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Conmat Technologies Inc – ‘10QSB’ for 6/30/02

On:  Monday, 10/21/02, at 4:01pm ET   ·   For:  6/30/02   ·   Accession #:  950116-2-2351   ·   File #:  0-30166

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

10/21/02  Conmat Technologies Inc           10QSB       6/30/02    3:38K                                    St Ives Financial/FA

Quarterly Report — Small Business   —   Form 10-QSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10QSB       Quarterly Report -- Small Business                    16     73K 
 2: EX-99       Exhibit 99.1                                           1      6K 
 3: EX-99       Exhibit 99.2                                           1      6K 


10QSB   —   Quarterly Report — Small Business
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
2Item 1. Financial Statements
8Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
12Item 1.Legal Proceedings
13Item 2. Changes in Securities
"Item 3.Defaults Upon Senior Securities
"Item 4.Submission of Matters to a Vote of Security Holders
"Item 5.Other Information
"Item 6.Exhibits and Reports on Form 8-K
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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended June 30, 2002 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission file number: 0-30166 -------- CONMAT TECHNOLOGIES, INC. ------------------------- (Exact name of small business issuer as specified in its charter) Florida 23-2999072 ------- ---------- (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) Franklin Avenue and Grant Street, Phoenixville, PA 19460 -------------------------------------------------------- (Address of Principal Executive Offices) (610) 935-0225 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Transitional Small Business Format: YES [ ] NO [X] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, $0.001 par value, outstanding on October 16, 2002: 2,988,083 shares
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[Enlarge/Download Table] TABLE OF CONTENTS ----------------- PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements Consolidated Condensed Balance Sheets - June 30, 2002 and December 31, 2001 3 Consolidated Condensed Statements of Operations - Three and Six Months Ended June 30, 2002 and 2001 4 Consolidated Condensed Statements of Cash Flows - Six Months Ended June 30, 2002 and 2001 5 Notes to Consolidated Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 1.Legal Proceedings 12 Item 2.Changes in Securities and Use of Proceeds 13 Item 3.Defaults Upon Senior Securities 13 Item 4.Submission of Matters to a Vote of Security Holders 13 Item 5.Other Information 13 Item 6.Exhibits and Reports on Form 8-K 13 SIGNATURES 2
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[Enlarge/Download Table] ConMat Technologies, Inc. and Subsidiary Consolidated Condensed Balance Sheets June 30 December 31 ASSETS 2002 2001 ----------- ----------- (Unaudited) (Audited) Current Assets: Cash and cash equivalents $ 8,934 $ 84,315 Accounts receivable - net 1,750,948 4,512,093 Accounts receivable - Ecesis, LLC 493,676 - Inventories 69,586 1,048,607 Prepaid expenses 82,933 142,415 ----------- ----------- Total Current Assets 2,406,077 5,787,430 Property, Plant & Equipment - held for sale 653,532 1,046,978 Deferred Income Taxes 1,125,493 1,125,493 Other Assets 219,512 216,285 ----------- ----------- Total Assets $ 4,404,614 $ 8,176,186 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Line of credit $ 859,274 $ 2,818,893 Current portion of long-term debt 851,133 1,020,846 Current portion of capital lease obligations 17,150 28,229 Accounts payable 4,267,451 3,227,633 Legal settlement payable 1,053,000 1,500,000 Accrued expenses 522,466 492,490 ----------- ----------- Total Current Liabilities 7,570,474 9,088,091 Long-Term Debt 1,781,352 1,796,106 Obligations Under Capital Leases 9,972 14,259 Other Liabilities 1,042,000 479,095 ----------- ----------- Total Liabilities 10,403,798 11,377,551 Stockholders' Equity (Deficiency): Series A preferred stock - $.001 par value, 1,500,000 shares authorized, 713,250 shares issued and outstanding 713 713 Series B Preferred Stock - $.001 par value, 166,667 shares authorized, issued and outstanding 500,000 500,000 Series C preferred stock - $.001 par value, 446,150 shares authorized, 382,500 issued and outstanding 383 383 Common stock - $.001 par value, 40,000,000 shares authorized, 2,988,083 shares issued and outstanding 2,988 2,988 Additional paid-in capital (799,695) (648,788) Accumulated deficit (5,653,573) (2,840,521) Cost of common shares in treasury, 0 and 380,325 shares - (166,140) Less: Receivables for shares sold (50,000) (50,000) ----------- ----------- Total Stockholders' Deficiency (5,999,184) (3,201,365) ----------- ----------- Total Liabilities and Stockholders' Deficiency $ 4,404,614 $ 8,176,186 =========== =========== See notes to consolidated condensed financial statements 3
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ConMat Technologies, Inc. and Subsidiary Consolidated Condensed Statements of Operations (Unaudited) [Enlarge/Download Table] Three Months Ended June 30 Six Months Ended June 30 2002 2001 2002 2001 ----------- ---------- ----------- ---------- Net Sales to Customers $ 524,815 $2,723,295 $ 2,016,930 $6,312,702 Cost of Goods Sold 545,481 2,194,078 2,076,594 4,883,270 ----------- ---------- ----------- ---------- Gross (Loss) Profit (20,666) 529,217 (59,664) 1,429,432 Selling, General and Administrative Expenses 1,945,766 720,850 2,976,993 1,439,721 Corporate Expenses 89,980 207,024 295,002 304,776 ----------- ---------- ----------- ---------- Operating Loss (2,056,412) (398,657) (3,331,659) (315,065) Other Income (Expense): Interest expense (92,009) (117,596) (220,771) (236,952) Legal settlement expense - - (85,000) - Licensing revenues 1,119,906 - 1,119,906 - Pension plan curtailment expense (562,905) - (562,905) - Gain on sale of equipment 99,101 - 99,101 - Rental income 93,475 68,964 168,277 135,375 ----------- ---------- ----------- ---------- Loss Before Tax Benefit (1,398,844) (447,289) (2,813,051) (416,642) Income Tax Benefit (171,000) (161,800) ----------- ---------- ----------- ---------- Net Loss $(1,398,844) $ (276,289) $(2,813,051) $ (254,842) =========== ========== =========== ========== Net loss per Common Share: Basic $ (0.50) $ (0.12) $ (1.05) $ (0.12) =========== ========== =========== ========== Diluted $ (0.50) $ (0.12) $ (1.05) $ (0.12) =========== ========== =========== ========== Weighted average number of common shares outstanding: Basic 2,862,701 2,607,758 2,735,934 2,618,904 =========== ========== =========== ========== Diluted 2,862,701 2,607,758 2,735,934 2,618,904 =========== ========== =========== ========== See notes to consolidated condensed financial statements 4
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ConMat Technologies, Inc. and Subsidiary Consolidated Condensed Statements of Cash Flows (Unaudited) [Enlarge/Download Table] Six Months Ended June 30 ----------------------------- 2002 2001 ----------- --------- Cash Flows from Operating Activities: Net loss $(2,813,051) $(254,842) Adjustments to reconcile to net cash provided by (used in) operating activities: Depreciation and amortization 64,827 136,336 Provision for additional pension expense 562,905 - Provision for bad debt expense 106,452 - Gain on sale of property and equipment (99,101) - Changes in assets and liabilities: (Increase) decrease in assets Accounts receivable 3,046,693 873,358 Accounts receivable - Ecesis, LLC (493,676) - Receivable relating to Eastwind claim - 75,000 Inventories 979,021 289,280 Prepaid expenses 59,482 (126,888) Other assets (5,627) (21,023) Increase (decrease) in liabilities Accounts payable 1,039,818 (101,570) Accrued expenses (417,025) (187,590) ----------- --------- Net Cash Provided By Operating Activities 2,030,718 682,061 Cash Flows from Investing Activities: Proceeds from sale of property and equipment 38,120 - Purchase of property and equipment - (112,602) ----------- --------- Net Cash Provided By (Used In) Investing Activities 38,120 (112,602) Cash Flows from Financing Activities: Net borrowings (repayments) under lines of credit (1,959,619) (396,205) Repayments of term notes (184,467) (60,456) Repayments of capital lease obligations (15,366) (46,725) Sale (purchases) of treasury stock 15,233 (69,302) Payments of Series B & C preferred dividends - (34,959) Recapitalization costs - (5,000) ----------- --------- Net Cash Used In Financing Activities (2,144,219) (612,647) Net Decrease in Cash & Cash Equivalents (75,381) (43,188) Cash and Cash Equivalents at Beginning of Period 84,315 153,038 ----------- --------- Cash and Cash Equivalents at End of Period $ 8,934 $ 109,850 =========== ========= Supplemental Cash Flow Information: Cash paid for interest $ 182,206 $ 236,952 =========== ========= Cash paid for income taxes $ - $ 58,670 =========== ========= See notes to consolidated condensed financial statements 5
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ConMat Technologies, Inc and Subsidiary Notes To Consolidated Condensed Financial Statements NOTE A - INTERIM FINANCIAL INFORMATION The consolidated financial statements of ConMat Technologies, Inc. as of June 30, 2002 and 2001, and for the three and six months then ended and related footnote information are unaudited. All adjustments (consisting only of normal recurring adjustments) have been made which, in the opinion of management, are necessary for a fair presentation. Results of operations for the three and six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for any future period. The balance sheet at December 31, 2001 was derived from audited financial statements. 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. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2001. The results of operations for the three and six months ended June 30, 2002 are not necessarily indicative of the operating results, which may be achieved for the full year. NOTE B - LOSS PER SHARE ConMat reports earnings per share in accordance with the provisions of SFAS NO. 128, Earnings Per Share. SFAS No. 128 requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings per share exclude dilution and is computed by dividing income available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. However, no potential common shares are included in the computation of diluted per share amounts when there is a loss from continuing operations. The following are basic and diluted (loss) earnings per share calculations for the periods presented. [Enlarge/Download Table] Three Months Ended June 30 Six Months Ended June 30 ----------------------------- --------------------------- 2002 2001 2002 2001 ----------- ---------- ----------- ---------- Earnings per Share - Basic: Net loss $(1,398,844) $ (276,289) $(2,813,051) $ (254,842) Dividends on preferred shares (33,877) (33,877) (67,754) (67,754) ----------- ---------- ----------- ---------- Net loss available to common shareholders $(1,432,721) $ (310,166) $(2,880,805) $ (322,596) =========== ========== =========== ========== Weighted average shares outstanding 2,862,701 2,607,758 2,735,934 2,618,904 =========== ========== =========== ========== Basic Loss Per Share $ (0.50) $ (0.12) $ (1.05) $ (0.12) =========== ========== =========== ========== Earnings per Share - Diluted: Net loss available to common shareholders $(1,432,721) $ (310,166) $(2,880,805) $ (322,596) Dividends on preferred shares Net loss available to common shareholders ----------- ---------- ----------- ---------- after assumed conversions $(1,432,721) $ (310,166) $(2,880,805) $ (322,596) =========== ========== =========== ========== Weighted average shares outstanding 2,862,701 2,607,758 2,735,934 2,618,904 Dilutive effect of preferred stock Dilutive effect of stock options and warrants ----------- ---------- ----------- ---------- Diluted average shares outstanding 2,862,701 2,607,758 2,735,934 2,618,904 =========== ========== =========== ========== Diluted Loss Per Share $ (0.50) $ (0.12) $ (1.05) $ (0.12) =========== ========== =========== ========== 6
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NOTE C - DEFINED BENEFIT PENSION PLAN Polychem maintains a non-contributory defined benefit plan for hourly union employees. The pension benefits are based on years of service and the benefit rate in effect at the time of retirement. Management has formulated plans for the sale of Polychem's remaining assets and the ultimate liquidation of the company. Polychem has ceased all in-house manufacturing and outsourced the manufacturing of its product lines pursuant to a Supply and Equipment Purchase Agreement, dated March 20, 2002. In connection with the cessation of in-house manufacturing, substantially all of the hourly union employees were dismissed and there was a curtailment of the defined benefit plan. The actuary has estimated that the plan's benefit liability of approximately $2,535,000 exceeds the market value of the assets of approximately $1,493,000 at July 1, 2002 by $1,042,000. As a result of the plan curtailment, ConMat recorded a charge of $562,905 for the three months ended June 30, 2002, in accordance with Statement of Financial Accounting Standards No. 88, "Employers' Accounting Settlements and Curtailments of Defined Benefit Pension Plans and for Termination of Benefits" to increase the accrual pension liability to $1,042,000 at June 30, 2002. NOTE D - TREASURY STOCK TRANSACTIONS In April of 2002, the Company sold 380,325 shares of stock that had been held as treasury shares to the three directors of the ConMat Technologies, Inc. at a fair market value of $.04 per share for total proceeds of $15,233. 7
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. FORWARD LOOKING STATEMENTS Some of the statements contained in this report discuss future expectations, contain projections of results of operations or financial condition or state other "forward-looking" information. Those statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and was derived using numerous assumptions. Important factors that may cause actual results to differ from projections include, for example: o general economic conditions, including their impact on capital expenditures; o business conditions in the materials technology and wastewater treatment industries; o the regulatory environment; o rapidly changing technology and evolving industry standards; o new products and services offered by competitors; and o price pressures. In addition, in this report, the words "believe", "may", "will", "estimate", "continue", "anticipate", "intend", "expect", "plan", and similar expressions, as they relate to the business or management of ConMat Technologies, Inc. or its wholly-owned subsidiary, Polychem Corporation, are intended to identify forward-looking statements. ConMat undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this report. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. Further information concerning the risks facing ConMat's business and operations is set forth in the section entitled "Risk Factors" in ConMat's Annual Report on Form 10-KSB for the year ended December 31, 2000. Results of Operations For The Three-Month Periods Ended June 30, 2002 and 2001 The following table sets forth certain statement of operation items as a percentage of net sales for the period indicated: Three Months Ended June 30 --------------------------- 2001 2001 ------ ----- Net Sales 100.0 % 100.0 % Cost of Goods Sold 103.9 80.6 Gross Profit (3.9) 19.4 Selling and Administration 370.8 26.5 Interest Expense 17.5 4.3 Other Expense (125.7) 5.0 Income Tax (Benefit) Expense 0.0 (6.3) ------ ---- Net (Loss) Income (266.5) % (10.1) % ====== ==== 8
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Cost of goods sold is determined as the sum of material costs, direct manufacturing labor costs and an allocation of utilities and other overhead costs attributable to manufacturing activities. As was disclosed in the Company's Form 10-KSB filing for the year ended December 31, 2001, on March 20, 2002, ConMat entered into a License and Asset Purchase Agreement with Polychem and Ecesis LLC, a business owned by former Polychem management which provides for the sale of Polychem's specialty and water treatment product lines to Ecesis. Concurrent with this action, Polychem agreed to outsource the manufacturing of its product lines to Ensinger Vekton, Inc. and Putnam Precision Molding, Inc., pursuant to a Supply and Equipment Purchase Agreement. Polychem's internal manufacturing operations ceased in late January of 2002. During the three month period ended June 30, 2002, the Company's operations were being run in a limited fashion until such time that the new suppliers could fully integrate Polychem's production needs into their facilities. Total revenues decreased $2,198,000 to $525,000 for the three months ended June 30, 2002 from $2,723,000 for the three months ended June 30, 2001. The reason for the decrease is the temporary interruptions in the manufacturing process relating to the transition to outside suppliers and an inability to fulfill customer orders. This situation will be resolved once the third party suppliers have fully integrated all of the Polychem products into their manufacturing facilities. The Company recorded a loss of $21,000 at the gross margin line for the three months ended June 30, 2002 as compared to a gross profit of $529,000 for the three months ended June 30, 2001. As a result of the cessation of Polychem's manufacturing operations (which occurred in late January of 2002), there was approximately $1,450,000 of expenses that were reclassified as Selling, General and Administrative. These expenses related to the depreciation, utilities and various other fixed-type expenses unaffected by the termination of manufacturing activities. Even with the reclassification of expenses, the company recorded a loss at the gross margin level due to the inability to cover remaining overheads with the reduced sales volumes. As of July 2002, the Company has identified and placed into service third-party vendors to provide all of its necessary product components. Selling and administrative expenses increased by $1,225,000 to $1,946,000 for the three-month period ended June 30, 2002 from $721,000 for the comparable quarter in 2001. Without the reclassification of expenses associated with the manufacturing operation, there would have been a decrease of approximately $225,000. The decrease is the result of personnel related reductions and other cost cutting measures implemented by management offset by an increase related to an additional $106,000 of allowances for doubtful accounts. Corporate expenses decreased by $117,000 to $90,000 from $207,000 for the three months ended June 30, 2002 as compared to the three months ended June 30, 2001. The decreases related primarily to lower professional fees and the transfer of personnel-related expense to Ecesis, LLC. Interest expense for the three-month period ended June 30, 2002 decreased $26,000 to $92,000 from $118,000 for the comparable quarter in 2001. The decrease was the result of lower outstanding balances on the Company's revolving line of credit but were somewhat offset by higher interest rates charged by the Company's lender. In other income/(expense) the Company recorded licensing revenues of $1,120,000 relating to the agreement with Ecesis, LLC. In addition, the Company recognized an additional liability of $563,000 relating to the curtailment of the pension plan provided for certain of its hourly employment base. The recording of this expense and related liability is based on certain actuarial assumptions and follows the guidelines established under generally accepted accounting principles. 9
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ConMat recognized a net loss of $1,399,000 for the three-month period ended June 30, 2002. For the comparable quarter in 2001, ConMat reported a loss of $276,000. Results of Operations For The Six-Month Periods Ended June 30, 2002 and 2001 The following table sets forth certain statement of operation items as a percentage of net sales for the period indicated: Six Months Ended June 30 ------------------------- 2001 2001 ------ ----- Net Sales 100.0 % 100.0 % Cost of Goods Sold 103.0 77.4 Gross Profit (3.0) 22.6 Selling and Administration 147.6 22.8 Interest Expense 10.9 3.8 Other Expense (22.0) 2.6 Income Tax (Benefit) Expense 0.0 (2.6) ------ ----- Net (Loss) Income (139.5) % (4.0) % ====== ===== Cost of goods sold is determined as the sum of material costs, direct manufacturing labor costs and an allocation of utilities and other overhead costs attributable to manufacturing activities. As was disclosed in the Company's Form 10-KSB filing for the year ended December 31, 2001, on March 20, 2002, ConMat entered into a License and Asset Purchase Agreement with Polychem and Ecesis LLC, a business owned by former Polychem management which provides for the sale of Polychem's specialty and water treatment product lines to Ecesis. Concurrent with this action, Polychem agreed to outsource the manufacturing of its product lines to Ensinger Vekton, Inc. and Putnam Precision Molding, Inc., pursuant to a Supply and Equipment Purchase Agreement. Polychem's internal manufacturing operations ceased in late January of 2002. Therefore, for the majority of the six month period ended June 30, 2002, the Company's operations were being run in a limited fashion until such time that the new suppliers could integrate Polychem's production needs into their facilities. Total revenues decreased $4,296,000 to $2,017,000 for the six months ended June 30, 2002 from $6,313,000 for the six months ended June 30, 2001. The reason for the decrease is the temporary interruptions in the manufacturing process relating to the transition to outside suppliers and an inability to fulfill customer orders. This situation will be resolved once the third party suppliers have fully integrated all of the Polychem products into their manufacturing facilities. The Company recorded a loss of $60,000 at the gross margin line for the six months ended June 30, 2002 as compared to a gross profit of $1,429,000 for the six months ended June 30, 2001. As a result of the cessation of Polychem's manufacturing operations (which occurred in late January of 2002), there was approximately $1,889,000 of expenses that were reclassified as Selling, General and Administrative. These expenses related to the depreciation, utilities and various other fixed-type expenses unaffected by the termination of manufacturing activities. Even with the reclassification of expenses, the company recorded a loss at the gross margin level due to the inability to cover remaining overheads with the reduced sales volumes. As of July 2002, the Company has identified and placed into service third-party vendors to provide all of its necessary product components. 10
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Selling and administrative expenses increased by $1,537,000 to $2,977,000 for the six-month period ended June 30, 2002 from $1,440,000 for the comparable quarter in 2001. Without the reclassification of expenses associated with the manufacturing operation, there would have been a decrease of approximately $352,000. The decrease is the result of personnel related reductions and other cost cutting measures implemented by management offset by an increase related to an additional $106,000 of allowances for doubtful accounts. Corporate expenses remained relatively constant at $295,000 for the six months ended June 30, 2002 as compared to $305,000 for the three months ended June 30, 2001. Interest expense for the six-month period ended June 30, 2002 decreased $16,000 to $221,000 from $237,000 for the comparable quarter in 2001. The decrease was the result of lower outstanding balances on the Company's revolving line of credit but were somewhat offset by higher interest rates charged by the Company's lender. In other income/(expense) the Company recorded licensing revenues of $1,120,000 relating to the agreement with Ecesis, LLC. In addition, the Company recognized an additional liability of $563,000 relating to the curtailment of the pension plan provided for certain of its hourly employment base. The recording of this expense and related liability is based on certain actuarial assumptions and follows the guidelines established under generally accepted accounting principles. ConMat recognized a net loss of $2,813,000 for the six-month period ended June 30, 2002. For the comparable six-month period in 2001, ConMat reported a loss of $255,000. Liquidity and Capital Resources ConMat realized a net cash decrease of $75,000 for the six-month period ended June 30, 2002. For the comparable period in 2001, ConMat realized a net cash decrease of $43,000. The Company no longer has an external source of working capital. The Company's credit facility expired on September 30, 2001. The Company had been granted an interim extension of the previous credit facility with GE Capital Corporation, the lender, through July 31, 2002. GE Capital terminated any further advances against the credit facility in August of 2002. The extension had imposed some additional financial restrictions and limitations on the Company generally in the form of additional reserves against maximum borrowing amount. As of July 1, 2002, the remaining balance outstanding under the GE Capital credit facility is being repaid through the realization of cash receipts against the Company's trade accounts receivables. As of October 1, 2002, the remaining balance owed to GE Capital is approximately $640,000. The Company's financial condition is extremely weak. Management is presently carrying out plans relating to asset sales and trying to negotiate settlements with various trade vendors regarding balances owed by the Company in an effort to minimize the negative impact on the financial condition of the Company. The failure of these actions and events will have a material adverse effect on the Company's financial condition. ConMat has no commitments for significant capital expenditures in the foreseeable future. ConMat's current ratio as of June 30, 2002 is .32. 11
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PART II Item 1. Legal Proceedings. ConMat is currently a defendant in an action originally filed on January 28, 1999, in Pennsylvania state court captioned John R. Thach v. The Eastwind Group, et al. On October 27, 2000, co-defendant, The Eastwind Group, Inc., filed a voluntary petition for relief under Chapter 11 of Title 11 of the Bankruptcy Code (U.S.B.C., E.D. Pa. Bankruptcy No. 00-33372 SR). The plaintiff removed the state court action to the United States Bankruptcy Court for the Eastern District of Pennsylvania on November 29, 2000 (U.S.B.C., E.D. Pa. Adversary No. 00-906). Plaintiff maintains that Eastwind, his former employer, breached the terms of his severance agreement and that the sale of Polychem Corporation to ConMat was part of a conspiracy to avoid payments to him and has violated Pennsylvania's Uniform Fraudulent Transfer Act. The plaintiff seeks damages of at least $350,000 and punitive damages of at least $500,000. In addition, the plaintiff seeks to have the December 8, 1998 acquisition of Polychem declared null and void. Initially, the plaintiff sought a temporary restraining order and preliminary injunction seeking to set aside the sale of Polychem to ConMat. By Order dated February 19, 1999, the State Court denied plaintiff's request for injunctive relief. On January 22, 2001 the Bankruptcy Court appointed a Chapter 11 trustee to oversee and administer The Eastwind Group, Inc. bankruptcy. In his complaint, the bankruptcy trustee asserted claims against ConMat, including those originally raised in the John Thach complaint that the December 8, 1998 acquisition of Polychem was a fraudulent transaction. ConMat is currently a defendant in a federal district court action filed on April 11, 2000, in the United States District Court for the Eastern District of Pennsylvania captioned ProFutures Special Equities Fund, L.P. v. The Eastwind Group, et al. (U.S.D.C., E.D. Pa. Civil Action No. 00-CV-1888). ProFutures maintains that Eastwind and others violated federal and state securities laws and committed common law fraud in connection with the June 1998 purchase by ProFutures of $750,000 in Series C Convertible Preferred Stock of Eastwind. ProFutures seeks damages in the amount of $750,000 and seeks to have the acquisition of Polychem by ConMat declared null and void. ConMat, Paul A. DeJuliis and two other former officers of Eastwind filed a Motion to Dismiss the Complaint on May 25, 2000 and ProFutures responded. Before the court issued a ruling on that motion, co-defendant Eastwind filed for bankruptcy and the case was stayed. Nothing further has occurred in this case since November 2000. To resolve the claims asserted by the bankruptcy trustee, John Thach and ProFutures, management of ConMat negotiated the terms of a settlement agreement with the bankruptcy trustee, which was filed with the bankruptcy court on October 25, 2001. Thereafter, on December 13 and 17, 2001, the bankruptcy court held a two-day hearing on the approval of the settlement agreement. On February 27, 2002, the bankruptcy court approved the settlement agreement. The settlement agreement requires the payment by ConMat of $1,500,000 to the bankruptcy trustee, including $500,000 in cash and a promissory note in the amount of $1,000,000. ConMat is funding its obligations under the settlement agreement in part by selling non-core assets and effecting a management led buyout of Polychem's specialty and water treatment product lines. Subject to payment by ConMat of $1,500,000 to the bankruptcy trustee pursuant to the settlement agreement, John Thach's claims will be released against, among others, ConMat. ConMat also agreed to fund potential tax liabilities relating to John Thach of up to $85,000. This liability has been reflected in the Company's financial statements as of March 31, 2002. In addition, the bankruptcy trustee has agreed to allocate and set aside a portion of the settlement proceeds, not to exceed $200,000, to fund the indemnification obligations from ConMat's share of liability, if any, in the ProFutures' action. 12
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Item 2. Changes in Securities. Not Applicable. Item 3. Defaults Upon Senior Securities. Not Applicable. Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable. Item 5. Other Information. Not Applicable. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit 99.1 - Certification Pursuant to 18 U.S.C. Section 1350 - Edward F. Sager, Jr., Chief Executive Officer Exhibit 99.2 - Certification Pursuant to 18 U.S.C. Section 1350 - Thomas C. Morral, Jr., Chief Financial Officer (b) ConMat did not file any current reports on Form 8-K during the period covered by this report. 13
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SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, hereunto duly authorized. CONMAT TECHNOLOGIES, INC. Date: October 18, 2002 By:/s/ Edward F. Sager, Jr. ------------------------- Edward F. Sager, Jr., President and Chief Executive Officer (Principal Executive Officer) Date: October 18, 2002 By:/s/ Thomas C. Morral, Jr. ------------------------- Thomas C. Morral, Jr., Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 14
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CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Edward F. Sager, Jr., being the Chief Executive Officer of ConMat Technologies, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-QSB for the period ended June 30, 2002 of ConMat Technologies, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. Intentionally deleted 5. Intentionally deleted 6. Intentionally deleted Dated: October 18, 2002 /s/ Edward F. Sager, Jr. ------------------------- Edward F. Sager, Jr., President and Chief Executive Officer (Principal Executive Officer) 15
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CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Thomas C. Morral, Jr., being the Chief Financial Officer of ConMat Technologies, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-QSB for the period ended June 30, 2002 of ConMat Technologies, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. Intentionally deleted 5. Intentionally deleted 6. Intentionally deleted Dated: October 18, 2002 /s/ Thomas C. Morral, Jr. -------------------------- Thomas C. Morral, Jr., Chief Financial Officer (Principal Accounting Officer) 16

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3/31/021210QSB
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