SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JULY 31, 2000 COMMISSION FILE NUMBER 046831 40 0
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ATHANOR GROUP, INC.
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(Exact name of registrant as specified in its chapter)
CALIFORNIA 95-2026100
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(State or other jurisdiction (IRS Employer Identification No.)
incorporation of organization)
921 EAST CALIFORNIA AVENUE, ONTARIO, CALIFORNIA 91761
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(Address of principal executive offices)
Registrant's telephone number, including area code (909) 467-1205
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------------- -------------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by this report:
696,836 shares as of July 31, 2000.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ATHANOR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JULY 31, 2000 AND OCTOBER 31, 1999
(THOUSANDS)
ASSETS
2000 1999
---- ----
---- ----
Current Assets:
<S> <C> <C>
Cash $ 586 $ 616
Trade Receivables, Less Allowance
for Doubtful Accounts of $29,000
and $12,000 2,689 2,775
Other Receivables 9 7
Notes Receivable 115 0
Inventories:
Raw Materials 728 488
Work in Progress 564 404
Finished Goods 1,910 2,191
------ ------
3,202 3,083
Prepaid Expenses 75 82
Deferred Income Tax Asset 259 259
------ ------
Total Current Assets 6,935 6,822
Property, Plant and Equipment, at Cost 6,044 5,710
Less Accumulated Depreciation and
Amortization 4,593 4,292
------ ------
Net Property, Plant and Equipment 1,451 1,418
Other Assets 506 489
------ ------
$8,892 $8,729
====== ======
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
2
<PAGE>
<TABLE>
<CAPTION>
ATHANOR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JULY 31, 2000 AND OCTOBER 31, 1999
(THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
2000 1999
---- ----
---- ----
Current Liabilities:
<S> <C> <C>
Notes Payable $1,636 $1,598
Current Portion of Long-Term Debt 327 427
Accounts Payable 1,801 1,735
Accrued Expenses 903 957
------ ------
Total Current Liabilities 4,667 4,717
Long-Term Debt, Less Current Portion 204 424
Noncurrent Deferred Income Tax Liability 138 139
Stockholders' Equity:
Common Stock 7 15
Additional Paid-In Capital 1,443 1,447
Retained Earnings 2,433 1,987
------ ------
Total Stockholders' Equity 3,883 3,449
------ ------
$8,892 $8,729
====== ======
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
3
<PAGE>
<TABLE>
<CAPTION>
ATHANOR GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED JULY 31,
(THOUSANDS EXCEPT PER SHARE AMOUNTS)
2000 1999
---- ----
<S> <C> <C>
Net Sales $ 18,423 $ 15,517
Cost of Sales 15,475 13,085
-------- -------
Gross Profit 2,948 2,432
Selling, General & Administrative 2,229 1,884
-------- -------
Operating Profit 719 548
Other Income (Expense)
Interest Expense (177) (184)
Equity in (Loss) Recovery of Unconsolidated Investee 396 0
Miscellaneous - Net 9 18
-------- -------
Earnings Before Income Taxes 947 382
Income Tax Expense 346 157
-------- -------
NET EARNINGS $ 601 $ 225
======== =======
Net Earnings Per Common Share:
Basic $ 0.86 $ 0.32
====== =======
Diluted $ 0.85 $ 0.32
====== =======
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
4
<PAGE>
<TABLE>
<CAPTION>
ATHANOR GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JULY 31,
(THOUSANDS EXCEPT PER SHARE AMOUNTS)
2000 1999
---- ----
<S> <C> <C>
Net Sales $ 6,176 $ 5,689
Cost of Sales 5,178 4,520
--------- -------
Gross Profit 998 1,169
Selling, General & Administrative 737 680
--------- -------
Operating Profit 261 489
Other Income (Expense)
Interest Expense (62) (64)
Equity in (Loss) Recovery of Unconsolidated Investee 91 0
--------- -------
Earnings Before Income Taxes 290 425
Income Tax Expense 140 172
--------- -------
NET EARNINGS $ 150 $ 253
========= =======
Net Earnings Per Common Share:
Basic $ 0.21 $ 0.36
========= =======
Diluted $ 0.21 $ 0.36
========= =======
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
5
<PAGE>
<TABLE>
<CAPTION>
ATHANOR GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
NINE MONTHS ENDED JULY, 2000
(THOUSANDS)
COMMON STOCK
(25,000,000 SHARES ADDITIONAL
AUTHORIZED) PAID-IN RETAINED
SHARES PAR VALUE CAPITAL EARNINGS TOTAL
------ --------- ------- -------- -----
Balance at
<S> <C> <C> <C> <C> <C>
October 31, 1999 1,459 $ 15 $ 1,447 $ 1,987 $ 3,449
Reverse stock split (757) (8) 8 (155) (155)
Repurchase stock (4) (12) (12)
Net Earnings for
Nine Months Ended
July 31, 2000 601 601
------- ------- ------- ------- -------
698 $ 7 $ 1,443 $ 2,433 $ 3,883
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
6
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED JULY 31,
(THOUSANDS)
2000 1999
---- ----
---- ----
Cash Flows From Operating Activities
<S> <C> <C>
Net Earnings $ 601 $225
Adjustments to Reconcile Net Earnings to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 301 299
(Increase) Decrease in Operating Assets:
Accounts Receivable 86 (548)
Inventories (119) 0
Prepaid Expenses 7 (41)
Other (19) (3)
Increase (Decrease) in Operating Liabilities:
Accounts Payable 66 126
Accrued Liabilities (55) 9
---- ----
Net Cash Provided by Operating Activities 868 67
Cash Flows from Investing Activities:
Purchase of Property and Equipment (334) (251)
Issuance of Note Receivable (115) 0
---- ----
Net Cash Used in Investing Activities (449) (251)
---- ----
Cash Flows from Financing Activities:
Net Borrowings (Repayment) Under Line of Credit 38 319
Repurchase of stock (12) 0
Fractional Share dividends - Reverse Stock split (155) 0
Net Payments of Long Term Debt (320) (271)
---- ----
Net Cash Provided (Used) in Financing Activities (449) 48
---- ----
Net increase (decrease) in Cash (30) (136)
Cash at Beginning of Year 616 236
---- ----
Cash at End of Period $ 586 $100
==== ====
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 177 $184
==== ====
Income Taxes Paid $ 381 $ 23
==== ====
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
7
<PAGE>
Notes to Consolidated Financial Statements
(Unaudited)
July 31, 2000 and 1999
NOTE 1
------
In management's opinion, all adjustments necessary to a fair settlement of the
results of operations for the interim periods, have been reflected.
NOTE 2
------
The consolidated financial statements include the accounts of Athanor Group,
Inc., and its subsidiary, Alger Manufacturing Co., Inc. Significant
inter-company accounts and transactions have been eliminated.
NOTE 3
------
Earnings per common share, basic and diluted, have been adjusted retroactively
to reflect the stock splits (see note 9).
Basic earnings per share represents net earnings available to common
stockholders divided by the weighted average shares outstanding excluding all
common stock equivalents. Diluted earnings per share reflects the dilutive
effects of all common stock equivalents.
The components of basic and diluted earnings per share were as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED 7/31 ENDED 7/31
--------------- ----------------
2000 1999 2000 1999
---- ---- ---- ----
Weighted average outstanding
<S> <C> <C> <C> <C>
shares of common stock - basic 697,703 704,000 698,903 704,000
Dilutive effect of employee stock options 14,574 0 9,104 0
------- ------- ------- -------
Common stock and common
stock equivalents - diluted 712,277 704,000 708,007 704,000
======= ======= ======= =======
</TABLE>
NOTE 4
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The Company accounts for income taxes under the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. In addition, net operating loss carryforwards and
credit carryforwards are included as deferred tax assets. A valuation allowance
against deferred tax assets is recorded if necessary. All deferred tax amounts
are measured using enacted tax rated expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Changes in tax rates are recognized in income in the period that
includes the enactment date.
8
<PAGE>
NOTE 5
------
Inventories, which are comprised primarily of raw materials, direct labor and
overhead, are stated at the lower of cost, based on the first-in, first-out
method, or market.
NOTE 6
------
The Company accounts for its investments in minority-owned companies on the cost
method. The carrying value of all such investments is $361,000.
NOTE 7
------
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 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 the following estimated
service lives using the straight-line method:
Machinery and equipment 5 to 7 years
Leasehold improvements 2 to 5 years
Leasehold improvements are amortized over the lesser of their useful lives or
lease term.
NOTE 8
------
The Company has made outstanding loans in the principal amount of $685,000 to
Core Software Technology (Core) through October 31, 1999. All but $35,000 of the
outstanding balance had been reserved as of October 1999. During Fiscal 2000,
Core has repaid $431,000 of the outstanding loans, resulting in a recovery of
$396,000. The Company currently has $205,000 in outstanding loans to Core, all
of which has been fully reserved, as of July 2000.
NOTE 9
------
Effective January 31, 2000, the Board of Directors declared two stock splits
which had been authorized by the shareholders through a Consent Statement in
January 2000. A one for eight hundred reverse stock split followed by a four
hundred for one stock split. The net effect of these two splits is a 1 for 2
reverse stock split, except for the provisions for payment for fractional
shares. Fractional shares resulting from the reverse split were not issued, but
were paid in cash based on $2.51 per share (as determined before the two
splits). The Company has paid and accrued a total of $155,000, as of July 2000,
to fund the fractional shares.
NOTE 10
-------
The Company has 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. Effective January 31, 2000 the Plan has been adjusted to reflect
the stock splits (see Note 9). The Plan authorized grants of options to purchase
up to 110,170 shares of authorized but unissued common stock. The Company has
granted 98,000 stock options for shares of AGI. Stock options were granted with
an exercise price equal to the stock's fair market value at the date of grant
($3.32 at May 8, 1998 and December 11, 1998, adjusted to reflect the stock
splits). All stock options vest and become fully exercisable as shown below:
9
<PAGE>
6 months after granting 20%
after one year 20%
after two years 30%
after three years 30%
=====================
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 98,000 options to purchase common stock outstanding as of July 31,
2000, of which 73,000 were exercisable. There were 102,500 options to purchase
common stock outstanding as of July 31, 1999, of which 41,000 were exercisable.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
--------------------------
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.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's working capital increased by $163,000, or (8%), during the first
nine months of Fiscal 2000. Sales and profits have continued to improve during
the first nine months of Fiscal 2000 and along with component changes in working
capital assets and liabilities, provided $868,000 of cash from operating
activities. The Company's major uses of cash included purchases of equipment for
$334,000, reduction of long-term debt by $320,000 and dividends on fractional
shares associated with the reverse stock split of approximately $155,000.
Effective January 31, 2000, the Board of Directors declared two stock splits
which had been authorized by the shareholders through a Consent Statement in
January 2000. A one for eight hundred reverse stock split followed by a four
hundred for one stock split. The net effect of these two splits is a 1 for 2
reverse stock split, except for the provisions for payment for fractional
shares. Fractional shares resulting from the reverse split were not issued, but
were pain in cash based on $2.51 per share (as determined before the two
splits). The Company has paid and accrued $155,000, as of July 2000, to fund the
fractional shares.
10
<PAGE>
The Company reduced short and long-term debt by $320,000 with cash provided from
operations and utilization of the accounts receivable line of credit. In July
1999, the Company completed an amendment to its credit agreement, which extended
the agreement to August 2001 and increased the total line availability to
$4,233,333; $3,000,000 for working capital, a $483,333 long-term machinery and
equipment loan, and a $750,000 line for the acquisition of additional equipment.
The equipment line must be used in increments of $100,000 and shall not exceed
the purchase price of equipment. At July 2000, the Company had approximately
$1,348,000 available under the working capital line and $550,000 available under
the equipment line as compared to $1,355,000 and $550,000, respectively, at
October 1999 and $1,408,000 and $550,000, respectively, at July 1999. The
Company believes the lines of credit will be adequate to fund the working
capital requirements and anticipated equipment purchases in Fiscal 2000.
The Company expended $334,000 on new equipment during the first six months of
2000. The Company currently does not have any equipment on order. The Company is
re-evaluating the need for additional equipment and major repairs for the
remainder of Fiscal 2000 and 2001. While the Company has experienced an increase
in sales activity during Fiscal 2000, a softening in demand experienced in the
third quarter has suggested a `wait and see' attitude.
During Fiscal 2000, the Company used $115,000 of cash provided from operations
and its line of credit to make a short-term loan to Healthcove.com.
Healthcove.com is involved in the development and marketing of a national
discount healthcare benefits program. Robert Miller and Gregory Edwards are
directors of Healthcove.com.
RESULTS OF OPERATIONS
---------------------
Sales for the first nine months and three months ended July 2000 have increased
19% and 9% respectively from 1999. The Company had seen a gradual increase in
its business the last six months of Fiscal 1999, as customers increased
shipments on existing orders and the Company's backlog continued to climb. The
increase in sales for the first nine months of 2000 seems to be a continuation
of the recovery that the Company experienced in the last half of 1999. There are
some signs that the increased sales activity is waning as the Company's backlog
has decreased in the third quarter to $9,520,000 at July 2000 from $10,428,000
at April 2000 compared to $8,434,000 at October 1999 and $7,583,000 at July
1999. In the normal course of business, some backlog orders are inevitably
cancelled or the time of delivery changes. 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 business has
continued to show healthy signs for the last twelve months with increased sales
and a strong backlog. It is difficult at this time to determine if the downturn
in sales and backlog during the later part of the third quarter is a normal
summer slowdown for our industry or a real softening of demand.
The Company's operating profit for the six months and three months ended July
2000 of $719,000 and $261,000 respectively, as compared to $548,000 and $489,000
for 1999, are a direct reflection of the increase in sales during 2000. In
addition, the Company had a profit of $396,000 from the recovery of loans, made
to Core, which had been fully reserved in previous years. During 1999 the
Company had continually evaluated the overhead additions of previous years in an
attempt to streamline operations where appropriate, especially in light of the
current economic climate. This evaluation is continuing, even as the climate for
the Company's services have continued to improve during Fiscal 2000.
11
<PAGE>
During 1998 and early 1999 the Company devoted substantial financial and
manpower resources toward the completion of an ISO 9002 Certification. The ISO
9000 is an international quality standard. While the ISO 9002 Certification is
being required by many of the Company's current customers, it is expected to
enhance the Company's appeal to potential new customers. The process started in
early Fiscal 1998 and was completed in February 1999 when Alger's Ontario,
California facility passed its certifying audit. Alger received its ISO
Certificate in March 1999. In August 1999, Alger's Glendale, Arizona facility
passed its certifying audit.
YEAR 2000 COMPUTER REQUIREMENTS
-------------------------------
The Company has not experienced any Y2K difficulties with its systems, nor has
it experienced any Y2K problems from its customers or suppliers.
Item 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 6.EXHIBITS AND REPORTS ON FORM 8-K
(a) Financial Data Schedule, July 31, 2000
(b) No reports on Form 8-K have been filed during the
quarter for which this report is filed.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATHANOR GROUP, INC.
Date SEPTEMBER 14, 2000 By /S/ DUANE L. FEMRITE
------------------- --------------------------------------
Duane L. Femrite
President, Co-Chief Executive Officer,
Chief Financial Officer, and Director
13
<PAGE>
