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<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, 1996 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)
921 East California Avenue, Ontario, California 91761
(Address of principal executive offices)
Registrant's telephone number, including area code (909) 467-1205
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:
1,471,354 shares as of March 31, 1996.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE> 3
ATHANOR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
APRIL 30, 1996 AND OCTOBER 31, 1995
(THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current Assets:
Cash $ 47 $ 62
Trade Receivables, Less Allowance
for Doubtful Accounts of $12,000
and $12,000 2,360 2,145
Notes Receivable:
Net of Allowance of $534,062 40 25
Inventories:
Raw Materials 931 835
Work in Progress 452 519
Finished Goods 1,757 1,618
---------- ----------
3,140 2,972
Prepaid Expenses 64 136
Deferred Income Tax Asset 191 191
---------- ----------
Total Current Assets 5,842 5,531
Property, Plant and Equipment, at Cost 4,651 4,456
Less Accumulated Depreciation and
Amortization 3,501 3,347
---------- ----------
Net Property, Plant and Equipment 1,150 1,109
Other Assets 84 83
---------- ----------
$ 7,076 $ 6,723
========== ==========
</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, 1996 AND OCTOBER 31, 1995
(THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Current Liabilities:
Notes Payable $ 1,006 $ 1,177
Current Portion of Long-Term Debt 399 366
Accounts Payable 1,741 1,538
Accrued Expenses 679 606
---------- ----------
Total Current Liabilities $ 3,825 $ 3,687
Long-Term Debt, Less Current Portion 878 974
Deferred Gain on Sale-Leaseback 19 39
Noncurrent Deferred Income Tax Liability 55 55
Stockholders' Equity:
Common Stock 15 15
Additional Paid-In Capital 1,447 1,447
Retained Earnings 837 506
---------- ----------
Total Stockholders' Equity 2,299 1,968
---------- ----------
$ 7,076 $ 6,723
========== ==========
</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>
1996 1995
---- ----
<S> <C> <C>
Net Sales $ 11,883 $ 9,624
Cost of Sales 9,929 7,947
---------- ----------
Gross Profit 1,954 1,677
Selling, General & Administrative 1,207 1,208
---------- ----------
Operating Profit 747 469
Other Income (Expense)
Interest Expense (144) (128)
Equity in Loss of Unconsolidated Investee (84) -
Miscellaneous - Net 41 28
---------- ----------
Earnings Before Income Taxes 560 369
Income Tax Expense 229 152
---------- ----------
NET EARNINGS $ 331 $ 217
========== ==========
</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>
1996 1995
---- ----
<S> <C> <C>
Earnings Per Common Shares:
Primary and Fully Diluted $ 0.22 $ 0.14
---------- ----------
NET EARNINGS $ 0.22 $ 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>
1996 1995
---- ----
<S> <C> <C>
Net Sales $ 5,808 $ 4,962
Cost of Sales 4,876 4,111
---------- ----------
Gross Profit 932 851
Selling, General & Administrative 608 638
---------- ----------
Operating Profit 324 213
Other Income (Expense)
Interest Expense (70) (73)
Equity in Loss of Unconsolidated Investee (34) 0
Miscellaneous - Net 20 6
---------- ----------
Earnings Before Income Taxes 240 146
Income Tax Expense 98 60
---------- ----------
NET EARNINGS $ 142 $ 86
========== ==========
</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>
1996 1995
---- ----
<S> <C> <C>
Earnings Per Common Shares:
Primary and Fully Diluted $ 0.10 $ 0.06
---------- ----------
NET EARNINGS $ 0.10 $ 0.06
========== ==========
</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, 1996
(THOUSANDS)
<TABLE>
<CAPTION>
Common Stock
(25,000,000 Shares Additional
Authorized) Paid-In Retained
Shares Par Value Capital Earnings Total
------ --------- ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at
October 31, 1995 1,571 $ 15 $ 1,447 $ 506 $ 1,968
Net Earnings for
Six Months Ended
April 30, 1996 189 189
---------- ---------- ---------- ---------- ---------
1,571 $ 15 $ 1,447 $ 695 $ 2,157
========== ========== ========== ========== =========
</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>
1996 1995
---- ----
<S> <C> <C>
Cash Flows From Operating Activities
Net Earnings $ 331 $ 217
Adjustments to Reconcile Net Earnings to Net Cash
Provided (Used) by Operating Activities:
Equity in Loss of Unconsolidated Investee 84 -
Provision for Deferred Income Taxes - -
Depreciation and Amortization 154 137
Amortization of Deferred Gain on Sale and Leaseback (20) (20)
(Increase) Decrease in Operating Assets:
Accounts Receivable (215) (111)
Inventories (168) (35)
Prepaid Expenses 72 (21)
Other (16) (94)
Increase (Decrease) in Operating Liabilities:
Accounts Payable 203 (3)
Accrued Liabilities 73 (80)
---------- ----------
Net Cash Provided (Used) by Operating Activities 498 (10)
---------- ----------
Cash Flows from Investing Activities:
Purchase of Property and Equipment (195) (60)
Investment / Advances In Unconsolidate Investee (84) -
Short Term Loan 0 40
Investment - Common Stock 0 (200)
---------- ----------
Net Cash Used in Investing Activities (279) (220)
---------- ----------
Cash Flows from Financing Activities:
Net Borrowings Under Line of Credit (171) 136
Payment of Loans Payable, Net - -
Net Proceeds Long Term Debt (63) -
---------- ----------
Net Cash Provided (Used) in Financing Activities (234) 136
---------- ----------
Net increase (Decrease) in Cash (15) (94)
Cash at Beginning of Year 62 149
---------- ----------
Cash at End of Period $ 47 $ 55
========== ==========
</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>
1996 1995
---- ----
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 144 $ 128
========== ==========
Income Taxes Paid $ 0 $ 125
========== ==========
</TABLE>
Supplemental Schedule of Noncash Investing and
Financing Activities:
April 30, 1996
The Company purchased $132,000 of machinery and
equipment under a capital lease obligation.
April 30, 1995
The Company purchased $207,000 of machinery and
equipment under a capital lease obligation.
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, 1996 and 1995
Note 1
Primary earnings per common share are computed by using the weighted average
number of common shares outstanding during the year: 1,471,354 shares in 1996
and 1,471,434 shares in 1995.
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, the Company invested an additional
$123,500 into Core which was subsequently reduced to zero as of October 1995
because of losses incurred by Core. During 1996, the Company has invested an
additional $84,000 into Core, which has been written off, due to expected
losses at Core during the same period.
In April 1996 the Company agreed to an extension of its forbearance under the
Loan and Security Agreement with Core to August 15, 1996. Under the extension
agreement, the Company will be granted additional common stock in Core, based
on a formula using the unpaid balance of the loans, as a percent of the total
loans, calculated at certain intervals. In April 1996 the Company received
206,700 shares of Core common stock. At April 30, 1996 and 1995, the Company
owned approximately 23.3% and 21.5% respectively of the issued and outstanding
common stock of Core.
Summarized unaudited financial statements for Core, for the four months ended
April 30, 1996 are as follows:
<TABLE>
<S> <C>
Assets $ 780,000
Liabilities $ 4,050,000
Deficit Equity $ (3,270,000)
Sales $ 510,000
Expenses $ 660,000
Loss $ (150,000)
</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 April 1996 of $2,017,000 continues to improve
when compared to $1,844,00 at October 1995 and $1,855,000 at April 1995.
Current sales growth has placed additional demands on working capital as the
Company maintains high inventory levels to service customers needs as well as
for on-time deliveries. While this is considered a necessary requirement of
growth, as well as a customer requirement, the Company is striving for ways to
implement inventory controls yet service its customers on a timely basis.
The Company's credit agreement provides for a total line of credit of
$3,400,000, of which $2,000,000 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 1996, the Company had approximately $994,000
available under the working capital line and $300,000 available under the
equipment line as compared to $823,000 and $300,000 respectively at October
1995 and $644,000 and $400,000 respectively at April 1995. The Company
believes that the lines of credit are adequate to fund working capital
requirements during the balance of 1996. The Company's credit agreement is
automatically renewed in August 1996 unless terminated in writing by the
lender. The Company is currently in discussions with its lender regarding the
extension of its credit agreement and has no reason to believe that the line of
credit will not be extended by the lender.
The Company has acquired $195,000 of new equipment during 1996. $132,000 of
the equipment was financed through a five year equipment lease. The Company
anticipates additional equipment purchases during 1996 of $200,000 to $300,000.
The Company's current equipment line of credit of $300,000 is expected be
adequate to fund any additional equipment purchases.
The Company has plans to expand its Phoenix division during 1996 and is
currently in negotiations regarding leasing a 15,000 square foot facility for
five years. The Company's current lease on its Phoenix facility ends in August
1996. The larger facility will allow for planned expansion over the next few
years as well as provide the division with a better equipped, autonomous
working environment. The expansion is expected to cost between $150,000 and
$200,000, including equipment and leasehold improvements, over a period of six
to twelve months. The Company believes it will be able to fund these costs
from working capital and its equipment line of credit.
RESULTS OF OPERATIONS
The operating results for the first six months of 1996 have continued to show
improvement as the demand for the Company's services has remained very strong.
Sales for the six months and three months ended April 1996 were 24% and 17%
ahead of 1995. The sales increases are a continuation of a strong business
climate as well as the results of the Company's growth program. The leasing of
additional facilities in 1995 has allowed for the continued expansion
<PAGE> 15
into larger diameter machines as well as expanding our secondary operations
department. These planned expansions are the basis for the Company's current
growth plans.
The company's operating profits for the six months and three months ended April
1996 of $747,000 and $324,000 respectively, reflect increases of 59% and 52%
when compared to 1995. The increase in operating profits is a direct result of
the increased sales. The Company's current backlog at April 1996 of
$5,825,000, as compared to $6,134,000 at October 1995 and $5,163,0000 at April
1995, continues to demonstrate the strength in the current business climate.
While the Company has experienced slight downturns in sales and backlog during
1996, the effect has always been short-term.
In February 1995, the Company leased 17,000 square feet of additional
manufacturing facilities in Ontario, California. The lease is effective March
1995 through September 1997. Improvements to the additional facilities cost
approximately $50,000, in addition to the labor and overhead associated with
setting up the facility, before the facility became functional.
<PAGE> 16
PART II - OTHER INFORMATION
<TABLE>
<CAPTION>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
<S> <C>
(a) None
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
</TABLE>
<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 June 12, 1996 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>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<CASH> 47
<SECURITIES> 0
<RECEIVABLES> 2,372
<ALLOWANCES> 12
<INVENTORY> 3,140
<CURRENT-ASSETS> 5,842
<PP&E> 4,651
<DEPRECIATION> 3,501
<TOTAL-ASSETS> 7,076
<CURRENT-LIABILITIES> 3,825
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 2,284
<TOTAL-LIABILITY-AND-EQUITY> 7,076
<SALES> 11,883
<TOTAL-REVENUES> 11,883
<CGS> 9,929
<TOTAL-COSTS> 11,136
<OTHER-EXPENSES> 43
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144
<INCOME-PRETAX> 560
<INCOME-TAX> 229
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 331
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
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