<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 April 30, 1995 Commission File Number 2-63481
Athanor Group, Inc.
(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
(Address of principal executive offices)
Registrant's telephone number, including area code (818) 440-1602
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 April 30, 1995.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE> 3
ATHANOR GROUP, INC.
Consolidated Balance Sheets
(Unaudited)
April 30, 1995 and October 31, 1994
(Thousands)
ASSETS
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Current Assets:
Cash $ 55 $ 149
Trade Receivables, Less Allowance
for Doubtful Accounts of $17,000
and $31,000 2,046 1,935
Notes Receivable:
Net of Allowance of $534,062 71 20
Inventories:
Raw Materials 857 861
Work in Progress 471 312
Finished Goods 1,549 1,669
---------------- --------------
2,877 2,842
Prepaid Expenses 50 29
Deferred Income Tax Asset 377 377
---------------- --------------
Total Current Assets 5,476 5,352
Property, Plant and Equipment, at Cost 4,211 4,151
Less Accumulated Depreciation and
Amortization 3,384 3,247
---------------- --------------
Net Property, Plant and Equipment 827 904
Other Assets 129 86
---------------- --------------
$ 6,432 $ 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)
April 30, 1995 and October 31, 1994
(Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Current Liabilities:
Notes Payable $ 1,056 $ 920
Current Portion of Long-Term Debt 298 246
Accounts Payable 1,518 1,521
Accrued Expenses 719 799
---------------- --------------
Total Current Liabilities $ 3,591 $ 3,486
Long-Term Debt, Less Current Portion 839 851
Deferred Gain on Sale-Leaseback 60 80
Noncurrent Deferred Income Tax Liability 20 20
Stockholders' Equity:
Common Stock 15 16
Additional Paid-In Capital 1,447 1,447
Retained Earnings 460 442
---------------- --------------
Total Stockholders' Equity 1,922 1,905
---------------- --------------
$ 6,432 $ 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)
Six Months Ended April 30,
(Thousands)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net Sales $ 9,624 $ 7,718
Cost of Sales 7,947 6,386
---------------- --------------
Gross Profit 1,677 1,332
Selling, General & Administrative 1,208 1,024
---------------- --------------
Operating Profit 469 308
Other Income (Expense)
Interest Income 0 56
Interest Expense (128) (81)
Miscellaneous - Net 28 36
---------------- --------------
Earnings Before Income Taxes and Extraordinary Cr 369 319
Income Tax Expense 152 131
---------------- --------------
Earnings (Loss) Before Extraordinary Credit 217 188
Extraordinary Credit - Tax Benefit
of Net Operating Loss Carryforwards - 36
---------------- --------------
NET EARNINGS $ 217 $ 224
================ ==============
</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)
Six Months Ended April 30,
(Thousands)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Earnings Per Common Shares:
Primary
Earnings Before Extraordinary Credit $ 0.14 $ 0.12
Extraordinary Credit 0.00 0.02
---------------- --------------
NET EARNINGS $ 0.14 $ 0.14
================ ==============
</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 April 30,
(Thousands)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Net Sales $ 4,962 $ 4,150
Cost of Sales 4,111 3,438
---------------- --------------
Gross Profit 851 712
Selling, General & Administrative 638 536
---------------- --------------
Operating Profit 213 176
Other Income (Expense)
Interest Income 0 56
Interest Expense (73) (43)
Miscellaneous - Net 6 26
---------------- --------------
Earnings Before Income Taxes
and Extraordinary Credit 146 215
Income Tax Expense 60 88
---------------- --------------
Earnings (Loss) Before Extraordinary Credit 86 127
Extraordinary Credit - Tax Benefit
of Net Operating Loss Carryforwards - 18
---------------- --------------
NET EARNINGS $ 86 $ 145
================ ==============
</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 April 30,
(Thousands)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Earnings Per Common Shares:
Primary
Earnings Before Extraordinary Credit $ 0.06 $ 0.08
Extraordinary Credit 0.00 0.01
---------------- --------------
NET EARNINGS $ 0.06 $ 0.09
================ ==============
</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)
Six Months Ended April 30, 1995
(Thousands)
<TABLE>
<CAPTION>
Common Stock
(25,000,000 Shares Additional Retained
Authorized) Paid-In Earnings
Shares Par Value Capital 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
Six Months Ended
April 30, 1995 217 217
----- ---------- ----------- ----------- ----------
1,471 $ 15 $ 1,447 $ 460 $ 1,922
===== ========== =========== =========== ==========
</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)
Six Months Ended April 30,
(Thousands)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash Flows From Operating Activities
Net Earnings $ 217 $ 224
Adjustments to Reconcile Net Earnings to Net Cash
Provided (Used) by Operating Activities:
Depreciation and Amortization 137 74
Amortization of Deferred Gain on Sale and Leaseback (20) (21)
(Increase) Decrease in Operating Assets:
Accounts Receivable (111) (588)
Inventories (35) (418)
Prepaid Expenses (21) (9)
Other (94) (2)
Increase (Decrease) in Operating Liabilities:
Accounts Payable (3) 324
Accrued Liabilities (80) (24)
---------------- --------------
Net Cash Provided (Used) by Operating Activities (10) (440)
---------------- --------------
Cash Flows from Investing Activities:
Purchase of Property and Equipment (60) (9)
Short Term Loan 40 198
Investment - Common stock (200) (260)
---------------- --------------
Net Cash Used in Investing Activities (220) (71)
---------------- --------------
Cash Flows from Financing Activities:
Net Borrowings Under Line of Credit 136 387
Issuance of Common Stock - 3
---------------- --------------
Net Cash Provided (Used) in Financing Activities 136 390
---------------- --------------
Net increase (Decrease) in Cash (94) (73)
Cash at Beginning of Year 149 107
---------------- --------------
Cash at End of Period $ 55 $ 34
================ ==============
</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)
Six Months Ended April 30,
(Thousands)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 128 $ 81
================ ==============
Income Taxes Paid $ 125 $ 28
================ ==============
</TABLE>
Supplemental Schedule of Noncash Investing and
Financing Activities:
April 30, 1995
None
April 30, 1994
None
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)
April 30, 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 - 1,560,937 shares in 1995
and 1,567,100 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 1994, the Company invested an additional
$360,458 into Core which was subsequently reduced to zero, as of October 1994,
because of losses incurred by Core. At April 30, 1995 and 1994 the Company owned
approximately 21.5% and 12.8% respectively.
Note 6
In April 1995 the Company consummated a transaction, whereby it agreed to
acquire 100,000 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
8.5%.
Certain shares are held as security for the unpaid balance of the note. The
Company retains voting rights to the shares held as security as long as the
Company is not in default on the agreement.
The Company has recorded this transaction as a purchase of its stock. The
balance of the note of $160,000 has been recorded as a liability and the 100,000
shares of common stock have been deleted from the outstanding shares.
<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 April 1995 of $1,885,000 continues to remain
stable when compared to $1,866,00 at October 1994 and $1,250,000 at January
1994. The current business environment has continued 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 quarter of 1995, the Company endured
four price increases in brass totaling 8%. During the second quarter the raw
material prices have stabilized as prices have remained constant.The demand at
the brass mills 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 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 April 1995, the Company had approximately $644,000
available under the working capital line and $400,000 available under the
equipment line as compared to $780,000 and $125,000 , respectively, at October
1994 and $321,000 and $125,000 respectively, at April 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 terminates in August
1995 unless extended in writing by the lender. The company is currently in
negotiations to extend the agreement for an additional year and has no reason to
believe that the line of credit will not be extended by the lender.
The Company has ordered $215,000 of new equipment which was delivered in May
1995. The equipment was financed through a five year equipment lease. The
Company anticipates additional equipment purchases during 1995 of $200,000 to
$300,000. The Company's current equipment line of credit of $400,000 will be
adequate to fund any additional equipment purchases.
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.
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 or $200,000. The agreement
called for 20% down or $40,000 at 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
<PAGE> 15
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
The operating results for the first six months of 1995 have continued to show
steady improvement as the economy appears to remain healthy. Sales for the six
months and three months ended April 1995 were 25% and 20% ahead of 1994. It
should be noted that 1994 was the best year in sales in the history of the
Company. The Company has anticipated a slow down in sales during the balance of
1995 as a major contract was completed in the first quarter of 1995. Sales
increases can also be attributed to the substantial raw material increases which
took place during 1994 and the first quarter of 1995. The increases of raw
material added to the Company's expansion in larger diameter equipment, reflect
a higher sales and cost of sales figures. Material costs as a percent of sales
have increased from 42% in 1994 to 46% in 1995.
The Company's operating profits for the six months and three months ended April
1995 of $469,000 and $213,000 respectively reflect the Company's current sales
improvement. The Company's current backlog of approximately $5,163,000, as
compared to $4,419,000 at October 1994 and $4,694,000 at April 1994 continues to
demonstrate the ongoing strength of the current economy. The backlog also
reflects the current requirement for longer term planning due to raw material
lead times for delivery, for both the Company and its customers.
The Company's carrying cost for inventories have increased substantially over
the last couple of years. The rate increases of 1994 have increased our interest
expense on the Company's operating lines of credit by approximately 58% during
the first six months of 1995. The Company anticipates the balance of 1995 will
show similar increases due to the increases in the cost of borrowed funds.
<PAGE> 16
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of registrant was held on
May 4, 1995
(b) At the annual meeting, the following individuals
were elected to the Board of Directors:
Gregory J. Edwards
Duane L. Femrite
William H. Harris, Jr.
Richard A. Krause
Robert W. Miller
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 6/15/95 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> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> APR-30-1995
<CASH> 55
<SECURITIES> 0
<RECEIVABLES> 71
<ALLOWANCES> 2046
<INVENTORY> 2877
<CURRENT-ASSETS> 5476
<PP&E> 4211
<DEPRECIATION> 3384
<TOTAL-ASSETS> 6432
<CURRENT-LIABILITIES> 3591
<BONDS> 0
<COMMON> 15
0
0
<OTHER-SE> 1907
<TOTAL-LIABILITY-AND-EQUITY> 6432
<SALES> 9624
<TOTAL-REVENUES> 9624
<CGS> 7947
<TOTAL-COSTS> 9155
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (128)
<INCOME-PRETAX> 369
<INCOME-TAX> 152
<INCOME-CONTINUING> 217
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 217
<EPS-PRIMARY> .14
<EPS-DILUTED> 0
</TABLE>
