<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED July 31, 1995 Commission File Number 2-63481
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Athanor Group, Inc.
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(Exact name of registrant as specified in its chapter)
California 95-2026100
---------------------------------- ---------------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
incorporation of organization)
3452 East Foothill Boulevard, Suite 417, Pasadena, California 91107
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(Address of principal executive offices)
Registrant's telephone number, including area code (818) 440-1602
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Former name, former address and former fiscal year, if changed since last
report.
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
------------ ------------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by this report:
1,471,434 shares as of July 31, 1995.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE> 3
ATHANOR GROUP, INC.
Consolidated Balance Sheets
(Unaudited)
July 31, 1995 and October 31, 1994
(Thousands)
ASSETS
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Current Assets:
Cash $ 112 $ 149
Trade Receivables, Less Allowance
for Doubtful Accounts of $21
and $31 1,962 1,935
Notes Receivable:
Net of Allowance of $534 19 20
Inventories:
Raw Materials 883 861
Work in Progress 506 312
Finished Goods 1,593 1,669
------ ------
2,982 2,842
Prepaid Expenses 65 29
Deferred Income Tax Asset 377 377
------ ------
Total Current Assets 5,517 5,352
Property, Plant and Equipment, at Cost 4,649 4,151
Less Accumulated Depreciation and
Amortization 3,453 3,247
------ ------
Net Property, Plant and Equipment 1,196 904
Other Assets 89 86
------ ------
$6,802 $6,342
====== ======
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
<PAGE> 4
ATHANOR GROUP, INC.
Consolidated Balance Sheets
(Unaudited)
July 31, 1995 and October 31, 1994
(Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Current Liabilities:
Notes Payable $ 918 $ 920
Current Portion of Long-Term Debt 366 246
Accounts Payable 1,714 1,521
Accrued Expenses 697 799
------ ------
Total Current Liabilities $3,695 $3,486
Long-Term Debt, Less Current Portion 1,047 851
Deferred Gain on Sale-Leaseback 49 80
Noncurrent Deferred Income Tax Liability 20 20
Stockholders' Equity:
Common Stock 15 16
Additional Paid-In Capital 1,447 1,447
Retained Earnings 529 442
------ ------
Total Stockholders' Equity 1,991 1,905
------ ------
$6,802 $6,342
====== ======
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
<PAGE> 5
ATHANOR GROUP, INC.
Consolidated Statements of Operations
(Unaudited)
Nine Months Ended July 31,
(Thousands)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Net Sales $14,335 $12,645
Cost of Sales 11,812 10,562
------- -------
Gross Profit 2,523 2,083
Selling, General & Administrative 1,804 1,562
------- -------
Operating Profit 719 521
Other Income (Expense)
Interest Income - 58
Interest Expense (202) (134)
Equity in Loss of Unconsolidated Investee (69) -
Miscellaneous - Net 38 49
------- -------
Earnings Before Income Taxes and Extraordinary Credit 486 494
Income Tax Expense 200 204
------- -------
Earnings (Loss) Before Extraordinary Credit 286 290
Extraordinary Credit - Tax Benefit
of Net Operating Loss Carryforwards - 54
------- -------
NET EARNINGS $ 286 $ 344
======= =======
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
<PAGE> 6
ATHANOR GROUP, INC.
Consolidated Statements of Operations - Continued
(Unaudited)
Nine Months Ended July 31,
(Thousands)
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Earnings Per Common Shares:
Primary
Earnings Before Extraordinary Credit $0.18 $0.18
Extraordinary Credit - 0.04
----- -----
NET EARNINGS $0.18 $0.22
===== =====
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
<PAGE> 7
ATHANOR GROUP, INC.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended July 31,
(Thousands)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Net Sales $4,711 $4,927
Cost of Sales 3,865 4,176
------ ------
Gross Profit 846 751
Selling, General & Administrative 596 538
------ ------
Operating Profit 250 213
Other Income (Expense)
Interest Income - 2
Interest Expense (74) (53)
Equity in Loss of Unconsolidated Investee (69) -
Miscellaneous - Net 10 13
------ ------
Earnings Before Income Taxes and Extraordinary Credit 117 175
Income Tax Expense 48 73
------ ------
Earnings (Loss) Before Extraordinary Credit 69 102
Extraordinary Credit - Tax Benefit
of Net Operating Loss Carryforwards - 18
------ ------
NET EARNINGS $ 69 $ 120
====== ======
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
<PAGE> 8
ATHANOR GROUP, INC.
Consolidated Statements of Operations - Continued
(Unaudited)
Three Months Ended July 31,
(Thousands)
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Earnings Per Common Shares:
Primary
Earnings Before Extraordinary Credit $0.04 $0.07
Extraordinary Credit - 0.01
----- -----
NET EARNINGS $0.04 $0.08
===== =====
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
<PAGE> 9
ATHANOR GROUP, INC.
Consolidated Statement of Stockholders' Equity
(Unaudited)
Nine Months Ended July 31, 1995
(Thousands)
<TABLE>
<CAPTION>
Common Stock
(25,000,000 Shares Additional Retained
Authorized) Paid-In Earnings
Shares Par Value Capital (Deficit) Total
------ --------- --------- --------- ------
<S> <C> <C> <C> <C> <C>
Balance at
October 31, 1994 1,571 $16 $1,447 $ 442 $1,905
Repurchase of Common Stock (100) (1) (199) (200)
Net Earnings for
Nine Months Ended
July 31, 1995 286 286
----- --- ------ ----- ------
1,471 $15 $1,447 $ 529 $1,991
===== === ====== ===== ======
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
<PAGE> 10
ATHANOR GROUP, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended July 31,
(Thousands)
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Cash Flows From Operating Activities
Net Earnings $ 286 $ 344
Adjustments to Reconcile Net Earnings to Net Cash
Provided (Used) by Operating Activities:
Depreciation and Amortization 206 123
Amortization of Deferred Gain on Sale and Leaseback (31) (31)
(Increase) Decrease in Operating Assets:
Accounts Receivable (27) (727)
Inventories (140) (645)
Prepaid Expenses (36) (3)
Other (2) 9
Increase (Decrease) in Operating Liabilities:
Accounts Payable 193 868
Accrued Liabilities (102) 7
----- -----
Net Cash Provided (Used) by Operating Activities 347 (55)
----- -----
Cash Flows from Investing Activities:
Purchase of Property and Equipment (498) (332)
Investment - Common stock (200) (260)
----- -----
Net Cash Used in Investing Activities (698) (592)
----- -----
Cash Flows from Financing Activities:
Net Borrowings Under Line of Credit (2) 364
Net Proceeds Long Term Debt 316 198
Issuance of Common Stock - 3
----- -----
Net Cash Provided (Used) in Financing Activities 314 565
----- -----
Net increase (Decrease) in Cash (37) (82)
Cash at Beginning of Year 149 107
----- -----
Cash at End of Period $ 112 $ 25
===== =====
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
<PAGE> 11
ATHANOR GROUP, INC.
Consolidated Statements of Cash Flows - Continued
(Unaudited)
Nine Months Ended July 31,
(Thousands)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Interest Paid $202 $134
==== ====
Income Taxes Paid $214 $ 87
==== ====
Supplemental Schedule of Noncash Investing and
Financing Activities:
July 31, 1995
-------------
None
July 31, 1994
--------------
None
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
<PAGE> 12
Notes to Consolidated Financial Statements
(Unaudited)
July 31, 1995 and 1994
Note 1
------
Primary earnings per common share are computed by using the weighted average
number of common shares outstanding during the year - 1,530,775 shares in 1995
and 1,571,434 shares in 1994.
Note 2
------
In management's opinion, all adjustments necessary to a fair settlement of the
results of operations for the interim periods, have been reflected.
Note 3
------
The consolidated financial statements include the accounts of Athanor Group,
Inc., and its subsidiary, Alger Manufacturing Co., Inc. Significant
intercompany accounts and transactions have been eliminated.
Note 4
------
During 1994, the company changed its method of accounting for deferred taxes
from the deferred method under APB No. 11 to the asset and liability method now
required under SFAS No. 109.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. In addition, net operating loss carryforwards and
credit carryforwards are included as deferred tax assets. A valuation
allowance against deferred tax assets is recorded if necessary. All deferred
tax amounts are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Changes in tax rates are recognized in income in the
period that includes the enactment date.
<PAGE> 13
Notes to Consolidated Financial Statements, Continued
-----------------------------------------------------
Note 5
------
The Company accounts for its investment in Core Software Technology (Core) on
the equity method of accounting which requires the Company to record its shares
of Core's earnings or losses. During 1995 and 1994, the Company invested an
additional $69,000 and $360,000, respectively, into Core which was subsequently
reduced to zero because of losses incurred by Core. At July 31, 1995 and 1994
the Company owned approximately 21.5% and 12.8% respectively.
Summarized unaudited financial statements for Core for the seven months ended
July 31, 1995, are as follows:
<TABLE>
<S> <C>
Assets $1,486,000
Liabilities $2,122,000
Deficit Equity $ (636,000)
Sales $ 845,000
Expenses $1,414,000
Loss $ (569,000)
</TABLE>
Note 6
------
In April 1995 the Company consummated a transaction, whereby it agreed to
acquire 100,000 shares of its common stock at $2 per share. The agreement
called for 20% down, or $40,000, at the closing and the balance of $160,000 to
be paid in equal annual installments of $40,000 beginning on April 1, 1996,
through April 1, 1999. Interest payments on the unpaid balance are to be paid
quarterly at 8%.
The unpaid balance is secured by an equal amount of the company's common stock
as defined in the agreement.
<PAGE> 14
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's working capital at July 1995 of $1,822,000 continues to remain
stable when compared to $1,866,000 at October 1994 and $1,355,000 at July 1994.
The business climate in 1995 continues to pressure the Company to maintain
high inventory levels for on- time deliveries. In addition, the cost of raw
materials has continued to rise at a rate substantially higher than the balance
of the economy. During the first nine months of 1995, raw material prices have
increased by as much as 11%. The demand at the brass mills, during much of
1995, has pushed deliveries of raw material out many weeks, forcing the company
to inventory more product and its customers to plan further in the future. The
inventory requirements will continue to put pressure on the Company's working
capital and lines of credit.
The Company's credit agreement provides for a total line of credit of
$3,100,000, of which $1,700,000 is for working capital, a $1,000,000 long term
machinery and equipment loan, and a $400,000 line for the acquisition of
additional equipment. At July 1995, the Company had approximately $782,000
available under the working capital line and $300,000 available under the
equipment line as compared to $780,000 and $400,000 , respectively, at October
1994 and $968,000 and $400,000 respectively, at July 1994. The Company believes
that the lines of credit are adequate to fund the working capital requirements
during the balance of 1995. The Company's credit agreement has been extended,
by the lender, to August 1996.
The Company has purchased $498,000 of equipment through July 1995, of which
$412,000 was new manufacturing equipment. The equipment included a new parts
washing system for $215,000 and $198,000 of secondary operation equipment.
$215,000 of the equipment was financed through a five year equipment lease,
$100,000 through the Company's line of credit and the balance from cash flow.
The Company does not anticipate any additional major purchases through the
balance of 1995. If any additional purchases are made, the Company's current
available line of credit of $300,000 is considered adequate to fund those
requirements.
In February 1995, the Company leased 17,000 square feet of additional
manufacturing facilities in Ontario, Calif. The Company had originally
anticipated expanding its Phoenix division, but the availability of additional
space adjacent to its existing facility in Ontario caused the Company to
rethink its options for 1995. The lease is effective March 1995 through
September 1997. Improvements to the additional facilities of approximately
$50,000 were expended in March and April of 1995. The Company plans on using
the facilities for warehousing, assembling and secondary operations.
<PAGE> 15
In April 1995 the company entered into an agreement whereby it agreed to
acquire 100,000 shares of its common stock for $2 per share of $200,000. The
agreement called for 20% down or $40,000 at the closing and the balance to be
paid in equal annual installments of $40,000 beginning in April 1996 through
April 1999. Interest payments on the unpaid balance are to be paid quarterly at
8.5% The note is secured by an equal number of shares of the Company's stock,
in direct relationship to the unpaid balance, at $2 per share. Each year as a
payment is made, the amount of stock held as security is reduced accordingly.
The Company retains all voting rights to the stock held as security as long as
the Company is not in default on the agreement.
RESULTS OF OPERATIONS
---------------------
Sales for the nine months ended July 1995 show an increase of 13% over 1994.
However, sales for the quarter ended July 1995 reflect a 4% decline from 1994.
While sales for the current year have shown a consistent strength as the
economy remained healthy, the Company had seen signs of a slowdown over a
period of three to four months. In addition, 1995 sales increases are partially
attributed to the substantial raw material increases which started in late 1994
and have continued during 1995. 1995 raw material price increases have been as
high as 11% in some materials.
While the Company's backlog remains very strong at $5,452,000 at July 1995, as
compared to $4,419,000 at October 1994 and $5,359,000 at July 1994, the Company
has experienced a slowdown in certain departments. The backlog also reflects
the effects of longer term contracts, as extended material deliveries have
forced the Company and its customers to plan further in the future. While the
Company does not anticipate a major change in business for the balance of the
current fiscal year, the signs of a weakening economy are more prevalent than
in the last few years.
The Company's operating profits for the nine months and three months ended July
1995 of $719,000 and $250,000 reflect a slight improvement over 1994. Net
income of $286,000 and $69,000 for the nine months and three months ended 1995
as compared to $344,000 and $120,000 for the 1994 reflect higher interest costs
as well as higher effective tax rates, for the current year. The Company
utilized the balance of its tax loss and credit carryforwards in 1994. Current
periods will therefore reflect full tax rates for both financial reporting as
well as cash payments required for tax returns.
<PAGE> 16
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) None
(b) No reports on Form 8-K have been filed during the
quarter for which this report is filed.
<PAGE> 17
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 thereunto duly authorized.
ATHANOR GROUP, INC.
Date September 18, 1995 By /s/ Duane L. Femrite
-------------------- --------------------------------------
Duane L. Femrite
President, Chief Executive Officer,
Chief Operating Officer,
Chief Financial Officer, and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF EARNINGS AND CONSOLIDATED BALANCE SHEETS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> JUL-31-1995
<CASH> 112
<SECURITIES> 0
<RECEIVABLES> 1,983
<ALLOWANCES> 21
<INVENTORY> 2,982
<CURRENT-ASSETS> 5,517
<PP&E> 4,649
<DEPRECIATION> 3,453
<TOTAL-ASSETS> 6,802
<CURRENT-LIABILITIES> 3,695
<BONDS> 0
<COMMON> 15
0
0
<OTHER-SE> 1,976
<TOTAL-LIABILITY-AND-EQUITY> 6,802
<SALES> 14,335
<TOTAL-REVENUES> 14,335
<CGS> 11,812
<TOTAL-COSTS> 13,616
<OTHER-EXPENSES> 31
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 202
<INCOME-PRETAX> 486
<INCOME-TAX> 200
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 286
<EPS-PRIMARY> .14
<EPS-DILUTED> 0
</TABLE>