Cohesant (COHT) 10QSB 2005 Q3 Quarterly report (small business)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

þ Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period endedAugust 31, 2005

or

o 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 code317-871-7611

(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.

YESþ NOo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of October 12, 2005, the Company has 3,164,789 shares of Common Stock, $.001 par value, outstanding.

Transitional Small Business Disclosure Format (check one) YESo NOþ

COHESANT TECHNOLOGIES INC.

INDEX

TABLE OF CONTENTS

		PAGE
PART I
Item 1.	Financial Information
	Cohesant Technologies Inc. Condensed Consolidated Balance Sheets as of August 31, 2005 and November 30, 2004		3
	Cohesant Technologies Inc. Condensed Consolidated Statements of Operations for the Three Months Ended August 31, 2005 and August 31, 2004		4
	Cohesant Technologies Inc. Condensed Consolidated Statements of Operations for the Nine Months Ended August 31, 2005 and August 31, 2004		5
	Cohesant Technologies Inc. Condensed Consolidated Statements of Cash Flows for the Nine Months Ended August 31, 2005 and August 31, 2004		6
	Notes to Condensed Consolidated Financial Statements		7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3.	Controls and Procedures		19
PART II
Item 2.	Unregistered Sales of Securities and Use of Proceeds		20
Item 4.	Submission of Matters to a Vote of Security Holders		20
Item 6.	Exhibits and Reports on Form 8-K		21
Signatures
EX-31.1 Certification 302 - CEO
EX-31.2 Certification 302 - CFO
EX-32 Certifications 906 - CEO and CFO

2

PART I

ITEM 1. FINANCIAL INFORMATION

COHESANT TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEET

	August 31, 2005		November 30, 2004
	(Unaudited)
ASSETS:
Cash and cash equivalents	$	1,805,105	$	5,036,582
Accounts receivable, net of allowance for doubtful accounts of $312,205 and $302,000, respectively		4,517,823		3,297,305
Inventory, net of allowance for obsolete and slow-moving inventory of $207,000 and $187,000, respectively		3,827,363		3,367,947
Prepaid expenses and other		343,803		272,032
Deferred tax assets, net		210,000		210,000
Total Current Assets		10,704,094		12,183,866
Property, plant and equipment, net		723,568		520,866
Intangibles assets, net		1,465,028		125,296
Goodwill		7,925,994		840,254
Other noncurrent assets		3,060		1,815
Total Assets	$	20,821,744	$	13,672,097
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Accounts payable	$	2,212,283	$	983,798
Accrued salaries, benefits and commissions		672,218		786,713
Accrued taxes		496,621		240,860
Dividends payable		—		347,005
Deferred revenue		256,430		—
Due to former owners of acquired business		462,990		—
Other current liabilities		311,376		197,119
Total Current Liabilities		4,411,918		2,555,495
Deferred tax liability		228,200		228,200
Total Liabilities		4,640,118		2,783,695
Commitments and Contingencies
Shareholders’ Equity:
Common stock ($.001 par value, 10,000,000 shares authorized and 3,118,382 and 2,613,965 shares issued, respectively)		3,118		2,614
Additional paid-in capital		10,871,035		6,313,774
Accumulated other comprehensive income		3,370		—
Retained earnings		5,304,103		4,572,014
Total Shareholders’ Equity		16,181,626		10,888,402
Total Liabilities and Shareholders’ Equity	$	20,821,744	$	13,672,097

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3

COHESANT TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	For the Three Months Ended
	August 31, 2005			August 31, 2004
NET SALES	$	5,620,990		$	5,116,265
COST OF SALES		2,904,038			2,368,254
Gross profit		2,716,952			2,748,011
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES		242,154			273,484
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		1,778,921			1,639,218
TOTAL OPERATING EXPENSES		2,021,075			1,912,702
Income from operations		695,877			835,309
OTHER INCOME:
Interest income		27,136			10,022
Other income, net		8,701			16,891
INCOME BEFORE TAXES		731,714			862,222
INCOME TAX PROVISION		(280,470	)		(320,498	)
NET INCOME	$	451,244		$	541,724
EARNINGS PER COMMON SHARE (Note 4)
BASIC	$	0.16		$	0.21
DILUTED	$	0.16		$	0.20
AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
BASIC		2,753,320			2,600,655
DILUTED		2,839,734			2,717,603
CASH DIVIDENDS PER SHARE	$	0.135		$	0.13
COMPREHENSIVE INCOME
Net Income	$	451,244		$	541,724
Foreign currency translation adjustment		3,370			—
NET COMPREHENSIVE INCOME	$	454,614		$	541,724

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

4

COHESANT TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	For the Nine Months Ended
	August 31, 2005			August 31, 2004
NET SALES	$	15,584,746		$	14,641,856
COST OF SALES		8,239,998			7,108,416
Gross profit		7,344,748			7,533,440
RESEARCH, DEVELOPMENT AND ENGINEERING EXPENSES		685,403			797,387
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		4,984,601			4,624,230
TOTAL OPERATING EXPENSES		5,670,004			5,421,617
Income from operations		1,674,744			2,111,823
OTHER INCOME:
Interest income		77,294			20,360
Other income, net		19,388			31,465
INCOME BEFORE TAXES		1,771,426			2,163,648
INCOME TAX PROVISION		(675,561	)		(804,271	)
NET INCOME	$	1,095,865		$	1,359,377
EARNINGS PER COMMON SHARE (Note 4)
BASIC	$	0.41		$	0.52
DILUTED	$	0.40		$	0.51
AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
BASIC		2,674,008			2,590,090
DILUTED		2,769,287			2,689,340
CASH DIVIDENDS PER SHARE	$	0.135		$	0.13
COMPREHENSIVE INCOME
Net Income	$	1,095,865		$	1,359,377
Foreign currency translation adjustment		3,370			—
NET COMPREHENSIVE INCOME	$	1,099,235		$	1,359,377

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

5

COHESANT TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	For the Nine Months Ended
	August 31, 2005			August 31, 2004
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income	$	1,095,865		$	1,359,377
Adjustments to reconcile net income to net cash provided by operating activities -
Depreciation and amortization		172,108			176,668
Non-cash compensation		115,645			96,384
Loss on asset disposal		126			275
Provision for doubtful accounts		10,205			20,205
Net change in assets and liabilities-
Accounts and notes receivable		(249,660	)		(137,604	)
Inventories		(320,184	)		(38,279	)
Prepaid expenses and other		(71,771	)		(107,472	)
Accounts payable		1,037,306			182,950
Deferred revenue		11,959			—
Other current liabilities		304,068			227,770
Other noncurrent assets		(12,516	)		(17,498	)
Net cash provided by operating activities		2,093,151			1,762,776
CASH FLOWS USED IN INVESTING ACTIVITIES:
Property and equipment additions		(170,831	)		(128,102	)
Acquisition of CuraFlo		(4,548,092	)		—
Proceeds from sale of property & equipment		13,370			—
Net cash used in investing activities		(4,705,553	)		(128,102	)
CASH FLOWS USED IN FINANCING ACTIVITIES:
Proceeds from exercise of stock options		91,705			64,436
Cash dividends paid to stockholders		(710,780	)		(987,298	)
Net cash used in financing activities		(619,075	)		(922,862	)
NET INCREASE IN CASH AND CASH EQUIVALENTS		(3,231,477	)		711,812
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		5,036,582			3,838,179
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,805,105		$	4,549,991

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

6

COHESANT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 — Background

Cohesant Technologies Inc. and its subsidiaries (the “Company” or “Cohesant”) are engaged in the design, development, manufacture and sale of specialized dispense equipment systems, replacement parts and supplies used in the operation of the equipment and the design, development, manufacture and sale of specialty coatings. These systems and products offer innovative lining technology providing corrosion protection and renewal of infrastructure in commercial, institutional, municipal and residential sectors of the water, wastewater and industrial markets. Additionally the Company is a licensor of technology for the renewal and rehabilitation of small diameter water pipes and also performs restoration, protection and replacement of plumbing lines.

The Company’s direct, wholly owned subsidiaries, GlasCraft Inc. (“GCI”), Raven Lining Systems Inc. (“Raven”) and the CuraFlo group (“CuraFlo”) consisting of Cohesant Infrastructure Protection and Renewal Canada Ltd., CuraFlo of British Columbia Ltd. and Cohesant Infrastructure Protection and Renewal LLC, sell their products through a network of independent distributors, Certified Applicators and Licensees in the United States and overseas. Industries served include construction, transportation and marine.

The Company’s executive offices are located in Indianapolis, Indiana with its principal manufacturing, warehouse and distribution facilities located in Indianapolis, Indiana, Tulsa, Oklahoma and Vancouver, Canada.

Note 2 — Basis of Presentation

The condensed consolidated 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 accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management of the Company, the condensed consolidated interim financial statements include all adjustments necessary to present fairly the financial information for such periods.

These interim financial statements should be read in conjunction with the Company’s financial statements and the notes thereto included in the November 30, 2004 Annual Report to Shareholders on Form 10-KSB.

The consolidated financial statements include the accounts of the Company and its direct, wholly owned subsidiaries, CuraFlo, GCI and Raven. Intercompany accounts and transactions have been eliminated.

7

COHESANT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 3 — Acquisition of CuraFlo

On August 12, 2005, the Company acquired substantially all of the assets and assumed certain liabilities of 4279 Investments Ltd., a British Columbia corporation, and its subsidiaries, Curaflo Technologies Inc., a Canadian federal company, Curalease Ltd., a British Columbia corporation, Curaflo Technologies (Canada) Inc., a British Columbia corporation, CuraFlo of BC Inc. (dba West Coast Pipe Restoration Ltd.), a British Columbia corporation, Curaflo Technologies (USA) Inc., a Nevada corporation, and Curaflo of the Silicon Valley, Inc., a California corporation (collectively “CuraFlo”). CuraFlo, currently based in Vancouver, Canada, licenses technology for the renewal and rehabilitation of small diameter water pipes. The process is used to rehabilitate aging water pipes in apartment buildings, private homes and other commercial, industrial and residential buildings. This process is an alternative to the process of tearing out and replacing the old pipes. CuraFlo also provides equipment, epoxy (supplied by Raven) and other supplies to its licensees. CuraFlo’s Services unit performs restoration, protection and replacement of plumbing lines in Western Canada and the United States. The integration of CuraFlo into Cohesant’s brand portfolio will enable the Company to extend its infrastructure protection and renewal offerings beyond its current municipal focus by adding CuraFlo’s industry position in the commercial and light industrial sectors and its operations in the residential sectors.

Acquisition consideration consisted of $4,104,000 in cash and 461,124 shares of non-registered common stock valued at $4,265,397 as determined by the closing price of Cohesant’s stock on the acquisition date in accordance with applicable accounting rules. In addition, the Company has incurred $444,092 of direct costs related to the acquisition, including legal and accounting fees. A portion of the purchase price consisting of $50,000 and 231,741 shares of the Company’s common stock was deposited for a minimum of 24 months into an escrow account to secure customary indemnity and other obligations of the Sellers that may arise post-closing. The assumed liabilities of $944,293 depicted below include a $462,990 payment due to the former owners relating to returned working capital required by the purchase agreement.

The following table summarizes the net assets acquired, which are preliminary and subject to change based on actual expenses, intangible asset review, final working capital payment due to previous owners and relocation costs.

Current assets	$	1,129,513
Property & equipment		186,529
Intangible assets		1,356,000
Goodwill		7,085,740
Total assets acquired		9,757,782
Liabilities assumed		(944,293	)
Net assets acquired	$	8,813,489

8

COHESANT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Unaudited pro forma results

The results of operations of CuraFlo have been included with those of the Company only since the acquisition date. The following unaudited pro forma revenue, net income and income per share information of the Company and the acquired assets of CuraFlo assume the acquisition had occurred as of December 1, 2004 and December 1, 2003:

	Three Months Ended August 31,				Nine Months Ended August 31,
	2005		2004		2005		2004
Revenue	$	6,711,539	$	5,859,932	$	19,050,342	$	16,558,930
Net Income		651,881		595,810		1,382,344		1,359,835
Basic earnings per share		0.21		0.19		0.45		0.45
Diluted earnings per share:		0.20		0.19		0.43		0.43

The information presented above is for informational purposes only and is not necessarily indicative of the actual results that would have occurred had the acquisition been consummated at the beginning of the respective period, nor are they necessarily indicative of future operating results of the combined companies under the ownership and management of the Company.

Note 4 — Earnings per Share

Statement of Financial Accounting Standards (SFAS) No. 128, “Earnings per Share”, requires dual presentation of basic and diluted earnings per share on the face of the statement of operations. Basic earnings per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period. Restricted stock grants are not considered issued and outstanding until vested, but are included in diluted earnings per share. Diluted earnings per share is computed based upon the weighted average shares that would have been outstanding if all dilutive potential common shares would have been converted into shares at the earliest date possible. In determining diluted earnings per share, stock options were included in the calculation as their effect was dilutive. The following is a reconciliation of the numerators and denominators used in computing earnings per share:

	Three Months Ended August 31,				Nine Months Ended August 31,
	2005		2004		2005		2004
Income available to common stockholders	$	451,244	$	541,724	$	1,095,865	$	1,359,377
Basic earnings per share:
Weighted-average number of common shares outstanding		2,753,320		2,600,655		2,674,008		2,590,090
Basic earnings per share	$	0.16	$	0.21	$	0.41	$	0.52
Diluted earnings per share:
Weighted-average number of common shares outstanding		2,753,320		2,600,655		2,674,008		2,590,090
Stock Options		79,975		104,533		87,048		93,615
Restricted Stock		6,439		12,415		8,231		5,635
Diluted weighted-average number of common shares outstanding		2,839,734		2,717,603		2,769,287		2,689,340
Diluted earnings per share	$	0.16	$	0.20	$	0.40	$	0.51

9

COHESANT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 5 — Accounting for Stock-Based Compensation

The Company accounts for its stock-based employee compensation plan under the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, (APB 25). The Company has adopted the disclosure-only provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation (FAS 123), as amended by FASB Statement No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. Had the company elected to adopt the fair value recognition provisions of FAS 123, pro forma net income and earnings per share would be as follows:

	Three Months Ended						Nine Months Ended
	August 31,						August 31,
	2005			2004			2005			2004
Net income, as reported	$	451,244		$	541,724		$	1,095,865		$	1,359,377
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		21,532			43,315			71,700			67,383
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(34,063	)		(57,907	)		(109,293	)		(111,159	)
Pro forma net income	$	438,713		$	527,132		$	1,058,272		$	1,315,601
Earnings per share:
Basic—as reported	$	0.16		$	0.21		$	0.41		$	0.52
Basic—pro forma	$	0.16		$	0.20		$	0.40		$	0.51
Diluted—as reported	$	0.16		$	0.20		$	0.40		$	0.51
Diluted—pro forma	$	0.15		$	0.19		$	0.38		$	0.49

On December 16, 2004, the FASB finalized SFAS No. 123R “Share-Based Payment,” which will be effective for small business issuers at the beginning of the first annual reporting period after December 15, 2005. The new standard will require the Company to expense stock options and the FASB believes the use of a binomial lattice model for option valuation is capable of more fully reflecting certain characteristics of employee share options. The Company has begun a process to analyze how the utilization of a binomial lattice model could impact the valuation of our options.

Note 6 — Revolving Line of Credit

On April 29, 2005, the Company renewed, through May 1, 2006, its $3,500,000 unsecured revolving line of credit facility. This facility accrues interest at the bank’s prime lending rate. Among other restrictions, the credit facility requires that the Company meet certain covenants

10

COHESANT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

including financial ratios. As of August 31, 2005, the Company was in compliance with all covenants and did not have a balance outstanding under this facility.

Note 7 — Segment Information

The Company monitors its operations in three business divisions: CuraFlo, GCI and Raven. Certain corporate costs are not allocated to the business segments. CuraFlo was acquired on August 12, 2005. Financial information for the Company’s reportable segments as of and for the period ended August 31, 2005 and August 31, 2004 is as follows:

Three Months Ended
August 31, 2005	CuraFlo		GCI		Raven		Corporate			Consolidated
Net Sales	$	229,263	$	3,661,394	$	1,730,333	$	—		$	5,620,990
Depreciation and amortization:		11,464		42,701		9,897		914			64,976
Net Income:		20,770		418,947		285,483		(273,956	)		451,244
Identifiable assets:		9,918,828		6,289,393		2,534,465		2,079,058			20,821,744
Capital expenditures:		—		48,080		7,881		447			56,408

Three Months Ended
August 31, 2004	CuraFlo		GCI		Raven		Corporate			Consolidated
Net Sales:		—	$	3,682,694	$	1,433,571	$	—		$	5,116,265
Depreciation and amortization:		—		42,335		13,253		2,277			57,865
Net Income:		—		511,784		236,293		(206,353	)		541,724
Identifiable assets:		—		5,880,845		2,519,569		4,816,381			13,216,795
Capital expenditures:		—		57,244		10,589		1,025			68,858

Nine Months Ended
August 31, 2005	CuraFlo		GCI		Raven		Corporate			Consolidated
Net Sales	$	229,263	$	10,353,460	$	5,002,023	$	—		$	15,584,746
Depreciation and amortization:		11,464		123,169		32,441		5,034			172,108
Net Income:		20,770		1,140,081		695,319		(760,305	)		1,095,865
Identifiable assets:		9,918,828		6,289,393		2,534,465		2,079,058			20,821,744
Capital expenditures:		—		158,393		10,598		1,840			170,831

Nine Months Ended
August 31, 2004	CuraFlo		GCI		Raven		Corporate			Consolidated
Net Sales:		—	$	9,918,828	$	4,723,028	$	—		$	14,641,856
Depreciation and amortization:		—		131,612		39,285		5,771			176,668
Net Income:		—		1,123,299		780,424		(544,346	)		1,359,377
Identifiable assets:		—		5,880,845		2,519,569		4,816,381			13,216,795
Capital expenditures:		—		96,367		22,774		8,961			128,102

11

COHESANT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table presents percentage of total revenues by region.

	Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended
Region	August 31, 2005			August 31, 2004			August 31, 2005			August 31, 2004
United States		65			67			67			67
Asia/Pacific Rim		12			12			11			12
Europe		10			11			10			12
Canada		8			4			7			5
Other		5			6			5			4
Total		100	%		100	%		100	%		100	%

Note 8 — Contingencies

In November 1999, following the sale of certain assets of the Company’s American Chemical Company (“ACC”) subsidiary, ACC contributed its land and building to Marine Learning Institute (“MLI”), a not-for-profit environmental educational organization. MLI agreed to indemnify the Company to assume any costs arising from or out of the past, present or future environmental condition of the site. Subsequent to the donation of the St. Louis property, the Missouri Attorney General’s office raised questions regarding the status of the contributed land and advised the affected parties that additional clean-up efforts were necessary. MLI advised both the Company and the Missouri Attorney General that, in its opinion, no further clean-up efforts were necessary. Management intends to seek indemnification from MLI for any further clean-up and legal costs. No activity with respect to this matter has occurred in either fiscal year 2004 or to date in fiscal year 2005.

The Company is a party to certain other legal matters arising in the ordinary course of business. Management believes the ultimate disposition of these matters and the matter referred to above will not have a material adverse effect on the Company’s financial position or results of operations.

Note 9 — Shareholders’ Equity

On December 13, 2004, the Compensation Committee of the Board of Directors approved the grant of 7,850 shares of Common Stock, with an aggregate value of $94,200 to an aggregate of 12 key employees, including three executive officers. The grants were based on fiscal 2004 performance. The entire cost of these awards was expensed in the fiscal 2004 period. The issuance was exempt from registration pursuant to section 4(2) of the Securities Act of 1933.

Effective March 22, 2005, the Board of Directors approved the grant of 1,350 shares of Common Stock, with an aggregate value of $9,936, to a new employee. The grant was a restricted award that vests on a cliff basis on March 22, 2012 and may vest earlier according to meeting specific performance measures through March 31, 2006. The value of the grant is being recognized as non cash compensation expense over the vesting period.

12

COHESANT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

On August 12, 2005 the Company issued 461,124 shares of common stock, with an aggregate value of $4,265,397 in connection with the acquisition of CuraFlo.

Note 10 — Dividends

On May 4, 2005, the Company announced that its Board of Directors approved a semi-annual dividend payment of $0.135 per share. This dividend payment of $363,776 was paid on May 27, 2005 to shareholders of record on May 18, 2005.

13

COHESANT TECHNOLOGIES INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

Acquisition

We maintain a strategy for growth through steady organic expansion supported by select acquisitions. Our long-term strategic plan is to be a global leader providing technologies for infrastructure renewal and protection.

On August 12, 2005, the Company acquired substantially all of the assets and assumed certain liabilities of 4279 Investments Ltd., a British Columbia corporation, and its subsidiaries, Curaflo Technologies Inc., a Canadian federal company, Curalease Ltd., a British Columbia corporation, Curaflo Technologies (Canada) Inc., a British Columbia corporation, CuraFlo of BC Inc. (dba West Coast Pipe Restoration Ltd.), a British Columbia corporation, Curaflo Technologies (USA) Inc., a Nevada corporation, and Curaflo of the Silicon Valley, Inc., a California corporation (collectively “CuraFlo”). CuraFlo, currently based in Vancouver, Canada, is a licensor of technology for the renewal and rehabilitation of small diameter water pipes. The process is used to rehabilitate aging water pipes in apartment buildings, private homes and other commercial, industrial and residential buildings. This process is a modern alternative to the expensive and time consuming previous process of tearing out and replacing the old pipes. CuraFlo also provides equipment, epoxy (supplied by Raven) and other supplies to its licensees. CuraFlo’s Services unit performs restoration, protection and replacement of plumbing lines in Western Canada and the United States. The integration of CuraFlo into Cohesant’s brand portfolio will enable the Company to extend its infrastructure protection and renewal offerings beyond its current municipal focus by adding CuraFlo’s industry leadership position in the commercial and light industrial sectors and its operations in the residential sectors.

Acquisition consideration consisted of $4,104,000 in cash and 461,124 shares of non-registered common stock valued at $4,265,397 as determined by the closing price of Cohesant’s stock on the acquisition date in accordance with applicable accounting rules. In addition, the Company has incurred $444,092 of direct costs related to the acquisition, including legal and accounting fees. A portion of the purchase price consisting of $50,000 and 231,741 shares of the Company’s common stock was deposited for a minimum of 24 months into an escrow account to secure customary indemnity and other obligations of the Sellers that may arise post-closing.

Results of Operations

Third quarter ended August 31, 2005 as compared to the same period in the prior year.

Net sales for the three months ended August 31, 2005 were $5,620,990 compared to $5,116,265 for the same period of the prior year, an increase of $504,725 or 9.9%. Coatings sales increased $396,946, or 29.2%, and Equipment sales decreased $57,941, or 1.5%. The Company had Renewal revenue of $165,720 in the current period. Net income was $451,244, a $90,480 or 16.7% decrease compared to last year.

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COHESANT TECHNOLOGIES INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Net sales of dispense equipment and spare parts at GCI decreased $21,300 or less than 1%. This decrease was primarily attributable to decreased sales of coating systems and to a lesser extent decreased sales of fiberglass spare parts. This sales decrease was almost entirely offset by increased sales of dispense systems for the fiberglass reinforced plastics market and polyurethane foam market and continued demand for the new Probler P2 dispense gun used in the polyurethane foam and coatings market. Net sales of dispense equipment and parts in the United States decreased 8.8% while international dispense equipment and parts net sales increased 10.1%. The increase in international sales was primarily a result of increased sales to Canada and the Asia/Pacific Rim, which was partially offset by decreased sales to Europe.

Specialty coatings net sales at Raven were $1,694,130 compared to $1,360,240 for the comparable period in the prior year, an increase of $333,890 or 24.5%. In addition, Raven had ancillary equipment and parts sales of $36,203 compared to $73,331 for the comparable period last year. Typically, Raven does not sell equipment unless new Certified Applicators needing equipment are added or existing applicators decide to increase capacity by buying additional equipment.

Renewal net sales at CuraFlo were $165,720 for the post acquisition period (August 13, 2005 through August 31, 2005). Renewal revenue consists of restoration, protection and replacement of plumbing lines in commercial and residential buildings. In addition, CuraFlo had specialty coatings net sales of $63,520 to its licensees in the period.

The Company’s gross margin decreased to $2,716,952, or 48.3% of net sales, in the 2005 period from $2,748,011, or 53.7% of net sales, in the 2004 period. The dollar decrease was primarily attributable to a less favorable product mix of dispense systems sold in the period and due to special introductory pricing on the new Probler P2 gun and greater than expected manufacturing and component costs for initial runs of this new product. This decrease was almost entirely offset by increased sales of specialty coatings and by the acquisition of CuraFlo. The decreased gross profit percentage was a result of the items mentioned above as well as increased raw material costs on the Company’s specialty coatings. Management expects margins to continue to improve on its equipment as introductory pricing expires and as manufacturing and component costs decline on future production runs of the Probler P2.

Operating expenses for the three months ended August 31, 2005 were $2,021,075 compared to $1,912,702 for the same period of the prior year, an increase of $108,373, or 5.7%. This increase was primarily due to increased corporate administrative costs (increased personnel), which was partially offset by decreased administrative and research, development and engineering costs at GCI. The acquisition of CuraFlo added $44,259 in administrative costs in the period.

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COHESANT TECHNOLOGIES INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Other income, net of other expenses increased $8,924. This increase was primarily attributable to increased interest earned on cash balances.

Nine months ended August 31, 2005 as compared to the same period in the prior year.

Net sales for the nine months ended August 31, 2005 were $15,584,746 compared to $14,641,856 for the same period of the prior year, an increase of $942,890 or 6.4%. Equipment sales increased $346,784, or 3.3% and Coatings sales increased $430,386, or 10.2%. The Company had Renewal revenue of $165,720 in the current period. Net income was $1,095,865, a $263,512 or 19.4% decrease compared to last year.

Net sales of dispense equipment and spare parts at GCI increased $434,632 or 4.4%. This increase was primarily attributable to an increase in sales of dispense systems for the fiberglass reinforced plastics market and strong initial demand for the new Probler P2 dispense gun introduced in the first quarter which significantly increased sales of dispense guns to the foam and coatings market. GCI also experienced an increase in sales of spare parts and accessories. These sales gains were partially offset by a decrease in sales of coating dispense systems. Net sales of dispense equipment and parts in the United States increased 4.9% and international dispense equipment and parts net sales increased 3.9%. Decreased sales to the Asia/Pacific Rim and Europe were offset by increased sales to Canada and other areas.

Specialty coatings net sales at Raven were $4,573,630 compared to $4,206,300 for the comparable period in the prior year, an increase of $367,330 or 8.7%. In addition, Raven had ancillary equipment and parts sales of $428,393 compared to $516,728 for the comparable period last year. Typically, Raven does not sell equipment unless new Certified Applicators needing equipment are added or existing applicators decide to increase capacity by buying additional equipment.

Renewal net sales at CuraFlo were $165,720 all of which incurred in the third quarter following the acquisition. Renewal revenue consists of restoration, protection and replacement of plumbing lines in commercial and residential buildings. In addition, CuraFlo had specialty coatings net sales of $63,520 to its licensees in the period.

The Company’s gross margin decreased to $7,344,748, or 47.1% of net sales, in the 2005 period from $7,533,440, or 51.5% of net sales, in the 2004 period. The largest portion of this decrease was attributable to special introductory pricing on the new Probler P2 gun and greater than expected manufacturing and component costs for initial runs of this new product. To a lesser extent, the decrease in gross margin dollars and percentage decrease was due to a less favorable product mix of dispense systems sold in the period and increased raw material costs on the Company’s specialty coatings. Management expects margins to continue to improve on its equipment as introductory pricing expires and as manufacturing and component costs decline on future production runs of the Probler P2.

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COHESANT TECHNOLOGIES INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Operating expenses for the nine months ended August 31, 2005 were $5,670,004 compared to $5,421,617 for the same period of the prior year, an increase of $248,387, or 4.6%. This increase was primarily due to increased corporate administrative costs (increased personnel), which was partially offset by decreased administrative, research, development and engineering and sales and marketing expenses at GCI. The acquisition of CuraFlo added $44,259 in administrative costs in the period.

Other income, net of other expenses increased $44,857. This increase was primarily attributable to increased interest earned on cash balances.

Liquidity and Capital Resources

The Company’s primary sources of liquidity are its cash reserves and availability under the revolving line of credit. At August 31, 2005 the Company has cash and cash equivalents of $1,805,105, net working capital of $6,292,176 and $3,500,000 available under the revolving line of credit.

In the first nine months of fiscal 2005 cash provided by operations was $2,093,151 compared to $1,762,776 in the comparable period last year. This increase was primarily due to increased accounts payable balances and partially offset by increased account receivable and inventory balances resulting from increased sales and a decrease in net income. Cash used in investing activities increased to $4,705,553 in the current period from $128,102 in the period ended August 31, 2004. This increase was due to the CuraFlo acquisition and increased spending on capital equipment. Cash used in financing activities was $619,075 in the current period compared to $922,862 in the prior year period. This decrease was primarily due to timing differences of dividends paid to shareholders.

On April 29, 2005, the Company renewed, through May 1, 2006, its $3,500,000 unsecured revolving line of credit facility. This facility accrues interest at the bank’s prime lending rate. Among other restrictions, the credit facility requires that the Company meet certain covenants including financial ratios. As of August 31, 2005, the Company was in compliance with all covenants and did not have a balance outstanding under this facility.

The Company does not have any other significant commitments or guarantees, except for rental commitments.

The Company believes that its cash flow from operating activities, existing cash resources and working capital coupled with its bank line will be adequate to meet its capital needs and dividend provisions for the foreseeable future.

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COHESANT TECHNOLOGIES INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Critical Accounting Policies and Estimates

The Company has disclosed those accounting policies and estimates that it considers to be significant in determining the amounts to be utilized for communicating its consolidated financial position, results of operations and cash flows in the notes to its consolidated financial statements.

The preparation of financial statements in conformity with these principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Management continually evaluates the information used to make such estimates as its business and economic environment changes and has discussed these estimates with the Audit Committee of the Board of Directors. Actual results are likely to differ from these estimates, but management does not believe such differences will materially affect the Company’s financial position or results of operations.

The following accounting policies represent the most critical based on management’s analysis due the impact on the Company’s results of operations.

Revenue Recognition.The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB 104”). Under SAB 104 revenue is recognized when there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is fixed or determinable, and collectibility is reasonably assured.

For equipment, coatings, and replacement and spare part revenue, the criteria of SAB 104 are generally met upon shipment to its independent distributors, certified applicators, large end users and Original Equipment Manufacturer accounts, at which time title and risks ownership are transferred to these customers. Therefore, revenue is recognized at the time of shipment. The Company does not have any rights of return, customer acceptance, installation or other post-shipment obligations with any of its products. The Company’s pricing is fixed at the time of shipment.

Renewal revenue consists of restoration, protection and replacement of plumbing lines in commercial and residential buildings. This revenue is recognized on the percentage of completion method in the ratio that total incurred costs bear to total estimated costs. The estimated total cost of a contract is based on management’s best estimate of the remaining costs that will be required to complete a project.

License fee revenue is recognized when collectibility is assured and all material services or conditions relating to the sale have been substantially performed.

Accounts receivable.The Company evaluates the allowance for doubtful accounts on a periodic basis and reviews any significant customers with delinquent balances to determine future collectability. The determination includes a review of legal issues (such as bankruptcy status), past

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COHESANT TECHNOLOGIES INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

payment history, current financial and credit reports, and the experience of the credit representative. Allowances are established in the period in which the account is deemed uncollectable or questionable collectability. The Company believes, based on past history and credit policies, that the net accounts receivable are of good quality.

Inventory.The Company’s inventories are valued at the lower of cost or market. Reserves for obsolescence are estimated and based on projected sales volume. Though management considers these balances adequate and proper, changes in sales volumes due to unexpected economic conditions could result in materially different amounts for this item.

Based on a critical assessment of its accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that the Company’s consolidated financial statements provide a meaningful and fair perspective of the Company. This is not to suggest that other risk factors such as changes in economic conditions, changes in material costs, and others could not adversely impact the Company’s consolidated financial position, results of operations and cash flows in future periods.

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 international markets for plural components dispensing systems, a reduction in growth of markets for the Company’s epoxy coating systems, customer resistance to Company price increases, the successful integration of the CuraFlo acquisition and CuraFlo’s ability to expand its licensing and services business.

ITEM 3. CONTROLS AND PROCEDURES

Based on their evaluation as of a date within 90 days of the filing date of this Quarterly Report on Form 10-QSB, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the Exchange Act) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation and up to the

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COHESANT TECHNOLOGIES INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

filing date of this Quarterly Report on Form 10-QSB. There were no significant deficiencies or material weaknesses, and therefore there were no corrective actions taken.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

PART II

ITEM 2. UNREGISTERED SALES OF SECURITIES AND USE OF PROCEEDS

On August 12, 2005, the Company acquired substantially all of the assets and assumed certain liabilities of CuraFlo. A portion of the purchase price was paid by the issuance of 461,124 shares of common stock with an aggregate value in accordance with applicable accounting rules of $4,265,397.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

a)	The Company’s annual meeting of stockholders was held on June 9, 2005.
b)	At the annual meeting, the Company’s stockholders elected Morton A. Cohen, Dwight D. Goodman, Michael L. Boeckman, Richard L. Immerman and Morris H. Wheeler as Directors for a term that expires at the annual meeting of stockholders in 2006.
c)	At the annual meeting, the Company’s stockholders ratified the appointment of Ernst & Young LLP as auditors of the Company for fiscal 2005. The holders of 2,588,977 shares of Common Stock voted to ratify the appointment, the holders of 3,000 shares voted against the ratification and the holders of 669 shares abstained.
d)	At the annual meeting, the Company’s stockholders approved the Company’s Long-Term Incentive Plan. The holders of 1,742,118 shares of common stock voted to approve the plan, the holders of 176,365 shares voted against and the holders of 6,763 shares abstained. There were 667,400 broker non-votes for the Long-Term Incentive Plan.

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COHESANT TECHNOLOGIES INC.

     The following tabulation represents voting for the Directors:

			Withheld
	For		Authority
Michael L. Boeckman		2,585,246		7,400
Morton A. Cohen		2,395,805		196,841
Dwight D. Goodman		2,409,505		183,141
Richard L. Immerman		2,585,246		7,400
Morris H. Wheeler		2,412,357		180,289

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibit

31.1	302 Certification of Chief Executive Officer
31.2	302 Certification of Chief Financial Officer
32	906 Certification of Chief Executive Officer and Chief Financial Officer

(b)	Reports on Form 8-K
	An 8-K was filed on June 16, 2005 to report earnings for the second quarter and six months ended May 31, 2005 (Items 2.02 and 9.01).
	An 8-K was filed on August 16, 2005 to report the acquisition of CuraFlo and related companies (Items 1.01, 2.01, 3.02 and 9.01).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned there unto duly authorized.

     Dated: October 14, 2005

COHESANT TECHNOLOGIES INC.
BY:	/s/ Morris H. Wheeler
Morris H. Wheeler
President & Chief Executive Officer
BY:	/s/ Robert W. Pawlak
Robert W. Pawlak
Chief Financial Officer

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