Cohesant (COHT) 10QSB 2006 Q1 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 ended            February 28, 2006

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 code 317-871-7611

(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   NO o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YESo   NOþ

As of March 30, 2006, the Company has 3,159,531 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 February 28, 2006 and November 30, 2005		3
	Cohesant Technologies Inc. Condensed Consolidated Statements of Operations for the Three Months Ended February 28, 2006 and February 28, 2005		4
	Cohesant Technologies Inc. Condensed Consolidated Statements of Cash Flows for the Three Months Ended February 28, 2006 and February 28, 2005		5
	Notes to Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3.	Controls and Procedures		20
PART II
Item 2.	Unregistered Sales of Securities and Use of Proceeds		20
Item 6.	Exhibits and Reports on Form 8-K		21
Signatures
EX-2.2 AMENDMENT AND SETTLEMENT AGREEMENT
EX-10.1
EX-31.1 302 CERTIFICATION - PRINCIPAL EXECUTIVE OFFICER
EX-31.2 302 CERTIFICATION - PRINCIPAL FINANCIAL OFFICER
EX-32 906 CERTIFICATION - PRINCIPAL EXECUTIVE OFFICERS

2

PART I

ITEM 1. FINANCIAL INFORMATION

COHESANT TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	February 28, 2006		November 30, 2005
	(Unaudited)
ASSETS:
Cash and cash equivalents	$	1,219,790	$	2,238,281
Accounts receivable, net of allowance for doubtful accounts of $300,163 and $284,628, respectively		4,526,207		4,125,062
Inventory, net of allowance for obsolete and slow-moving inventory of $227,675 and $195,425, respectively		3,908,149		3,490,087
Prepaid expenses and other		381,494		333,751
Deferred tax assets, net		240,200		240,200
Total Current Assets		10,275,840		10,427,381
Property, plant and equipment, net		1,143,171		991,730
License agreements, patents and other intangibles, net		1,347,948		1,392,499
Goodwill		8,074,149		8,223,913
Other noncurrent assets		9,518		8,484
Total Assets	$	20,850,626	$	21,044,007
LIABILITIES AND SHAREHOLDERS’ EQUITY:
Accounts payable	$	1,953,581	$	1,622,153
Accrued salaries, benefits and commissions		555,515		1,047,938
Accrued income taxes		506,303		387,242
Billings in excess of costs and estimated earnings		113,824		133,844
Due to former owners of acquired business		—		473,707
Other current liabilities		436,282		480,787
Total Current Liabilities		3,565,505		4,145,671
Deferred tax liability		243,700		243,700
Total Liabilities		3,809,205		4,389,371
Commitments and Contingencies (Note 9)
Shareholders’ Equity:
Common stock ($.001 par value, 10,000,000 shares authorized and 3,119,112 and 3,123,089 shares issued and outstanding, respectively)		3,119		3,123
Additional paid-in capital		11,228,360		11,230,959
Accumulated other comprehensive income		21,100		11,384
Retained earnings		5,788,842		5,409,170
Total Shareholders’ Equity		17,041,421		16,654,636
Total Liabilities and Shareholders’ Equity	$	20,850,626	$	21,044,007

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
	February 28, 2006			February 28, 2005
NET SALES	$	6,465,597		$	4,260,799
COST OF SALES		3,551,882			2,234,955
Gross profit		2,913,715			2,025,844
RESEARCH AND DEVELOPMENT EXPENSES		272,621			230,818
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		2,036,886			1,438,643
TOTAL OPERATING EXPENSES		2,309,507			1,669,461
Income from operations		604,208			356,383
OTHER INCOME:
Interest income		6,413			21,948
Other income, net		1,755			4,953
INCOME BEFORE TAXES		612,376			383,284
INCOME TAX PROVISION		(232,704	)		(145,649	)
NET INCOME	$	379,672		$	237,635
EARNINGS PER COMMON SHARE BASIC & DILUTED (Note 4)	$	0.12		$	0.09
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
BASIC		3,123,263			2,624,798
DILUTED		3,235,496			2,735,263
COMPREHENSIVE INCOME
Net Income	$	379,672		$	237,635
Foreign currency translation adjustment		9,716			—
NET COMPREHENSIVE INCOME	$	389,388		$	237,635

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

4

COHESANT TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	For the Three Months Ended
	February 28, 2006			February 28, 2005
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net income	$	379,672		$	237,635
Adjustments to reconcile net income to net cash used in operating activities
Depreciation and amortization		115,958			54,233
Non-cash compensation		33,612			46,187
Provision for doubtful accounts		15,535			6,735
Net change in assets and liabilities-
Accounts receivable		(416,680	)		(138,590	)
Inventories		(431,147	)		(121,171	)
Prepaid expenses and other		(47,743	)		(44,337	)
Accounts payable		331,428			263,007
Billings in excess of costs and estimated earnings		(20,020	)		—
Other current liabilities		(551,549	)		(429,976	)
Other noncurrent assets		5,041			(4,832	)
Net cash used in operating activities		(585,893	)		(131,109	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Property and equipment additions		(206,122	)		(74,753	)
Payment to former owners of acquired business		(342,136	)		—
Return of cash paid for acquisition of CuraFlo		77,250			—
Proceeds from sale of property & equipment		—			9,580
Net cash used in investing activities		(471,008	)		(65,173	)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from note receivable restricted stock		32,833			—
Proceeds from exercise of stock options		5,577			47,545
Cash dividends paid to stockholders		—			(347,004	)
Net cash provided by (used in) financing activities		38,410			(299,459	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(1,018,491	)		(495,741	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		2,238,281			5,036,582
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	1,219,790		$	4,540,841

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

5

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 protection, renewal and rehabilitation of drinking water distribution systems and waste water collection systems for municipal, industrial, commercial and residential infrastructure, 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. The Company formerly conducted operations through its 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 CIPAR Services Inc. The Company operated under this structure in fiscal 2005. On December 1, 2005 the Company completed the reconfiguration of its businesses and now conducts operations under its wholly owned subsidiaries — CIPAR Inc. (Cohesant Infrastructure Protection and Renewal), Cohesant Materials Inc. (“CMI”) and GlasCraft Inc. (“GCI”) and has four revenue categories — Coatings, Equipment and Parts, Licensee and Rehabilitation and Renewal Services (Rehabilitation).

CIPAR accounts for both Licensee and Rehabilitation revenues. CIPAR was formed through a combination of the licensing portion of the former Raven Lining Systems subsidiary and the acquired CuraFlo Licensing and Rehabilitation and Renewal Services business. CIPAR licenses systems for the renewal and rehabilitation of waste water collection systems, drinking water distribution systems and small diameter water pipes in apartment buildings, private homes and other commercial, industrial and residential buildings; provides equipment; exclusively sells its Raven and CuraPoxy branded coatings (manufactured by CMI) as well as other products to its Certified Applicators and Licensed Dealers; and performs renewal, rehabilitation and replacement of plumbing lines in Western Canada and the United States.

CMI manufactures, markets and sells corrosion protection and other specialty coatings used in the protection, renewal and rehabilitation of infrastructure. CMI represents the research and development and manufacturing arms of the former Raven subsidiary and has a sales and marketing focus on developing new markets for its AquataPoxy products. Currently, a significant portion of CMI’s Coating sales are to CIPAR.

GCI manufactures, markets and sells high-quality equipment for metering, mixing and dispensing multiple component formulations such as fiberglass reinforced plastics, polyurethanes, and polyureas. These equipment systems are commonly employed in the construction, transportation and marine industries to apply insulation, protective coating, sealant and anti-corrosive products. GCI primarily sells its products through independent distributors in the United States and overseas.

6

COHESANT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The Company’s executive offices are located in Indianapolis, Indiana with its principal manufacturing, warehouse, office and distribution facilities located in Cleveland, Ohio, 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, 2005 Annual Report to Shareholders on Form 10-KSB.

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

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, formerly 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 CMI) and other supplies to its licensees. In addition CuraFlo performs renewal, rehabilitation and replacement of plumbing lines in Western Canada and the United States. The integration of CuraFlo into Cohesant’s brand

7

COHESANT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

portfolio will enable the Company to extend its infrastructure protection and rehabilitation offerings beyond its historical 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 based on the closing price of Cohesant’s stock on the acquisition date. In addition, the Company has incurred $467,064 of direct costs related to the acquisition, including primarily legal and accounting fees. A portion of the purchase price consisting of $50,000 and 231,741 shares of the Company’s common stock were deposited into an escrow account to secure customary indemnity and other obligations of the Sellers that may arise post-closing. The assumed liabilities of $783,599 depicted below include a $342,136 payment made in the first quarter of fiscal 2006 to the Sellers relating to a closing date working capital adjustment required by the purchase agreement. During the first quarter, the Sellers paid the Company from the escrow $77,250 and returned 7,500 shares, which were retired, to resolve outstanding issues among the parties. Also, the Company released 75,000 shares from escrow to the Sellers during the first quarter. At February 28, 2006, there were 149,241 shares remaining in escrow.

The following table summarizes the net assets acquired, which are preliminary and subject to change based on the finalization of actual employee relocation costs.

Current assets	$	864,667
Property & equipment		227,483
Intangible assets		1,343,000
Goodwill		7,233,895
Total assets acquired		9,669,045
Liabilities assumed		(783,599	)
Net assets acquired	$	8,885,446

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:

8

COHESANT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

	Three Months Ended February 28,
	2006		2005
Revenue	$	6,465,597	$	5,349,698
Net Income		379,672		319,265
Basic earnings per share		0.12		0.10
Diluted earnings per share:		0.12		0.10

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 and restricted stock 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 February 28,
	2006		2005
Income available to common stockholders	$	379,672	$	237,635
Basic earnings per share:
Weighted-average number of common shares outstanding		3,123,263		2,624,798
Basic earnings per share	$	0.12	$	0.09
Diluted earnings per share:
Weighted-average number of common shares outstanding		3,123,263		2,624,798
Stock Options		89,283		98,456
Restricted Stock		22,950		12,009
Diluted weighted-average number of common shares outstanding		3,235,496		2,735,263
Diluted earnings per share	$	0.12	$	0.09

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
	February 28,
	2006			2005
Net income, as reported	$	379,672		$	237,635
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		20,839			28,636
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(93,919	)		(41,167	)
Pro forma net income	$	306,592		$	225,104
Earnings per share:
Basic—as reported	$	0.12		$	0.09
Basic—pro forma	$	0.10		$	0.09
Diluted—as reported	$	0.12		$	0.09
Diluted—pro forma	$	0.09		$	0.08

In December 2005 the Company granted 149,800 options to its employees at an exercise price of $7.50 with various vesting periods varying from immediate to four years. All of the options have a term of five years.

On December 16, 2004, the FASB finalized SFAS No. 123R “Share-Based Payment,” which will be effective for small business issuers for the fiscal years beginning after December 15, 2005. The new standard will require the Company to recognize share based payments, including grants of stock options, in the financial statements based upon their fair value.

Note 6 — Costs and Estimated Earnings on Uncompleted Contracts

Costs and estimated earnings on uncompleted contracts consisted of the following at February 28, 2006:

10

COHESANT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Costs incurred on uncompleted contracts	$	861,062
Estimated earnings to date		385,998
Subtotal		1,247,060
Less — Billings to date		(1,360,884	)
Total	$	(113,824	)
Included in the accompanying balance sheet under the following caption:
Costs and estimated earnings in excess of billings	$	—
Billings in excess of costs and estimated earnings		(113,824	)
Total	$	(113,824	)

Substantially all unbilled amounts were generated by the Company’s CIPAR segment and are expected to be billed and collected within one year.

Note 7 — Revolving Line of Credit

The Company’s $3,500,000 unsecured revolving line of credit facility expires on May 1, 2006. 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. The Company does not foresee any problems renewing this facility or obtaining an equivalent facility from another lender. As of February 28, 2006, the Company was in compliance with all covenants and did not have a balance outstanding under this facility.

Note 8 — Segment Information

Under the provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, the Company now has reportable segments of CIPAR, CMI and GCI as a result of the reconfiguration of its business on December 1, 2005. The Company has restated the 2005 segment information below to conform to the 2006 presentation. CIPAR is a licensor of its technology and sells epoxy coatings, supplied by CMI, and equipment used to apply its technology to its Certified Applicators and Licensed Dealers. CIPAR’s licensee revenue includes license fees, royalty revenues, equipment rental as well as other value added services. Also, CIPAR uses its technology to perform renewal, rehabilitation and replacement of plumbing lines (“Rehabilitation” revenue). CMI sells corrosion protection and other specialty coatings used in the protection, renewal and rehabilitation of infrastructure. CMI’s sales and marketing focus is on developing new markets for its AquataPoxy products, although much of its sales currently are internal sales to the CIPAR segment. GCI sells dispense equipment and spare parts and supplies primarily through a network of independent distributors.

11

COHESANT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The accounting policies of the segments are the same as those described in the summary of significant accounting policies except that the Company evaluates segment performance based on income from operations. The Company has not allocated certain corporate related administrative costs to the Company’s other reportable segment. The Company accounts for intersegment sales and transfers at cost plus a specified mark-up. Reportable segment information is as follows:

Three Months Ended
February 28, 2006	CIPAR		CMI		GCI		Corporate			Eliminations			Consolidated
Net Sales:
External customers	$	3,243,776	$	62,598	$	3,159,223	$	—		$	—		$	6,465,597
Intersegment sales				853,333							(853,333	)		—
Total net sales		3,243,776		915,931		3,159,223		—			(853,333	)		6,465,597
Depreciation and amortization:		58,659		6,753		49,744		802						115,958
Net income (loss):		231,072		110,032		307,782		(269,214	)					379,672
Identifiable assets:		11,552,389		1,123,455		6,772,628		1,402,154						20,850,626
Capital expenditures:		7,281		21,391		177,450		—						206,122

Three Months Ended
February 28, 2005	CIPAR		CMI		GCI		Corporate			Eliminations			Consolidated
Net Sales:
External customers	$	1,205,039	$	111,540	$	2,944,220	$	—		$	—		$	4,260,799
Intersegment sales				687,570							(687,570	)		—
Total net sales		1,205,039		799,110		2,944,220		—			(687,570	)		4,260,799
Depreciation and amortization:		—		12,057		39,865		2,311						54,233
Net income (loss):		55,386		84,264		297,951		(199,966	)					237,635
Identifiable assets:		1,637,966		994,189		5,978,708		4,875,599						13,486,462
Capital expenditures:		—		1,075		72,479		1,199						74,753

The Company offers products primarily in four general categories of Equipment and Parts, Coatings, Licensee and Rehabilitation revenue. The following table sets forth the product category sales and their percentage of consolidated net sales:

	Three Months Ended February 28,
	2006				2005
Equipment and Parts	$	3,540,153	54.7	%	$	3,005,048	70.5	%
Coatings		1,493,179	23.1			1,246,751	29.3
Licensee		43,611	0.7			9,000	0.2
Rehabilitation		1,388,654	21.5			—	—
Total	$	6,465,597	100	%	$	4,260,799	100	%

12

COHESANT TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following table presents percentage of total revenues by region.

	Three Months Ended February 28,
Region	2006			2005
United States		57			66
Canada		20			9
Asia/Pacific Rim		9			10
Europe		9			10
Other		5			5
Total		100	%		100	%

Note 9 — Contingencies

The Company is a party to certain legal matters arising 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.

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 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, formerly 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 CMI) and other supplies to its licensees. In addition CuraFlo performs renewal, rehabilitation 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 rehabilitation offerings beyond its historical 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 based on the closing price of Cohesant’s stock on the acquisition date. In addition, the Company has incurred $467,064 of direct costs related to the acquisition, including primarily legal and accounting fees. A portion of the purchase price consisting of $50,000 and 231,741 shares of the Company’s common stock were deposited into an escrow account to secure customary indemnity and other obligations of the Sellers that may arise post-closing. The assumed liabilities of $783,599 include a $342,136 payment made in the first quarter of fiscal 2006 to the Sellers relating to a closing date working capital adjustment required by the purchase agreement. During the first quarter, the Sellers paid the Company from the escrow $77,250 and returned 7,500 shares, which were retired, to resolve outstanding issues among the parties. Also, the Company released 75,000 shares from escrow to the Sellers during the first quarter. At February 28, 2006, there were 149,241 shares remaining in escrow.

Reconfiguration of Business Units

The Company formerly conducted it operations through its 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 CIPAR Services Inc. The Company operated under this structure following the CuraFlo acquisition in fiscal 2005. On December 1, 2005 the Company completed the reconfiguration of its business units and now conducts operations under its wholly owned

14

COHESANT TECHNOLOGIES INC.

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

subsidiaries — CIPAR Inc. (Cohesant Infrastructure Protection and Renewal), Cohesant Materials Inc. (“CMI”) and GlasCraft Inc. (“GCI”) and has four revenue categories — Coatings, Equipment and Parts, Licensee and Rehabilitation and Renewal Services (Rehabilitation).

Cohesant’s reconfiguration was the result of a review and revaluation of its corporate mission, corporate strategy and business processes which was started in March 2003. This initiative led the Company to refocus its attention on its historic roots — the rehabilitation of municipal, industrial, commercial and residential infrastructure. In particular, the Company is refocusing on the protection, renewal and rehabilitation of drinking water distribution systems and waste water collection systems. The acquisition of CuraFlo in August 2005 marked the acceleration of this return to the Company’s roots. And on December 1, 2005, the Company completed the reconfiguration of its business units in the culmination of this process from a structural standpoint.

CIPAR accounts for both Licensee and Rehabilitation revenues. CIPAR was formed through a combination of the licensing portion of the former Raven Lining Systems subsidiary and the acquired CuraFlo Licensing Rehabilitation and Renewal Services business. CIPAR licenses systems for the renewal and rehabilitation of waste water collection systems, drinking water distribution systems and small diameter water pipes in apartment buildings, private homes and other commercial, industrial and residential buildings; provides equipment; exclusively sells its Raven and CuraPoxy branded coatings (manufactured by CMI) as well as other products to its Certified Applicators and Licensed Dealers; and performs renewal, rehabilitation and replacement of plumbing lines in Western Canada and the United States.

CMI manufactures, markets and sells corrosion protection and other specialty coatings used in the protection, renewal and rehabilitation of infrastructure. CMI represents the research and development and manufacturing arms of the former Raven subsidiary and has a sales and marketing focus on developing new markets for its AquataPoxy products. Currently, a significant portion of CMI’s Coating sales are to CIPAR.

GCI manufactures, markets and sells high-quality equipment for metering, mixing and dispensing multiple component formulations such as fiberglass reinforced plastics, polyurethanes, and polyureas. These equipment systems are commonly employed in the construction, transportation and marine industries to apply insulation, protective coating, sealant and anti-corrosive products. GCI primarily sells its products through independent distributors in the United States and overseas.

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COHESANT TECHNOLOGIES INC.

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

Results of Operations

Three months ended February 28, 2006 as compared to the same period in the prior year.

Net sales for the three months ended February 28, 2006 were $6,465,597 compared to $4,260,799 for the same period of the prior year, an increase of $2,204,798 or 51.7%. Equipment and Parts sales increased $535,105, or 17.8%, Coatings sales increased $246,428, or 19.8% and Licensee revenue increased $34,611. Additionally, the Company had Rehabilitation revenue of $1,388,654 in the current period. Net income was $379,672, a $142,037 or 59.8% increase compared to last year.

CIPAR’s net sales increased $2,038,737, or 169.2% to $3,243,776. Coatings sales were $1,430,581 compared to $1,135,211 in the prior period, an increase of $295,370, or 26.0%. CIPAR had Equipment and Parts sales of $380,930 compared to $60,828 for the comparable period last year. Typically, CIPAR does not sell equipment unless new Licensed Dealers or Certified Applicators needing equipment are added or existing dealers and applicators decide to increase capacity by buying additional equipment. Additionally CIPAR had Rehabilitation revenue of $1,388,654 and Licensee revenue of $43,611. CIPAR had $9,000 Licensee revenue in the 2005 period.

Equipment and Parts sales at GCI increased $215,003 or 7.3%. This increase was primarily attributable to increased sales of fiberglass systems and parts as well as polyurethane foam and coatings parts. This sales increase was partially offset by decreased sales of coatings and polyurethane foam dispense systems. Equipment and Parts sales in the United States decreased 3.7% while international Equipment and Parts sales increased 19.8%. The increase in international sales was primarily a result of increased sales to Europe and the Asia/Pacific Rim, partially offset by decreased sales to Canada.

External Coatings sales at CMI were $62,598 compared to $111,540 for the comparable period in the prior year.

The Company’s gross margin increased to $2,913,715, or 45.0% of net sales, in the 2006 period from $2,025,844, or 47.6% of net sales, in the 2005 period. The dollar increase was primarily due to increased sales at CIPAR and to a lesser extent increased sales at GCI. The margin percentage decrease was primarily due to a less favorable product mix including strong Rehabilitation revenues that are traditionally lower margin than other Company products, partially offset by improved Equipment and Parts and Coatings margins.

Operating expenses for the three months ended February 28, 2006 were $2,309,507 compared to $1,669,461 for the same period of the prior year, an increase of $640,046, or 38.3%. This increase was primarily due to increased sales and marketing and administrative costs at CIPAR (reflective of the CuraFlo acquisition), administrative costs at Corporate (increased reserves for employee incentive payments and various other costs) and GCI (increased personnel and various other costs).

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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 decreased $18,733. This decrease was primarily attributable to decreased interest earned on cash balances corresponding to the decrease in cash.

Liquidity and Capital Resources

The Company’s primary sources of liquidity are its cash reserves and borrowing availability under the revolving line of credit. At February 28, 2006 the Company has cash and cash equivalents of $1,219,790, net working capital of $6,710,335 and its entire $3,500,000 revolving line of credit available.

In the first three months of fiscal 2006 cash used in operations was $585,893 compared to $131,109 in the comparable period last year. This increase was primarily due to increased accounts receivable and inventory balances resulting from increased sales and to the payment of fiscal 2005 year-end employee incentive payments. Cash used in investing activities increased to $471,008 in the current period from $65,173 in the period ended February 28, 2005. This increase was attributable to a payment due to the sellers of CuraFlo relating to a closing working capital adjustment required by the purchase agreement and increased spending on leasehold improvements and capital equipment. Cash provided by financing activities was $38,410 in the current period compared to cash used in financing activities of $299,459 in the prior year period. This increase was primarily due to timing differences of dividends paid to shareholders.

The Company’s $3,500,000 unsecured revolving line of credit facility expires on May 1, 2006. 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. The Company does not foresee any problems renewing this facility or obtaining an equivalent facility from another lender. As of February 28, 2006 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.

Critical Accounting Policies and Estimates

The Company has disclosed those accounting policies 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

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COHESANT TECHNOLOGIES INC.

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

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 and Parts and Coatings revenue, the criteria of SAB 104 are generally met upon shipment to its independent distributors, Certified Applicators, Licensed Dealers, 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 these products. The Company’s pricing is fixed at the time of shipment.

Rehabilitation revenues are 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.

Licensee revenue is recognized when all material services or conditions relating to the sale have been substantially performed and collectibility is assured. The Company defers revenue for license fees for which it is obligated to provide training and other services to its Licensed Dealers.

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 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.

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COHESANT TECHNOLOGIES INC.

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

Goodwill.In accordance with SFAS No. 142, the Company tests goodwill for impairment on an annual basis or more frequently if an event occurs or circumstances change that could more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company estimates fair value based upon the present value of future cash flows. In estimating the future cash flows, the Company takes into consideration the overall and industry economic conditions and trends, market risk of the Company and historical information.

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 the Company’s ability to expand its licensing and services business.

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COHESANT TECHNOLOGIES INC.

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 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

(a)	On January 23, 2006, the Board of Directors approved the grant of 100 shares of Common Stock, with an aggregate value of $955 to a Director of its Canadian Subsidiary for services rendered and an additional 17 shares with an aggregate value of $162 to its Licensed Dealers for promotional purposes. The issuances were exempt from registration pursuant to section 4(2) of the Securities Act of 1933.
(c)	On February 24, 2006, 4279 Investments Ltd. returned 7,500 shares, which were retired, to resolve outstanding issues among the parties from the CuraFlo acquisition in August 2005.

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COHESANT TECHNOLOGIES INC.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

2.1	Asset Acquisition Agreement by and among 4279 Investments and its subsidiaries and Cohesant and its subsidiaries, (Incorporated by reference to the exhibit in the Company’s 8-K dated August 12, 2005)
2.2	Amendment and Settlement Agreement by and among 4279 Investments and its subsidiaries and Cohesant and its subsidiaries.
10.1	Form of Stock Option Grant.
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 December 22, 2005 to report earnings for the quarter and twelve months ended November 30, 2005 (Items 2.02 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: March 30, 2006
	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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