<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, 1998 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: 1,467,854
shares as of January 31, 1998.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ATHANOR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JANUARY 31, 1998 AND OCTOBER 31, 1997
(THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
------
1998 1997
---- ----
<S> <C> <C>
Current Assets:
Cash $ 268 $ 138
Trade Receivables, Less Allowance
for Doubtful Accounts of $14,000
and $12,000 2,836 2,799
Notes Receivable:
Net of Allowance of $534,062 199 40
Inventories:
Raw Materials 823 637
Work in Progress 543 597
Finished Goods 1,804 2,237
------ ------
3,170 3,471
Prepaid Expenses 64 18
Deferred Income Tax Asset 174 174
------ ------
Total Current Assets 6,711 6,640
Property, Plant and Equipment, at Cost 5,654 5,625
Less Accumulated Depreciation and
Amortization 3,895 3,785
------ ------
Net Property, Plant and Equipment 1,759 1,840
Other Assets 165 139
------ ------
$8,635 $8,619
====== ======
</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, 1998 AND OCTOBER 31, 1997
(THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Current Liabilities:
Notes Payable $1,330 $1,365
Current Portion of Long-Term Debt 595 595
Accounts Payable 1,783 1,718
Accrued Expenses 660 695
------ ------
Total Current Liabilities $4,368 $4,373
Long-Term Debt, Less Current Portion 1,075 1,194
Noncurrent Deferred Income Tax Liability 80 80
Stockholders' Equity:
Common Stock 15 15
Additional Paid-In Capital 1,447 1,447
Retained Earnings 1,650 1,510
------ ------
Total Stockholders' Equity 3,112 2,972
------ ------
$8,635 $8,619
====== ======
</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>
1998 1997
------ ------
<S> <C> <C>
Net Sales $6,565 $5,125
Cost of Sales 5,606 4,293
------ ------
Gross Profit 959 832
Selling, General & Administrative 644 624
------ ------
Operating Profit 315 208
Other Income (Expense)
Interest Expense (93) (68)
Equity in Loss of Unconsolidated Investee 0 (33)
Miscellaneous - Net 15 12
------ ------
Earnings Before Income Taxes 237 119
Income Tax Expense 97 49
------ ------
NET EARNINGS $ 140 $ 70
====== ======
</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>
1998 1997
---- ----
<S> <C> <C>
Earnings Per Common Shares:
Basic and Diluted $ 0.09 $ 0.05
========== ==========
Weighted Average
Shares Outstanding
Basic and Diluted 1,467,854 1,468,934
========== ==========
</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, 1998
(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, 1997 1,468 $ 15 $1,447 $1,510 $2,972
Net Earnings for
Three Months Ended
January 31, 1998 140 140
------ ------ ------ ------ ------
1,468 $ 15 $1,447 $1,650 3,112
====== ====== ====== ====== ======
</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>
1998 1997
----- -----
<S> <C> <C>
Cash Flows From Operating Activities
Net Earnings $ 140 $ 70
Adjustments to Reconcile Net Earnings to Net Cash
Provided (Used) by Operating Activities:
Equity in Loss of Unconsolidated Investee 0 33
Depreciation and Amortization 111 73
(Increase) Decrease in Operating Assets:
Trade Receivables (153) 283
Inventories 301 (224)
Prepaid Expenses (29) (45)
Other (7) (74)
Increase (Decrease) in Operating Liabilities:
Accounts Payable 65 50
Accrued Liabilities (35) (291)
----- -----
Net Cash Provided (Used) by Operating Activities 393 (125)
----- -----
Cash Flows from Investing Activities:
Purchase of Property and Equipment (29) (134)
Investment / Advances In Unconsolidate Investee 0 (33)
Short Term Loan (80) 0
----- -----
Net Cash Used in Investing Activities (109) (167)
----- -----
Cash Flows from Financing Activities:
Net Borrowings (Repayments) Under Line of Credit (35) 207
Repurchase of stock 0 (6)
Net Payments Long Term Debt (119) 0
----- -----
Net Cash Provided (Used) in Financing Activities (154) 201
----- -----
Net increase (Decrease) in Cash 130 (91)
Cash at Beginning of Year 138 115
----- -----
Cash at End of Period $ 268 $ 24
===== =====
</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>
1998 1997
---- ----
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 93 $ 68
==== ====
Income Taxes Paid $ 53 $101
==== ====
</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)
January 31, 1998 and 1997
Note 1
- ------
Basic and diluted earnings per common share are computed by using the weighted
average number of common shares outstanding during each period: 1,467,854 shares
in 1998 and 1,468,934 shares in 1997.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (FAS) No. 128. "Earnings per Share." FAS 128
specifies the computation, presentation and disclosure requirements for earnings
per share (EPS) and became effective for both interim and annual periods ending
after December 15, 1997. All prior period EPS have been restated to conform
with the provisions of FAS 128. The adoption of FAS 128 did not have a material
impact on the Company'' earnings per share calculations.
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
- ------
The Company accounts for income taxes under the asset and liability method.
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
- ------
In 1997, the FASB issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS 130). SFAS 130 establishes standards for
the reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses)
<PAGE>
Notes to Consolidated Financial Statements, Continued
- -----------------------------------------------------
in a full set of general purpose financial statements. SFAS 130 is effective
for fiscal years beginning after December 15, 1997.
In 1997, the FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
(SAFS 131). SFAS 131 establishes standards for public business enterprises to
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS 131 also requires that the enterprise
report descriptive information about the way that the operating segments were
determined and the products and services provided by the operating segments.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years is to be restated. SFAS 131 need not be applied to interim
financial statements in the initial year of its application, but comparative
information for interim periods in the initial year of application is to be
reported in financial statements for interim periods in the second year of
application.
The Company has not determined the impact of the above statements.
Note 6
- ------
The Company accounts for its investment in Core Software Technology (Core) on
the equity method of accounting that requires the Company to record its shares
of Core's earnings or losses. The investment in Core has been reduced to zero
due to Core's accumulated losses. During fiscal 1997, the Company had invested
an additional $33,326 in Core which had been written off due to expected losses
at Core during the same period. During the first quarter of fiscal 1998, the
Company has not invested any additional funds in Core and therefore has no
losses associated with its investment. At January 31, 1998 and 1997 the Company
owned approximately 19.8% and 23.5% respectively of the issued and outstanding
common stock of Core.
Note 7
- ------
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, 1998, 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.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's working capital at January 1998 of $2,343,000 has increased
slightly when compared to $2,267,000 at October 1997 and $2,235,000 at January
1997. The increase is primarily associated with the increased sales and profits
shown in the first quarter of fiscal 1998. While the Company expended
substantial funds in 1997 on capital expenditures and the new Arizona facility,
there are no plans in 1998 for major outlays of cash.
The Company's 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 loan, and $750,000 line for the acquisition of
additional equipment. At January 1998, the Company had approximately $1,270,000
available under the working capital line and $650,000 available under the
equipment line as compared to $1,235,000 and $650,000, respectively, at October
1997 and $893,000 and $300,000, respectively, at January 1997. The Company
believes the lines of credit are adequate to fund the working capital
requirements during fiscal 1998 and anticipated equipment purchases in fiscal
1998. The Company's credit agreement terminates in August 1998 unless extended
in writing by the lender. The company has no reason to believe that the lender
will not extend the line of credit. However, there can be no assurance the
Company will be able to extend the agreement
The Company expended $29,000 on new equipment during the first quarter of 1998.
The Company anticipates additional equipment purchases during 1998, however it
currently does not have plans for any major equipment purchases or facility
expansion. The Company's current equipment line of credit of $650,000 is
expected to be adequate to fund all of the additional equipment purchases.
RESULTS OF OPERATIONS
- ---------------------
Sales for the first quarter of 1998 showed a 28% increase over the same period
in 1997. While the increase in sales for the quarter is considered an
indication of the continuation of demand for the Company's services and a strong
economy, sales for the first quarter of 1997 were also lower due to a longer
than normal shutdown during the holidays and timing of shipments to customers
during the period. The Company's total backlog of $9,014,000 at January 1998
shows a slight improvement as compared to $8,075,000 at October 1997. While the
backlog at January 1998 is more reflective of the Company's backlog during the
last few years, it is difficult at this juncture to determine the state of the
economy and the Company's market. With the current backlog, the Company does
anticipate the second quarter's sales to continue to be strong.
Operating profits of $315,000 for the quarter ended January 1998, as compared to
$208,000 for January 1997 directly reflect the Company's increased sales
activity for the first quarter. In addition the Company, during the first
quarter of 1997, absorbed some of the non-capital costs associated with the
building-out and move into the new Arizona facility in 1997. The combination of
the increased borrowings under the Company's working capital line and the
equipment purchases in 1997, are the factors in a 37% increase in interest
expense during 1998.
<PAGE>
Forward-looking statements represent the Company's current analysis of trends
and information. Actual results could be affected by a variety of factors.
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 5, 1998 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> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 268
<SECURITIES> 0
<RECEIVABLES> 2,850
<ALLOWANCES> 14
<INVENTORY> 3,170
<CURRENT-ASSETS> 6,711
<PP&E> 5,654
<DEPRECIATION> 3,895
<TOTAL-ASSETS> 8,635
<CURRENT-LIABILITIES> 4,368
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 3,097
<TOTAL-LIABILITY-AND-EQUITY> 8,635
<SALES> 6,565
<TOTAL-REVENUES> 6,565
<CGS> 5,606
<TOTAL-COSTS> 6,250
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93
<INCOME-PRETAX> 237
<INCOME-TAX> 97
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
