds to address certain customer requirements. However, as
a result of time pressures and technological difficulties, a significant amount
of the production process yielded extremely low material utilization as well as
extensive unfavorable variances in manufacturing labor and overheads. In
addition, one large international customer requested very specific manufacturing
tolerances that exceeded the Company's normal operating specifications and
required specialized processes, resulting in a lower gross profit margin.
Lastly, in the final stages of completing a large customer order for delivery to
the west coast of the U.S., a problem with one of the Company's large vendors
created cost over-runs that were unanticipated.
There were also less significant increases as the result of increased
direct labor cost and associated overhead relating to the labor agreement signed
late in the last quarter of 1999 as well as the addition of product design
support personnel. Despite the negative impact of the situations just discussed,
the Company continues to focus on improving plant capacity utilization,
increased plant mechanization through new equipment purchases and other cost
saving measures. An aggressive procurement program was initiated earlier in the
year that should deliver savings over the remainder of the year. Management
views the results for the three months ended September 30, 2000 as having been
caused by one-time operating inefficiencies that have been identified and are
being addressed. The effect of these inefficiencies was to decrease gross
margins by approximately $200,000 during the quarter. While the quarter's
results were negatively impacted by these situations, a compensating factor was
an improvement in the level of quality and customer satisfaction, which the
Company believes will lead to increased future orders from the customers in
question. While several of these situations may have some lingering effect on
the Company's results of operations for the remainder of this fiscal year,
management anticipates that gross margins will return to the levels that had
been recorded during the first six months of the fiscal year.
Selling and administrative expenses decreased by $140,000 or 19.2% to
$586,000 for the three month period ended September 30, 2000 from $725,000 for
the comparable quarter in 1999. As a percentage of revenues, selling and
administrative expenses decreased to 17.1% for the three-month period ended
September 30, 2000 from 24.7% of total revenues for the comparable quarter in
1999. This decrease is primarily attributable to reduction of administrative
employees from earlier in 2000 with slight increases associated with the
development of ConMat's e-business platform and the costs associated with
ConMat's reporting obligations as a public company. The Company has also been
increasing its expenditures in the cultivation of additional business
opportunities throughout the Pacific Rim. The expenses incurred in the current
three-month period are higher by approximately 10% than in the year earlier
period. Management believes that this is an excellent market for its product
line and that these expenditures are expected to produce significant future
sales orders.
There have also been significant increases in corporate expenses
relating to increases in professional fees associated with the Company's status
10
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as a publicly traded company as well as legal expenses in the defense of several
lawsuits that relate to ConMat's acquisition of Polychem. Management believes
that the expenditures for professional fees in both of these areas will begin to
decrease over the next several quarters.
Interest expense for the three-month period ended September 30, 2000
decreased $14,000 or 10.1 %, to $127,000 from $141,000 for the comparable
quarter in 1999. The lower expense reflects lower borrowing levels. Interest
expense as a percentage of total revenues decreased to 3.7% in the three-month
period ended September 30, 2000 compared to 4.8% in the comparable quarter in
1999.
ConMat recognized a loss of $139,000 for the three-month period ended
September 30, 2000. For the comparable quarter in 1999, ConMat reported a profit
of $79,000. As a percentage of net revenues, net income decreased from 2.7% for
the three months ended September 30, 1999 as compared to (4.1%) for the quarter
ended September 30, 2000. As previously stated, Management believes that the
operating results delivered during the current quarter are not indicative of the
Company's prospective operations.
Nine-Month Periods Ended September 30, 2000 and 1999
The following table sets forth certain statement of operation items as
a percentage of net sales for the period indicated:
Nine Months Ended Sept 30
---------------------------------
2000 1999
--------- ---------
Net Sales 100.0 % 100.0 %
Cost of Goods Sold 77.0 70.5
Gross Profit 23.0 29.5
Selling and Administration 17.6 20.9
Interest Expense 4.0 4.2
Other Expense 2.3 0.5
Income Tax (Benefit) Expense (0.2) 1.5
--------- ---------
Net (Loss) Income (0.7) % 2.4 %
========= =========
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 $581,000 or 6.4% to $9,698,000 for the nine
months ended September 30, 2000 from $9,118,000 for the nine months ended
September 30, 1999. Polychem ended the third quarter of 2000 with an order
backlog of $9,700,000 compared to $5,800,000 at the end of the comparable
quarter in 1999, an increase of 67.2%. The large increase in backlog is the
result of enhanced sales and marketing efforts in conjunction with increased
focus on quality and customer service.
Gross profit decreased by $458,000 or 17.1% to $2,228,000 for the
nine-month period ended September 30, 2000 from $2,687,000 for the comparable
period in 1999. Gross profit decreased as a percentage of sales to 23.0% for the
nine-month period ended September 30, 2000 from 29.5% for the comparable period
in 1999. The 6.1% increase in the Company's cost of goods sold as a percentage
of net sales from the prior year was primarily caused by the manufacturing
11
<PAGE>
inefficiencies as discussed in the comparison of the three months ended
September 30, 2000 and 1999. The Company continues to focus on improving plant
capacity utilization, increased plant mechanization through new equipment
purchases and other cost saving measures. An aggressive procurement program was
initiated earlier in the year that should deliver savings over the remainder of
the year. Management views the results for the nine months ended September 30,
2000 as having been caused by one-time operating inefficiencies that have been
identified and are being addressed. While the current year's nine-month results
were negatively impacted by various issues, a compensating factor was an
improvement in the level of quality and customer satisfaction, which the Company
believes will lead to increased future orders from the customers in question.
While several of these situations may have some lingering effect on the
Company's results of operations for the remainder of this fiscal year,
management anticipates that gross margins will return to the levels that had
been recorded during the first six months of the fiscal year.
Selling and administrative expenses decreased by $195,000 or 10.2% to
$1,710,000 for the nine month period ended September 30, 2000 from $1,905,000
for the comparable period in 1999. As a percentage of revenues, selling and
administrative expenses decreased to 17.6% for the nine-month period ended
September 30, 2000 from 20.9% of total revenues for the comparable period in
1999. This decrease is primarily attributable to reduction of administrative
employees from earlier in 2000 with slight increases associated with the
development of ConMat's e-business platform and the costs associated with
ConMat's reporting obligations as a public company. The Company has also been
increasing its expenditures in the cultivation of additional business
opportunities throughout the Pacific Rim. The expenses incurred in the nine
month period ended September 30, 2000 are higher by approximately 15% than in
the year earlier period. Management believes that this is an excellent market
for its product line and that these expenditures are expected to produce
significant future sales orders.
There have also been significant increases in Corporate Expenses
relating to increases in professional fees associated with the Company's status
as a publicly traded company as well as legal expenses in the defense of several
lawsuits that relate to ConMat's acquisition of Polychem. Approximately $50,000
of professional fees relate to the initial activity involved with the Company's
public filings that will not be repeated in future periods. Management believes
that the expenditures for professional fees in both of these areas will begin to
decrease over the next several quarters.
Interest expense for the nine-month period ended September 30, 2000
decreased slightly by $2,000 or 0.6%, to $383,000 from $385,000 for the
comparable period in 1999. Interest costs as a percentage of total revenues
decreased to 3.9% in the nine-month period ended September 30, 2000 compared to
4.2% in the comparable period in 1999.
ConMat recognized a loss of $65,000 for the nine-month period
ended September 30, 2000. For the comparable period in 1999, ConMat reported a
profit of $220,000. As a percentage of net revenues, net income decreased from
2.4% for the nine months ended September 30, 1999 as compared to (0.7%) for the
nine months ended September 30, 2000. As previously stated, Management believes
that the operating results delivered during the current quarter are not
indicative of the Company's prospective operations.
Liquidity and Capital Resources
ConMat realized a net cash increase of $126,000 for the nine-month
period ended September 30, 2000. For the comparable period in 1999, ConMat
realized a net cash surplus of $26,000. ConMat's primary source of working
capital is a credit facility of up to $5 million, subject to a lending formula
limit, secured by Polychem's receivables and inventory. As of September 30,
2000, the maximum borrowing amount was $2,183,000 and the outstanding balance
was $1,928,000. 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.
12
<PAGE>
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 answered the plaintiff's
complaint on May 12, 2000 and the parties have engaged in fact discovery since
that date.
ConMat is currently a defendant in a federal district court action
filed on April 11, 2000, captioned ProFutures Special Equities Fund, L.P. v. The
Eastwind Group, Inc., et al. (U.S.D.C., E. D. Pa. Civil Action No. 00-CV-1888).
ProFutures maintains that Eastwind and others violated federal and state
securities laws and committed common law fraud in connection with the June 1998
Purchase by ProFutures of $750,000 in Series C Convertible Preferred Stock of
Eastwind. ProFutures seeks damages in the amount of $750,000 and seeks to have
the acquisition of Polychem by ConMat declared null and void. Among other named
defendants is Paul A. DeJuliis, President of ConMat and former Chief Executive
Officer of Eastwind.
ConMat, Paul A. DeJuliis and two other former officers of Eastwind
filed a Motion to Dismiss the Complaint on May 25, 2000. The Motion has been
fully briefed and is currently awaiting disposition by the court.
Item 2. Changes in Securities.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 5. Other Information.
Not Applicable.
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
----------- -----------
11 Statement re: computation of per share earnings
(included on pages 7-8 of this report)
27 Financial Data Schedule
(b) ConMat did not file any current reports on Form 8-K during the
period covered by this report.
14
<PAGE>
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 20, 2000 By: /s/ Paul A. DeJuliis
---------------------
Paul A. DeJuliis,
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 20, 2000 By: /s/ Thomas C. Morral, Jr.
-------------------------
Thomas C. Morral, Jr.,
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
15
<PAGE>
Exhibit Index
Exhibit
Number Description
------ -----------
27 Financial Data Schedule
16
