<PAGE>
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 January 31, 1997 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
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(State or other jurisdiction (IRS Employer Identification No.)
incorporation of organization)
921 East California Avenue, Ontario, California 91761
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(Address of principal executive offices)
Registrant's telephone number, including area code (909) 467-1205
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Former name, former address and former fiscal year, if changed since last
report.
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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
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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: 1,468,934
shares as of January 31, 1997.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ATHANOR GROUP, INC.
Consolidated Balance Sheets
(Unaudited)
January 31, 1997 and October 31, 1996
(Thousands)
ASSETS
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<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Current Assets:
Cash $ 24 $ 115
Trade Receivables, Less Allowance
for Doubtful Accounts of $12,000
and $12,000 2,188 2,471
Notes Receivable:
Net of Allowance of $534,062 40 40
Inventories:
Raw Materials 796 872
Work in Progress 518 506
Finished Goods 2,085 1,797
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3,399 3,175
Prepaid Expenses 80 35
Deferred Income Tax Asset 261 261
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Total Current Assets 5,992 6,097
Property, Plant and Equipment, at Cost 4,949 4,815
Less Accumulated Depreciation and
Amortization 3,710 3,637
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Net Property, Plant and Equipment 1,239 1,178
Other Assets 164 90
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$7,395 $7,365
======= =======
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
<PAGE>
ATHANOR GROUP, INC.
Consolidated Balance Sheets
(Unaudited)
January 31, 1997 and October 31, 1996
(Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Current Liabilities:
Notes Payable $1,232 $ 940
Current Portion of Long-Term Debt 420 420
Accounts Payable 1,494 1,444
Accrued Expenses 611 902
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Total Current Liabilities $3,757 $3,706
Long-Term Debt, Less Current Portion 1,010 1,095
Noncurrent Deferred Income Tax Liability 67 67
Stockholders' Equity:
Common Stock 15 15
Additional Paid-In Capital 1,447 1,447
Retained Earnings 1,099 1,035
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Total Stockholders' Equity 2,561 2,497
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$7,395 $7,365
====== ======
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
<PAGE>
ATHANOR GROUP, INC.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended January 31,
(Thousands)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Net Sales $ 5,125 $ 6,075
Cost of Sales 4,293 5,053
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Gross Profit 832 1,022
Selling, General & Administrative 624 599
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Operating Profit 208 423
Other Income (Expense)
Interest Expense (68) (74)
Equity in Loss of Unconsolidated Investee (33) (50)
Miscellaneous - Net 12 21
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Earnings Before Income Taxes 119 320
Income Tax Expense 49 131
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NET EARNINGS $ 70 $ 189
======= =======
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
<PAGE>
ATHANOR GROUP, INC.
Consolidated Statements of Operations - Continued
(Unaudited)
Three Months Ended January 31,
(Thousands)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Earnings Per Common Shares:
Primary and Fully Diluted $ 0.05 $ 0.12
-------- --------
NET EARNINGS $ 0.05 $ 0.12
======== ========
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
<PAGE>
ATHANOR GROUP, INC.
Consolidated Statement of Stockholders' Equity
(Unaudited)
Three Months Ended January 31, 1997
(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, 1996 1,471 $ 15 $ 1,447 $ 1,035 $ 2,497
Retirement Common Stock (2) (6) (6)
Net Earnings for
Three Months Ended
January 31, 1997 70 70
----- ----- ------- -------- --------
1,469 $ 15 $ 1,447 $ 1,099 $ 2,561
===== ===== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
<PAGE>
ATHANOR GROUP, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended January 31,
(Thousands)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Cash Flows From Operating Activities
Net Earnings $ 70 $ 189
Adjustments to Reconcile Net Earnings to Net Cash
Provided (Used) by Operating Activities:
Equity in Loss of Unconsolidated Investee 33 50
Provision for Deferred Income Taxes 0 0
Depreciation and Amortization 73 81
Amortization of Deferred Gain on Sale and Leaseback 0 (10)
(Increase) Decrease in Operating Assets:
Accounts Receivable 283 (574)
Inventories (224) (144)
Prepaid Expenses (45) 46
Other (74) 37
Increase (Decrease) in Operating Liabilities:
Accounts Payable 50 419
Accrued Liabilities (291) (1)
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Net Cash Provided (Used) by Operating Activities (125) 93
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Cash Flows from Investing Activities:
Purchase of Property and Equipment (134) (184)
Investment / Advances In Unconsolidate Investee (33) (50)
Short Term Loan 0 0
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Net Cash Used in Investing Activities (167) (234)
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Cash Flows from Financing Activities:
Net Borrowings Under Line of Credit 207 130
Repurchase of stock (6) --
Net Proceeds Long Term Debt 0 54
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Net Cash Provided (Used) in Financing Activities 201 184
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Net increase (Decrease) in Cash (91) 43
Cash at Beginning of Year 115 62
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Cash at End of Period $ 24 $ 105
===== =====
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
<PAGE>
ATHANOR GROUP, INC.
Consolidated Statements of Cash Flows - Continued
(Unaudited)
Three Months Ended January 31,
(Thousands)
<TABLE>
<CAPTION>
1996 1996
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<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 68 $ 74
---- ----
Income Taxes Paid $101 $ 0
==== ====
</TABLE>
Supplemental Schedule of Noncash Investing and
Financing Activities:
January 31, 1997
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None
January 31, 1996
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None
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
<PAGE>
Notes to Consolidated Financial Statements
(Unaudited)
January 31, 1997 and 1996
Note 1
- ------
Primary earnings per common share are computed by using the weighted average
number of common shares outstanding during the year: 1,468,934 shares in 1997
and 1,471,354 shares in 1996.
Note 2
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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
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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
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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 rated 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.
Note 5
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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
<PAGE>
Notes to Consolidated Financial Statements, Continued
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losses. During 1996, the Company invested an additional $149,739 in Core, which
was subsequently reduced to zero as of October 1996 because of losses incurred
by Core. During fiscal 1997, the Company has invested an additional $33,326 in
Core which has been written off due to expected losses at Core during the same
period. At January 31, 1997 and 1996 the Company owned approximately 27.8% and
21.5% respectively of the issued and outstanding common stock of Core.
Summarized unaudited financial statements for Core for the year ended December
31, 1996 are as follows:
<TABLE>
<S> <C>
Assets $ 271,000
Liabilities $ 6,076,000
Deficit Equity $(5,805,000)
Sales $ 427,000
Expenses $ 2,889,000
Loss $(2,462,000)
</TABLE>
Note 6
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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 January 31, 1997, 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>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
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The Company's working capital at January 1997 of $2,235,000 has declined
slightly when compared to $2,391,00 at October 1996. The reduction is primarily
associated with a decline in sales for the first quarter combined with the cost
associated with building out the Company's new Arizona facility.
The Company expended $134,000 on new equipment and leasehold improvements during
the first quarter of 1997 and has made deposits of $40,000 for the purchase of
$384,000 of additional equipment for delivery in mid-1997. The Company has
recently obtained financing for the equipment purchase which will be financed
through a five year equipment lease. The Company anticipates additional
equipment purchases and leasehold improvements during 1997 of $600,000 to
$700,000. The Company's current equipment line of credit of $300,000 is not
expected to be adequate to fund all of the additional equipment purchases.
However, the Company does not anticipate any difficulty in obtaining the
required financing.
The Company's credit agreement provides for a total line of credit of
$3,500,000, of which $2,200,000 is for working capital, $900,000 long term
machinery and equipment loan, and $400,000 line for the acquisition of
additional equipment. At January 1997, the Company had approximately $893,000
available under the working capital line and $300,000 available under the
equipment line as compared to $1,260,000 and $300,000 , respectively, at October
1996 and $693,000 and $400,000, respectively, at January 1996. The Company
believes the lines of credit are adequate to fund the working capital
requirements, other than the Company's major capital expenditures noted above,
during the balance of 1997. The Company has projected a large capital
expenditure program for 1997 which requires certain amendments to its credit
agreement. The Company has recently obtained approval from its lender for the
required amendments to the Company's credit agreement. These amendments will
allow the Company to implement its capital expenditure program, including
obtaining the necessary additional equipment financing from other sources as
required. The Company's credit agreement terminates in August 1997 unless
extended in writing by the lender. The company has no reason to believe that the
line of credit will not be extended by the lender.
RESULTS OF OPERATIONS
- ---------------------
Sales for the first quarter of 1997 showed a 16% reduction over the same period
in 1996. The decline in sales for the quarter is not considered an indication of
a slowing of demand for the Company's services, but due to a longer than normal
shutdown during the holidays and timing of shipments. This is evidenced by the
increase in inventory and backlog at January 1997. The Company's backlog of
$6,866,000 at January 1997 continues to show a strong demand for our services,
as compared to $6,184,000 at October 1996 and $5,931,000 at January 1996. With a
healthy backlog, the Company anticipates the second quarter's sales to be more
reflective of the current business climate.
<PAGE>
Operating profits of $208,000 for the quarter ended January 1997, as compared to
$423,000 for January 1996, directly reflect the Company's slower sales activity
for the first quarter. In addition, the Company had additional non capital costs
associated with the building-out and move into the new Arizona facility. It is
anticipated that additional costs will be absorbed during 1997 in bringing the
new facility into acceptable operating condition. While the exact additional
cost is not known, it is not expected to exceed $50,000.
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.
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 March 11, 1997 By /s/ Duane L. Femrite
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Duane L. Femrite
President, Chief Executive Officer,
Chief Operating Officer,
Chief Financial Officer, and Director
<TABLE> <S> <C>
<PAGE>
<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> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 24
<SECURITIES> 0
<RECEIVABLES> 2,200
<ALLOWANCES> 12
<INVENTORY> 3,399
<CURRENT-ASSETS> 5,992
<PP&E> 4,949
<DEPRECIATION> 3,710
<TOTAL-ASSETS> 7,395
<CURRENT-LIABILITIES> 3,757
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 2,546
<TOTAL-LIABILITY-AND-EQUITY> 7,395
<SALES> 5,125
<TOTAL-REVENUES> 5,125
<CGS> 4,293
<TOTAL-COSTS> 4,917
<OTHER-EXPENSES> 21
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68
<INCOME-PRETAX> 119
<INCOME-TAX> 49
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
