<PAGE> 1
UNITED STATES
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 quarterly period ended August 31, 1996
------------------------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from_______________________ to _____________________
Commission File Number: 0-25126
------------------------------------------------------
COHESANT TECHNOLOGIES INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 34-1775913
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1801 East 9th Street, Ste. 510, Cleveland, Ohio 44114
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code 216-861-6266
---------------------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
--- ---
As of October 9, 1996, the Company has 2,688,343 shares of Common
Stock, $.001 par value, outstanding.
Transitional Small Business Disclosure Format (check one)
YES NO X
--- ---
<PAGE> 2
COHESANT TECHNOLOGIES INC.
INDEX
Part I. Financial Information PAGE
------------------------------ ----
Cohesant Technologies Inc. Condensed
Balance Sheet as of August 31,1996...................... 1
Cohesant Technologies Inc. Condensed
Statement of Operations for the Three Months Ended
August 31, 1996 and August 31, 1995..................... 2
Cohesant Technologies Inc. Condensed
Statement of Operations for the Nine Months Ended
August 31, 1996 and August 31, 1995..................... 3
Cohesant Technologies Inc. Condensed
Statement of Cash Flows for the Nine Months Ended
August 31, 1996 and August 31, 1995..................... 4
Notes to Condensed Financial Statements.......................... 5
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................... 8
Part II.
Other Information........................................................ 11
Signatures....................................................... 12
<PAGE> 3
PART I. FINANCIAL INFORMATION
-----------------------------
COHESANT TECHNOLOGIES INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
August 31, 1996
----------------
ASSETS:
<S> <C>
Cash and cash equivalents $ 749,187
Accounts receivable, net of allowance
for doubtful accounts of $110,511 2,412,390
Inventory, net 2,814,990
Prepaid expenses 167,105
Deferred tax asset 156,800
-----------------
Total Current Assets 6,300,472
Restricted, temporary investment 200,780
Notes receivable 65,630
Property, plant and equipment, net 851,767
Investment and advances in unconsolidated affiliate 200,903
Patents and other intangibles, net 263,159
Goodwill 636,519
Other noncurrent assets 12,118
-----------------
Total Assets $8,531,348
=================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Notes payable under line of credit agreement $ 150,000
Current maturities of long-term liabilities 54,827
Accounts payable 1,448,045
Other current liabilities 310,017
-----------------
Total Current Liabilities 1,962,889
Other noncurrent liabilities 95,376
-----------------
Total Liabilities 2,058,265
Shareholders' Equity:
Common stock ($.001 par value, 10,000,000
shares authorized, 2,688,343 issued and
outstanding) 2,688
Additional paid-in capital 6,450,360
Accumulated retained earnings 20,035
-----------------
Total Shareholders' Equity 6,473,083
-----------------
Total Liabilities and Shareholders' Equity $8,531,348
=================
</TABLE>
See Notes to Condensed Financial Statements.
1
<PAGE> 4
COHESANT TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
August 31, 1996 August 31, 1995
--------------- ---------------
<S> <C> <C>
NET SALES $ 3,858,382 $ 3,658,252
COST OF SALES 2,452,321 2,359,595
--------------- ---------------
Gross profit 1,406,061 1,298,657
RESEARCH AND DEVELOPMENT
EXPENSES 206,013 230,833
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,109,679 841,802
--------------- ---------------
Income from operations 90,369 226,022
OTHER INCOME (EXPENSE):
Interest expense (7,040) (6,319)
Interest income 16,406 19,397
Equity in loss of
unconsolidated affiliate (1,445) (5,028)
Other - net 6,500 (6,446)
--------------- ---------------
INCOME BEFORE
INCOME TAXES 104,790 227,626
PROVISION FOR INCOME TAXES (37,000) (85,975)
--------------- ---------------
NET INCOME $ 67,790 $ 141,651
=============== ===============
NET INCOME PER SHARE $ 0.03 $ 0.05
=============== ===============
AVERAGE SHARES OUTSTANDING 2,688,343 2,635,536
=============== ===============
</TABLE>
See Notes to Condensed Financial Statements.
2
<PAGE> 5
COHESANT TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended
August 31, 1996 August 31, 1995
--------------- ---------------
<S> <C> <C>
NET SALES $ 10,361,024 $ 10,751,170
COST OF SALES 7,021,571 6,966,697
----------------- --------------
Gross profit 3,339,453 3,784,473
RESEARCH AND DEVELOPMENT
EXPENSES 671,210 695,652
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 3,148,141 2,413,014
----------------- --------------
Income (loss) from operations (479,898) 675,807
OTHER INCOME (EXPENSE):
Interest expense (23,707) (24,213)
Interest income 39,912 65,789
Equity in loss of
unconsolidated affiliate (976) (1,866)
Other - net (6,779) (13,406)
----------------- --------------
INCOME (LOSS) BEFORE
INCOME TAXES (471,448) 702,111
INCOME TAX BENEFIT
(PROVISION) 66,216 (262,861)
----------------- --------------
NET INCOME (LOSS) $ (405,232) $ 439,250
================= ==============
NET INCOME (LOSS) PER SHARE $ (0.15) $ 0.17
================= ==============
AVERAGE SHARES OUTSTANDING
2,678,830 2,607,616
================= ==============
</TABLE>
See Notes to Condensed Financial Statements.
3
<PAGE> 6
COHESANT TECHNOLOGIES INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine Months Ended
August 31, 1996 August 31, 1995
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (405,232) $ 439,250
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities -
Depreciation and amortization 233,654 164,561
Deferred tax benefit (66,216) --
Provision for doubtful accounts 27,500 78,161
Equity in loss of unconsolidated subsidiary 976 1,866
Net change in assets and liabilities, net of effects
from purchase of Raven
Accounts and notes receivable 178,946 (129,743)
Inventories 184,335 (306,299)
Prepaid expenses 2,320 (48,148)
Accounts payable (241,487) (312,874)
Other current liabilities (300,527) 110,334
Other noncurrent assets 20,551 (33,069)
Other noncurrent liabilities (199,264) (20,917)
----------- -----------
Net cash (used in) operating activities (564,444) (56,878)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchase of Raven (125,000) --
Property and equipment additions (176,009) (251,437)
Purchase of temporary investments -- (880,277)
Maturity of temporary investment 254,507 --
Investment in restricted, temporary investments -- (202,710)
Investment and advances in
unconsolidated affiliate (36,928) (38,325)
----------- -----------
Net cash used in investing activities (83,430) (1,372,749)
----------- -----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Issuance of common stock, net -- 4,772,884
Net borrowings (payments) under
line of credit agreement 150,000 (2,381,709)
Payments under term loan -- (248,500)
Purchase of treasury shares -- (572,320)
----------- -----------
Net cash provided by financing activities 150,000 1,570,355
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (497,874) 140,728
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,247,061 169,546
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 749,187 $ 310,274
=========== ===========
</TABLE>
See Notes to Condensed Financial Statements.
4
<PAGE> 7
COHESANT TECHNOLOGIES INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE I - FORMATION OF THE COMPANY AND INITIAL PUBLIC OFFERING
Cohesant Technologies Inc. (the "Company") was organized in Delaware in
July 1994, and commenced operations on November 30, 1994. On December
7, 1994, the Company completed its initial public stock offering
("Offering") of 1,100,000 units ("Units") at $5.00 per Unit. In January
1995, the underwriter acquired an additional 150,000 Units at $5.00 per
Unit under terms of the Offering's over-allotment option. Each Unit
consists of one share of common stock and one redeemable common stock
purchase warrant ("Warrant"). Each Warrant entitles the holder to
purchase one share of common stock for $5.75 during the four-year
period commencing one year after the Offering. The Company may call the
Warrants for redemption under certain conditions. The Warrants and
common stock comprising the Units are immediately detachable and
separately transferable. The Company also sold to the underwriter for
$100, a purchase option to purchase up to 110,000 Units. The purchase
option is exercisable until December 7, 1999 at $7.75 per Unit (155% of
the initial public offering price of the Units). Simultaneous with the
Offering, the Company acquired all of the capital stock of Glas-Craft,
Inc. ("GCI") and American Chemical Company ("ACC") in exchange for
1,500,000 shares of the Company's common stock ("Reorganization").
Prior to the Reorganization, $283,000 of redeemable preferred stock and
$360,000 of 10% convertible subordinated notes payable previously
issued by GCI, were converted into common stock. The acquisition of GCI
and ACC has been accounted for using the purchase method of accounting;
however, the related assets and liabilities have been appropriately
reflected at carryover basis.
NOTE II - BASIS OF PRESENTATION
The interim financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission for certain small business
issuers. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations. However, in the opinion of management of the
Company, the interim financial statements include all adjustments,
which consist only of normal recurring accruals, necessary to present
fairly the financial information for such periods.
These interim financial statements should be read in conjunction with
the financial statements and the notes thereto included in the
Company's November 30, 1995 Annual Report to Shareholders on Form
10-KSB.
5
<PAGE> 8
COHESANT TECHNOLOGIES INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
The accompanying condensed consolidated financial statements include
all accounts of the Company, its wholly-owned subsidiaries, GCI and
ACC, and ACC's wholly-owned subsidiary, Raven Lining Systems, Inc.
(Raven). All significant intercompany amounts have been eliminated.
NOTE III - EARNINGS PER SHARE
Earnings per share are based on the weighted average number of common
stock shares outstanding during the period. The stock options, the
warrants, the underwriter's purchase option and related warrants were
not considered as they would have an antidilutive effect on earnings
per share.
NOTE IV - STATEMENTS OF CASH FLOWS
For purposes of the Statements of Cash Flows, all highly liquid
investments purchased with an original maturity of 90 days or less are
considered as cash and cash equivalents. Noncash investing activities
include the assumption of certain liabilities and the issuance of
common stock in connection with the purchase of the assets of Raven
Management Services, Inc. ("Raven") (Note VI) and the exchange of
1,500,000 shares of the Company's common stock for all the outstanding
capital stock of GCI and ACC as described above in Note 1.
NOTE V - REVOLVING LINE OF CREDIT FACILITY
On April 30, 1996, the Company amended its revolving line of credit
agreement with a bank. The amendment reduced the facility from
$2,500,000 to $2,000,000. This unsecured credit facility accrues
interest at the bank's prime lending rate and can be used to fund
working capital requirements, capital expenditures and acquisitions
permitted pursuant to the terms of the agreement. In connection with
this agreement, the bank executed agreements with GCI and ACC to act as
guarantors of the outstanding indebtedness. The outstanding balance
under the existing line of credit agreement as of August 31, 1996 was
$150,000.
NOTE VI - ACQUISITION OF RAVEN LINING SYSTEMS, INC.
On December 13, 1995, ACC acquired substantially all of the assets and
assumed certain liabilities of Raven for an initial total purchase
price of approximately $1,000,000 including the assumed debt. Goodwill
of approximately $664,000 was recorded in connection with the
acquisition, which is being amortized over 18 years. The purchase
6
<PAGE> 9
COHESANT TECHNOLOGIES INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
price was paid by the issuance of 52,807 shares of common stock valued
at $165,000 and cash of $125,000. The agreement also provides for a
contingent payment, not to exceed $600,000, payable in cash or Cohesant
stock, based on profitability of the newly formed subsidiary, Raven
Lining Systems, Inc. over the next five years.
NOTE VII- COMMITMENTS AND CONTINGENCIES
In late September, the Company settled the patent infringement case
between its subsidiary, Glas-Craft Inc. and Magnum Industries of
Clearwater, Florida. The settlement does not involve payment by either
party, or require a change in either party's existing products.
7
<PAGE> 10
COHESANT TECHNOLOGIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER ENDED AUGUST 31, 1996
RESULTS OF OPERATIONS
---------------------
For the three months ended August 31, 1996, net sales increased
$200,130, or 5%. Of this amount, $159,541 represented increased
specialty chemical sales of adhesives, sealants and epoxy coatings, and
$40,589 represented increased sales of equipment systems and parts. The
increase in specialty chemical sales was entirely attributable to sales
of epoxy coating systems by Raven, which was acquired in December 1995.
The Company's gross margin increased to $1,406,061 in the current
quarter from $1,298,657 in the 1995 period. The increase of $107,404
was primarily attributable to increased sales levels, as the gross
margin percentage remained constant at approximately 36% of sales.
Operating expenses increased $243,057, or 23% in the 1996 third quarter
over the 1995 period. This increase was principally due to additional
expenses of operating Raven $108,020 and to increased legal fees at GCI
$93,826 incurred incident to the patent infringement litigation. The
patent infringement litigation was settled in September 1996.
During the third quarter of 1996, other income, net of other expenses,
was $14,421, versus $1,604 in the 1995 period. The 1996 results
included approximately $21,000 due from an insurance provider in
connection with the August 1996 fire at the Company's St. Louis
chemical blending plant.
NINE MONTHS ENDED AUGUST 31, 1996
COMPARED TO THE NINE MONTHS ENDED AUGUST 31, 1995
RESULTS OF OPERATIONS
---------------------
For the nine months ended August 31, 1996, net sales decreased
$390,146, or 4%, compared to the 1995 period. Of this amount, $348,239
represented decreased specialty chemical sales of adhesives, sealants
and epoxy coatings due in part to severe winter conditions and lower
sales to the heating, ventilating and air conditioning industry. These
decreases were offset in part by sales of epoxy coating systems of
$470,461 by Raven which was acquired in December 1995. Sales of
equipment systems and parts fell by $41,907 from the prior year period.
8
<PAGE> 11
COHESANT TECHNOLOGIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The Company's gross margin declined from $3,784,473, or 35% to
$3,339,453, or 32% of sales for the nine months ending August 31, 1995
and 1996, respectively. The decrease was principally due to the
decrease in volume, adversely impacting production efficiencies.
Operating expenses increased $710,685, or 23% in 1996 over the
comparable 1995 period. This increase was principally due to the
additional expenses of operating Raven $286,416, increased legal fees
at GCI $135,431 incurred incident to patent infringement litigation,
and special legal expenses at ACC $70,000 to reserve for certain
litigation settlements.
During the first nine months of 1996, other income, net of other
expenses, declined from $26,304 in the 1995 period to $8,450. The
principal reason for the change was a decrease in interest income due
to a reduction in cash investments.
For the first nine months of 1996, the Company recorded a tax benefit
for Federal and state income taxes of $66,216, representing its
estimate of the net operating losses which will more likely than not be
realized, versus a tax provision of $262,861 in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirement is to fund its growth,
including working capital, acquisitions, and the purchase of equipment.
The Company, in addition to any cash generated from operations, has
available a $2,000,000 line of credit with a major commercial bank to
help meet its capital needs.
During the nine months ended August 31, 1996, the Company's working
capital decreased $978,383 from $5,315,966 at November 30, 1995 to
$4,337,583 at August 31, 1996. This decrease was largely due to the net
loss for the period of $405,232, and to the net effect of acquiring the
business of Raven in December 1995. In the three months ended August
31, 1996, working capital increased $77,147, and it is the belief of
management that the Company's operations and working capital should
continue to stabilize and improve.
9
<PAGE> 12
COHESANT TECHNOLOGIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
As of August 31, 1996, the working capital included cash and cash
equivalents of $749,187. The Company had available $1,850,000 under the
bank line of credit for future borrowings.
The Company believes that its existing cash resources and working
capital coupled with its bank line will be adequate to meet its capital
needs for the foreseeable future.
FORWARD LOOKING STATEMENTS
Certain statements contained in this report that are not historical
facts are forward looking statements that are subject to certain risks
and uncertainties that could cause actual results to differ materially
from those set forth in the forward looking statement. These risks and
uncertainties include, but are not limited to, a slow-down in domestic
and foreign markets for plural component dispensing systems and a
reduction in growth of markets for the Company's epoxy coating systems.
10
<PAGE> 13
COHESANT TECHNOLOGIES INC.
PART II. OTHER INFORMATION
----------------------------
ITEM 1. Legal Proceedings
In late September, the Company settled the patent infringement case
between its subsidiary, Glas-Craft Inc. and Magnum Industries of
Clearwater, Florida. The settlement does not involve payment by either
party, or require a change in either party's existing products.
ITEM 6. Exhibits and reports on Form 8-K
(a) Exhibits 27 - Financial Data Schedule
(b) None
11
<PAGE> 14
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: October 9, 1996
COHESANT TECHNOLOGIES INC.
BY: /s/ Morton A. Cohen
------------------------------
Morton A. Cohen
President and Chief Executive Officer
(Principal Executive Officer)
BY: /s/ Dwight D. Goodman
------------------------------
Dwight D. Goodman
President
(Principal Operating and Financial and
Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> JUN-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 749,187
<SECURITIES> 0
<RECEIVABLES> 2,588,531
<ALLOWANCES> 110,511
<INVENTORY> 2,814,990
<CURRENT-ASSETS> 6,300,472
<PP&E> 1,916,196
<DEPRECIATION> 1,064,429
<TOTAL-ASSETS> 8,531,348
<CURRENT-LIABILITIES> 1,962,889
<BONDS> 0
<COMMON> 2,688
0
0
<OTHER-SE> 6,470,395
<TOTAL-LIABILITY-AND-EQUITY> 8,531,348
<SALES> 3,858,382
<TOTAL-REVENUES> 3,858,382
<CGS> 2,452,321
<TOTAL-COSTS> 2,658,334
<OTHER-EXPENSES> (6,500)
<LOSS-PROVISION> 7,500
<INTEREST-EXPENSE> 7,040
<INCOME-PRETAX> 104,790
<INCOME-TAX> 37,000
<INCOME-CONTINUING> 67,790
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67,790
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0
</TABLE>
