<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 February 28, 1998
-------------------------------------------------
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: 1-13484
--------------------------------------------------------
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.)
5845 West 82nd Street, Suite 102, Indianapolis, Indiana 46278
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code 317-875-5592
---------------------------------
- --------------------------------------------------------------------------------
(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 March 30, 1998, 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 February 28, 1998.............................. 1
Cohesant Technologies Inc. Condensed
Statements of Operations for the Three Months Ended
February 28, 1998 and February 28, 1997............................ 2
Cohesant Technologies Inc. Condensed
Statements of Cash Flows for the Three Months Ended
February 28, 1998 and February 28, 1997............................ 3
Notes to Condensed Financial Statements..................................... 4
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>
February 28,1998
----------------
<S> <C>
ASSETS:
Cash and cash equivalents $ 18,591
Accounts receivable, net of allowance
for doubtful accounts of $78,711 1,957,518
Inventory 3,128,328
Prepaid expenses 169,680
Deferred tax asset 165,600
Current assets - discontinued operations 399,806
-----------
Total Current Assets 5,839,523
Restricted, temporary investment 208,281
Property, plant and equipment, net 627,215
Investment and advances in unconsolidated affiliate 111,238
Patents and other intangibles, net 134,129
Goodwill, net 567,337
Other noncurrent assets 12,148
Noncurrent assets - discontinued operations 426,207
-----------
Total Assets $ 7,926,078
===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Revolving line of credit $ 1,002,280
Current maturities of other noncurrent liabilities 64,005
Accounts payable 945,211
Accrued wages and benefits 58,863
Accrued liabilities related to discontinued operations 475,721
Other current liabilities 394,800
-----------
Total current liabilities 2,940,880
Commitments and contingencies (Note 7)
Other noncurrent liabilities 265,423
-----------
Total liabilities 3,206,303
Shareholders' Equity:
Common stock ($.001 par value, 10,000,000
shares authorized, 2,688,343 issued and
outstanding) 2,688
Additional paid-in capital 6,450,360
Retained deficit (1,733,273)
-----------
Total Shareholders' Equity 4,719,775
-----------
Total Liabilities and Shareholders' Equity $ 7,926,078
===========
</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
February 28, 1998 February 28, 1997
----------------- -----------------
<S> <C> <C>
NET SALES $ 2,603,617 $ 2,138,898
COST OF SALES 1,455,341 1,266,538
----------- -----------
Gross profit 1,148,276 872,360
RESEARCH, DEVELOPMENT AND
ENGINEERING EXPENSES 216,005 232,512
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 767,839 645,797
----------- -----------
Income (loss) from operations 164,432 (5,949)
OTHER INCOME (EXPENSE):
Interest expense (30,470) (10,523)
Interest income 2,490 4,306
Equity in income of
unconsolidated affiliate 12,277 16,468
Other income, net 20,977 2,980
----------- -----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 169,706 7,282
PROVISION FOR INCOME TAXES (Note 5) -- --
----------- -----------
INCOME FROM CONTINUING OPERATIONS 169,706 7,282
DISCONTINUED OPERATIONS:
Loss from discontinued operations -- (99,690)
----------- -----------
NET INCOME (LOSS) $ 169,706 $ (92,408)
=========== ===========
NET INCOME (LOSS) PER SHARE
CONTINUING OPERATIONS $ 0.06 $ --
DISCONTINUED OPERATIONS -- (0.03)
----------- -----------
BASIC AND DILUTED EARNINGS (LOSS) PER
COMMON SHARE (Note 3) $ 0.06 $ (0.03)
=========== ===========
AVERAGE SHARES OF COMMON STOCK
OUTSTANDING 2,688,343 2,688,343
=========== ===========
</TABLE>
See Notes to Condensed Financial Statements.
2
<PAGE> 5
COHESANT TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
February 28, 1998 February 28, 1997
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 169,706 $ (92,408)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) continuing operations -
Loss from discontinued operations -- 99,690
Depreciation and amortization 58,680 53,046
Provision for doubtful accounts 6,000 4,633
Equity in income of unconsolidated subsidiary (12,277) (16,468)
Net change in current assets and
current liabilities-
Accounts and notes receivable (430,391) (267,557)
Inventories 46,864 (103,303)
Prepaid expenses (64,996) (36,282)
Accounts payable (622,221) 105,893
Other current liabilities (150,981) 8,247
Other noncurrent assets 336 (10,308)
Other noncurrent liabilities 202,750 (7,758)
----------- ---------
Net cash used in continuing operations (796,530) (262,575)
Net cash used in discontinued operations -- (594,103)
Change in current assets of discontinued
operations 1,288,430 --
----------- ---------
Net cash provided by (used in) operating
activities 491,900 (856,678)
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions (39,713) (8,214)
Property and equipment additions of discontinued
operations -- (65,976)
Change in noncurrent assets of discontinued
operations 50,000 --
Advances to unconsolidated affiliate 6,541 (27,215)
----------- ---------
Net cash provided by (used in) investing
activities 16,828 (10,405)
----------- ---------
CASH FLOWS PROVIDED BY FINANCING
ACTIVITIES:
Borrowings (payments) under revolving
line of credit (550,000) 620,000
----------- ---------
Net cash provided by (used in) financing
activities (550,000) 620,000
----------- ---------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (41,272) (338,083)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 59,863 446,299
----------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 18,591 $ 108,216
=========== =========
</TABLE>
See Notes to Condensed Financial Statements.
3
<PAGE> 6
COHESANT TECHNOLOGIES INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BACKGROUND
Cohesant Technologies Inc. ("Company") designs, develops and manufactures plural
component dispensing systems, specialized spray finishing and coating
application equipment and specialty two component epoxy coating and grout
products through two subsidiaries--Glas-Craft, Inc. ("GCI") and Raven Lining
Systems, Inc. ("Raven").
NOTE 2 - 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, 1997 Annual Report to Shareholders on Form 10-KSB.
The accompanying condensed consolidated financial statements include the
accounts of the Company and its direct wholly owned subsidiaries. The Company's
noncontrolling investment in an affiliate is accounted for under the equity
method. All significant intercompany amounts have been eliminated.
NOTE 3 - EARNINGS PER SHARE
In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings
Per Share", was issued. The new standard simplifies the computation of earnings
per share, and requires the presentation of two new amounts, basic and diluted
earnings per share. The Company has adopted this standard as of December 1,
1997, and has restated its computation of earnings per share for each period
presented. Financial instruments considered in the computation of diluted
earnings per share included only the Company's outstanding stock options as the
outstanding warrants are antidilutive. The adoption of this new Standard
resulted in an immaterial difference in its computation of basic and diluted
earnings per share.
4
<PAGE> 7
COHESANT TECHNOLOGIES INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - REVOLVING LINE OF CREDIT FACILITY
On May 13, 1997, the Company's subsidiary, GCI, entered into a revolving line of
credit agreement with a bank. This $2,000,000 credit facility is subject to a
borrowing base and accrues interest at the bank's prime lending rate plus 50
basis points (9.0% as of February 28, 1998). The credit facility is fully
secured by a lien on all the assets of the Company and its operating
subsidiaries. The credit facility, which is renewable, expires on May 1, 1998.
The credit facility limits advances to GCI's affiliate companies to a maximum of
$750,000. This agreement requires that GCI meets certain covenants including
financial ratios. As of February 28, 1998, GCI is in compliance with these
financial covenants. As of February 28, 1998, the outstanding balance under this
agreement was $1,002,280 of which $0 has been advanced to affiliated companies.
The Company's previous credit facility expired on May 31, 1997, and had an
outstanding balance at February 28, 1997, of $770,000.
NOTE 5- INCOME TAXES
The Company has not recorded a provision for income taxes for the quarter in
light of the Company's net operating loss carryforwards for which a full
valuation allowance had been established in prior years due to uncertainty as to
the future use of these amounts. During the first quarter of 1998, the Company
reduced the valuation allowance to reflect the expected use of approximately
$62,800 of net operating loss carryforwards to reduce current income taxes.
NOTE 6- DISCONTINUED OPERATIONS
On November 30, 1997, the Company's Board of Directors signed an agreement to
sell certain assets of American Chemical Company's ("ACC") adhesive, private
label and toll manufacturing business. Concurrent with this decision, management
decided to discontinue this business. The Company anticipates that the business
will be disposed of by November 30, 1998. This line of business has been
accounted for as a discontinued operation for all periods presented in
accordance with Accounting Principles Board No. 30, Reporting the Results of
Operations - Reporting the Effects of a Disposal of a
5
<PAGE> 8
COHESANT TECHNOLOGIES INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions.
On January 14, 1998 the Company, ACC and a third party completed the sale of
certain assets (inventory and certain intangibles) of the discontinued business
and executed a three-year non-compete agreement. The consideration received of
approximately $1,350,000, which is subject to post closing adjustments, includes
a $300,000 promissory note bearing 8% interest and due in three years and
$350,000, for a three-year non-compete agreement with the buyer. The $350,000
non-compete agreement is presented on the accompanying Condensed Consolidated
Balance Sheet as an Other Current and Non-current Liability. The non-compete
agreement is being amortized to income over the three-year contract period.
Accounts receivable, inventory and other current assets of the adhesives,
private label, and toll manufacturing business have been segregated in the
accompanying Consolidated Balance Sheet as Current Assets - Discontinued
Operations. Net property, plant and equipment and other noncurrent assets of the
adhesives, private label, and toll manufacturing segment have been segregated in
the accompanying Consolidated Balance Sheet as Noncurrent Assets - Discontinued
Operations. During the first quarter of 1998, the Company's adhesives, private
label and toll manufacturing business has incurred operating losses totaling
$103,278 that have been reflected as a reduction to the Accrued Liabilities
Related to Discontinued Operations in the accompanying Condensed Consolidated
Balance Sheet. Operating results for this business are consistent with the
Company's prior estimate of these amounts.
NOTE 7- COMMITMENTS AND CONTINGENCIES
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
6
<PAGE> 9
COHESANT TECHNOLOGIES INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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.
In another environmental matter, with the sale of ACC's product lines and
inventories, the Company is proceeding to investigate and remediate the
environmental condition of its St. Louis property in order that the property can
be marketed and sold. The work includes soil remediation required by the
Missouri Department of Natural Resources in connection with the closure of
underground storage tanks. The Company does not expect the cost of the
investigation and any remediation of the St. Louis property to have a material
adverse effect on the Company's financial position or results of operations. An
estimate of costs expected to be incurred for environmental matters, has been
accrued.
7
<PAGE> 10
COHESANT TECHNOLOGIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER ENDED FEBRUARY 28, 1998
RESULTS OF OPERATIONS
For the three months ended February 28, 1998, net sales increased $464,719, or
21.7%. Of this amount, $485,334 represented increased specialty grout and epoxy
products. This increase was primarily attributable to sales from two new
Certified Applicators and a manufacturing representative. Additionally, projects
in Chicago, Illinois and Austin, Texas significantly contributed to the sales
increase. Equipment and parts sales decreased slightly to $1,890,510, or $20,615
compared to the 1997 quarter. The decrease was attributable to a 22% decline in
foreign sales offset by a 24% increase in domestic sales. The decrease in
foreign sales was primarily due to a 53.4% drop in sales to the Asian/Pacific
region.
The Company's gross margin increased to $1,148,276, or 44.1% of net sales in the
current quarter from $872,360, or 40.8% of net sales in the 1997 period. The
increases of $275,916 and 3.3% were primarily attributable to increased sales of
specialty grout and epoxy products which generally have a higher margin than the
equipment group.
Operating expenses are up $105,535, or 12% in the first quarter of 1998 over
1997 period. This increase was principally due to additional marketing expenses
at both GCI and Raven. The increased marketing expenses are attributable to the
increased sales volume, additional staffing and increased advertising, offset by
an adjustment of $45,000 as a result of a final negotiated payment for
previously accrued professional services.
During the first quarter of 1998, other income, net of other expenses, decreased
from the same period in the prior year by approximately $8,000, due principally
to increased interest expense offset by income derived from amortization of the
agreement not to compete payment received in conjunction with the sale of ACC' s
adhesive, private label and toll manufacturing business.
DISCONTINUED OPERATIONS
On November 30, 1997, the Company's Board of Directors signed an agreement to
sell certain assets of ACC's adhesive, private label and toll manufacturing
business. Concurrent with this decision, management decided to discontinue this
business. The operating activity performed in the first quarter of 1998 includes
sales through the closing and tolling activities for the buyer thereafter. Such
tolling activity expired in the second
8
<PAGE> 11
COHESANT TECHNOLOGIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
quarter. The discontinued operation recorded sales totaling approximately
$602,717 and $1,325,254 in the first quarter of 1998 and 1997, respectively.
Total operating losses from the discontinued operations were $103,278 and
$99,690 in the first quarter of 1998 and 1997, respectively. The 1998 losses
have been reflected as a reduction to the Accrued Liabilities Related to
Discontinued Operations in the accompanying Condensed Consolidated Balance
Sheet.
On January 14, 1998, the Company completed the sale of certain of the assets of
the discontinued business and signed a three-year agreement not to compete in
this business. The purchase price estimated at $1,350,000 is subject to a final
closing settlement. The purchase price was paid in cash except for a $300,000
promissory note bearing 8% interest and due in three years. The $350,000
non-compete agreement is being amortized to income over the three-year contract
period. The Company anticipates selling or otherwise disposing of the remaining
assets of this business by November 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
On May 13, 1997, the Company's subsidiary, GCI, entered into a revolving line of
credit agreement with a bank. This $2,000,000 credit facility is subject to a
borrowing base and accrues interest at the bank's prime lending rate plus 50
basis points (9.0% as of February 28, 1998). The credit facility is fully
secured by a lien on all the assets of the Company and its operating
subsidiaries. The credit facility, which is renewable, expires on May 1, 1998.
The Company is in discussion with its Bank for a new credit facility and does
not anticipate a problem securing a new facility, although no definitive
agreements have been executed.
The credit facility limits advances to GCI's affiliate companies to a maximum of
$750,000. As of February 28, 1998, the outstanding balance under this agreement
was $1,002,280 of which $0 has been advanced to affiliated companies.
During the quarter ended February 28, 1998, the Company's working capital
increased $398,492, from $2,500,151 at November 30, 1997 to $2,898,643 at
February 28, 1998. This increase was due primarily to a $430,391 increase in
accounts receivable, $550,000 of repayments under the Company's line of credit,
a $622,221 decrease in accounts payable and a offset by net cash provided by
discontinued operations of $1,338,430.
9
<PAGE> 12
COHESANT TECHNOLOGIES INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Certain statements contained in this report that are not historical facts are
forward looking statements that are subject to certain risks and uncertainties
that could cause actual results to differ materially from those set forth in the
forward looking statement. These risks and uncertainties include, but are not
limited to, a slow-down in domestic and foreign markets for plural component
dispensing systems and a reduction in growth of markets for the Company's epoxy
coating systems.
10
<PAGE> 13
COHESANT TECHNOLOGIES INC.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
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:
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.
In another environmental matter, with the sale of ACC's product lines and
inventories, the Company is proceeding to investigate and remediate the
environmental condition of its St. Louis property in order that the property can
be marketed and sold. The work includes soil remediation required by the
Missouri Department of Natural Resources in connection with the closure of
underground storage tanks. The Company does not expect the cost of the
investigation and any remediation of the St. Louis property to have a material
adverse effect on the Company's financial position or results of operations. An
estimate of costs expected to be incurred for environmental matters, has been
accrued.
ITEM 6. Exhibits and reports on Form 8-K
(a) Exhibits 27 - Financial Data Schedule
(b) Reports on Form 8-K - 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: March 30, 1998
COHESANT TECHNOLOGIES INC.
BY: /s/ MORTON A. COHEN
--------------------------------------------
Morton A. Cohen
Chairman of the Board of Directors
BY: /s/ DWIGHT D. GOODMAN
--------------------------------------------
Dwight D. Goodman
President and Chief Executive Officer
(Principal Executive and Financial Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000928420
<NAME> 0
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 18,591
<SECURITIES> 0
<RECEIVABLES> 2,036,229
<ALLOWANCES> 78,711
<INVENTORY> 3,128,328
<CURRENT-ASSETS> 5,839,523
<PP&E> 1,081,945
<DEPRECIATION> 454,730
<TOTAL-ASSETS> 7,926,078
<CURRENT-LIABILITIES> 2,940,880
<BONDS> 0
0
0
<COMMON> 2,688,343
<OTHER-SE> 6,450,360
<TOTAL-LIABILITY-AND-EQUITY> 7,926,078
<SALES> 2,603,617
<TOTAL-REVENUES> 2,603,617
<CGS> 1,455,341
<TOTAL-COSTS> 1,671,346
<OTHER-EXPENSES> (20,977)
<LOSS-PROVISION> 6,000
<INTEREST-EXPENSE> 30,470
<INCOME-PRETAX> 169,706
<INCOME-TAX> 0
<INCOME-CONTINUING> 169,706
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 169,706
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0.06
</TABLE>
