<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 May 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 July 12, 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
<TABLE>
<CAPTION>
Part I. Financial Information PAGE
------------------------------ ----
<S> <C>
Cohesant Technologies Inc. Condensed
Balance Sheet as of May 31, 1996..................................................... 1
Cohesant Technologies Inc. Condensed
Statement of Operations for the Three Months Ended
May 31, 1996 and May 31, 1995........................................................ 2
Cohesant Technologies Inc. Condensed
Statement of Operations for the Six Months Ended
May 31, 1996 and May 31, 1995........................................................ 3
Cohesant Technologies Inc. Condensed
Statement of Cash Flows for the Six Months Ended
May 31, 1996 and May 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
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
-----------------------------
COHESANT TECHNOLOGIES INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
May 31, 1996
------------
<S> <C>
ASSETS:
Cash and cash equivalents $ 622,709
Accounts receivable, net of allowance
for doubtful accounts of $222,388 2,421,399
Inventory, net 2,906,757
Prepaid expenses 161,576
Deferred tax asset 156,800
-----------
Total Current Assets 6,269,241
Restricted, temporary investment 200,818
Notes receivable 80,014
Property, plant and equipment, net 859,963
Investment and advances in unconsolidated affiliate 183,554
Patents and other intangibles, net 273,670
Goodwill 645,738
Other noncurrent assets 3,761
-----------
Total Assets $ 8,516,759
===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Notes payable under line of credit agreement $ 150,000
Current maturities of long-term liabilities 54,827
Accounts payable 1,557,745
Other current liabilities 246,233
-----------
Total Current Liabilities 2,008,805
Other noncurrent liabilities 102,661
-----------
Total Liabilities 2,111,466
Shareholders' Equity:
Common stock ($.001 par value, 10,000,000
shares authorized, 2,750,000 shares issued,
2,688,343 outstanding) 2,688
Additional paid-in capital 6,450,360
Accumulated deficit (47,755)
-----------
Total Shareholders' Equity 6,405,293
-----------
Total Liabilities and Shareholders' Equity $ 8,516,759
===========
</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
May 31, 1996 May 31, 1995
----------- -----------
<S> <C> <C>
NET SALES $ 3,578,991 $ 3,807,191
COST OF SALES 2,522,572 2,461,240
----------- -----------
Gross profit 1,056,419 1,345,951
RESEARCH AND DEVELOPMENT
EXPENSES 242,318 246,288
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,108,900 847,390
----------- -----------
Income (Loss) from operations (294,799) 252,273
OTHER INCOME (EXPENSE):
Interest expense (5,922) (6,589)
Interest income 9,081 23,622
Equity in income (loss) of
unconsolidated affiliate (5,735) 9,139
Other - net (4,791) 17,697
----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES (302,166) 296,142
PROVISION FOR INCOME TAXES - (109,301)
----------- -----------
NET INCOME (LOSS) $ (302,166) $ 186,841
=========== ===========
NET INCOME (LOSS) PER SHARE $ (0.11) $ 0.07
=========== ===========
AVERAGE SHARES OUTSTANDING 2,662,671 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 Six Months Ended
May 31, 1996 May 31, 1995
----------- -----------
<S> <C> <C>
NET SALES $ 6,502,642 $ 7,070,149
COST OF SALES 4,569,250 4,607,102
----------- -----------
Gross profit 1,933,392 2,463,047
RESEARCH AND DEVELOPMENT
EXPENSES 465,197 464,819
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,038,462 1,571,212
----------- -----------
Income (Loss) from operations (570,267) 427,016
OTHER INCOME (EXPENSE):
Interest expense (16,667) (17,894)
Interest income 23,506 46,392
Equity in income of
unconsolidated affiliate 469 3,162
Other - net (13,279) 15,809
----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES (576,238) 474,485
INCOME TAX BENEFIT
(PROVISION) 103,216 (176,886)
----------- -----------
NET INCOME (LOSS) $ (473,022) $ 297,599
=========== ===========
NET INCOME (LOSS) PER SHARE $ (0.18) $ 0.11
=========== ===========
AVERAGE SHARES OUTSTANDING 2,659,409 2,593,503
=========== ===========
</TABLE>
See Notes to Condensed Financial Statements.
3
<PAGE> 6
COHESANT TECHNOLOGIES INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended
May 31, 1996 May 31, 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (473,022) $ 297,599
Adjustments to reconcile net income
net cash provided by (used in)
operating activities -
Depreciation and amortization 151,354 111,340
Deferred tax benefit (103,216) --
Provision for doubtful accounts 20,000 50,662
Equity in income of unconsolidated subsidiary (469) (3,162)
Net change in assets and liabilities,
net of effects from purchase of Raven
Management Services Inc.
Accounts and notes receivable 163,053 92,876
Inventories 91,017 (375,095)
Prepaid expenses 11,346 18,611
Accounts payable (131,787) 10,952
Other current liabilities (327,311) 15,873
Other noncurrent assets 36,007 (33,228)
Other noncurrent liabilities (191,979) (20,260)
----------- -----------
Net cash provided by (used in)
operating activities (755,007) 166,168
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchase of Raven (125,000) -
Property and equipment additions (128,326) (209,827)
Purchase of temporary investments - (1,204,234)
Maturity of temporary investment 252,115 92,986
Investment and advances in
unconsolidated affiliate (18,134) (62,152)
----------- -----------
Net cash used in investing activities (19,345) (1,383,227)
----------- -----------
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 (624,352) 353,296
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,247,061 169,546
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 622,709 $ 522,842
=========== ===========
</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 at $7.75 per Unit (155% of the initial public
offering price of the Units) for a period of four years commencing one
year from the Offering. 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. 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 balance borrowed under
the existing bank line as of May 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. The purchase price was paid by the issuance of 52,807
6
<PAGE> 9
COHESANT TECHNOLOGIES INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(CONTINUED)
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 - LITIGATION
GCI has filed a lawsuit against a competitor for infringement of
certain GCI's patents. The defendant has answered the complaint and
counterclaimed for an unspecified amount of damages for GCI's alleged
infringement of its patents. The case is in the early stages of
discovery, but management believes that it will prevail on its claims
against the defendant in these matters.
ACC has agreed to the terms of settlement of a lawsuit with its
insurance carrier. The agreed upon settlement amount has been reflected
in the accompanying financial statements.
7
<PAGE> 10
COHESANT TECHNOLOGIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER ENDED MAY 31, 1996
RESULTS OF OPERATIONS
For the three months ended May 31, 1996, net sales decreased by
approximately $228,200 or 6% compared to the 1995 period. The Company's
ACC subsidiary sales declined $347,297 in the 1996 period compared to
the 1995 period. The decrease was primarily due to lower sales to the
heating, ventilating and air conditional ("HVAC") industry and lower
"private label" business during the quarter. These decreases were
offset in part by sales of epoxy coating systems of $200,515 by Raven
which was acquired in December, 1995, and by a modest increase in sales
of Aquatapoxy coating systems. GCI sales of equipment systems and parts
fell by $33,940 from the prior year period.
The Company's gross margin declined from $1,345,951, or 35% of sales in
the 1995 period, to $1,056,419, or 30% of sales in the current quarter.
The decrease was principally due to the decrease in volume adversely
impacting production efficiencies.
Operating expenses increased $257,540, or 24% in the 1996 second
quarter over the 1995 period. This increase was principally due to
additional expenses of operating the newly acquired Raven ($111,703)
and to increased legal fees at GCI ($85,145) incurred incident to the
patent infringement litigation.
During the second quarter of 1996, other income, net of other expenses,
was a net expense of $7,367, versus net income in the 1995 period of
$43,869. Interest income decreased $14,541 due to a lower level of cash
investments caused principally by the acquisition of Raven. The Company
incurred a loss of $5,735 in the second quarter of 1996 from its
investment in RTM Systems, Inc. versus a profit of $9,139 in the 1995
period.
No provision for federal and state income taxes was made during the
1996 period due to the pre-tax loss.
SIX MONTHS ENDED MAY 31, 1996
COMPARED TO THE SIX MONTHS ENDED MAY 31, 1995
RESULTS OF OPERATIONS
For the six months ended May 31, 1996, net sales decreased by $567,507,
or 8%, compared to the 1995 period. Most of the decrease was due to
lower sales at the Company's ACC subsidiary which had lower sales of
sealants, adhesives and
8
<PAGE> 11
COHESANT TECHNOLOGIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Aquatapoxy coating systems due in part to severe winter conditions and
lower sales to the HVAC industry. The decrease was offset in part by
sales of epoxy coating systems of $250,934 by Raven which was acquired
in December, 1995. GCI sales of equipment systems and parts fell by
$82,496 from the prior year period.
The Company's gross margin declined from $2,463,047, or 35% of sales in
the 1995 period, to $1,933,392, or 30% of sales in the current period.
The decrease was principally due to the decrease in volume which
adversely impacted production efficiencies.
Operating expenses increased $467,628, or 23% in 1996 over the 1995
period. This increase was principally due to the additional expenses of
operating Raven Lining Systems ($178,397), to increased legal fees at
GCI ($85,145) incurred incident to patent infringement litigation, and
to special legal expenses at ACC ($70,000) to reserve for certain
expected litigation settlements.
During the first six months of 1996 other income, net of other
expenses, was a net expense of $5,971, versus net income in the 1995
period of $47,469. The principal reason for the change was a decrease
in interest income due to a reduction in cash investments caused
principally by the acquisition of Raven.
For the first six months of 1996, the Company had recorded a tax
benefit for federal and state income taxes of $103,216 representing its
estimate of the net operating loss which will more likely than not be
realized versus a tax provision of $176,886 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 six months ended May 31, 1996, the Company's working capital
decreased $1,055,530, from $5,315,966 at November 30, 1995 to
$4,260,436 at May 31, 1996. This decrease was largely due to the net
loss for the period of $473,022, and to the net effect of acquiring the
business of Raven Management Services in December, 1995. Based on
higher levels of orders received in June and early July 1996, it is the
belief of management that the Company's operations and working capital
should improve in the second half of the 1996 fiscal year.
9
<PAGE> 12
COHESANT TECHNOLOGIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
As of May 31, 1996, the working capital included cash and cash
equivalents of $622,709. 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, a
reduction in growth of markets for the Company's epoxy coating systems,
and the uncertainty of the legal costs associated with the present
patent litigation.
10
<PAGE> 13
COHESANT TECHNOLOGIES INC.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On April 2, 1996, American Chemical Company received notice from the
United States Environmental Protection Agency ("EPA") that it had been
named as a potentially responsible party ("PRP") for clean-up costs
associated with hazardous substances at the Third Site/Enviro-Chem
Site. The Company was named as a PRP due to its prior identification as
a PRP on the related Enviro-Chemical Site. The Company settled in 1991
its liability with respect to the Enviro-Chemical Site. Representatives
of a PRP group (which included the Company), in regard to another
related site known as the Great Lakes Asphalt Site, negotiated with the
EPA, earlier this year, a settlement that is not expected to require
further assessments. The same PRP group is negotiating with EPA on the
Third Site/Enviro-Chem Site. Management does not believe it will incur
further liability that would materially affect the Company with respect
to the Third Site/Enviro-Chem Site; however, no assurance can be given
that the Company's assessment is correct or that the EPA or another
party will not pursue additional environmental claims against the
company.
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The Company's annual meeting of stockholders was held
on April 25, 1996.
(b) At the annual meeting, the company's stockholders
elected Messrs. Morton A. Cohen, Micahel L. Boeckman,
Dwight D. Goodman, Douglas R. Elliott, Norton W. Rose
and Samuel B. Sutphin as Directors to hold office until
the next annual meeting of stockholders. Each director-
nominee received 2,444,574 votes for election as a
director and the holders of 19,000 shares withheld
authority for each of the nominees.
(c) At the annual meeting, the company's stockholders also
ratified the appointment of Arthur Andersen LLP as
auditors of the Company for the year ending November
30, 1996. The holders of 2,446,874 shares of Common
Stock voted to ratify the appointment, the holders of
16,700 shares voted against the ratification and no
holders of the shares abstained.
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: July 11, 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
Executive Vice President
(Principal Financial and Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000928420
<NAME> COHESANT TECHNOLOGIES
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> MAR-01-1996
<PERIOD-END> MAY-31-1996
<CASH> 622,709
<SECURITIES> 0
<RECEIVABLES> 2,501,413
<ALLOWANCES> 222,388
<INVENTORY> 2,906,757
<CURRENT-ASSETS> 6,269,241
<PP&E> 1,870,514
<DEPRECIATION> 1,010,551
<TOTAL-ASSETS> 8,516,759
<CURRENT-LIABILITIES> 2,008,805
<BONDS> 0
<COMMON> 2,688
0
0
<OTHER-SE> 6,402,605
<TOTAL-LIABILITY-AND-EQUITY> 8,516,759
<SALES> 3,578,991
<TOTAL-REVENUES> 3,578,991
<CGS> 2,522,572
<TOTAL-COSTS> 2,764,890
<OTHER-EXPENSES> 4,791
<LOSS-PROVISION> 20,000
<INTEREST-EXPENSE> 5,922
<INCOME-PRETAX> (302,166)
<INCOME-TAX> 0
<INCOME-CONTINUING> (302,166)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (302,166)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> 0
</TABLE>
