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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ ] Annual Report under Section 13 or 15(d)of the Securities Exchange Act of
1934 (Fee required)
For the fiscal year ended November 30, 1996
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[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No fee required)
For the transition period from to
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Commission file number 0-25126
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COHESANT TECHNOLOGIES INC.
(Exact name of Small Business Issuer in Its charter)
Delaware 34-1775913
(State or Other Jurisdiction (I.R.S. Employer
of 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
Securities registered under to Section 12(b)of the Act: Common Stock, $.001 Par
Value; Common Stock Purchase Warrants, registered on the Boston Stock Exchange
Securities registered under to Section 12(g)of the Act: Common Stock, $.001 Par
Value; Common Stock Purchase Warrants
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 past 90 days. Yes X No
---- ----
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $13,643,384.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the average bid and asked prices of such stock, as of
February 24, 1997. $1,650,000.
As of February 24, 1997, the Issuer had 2,688,343 shares of Common Stock,
$.001 par value, outstanding.
Documents incorporated by reference:
Portions of the following documents are or will be incorporated by reference:
Proxy Statement for 1997 Annual Meeting of Shareholders (Part III)
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ITEM 1. BUSINESS
(a) General Development of Business
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Cohesant Technologies Inc. ("Company" or "Cohesant") is engaged in the
design, development, manufacture and sale of specialized spray finishing and
coating application equipment, replacement parts and supplies used in the
operation of this equipment and specialty coating, adhesive and sealant
products.
The Company's spray finishing and coating application equipment systems
are designed specifically for use with multiple component formulations such as
fiberglass reinforced plastics and polyurethane foam. These equipment systems
commonly are employed in the construction, transportation and marine industries
to apply insulation, protective coating, sealant and anti-corrosive products and
to create packaging and to fill molds for diverse products such as recreational
boat hulls and plumbing fixtures. The Company also maintains an extensive
inventory of replacement parts and supplies.
The Company sells over 300 different coating, adhesive and sealant
products which are used primarily in heating and air conditioning systems and in
related construction activities, automobiles and trucks and durable and
non-durable consumer goods. Ancillary uses of these products include shoe and
leather products and furniture. The Company also manufactures the Aquatapoxy and
Raven lines of epoxy coating products which are high performance biologically
and chemically inert formulations resistant to water corrosion and chemical
corrosion caused by most acids and solvents, as well as other chemicals.
Although the Company believes there are many more uses for the Aquatapoxy and
Raven products, they generally are used in the construction, repair,
rehabilitation and maintenance of water storage structures, sewers and storm
water disposal systems and water tunnels of municipalities and industrial and
recreational facilities. The Company is engaged in toll and private label
manufacturing of coating, adhesive and sealant products and has recently begun
development of branded product lines for sales to the public sector and the
composites industries.
For the years ended November 30, 1996 and 1995 the Company had net
sales of $13,643,000 and $14,065,000, respectively, of which $7,388,000 and
$7,501,000, respectively, were for equipment systems, replacement parts and
supplies and $6,255,000 and $6,564,000, respectively, were for coatings,
adhesives and sealants.
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Cohesant was organized as a holding company in Delaware on July 1,
1994. The Company conducts business through its subsidiaries, Glas-Craft, Inc.
("GCI"), an Indiana corporation, and American Chemical Company ("ACC"), a
Missouri corporation, and ACC's subsidiary Raven Lining Systems ("Raven"), a
Missouri corporation. In a reorganization consummated on December 7, 1994,
following the completion of the Company's initial public offering of securities,
the Company acquired all the capital stock of GCI and ACC in exchange for equal
percentages of the Common Stock of Cohesant. The Company, through a newly
organized ACC subsidiary, acquired substantially all the assets of Raven
Management Services, Inc. on December 13, 1995. As used herein, the term
"Company" includes the operations of Cohesant, its wholly-owned subsidiaries,
GCI and ACC, and ACC's wholly-owned subsidiary, Raven, unless the context
indicates otherwise.
A number of management changes occurred in 1996 designed among other
things, to position the Company to meet current and future challenges. Michael
Boeckman resigned as President in May, but remains on the Board of Directors. At
that time, Dwight Goodman, who had been President of GCI, was named Executive
Vice President and Chief Financial Officer. In July, Mr. Goodman was named
President and Chief Operating Officer of the Company. In October, Douglas
Elliott, who had been President of ACC was named Executive Vice President and
Chief Technical Officer of the Company. Also in October, Robert Pawlak,
Controller of GCI, was named to the additional position of Controller of the
Company.
(b) Narrative Description of Business
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PRODUCTS
Specialized Spray Equipment. The Company designs and manufactures a wide range
of spray and applications equipment systems and supplies to spray
multi-component formulations such as fiberglass reinforced plastics and
polyurethane foam. Net sales of spray equipment systems amounted to $3,221,000
and $3,245,000 for the fiscal years ended November 30, 1996 and 1995,
respectively, representing 23.6% and 23.1%, respectively, of net sales.
Fiberglass reinforced plastic spray equipment. The predecessor to GCI
developed spray and applications equipment systems for the modern method of
fiberglass reinforced plastic product manufacturing known as the `spray up'
method. The spray up manufacturing process is quicker and more cost effective
than the `hand layup' and mass production molding methods of reinforced
fiberglass products manufacturing and can be used to manufacture
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a wide variety of products, including such diverse products as boat hulls and
plumbing and bathroom fixtures. The spray up method is ideally suited for small
quantity and custom production.
The United States Occupational Safety and Health Administration
("OSHA") and environmental regulatory agencies in the United States and abroad
regulate the use of various volatile organic chemicals such as styrene, acetone,
methylene chloride and organic peroxides. These chemicals are often used in the
application of fiberglass by the spray up method. GCI's spray equipment systems
use air assist containment ("AAC") to reduce spray emissions and overspray and
increases transfer efficiency and spray control. Further, improved containment
limits emissions of environmentally and occupationally hazardous chemicals and
greater transfer efficiency results in less waste of product.
Other multi-component spray equipment. The Company also designs and
manufactures spray and applications equipment systems for dispensing
polyurethane and other multi-component materials and foams. Polyurethane is used
for insulation, packaging, flotation devices and many other uses. Foams are used
for insulation and protective coatings and for the manufacture of formed plastic
products such as automobile and aircraft components and marine products. The
Company's technology has many applications in the plastics and chemical
industries. Consequently, the Company continuously seeks and develops new and
different uses for its equipment. The Company, when necessary, will modify
existing equipment designs or will design new equipment to meet the requirements
of new plastics and other products and of changing regulation and manufacturing
methods.
Replacement and spare parts. A significant portion of the Company's equipment
business is the sale of replacement and spare parts and supplies for its current
and discontinued spray equipment systems. The Company maintains an inventory of
approximately 4,600 items to enable it to efficiently fulfill orders and service
repairs. Net sales of replacement and spare parts and supplies amounted to
$4,167,000 and $4,259,000, representing 30.5% and 30.3% of net sales for the
fiscal years ended November 30, 1996 and 1995, respectively.
RTM Systems, Inc.
GCI has a one-third interest in RTM Systems, Inc. ("RTM"), an Indiana
corporation organized in 1989. RTM markets equipment which produces injection
molded fiberglass reinforced plastic products. The RTM equipment is designed for
low-pressure injection molding, thereby allowing injection of catalyzed resin
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under low pressure into a closed mold containing a pre-cut fiberglass mat which
strengthens the finished product. This method, like most molding processes,
permits the resin to displace all of the air in the mold, completely saturating
the fiberglass mat which is then allowed to cure. Products manufactured using
this process are characterized by the strength enhancing properties of
fiberglass while being cost effectively produced. RTM also provides consulting
services to train customers in the construction of molds, and sells products and
equipment used to build molds.
American Chemical Company
ACC designs and manufactures a diverse range of adhesive, sealant and
coatings products for specialty markets in water system infrastructures,
heating, ventilation, and air conditioning ("HVAC"), automotive, leather
products, furniture and composites tooling. Protective coating products are
marketed and sold by Raven. Adhesive and sealant products are sold by ACC's King
Adhesives Division. Private label, toll manufacturing and emergent brand
products are managed by the Company's Technology and Business Development Unit.
Net Sales of adhesive, sealant, and coating products amounted to
$6,255,000, and $6,564,000, representing 45.8% and 46.7% of the Company's net
sales for the fiscal years ending November 30, 1996 and 1995, respectively.
Raven Lining Systems
In 1996, ACC reorganized sales of its existing protective coatings into
its subsidiary, Raven which included the Aquatapoxy products previously marketed
by ACC as well as Raven branded products. Both product brands utilize
proprietary formulations of and application methods for epoxy based coatings.
Aquatapoxy Products. The Aquatapoxy line of epoxy coating products are
designed to extend the life of a structure by protecting it from corrosion or
water damage. These products are formulated with high performance resins
resistant to water corrosion and breakdown by most acids, solvents and other
chemicals. Aquatapoxy products are used in the construction, repair,
rehabilitation and maintenance of water storage structures, sewer and storm
water disposal systems and water tunnels of municipalities and industrial and
recreational facilities. Aquatapoxy products can be applied to either metal or
concrete (the two principal materials of which pipes and other water structures
are composed) and can be applied underwater.
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Aquatapoxy has been specified for use by many federal, state and local
governmental agencies in connection with the rehabilitation of potable and/or
wastewater facilities. Recent approvals include Indianapolis, Indiana, Houston,
Texas, Miami and Dade County, Florida, Charleston, S.C., and Detroit, Michigan.
Qualifying Aquatapoxy coatings for use by governmental agencies does not always
translate into product sales, but is a necessary first step. The Company is
actively pursing product testing with other governmental agencies and
communities to expand its sales markets.
If correctly applied, Aquatapoxy products contain no solvents, are
biologically and chemically inert once cured, and do not release harmful
by-products into water or the environment. Solvent-based coatings have the
potential to release carcinogens and other hazardous substances into the
environment and generally are not desirable for applications that involve
contact with food, drinking water, animals or people. The Company has secured
certification under the National Sanitation Foundation Standard 61 and from the
United States Department of Agriculture for several Aquatapoxy products which
allows it to be used in agricultural applications, food processing facilities,
potable water facilities and marine applications.
Raven Products. The acquisition of Raven expanded ACC's presence in the
protective coating and lining marketplace. Raven's unique high performance line
of products and network of Licensed Certified Applicators provide access to
specialty coating contractors and key end-users in the wastewater, pulp and
paper, petrochemical, power and other industries. Raven's sprayable epoxies were
formulated for ultra high-build (20-250 mils per coat) application on steel and
masonry surfaces to prevent highly corrosive liquids, gases and solids from
destroying substrate. The high physical strengths of some Raven formulations
permit the epoxy to partially function as a structural liner enhancing the
strength of a rehabilitated structure. Raven products can be applied in harsh
environmental conditions including damp or wet surfaces, high temperature,
concentrated acids and bases, solvents and salts. The life span of
infrastructure exposed to these conditions can increase substantially with the
use of high performance protective coatings or linings such as Raven.
Correctly applied, Raven products result in 100% solid linings
containing no residual solvents or volatile organic compounds. These products
offer safer working environments, while also complying with existing United
States Environmental Protection Agency ("EPA") regulations. Cohesant's
acquisition of Raven facilitated expansion of the Company's product line
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offerings into this segment of the coating and lining marketplace.
Net sales of Aquatapoxy and Raven products amounted to $1,019,000 and
$638,000 representing 7.5% and 4.6% of net sales for the fiscal years ended
November 30, 1996 and 1995, respectively.
King Adhesives
Under the King Adhesives brand name, the Company manufactures and
markets over 250 formulations of both water-based and solvent-based coating,
adhesive and sealant products. These products are principally used in the HVAC
industries and in related construction activity. HVAC contractors use the
Company's adhesives and sealants to secure insulation and seal duct work. The
Company's adhesives and sealants are also employed in asbestos abatement
projects as tacking agents to enclose and seal work spaces during toxic asbestos
removal and are utilized by appliance manufacturers for insulation, noise
reduction and corrosion protection. To a lesser extent, these products are used
to adhere foam cushions to furniture and car seats, to attach trim and finishes
to the interior of automobiles and to assemble shoes.
In addition, the Company produces a line of products for the home
retrofit market. In an effort to encourage energy conservation, many public
utilities offer residential customers financial incentives to seal heated or
cooled air handling systems. The Company manufacturers a number of adhesive and
sealant products which enable such customers to avail themselves of these
programs.
Net sales of King Adhesives products amounted to $4,702,000 and
$5,027,000 representing 34.5% and 35.7% of net sales for the fiscal years ended
November 30, 1996 and 1995, respectively.
Technology and Business Development
In 1996, the Company reorganized the sales and marketing of its
emergent brands, private and toll manufacturing products into a corporate unit
known as Technology and Business Development. The business unit also manages
research activities in support of the Company's equipment and specialty chemical
businesses.
Equipment and specialty chemical business synergies have the potential
to form the basis of several emergent brand opportunities. As of November 30,
1996, Technology and Business
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Development was marketing over 40 different chemical products to emergent brand,
private label and toll manufacturing customers.
Emergent Brands. The Company markets tooling resins, specialty HVAC adhesives
and sealants and protective coatings to the composite industry, the public
sector and selected HVAC distributors under the Cohesant and American Chemical
trade names. Emergent brand activity is intended to diversify the Company's
product offering and customer base. Epoxy composite application systems and low
emission adhesive applicator guns are being commercially developed under the
Cohesant and American Chemical trade names.
Private Label and Toll Manufacturing. The Company provides private label
manufacturing and toll manufacturing of all its coatings, adhesives and sealants
product lines. Private label manufacturing consists of the Company selling its
own manufactured products to other companies under the buyer's name. Toll
manufacturing occurs when the Company utilizes its excess manufacturing capacity
to produce other companies' products on their behalf. The Company is actively
seeking other private label opportunities consistent with its overall business
strategies and objectives.
Net sales of emergent brand, private label and toll manufacturing
amounted to $534,000 and $899,000 representing approximately 3.9% and 6.4% of
net sales for the fiscal years ended November 30, 1996 and 1995, respectively.
MARKETING
Distributors and Sales Representatives
The Company's products are sold through a network of independent
distributors, sales representatives and licensed applicators in the United
States and overseas.
Generally, the products of GCI are sold through over 100 independent
domestic and foreign equipment distributors. Most of these distributors are
engaged in the sale of polyester resins and gel coats, fiberglass strand and
mat, polyurethane foams and coatings and similar items. Many of the foreign
distributors sell only industrial equipment. For the fiscal years ended November
30, 1996 and 1995, GCI's ten largest distributors accounted for 42% and 46%,
respectively, of equipment system and replacement and spare parts sales. Five of
these distributors are foreign based. Generally, GCI has written distribution
agreements, which are cancelable upon 30 days notice, with its foreign
distributors. GCI provides training to the distributors and customers in the use
of its equipment systems and products.
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The adhesive, sealant and coating products of ACC are marketed through
a network of domestic and foreign sales representatives and distributors.
Currently, there are 25 domestic and nine foreign sales representatives or
distributors. Sales representatives are paid on the basis of commissions, and
distributors purchase product for exclusive sales at distribution prices. The
sales representatives and distributors are supported by sales specialists
employed by the Company.
Raven markets its products, application and spray technology through
Licensed Certified Applicators across the United States. Raven presently has
eight licensees located in Washington, Illinois, Kansas, Oklahoma, Oregon, New
Hampshire, New Jersey and Florida. To the extent the Company has foreign sales,
the sales are denominated in United States Dollars.
Brochures, Advertising and Tradeshows
The Company supports its marketing with internally prepared brochures,
sales catalogues and media insertions in various trade publications. In
connection with the adhesive, coating and sealant products, the Company also
prepares media promotion kits and product demonstration kits for use by sales
representatives, distributors and customers. Company personnel, distributors and
sales representatives attend tradeshows in the United States and overseas.
Typically, these shows are attended by potential customers and distributors. In
addition, these shows afford the Company the opportunity to keep abreast of its
competitors' products and developments in the industry.
Training Seminars
In addition to training to familiarize sales representatives and
distributors with its various products, the Company offers training seminars,
usually for a fee, for the purposes of introducing products and assisting
customers in the use of products. Seminars are conducted by Company personnel.
MANUFACTURING AND RAW MATERIALS SUPPLY
The Company assembles its equipment system products from commercially
available components and components manufactured to specification by a variety
of vendors. Minimal fabrication of components is performed by the Company. The
Company is not dependent upon any single vendor for the conduct of its business,
and generally has alternative sources for all necessary components.
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Similarly, there are a number of alternative sources of supply for all
of the raw materials used in the manufacture of the coating, adhesive and
sealant products of the Company. The Company purchases a significant portion of
it's specialty resin emulsions from a single vendor. Although there is no supply
contract in effect, the Company believes its relationship with this supplier to
be favorable. The Company does not believe that it is dependent on any one
vendor of raw materials for its coating, adhesive and sealant products and the
Company believes the loss of any one supplier would not have a material adverse
impact on the Company. The Company attempts to develop multiple formulations for
all its products for the same functional purpose. This manufacturing strategy
allows the Company to use a wide variety of raw materials and to make products
suitable to the specific needs of its customers or to market products
manufactured from the most readily available and cost efficient materials.
COMPETITION
The markets for all of the Company's products are highly competitive.
The Company competes with numerous well-established companies, most of which
possess substantially greater financial, marketing, personnel and other
resources than those of the Company.
There are a number of competitive equipment manufacturers, the most
significant of which include the Binks Manufacturing Company and the
Venus-Gusmer division of PMC, Inc. Competitors of the Company's Aquatapoxy and
Raven products include Carboline Company, Tnemec Company, Inc. and International
Protective Coatings. Competitors of King Adhesive products include Miracle
Adhesives Corporation, Hardcast, Inc., 3M Corporation, and National Starch &
Chemical Company. The Company competes by continually broadening its range of
products through engineering, research and development, by continuing to offer
its entire product line on a price competitive basis, and through acquisition or
product line extensions.
The markets for the Company's products are characterized by changing
technology and industry standards often resulting in product obsolescence or
short product lifecycles. Accordingly, the ability of the Company to compete is
dependent upon the Company's ability to complete development and introduce to
the marketplace in a timely manner its equipment systems and chemical products,
to adapt its sealant, coating and adhesive products to be compatible with the
products of specific equipment manufacturers and to successfully develop new
equipment and chemical products.
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RESEARCH, DEVELOPMENT AND ENGINEERING
The Company has a research and development program to continually
improve all of its existing products, to develop new products and to custom
engineer equipment and products upon specific customer requests. The Company has
fifteen full-time employees devoted to engineering, research and development.
Virtually all of the products marketed by the Company were developed internally,
either by the Company or its predecessor companies. Research, development and
engineering expenses for the fiscal year ended November 30, 1996 and were
approximately $884,000 and $901,000 respectively, or 6.5% and 6.4%,
respectively, of net sales. The Company expects this level of research,
development and engineering expense to continue or slightly increase in the
future.
GOVERNMENT REGULATION
The Company is subject to regulations administered by the EPA, OSHA,
various state agencies, county and local authorities acting in cooperation with
Federal and state authorities and foreign governmental regulatory agencies.
Among other things, these regulatory bodies impose restrictions to control air,
soil and water pollution, to protect against occupational exposure to chemicals,
including health and safety risks, and to require notification or reporting of
the storage, use and release of certain hazardous chemicals and substances. The
extensive regulatory framework imposes significant compliance burdens and risks
on the Company's operating subsidiaries. Governmental authorities have the power
to enforce compliance with these regulations and to obtain injunctions or impose
civil and criminal fines in the case of violations.
The Company has in place programs to achieve and maintain substantial
compliance with the currently existing environmental and worker exposure laws
and regulations which materially affect the Company's businesses. As of the date
of this Report, based on its experience and consultations with environmental
consultants, management believes that the Company is or has taken all necessary
measures to comply with all applicable Federal, state and local environmental
laws and regulations and worker exposure regulations.
As a product exporter, the Company is subject to regulation by foreign
governments. There can be no assurance that the Company will be in compliance
with or achieve compliance with laws and regulations enacted by foreign
government in the future.
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PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION
The Company holds eleven U.S. patents and three U.S. patent
applications, of which four patents and one patent application are applicable
to AAC(R) methods and apparatus of the Company. The Company's AAC(R) methods
and apparatus use a flow of compressed air to contain and reduce over spray and
vapor emissions and increase transfer efficiency and spray control.
The Company believes that product recognition is an important
competitive factor in the equipment and chemical industries. Accordingly, the
Company promotes the "GLAS-CRAFT," "ACC", "KINGCO", "RAVEN" trademarks in
connection with its marketing activities and holds a United States trademark
registration for AAC(R).
The Company also relies on proprietary know-how and confidential
information and employs various methods to protect the processes, concepts,
ideas and documentation associated with its products.
EMPLOYEES
As of February 8, 1997, the Company employs approximately 84 full time
and 4 part time persons, 16 of whom are in sales, 9 are in engineering, 6 are in
research and development and service, 7 are in quality control, 35 are in
manufacturing and 15 are in accounting and administration. Fifteen of the ACC
employees were covered by a collective bargaining agreement that expired on
January 1, 1997, however, the current contract has been extended by the parties
while a new agreement is being negotiated. The Company believes its relations
with its employees are good.
ITEM 2. PROPERTIES
The Company's executive offices are located in Cleveland, Ohio, with
its principal manufacturing, warehouse and distribution facilities located in
Indianapolis, Indiana and St. Louis, Missouri. GCI leases approximately 35,000
square feet of office, manufacturing and warehouse space in Indianapolis,
Indiana through January, 1999. ACC owns two adjacent buildings aggregating
approximately 17,500 square feet in St. Louis, Missouri which ACC utilizes
principally for manufacturing. The buildings are subject to a Deed of Trust to
secure a $58,000 obligation of ACC to Systems Seal Mfg., Inc. as of November 30,
1996. ACC also leases approximately 10,000 square feet of warehouse space in St.
Louis, Missouri on a month-to-month basis and 4,000 square feet of office
facilities in St. Louis through
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September, 1998. In addition, ACC leases space in various public warehouses
located in Tulsa, Oklahoma, Houston, Texas, Newark, New Jersey, and City of
Industry, California, to economize on shipping expenses and to respond quickly
to customer's product needs for which rent is computed on an item handled basis
plus monthly storage charges.
ACC's subsidiary, Raven, leases approximately 10,000 square feet of
combined office and manufacturing space in Tulsa, Oklahoma on a month-to-month
basis through August, 1997. The Company believes it's facilities are adequate to
meet their current and prospective needs.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company is subject,
nor to the knowledge of the Company are any legal proceedings threatened, other
than for ordinary, routine proceedings incidental to its business, except as
follows:
In September 1996, the patent infringement case between GCI and Magnum
Industries of Clearwater, Florida was settled. The settlement does not involve
payment by either party or require a change in either party's existing products.
In connection with this suit, the Company incurred approximately $295,000 and
$60,500 in legal costs for the years ended November 30, 1996 and 1995.
King Adhesives Corporation, a predecessor company to ACC, has been
named by the United States Environmental Protection Agency ("EPA") as a
potentially responsible party ("PRP") for clean-up costs associated with
hazardous substances transshipped from the Enviro-Chem Site to the Great Lakes
Asphalt Site. In January, 1995, the Company received notice from a PRP group
negotiating with the EPA that liabilities regarding the Great Lakes Asphalt Site
had been settled with the EPA and that no further assessments are expected. In
addition, the Company had previously received from such group notice of its
potential liability with regard to hazardous substances shipped to the Third
Site/Enviro-Chem Site. Management cannot currently predict the ultimate outcome
of these matters; however, management believes the outcome will not materially
affect the Company's financial position and its results of operations. In the
past King Adhesives Corporation had settled its alleged liability with regard to
hazardous substances shipped to the Wastex Research, Inc. facility and the
original Enviro-Chem Site. Management believes that it is unlikely that any
further liability will result with regard to these two sites; however, no
assurance can be given that the EPA or any other party will not pursue any
additional or ancillary claims in the future.
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ACC has filed suit in St. Louis, Missouri, in February 1991, against
Superior Coatings seeking collection for amounts owed on open account of
approximately $90,000, plus interest, and for tortuous business interference.
The customer has filed a counterclaim against ACC, and others, seeking
approximately $500,000 in damages for an alleged breach of contract and
negligent misrepresentations. ACC has denied all material allegations of the
counterclaim and intends to vigorously defend against the counterclaim. The suit
is currently scheduled for trial on or about February 1997. Management believes
that the counterclaim is without merit, and that the outcome of this litigation
will not have a material adverse effect on the Company's financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders
during the fourth quarter of the fiscal year ended November 30, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The Common Stock and Warrants of the Company are quoted on NASDAQ under
the symbols "COHT" and "COHTW", respectively. The Company's Common Stock and
Warrants are also listed on the Boston Stock Exchange.
The following table sets forth the high and low closing bid prices of
the Company's Common Stock and Warrants from November 30, 1994, as reported by
NASDAQ. Bid quotations represent high and low prices quoted between dealers, do
not reflect retail mark-up, mark-down or commission, and do not necessarily
represent actual transactions.
COMMON STOCK Bid Price
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<TABLE>
<CAPTION>
Year Ended November 30, 1994
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<S> <C> <C>
Fourth Quarter $4.75 $4.375
Year Ended November 30, 1995
----------------------------
First Quarter $5.50 $4.50
Second Quarter 5.375 4.00
Third Quarter 4.25 3.25
Fourth Quarter 3.625 2.875
</TABLE>
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Year Ended November 30, 1996
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First Quarter $2.75 $1.625
Second Quarter 1.875 1.125
Third Quarter 1.375 1.0625
Fourth Quarter 1.25 0.875
WARRANTS
- --------
<TABLE>
<CAPTION>
Year Ended November 30, 1994
----------------------------
<S> <C> <C>
Fourth Quarter $1.25 $0.75
Year Ended November 30, 1995
----------------------------
First Quarter $1.313 $1.25
Second Quarter 1.25 0.875
Third Quarter 0.875 0.50
Fourth Quarter 0.625 0.50
Year Ended November 30, 1996
----------------------------
First Quarter $0.4375 $0.125
Second Quarter 0.3125 0.125
Third Quarter 0.3125 0.1562
Fourth Quarter 0.125 0.0312
</TABLE>
On February 24, 1997, the Company had approximately 750 beneficial
holders of its Common Stock.
The Company has not paid any cash dividends on its Common Stock to date
and does not anticipate paying any in the foreseeable future. The Board of
Directors intends to retain earnings, if any, to support the growth of the
Company's business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal Year Ended November 30, 1996 as compared to Fiscal Year Ended
November 30, 1995
Net sales for the fiscal year ended November 30, 1996 were $13,643,000
representing a decrease of $422,000 or 3.0%, from fiscal 1995 net sales of
$14,065,000. The decrease consisted of an $846,000 decrease in specialty
chemical sales of adhesives, sealants and epoxy coatings due in part to severe
winter weather
15
<PAGE> 16
conditions and lower sales to the heating, ventilating and air conditioning
industry. Sales of specialty chemicals were also impacted by the August 1996
fire at the Company's St. Louis facility. These decreases were offset in part by
sales of epoxy coating systems of $537,000 by Raven which was acquired by the
Company in December 1995. Sales of equipment systems and parts fell by $116,000
from $7,501,000 in fiscal 1995. Increased exports of $109,000 were offset by
decreased domestic sales of $224,000. Foreign sales of GCI products again
accounted for over 50% of all GCI sales.
For the fiscal years ended November 30, 1996 and 1995,respectively,
gross margins as a percentage of net sales were 32.8% and 35.0%, respectively.
This decrease in gross margin was due principally to the decrease in volume
which adversely impacted production efficiencies.
Research, development and engineering expenses were approximately
$884,000 and $901,000 in the years ended November 30, 1996 and 1995,
respectively. This decrease was attributable to efficiencies from the Raven
acquisition.
Selling, general and administrative expenses for the fiscal years ended
November 30, 1996 and 1995 were $4,018,000 and $3,275,000, respectively,
representing an increase of approximately 22.7% or $743,000. Approximately
$382,000 of the increase was due to additional expenses of operating Raven, and
approximately $242,000 was attributable to additional marketing and shipping
costs for the Company's adhesive and sealants business.
Other charges for the fiscal years ended November 30, 1996 and 1995,
were $461,000 and $91,000, respectively. Other charges represent non-recurring
costs incurred in connection with the reorganization of the company, integration
of the Raven acquisition and settlement of the patent infringement and other
litigation.
During fiscal 1996, the Company carried back a portion of fiscal 1996
net operating losses to recover taxes paid in the prior year. A valuation
allowance was provided for the unutilized current year net operating losses. The
1995 effective tax rate does not differ materially from the statutory rate.
LIQUIDITY AND CAPITAL RESOURCES
On March 20, 1995, the Company entered into a revolving line of credit
agreement with a bank. This $2,000,000, unsecured credit facility, as amended,
expires May 31, 1997 and accrues interest at the bank's prime lending rate
(8.25% as of November 30, 1996). This facility can be used to fund working
capital requirements, capital expenditures and permitted acquisitions. In
connection with this agreement, the bank executed agreements with GCI and ACC to
act as guarantors of the
16
<PAGE> 17
Company's outstanding indebtedness. The revolving line of credit had an
outstanding balance of $150,000 as of November 30, 1996. The remaining capacity
was available at year end.
The agreement, among other restrictions, requires the Company to
maintain tangible net worth (as defined in the agreement) of $5,000,000 and a
ratio of liabilities to the tangible net worth at a level not greater than 1.50
to 1.00. As of November 30, 1996, the Company was in violation of the tangible
net worth covenant. The Company has received a waiver of the covenant violation
from the bank.
On December 13, 1995, the Company acquired substantially all of the
assets and assumed approximately $713,000 of liabilities of Raven Management
Services, Inc., d/b/a Raven Lining Systems ("Raven"), for an initial total
purchase price of approximately $1,003,000, including assumed debt. The initial
purchase price was paid by the issuance of 52,807 shares of the Company's common
stock valued at $165,000 and cash of $125,000. The acquired business is
currently operated as a subsidiary of ACC. The agreement also provides for a
contingent payment, not to exceed $600,000, payable in cash or the Company's
stock, based on profitability of the newly formed subsidiary, Raven over the
next five years. No payment was due related to fiscal 1996.
On June 21, 1995, the Company entered into an agreement with a
principal stockholder wherein the Company agreed to become party to a certain
pledge and escrow agreement. As a result of this agreement, the Company placed
$200,000 in short-term U.S. government money market funds with Boatmen's Trust
Company in St. Louis, Missouri, to secure a continuing contractual payment
obligation for ACC. As a consequence of this agreement, the Company has
classified such funds as restricted, temporary investments under non-current
assets in its financial statements.
As of November 30, 1996, the Company has working capital of $3,914,201
which includes cash and cash equivalents of $500,751. The Company has identified
to date costs which are reimbursable by its insurance carrier under terms of its
business interruption coverage. These amounts along with the tax refund
receivable are included in working capital.
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.
ITEM 7. FINANCIAL STATEMENTS
This information appears in a separate section of this report following
Part III.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
17
<PAGE> 18
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company incorporates herein by reference the information appearing
under the caption "Board of Directors and Executive Officers" of the Company's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or about March 31, 1997.
ITEM 10. EXECUTIVE COMPENSATION
The Company incorporates herein by reference the information appearing
under the caption "Compensation of Executive Officers" of the Company's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or about March 31, 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company incorporates herein by reference the information appearing
under the caption "Ownership of Voting Securities" of the Company's definitive
Proxy Statement to be filed with the Securities and Exchange Commission on or
about March 31, 1997.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incorporates herein by reference the information appearing
under the caption "Transactions With Related Parties" of the Company's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or about March 31, 1997.
18
<PAGE> 19
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) Exhibits
*3.1 Certificate of Incorporation of the Company, as corrected.
**3.2 By-Laws of the Company, as amended.
**4.1 Form of Underwriter s Unit Purchase Option.
**4.2 Form of Public Warrant Agreement.
**4.3 Form of Registration Rights Agreement.
**10.1 Financial Consulting Agreement between the Underwriter and the
Company.
**10.2 The Company's 1994 Employee Stock Option Plan.
**10.3 Employment Agreement between Glas-Craft, Inc. and Dwight D.
Goodman.
**10.4 Employment Agreement between American Chemical Company and
Douglas R. Elliott.
**10.5 Lease Agreement between Glas-Craft, Inc. and Security Capital
Industrial, as Amended.
**10.6 Form of Principal's and Manufacturer's Agent Agreement with
American Chemical Company.
**10.7 Business Organization Agreement between Glas-Craft, Inc.,
Plastech Thermoset Techtronics and Donald Punzer.
***10.8 Credit Agreement between Cohesant Technologies Inc. and Bank
One Indianapolis dated March 20, 1995.
**10.9 Deed of Trust by American Chemical Corporation.
**10.10 Lease Agreement between American Chemical Company and Scanlan
Partnership dated October 5, 1994.
10.11 Financial Advisory Agreement between Clarion Management Ltd.
and the Company dated June 1, 1996.
21.1 Subsidiaries of the Registrant.
27 Financial Data Schedule
* Incorporated herein by reference to the Exhibit to the Company's Annual
Report on Form 10-KSB for the year ended November 30, 1995.
** Incorporated here in by reference to the Exhibit included to the
Company's Registration Statement on Form SB-2 dated November 29, 1994
(No. 33-82732).
*** Incorporated herein by reference to the Company's Quarterly report on
form 10-QSB for the quarter ended February 28, 1995.
(b) Reports on Form 8-K.
None.
19
<PAGE> 20
COHESANT TECHNOLOGIES INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheet as of November 30, 1996 F-3
Consolidated Statement of Operations for the Year Ended,
November 30, 1996 F-5
Consolidated Statement of Shareholders' Equity
for the Year Ended November 30, 1996 F-6
Consolidated Statement of Cash Flows for the Year Ended
November 30, 1996 F-7
Notes to Consolidated Financial Statements F-9
</TABLE>
F-1
<PAGE> 21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Cohesant Technologies Inc.:
We have audited the accompanying consolidated balance sheets of COHESANT
TECHNOLOGIES INC. (a Delaware corporation) and subsidiaries as of November 30,
1996 and 1995, and the related consolidated statements of operations,
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cohesant Technologies Inc. and
subsidiaries as of November 30, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Indianapolis, Indiana,
December 20, 1996.
F-2
<PAGE> 22
COHESANT TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
AS OF NOVEMBER 30, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
--------------- --------------
ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 500,751 $1,247,061
Temporary investments - 246,901
Accounts receivable, net of allowance for doubtful accounts of $107,073 and
$198,832 in 1996 and 1995, respectively
1,909,826 2,501,248
Business interruption insurance receivable 120,972 -
Tax refund receivable 93,700 -
Inventory, net 2,940,851 2,933,088
Prepaid expenses 303,306 161,422
Deferred tax assets 145,500 156,800
---------- ----------
Total current assets 6,014,906 7,246,520
Restricted, temporary investments 203,148 204,847
Notes receivable, net of allowance for doubtful accounts of $-0- and $36,919
for 1996 and 1995, respectively 15,688 68,988
Property, plant and equipment-
Land 53,902 53,902
Building and leasehold improvements 180,324 155,937
Machinery and equipment 956,185 623,407
Displays, demos, and lab equipment 129,400 106,389
---------- ----------
1,319,811 939,635
Less- Accumulated depreciation (382,627) (159,156)
---------- ---------
937,184 780,479
Investment and advances in unconsolidated affiliate 141,307 164,951
Patents and other intangibles, net of accumulated amortization of $149,490
and $51,053 in 1996 and 1995, respectively 245,494 287,191
Goodwill, net of accumulated amortization of $36,876 and $-0- in 1996 and
1995, respectively 613,432 -
Other noncurrent assets 25,411 11,847
---------- ----------
Total assets $8,196,570 $8,764,823
========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
F-3
<PAGE> 23
COHESANT TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
AS OF NOVEMBER 30, 1996 AND 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
<S> <C> <C>
LIABILITIES:
Revolving line of credit $ 150,000 -
Current maturities of long-term liabilities 50,053 $ 47,983
Accounts payable 1,647,944 1,538,242
Accrued wages and benefits 93,647 225,925
Other current liabilities 159,061 118,404
---------- ----------
Total current liabilities 2,100,705 1,930,554
Other noncurrent liabilities 87,919 120,949
---------- ----------
Total liabilities 2,188,624 2,051,503
COMMITMENTS AND CONTINGENCIES (Notes 9 and 11)
SHAREHOLDERS' EQUITY:
Common stock ($.001 par value; 10,000,000 shares authorized; issued and
outstanding 2,688,343 shares and 2,635,536 shares 2,688 2,636
Additional paid-in capital 6,450,360 6,285,417
Retained earnings (deficit) (445,102) 425,267
---------- ----------
Total shareholders' equity 6,007,946 6,713,320
---------- ----------
Total liabilities and
shareholders' equity $8,196,570 $8,764,823
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
F-4
<PAGE> 24
COHESANT TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED NOVEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
NET SALES $13,643,384 $14,065,494
COST OF SALES 9,195,959 9,141,895
----------- -----------
Gross profit 4,447,425 4,923,599
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES 884,153 901,332
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 4,018,376 3,275,308
OTHER CHARGES (Note 15) 461,276 90,544
----------- -----------
Income (loss) from operations (916,380) 656,415
OTHER INCOME (EXPENSE):
Interest expense (31,894) (27,997)
Interest income 50,416 90,765
Equity in loss of unconsolidated affiliate (31,138) (15,427)
Other - net 10,927 (12,218)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (918,069) 691,538
INCOME TAX (EXPENSE) BENEFIT 47,700 (251,344)
----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM (870,369) 440,194
EXTRAORDINARY ITEM:
Loss on extinguishment of debt - (14,927)
----------- -----------
NET INCOME (LOSS) $ (870,369) $ 425,267
=========== ===========
NET INCOME (LOSS) PER SHARE $(0.32) $ 0.16
=========== ===========
AVERAGE SHARES OUTSTANDING $ 2,681,202 2,607,616
=========== ===========
</TABLE>
The accompanying notes to financial statements are an
integral part of these consolidated statements.
F-5
<PAGE> 25
COHESANT TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED NOVEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
Additional Retained
Common Stock Paid-in Capital Earnings Total
------------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
BALANCES, November 30, 1994 $ - $ - $ - $ -
Issuance of 1,500,000 shares of common stock for acquisition
of ACC and GCI 1,500 2,071,409 - 2,072,909
Issuance of 1,250,000 shares from Initial Public Offering 1,250 4,786,214 - 4,787,464
Purchase of 114,564 shares (114) (572,206) - (572,320)
Net income - - 425,267 425,267
------ ---------- --------- ----------
BALANCES, November 30, 1995 2,636 6,285,417 425,267 6,713,320
Issuance of 52,807 shares of common stock (Note 2) 52 164,943 - 164,995
Net loss - - (870,369) (870,369)
------ ---------- --------- ----------
BALANCE, November 30, 1996 $2,688 $6,450,360 $(445,102) $6,007,946
====== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
presentation. Such reclassifications have no effect on previously reported net
income.
F - 6
<PAGE> 26
COHESANT TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED NOVEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (870,369) $ 425,267
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities-
Extraordinary item-
Loss on extinguishment of debt - 14,927
Depreciation and amortization 358,784 210,209
Deferred tax provision 11,300 154,100
Provision for doubtful accounts 91,197 92,437
Equity in loss of unconsolidated
affiliate 31,138 15,427
Gain on sale of equipment - (860)
Net change in current assets and
current liabilities-
Accounts and notes receivable 667,755 156,287
Business interruption insurance receivable (120,972) -
Tax refund receivable (93,700) -
Inventories 39,338 (414,886)
Prepaid expenses (130,384) (24,937)
Accounts payable (77,382) (307,559)
Other current liabilities (393,032) (51,942)
(Increase) decrease in other
noncurrent assets 2,097 (6,512)
Decrease in other noncurrent
liabilities (199,952) (38,600)
---------- ----------
Net cash provided by (used in)
operating activities (684,182) 223,358
---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of Raven (125,000) -
Purchase of patents (12,303) (28,312)
Property and equipment additions (307,463) (292,500)
Purchase of temporary investments - (246,901)
Maturity of temporary investment 246,901 -
Investment in restricted, temporary
investments - (204,847)
Advances to unconsolidated affiliate (7,494) (24,666)
---------- ----------
Net cash used in investing
activities (205,359) (797,226)
---------- ----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Issuance of common stock, net - 4,787,464
Borrowings under revolving line of credit 150,000 -
Principal payments under capital
lease obligations (6,769) -
Payments under line of credit agreement - (2,381,709)
Payments under term loan - (182,052)
Purchase of treasury shares - (572,320)
---------- ----------
Net cash provided by
financing activities 143,231 1,651,383
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (746,310) 1,077,515
</TABLE>
F - 7
<PAGE> 27
<TABLE>
<CAPTION>
<S> <C> <C>
CASH AND CASH EQUIVALENTS, at beginning of
period 1,247,061 169,546
---------- ----------
CASH AND CASH EQUIVALENTS, at end of period $ 500,751 $1,247,061
========== ==========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for-
Interest $ 31,140 $ 25,691
========== ==========
Income taxes $ 18,000 $ 91,500
========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these consolidated statements.
F - 8
<PAGE> 28
COHESANT TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
1. NATURE OF BUSINESS
------------------
Cohesant Technologies Inc. (the "Company" or "Cohesant") is engaged in the
design, development, manufacture and sale of specialized spray finishing and
coating application equipment, replacement parts and supplies used in the
operation of the equipment and specialty coating, adhesive and sealant products.
The Company's products are sold through a network of independent distributors,
sales representatives and licensed applicators in the United States and
overseas. Industries served include: construction, transportation and marine.
The Company's executive offices are located in Cleveland, Ohio, with its
principal manufacturing, warehouse and distribution facilities located in
Indianapolis, Indiana and St. Louis, Missouri. Additional manufacturing,
warehouse or distribution facilities are located in Tulsa, Oklahoma, Houston,
Texas, Newark, New Jersey, and City of Industry, California.
2. BACKGROUND
----------
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 $260,000 of 10%
convertible subordinated notes payable previously issued by GCI, were converted
into common stock. The acquisition of GCI and ACC was accounted for using the
purchase method of accounting; however, the related assets and liabilities were
appropriately reflected at carryover basis.
F - 9
<PAGE> 29
The net proceeds ($4,788,000) from the Offering (including the over-allotment
option) were used to reduce short-term borrowings on its line of credit
($2,382,000), to repay certain debt ($182,000), to repurchase 114,464 shares of
the Company's common stock ($572,000), to make certain capital improvements,
with the remainder available for business acquisitions and general working
capital purposes.
On December 13, 1995, the Company, through a newly organized ACC subsidiary,
Raven Lining Systems ("Raven"), acquired substantially all of the assets and
assumed approximately $713,000 of liabilities of Raven Management Services,
Inc., for an initial total purchase price of approximately $1,003,000, including
assumed debt. The initial purchase price was paid by the issuance of 52,807
shares of the Company's 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 the Company's stock, based on profitability of the newly
formed subsidiary, Raven over the next five years. No payment was due related to
fiscal 1996.
The Company's acquisition of Raven has been accounted for as a purchase, and
accordingly, the purchase price was allocated to the assets and liabilities of
the acquired company based on their fair values at the acquisition date. The
purchase price in excess of identifiable assets of approximately $650,000 was
allocated to goodwill and is being amortized on a straight-line basis over 17
years. Operating results of Raven are included in the consolidated results
beginning subsequent to the purchase date.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
a. Basis of Presentation
---------------------
The consolidated financial statements include the accounts of the Company and
its direct and indirect wholly owned subsidiaries. Intercompany accounts and
transactions have been eliminated. The Company's noncontrolling investment in an
affiliate is accounted for under the equity method.
b. Income Taxes
------------
The Company files a consolidated Federal income tax return with its wholly owned
subsidiaries. Income taxes are provided based on the liability method of
accounting pursuant to Statement of Financial Accounting Standards No. 109 (SFAS
109), "Accounting for Income Taxes." The liability method measures the effected
tax impact of future taxable income or deductions resulting from differences in
the tax and financial reporting bases of assets and liabilities reflected in the
consolidated balance sheets and the expected tax impact of carryforwards for tax
purposes.
c. Earnings Per Share
------------------
F - 10
<PAGE> 30
Earnings per share of common stock are based on the weighted average number of
common shares outstanding. The stock options, the warrants, the underwriter's
purchase option and related warrants were not included in the calculation of
earnings per share because they would have an antidilutive effect.
d. Statement 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 classified as cash
and cash equivalents. Cash equivalents consist of securities of the U.S.
Government and its agencies.
Certain noncash investing activities are described below:
During the fiscal year ended November 30, 1996, the Company exchanged 52,807
shares of its common stock in connection with the acquisition of Raven.
Additionally, during fiscal 1996, the Company also transferred $21,293 of
inventory to property and equipment.
During the fiscal year ended November 30, 1995, the Company exchanged 1,500,000
shares of its common stock for all of the outstanding capital stock of GCI and
ACC. Additionally, during fiscal 1995, the Company also transferred $47,195 of
inventory to property and equipment and entered into a capital lease obligation
of $64,414.
e. Inventories
-----------
Inventories are stated at the lower of cost or market, with cost determined
using the first-in, first-out method. Inventory costs include raw material,
labor (including material handling) and overhead costs. An inventory reserve is
provided for obsolete and slow-moving inventory to reduce the carrying amount to
its estimated net realizable value.
At November 30, 1996 and 1995, the net carrying value of inventories consisted
of the following:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
Raw materials $2,415,106 $2,420,554
Work-in-Process 116,688 118,941
Finished goods 409,057 393,593
---------- ----------
$2,940,851 $2,933,088
========== ==========
</TABLE>
f. Property and Equipment
----------------------
F - 11
<PAGE> 31
Property and equipment are carried at cost. Depreciation of property, plant and
equipment is provided by use of the declining balance and straight-line methods
over the estimated useful lives of the assets as follows:
Building 10-33 years
Machinery and equipment 3-20 years
Furniture and fixtures 5-10 years
Building improvements 5-20 years
Motor vehicles 5 years
Leasehold improvements 3-5 years
Displays, demos and lab equipment 3-5 years
g. Intangible Assets
-----------------
The purchase price in excess of identifiable assets of Raven, goodwill, is being
amortized on a straight-line basis over 17 years.
The cost of patents is being amortized using the straight-line method over their
estimated useful lives (approximately 3 to 10 years). Other intangibles consist
of the cost of certain product formulations, certifications and customer lists.
Amortization of deferred formula costs, certification costs and customer lists
is provided by use of the straight-line method over the estimated future period
of benefit (approximately 5 to 8 years).
The Company continually evaluates its intangible assets in light of events and
circumstances that may indicate that the remaining estimated useful life may
warrant revision or that the remaining value may not be recoverable. When
factors indicate that intangible assets should be evaluated for possible
impairment, the Company uses an estimate of the related cash flows over the
remaining life of the asset in measuring whether that asset is recoverable. To
the extent an impairment has occurred, the excess of the carrying value of the
intangibles over their estimated recoverable value will be charged to
operations.
In March 1995, Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," was issued. The statement must be adopted by the Company in the
first quarter of fiscal 1997. Under provisions of the statement, impairments,
measured using fair market value, are recognized whenever events or changes in
circumstances indicate that the carrying amount of long-lived assets may not be
recoverable and the future undiscounted cash flows attributable to the asset are
less than its carrying value. The statement is not expected to have a material
impact on the Company's results of operations or financial position.
F - 12
<PAGE> 32
h. Research and Development
------------------------
The costs associated with research and development programs for new products and
significant improvements, which totaled approximately $884,000 and $901,000 in
1996 and 1995, respectively, are expensed as incurred.
i. Estimates
---------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of sales and expenses during the reporting period. Actual results could
differ from those estimates.
j. Unaudited Pro forma Financial Information
-----------------------------------------
The following unaudited pro forma summary financial information combines the
consolidated results of operations of the Company as if the acquisition of Raven
had occurred as of December 1, 1994. The impact of this acquisition for the
period December 1, 1995 through December 13, 1995 was not material. Pro forma
adjustments to the consolidated statement of income consist principally of
recognizing the effect of savings resulting from the liquidation of Raven debt,
which was assumed by the Company. Preparation of the pro forma summary
information was based upon assumptions deemed appropriate by management of
Cohesant. The pro forma summary information is not necessarily indicative of the
results which actually would have occurred if the transaction had been
consummated at the beginning of the period presented, nor does it purport to
represent the future financial position and results of operations for future
periods.
<TABLE>
<CAPTION>
Year ended November 30, 1995
----------------------------
<S> <C>
Net sales $ 15,018,000
Net income 315,000
Net income per share $ 0.12
</TABLE>
4. BUSINESS INTERRUPTION INSURANCE RECEIVABLE
------------------------------------------
In August 1996, ACC had a fire at its manufacturing facility in St. Louis, and
as a result, has had to outsource some of its manufacturing. The fire directly
impacted ACC's sales, costs and profits. The Company has identified to date
costs of $120,972 which are reimbursable by its insurance carrier under terms of
its business interruption coverage. The amount recoverable from insurance has
been accrued as a receivable in the accompanying consolidated balance sheet.
F - 13
<PAGE> 33
The Company has had discussions with it's insurance agent and continues to
assess whether additional costs are reimbursable under the terms of its
insurance policy.
5. STOCK OPTION PLAN
-----------------
The Company has adopted a Stock Option Plan (the "Option Plan") to provide for
the grant of options to purchase shares of common stock to qualified employees
(including officers and directors). The exercise price of any options granted
under the plan shall be 100% of the fair market value of the common stock as of
the date of grant (or 110% of the fair market value of the common stock if the
grant is an "incentive stock option," as defined by the Internal Revenue Code,
to an employee who owns more than 10% of the Company's outstanding common
stock). Options may not be exercised more than ten years after the date of grant
(five years if the grant is an incentive stock option to any employee who owns
more than 10% of the Company's outstanding common stock). The Company has
reserved 250,000 shares of common stock for issuance upon exercise of stock
options. At November 30, 1996, there were 18,500 exercisable options and 57,500
options available for grant. Information with respect to outstanding options is
presented below.
<TABLE>
<CAPTION>
Exercise Price
Per Share Options
----------------------------------------- -------
<S> <C> <C>
OPTIONS OUTSTANDING AT
NOVEMBER 30, 1994 $5.00 50,000
Options Granted $5.00 81,000
Exercise Price
Per Share Options
----------------------------------------- -------
OPTIONS OUTSTANDING AT
NOVEMBER 30, 1995 $5.00 131,000
Options Granted $1.25 124,500
Options Canceled $5.00 (63,000)
OPTIONS OUTSTANDING AT
NOVEMBER 30, 1996 $1.25-$5.00 192,500
</TABLE>
In October 1995, SFAS No. 123, "Stock Based Compensation," was issued. This
statement will require the Company to choose between two different methods of
accounting for stock options. The statement defines a fair-value-based method of
accounting for stock options but allows an entity to continue to measure
compensation cost for stock options using the accounting prescribed by APB
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees."
F - 14
<PAGE> 34
Use of the APB 25 accounting method results in no compensation cost being
recognized if options are granted at an exercise price at the current market
value of the stock. The Company plans to continue to use the method prescribed
under APB 25 to measure compensation costs. Beginning in fiscal 1997, the
Company will be required by SFAS 123 to make pro forma disclosures of net income
and earnings per share as if the fair value method had been applied in its
financial statements beginning with the year ended November 30, 1996.
6. INVESTMENT AND ADVANCES IN UNCONSOLIDATED AFFILIATE
---------------------------------------------------
In February 1989, GCI invested $24,000 to become a one-third owner of RTM
Systems, Inc. (RTM). The Company is accounting for this investment under the
equity method. An additional reserve is provided when necessary to adjust the
Company's investment and advances in RTM to expected net realizable value.
GCI provides management and accounting services to RTM. The Companies also share
office facilities. RTM's allocated share of common expenses and fees charged by
GCI for management and accounting services totaled $35,439 and $96,201 in fiscal
1996 and 1995, respectively. The Company also sells dispensing systems to RTM.
Sales to RTM totaled $49,774 and $91,245 in fiscal 1996 and 1995, respectively.
Included in these sales are profits to the Company of $11,538 and $15,981 in
fiscal 1996 and 1995, respectively.
7. LONG-TERM LIABILITIES
---------------------
a. Revolving Line of Credit
------------------------
On March 20, 1995, the Company entered into a revolving line of credit agreement
with a bank. This $2,000,000, unsecured credit facility, as amended, expires May
31, 1997 and accrues interest at the bank's prime lending rate (8.25% as of
November 30, 1996). This facility can be used to fund working capital
requirements, capital expenditures and permitted acquisitions. In connection
with this agreement, the bank executed agreements with GCI and ACC to act as
guarantors of the Company's outstanding indebtedness. The revolving line of
credit had an outstanding balance of $150,000 and $-0- as of November 30, 1996
and 1995, respectively.
The agreement, among other restrictions, requires the Company to maintain
tangible net worth (as defined in the agreement) of $5,000,000 and a ratio of
liabilities to tangible net worth at a level not greater than 1.50 to 1.00. As
of November 30, 1996, the Company was in violation of the tangible net worth
covenant. The Company has received a waiver of the covenant violation from the
bank.
b. Capital Leases
--------------
The Company leases certain machinery and equipment under an agreement which is
classified as a capital lease. Future minimum payments, by year, under this
noncancellable capital lease consist of the following at November 30, 1996:
F - 15
<PAGE> 35
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1997 $12,000
1998 16,140
1999 17,520
2000 22,481
-------
Minimum lease payments 68,141
Less- Amount representing
interest 11,867 11,867
-------
Present value of future
minimum lease payments 56,274
Less- Amount included in
current maturities of
long-term liabilities 6,765
-------
Long-term portion $49,509
=======
</TABLE>
c. Other Noncurrent Liabilities
----------------------------
At November 30, 1996 and 1995, other noncurrent liabilities, excluding capital
lease obligations, consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ---------------
<S> <C> <C>
Obligation arising from the acquisition
of deferred formula costs and customer
lists, payable in minimum monthly
installments of $2,250, including interest
imputed at 10% through March $57,666 $ 77,770
Noninterest bearing deferred compensation
obligation, payable to the wife of the
founder of a predecessor of ACC in
annual installments of approximately
$25,000, including interest imputed at
12% for her lifetime, estimated to be
through 1997; collateralized by a $200,000
restricted temporary investment (Note 10) 21,086 28,119
Other 2,946 -
-------- --------
81,698 105,889
</TABLE>
F - 16
<PAGE> 36
<TABLE>
<CAPTION>
<S> <C> <C>
Less- Current portion 43,288 41,218
------- --------
Long-term portion $38,410 $ 64,671
======= ========
</TABLE>
Future maturities of other long-term liabilities at November 30, 1996 are as
follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1997 $43,288
1998 29,891
1999 8,519
-------
$81,698
=======
</TABLE>
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The carrying amounts of cash and cash equivalents, temporary investments,
accounts and notes receivable, accounts payable and noncurrent liabilities
(excluding capital lease obligations) approximate fair value because of the
short maturity of these instruments.
9. COMMITMENTS
-----------
The Company leases its office, a portion of its manufacturing and warehouse
facilities, computer equipment and Company cars under noncancellable operating
leases expiring at various dates through November 2000. Future minimum rental
payments required under these noncancellable operating leases are summarized as
follows:
<TABLE>
<CAPTION>
Fiscal
Year Amount
---- ------
<S> <C>
1997 $247,973
1998 214,604
1999 47,732
2000 10,843
</TABLE>
Rent expense totaled $379,000 and $446,000 for the years ended November 30, 1996
and 1995, respectively.
10. COLLATERAL SUBSTITUTION AGREEMENT
---------------------------------
On June 21, 1995, the Company entered into an agreement with its majority
stockholder for which the Company agreed to become a party to a certain pledge
and escrow agreement. As a result of this agreement, the Company placed $200,000
in short-term U.S. government money
F - 17
<PAGE> 37
market funds with Boatmen's Trust Company in St. Louis, Missouri, to secure a
continuing contractual payment obligation of ACC. As a consequence of this
agreement, the Company has classified such funds and the interest earned thereon
as Restricted, Temporary Investments under noncurrent assets on the accompanying
Consolidated Balance Sheets.
11. CONTINGENCIES
-------------
In September 1996, the patent infringement case between GCI and Magnum
Industries of Clearwater, Florida was settled. The settlement does not involve
payment by either party or require a change in either party's existing products.
In connection with this suit, the Company incurred approximately $295,000 and
$60,500 in legal costs for the years ended November 30, 1996 and 1995.
In July 1996, the Company settled a dispute with its product liability insurer,
St. Paul, over claims previously paid by St. Paul. ACC agreed to pay St. Paul
$85,000 in connection with the settlement agreement.
ACC has filed suit against a customer seeking collection for amounts owed on
open account of approximately $90,000, plus interest, and for tortuous business
interference. The customer has filed a counterclaim against ACC, and others,
seeking approximately $500,000 in damages for an alleged breach of contract and
negligent misrepresentations. ACC has denied all material allegations of the
counterclaim and intends to vigorously defend against the counterclaim. The suit
is currently scheduled for trial on or about February 1997. Management believes
that the counterclaim is without merit, and that the outcome of this litigation
will not have a material adverse effect on the Company's financial position or
results of operations.
The Company is a party to other legal and environmental matters which have
arisen in the ordinary course of business. Management believes the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
12. RETIREMENT PLANS
----------------
ACC has a defined benefit pension plan covering certain employees under a
collective bargaining agreement. Contributions for the years ended November 30,
1996 and 1995 were not significant. A comparison of accumulated plan benefits
and net assets available for benefits as of July 1, 1995 (date of last actuarial
review) and July 1, 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ------
<S> <C> <C>
Actuarial present value of
accumulated plan benefits $82,947 $91,123
Net assets available for
benefits 111,466 96,196
</TABLE>
F - 18
<PAGE> 38
The discount rates used in determining the actuarial present value of
accumulated plan benefits were 7.5% and 7% for 1996 and 1995, respectively.
The Company has defined contribution profit sharing plans for all nonunion
employees meeting minimum eligibility requirements. It is the Company's policy
to contribute up to 3% of total wages for each employee who makes certain
minimum contributions. The amounts contributed by the Company during 1996 and
1995 were $58,224 and $60,359, respectively.
13. INCOME TAXES
------------
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
CURRENT
Federal $(46,800) $ 61,944
State (12,200) 35,300
-------- --------
Total current (59,000) 97,244
DEFERRED
Total deferred 11,300 154,100
-------- --------
INCOME TAX EXPENSE (BENEFIT) $(47,700) $251,344
======== ========
</TABLE>
During fiscal 1996, the Company carried back a portion of fiscal 1996 net
operating losses to recover taxes paid in the prior year. A valuation allowance
was provided for the unutilized current year net operating losses. The 1995
effective tax rate does not differ materially from the statutory rate.
Temporary differences, credits and carryforwards which give rise to the net
deferred tax asset at November 30, 1996 and 1995 are as follows:
F - 19
<PAGE> 39
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Financial reporting reserves not
yet deductible $166,600 $162,300
Depreciation and amortization (38,600) (27,900)
Net operating loss carryforwards
attributable to:
ACC 348,600 348,600
Cohesant 189,700 -
General business credits 145,600 8,400
AMT credit carryforward 3,500 -
-------- --------
815,400 491,400
Less-Valuation allowance (669,900) (334,600)
-------- --------
NET DEFERRED TAX ASSET $145,500 $156,800
======== ========
</TABLE>
At November 30, 1996, for Federal income tax purposes, ACC has net operating
loss (NOL) carryforwards of $919,000 available to reduce future taxable income
which expire through 2003. The amount of this separate return limitation year
(SRLY) NOL which can be utilized annually is limited to approximately $4,000. A
valuation allowance has been provided to reduce the related deferred tax asset
to its estimated realizable value of $14,000 at November 30, 1996. At November
30, 1996, Cohesant has net operating loss carryforwards of $478,000 for Federal
income tax purposes and $60,000 for state income tax purposes available to
reduce future taxable income which expire in 2011. GCI has general business
credits totaling approximately $145,600 which expire through fiscal 2009. A full
valuation allowance has been provided for Cohesant's NOL's and GCI's general
business credits.
14. EMPLOYMENT AGREEMENTS
---------------------
The Company has employment agreements with the President and Chief Operating
Officer and the Executive Vice President and Chief Technical Officer each for a
three-year period which commenced on November 30, 1994. The employment
agreements provide for annual base salaries of $108,000 for each individual,
increasing annually based upon the Consumer Price Index and an annual bonus at
the discretion of the Compensation Committee of the Board of Directors of the
Company.
15. OTHER CHARGES
-------------
During the year, the Company incurred the following charges which have been
included as "Other Charges" in the Consolidated Statements of Operations:
F - 20
<PAGE> 40
<TABLE>
<CAPTION>
1996 1995
------------ ---------
<S> <C> <C>
Costs incurred in connection with the
integration of ACC and Raven and
certain other restructuring
activities $106,299 $ -
Legal and related costs incurred in connection with the
patent infringement and other lawsuits
354,977 90,544
-------- -------
Total other charges $461,276 $90,544
======== =======
</TABLE>
16. RELATED PARTY TRANSACTIONS
--------------------------
From December 1994 to May 31, 1996, the Company was party to a cost sharing
arrangement ("arrangement"), with Clarion Capital Corporation ("CCC"), the
company's majority shareholder, that provided for reimbursement by the Company
of certain occupancy, leased equipment, and other administrative costs incurred
by CCC as a result of shared facilities. In April 1996, upon the formation of
Clarion Management Ltd. ("CML"), an affiliate of CCC, the arrangement was
assigned to CML. Commencing June 1, 1996, the arrangement was replaced by a
management agreement ("agreement") which recognized the increased role played by
CML and its managing member in the affairs of the Company following the
resignation of the Company's prior president in May 1996. The agreement provides
that CML will provide management assistance, general administrative support and
office space for the Company and shall be paid $10,500 per fiscal quarter.
Pursuant to the agreement, CML was paid $14,000, net of expenses for shared
personnel as of November 30, 1996, which is reflected in the Consolidated
Statement of Operations. For the years ended November 30, 1996 and 1995, the
Company reimbursed the Clarion entities $7,800 and $12,100, respectively, for
expenses relating to the occupancy and use of shared facilities and equipment.
17. 1995 FINANCIAL STATEMENTS
-------------------------
Certain reclassifications have been made to the 1995 financial statements to
conform to the 1996 presentation. Such reclassifications have no effect on
previously reported net income.
F - 21
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 24, 1997
COHESANT TECHNOLOGIES INC.
BY: /s/ Morton A. Cohen
----------------------------------
Morton A. Cohen
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Morton A. Cohen Chairman of the Board February 24, 1997
- ------------------------- of Directors and Chief
Morton A. Cohen Executive Officer
(Principal Executive
Officer)
/s/ Dwight D. Goodman President February 24, 1997
- ------------------------- (Principal Operating
Dwight D. Goodman and Financial Officer),
and Director
/s/ Michael L. Boeckman Director February 24, 1997
- -------------------------
Michael L. Boeckman
/s/ Morris H. Wheeler Director February 24, 1997
- -------------------------
Morris H. Wheeler
/s/ Douglas R. Elliott Director February 24, 1997
- -------------------------
Douglas R. Elliott
Director February 24, 1997
- -------------------------
Norton W. Rose
<PAGE> 1
EXHIBIT 10.11
FINANCIAL ADVISORY AGREEMENT
----------------------------
AGREEMENT (the "Agreement") dated as of June 1, 1996, by and between
Clarion Management Ltd. with offices at 1801 E. Ninth Street, Suite 510,
Cleveland, Ohio 44114 (the "Clarion"), and Cohesant Technologies Inc., a
Delaware corporation with offices at 1801 E. Ninth Street, Suite 510, Cleveland,
Ohio 44114 ("Cohesant").
WHEREAS, the Company desires to employ Clarion in connection with
certain management and administrative services;
WHEREAS, Clarion is willing to perform such services and to provide
office space to Cohesant for such services;
NOW THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties agree as follows:
1. Responsibility of Clarion.
-------------------------
Clarion shall make available to Cohesant and its affiliates certain
information and services related to its business and affairs which it may from
time to time reasonably request. Such information and services shall include,
without limitation, management assistance, statistical accumulation, evaluation
and interpretation of financial data and reports concerning financial and
structuring strategies and alternatives, assistance in preparation of SEC
reports and general administrative support. Clarion shall also provide office
space for Cohesant's Chief Executive Officer and his assistants.
2. Compensation.
------------
In consideration of the benefits and services listed above, Cohesant
shall pay to Clarion a management advisory fee of Forty-two Thousand Dollars
($42,000) per annum, subject to adjustment by written agreement of the parties,
payable in advance in equal quarterly installments of $10,500 on the first day
of each calendar quarter during the term hereof.
3. Term.
----
This Agreement shall commence on the date first above written and shall
terminate on the date that Cohesant shall notify Clarion of its election to
terminate this agreement (which shall be not less than six months prior to the
effective date of such termination); provided, however, that such termination
shall not relieve Cohesant of its obligation to make payment of any fees which
shall have accrued and become payable prior to the
<PAGE> 2
effective date of such termination.
4. Special Projects, Acquisition.
-----------------------------
In addition to the management and administrative services specified in
Section 1 above, the parties hereto may agree, in writing, that Clarion shall
perform additional, specific projects on behalf of Cohesant. In the event
Clarion is requested to perform such additional duties, it shall be compensated
at a rate of $800 per diem. Further, in the event Clarion is requested to
perform any merger or acquisition work, including due diligence review of
acquisition candidates, Clarion shall be compensated at a rate to be agreed to
in writing, prior to the commencement of the merger or acquisition work.
5. Notices.
-------
Notice to be given to the parties hereunder shall be by overnight
courier, facsimile transmission followed by a confirming, written copy, or
United States certified mail, return receipt requested, to the address of the
respective parties set forth on the first page hereof. Either party hereto may
designate a new address at any time by notifying the other party in the manner
set forth above.
6. Modification.
------------
This Agreement contains the entire agreement of the parties with
respect to the subject matter hereof. Any change, modification, amendment or
alteration to this Agreement shall be effected only in writing and signed by the
party or parties against whom enforcement of any such change, modification,
amendment or alteration is sought.
7. Non-Waiver.
----------
The failure of any party hereto, at any time to require performance by
any party hereto of any provision hereof, shall in no way affect the right of
such failing party hereafter to enforce such provision nor shall any waiver by
any part of any breach of any provisions hereof be taken or held to be a waiver
of any succeeding breach of such provision or as a waiver of the provision
itself.
8. Severability.
------------
If any provision or provisions of this Agreement is held to be invalid
or unenforceable, the remaining provisions shall not be affected thereby.
9. Headings.
--------
<PAGE> 3
The headings of this Agreement are inserted for convenience
only and shall not be considered in construction of the provisions hereof.
10. Assignment and Successors; Binding Effect, etc.
----------------------------------------------
The rights and obligations of Clarion and Cohesant under this
Agreement shall inure to the benefit of and shall be binding upon the successors
of Clarion and Cohesant and may not be assigned without the consent of the other
party hereto, and any such purported assignment shall be null and void.
11. Governing Law.
-------------
The terms of this Agreement shall be construed and governed in
accordance with the laws of the State of Ohio without regard to principles of
conflicts of law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
CLARION MANAGEMENT LTD.
By:
------------------------------
Morris H. Wheeler
President
COHESANT TECHNOLOGIES INC.
By:
------------------------------
Dwight D. Goodman
President
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
Name of Subsidiary State of Incorporation Other Business Names
- ------------------ ---------------------- --------------------
1. Glas-Craft, Inc. Indiana ------
2. American Chemical Co. Missouri King Co.
King Adhesives
3. Raven Lining Systems, Inc. Missouri ------
4. Cohesant Technologies Ohio ------
of Ohio, Inc.
5. Cohesant Export, Inc. Barbados ------
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000928420
<NAME> Cohesant Technologies
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<CASH> 500,751
<SECURITIES> 0
<RECEIVABLES> 2,032,587
<ALLOWANCES> 107,073
<INVENTORY> 2,940,851
<CURRENT-ASSETS> 6,014,906
<PP&E> 1,319,811
<DEPRECIATION> 382,627
<TOTAL-ASSETS> 8,196,570
<CURRENT-LIABILITIES> 2,100,705
<BONDS> 0
<COMMON> 2,688
0
0
<OTHER-SE> 6,005,258
<TOTAL-LIABILITY-AND-EQUITY> 8,196,570
<SALES> 13,643,384
<TOTAL-REVENUES> 13,643,384
<CGS> 9,195,959
<TOTAL-COSTS> 10,080,112
<OTHER-EXPENSES> (10,927)
<LOSS-PROVISION> 91,197
<INTEREST-EXPENSE> 31,894
<INCOME-PRETAX> (918,069)
<INCOME-TAX> (47,000)
<INCOME-CONTINUING> (870,369)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (870,369)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> 0
</TABLE>
