<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 April 30, 1997 Commission File Number 2-63481
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Athanor Group, Inc.
- --------------------------------------------------------------------------------
(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)
Registrants 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
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Indicate the number of shares outstanding of each of the issuers
classes of common stock, as of the close of the period covered by this report:
1,468,934 shares as of April 30, 1997.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ATHANOR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
APRIL 30, 1997 AND OCTOBER 31, 1996
(THOUSANDS)
ASSETS
------
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Current Assets:
Cash $ 151 $ 115
Trade Receivables, Less Allowance
for Doubtful Accounts of $13,000
and $12,000 2,916 2,471
Notes Receivable:
Net of Allowance of $534,062 40 40
Inventories:
Raw Materials 902 872
Work in Progress 603 506
Finished Goods 2,308 1,797
------ ------
3,813 3,175
Prepaid Expenses 17 35
Deferred Income Tax Asset 261 261
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Total Current Assets 7,198 6,097
Property, Plant and Equipment, at Cost 5,414 4,815
Less Accumulated Depreciation and
Amortization 3,769 3,637
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Net Property, Plant and Equipment 1,645 1,178
Other Assets 188 90
------ ------
$9,031 $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)
APRIL 30, 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 $1,217 $ 940
Current Portion of Long-Term Debt 510 420
Accounts Payable 2,304 1,444
Accrued Expenses 1,080 902
------ ------
Total Current Liabilities $5,111 $3,706
Long-Term Debt, Less Current Portion 1,153 1,095
Deferred Gain on Sale-Leaseback 0 -
Noncurrent Deferred Income Tax Liability 67 67
Stockholders' Equity:
Common Stock 15 15
Additional Paid-In Capital 1,447 1,447
Retained Earnings 1,238 1,035
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Total Stockholders' Equity 2,700 2,497
------ ------
$9,031 $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)
SIX MONTHS ENDED APRIL 30,
(THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Net Sales $11,500 $11,883
Cost of Sales 9,756 9,929
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Gross Profit 1,744 1,954
Selling, General & Administrative 1,304 1,207
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Operating Profit 440 747
Other Income (Expense)
Interest Expense (147) (144)
Equity in Loss of Unconsolidated Investee 45 (84)
Miscellaneous - Net 17 41
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Earnings Before Income Taxes 355 560
Income Tax Expense 146 229
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NET EARNINGS $ 209 $ 331
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Earnings Per Common Shares:
Primary and Fully Diluted $ 0.14 $ 0.22
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NET EARNINGS $ 0.14 $ 0.22
======= =======
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED APRIL 30,
(THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Net Sales $6,375 $5,808
Cost of Sales 5,463 4,876
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Gross Profit 912 932
Selling, General & Administrative 680 608
------ ------
Operating Profit 232 324
Other Income (Expense)
Interest Expense (79) (70)
Equity in Loss of Unconsolidated Investee 78 (34)
Miscellaneous - Net 5 20
------ ------
Earnings Before Income Taxes 236 240
Income Tax Expense 97 98
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NET EARNINGS $ 139 $ 142
====== ======
Earnings Per Common Shares:
Primary and Fully Diluted $ 0.09 $ 0.10
------ ------
NET EARNINGS $ 0.09 $ 0.10
====== ======
</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)
SIX MONTHS ENDED APRIL 30, 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
Six Months Ended
April 30, 1997 209 209
----- ---- ------ ------ ------
1,469 $ 15 $1,447 $1,238 $2,700
===== ==== ====== ====== ======
</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)
SIX MONTHS ENDED APRIL 30,
(THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Cash Flows From Operating Activities
Net Earnings $ 209 $ 331
Adjustments to Reconcile Net Earnings to Net Cash
Provided (Used) by Operating Activities:
Equity in Loss of Unconsolidated Investee (45) 84
Provision for Deferred Income Taxes - -
Depreciation and Amortization 132 154
Amortization of Deferred Gain on Sale and Leaseback 0 (20)
(Increase) Decrease in Operating Assets:
Accounts Receivable (445) (215)
Inventories (638) (168)
Prepaid Expenses 18 72
Other (98) (16)
Increase (Decrease) in Operating Liabilities:
Accounts Payable 860 203
Accrued Liabilities 178 73
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Net Cash Provided (Used) by Operating Activities 171 498
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Cash Flows from Investing Activities:
Purchase of Property and Equipment (599) (195)
Investment / Advances In Unconsolidated Investee 45 (84)
Short Term Loan 0 0
Investment - Common Stock 0 0
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Net Cash Used in Investing Activities (554) (279)
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Cash Flows from Financing Activities:
Net Borrowings Under Line of Credit 277 (171)
Repurchase of stock (6) -
Net Proceeds Long Term Debt 148 (63)
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Net Cash Provided (Used) in Financing Activities 419 (234)
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Net increase (Decrease) in Cash 36 (15)
Cash at Beginning of Year 115 62
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Cash at End of Period $ 151 $ 47
===== =====
</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)
SIX MONTHS ENDED APRIL 30,
(THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Interest Paid $147 $144
==== ====
Income Taxes Paid $161 $ 0
==== ====
Supplemental Schedule of Noncash Investing and
Financing Activities:
April 30, 1997
- --------------
The Company purchased $400,000 of machinery and
equipment under a capital lease obligations.
April 30, 1996
- --------------
The Company purchased $207,000 of machinery and
equipment under a capital lease obligation.
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
<PAGE>
Notes to Consolidated Financial Statements
(Unaudited)
April 30, 1997 and 1996
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 managements 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
- -----------------------------------------------------
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 quarter of fiscal 1997 the Company
recovered $78,000 of investment in Core which had previously been written off.
At April 30, 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 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 April 30, 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 April 1997 of $2,087,000 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 and the funds
expended for new equipment. As sales for the second quarter have improved, the
Arizona facility is completed, and the majority of equipment has been either
purchased or ordered, working capital should stabilize the balance of the fiscal
year.
<PAGE>
The Company expended $599,000 on new equipment and leasehold improvements during
the first six months 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
financed $400,000 of the new equipment through five-year capital leases and has
obtained financing for the additional equipment purchase, which will be financed
through a five-year equipment lease. The Company anticipates additional
equipment purchases and leasehold improvements during 1997 of $200,000 to
$300,000. The Company's current equipment line of credit of $300,000 is
expected to be adequate to fund all of the additional equipment purchases
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 April 1997, the Company had approximately $983,000
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 $994,000 and $300,000, respectively, at April 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 that 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
lender will not extend the line of credit.
RESULTS OF OPERATIONS
- ---------------------
Sales for the first six months of fiscal 1997 are 3% lower than 1996. However,
sales for the three months ended April 1997 improved over the first quarter and
show a 10% increase over the same period in 1996. While the first quarter sales
for 1997 were lower than anticipated, the second quarter is more reflective of
the current business climate and demand for the Company's services. The
Company's backlog of $6,397,000 remains very strong, as compared to $6,184,000
at October 1996 and $5,823,000 at April 1996. As demand remains strong, the
Company anticipates sales for the balance of 1997 to be similar to the second
quarter.
The Company's operating profits for the six months and three months ended April
1997 of $440,000 and $232,000 respectively, reflect decreases of 41% and 28%
when compared to 1996. Slower sales activity in the first quarter, along with
non-capital costs associated with the building-out of the new Arizona facility,
were a major cause of the lower than expected earnings. Also, as the Company
has staged itself for continued growth, with the addition of manufacturing
facilities, it has added engineering, quality, and administrative personnel.
The added overhead is the cost of building an infrastructure capable of meeting
the Company's planned growth requirements as well as the ever-increasing demands
of todays customers. The Company does not anticipate that the additional
overhead will have a long-term effect on earnings, assuming the planned growth
continues.
<PAGE>
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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(a) The annual meeting of registrant was held April 11, 1997
(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
(c) Approval of 1997 Stock Option Plan:
<TABLE>
<S> <C>
For 850,585
Against 92,732
Abstain 4,966
Brk. Non-votes 98,635
</TABLE>
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 June 17, 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> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<CASH> 151
<SECURITIES> 0
<RECEIVABLES> 2,929
<ALLOWANCES> 13
<INVENTORY> 3,813
<CURRENT-ASSETS> 7,198
<PP&E> 5,414
<DEPRECIATION> 3,769
<TOTAL-ASSETS> 9,031
<CURRENT-LIABILITIES> 5,111
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 2,685
<TOTAL-LIABILITY-AND-EQUITY> 9,031
<SALES> 11,500
<TOTAL-REVENUES> 11,500
<CGS> 9,756
<TOTAL-COSTS> 11,060
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147
<INCOME-PRETAX> 355
<INCOME-TAX> 146
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 209
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>