<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
X Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
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Act of 1934 for the fiscal year ended October 31, 1998, or
Transition Report pursuant to Section 13 or 15(d) of the Securities
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Exchange Act of 1934.
Commission file number 2-63481
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ATHANOR GROUP, INC.
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(Name of small business issuer as specified in its charter)
CALIFORNIA 95-2026100
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(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
921 East California Avenue, Ontario, California 91761
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(Address of Principal Executive Offices)
The Company's telephone number, including area code (909) 467-1205
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Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
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<S> <C>
None None
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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(Title of Class)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. / X /
-----
Issuer's revenues for its most recent fiscal year were $23,635,679.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of December 31, 1998 amounted to $1,736,877.
The registrant had 1,458,854 shares of common stock outstanding as of December
31, 1998.
<PAGE>
Part I
Item 1. DESCRIPTION OF BUSINESS
ATHANOR GROUP, INC. ("the Company") was incorporated under the laws of
the State of California in 1958, under the name ALGERAN, INC.
BUSINESS DEVELOPMENT
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SUBSIDIARY CORPORATION
Since its inception in 1958, and since 1986 through its wholly-owned
subsidiary, ALGER MANUFACTURING COMPANY, INC., a California corporation
("Alger"), the Company has been engaged in the manufacture of screw machine
products (nonproprietary metal components) produced in large quantities to
customer specifications.
THE SCREW MACHINE PRODUCTS INDUSTRY IN GENERAL
- ----------------------------------------------
It is estimated that there are in excess of 1600 manufacturing companies
making screw machine products in the Untied States. Screw machine products
usually are component parts for use in machines, appliances, automobiles, and
similar durable goods; they also have a wide variety of uses in individual,
industrial, military, and consumer products. These parts must be manufactured
strictly to customer's specifications and must be of precise dimensions,
demanding close individual control during production. The Company does not own
the designs for any of the products produced for customers. Historically, the
screw machine products industry has been extremely sensitive to downturns in the
general economy
In meeting customer orders, the Company manufactures a wide range of
products. Before placing an order, a customer provides the Company with
detailed drawings and specifications for a specific product. Based upon these
drawings and specifications, the Company prepares a quote to manufacture the
product. Once the customer agrees to this quote, manufacturing of the product
is scheduled. Quality control inspections are made throughout the manufacturing
process. Emphasis is placed on quality in design. This supports the Company's
program of defect prevention rather than defect detection. This approach has
resulted in significantly lower costs through the reduction of scrap and
associated indirect labor. Upon completion of the manufacturing process, a
final inspection is made to determine whether the product conforms to the
customer's specifications. If the product fails to conform to the customer's
specifications, the Company will correct the problem at its own expense.
Many of the Company's customers are increasingly competing in the global
market. The Company, in its continuing effort to maintain a partner like
working relationship with these customers, has pursued a world class quality
program based on the internationally recognized ISO 9000 standard. This not
only supports the strategic direction of the Company's customer base, but also
enhances the Company's appeal to potential new customers. The projected
completion of the process and certification for this International Quality
Standard will be completed in early 1999. The Company is currently using an
outside consultant to assist in the design and implementation of the
requirements to meet this quality standard.
Additionally, in today's competitive marketplace, customers are requiring
the Company to comply with a variety of delivery demands. These include "Just
in Time" (JIT), Kan-Ban and
<PAGE>
"Ship to Stock" requirements. The Company's ability to adapt to the varying
demands of its customers allows the Company to remain a leader in its industry.
In October 1997, the Company went on-line with a new fully integrated software
system, which has the ability to purchase and schedule materials in conjunction
with the manufacturing process. The company expended substantial resources and
time in an effort to make sure the new system would meet all its current and
anticipated future requirements. This new system will give the Company an
effective tool to control in-house inventories and to provide on time deliveries
to its customers.
All of the Company's business consists of the production of component
parts of proprietary products for other companies. A number of these companies
have the capacity to perform this work themselves, but purchase these components
from the Company for competitive reasons. Should these companies decide in the
future to do this work themselves, the business of the Company could be
adversely affected.
An additional benefit of the new manufacturing software system is the
ability to generate backlog figures in various forms. In the past, the
Company's system was designed to only generate unproduced backlog amounts. As
of October 31, 1998, the Company's total backlog amounted to approximately
$6,986,000 (compared to $3,607,000 of unproduced backlog) of anticipated gross
sales from projects on which customers have authorized work to commence during
the fiscal year 1998. In the normal course of business, some backlog orders are
inevitably cancelled or the time of delivery is changed. There is no assurance
that the total backlog will result in completed sales. However, the company has
not experienced significant cancellations in its recent past. The Company's
unproduced backlog, as of October 31, for the past three years was as follows:
1997 - $4,957,000, 1996 -$6,184,000, 1995 - $6,134,000.
MACHINERY
Of central importance to the screw machine product manufacturer is the
automatic screw machine. Most of the Company's machines are cam and gear
operated, which is extremely efficient for "High Speed - High Volume
Production". The Company, in essence, is in the business of selling machine
time, the capabilities of its machines to produce parts and the skill of its
personnel in preparing and operating its machines. The automatic screw machine
is a very complex piece of machinery that requires highly skilled machinists to
set up and operate. Because the Company specializes in high volume production,
it must operate the fastest machines that will produce a part within the
customers' specifications. The Company feels that the combination of its
engineering capabilities, its experience and its well-maintained equipment, meet
these requirements. All of the machinery utilized by the Company is in good
working order and adequate for the current needs of the Company and its
customers.
RAW MATERIALS AND SUPPLIES
Screw machine products can be made from many materials, including various
grades of steel (carbon, alloy, or stainless), most brasses and bronzes,
aluminum, precious metals, and machinable plastics. The Company specializes in
manufacturing products primarily with brass, as well as carbon steel, aluminum,
and stainless steel.
Materials used by the Company are either purchased from mills, material
distributors, or supplied by the customer. Although the Company is not
presently faced with any shortages of materials, shortages of certain materials
have occurred in the past and may occur in the future. Future shortages of
materials would have an adverse affect on the Company's business. The
<PAGE>
Company orders materials specifically for the jobs it is currently manufacturing
and, therefore, does not keep excess materials on hand. The Company usually has
sufficient materials in stock to continue operations for approximately one
month.
All of the metals purchased by the Company, for customer jobs, either
become product or are reclaimed, to be used in another process. The reclamation
of scrap material is very important in the manufacturing of screw machine
products. The value received from the sale of scrap is an essential element in
the pricing and profitability of each job. All reclaimed scrap is either sold
back to the mills or sold to a scrap dealer. In the case of brass, the scrap is
sold back to the supplying mill at a price established by the mill. Aluminum
and stainless scrap is sold to various scrap dealers at a price established by
the market demand. Both the cost of the material and the anticipated return on
the sale of scrap are considered in preparing a quote for a particular job. The
Company's principal suppliers are: Chase Brass and Copper Company, Cerro Metal
Products, Bralco Metals, Joseph T. Ryerson and Son, Inc., and Carpenter
Technology.
The Company does not use, and has not used, solvents in the process for
the cleaning of parts for many years. In 1987, the Company purchased its first
soap and water parts cleaner. The evolution of soap and water parts cleaning
has been slow in coming. The Company purchased its third generation soap and
water parts cleaner in 1997. The new parts cleaner is a major improvement in
getting product cleaner and adds a new dimension in the reclamation of cutting
oils and the soap used in the cleaning process.
EMPLOYEES
The Company and its subsidiaries employed, on a full-time basis, one
hundred and sixty (160) persons on October 31, 1998, of which twelve (12) were
general and administrative, three (3) were in marketing and sales, and one
hundred and forty-five (145) were production personnel.
The Company believes that it has good relations with its employees, none
of whom is covered by a collective bargaining agreement. The ability of the
Company to retain and attract skilled personnel, especially skilled machinists,
is of primary importance to the Company's operations. Qualified machinists are
generally in short supply in the industry, and, therefore, in great demand. The
Company has been able to attract and retain a staff of skilled machinists and
support staff by offering compensation packages comparable with larger
companies. In addition, the Company conducts formal training programs, whereby
selected unskilled personnel are given the opportunity to learn the machinist
trade. The Company also conducts other regular training programs for its
skilled and unskilled employees.
ENVIRONMENTAL
During 1992, perchloroethylene contamination was found in the ground soil
below the Alger manufacturing facility. The Company completed initial soil
testing in 1992 subsequently did additional testing during 1993. The
appropriate local agencies were notified of the results of the Preliminary
Environmental Site Investigations. The Company is currently awaiting direction
from such agencies. Until a plan of remediation has been structured and
approved by the appropriate agencies, the cost to remediate the contamination
can only be estimated. As of October 31, 1996 and 1997, a provision of
$265,262, had been accrued for the estimated costs of this remediation. During
1998 the Company hired an environmental engineer to start the process of further
investigation of the site. The company has advanced $20,000 during
<PAGE>
fiscal 1998 for the initial stages of this investigation, leaving a provision of
$245,622 as of October 1998. It is anticipated that sometime in the near future
a more comprehensive analysis will be completed and a plan of remediation will
be approved. It is estimated that the costs associated with the remediation will
be expended over a two to four year period. Although the matter has not been
fully investigated, the Company believes that its insurance may recover a
portion of the remediation cost; however, the Company has not recognized any
potential recovery in its financial statements.
SALES PRACTICES
Historically, the majority of the company's customer base is located in
the western United States. However, in the last few years the Company has
continued to expand outside of its traditional territory. Sales in the Midwest
and Southern portion of the United States have shown steady growth. Sales in
the Southern California region are handled by the Company's sales department,
while the balance of the country is handled through manufacturers'
representatives. The Company currently uses seven (7) manufacturers'
representatives located throughout the Western, Midwest, and Southern regions of
the United States. The geographical distribution of the Company's sales during
the fiscal years ended October 31, 1998, 1997, and 1996 was as follows:
Dollar Amount of Total Sales (000's)
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<TABLE>
<CAPTION>
1998 1997 1996
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<S> <C> <C> <C>
California $ 6,328 $ 6,483 $ 5,389
Other Western States 4,194 3,954 4,431
All Others 9,030 9,713 7,458
Scrap 4,084 4,729 4,725
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$23,636 $24,879 $23,744
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</TABLE>
Percentage of Total Sales
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<TABLE>
<CAPTION>
1998 1997 1996
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<S> <C> <C> <C>
California 27% 26% 30%
Other Western States 18 16 19
All Others 38 39 31
Scrap 17 19 20
--- --- ---
100% 100% 100%
</TABLE>
Export sales have never been, nor are they anticipated to be, a
significant part of the Company's business. During the fiscal years ended
October 31, 1998, 1997, and 1996, foreign sales represented less than one-half
of one per cent of total sales.
The Company believes that its sales effort outside of its local sales
territories, specifically Southern California and recently Arizona, is unique to
the screw machine industry, since generally screw machine companies are
localized in their sales and operations. The addition of qualified
manufacturers' representatives is, and has been for many years, an integral part
of the Company's strategy for continued growth outside of these traditional
sales territories.
<PAGE>
The Company uses many methods to advertise its capabilities including
sales brochures, directory advertising, and trade shows. The Company also uses
a sales video, the latest vehicle for visual communication. The video has
proven to be an excellent sales tool to communicate the Company's capabilities.
A prospective customer, as well as existing customers, have the opportunity to
see the inside workings of the Company's manufacturing facilities and to
generate a sense of confidence in the Company's ability to produce a product to
the customer's required specifications and quantities. Alger has established a
home page on the World Wide Web. Alger capabilities can be viewed using
http://www.alger1.com.
CUSTOMERS
The Company manufactures parts for a variety of customers. During
1998 there was one customer, from multiple divisions, which accounted for
approximately 10.1% of the Company's consolidated revenues. The Company does
not believe that the loss of this customer would have a material adverse effect
on its overall operations. The products associated with this customer require
substantial outside processing and the actual utilization on the Company's
facilities required for this customer is substantially less than 10%.
During 1998, less than 1% of the Company's business was government
related.
Item 2. DESCRIPTION OF PROPERTY
PROPERTIES
The Company and its subsidiary, Alger, lease office and manufacturing
space in Ontario, California, and in Glendale, Arizona. Alger leases three
manufacturing facilities: 35,600 square feet and 17,000 square feet in Ontario
on leases ending September 2002, and 15,700 square feet in Glendale, Arizona on
a lease ending October 2001. The Company leases the above properties at rates
ranging from $.28 triple net to $.38 gross per square foot. The Company
believes that its manufacturing facilities are adequate for the current
operations. The Company uses office space at the Ontario facility to house its
corporate office.
In management's opinion, all of the Company's interests in its leased
properties are adequately covered by insurance.
Item 3. LEGAL PROCEEDINGS
Not Applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
<PAGE>
Part II
Item 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company is currently quoted on the OTC Bulletin Board system and can
be located on The Bulletin Board using the symbol "ATHR". The following chart
lists the stock price range from the Company's market makers, as published by
the National Quotation Bureau. These over-the-counter market quotations reflect
the inter-dealer prices without retail mark-up, markdown, or commissions and may
not necessarily represent actual transactions.
Market Information
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<TABLE>
<CAPTION>
12/31/98 9/30/98 6/30/98 3/31/98
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<S> <C> <C> <C> <C>
Ask 3 19/32 3 1/4 2 7/8 2 3/8
Bid 1 21/32 1 21/32 1 13/16 1 3/4
<CAPTION>
12/31/97 9/30/97 6/30/97 3/31/97
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<S> <C> <C> <C> <C>
Ask 3 1/8 3 3/8 2 7/8 2 7/8
Bid 2 1/4 2 5/8 2 3/8 2 3/16
<CAPTION>
12/31/96 9/30/96 6/30/96 3/31/96
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<S> <C> <C> <C> <C>
Ask 3 3 1/2 3 3/8 1 3/4
Bid 1 7/8 2 1/8 2 3/4 1 3/8
</TABLE>
As of December 31, 1998, the approximate number of shareholders of record
of common shares was 253.
No dividends were declared during the fiscal year ended October 31, 1998,
on the Company's common stock. The Company does not plan to pay dividends on
its common stock in the foreseeable future and anticipates that any future
earnings will be retained to support the Company's business.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
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Except for historical facts, this Report contains forward-looking
statements concerning the Company's business outlook and plans, future cash
requirements and capital expenditure requirements made pursuant to the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995.
These statements are based on certain assumptions and outcomes are subject to
risks and uncertainties. The forward-looking statements are, therefore, subject
to change at any time. Actual results could differ materially from expected
results expressed in any such forward-looking statements based on numerous
factors, including the level of customer demand, the cost and availability of
raw materials, changes in the competitive environment, the Company's ability to
achieve cost reductions and efficiencies, the Company's ability to attract and
retain skilled employees and other uncertainties detailed from time to time in
the Company's Securities and Exchange Commission Filings.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
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The following table summarizes the changes in working capital for the
fiscal years 1998, 1997, and 1996 (Thousands of Dollars).
<TABLE>
<CAPTION>
1998 1997 1996
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<S> <C> <C> <C>
Current Assets $6,294 $6,600 $6,097
Current Liabilities $4,013 $4,373 $3,706
Working Capital $2,281 $2,227 $2,391
</TABLE>
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998, AS COMPARED TO THE FISCAL YEAR
ENDED OCTOBER 31, 1997
The Company's working capital as of October 1998 remained fairly constant
as compared to 1997. While 1998 started out to be a very good year with sales
and profit increases, the business climate started to deteriorate in the second
quarter and continued during the last half of the year. With sales and backlog
declining, the Company decided not to make any new major equipment purchases
that were not absolutely necessary, until there was a clearer picture of where
the economy was headed. As such, the Company only purchased $93,000 of
equipment in 1998 as compared to $1,214,000 in 1997. In addition, the Company
has approximately $170,000 of additional equipment on order for delivery in late
1998 and early 1999.
In August 1998 the Company completed an amendment to its credit agreement
extending the agreement to August 31, 1999. The amended credit agreement
maintained the Company's working capital line of $2,600,000. The amended
agreement provided for a new term loan not to exceed $483,333. In addition, the
amended agreement continued a new equipment line to $750,000 (with a balance
available of $650,000) for the purchase of additional equipment. The equipment
line must be used in increments of a minimum of $100,000 and shall not exceed
85% of the purchase price of equipment. At October 31, 1998, the Company had
approximately $1,185,000 available under the working capital line and $650,000
available under the new equipment line as compared to $1,235,000 and $650,000
respectively in 1997. The Company believes that the amended agreement is
adequate to fund the Company's working capital requirements during fiscal year
1999 and anticipated equipment purchases.
During 1998 the Company made additional loans to Core Software Technology
(Core) in the amount of $35,000. The total outstanding loans to date are
$685,622. During 1997 Core repaid $225,116 of the loans and accrued interest.
Core has been able to find other sources of financing to meet its working
capital requirements, although it has yet to generate sufficient revenues and
profits to cover its overhead. The outstanding balance, except for the $35,000
advanced in 1998, has been fully reserved in prior years pursuant to the equity
method of accounting. (See CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.)
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997, AS COMPARED TO THE FISCAL YEAR
ENDED OCTOBER 31, 1996
The Company's liquidity showed a small decrease between fiscal 1997 and
1996. However, accounts receivable and inventory increased by $500,000 or
approximately 9% over
<PAGE>
1996. In a year when sales only increased by approximately 5%, such large
increases put a substantial burden on working capital. Such increases,
especially in inventory, were the continuation of the increasing customer
requirements in a very competitive business environment. It is the Company's
opinion that the ability to meet these requirements sets it apart from many of
its competitors. The Company funded the increases in current assets through its
working capital line of credit as well as an increase in accounts payable.
In July 1997 the Company completed an amendment to its credit agreement,
extending the agreement to August 31, 1998. The amended credit agreement
increased the Company's working capital line to $2,600,000. The Company's long-
term equipment loan of $900,000 with a balance owing of $650,000 as of October
1997 remained intact. The net effect of the amended credit agreement was to
increase available financing by approximately $400,000. In addition, the
amended agreement increased a new equipment line to $750,000 (with a balance
available of $650,000) for the purchase of additional equipment. The equipment
line must be used in increments of a minimum of $100,000 and shall not exceed
85% of the purchase price of equipment. At October 31, 1997, the Company had
approximately $1,235,000 available under the working capital line and $650,000
available under the new equipment line as compared to $1,260,000 and $300,000
respectively in 1996.
The Company purchased $1,214,000 of manufacturing and computer equipment as
well as leasehold improvements during 1997. These purchases included a new parts
washing system which cost $384,000. The purchases also included approximately
$225,000 of equipment and leasehold improvements for the new Glendale Arizona
facility. The Company financed $744,000 of the equipment purchases through five-
year leases, with the balance, approximately $470,000, coming from working
capital.
RESULTS OF OPERATIONS
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The following table summarizes the results of operations for the fiscal
years 1998, 1997, and 1996 (Thousands of Dollars):
<TABLE>
<CAPTION>
1998 1997 1996
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<S> <C> <C> <C>
Sales $23,636 $24,879 $23,744
Cost of Sales $19,855 $21,189 $19,911
Operating Profit $ 1,063 $ 998 $ 1,178
Net Earnings $ 455 $ 483 $ 529
</TABLE>
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998, COMPARED TO THE FISCAL YEAR
ENDED OCTOBER 31, 1997
Sales for 1998 declined 5% as compared to 1997. However, sales for 1998
were volatile, as the first quarter sales showed a 28% increase to a 21% decline
in sales the third quarter as compared to 1997. The Company's backlog seemed to
follow right along as it increased to $9,014,000 at the end of the first quarter
and ended at $6,986,000 as of October 1998 as compared to $8,075,000 at October
1997. The decline in sales and backlog was gradual and consistent during the
last half of fiscal 1998. There is no one factor other than a general slowdown
in business across the Company's customer base. The Company was
<PAGE>
expecting, but not sure to what extend sales would be affected by the economic
problems in Asia and Europe, as we are not always sure to what extent the
component parts we produce go into products for export. Based on the current
backlog, sales for the first quarter of fiscal 1999 are expected to be
substantially lower than in fiscal 1998. It is difficult at this time to
determine how long the current slowdown will continue.
The Company's operating profits increased 6.5% and the cost of sales
declined by 1% as compared to 1997. Considering the decline in sales during
fiscal 1998, the Company stressed cost cutting and deferral of optional repairs
and maintenance. In addition, some raw materials declined as the market across
the country became more competitive and an oversupply of material existed. The
effect of such a decline in the cost of raw materials is to increase the gross
profit percent and reduce cost of sales as a percent of sales. 1997 also
absorbed the non-capitalized costs of building out the new facility in Arizona,
which amounted to approximately $40,000.
Interest expense decreased 10% in 1998 as compared to 1997. This decrease
was due to lower sales and a reduction in financing costs associated with the
accounts receivable line of financing.
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997, COMPARED TO THE FISCAL YEAR
ENDED OCTOBER 31, 1996
While sales for the fiscal year 1997 improved by approximately 5%,
operating profits declined by approximately 15% as compared to 1996. The main
reasons for this decline were related to the non-capital costs associated with
building out a new facility in Glendale, Arizona and added overhead associated
with the general growth of the company.
During 1997 the company moved its Arizona manufacturing into a new and
larger facility. While the move had been planned for almost a year, the non-
capitalized costs associated with the move, of approximately $40,000, were all
absorbed in 1997. This included the cost associated with closing down and clean
up of the old facility. The new facility took approximately four months to
become fully operational.
The cost of sales increased in excess of 1% over 1996. During the past few
years the Company had concentrated its equipment purchases in the larger
diameter equipment. 1997 was no exception as the majority of new machines
acquired were large diameter. This equipment has historically generated sales
with a higher percentage of material, thereby increasing the overall cost of
such sales. Also, during 1997 the Company added a substantial number of
employees, increasing the employee base to 152 as compared to 132 at the end of
1996. Part of the increase in employees was to improve the Company's technical
capabilities and part was to meet increasing customer requirements for special
handling, packaging etc. While some of the additional labor associated with
special customer requirements is built into customer contracts, the majority of
the overhead added during 1997 was absorbed by the Company.
The Company's effective tax rate for 1997 increased to 42% from 34% in
1996. Approximately 5.2% of this change is associated with an increase in the
effective state tax rate due to the California Manufacturers Investment Credit.
While this credit was available to the Company in both 1997 and 1996, the
Company received a larger benefit in 1996.
<PAGE>
The Company's total backlog of $8,075,000 ($4,957,000 of unproduced
backlog) has declined as compared to $6,184,000 of unproduced backlog at 1996.
This drop in backlog all occurred during the final quarter of fiscal 1997.
During 1997 the Company received $225,116, as partial repayment, of
its loans to Core that had previously been written off.
EFFECTS OF INFLATION
- ---------------------
Inflation for the fiscal years ended 1998, 1997 and 1996 were minimal
and had no effect on the Company's operations.
In the past, the Company has not normally committed to long-term fixed
price contracts. However, the current business climate, with customers placing
longer-term contracts, has required the Company to commit to longer term fixed
price contracts. If material price increases are unusually high, the Company
has been able to request and usually get a price adjustment. However, the
abnormally large increases in the cost of raw materials tends to skew the
percentages when making cost comparisons between periods.
The company is unable to predict if raw materials will experience
similar increases as has taken place in previous years. If similar increases do
occur in the future, the Company does not believe such increases would have a
material effect on its operations.
YEAR 2000 COMPUTER REQUIREMENTS
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During fiscal 1997, the Company established an enterprise-wide program
to address its Year 2000 issues. The Year 2000 effort, which includes the
implementation of previously planned business critical systems and specific Year
2000 projects, is on track to be completed before the year 2000. All
applications that were previously not Year 2000 compliant have been replaced by
new systems. The costs of new systems have been recorded as an asset and
amortized. The portion of the costs associated with making the remaining
applications, not covered by new systems, Year 2000 compliant is not considered
to be material. Accordingly, the Company does not expect the Year 2000 effort
to have a material impact on its results of operations, liquidity or financial
condition. In addition, the Company has not deferred any other projects that
will have a material impact on its results of operations, liquidity or financial
condition.
INFORMATION TECHNOLOGY ("IT") SYSTEMS
-------------------------------------
In conjunction with the establishment of its enterprise-wide Year 2000
program, the Company began converting its computer information systems to a new
enterprise system, which is Year 2000 compliant. As of October 31, 1998, all
implementations are complete.
NON-IT SYSTEMS
--------------
Non-IT Systems may contain date sensitive, embedded technology
requiring Year 2000 upgrades. Examples of this technology include security
equipment such as access and alarm systems, as well as facilities equipment such
as telephone and heating and air conditioning units.
<PAGE>
As the Company is a product manufacturer, the "embedded chip" issue
relates to equipment used by the Company and hence, primarily to the Company's
manufacturing facilities. Facilities and equipment inventories and assessments
are in progress. However, the majority of the Company's machinery is manually
operated, and therefore is less affected by Year 2000 issues.
The Company is also addressing the readiness of its critical suppliers
and customers. All principal material and service suppliers and critical
customers have been contacted to determine their level of readiness. The
Company has a planned follow up to determine their progress. In certain areas
where the Company relies on products supplied by manufacturers for systems
provided to its customers, the Company is seeking standard Year 2000 warranties
that, to the extent assignable, may be transferred to customers.
COSTS
-----
The total cost associated with required modifications to become Year
2000 compliant is not expected to be material to the Company's results of
operations, liquidity and financial condition. The estimated total cost of the
Year 2000 effort is approximately $36,000. The total amount expended through
October 1998, was approximately $13,000. The estimated future cost of
completing the Year 2000 effort is estimated to be approximately $23,000.
RISKS AND CONTINGENCY PLANNING
------------------------------
The Company has identified and assessed its areas of risk related to
the Year 2000 problem. The failure to correct a material Year 2000 problem
could result in an interruption in, or a failure of, certain normal business
activities or operations. Such failures could materially and adversely affect
the Company's results of operations, liquidity and financial condition. Due to
the general uncertainty inherent in the Year 2000 problem, resulting in part
from the uncertainty of the Year 2000 readiness of third-party suppliers, the
Company is unable to determine at this time whether the consequences of the Year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition.
The Year 2000 effort is expected to significantly reduce the Company's
level of uncertainty about the Year 2000 problem and, in particular, about the
Year 2000 compliance and readiness of its critical suppliers and customers. The
Company believes that, with the implementation of its new computer systems and
upgrades and completion of the Year 2000 specific projects as scheduled, the
possibility of significant interruptions of normal operations should be reduced.
<PAGE>
Item 7. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
TITLE PAGE
- --------------------------------------------------------------------------------
<S> <C>
Independent Auditor's Report......................................... 14
Consolidated Balance Sheets
at October 31, 1998, and 1997........................................ 15
Consolidated Statements of Earnings
for each of the three years ended October 31, 1998, 1997, and 1996... 17
Consolidated Statements of Stockholders' Equity
for each of the three years ended October 31, 1998 1997, and 1996.... 18
Consolidated Statements of Cash Flows
for each of the three years ended October 31, 1998, 1997 and 1996.... 19
Notes to Consolidated Financial Statements........................... 21
</TABLE>
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
ATHANOR GROUP, INC.
AND SUBSIDIARY
Consolidated Financial Statements
October 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
The Board of Directors and Stockholders
Athanor Group, Inc.:
We have audited the accompanying consolidated balance sheets of Athanor Group,
Inc. and subsidiary as of October 31, 1998 and 1997 and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
years in the three-year period ended October 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Athanor Group, Inc.
and subsidiary as of October 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the years in the three-year period
ended October 31, 1998 in conformity with generally accounting principles.
/s/ KPMG Peat Marwick LLP
Los Angeles, California
December 17, 1998
<PAGE>
ATHANOR GROUP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
October 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets 1998 1997
---------- ----------
<S> <C> <C>
Current assets:
Cash $ 236,320 137,993
Accounts receivable, net of allowance for doubtful
accounts of $8,467 and $13,712 at October 31, 1998
and 1997 (notes C and D) 2,368,775 2,683,318
Other receivables 29,344 99,463
Income tax receivable -- 16,749
Inventories (notes C and D):
Raw materials 689,553 637,076
Work in process 438,308 596,783
Finished goods 2,290,331 2,236,895
---------- ----------
3,418,192 3,470,754
---------- ----------
Prepaid expenses 37,275 18,470
Deferred income tax assets (note E) 204,319 173,342
---------- ----------
Total current assets 6,294,225 6,600,089
Property, plant and equipment, net (notes B and F) 1,543,895 1,840,467
Other assets (including related party receivable of $40,000) 387,732 178,545
---------- ----------
$8,225,852 8,619,101
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ATHANOR GROUP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
October 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1998 1997
---------- ---------
<S> <C> <C>
Current liabilities:
Note payable (note C) $1,273,034 1,365,497
Current portion of long-term debt (note D) 546,085 594,685
Accounts payable 1,476,713 1,717,838
Accrued liabilities:
Salaries, wages and other compensation 261,685 252,392
Income tax payable 47,065 --
Other 408,128 443,040
---------- ---------
Total current liabilities 4,012,710 4,373,452
---------- ---------
Long-term debt, less current portion (note D) 679,512 1,193,494
Noncurrent deferred income tax liability (note E) 129,782 80,441
Stockholders' equity:
Redeemable, convertible preferred stock, $3 stated value.
Authorized 5,000,000 shares; none issued -- --
Common stock, $.01 par value. Authorized 25,000,000 shares; issued and
outstanding 1,458,854 shares in 1998 and 1,467,934 shares in 1997 14,588 14,679
Additional paid-in capital 1,447,391 1,447,391
Retained earnings 1,941,869 1,509,644
---------- ---------
Total stockholders' equity 3,403,848 2,971,714
Commitments (notes C, D and G)
---------- ---------
$8,225,852 8,619,101
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ATHANOR GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Earnings
Years ended October 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Net sales (note H) $23,635,679 24,879,039 23,744,232
Cost of sales 19,855,347 21,189,044 19,910,869
----------- ---------- ----------
Gross profit 3,780,332 3,689,995 3,833,363
Selling, general and administrative expenses 2,717,631 2,692,247 2,655,621
----------- ---------- ----------
Operating profit 1,062,701 997,748 1,177,742
Other income (expense):
Interest expense (299,484) (333,677) (279,779)
Recoveries (write-offs) of advances to
unconsolidated investee -- 225,116 (149,739)
Other, net 10,655 (57,616) 58,197
----------- ---------- ----------
Earnings before income taxes 773,872 831,571 806,421
Income tax expense (note E) 319,163 348,504 277,183
----------- ---------- ----------
Net earnings $ 454,709 483,067 529,238
=========== ========== ==========
Net income per common share (note A):
Basic $ .31 .33 .36
=========== ========== ==========
Diluted $ .31 .33 .36
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ATHANOR GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended October 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Preferred stock Common stock Additional Retained
------------------- ------------------- paid-in earnings
Shares Amount Shares Amount capital (deficit) Total
------ ------ ------ ------ ---------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1995 -- $ -- 1,471,434 $14,714 1,447,391 506,175 1,968,280
Repurchase and retirement of
common stock (note G) -- -- (80) (1) -- (120) (121)
Net earnings for the year -- -- -- -- -- 529,238 529,238
------ ------ --------- ------- --------- --------- ---------
Balance at October 31, 1996 -- -- 1,471,354 14,713 1,447,391 1,035,293 2,497,397
Repurchase and retirement of
common stock (note G) -- -- (3,420) (34) -- (8,716) (8,750)
Net earnings for the year -- -- -- -- -- 483,067 483,067
------ ------ --------- ------- --------- --------- ---------
Balance at October 31, 1997 -- -- 1,467,934 14,679 1,447,391 1,509,644 2,971,714
Repurchase and retirement of
common stock (note G) -- -- (9,080) (91) -- (22,484) (22,575)
Net earnings for the year -- -- -- -- -- 454,709 454,709
------ ------ --------- ------- --------- --------- ---------
Balance at October 31, 1998 -- $ -- 1,458,854 $14,588 1,447,391 1,941,869 3,403,848
====== ====== ========= ======= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ATHANOR GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended October 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Increase (Decrease) in Cash 1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 454,709 483,067 529,238
Adjustments to reconcile net earnings to net cash
provided by operating activities:
(Recoveries) write-offs of advances to
unconsolidated investee -- (225,116) 149,739
Depreciation and amortization 389,724 360,272 283,877
Loss on disposal of fixed asset -- 71,421 --
Amortization of deferred gain on sale and leaseback -- -- (39,257)
Provision for deferred income taxes -- 101,705 (58,732)
(Increase) decrease in operating assets:
Accounts receivable 314,543 (214,708) (226,229)
Inventories 52,562 (296,023) (202,462)
Prepaid expenses and other assets (227,992) (32,060) (6,106)
Income taxes receivable 18,364 (16,749) --
Increase (decrease) in operating liabilities:
Accounts payable (241,125) 274,179 (94,317)
Accrued liabilities (25,618) (84,186) 174,601
Income taxes payable 63,814 (122,769) 122,769
--------- -------- --------
Net cash provided by operating activities 798,981 299,033 633,121
--------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment (93,152) (470,607) (81,631)
Proceeds from sales of property and equipment -- 119,498 --
Issuance of note receivable -- (96,963) --
Issuance of note receivable - related party -- -- (15,000)
Repayment from (advances to) unconsolidated investee -- 225,116 (149,739)
--------- -------- --------
Net cash used in investing activities (93,152) (222,956) (246,370)
--------- -------- --------
</TABLE>
(Continued)
<PAGE>
ATHANOR GROUP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended October 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Cash flows from financing activities:
Net borrowings (repayments) under line of credit $ (92,463) 425,740 (237,406)
Proceeds from long-term debt -- -- 267,334
Repayments of long-term debt (562,583) (470,550) (363,464)
Collections on notes receivable 70,119 -- --
Repurchase of stock (22,575) (8,750) (121)
--------- ------- --------
Net cash used in financing activities (607,502) (53,560) (333,657)
--------- ------- --------
Net increase in cash 98,327 22,517 53,094
Cash at beginning of year 137,993 115,476 62,382
--------- ------- --------
Cash at end of year $ 236,320 137,993 115,476
========= ======= ========
Supplemental disclosures of cash flow information:
Interest paid $ 299,484 333,677 283,040
Income taxes paid 224,296 386,317 113,646
========= ======= ========
</TABLE>
Supplemental schedule of noncash investing and financing activities:
1997
The Company purchased $743,601 of machinery and equipment under capital
lease obligations.
1996
The Company purchased $271,155 of machinery and equipment under a capital
lease obligation.
See accompanying notes to consolidated financial statements.
<PAGE>
ATHANOR GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 1998 and 1997
- --------------------------------------------------------------------------------
Note A - Summary of Accounting Policies
Athanor Group, Inc. (Athanor or the Company) is principally in the
business of manufacturing and marketing screw machine products through
its wholly owned subsidiary. All of the Company's business consists of
the production of component parts of proprietary products for other
companies. The Company has production and distribution facilities in
California and Arizona.
A summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying consolidated financial
statements follows:
1. Principles of Consolidation
The consolidated financial statements include the accounts of Athanor
and its wholly owned subsidiary, Alger Manufacturing Co., Inc. (Alger).
Significant intercompany accounts and transactions have been
eliminated.
2. Inventories
Inventories are stated at the lower of cost, based on the first-in,
first-out method, or market.
3. Property, Plant and Equipment
Property, plant and equipment are stated at cost and include
expenditures for major renewals and betterments. Repairs and
maintenance are expensed as incurred. Cost and accumulated depreciation
applicable to assets retired or disposed of are eliminated from the
accounts, and any resultant gains or losses are included in other
income.
Depreciation and amortization are provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their
estimated service lives using the straight-line method.
Depreciation is based on estimated useful lives of assets, which are as
follows:
<TABLE>
<S> <C>
Machinery and equipment 5 to 7 years
Leasehold improvements 2 to 5 years
</TABLE>
Leasehold improvements are depreciated over the lesser of their useful
lives or lease term.
4. Income Taxes
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 rates expected to apply to taxable income in
the years in which
<PAGE>
ATHANOR GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
October 31, 1998 and 1997
- --------------------------------------------------------------------------------
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.
5. Investments
The Company accounts for its investment in Core Software Technology
(Core), an affiliated company, on the equity method which requires the
Company to record its share of Core's earnings or losses. The investment
in Core has been reduced to $35,000 due to Core's accumulated losses.
During 1996, the Company advanced $149,739 to Core, which was
subsequently written off. In 1997, Core repaid $225,116 of previously
written off advances. At October 31, 1997 and 1996, the Company owned
28% of Core's common stock. The Company's investment in Core was reduced
to 16.9% as of October 31, 1998 (see Note J).
6. Earnings per Share
The Financial Accounting Standards Board (FASB) issued SFAS No. 128,
"Earnings Per Share," in March 1997 and effective for fiscal years ending
after December 15, 1997. The Company adopted SFAS 128 in 1998. SFAS 128
introduces and requires the presentation of "Basic" earnings per share
which represents net earnings available to common stockholders divided by
the weighted average shares outstanding excluding all common stock
equivalents. A dual presentation of "Diluted" earnings per share,
reflecting the dilutive effects of all common stock equivalents, is also
required. The Diluted presentation is similar to the former presentation
of fully diluted earnings per share.
The components of basic and diluted earnings per share were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Net income $ 454,709 483,067 529,238
========== ========= =========
Average outstanding shares of common stock 1,464,914 1,468,872 1,471,394
Dilutive effect of employee stock options 22,308 -- --
---------- --------- ---------
Common stock and common stock equivalents 1,487,222 1,468,872 1,471,394
========== ========= =========
Earnings per share:
Basic $ .31 .33 .36
Diluted .31 .33 .36
========== ========= =========
</TABLE>
<PAGE>
ATHANOR GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
October 31, 1998 and 1997
- --------------------------------------------------------------------------------
7. Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities, revenues and
expenses, and the disclosure of contingent assets and liabilities to
prepare these consolidated financial statements in conformity with
generally accepted accounting principles. Actual results could differ
from those estimates.
8. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
The Company accounts for long-lived assets in accordance with provisions
of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." This statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of an asset to future undiscounted cash flows expected to be
generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount
of fair value less costs to sell.
9. Reclassifications
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 presentation.
10. Stock Option Plans
The Company applies the intrinsic value based-method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations, in
accounting for its fixed plan stock options. As such, compensation
expense would be recorded on the date of the grant only if the current
market price of the underlying stock exceeded the exercise price. The
Company has elected to measure compensation cost prescribed by APB
Opinion No. 25, and to make pro forma disclosures of net earnings and
earnings per share as if the fair value method prescribed by Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, had been applied. (See note I).
11. New Accounting Pronouncements
In June 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) in a
full set of general purpose financial statements. SFAS 130 is effective
for periods beginning after December 15, 1997.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 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
<PAGE>
ATHANOR GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
October 31, 1998 and 1997
- --------------------------------------------------------------------------------
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.
Management does not anticipate that the adoption of the above
statements will have a material impact on the Company's financial
statements.
Note B - Property, Plant and Equipment
A summary of property, plant and equipment by classification follows:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Machinery and equipment $5,392,387 5,541,002
Leasehold improvements 84,042 84,042
---------- ---------
5,476,429 5,625,044
Less accumulated depreciation and amortization 3,932,534 3,784,577
---------- ---------
$1,543,895 1,840,467
========== =========
</TABLE>
Note C - Note Payable
Alger has a $3,833,333 credit agreement with a lending institution for
working capital and other business financing needs. The credit
agreement is collateralized by substantially all of the assets of
Alger. Under the line of credit, Alger may borrow amounts up to
$2,600,000 based on eligible accounts receivable and inventories, as
defined. Interest on drawings on this line of credit is payable at the
prime rate (8.0% at October 31, 1998), plus 1.0%. The line of credit
expires in August 1999. The amount outstanding was $1,273,034 and
$1,365,497 at October 31, 1998 and 1997, respectively. The amount
available under the line of credit was approximately $1,185,000 and
$1,235,000 at October 31, 1998 and 1997, respectively. The agreement
also provides for a term loan not to exceed $483,333, of which $449,999
was outstanding at October 31, 1998. In addition, the agreement
provides for an equipment line of up to $750,000, of which $100,000 has
been drawn, $36,654 was outstanding and $650,000 was available at
October 31, 1998. Borrowings on both the term loan and equipment line
are included as notes payable in long-term debt in the accompanying
consolidated balance sheets (see note D). The Company has guaranteed
borrowings outstanding under this credit agreement on behalf of Alger.
<PAGE>
ATHANOR GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
October 31, 1998 and 1997
- --------------------------------------------------------------------------------
Note D - Long-Term Debt
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Note payable to an individual bearing interest at 8.5%, payable in
yearly installments of $40,000, with interest payable quarterly, due
April 1999. $ 40,000 80,000
Notes payable to a lending institution at the prime rate plus 1.0%,
payable in monthly installments of $16,667, plus interest, due July
1999, collateralized by substantially all assets of Alger 486,653 760,378
Notes payable to others at rates ranging from 10.0% to 12.9%, payable
in monthly installments of $1,133, including interest, due through
May 1999, collateralized by equipment and automobiles 6,867 19,081
Capital lease obligations (see note F) 692,077 928,720
---------- ---------
1,225,597 1,788,179
Less current portion 546,085 594,685
---------- ---------
$ 679,512 1,193,494
========== =========
</TABLE>
A schedule of aggregate, annual principal payments on long-term debt as
of October 31, 1998 is as follows:
<TABLE>
<S> <C>
1999 $ 546,085
2000 371,921
2001 210,062
2002 97,529
----------
$1,225,597
==========
</TABLE>
<PAGE>
ATHANOR GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
October 31, 1998 and 1997
- --------------------------------------------------------------------------------
Note E - Income Taxes
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Federal State Total
------- ----- -----
<S> <C> <C> <C>
1998:
Current $235,079 65,721 300,800
Deferred 12,967 5,396 18,363
-------- ------ -------
$248,046 71,117 319,163
======== ====== =======
1997:
Current $199,271 47,528 246,799
Deferred 85,370 16,335 101,705
-------- ------ -------
$284,641 63,863 348,504
======== ====== =======
1996:
Current $303,425 32,490 335,915
Deferred (51,440) (7,292) (58,732)
-------- ------ -------
$251,985 25,198 277,183
======== ====== =======
</TABLE>
The difference between the Federal income tax rate and the effective
income tax rate on net earnings is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- -------------------
Percent Amount Percent Amount Percent Amount
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Statutory U.S. Federal
tax rate 34.0% $263,116 34.0% $282,734 34.0% $274,183
State income taxes, net
of Federal benefit 6.1 47,206 6.1 50,726 6.1 48,788
Benefit due to state tax
credits (.4) (3,000) (1.2) (10,000) (6.7) (54,123)
Change in valuation
allowance (3.2) (24,681) -- -- -- --
Other 4.7 36,522 3.0 25,044 1.0 8,335
---- -------- ---- -------- ---- --------
41.2% $319,163 41.9% $348,504 34.4% $277,183
==== ======== ==== ======== ==== ========
</TABLE>
<PAGE>
ATHANOR GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
October 31, 1998 and 1997
- --------------------------------------------------------------------------------
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liability at
October 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Deferred tax assets:
Bad debt reserves $ 3,400 5,400
Equity in loss of unconsolidated investee 164,004 163,997
Contamination reserve 98,448 106,471
Other 58,467 42,155
-------- -------
Total gross deferred tax assets 324,319 318,023
Valuation allowance 120,000 144,681
-------- -------
Net deferred tax assets $204,319 173,342
======== =======
Deferred tax liabilities - accelerated depreciation
on fixed assets $129,782 80,441
======== =======
</TABLE>
Included as a deferred tax asset is the deferred tax benefit associated
with the Company's 1994 equity loss in an unconsolidated investment.
Because of uncertainties surrounding the realizability of this deferred
tax benefit, the Company has established a valuation allowance. Future
equity earnings in this unconsolidated investment, if any, will reduce
this valuation allowance accordingly. The Company believes its
remaining deferred tax assets to be realizable based on historical and
projected taxable income levels.
Note F - Commitments and Contingencies
The Company leases machinery under capital lease agreements. The
carrying value of these assets, included in machinery and equipment, at
October 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Asset $1,117,000 1,091,000
Less accumulated depreciation 262,000 117,000
---------- ---------
$ 855,000 974,000
========== =========
</TABLE>
The Company leases three premises which are accounted for as operating
leases. Real estate taxes, insurance and other taxes are the
obligations of the Company.
<PAGE>
ATHANOR GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
October 31, 1998 and 1997
- --------------------------------------------------------------------------------
The following is a schedule of future minimum rental commitments under
capital leases and noncancelable operating leases as of October 31,
1998:
<TABLE>
<CAPTION>
Capital leases Operating leases Total
-------------- ---------------- -----
<S> <C> <C> <C>
Year ending October 31:
1999 $260,815 302,111 562,926
2000 238,430 308,539 546,969
2001 194,437 309,688 504,125
2002 100,225 206,540 306,765
-------- ---------- ---------
Minimum lease payments 793,907 $1,126,878 1,920,785
========== =========
Less amount representing interest and taxes 101,830
--------
Present value of future capital lease
payments $692,077
========
</TABLE>
Rental expense for operating leases was approximately $294,000 in 1998,
$297,000 in 1997 and $254,000 in 1996.
As of October 31, 1998 and 1997, the Company has accrued $245,000 and
$265,000, respectively, relating to the estimated cost to remediate
perchloroethylene contamination in the subsurface soil below Alger.
The aggregate undiscounted amount has been accrued since it represents
management's best estimate of the cost, but the payments are not
considered to be fixed and reliably determinable. The estimate of costs
and their timing of payment could change as a result of (1) changes to
the remediation plan required by the State Environmental Agency, (2)
changes in technology available to treat the site, (3) unforeseen
circumstances existing at the site and (4) differences between actual
inflation rates and rates assumed in preparing the estimate. It is not
possible to estimate the amount; losses may exceed amounts accrued at
this time as a result of these factors.
Note G - Stockholders' Equity
During 1996, the Company repurchased and retired 80 shares of common
stock for $1.50 per share.
During 1997, the Company repurchased and retired 3,420 shares of common
stock for approximately $2.50 per share.
During 1998, the Company repurchased and retired 9,080 shares of common
stock for approximately $2.50 per share.
<PAGE>
ATHANOR GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
October 31, 1998 and 1997
- --------------------------------------------------------------------------------
Note H - Major Customer
For the years ended October 31, 1998, the Company had one customer
which accounted for more than ten percent (10%) of net sales.
Receivables from this customer as of October 31, 1998 amounted to
$177,744. For the years ended October 31, 1997 and 1996, the Company
had no customers who accounted for more than 10% of net sales.
Note I - Employee Benefit Plans
The Company and its subsidiary have a 401(k) plan covering
substantially all employees. Employees may contribute up to 15 percent
(15%) of their wages subject to IRS limitations. The Company will match
100 percent (100%) of the employees' contribution not exceeding 1
percent (1%) of their wages plus 50 percent (50%) of the employees'
remaining contribution up to 4 percent (4%). The Company may also make
discretionary contributions to the plan that are allocated to each
employee based upon their pro rata compensation to all compensation.
The Company's contributions under the plan amounted to approximately
$97,000, $80,000 and $75,000 for the years ended October 1998, 1997 and
1996, respectively.
In April 1997, the Company adopted a stock option plan (the Plan)
pursuant to which the Company's Board of Directors may grant stock
options to officers, directors and key employees. The Plan authorized
grants of options to purchase up to 220,340 shares of authorized but
unissued common stock. In May 1998, the Company granted 170,000 stock
options for shares of Athanor. Stock options were granted with an
exercise price equal to the stock's fair market value at the date of
grant ($1.66 at May 8, 1998). All stock options vest and become fully
exercisable as shown below:
<TABLE>
<S> <C>
6 months after granting 20%
after one year 20%
after two years 30%
after three years 30%
===
</TABLE>
Thus, after three years of service, the options become fully vested.
However, options are exercisable six months after they are granted and
remain exercisable for eight years after the date of issuance.
There were 170,000 options to purchase common stock outstanding as of
October 31, 1998, of which none were exercisable. No options were
outstanding at October 31, 1997.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. Accordingly, no compensation cost has been
recognized for its fixed stock option plans. Had compensation cost for
the Company's two stock-based compensation plans been determined
consistent with SFAS Statement No. 123, the Company's net earnings and
earnings per share for fiscal 1998 would have been reduced to the pro
forma amounts indicated below:
<PAGE>
ATHANOR GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
October 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Pro forma net earnings $431,052
Pro forma earnings per share:
Basic .29
Diluted .27
========
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in fiscal 1998: expected
volatility of 102%; risk-free interest rate of 5.6%; assumed dividend
yield of 0; and expected life of 7 years.
Because the Company's employee stock options have characteristics
significantly different from those of traded options and because
changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of
its employee stock options.
Note J - Related Party Transactions
The Company is currently the single largest shareholder of Core
Software Technology, a California corporation (Core), owning 462,567
shares of the issued and outstanding common stock of Core, which
represents approximately seventeen percent (16.9%) of the total issued
and outstanding shares of Core's capital stock at October 31, 1998.
The Company has provided a portion of the working capital requirements
of Core during previous years in the form of a series of loans to Core.
As of October 31, 1998, the total amount outstanding from Core is
$83,000. Interest accrues on this loan at a rate of 8% and the loan is
payable on demand. The Company has elected to reserve $48,000 of this
balance due to Core's accumulated losses.
Mr. Miller served as Secretary and a Director of Core until April 1998,
when he resigned. Mr. Miller has a beneficial ownership interest in
8,813 additional shares of the common stock of Core as well as options
to purchase 4,180 shares of the common stock of Core at exercise prices
ranging from $5.50 to $8.25 per share. Mr. Femrite has a beneficial
ownership interest in 33,347 additional shares of the common stock of
Core as well as options to purchase 3,697 shares of the common stock of
Core at $5.50 per share.
In September 1995, the Company loaned $25,000 to Mr. Miller in exchange
for a secured promissory note. During 1996, the loan was increased to
$40,000 in exchange for additional security. The note bears interest at
10% and is secured by 25,000 shares of the Company owned by Mr. Miller.
The loan was renewed as of December 11, 1998 in the form of a new loan
for $57,415, which includes $17,415 of accrued interest and additional
advances and which is due in December 1999.
Over the past two years, the Company made investments of $146,000, as a
Limited Partner, in California South Pacific Investors (CSPI). Duane
Femrite is a General Partner in CSPI.
<PAGE>
ATHANOR GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
October 31, 1998 and 1997
- --------------------------------------------------------------------------------
During 1998, the Company made a $100,000 loan to Fluid Light
Technologies, Inc. (FLT). This loan was converted to 208,200 shares of
stock representing an ownership interest of 3.6% upon FLT's private
placement in July 1998. Mr. Miller is a Director of FLT.
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following table sets forth information with respect to the directors and
executive officers of Registrant as of December 31, 1998.
Director/Officer Information
----------------------------
<TABLE>
<CAPTION>
Principal Director
Name Occupation Age Since
---- ---------- --------- --------
<S> <C> <C> <C>
Gregory J. Edwards Director 54 1990
Duane L. Femrite President, Chief Executive Officer, 53 1985
Chief Financial Officer of the Company
Edmund R. Knauf, Jr. Director 56 1997
Richard A. Krause Vice President of the Company 63 1992
President, Alger Manufacturing
Company, Inc.
Robert W. Miller Chairman of the Board, 56 1976
Secretary of the Company
</TABLE>
Listed Below are descriptions of the business experience for at least the
past five years for each director and officer listed in the preceding table.
Unless otherwise described below, none of the following persons (i) is related
in any way, or (ii) has been involved in certain legal proceedings in the past
five years.
GREGORY J. EDWARDS Chairman and Chief Executive Officer of CASS Holdings,
L.L.C. ("CASS") since January 1993. CASS owns several
manufacturing and service companies: CASS Polymers, Inc. (a
subsidiary of CASS) owns Ad-Tech Plastic Systems Corp., a
producer of polymer systems for the aerospace, automotive,
construction and marine industries and owns Milamar
Coatings, L.L.C., a producer of epoxy coating products used
in the industrial and commercial seamless floor coating
business; CASS Services, L.L.C., a government contractor
involved with surface preparation and re-coating for U.S.
Naval ships and portable landing mats; CASS Financial, L. L.
C., an equipment leasing company. Between July 1991 and
January 1993, Mr. Edwards was self-employed as a financial
consultant and investor. Previously, he was an investment
banker with Stephens, Inc. of Little Rock, Arkansas from
mid-1990 to July 1991.
<PAGE>
DUANE L. FEMRITE President, Chief Executive Officer of the Company since
April 1995, Chief Operating Officer from January 1987 to
April 1995, and Chief Financial Officer since December
1982. Secretary of the Company from October 1984 to April
1995 and Director of the Company since December 1985.
Director of Core Software Technology from November 1993 to
March 1995. Mr. Femrite is a Certified Public Accountant.
EDMUND R. KNAUF, JR. Currently self-employed as a consultant and investor. From
1972 to August 1997 worked in various positions for Ametek
Inc, a global manufacturer of electrical and electronic
products engineered for niche markets, including Vice
President of Business Development for the Filtration Group
from April 1996 to August 1997 and as Corporate Vice
President and General Manager of several Ametek Divisions
from 1990 to 1996.
RICHARD A. KRAUSE Director and Vice President of the Company since December
1992. President and Chief Operating Officer of Alger
Manufacturing Company, Inc. since 1987.
ROBERT W. MILLER Chairman of the Board since 1976. Chief Executive Officer
of the Company from 1976 to April 1995. Corporate
Secretary since April 1995. Director of Core Software
Technology from September 1991 to April 1998. Director of
OneCard International since 1988 and elected Chairman and
Chief Executive Officer of this company in September 1992.
<PAGE>
Item 10. EXECUTIVE COMPENSATION
The following table sets forth all plan and non-plan compensation awarded to,
earned by, or paid to the Company's three most highly compensated executive
officers, each of whose annual salary and bonus was in excess of $100,000 and
the Company's Chief Executive Officer regardless of compensation level, for
services to the Company during the three fiscal years ended October 31, 1998.
Annual Compensation
-------------------
<TABLE>
<CAPTION>
Name and Principal Position Year Salary Bonus Other (1)
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Duane L. Femrite 1998 $149,615 25,000 4,000
President, Chief Executive 1997 144,192 25,000 2,949
Officer and Chief Financial 1996 133,308 44,000 2,162
Officer
Richard A. Krause 1998 $161,615 44,985 3,329
Vice President and 1997 156,423 35,063 3,750
President of Alger 1996 145,308 52,328 3,750
Manufacturing Co., Inc.
Robert W. Miller 1998 $150,066 25,000 1,600
Chairman of the Board 1997 144,270 25,000 1,500
Corporate Secretary 1996 136,498 44,000 1,432
</TABLE>
(Footnotes)
(1) Other compensation includes contributions made to the Company's 401-K
Plan. Does not include use of automobile paid for by the Company.
EMPLOYMENT AGREEMENTS
- ---------------------
Effective January 1, 1991, the Company entered into written employment
agreements with Robert W. Miller, as Chairman of the Board and Chief Executive
Officer, and Duane L. Femrite, as President, Chief Operating Officer, Chief
Financial Officer, and Secretary of the Company. Effective January 1, 1993,
Alger entered into a written agreement with Richard A. Krause as President and
Chief Operating Officer. Each of the employment agreements is identical as to
its terms except for the description of the duties that each employee is to
provide.
Each agreement is for an initial term of five (5) years, renewable
automatically for additional one (1) year periods unless either the employee,
the Company, or Alger wishes to terminate it. The employment agreements for
Robert W. Miller, Duane L. Femrite and Richard A. Krause were automatically
renewed on January 1, 1999, for an additional year.
The agreements provide that the salaries of the employees shall be determined
by the Board of Directors but may not be less than the salary paid in the
preceding year. Each
<PAGE>
employee shall be entitled to the use of an automobile at the Company's expense
and shall be entitled to all benefits and perquisites available to the Company's
other employees.
If the agreement terminates because of the death of the employee, then the
employee's heirs and/or successors shall continue to receive the employee's
salary, monthly, for a period of twelve (12) months. If the agreement should
terminate for any reason other than cause or death of the employee, including,
without limitation, employee's voluntary termination, the Company shall pay the
employee a lump sum payment equal to employee's then monthly salary multiplied
by the number of years during which the employee was employed by the Company, or
Alger, as the case may be, prorated for any partial year of employment. Payment
is limited to twenty-four (24) years of employment.
The agreements permit the employee to engage in other employment or business
opportunities provided that such outside activities do not interfere with
employee carrying out his duties to the Company, are not competitive with the
Company, and do not result in employee breaching any of his fiduciary
obligations to the Company or its shareholders.
COMPENSATION OF DIRECTORS
Outside Directors are to receive an annual honorarium of $5,000 per year and
$600 per meeting attended. The Board has a Nominating Committee that is charged
with the responsibility of nominating a slate of candidates to serve as
directors of the Company. Outside directors on the Compensation Committee,
Audit Committee, and Nominating Committee receive $100 for each meeting attended
when such committee meetings are held on a day that the full Board does not
meet. The Audit Committee, Nominating Committee, and Compensation Committee met
once in 1998.
STOCK OPTION PLAN
The Company's 1997 Stock Option Plan (the "1997 Plan"), was set up to attract,
reward and retain the best available officers, directors, employees and
consultants for the Company and to promote the success of the Company's
business. The following discussion is intended only as a summary of the
material provisions of the 1997 Plan.
The 1997 Plan provides only for grants of "non-qualified stock options" which
are not qualified for treatment under Section 422 of the Internal Revenue Code
of 1986, as amended. A total of 220,340 shares of Common Stock have been
reserved for issuance under the 1997 Plan upon the exercise of stock options
which may be granted to employees, officers, directors and consultants of the
Company. Because the officers, directors, employees and consultants of the
Company who may participate in the 1997 Plan and the amount of their options
will be determined by the Board of Directors or its committee in its discretion,
it is not possible to state the names or positions of, or the number of options
that may be granted to, the Company's officers, directors, employees and
consultants. As of the date hereof, options under the 1997 Plan have been
granted as set forth in the chart below. No person may receive options under
the 1997 Plan for more than 30,000 shares in any one fiscal year.
The Board of Directors may administer the 1997 Plan or the administration of
the 1997 Plan may be delegated to a Committee of the Board of Directors (the
"Committee"). In addition to determining who will be granted options, the Board
or Committee will have the
<PAGE>
authority and discretion to determine when options will be granted and the
number of options to be granted. The Board or Committee also may determine the
time or times when each option becomes exercisable, the duration of the exercise
period for options and the form or forms of the instruments evidencing options
granted under the 1997 Plan, and is empowered to make all other determinations
deemed necessary or advisable for the administration of the 1997 Plan.
The term of each option granted under the 1997 Plan will be established by the
Board or Committee at the time of the grant. An option granted under the 1997
Plan may be exercised at such times and under such conditions as determined by
the Board or Committee. Except as otherwise provided by the Board or Committee
at the time an option is granted, no option granted under the 1997 Plan is
transferable other than at death, and each option is exercisable during the life
of the optionee only by the optionee. In the event of the death of a person who
has received an option, the option generally may be exercised by a person who
acquired the option by bequest or inheritance to the extent that such option was
exercisable at the date of death.
The exercise price may not be less than the fair market value of the Common
Stock on the date of grant. The consideration to be paid upon exercise of an
option, including the method of payment, will be determined by the Board or
Committee and may consist entirely of cash, check, shares of Common Stock, such
other consideration and method of payment permitted by applicable law or any
combination of such methods of payment as permitted by the Board or Committee.
The Board or Committee has the authority to reset the price of any stock option
after the original grant and before exercise. In the event of stock dividends,
splits, and similar capital changes, the 1997 Plan provides for appropriate
adjustments in the number of shares available for option and the number and
option prices of shares subject to outstanding options.
In the event of a proposed sale of all or substantially all of the assets of
the Company, or a merger of the Company with and into another corporation,
outstanding options shall be assumed or equivalent options shall be substituted
by such successor corporation, unless the Board or Committee provides all option
holders with the right to immediately exercise all of their options, whether
vested or unvested. In the event of a proposed dissolution or liquidation of
the Company, outstanding options will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the Board or
Committee. In such a situation, the Board or Committee is authorized to give
option holders the right to immediately exercise all of their options, whether
vested or unvested.
The 1997 Plan will continue in effect until April 1, 2007, unless earlier
terminated by the Board of Directors, but such termination will not affect the
terms of any options outstanding at that time. The Board of Directors may
amend, terminate or suspend the 1997 Plan at any time. Amendments to the 1997
Plan must be approved by shareholders if required by applicable tax, securities
or other law or regulation.
The issuance of shares of Common Stock upon the exercise of options may be
subject to registration with the Securities and Exchange Commission on the
shares reserved by the Company under the 1997 Plan.
<PAGE>
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Name Number of % of Exercise Ex-Date
Securities Total or **/
Underlying Options/SARs Base
Options/SARs Granted Price
Granted to Employees */
In FY98
---- ------------ ------------ -------- -------
<S> <C> <C> <C> <C>
Richard Krause 30,000 18% $1.66 May 7, 2006
Duane Femrite 30,000 18% $1.66 May 7, 2006
Robert Miller 30,000 18% $1.66 May 7, 2006
Gregory Edwards 15,000 9% $1.66 May 7, 2006
Edmund Knauf 10,000 6% $1.66 May 7, 2006
</TABLE>
*/ Equals the closing market price for the underlying security on the date of
the grant of options.
**/ The date of grant for each of the foregoing options was May 8, 1998. No
option could be exercised, in whole or in part, during the first six (6) months
from the date of grant. Thereafter, 20% of each of the options was exercisable
on November 7, 1998; 20% is exercisable on May 7, 1999; 30% is exercisable on
May 7, 2000; and 30% is exercisable on May 7, 2001.
In addition to the forgoing grants, 55,000 stock option grants were issued to
non-director, non-executive employees of Alger during the fiscal year 1998.
None of the foregoing option grants were exercised during the fiscal year ended
October 1998.
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1998, information
concerning: (a) beneficial ownership of voting securities of the Company by
persons who are known by the Company to own beneficially more than five percent
(5%) of the Company's Common Stock; (b) beneficial ownership of voting
securities of the Company by each director, nominee for director, and by all
directors and officers as a group; and (c) the percentage of the total votes
held by each person or group described in subparagraphs (a) and (b) immediately
above.
Certain Beneficial Owners and Management
----------------------------------------
<TABLE>
<CAPTION>
Amount and Percentage of
Beneficial Ownership
-------------------------
Title Name and Address of Number of Percent of
of Class Beneficial Owner Shares Class
-------- ------------------- --------- ----------
<S> <C> <C> <C>
Common Gregory J. Edwards 16,000 1.1%
Stock 2208 Faircloud Lane
Edmond, Oklahoma 73034
Common Duane L. Femrite 189,544 13.0%
Stock 921 East California Avenue
Ontario, California 91761
Common Edmund R. Knauf, Jr. 79,680 5.5%
Stock 1516 North 2nd Street
Sheboygan, Wisconsin 53081
Common Richard A. Krause (2) 256,983 17.6%
Stock 921 East California Avenue
Ontario, California 91761
Common Robert W. Miller (1) 164,752 11.3%
Stock 921 East California Avenue
Ontario, California 91761
Common All Officers and Directors 706,959 48.5%
Stock as a Group (5 persons)
</TABLE>
_____________________________________________
(Footnotes on next page)
All shares are owned either directly or beneficially by the owner named in
the table except as otherwise indicted in a footnote below.
Percentages of class are based on the number of shares of Common Stock
outstanding on December 31, 1998. There were 1,458,854 shares of Common Stock
outstanding on December 31, 1998.
<PAGE>
None of the officers or directors of the Company, except as noted in Item
10 above, has options to acquire any shares of Common Stock of the Company.
Messrs. Femrite, Knauf, Krause and Miller are the only persons known to the
Company to beneficially own more than five percent (5%) of its Common Stock.
The Company knows of no contractual arrangements that may at a subsequent
date result in a change in control of the Company.
_____________________________
(Footnotes)
(1) Does not include 24,000 shares of Common Stock owned by Mr. Miller's
father as to which Mr. Miller disclaims beneficial ownership.
(2) Includes 256,983 shares of Common Stock owned by The Krause Family
Irrevocable Trust.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is currently the single largest shareholder of Core Software
Technology, a California corporation ("Core"), owning 462,567 shares of the
issued and outstanding common stock of Core, representing approximately 16.9% of
the issued and outstanding shares of Core's capital stock (assuming the options
to purchase additional shares of the capital stock of Core owned by the Company
and others are not exercised).
Core is the developer and marketer of an on-line geospatial (image,
cartographic, & demographic) information indexing and distribution system and
service, known as ImageNet. Core develops and distributes proprietary client-
server and application software but primarily uses its software products as a
delivery vehicle for ImageNet services. Through the global implementation of
ImageNet, Core seeks to control the channel for distribution of geospatial
information products worldwide. As a single source access vehicle for such
information, the value and utility of ImageNet is a function of content.
Core is attempting to build a worldwide, on-line database and
distribution infrastructure consisting of commercial and public data providers,
existing international distributors, satellite ground receiving stations, and
value added companies. ImageNet addresses the information access requirements
of an international public policy movement to maximize the benefits of existing
scientific and geographic information and analysis tools.
The Company has made outstanding loans in the principal amount of $685,622
to Core through October 31, 1998. All but $35,000 of the outstanding balance,
which was advanced during 1998, plus accrued interest of approximately $29,000
through October 31, 1998, has been reserved.
Mr. Miller entered into a consulting agreement with Core and assigned
the consulting fees to R & D Financial (R&D), a California general partnership
of which Messrs. Miller and
<PAGE>
Femrite are the general partners. The consulting agreement began on January 1,
1995, wherein Mr. Miller agreed to provide services to Core relating to
financial, investor, capital raising, litigation and general business matters
arising out of Core's on-going restructuring, recapitalization and financing
efforts. As of December 31, 1998, Core owes $42,745 to R & D in connection with
said consulting agreement. No fees were paid by Core to R&D during 1998.
Mr. Miller served as Secretary and a Director of Core until April 1998,
when he resigned. Mr. Miller has a beneficial ownership interest in 8,813
additional shares of the common stock of Core as well as options to purchase
4,180 shares of the common stock of Core at exercise prices ranging from $5.50
to $8.25 per share. Mr. Femrite has a beneficial ownership interest in 33,347
additional shares of the common stock of Core as well as options to purchase
3,697 shares of the common stock of Core at $5.50 per share. The above
beneficial stock ownership takes into account stock that was previously owned by
R&D.
Mr. Miller was to have received $4,000 per month from Image Data
Corporation (IDC), the previous parent of Core, with respect to his services
rendered to IDC in accordance with IDC's confirmed Plan of Reorganization, but
has received no compensation to date. IDC has no sources of revenue other than
a small receivable from Core. The likelihood that Mr. Miller will receive any
appreciable amount of the compensation is remote.
During 1998, the Company made a $100,000 loan to Fluid Light Technologies, Inc.
(FLT). FLT is in the business of developing, manufacturing and marketing
systems to control the motion or flow of light through neon glass tubes. FLT is
a developmental stage company and has no revenues or earnings. This loan was
converted to 208,200 shares of common stock representing an ownership interest
of approximately 3.6% upon FLT's Private Placement in July 1998. Mr. Miller is
a director of FLT.
Over the last few years, the Company has made investments totaling $146,000, as
a limited partner, in California South Pacific Investors (CSPI) a California
Limited Partnership. CSPI, through its wholly owned companies, has developed
and patented biochemical product-identifying barcodes for detecting harmful
bacterial pathogens in meats, poultry and dairy products. Mr. Femrite is one of
five General Partners in CSPI.
In January 1996 the Internal Revenue Service ("IRS") served Mr. Miller
with a Notice of Federal Tax Lien with respect to approximately $400,000 in
taxes and penalties purportedly owed by IDC. In connection therewith, the IRS
has collected approximately $29,000 from Mr. Miller and currently collects $500
per month. In connection with Core's previous acquisition of the assets of IDC,
Core agreed to indemnify and hold Mr. Miller harmless from and against any
liabilities relating to or arising out of IDC's business, including taxes and
penalties owed by IDC to the IRS. In connection with such indemnity, Core
reimbursed Mr. Miller in the approximate amount of $23,000 during 1997. Mr.
Miller anticipates that any additional funds collected by the IRS, in
conjunction with such levy, will ultimately be reimbursed by Core.
The Company has made loans to Mr. Miller, in previous years, in the
principal amount of $40,000. The loan was renewed as of October 1997 on the
condition that Mr. Miller make a principal reduction plus accrued interest or
assign an interest in certain cash distributions from R&D. Mr. Miller did not
make the required payments and the Company decided not to accept the assignment
of potential cash distributions from R&D. During 1998 the Company decided to
renew the original note plus accrued interest and made additional advances of
$8,375. The total outstanding loan to Mr. Miller in the amount of $57,415 is
due December 11, 1999. The
<PAGE>
Company received an additional 10,000 shares of the Company's common stock, for
a total of 35,000 shares as collateral.
Part IV
EXHIBITS
(a) See Index to Exhibits.
The Exhibits therein listed and attached hereto and the Exhibits
therein incorporated by reference are filed as a part of this
report.
(b) Reports on Form 8-K.
None
<PAGE>
Signatures
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Company has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ATHANOR GROUP, INC.
Date January 21, 1999 By /s/ Duane L. Femrite
---------------- ----------------------------------
Duane L. Femrite, President, Chief
Executive Officer, Chief Financial
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
/s/ Gregory J. Edwards 1/21/99
---------------------------------------- -------
Gregory J. Edwards, Director Date
/s/ Duane L. Femrite 1/21/99
---------------------------------------- -------
Duane L. Femrite, President, Date
Chief Executive Officer,
Chief Financial Officer and Director
/s/ Edmund R. Knauf, Jr. 1/21/99
---------------------------------------- -------
Edmund R. Knauf, Jr., Director Date
/s/ Richard A. Krause 1/21/99
---------------------------------------- -------
Richard A. Krause, Vice President and Date
Director
/s/ Robert W. Miller 1/21/99
---------------------------------------- -------
Robert W. Miller, Chairman of the Board, Date
Corporate Secretary, and Director
<PAGE>
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ---------- ----------------------
<C> <S>
3.1 Restated articles of Incorporation of the Company dated April 2,
1979, and all amendments thereto filed prior to August 25, 1989.
Incorporated by reference to the same numbered exhibit to report on
Form 10-K, filed on February 12, 1990.
3.2 Certificate of Amendment of Articles of Incorporation of the
Company filed August 25, 1989. Incorporated by reference to the
same numbered exhibit to report on Form 10-K, filed on February 12,
1990.
3.3 Certificate of Amendment of Articles of Incorporation of the
Company filed August 25, 1989. Incorporated by reference to the
same numbered exhibit to report on Form 10-K, filed on February 12,
1990.
3.4 Bylaws of the Company. Incorporated by reference to Registration
Statement No. 2-63481, Exhibit 3(b). Amendment thereto, dated as of
September 11, 1987, filed January 28, 1988.
4.0 Certificate of Determination of Preferences of Preferred Stock.
Incorporated by reference to the same numbered exhibit to report on
Form 10-K, filed June 9, 1987.
10.1 Standard Industrial Lease - Special Net. Incorporated by reference
to the same numbered exhibit to report on Form 10-K, filed June 9,
1987.
10.2 Equipment Lease with Dover Industries Acceptance Inc., dated April 4,
1988. Incorporated by reference to the same numbered exhibit to
report on Form 10-K, filed January 30, 1989.
10.3 Loan and Security Agreement, dated January 19, 1990, between Alger
and Sanwa Business Credit Corporation. Incorporated by reference to
the same numbered exhibit to report on Form 10-K, filed February
12, 1990.
10.4 Amendment to Loan and Security Agreement dated February 10, 1992,
between Alger and Sanwa Business Credit Corporation. Incorporated
by reference to the same numbered exhibit to report on Form 10-K,
filed February 12, 1993
10.5 Second Amendment to Loan and Security Agreement dated July 29,
1992, between Alger and Sanwa Business Credit Corporation.
Incorporated by reference to the same numbered exhibit to report on
Form 10-K, filed February 12, 1993.
10.6 The Company's Guaranty of the Loan and Security Agreement, dated
January 19, 1990, between Alger and Sanwa Business Credit
Corporation. Incorporated by reference to the same numbered exhibit
to report on Form 10-K, filed February 12, 1990.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.7 Agreement between the Company and William A. Mitchell dated January
30, 1991. Incorporated by reference to the same numbered exhibit to
report on Form 8-K, filed January 30, 1991.
10.8 Agreement between the Company and Paul Abramowitz dated May 15,
1991. Incorporated by reference to Exhibit 10.7 to report on Form
8-K, dated May 15, 1991.
10.9 Agreement between the Company and John S. Slater, Jr., Trustee of
the Richert Family Trust, Dated December 15, 1991. Incorporated by
reference to Exhibit 10.7 to report on Form 8-K, dated December 15,
1991.
10.10 Sublease dated September 24, 1992, for property in Phoenix,
Arizona, between Alger and N.I.C.O. Machine, Inc. Incorporated by
reference to the same numbered exhibit to report of Form 10-K,
filed February 12, 1993.
10.11 Agreement for Sale of Stock dated May 31, 1993, between the Company
and George A. Johnson. Incorporated by reference to the same
numbered exhibit to report of Form 10-K, filed February 14, 1994.
10.12 Employment Agreement dated January 1, 1991, between the Company and
Robert W. Miller. Incorporated by reference to the same numbered
exhibit to report of Form 10-K, filed February 14, 1994.
10.13 Employment Agreement dated January 1, 1991, between the Alger
Manufacturing Co., Inc. and Richard A. Krause. Incorporated by
reference to the same numbered exhibit to report of Form 10-K,
filed February 14, 1994.
10.14 Employment Agreement dated January 1, 1991, between the Company and
Duane L. Femrite. Incorporated by reference to the same numbered
exhibit to report of Form 10-K, filed February 14, 1994.
10.15 Third Amendment to Loan and Security Agreement dated July 13, 1994,
by and between Sanwa Business Credit Corporation and Alger.
Incorporated by reference to the same numbered exhibit to report of
Form 10-K, filed January 29, 1995.
10.16 Loan and Security Agreement (Equipment) dated June 2, 1994, by and
between Alger and Phoenixcor, Inc. Incorporated by reference to the
same numbered exhibit to report of Form 10-K, filed January 29,
1995.
10.17 Secured Promissory Note and Pledge Agreement dated September 7,
1995 by and between Athanor Group, Inc. and Robert W. Miller.
Incorporated by reference to the same numbered exhibit to report of
Form 10-K, filed February 8, 1996.
10.18 Standard Industrial Lease - Gross. Manufacturing property located
in Glendale, Arizona, between Alger and Kachina Industrial
Properties. Incorporated by reference to the same numbered exhibit
to report of Form 10-K, filed January 29, 1997.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.19 Fifth Amendment to Loan and Security Agreement dated July 10, 1996,
by and between Sanwa Business Credit and Alger. Incorporated by
reference to the same numbered exhibit to report of Form 10-K,
filed January 27, 1997.
10.20 Secured Promissory Note dated September 9, 1996, by and between
Athanor Group, Inc. and Robert W. Miller. Incorporated by reference
to the same numbered exhibit to report of Form 10-K, filed January
27, 1997.
10.21 Seventh amendment to Loan and Security Agreement dated July 31,
1997, by and between Sanwa Business Credit and Alger. Previously
filed.
10.22 Amendment to Standard Industrial Lease - Special Net, dated May 9,
1997, by and between Algeran Investors LTD. And Alger. Previously
filed.
10.23 Amendment to Standard Industrial Lease - Gross, dated August 29,
1997, by and between Raymond R. Hegwer, Trustee, Hegwer Living
Trust and Alger. Previously filed.
10.24 Amendment to Loan and Security Agreement dated August 27, 1998, by
and between Sanwa Business Credit and Alger. Filed herewith.
16.1 Letter from Grant Thornton to the Commission dated August 15, 1991.
Incorporated by reference to the same numbered exhibit to report on
Form 8-K, dated August 13, 1991.
22.0 Subsidiaries of the Company. Previously Filed.
</TABLE>
<PAGE>
EXHIBIT 10.24
NINTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
----------------------------------------------
This Ninth Amendment to Loan and Security Agreement (the "Ninth
Amendment") is made as of August 27, 1998 by and between Sanwa Business Credit
Corporation as Lender ("Lender") and Alger Manufacturing Company, Inc. as
Borrower ("Borrower").
WHEREAS, Lender and Borrower entered into a certain Loan and
Security Agreement dated as of January 19, 1990, an Amendment to Loan and
Security Agreement dated as of February 10, 1992, a Second Amendment to Loan and
Security Agreement dated as of July 29, 1992, a Third Amendment to Loan and
Security Agreement dated as of July 13, 1994, a Fourth Amendment to Loan and
Security Agreement dated as of August 3, 1995, a Fifth Amendment to Loan and
Security Agreement dated as of July 10, 1996, a Sixth Amendment to Loan and
Security Agreement dated as of March 14, 1997, a Seventh Amendment to Loan and
Security Agreement dated as of July 31, 1997 and a Eighth Amendment to Loan and
Security Agreement dated as of April 15, 1998 (collectively the "Agreement")
pursuant to which Lender is making certain loans and advances to Borrower upon
the terms and conditions set forth in the Agreement; and
WHEREAS, Borrower has requested certain modifications and amendments
to the Agreement and Lender has agreed to such modifications and amendments as
set forth in this Ninth Amendment;
NOW, THEREFORE, in consideration of the terms and conditions
contained herein and of any loans and advances now or hereafter made to or for
the benefit of Borrower by Lender, the parties hereto agree to the following
amendments and modifications to the Agreement, which shall be effective as of
the date of this Ninth Amendment.
1. Outside Indebtedness. Section 10.2(j) is amended in its entirety to
--------------------
read as follows:
"Incur any Indebtedness outstanding at any time for borrowed money in
excess of $1,200,000 (other than the Liabilities), except for
Indebtedness which is unsecured and is to Persons who execute and
deliver to Lender (in form and substance acceptable to Lender and its
counsel) subordination agreements subordinating their claims against
Borrower to the payment of the Liabilities;".
<PAGE>
2. Interest Rate. Section 2.3 is amended in its entirety to read as
-------------
follows:
"2.3 Interest Rate. Unless otherwise provided in a writing evidencing
-------------
such Liabilities, Borrower shall pay Lender interest on the outstanding
principal balance of the Liabilities, including the Liabilities under the
Term Note, the Revolving Loan and the Acquisition Term Loan, at the rate of
one percent (1%) above the Prime Rate. If the principal amount of any of
the Liabilities is not paid within seven (7) days of when due and there is
not sufficient borrowing availability under the Revolving Loan to allow
full payment of such past due amount, the rate of interest on said amount
shall increase to three and three-fourths percent (3 3/4%) above the Prime
Rate and be payable on demand. It is further agreed that if all
Liabilities, including Liabilities under the Term Note and the Acquisition
Term Loan, are not fully paid within seven (7) days of the termination of
this Agreement or an acceleration of the Liabilities by Lender, the rate of
interest on such amounts shall increase to three and three-fourths percent
(3 3/4%) above the Prime Rate until fully paid. Interest shall be computed
on the basis of a year of 360 days and actual days elapsed and shall be
payable as provided in Section 4.2. In no contingency or event whatsoever
shall the rate or amount of interest paid by Borrower under this Agreement
or any of the Ancillary Agreements exceed the maximum amount permissible
under any law which a court of competent jurisdiction shall, in a final
determination, deem applicable hereto. In the event that such a court
determines that Lender has received interest hereunder or under any
Ancillary Agreement in excess of the maximum amount permitted by such law,
(i) Lender shall apply such excess to any unpaid principal owed by Borrower
to Lender or, if the amount of such excess exceeds the unpaid balance of
such principal owed by Borrower to Lender or, if the amount of such excess
exceeds the unpaid balance of such principal, Lender shall promptly refund
such excess interest to Borrower and (ii) the provisions hereof shall be
deemed amended to provide for such permissible interest rate. All sums
paid, or agreed to be paid, by Borrower which are, or hereafter may be
construed to be, compensation for the use, forbearance or detention of
money shall, to the extent permitted by applicable law, be amortized,
prorated, spread and allocated throughout the full term of all such
indebtedness until such indebtedness is paid in full."
3. Capital Expenditure Line. Section 2.1(c) is amended in its entirety to
------------------------
read as follows:
"(c) A term loan facility for the purpose of enabling Borrower to
purchase additional Equipment to be evidenced by a Second Amended and
Restated Acquisition Installment Note in form and substance satisfactory to
Lender (the "Acquisition Term Loan"), provided such Acquisition Term Loan
shall be subject to all of the following terms and conditions: (i) the
aggregate amount of all Acquistion Term Loan advances made by Lender to
Borrower will not exceed seven hundred fifty thousand dollars ($750,000);
(ii) each advance under the Acquisition Term Loan shall be used by Borrower
in connection with the purchase of additional Equipment; (iii) at the time
that
<PAGE>
the Lender made a given Acquisition Term Loan advance the Equipment related
thereto shall be part of the Collateral and all representations, warranties
and covenants of Borrower in this Agreement shall be true and correct as
to the Equipment; (iv) the Acquisition Term Loan advance with respect to
any given purchase of Equipment shall not exceed eighty-five percent (85%)
of the invoiced purchase price of such Equipment (less all discounts,
rebates, taxes, delivery charges, maintenance agreement and any other
nonequipment soft costs); (v) no single Acquisition Term Loan advance shall
be in an amount of less than one hundred thousand dollars ($100,000), nor
shall the number of Acquisition Term Loan advances exceed four (4); and
(vi) no Acquisition Term Loan advance will be made by Lender on or after
April 30, 1999."
4. Term of Agreement; Liquidated Damages, Prepayment. Section 2.4 is
-------------------------------------------------
amended in its entirety to read as follows:
"2.4 Term of Agreement; Liquidated Damages; Prepayment. This
-------------------------------------------------
Agreement shall be renewed and extended to and through August 31, 1999 and
shall be automatically renewed thereafter for successive periods of one
year ("Renewal Term") unless terminated as provided below. Either party
shall have the right to terminate this Agreement at the end of the August
31, 1999 Renewal Term or at the end of any subsequent Renewal Term by
giving the other party at least sixty (60) days prior written notice of
such termination. In the event Borrower gives notice of termination and the
Total Facility is not paid in full at the end of the sixty (60) days notice
period, upon the request of Borrower, but in Lender's sole discretion,
Lender can continue to make advances under the Revolving Loan and renew
such term for an additional year. In the event Lender does not agree to
continue to make loans and advances and renew the term for an additional
year, all Liabilities shall be immediately due and payable. This Agreement
may also be terminated by Lender upon the occurrence of a Default. Upon the
effective date of any termination, all Liabilities (including the Term Note
and the Acquisition Note) shall become immediately due and payable without
presentment, notice or demand. Notwithstanding any termination, until all
the Liabilities have been fully and finally paid and satisfied, Lender
shall be entitled to retain its security interest in the Collateral,
Borrower shall continue to remit collections of Accounts and proceeds of
Collateral as provided in this Agreement, and Lender shall retain all of
its rights and remedies under this Agreement. During the remaining term of
this Agreement or any Renewal Term, Borrower may, at its option, upon not
less than thirty (30) days prior written notice to Lender specifying the
date of prepayment, terminate this Agreement and shall prepay all of the
Liabilities hereunder (including the Term Note and the Acquisition Note).
In addition to the requirement of prepaying all of the Liabilities,
Borrower shall also pay to Lender, for loss of the bargain and not as a
penalty, as liquidated damages and as compensation for the costs of Lender
being prepared to make funds available to Borrower under this Agreement, an
amount (the "Prepayment Fee") equal to fifty percent (50%) of the average
monthly interest charges and Credit Availability Charges during the elapsed
portion of the remaining term to and through August 31, 1999 or any
subsequent Renewal Term, as the case may be, multiplied by the number of
full or partial months remaining between the date of such termination and
August 31, 1999 or any subsequent
<PAGE>
Renewal Term, as the case may be; provided, however, Borrower can prepay,
in whole but not in part, the Liabilities and terminate this Agreement
without payment of a Prepayment Fee, if such prepayment is the result of
Borrower refinancing the Liabilities through Sanwa Bank California and such
prepayment occurs on or before August 31, 1999."
5. Total Facility. Section 2.1(b) is amended in its entirety to read as
--------------
follows:
"(b) A term loan ("Term Loan") in an aggregate principal amount not to
exceed four hundred eighty three thousand, three hundred thirty three
dollars and twenty five cents ($483,333.25) to be evidenced by a Third
Amended and Restated Installment Note in form and substance satisfactory to
Lender, and"
6. Affirmative Covenants. Section 10.1(a) is amended in its entirety to
---------------------
read as follows:
"(a) At all times hereafter, maintain (i) a ratio of indebtedness (as
determined in accordance with generally accepted accounting principles) to
Tangible Net Worth of not more than 3.5:1; (ii) a ratio of Current Assets
to Current Liabilities of not less than 1:1; (iii) Tangible Net Worth at
least equal to $2,500,000; (iv) income before taxes from continuing
operations before extraordinary items of not less than $500,000 per annum;
7. Representations and Warranties. Borrower represents and warrants as
------------------------------
follows:
(a) Each of the representations and warranties contained in the
Agreement is hereby reaffirmed as of the date hereof, each as if set forth
herein;
(b) The execution, delivery and performance of this Ninth Amendment are
within Borrowers' powers, have been duly authorized by all necessary
action, have received all necessary approvals and do not contravene any law
or any contractual restrictions binding on Borrower;
(c) This Ninth Amendment is a legal, valid and binding obligation of
Borrower, enforceable against Borrower in accordance with its terms; and
(d) No event has occurred and is continuing, or would result from this
Ninth Amendment, which constitutes a Default or Event of Default under the
Agreement, as amended and modified hereby;
8. Conditions Precedent. The effectiveness of this Ninth Amendment is
--------------------
conditioned upon the satisfaction by Borrower of each of the following
conditions, or their waiver in writing by Lender:
(a) This Ninth Amendment shall have been executed by all the
signatories hereto
<PAGE>
(including, but not limited to, those signatories acknowledging and
consenting to this Ninth Amendment and reaffirming their respective
instruments, documents and agreements with Lender related to the Agreement)
and delivered to Lender; and
(b) Borrower shall execute and deliver to Lender and cause to be
executed and delivered to Lender, from time to time, such instruments,
documents and agreements as Lender may request with respect to the subject
matter of this Ninth Amendment and the Agreement as amended hereby; and
(c) Borrower shall have paid to Lender a documentation fee in the
amount of One Thousand Dollars, ($1,000.00), which shall be fully earned as
of the date hereof and is nonrefundable;
9. Expenses. Borrower agrees to pay all charges, costs, expenses and
--------
reasonable attorneys' fees incurred by Lender in connection with the
negotiation, documentation and preparation of this Ninth Amendment and any
other documents in connection herewith and in carrying out and enforcing
the terms of this Ninth Amendment.
10. No Waiver. Lender is not waiving any rights under the agreement or
---------
any Ancillary Agreements and, except as expressly stated herein or as
previously modified in a writing signed by Lender, all of the terms,
covenants and conditions of the Agreement and the Ancillary Agreements
shall remain unmodified an in full force and effect.
11. Incorporation. This Ninth Amendment shall be part of the Agreement,
-------------
the terms of which are incorporated herein, and a breach of any
representation, warranty or covenant contained herein or in the Agreement
or the failure to observe or comply with any term or agreement contained
herein, shall constitute a Default under the Agreement and Lender shall be
entitled to exercise all rights and remedies that it may have under the
Agreement, Ancillary Agreements and applicable law. Capitalized terms used
herein and not otherwise defined shall have the same meaning as provided in
the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Ninth
Amendment as of the date first above written.
ALGER MANUFACTURING COMPANY, INC.
By: /s/ Duane L. Femrite
------------------------------------
Its: Chairman & Chief Executive Officer
-----------------------------------
By: /s/ R. W. Miller
------------------------------------
Its: Vice President
-----------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AT OCTOBER 31, 1998 AND 1997, AND THE
CONSOLIDATED STATEMENT OF EARNINGS FOR THE YEAR ENDED OCTOBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> OCT-31-1998
<CASH> 236
<SECURITIES> 0
<RECEIVABLES> 2,377
<ALLOWANCES> 8
<INVENTORY> 3,418
<CURRENT-ASSETS> 6,294
<PP&E> 5,451
<DEPRECIATION> 3,911
<TOTAL-ASSETS> 8,226
<CURRENT-LIABILITIES> 4,013
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 3,389
<TOTAL-LIABILITY-AND-EQUITY> 8,226
<SALES> 23,636
<TOTAL-REVENUES> 23,636
<CGS> 19,855
<TOTAL-COSTS> 22,573
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 299
<INCOME-PRETAX> 774
<INCOME-TAX> 319
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 319
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
