<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 July 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
- -------------------------------------- -----------------------------------
(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
------------------------------
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
----- -----
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: 1,467,934
shares as of July 31, 1997.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ATHANOR GROUP, INC.
Consolidated Balance Sheets
(Unaudited)
July 31, 1997 and October 31, 1996
(Thousands)
ASSETS
------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current Assets:
Cash $ 197 $ 115
Trade Receivables, Less Allowance
for Doubtful Accounts of $13,000
and $12,000 2,932 2,471
Notes Receivable:
Net of Allowance of $534,062 40 40
Inventories:
Raw Materials 1,002 872
Work in Progress 632 506
Finished Goods 2,131 1,797
------ ------
3,765 3,175
Prepaid Expenses 27 35
Deferred Income Tax Asset 172 261
------ ------
Total Current Assets 7,133 6,097
Property, Plant and Equipment, at Cost 5,863 4,815
Less Accumulated Depreciation and
Amortization 3,873 3,637
------ ------
Net Property, Plant and Equipment 1,990 1,178
Other Assets 153 90
------ ------
$9,276 $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)
July 31, 1997 and October 31, 1996
(Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current Liabilities:
Notes Payable $1,431 $ 940
Current Portion of Long-Term Debt 595 420
Accounts Payable 1,862 1,444
Accrued Expenses 936 902
------
Total Current Liabilities $4,824 $3,706
------
Long-Term Debt, Less Current Portion 1,311 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 1,612 1,035
------ ------
Total Stockholders' Equity 3,074 2,482
------ ------
$9,276 7,350
====== ======
</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)
Nine Months Ended July 31,
(Thousands)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net Sales $ 18,575 $ 17,823
Cost of Sales 15,588 14,906
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Gross Profit 2,987 2,917
Selling, General & Administrative 2,014 1,838
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Operating Profit 973 1,079
Other Income (Expense)
Interest Expense (231) (216)
Equity in (Loss) Recovery of Unconsolidated Investee 225 (131)
Miscellaneous - Net 19 52
-------- --------
Earnings Before Income Taxes 986 784
Income Tax Expense 401 322
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NET EARNINGS $ 585 $ 462
======== ========
Earnings Per Common Shares:
Primary and Fully Diluted $ 0.40 $ 0.31
-------- --------
NET EARNINGS $ 0.40 $ 0.31
======== ========
</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 July 31,
(Thousands)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net Sales $ 7,075 $ 5,940
Cost of Sales 5,832 4,977
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Gross Profit 1,243 963
Selling, General & Administrative 710 631
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Operating Profit 533 332
Other Income (Expense)
Interest Expense (84) (72)
Equity in (Loss) Recovery of Unconsolidated Investee 180 (47)
Miscellaneous - Net 2 11
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Earnings Before Income Taxes 631 224
Income Tax Expense 255 93
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NET EARNINGS $ 376 $ 131
======= =======
Earnings Per Common Shares:
Primary and Fully Diluted $ 0.26 $ 0.09
------- -------
NET EARNINGS $ 0.26 $ 0.09
======= =======
</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)
Nine Months Ended July 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 (3) (8) (8)
Net Earnings for
Nine Months Ended
July 31, 1997 585 585
------- ------- ------- ------- -------
1,468 $ 15 $ 1,447 $ 1,612 $ 3,074
======= ======= ======= ======= =======
</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)
Nine Months Ended July 31,
(Thousands)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash Flows From Operating Activities
Net Earnings $ 585 $ 462
Adjustments to Reconcile Net Earnings to Net Cash
Provided (Used) by Operating Activities:
Equity in Loss of Unconsolidated Investee (180) 131
Provision for Deferred Income Taxes 89 --
Depreciation and Amortization 236 227
Amortization of Deferred Gain on Sale and Leaseback 0 (31)
(Increase) Decrease in Operating Assets:
Accounts Receivable (461) (370)
Inventories (590) (202)
Prepaid Expenses 8 76
Other (63) 3
Increase (Decrease) in Operating Liabilities:
Accounts Payable 418 141
Accrued Liabilities 34 126
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Net Cash Provided (Used) by Operating Activities 76 563
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Cash Flows from Investing Activities:
Purchase of Property and Equipment (1,048) (330)
Investment / Advances In Unconsolidated Investee 180 (131)
Short Term Loan 0 0
Investment - Common Stock 0 0
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Net Cash Used in Investing Activities (868) (461)
------- -------
Cash Flows from Financing Activities:
Net Borrowings Under Line of Credit 491 (129)
Repurchase of stock (8) --
Net Proceeds Long Term Debt 391 260
------- -------
Net Cash Provided (Used) in Financing Activities 874 131
------- -------
Net increase (Decrease) in Cash 82 233
Cash at Beginning of Year 115 62
------- -------
Cash at End of Period $ 197 $ 295
======= =======
</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)
Nine Months Ended July 31,
(Thousands)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Interest Paid $231 $216
==== ====
Income Taxes Paid $313 $ 25
==== ====
</TABLE>
Supplemental Schedule of Noncash Investing and
Financing Activities:
July 31, 1997
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The Company purchased $784,000 of machinery and equipment under capital
lease obligations.
July 31, 1996
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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>
Note 1
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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 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.
Notes to Consolidated Financial Statements, Continued
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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 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 the first quarter of fiscal 1997, the
Company invested an additional $34,000 in Core which was written off due to
expected losses at Core during the same period. During the second and third
quarters of fiscal 1997 the Company recovered $258,000 of investment in Core
which had
<PAGE>
previously been written off. At July 31, 1997 and 1996 the Company owned
approximately 23.5% and 21.5% respectively of the issued and outstanding common
stock of Core.
Summarized unaudited financial statements for Core for the three months
ended March 31, 1997 are as follows:
<TABLE>
<S> <C>
Assets $ 1,807,000
Liabilities $ 7,812,000
Deficit Equity $(6,005,000)
Sales $ 76,000
Expenses $ 1,260,000
Loss $(1,184,000)
</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, 1997, the Company's unpaid balance is $80,000.
The unpaid balance is secured by an equal amount of the company's common stock
as defined in the agreement.
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 1997 of $2,309,000 has improved from
earlier in the year and is now similar to the $2,391,000 at October 1996. The
continued improvement in sales over the last six months and the completion of
the new Arizona facility in the first quarter of 1997 were the main factors in
the stabilization and improvement of the Company's working capital. In addition,
the Company completed its planned capital expenditure program during the third
quarter of 1997 and does not anticipate any additional significant cash outlays
for equipment during the balance of fiscal 1997.
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 July 1997, the Company had approximately $769,000
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 $1,150,000 and $300,000, respectively, at July 1996. In August 1997 the
Company completed an amendment to its credit agreement. The amended credit
agreement provides for a total line of credit of $4,250,000, of which $2,600,000
is for working capital, $900,000 long term machinery and equipment, and $750,000
line for the acquisition of additional equipment.
<PAGE>
The amended agreement terminates in August 1998. The Company believes the
amended lines of credit are adequate to fund the working capital requirements
for the next year.
The Company has expended $1,048,000 on new equipment and leasehold improvements
during the first nine months of 1997. The Company financed $706,000 of the new
equipment through five-year capital leases, with the balance coming from working
capital. The Company does not anticipate any major equipment purchases or
leasehold improvements during the balance of 1997. In the event there is a
change in the Company's equipment requirements, the Company's current available
equipment line of credit, under the amended credit agreement, of $750,000 is
expected to be adequate to fund all of the additional equipment purchases.
RESULTS OF OPERATIONS
- ---------------------
Sales for the nine months ended July 1997 show a slight increase of 4% over the
same period last year. However, sales for the three months ended July 1997
continued to improve from earlier in the year and show an increase of 19% over
1996. While sales for the last six months have exceeded the Company's
projections, the current business climate has shown signs of softening. This is
highlighted by the current fluctuations in the Company's backlog. The Company's
unproduced backlog at July 1997 was $6,590,000 and $5,923,000 as of August 1997.
This is compared to $6,184,000 at October 1996 and $6,158,000 at July 1996. It
is always difficult to determine whether this is a short-term blip or a sign of
the economy slowing down.
The Company's operating profits for the nine months and three months ended July
1997 of $973,000 and $533,000 respectively, reflect a decrease of 10% and an
increase of 60% when compared to 1996. Slower sales in the first quarter, along
with non-capital costs associated with the building-out of the new Arizona
facility, are the major causes for the lower than expected earnings for the
year. However, the last six months sales and operating profits have exceeded
1996. The additional overhead, associated with the new Arizona facility, that
the Company absorbed early in fiscal 1997 is the cost of building an
infrastructure capable of meeting the Company's growth plans and the increasing
customer demands in today's business climate. While the Company's backlog has
shown a recent decline, it is not expected to have an effect on the balance of
fiscal 1997.
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>
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 15, 1997 By /s/ Duane L. Femrite
------------------------- ------------------------
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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 197
<SECURITIES> 0
<RECEIVABLES> 2,945
<ALLOWANCES> 13
<INVENTORY> 3,765
<CURRENT-ASSETS> 7,133
<PP&E> 5,863
<DEPRECIATION> 3,873
<TOTAL-ASSETS> 9,276
<CURRENT-LIABILITIES> 4,824
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 3,059
<TOTAL-LIABILITY-AND-EQUITY> 9,276
<SALES> 18,575
<TOTAL-REVENUES> 18,575
<CGS> 15,588
<TOTAL-COSTS> 17,602
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 231
<INCOME-PRETAX> 986
<INCOME-TAX> 401
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 585
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
