<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, 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 July 31, 1996.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE> 3
ATHANOR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JULY 31, 1996 AND OCTOBER 31, 1995
(THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Current Assets:
Cash $ 295 $ 62
Trade Receivables, Less Allowance
for Doubtful Accounts of $12,000
and $12,000 2,515 2,145
Notes Receivable:
Net of Allowance of $534,062 45 25
Inventories:
Raw Materials 1,039 835
Work in Progress 545 519
Finished Goods 1,590 1,618
------ ------
3,174 2,972
Prepaid Expenses 60 136
Deferred Income Tax Asset 191 191
------ ------
Total Current Assets 6,280 5,531
Property, Plant and Equipment, at Cost 4,786 4,456
Less Accumulated Depreciation and
Amortization 3,574 3,347
------ ------
Net Property, Plant and Equipment 1,212 1,109
Other Assets 60 83
------ ------
$7,552 $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)
JULY 31, 1996 AND OCTOBER 31, 1995
(THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Current Liabilities:
Notes Payable $1,048 $1,177
Current Portion of Long-Term Debt 420 366
Accounts Payable 1,679 1,538
Accrued Expenses 732 606
------ ------
Total Current Liabilities $3,879 $3,687
Long-Term Debt, Less Current Portion 1,180 974
Deferred Gain on Sale-Leaseback 8 39
Noncurrent Deferred Income Tax Liability 55 55
Stockholders' Equity:
Common Stock 15 15
Additional Paid-In Capital 1,447 1,447
Retained Earnings 968 506
------ ------
Total Stockholders' Equity 2,430 1,968
------ ------
$7,552 $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)
NINE MONTHS ENDED JULY 31,
(THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Net Sales $17,823 $14,335
Cost of Sales 14,906 11,812
------- -------
Gross Profit 2,917 2,523
Selling, General & Administrative 1,838 1,804
------- -------
Operating Profit 1,079 719
Other Income (Expense)
Interest Expense (216) (202)
Equity in Loss of Unconsolidated Investee (131) (69)
Miscellaneous - Net 52 38
------- -------
Earnings Before Income Taxes 784 486
Income Tax Expense 322 200
------- -------
NET EARNINGS $ 462 $ 286
======= =======
</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>
1996 1995
----- -----
<S> <C> <C>
Earnings Per Common Shares:
Primary and Fully Diluted $0.31 $0.18
----- -----
NET EARNINGS $0.31 $0.18
===== =====
</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>
1996 1995
------ ------
<S> <C> <C>
Net Sales $5,940 $4,711
Cost of Sales 4,977 3,865
------ ------
Gross Profit 963 846
Selling, General & Administrative 631 596
------ ------
Operating Profit 332 250
Other Income (Expense)
Interest Expense (72) (74)
Equity in Loss of Unconsolidated Investee (47) (69)
Miscellaneous - Net 11 10
------ ------
Earnings Before Income Taxes 224 117
Income Tax Expense 93 48
------ ------
NET EARNINGS $ 131 $ 69
====== ======
</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>
1996 1995
----- -----
<S> <C> <C>
Earnings Per Common Shares:
Primary and Fully Diluted $0.09 $0.04
----- -----
NET EARNINGS $0.09 $0.04
===== =====
</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, 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
Nine Months Ended
July 31, 1996 462 462
----- ---- ------ ---- ------
1,571 $ 15 $1,447 $968 $2,430
===== ==== ====== ==== ======
</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>
1996 1995
----- -----
<S> <C> <C>
Cash Flows From Operating Activities
Net Earnings $ 462 $ 286
Adjustments to Reconcile Net Earnings to Net Cash
Provided (Used) by Operating Activities:
Equity in Loss of Unconsolidated Investee 131 --
Provision for Deferred Income Taxes -- --
Depreciation and Amortization 227 206
Amortization of Deferred Gain on Sale and Leaseback (31) (31)
(Increase) Decrease in Operating Assets:
Accounts Receivable (370) (27)
Inventories (202) (140)
Prepaid Expenses 76 (36)
Other 3 (2)
Increase (Decrease) in Operating Liabilities:
Accounts Payable 141 193
Accrued Liabilities 126 (102)
----- -----
Net Cash Provided (Used) by Operating Activities 563 347
----- -----
Cash Flows from Investing Activities:
Purchase of Property and Equipment (330) (498)
Investment / Advances In Unconsolidate Investee (131) --
Short Term Loan 0 --
Investment - Common Stock 0 (200)
----- -----
Net Cash Used in Investing Activities (461) (698)
----- -----
Cash Flows from Financing Activities:
Net Borrowings Under Line of Credit (129) (2)
Payment of Loans Payable, Net -- --
Net Proceeds Long Term Debt 260 316
----- -----
Net Cash Provided (Used) in Financing Activities 131 314
----- -----
Net increase (Decrease) in Cash 233 (37)
Cash at Beginning of Year 62 149
----- -----
Cash at End of Period $ 295 $ 112
===== =====
</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 JULY 31,
(THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Interest Paid $216 $202
==== ====
Income Taxes Paid $ 25 $214
==== ====
</TABLE>
Supplemental Schedule of Noncash Investing and Financing Activities:
July 31, 1996
The Company purchased $238,000 of machinery and equipment under a capital
lease obligation.
July 31, 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
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 $131,000 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. As of July 31, 1996 the Company has
received 744,000 shares of Core common stock. At July 31, 1996 and 1995, the
Company owned approximately 26.4% and 21.5% respectively of the issued and
outstanding common stock of Core.
Summarized unaudited financial statements for Core, for the seven months ended
July 31, 1996 are as follows:
<TABLE>
<S> <C>
Assets $ 800,000
Liabilities $ 4,362,000
Deficit Equity $(3,562,000)
Sales $ 820,000
Expenses $ 1.340,000
Loss $ (520,000)
</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%. As
of July 31, 1996, the Company's unpaid balance is $120,000.
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 1996 of $2,401,000 continues to improve
when compared to $1,844,000 at October 1995 and $1,822,000 at July 1995. The
improvement in working capital is a combination of improved sales along with a
refinancing of the Company's credit agreement. The amended credit agreement,
discussed below, increased working capital by approximately $250,000. Current
sales growth has placed additional demands on working capital as the Company
maintains higher accounts receivable and 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 was amended during July 1996, and extended until
August 1997. The amended credit agreement provides for a total line of credit of
$3,500,000, of which $2,200,000 is for working capital, a $900,000 long term
machinery and equipment loan, and a $400,000 line for the acquisition of
additional equipment. At July 1996, the Company had approximately $1,150,000
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 $782,000 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 has acquired $330,000 of new equipment during 1996. $238,000 of the
equipment was financed through five year equipment leases. The Company
anticipates additional equipment purchases during 1996 of $100,000 to $200,000.
The Company's current equipment line of credit of $300,000 is expected to be
adequate to fund any additional equipment purchases, including those associated
with the new Phoenix facility.
The Company has plans to expand its Phoenix division during 1996 and has
recently completed negotiations on the leasing of a 15,000 square foot facility
for five years. The new lease runs from November 1996 through October 2001. The
Company's current lease on its Phoenix facility has been extended through
December 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
Sales for 1996 have continued to be very strong with increases over 1995, in the
nine months and three months ended July 1996 of 24% and 17 %. The sales
increases are an indication 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 into larger
<PAGE> 15
diameter machines as well as expanding our secondary operations department.
These expansions, as well as the planned expansion in Phoenix, are the basis for
the Company's current and future growth plans.
The company's operating profits for the nine months and three months ended July
1996 of $1,079,000 and $332,000 respectively, reflect increases of 50% and 33%
when compared to 1995. The increase in operating profits is a direct result of
the increased sales. The Company's current backlog at July 1996 of $6,158,000,
as compared to $6,134,000 at October 1995 and $5,452,0000 at July 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. Based on the current strength on our backlog,
the Company does not anticipate a major change in the business for the balance
of the current fiscal year.
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
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 13, 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>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 295
<SECURITIES> 0
<RECEIVABLES> 2,527
<ALLOWANCES> 12
<INVENTORY> 3,174
<CURRENT-ASSETS> 6,280
<PP&E> 4,786
<DEPRECIATION> 3,574
<TOTAL-ASSETS> 7,552
<CURRENT-LIABILITIES> 3,879
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 2,415
<TOTAL-LIABILITY-AND-EQUITY> 7,752
<SALES> 17,823
<TOTAL-REVENUES> 17,823
<CGS> 14,906
<TOTAL-COSTS> 16,744
<OTHER-EXPENSES> 79
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 216
<INCOME-PRETAX> 784
<INCOME-TAX> 322
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 462
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
