SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JANUARY 31, 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
- ------------------------------- --------------------------------
(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:
703,200 shares as of January 31, 2000.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ATHANOR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JANUARY 31, 2000 AND OCTOBER 31, 1999
(THOUSANDS)
ASSETS
2000 1999
---- ----
Current Assets:
<S> <C> <C>
Cash $ 470 $ 616
Trade Receivables, Less Allowance
for Doubtful Accounts of $20,000 2,488 2,775
Other Receivables: 7 7
Inventories:
Raw Materials 733 488
Work in Progress 573 404
Finished Goods 2,054 2,191
------ ------
3,360 3,083
Prepaid Expenses 108 82
Deferred Income Tax Asset 259 259
------ ------
Total Current Assets 6,692 6,822
Property, Plant and Equipment, at Cost 5,846 5,710
Less Accumulated Depreciation and
Amortization 4,390 4,292
------ ------
Net Property, Plant and Equipment 1,456 1,418
Other Assets 540 489
------ ------
$8,688 $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)
JANUARY 31, 2000 AND OCTOBER 31, 1999
(THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
2000 1999
------ ------
Current Liabilities:
<S> <C> <C>
Notes Payable $1,472 $1,598
Current Portion of Long-Term Debt 442 427
Accounts Payable 1,868 1,735
Accrued Expenses 954 957
------ ------
Total Current Liabilities 4,736 4,717
Long-Term Debt, Less Current Portion 304 424
Noncurrent Deferred Income Tax Liability 139 139
Stockholders' Equity:
Common Stock 7 15
Additional Paid-In Capital 1,455 1,447
Retained Earnings 2,047 1,987
------ ------
Total Stockholders' Equity 3,509 3,449
------ ------
$8,688 $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)
THREE MONTHS ENDED JANUARY 31,
(THOUSANDS)
2000 1999
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<S> <C> <C>
Net Sales $ 5,753 $ 4,423
Cost of Sales 4,889 4,053
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Gross Profit 864 370
Selling, General & Administrative 681 578
------- -------
Operating Profit (Loss) 183 (208)
Other Income (Expense)
Interest Expense (54) (59)
Recoveries of advances to Unconsolidated Investee 124 0
Miscellaneous - Net 8 18
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Earnings (Loss) Before Income Taxes 261 (249)
Income Tax Expense (Benefit) 69 (87)
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NET EARNINGS (LOSS) $ 192 $ (162)
======= =======
Net Earnings (Loss) Per Common Share:
Basic $ 0.27 $ (0.23)
======= =======
Diluted $ 0.27 $ (0.23)
======= =======
</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 STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
THREE MONTHS ENDED JANUARY 31,2000
(THOUSANDS)
COMMON STOCK
(25,000,000 SHARES ADDITIONAL
AUTHORIZED) PAID-IN RETAINED
SHARES PAR VALUE CAPITAL EARNINGS TOTAL
------ --------- ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at
October 31, 1999 1,459 $ 15 $ 1,447 $ 1,987 $ 3,449
Stock split (754) (8) 8 (126) (126)
Repurchase common
stock (2) (6) (6)
Net Earnings for
Three Months Ended
January 31, 2000 192 192
------- ------- ------- ------- -------
703 $ 7 $ 1,455 $ 2,047 $ 3,509
======= ======= ======= ======= =======
</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 STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED JANUARY 31,
(THOUSANDS)
2000 1999
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Cash Flows From Operating Activities
<S> <C> <C>
Net Earnings (Loss) $ 192 $(162)
Adjustments to Reconcile Net Earnings (Loss) to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 98 99
(Increase) Decrease in Operating Assets:
Accounts Receivable 287 370
Inventories (277) 41
Prepaid Expenses (26) (76)
Other (51) 44
Increase (Decrease) in Operating Liabilities:
Accounts Payable 133 175
Accrued Liabilities (3) (262)
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Net Cash Provided by Operating Activities 353 229
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Cash Flows from Investing Activities:
Purchase of Property and Equipment (136) (116)
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Cash Flows from Financing Activities:
Net Borrowings (Repayment) Under Line of Credit (126) 133
Repurchase of Stock (6) 0
Fractional share dividends - Stock split (126) 0
Net Payments of Long Term Debt (105) (20)
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Net Cash Provided by (Used in) Financing Activities (363) 113
----- -----
Net increase (decrease) in Cash (146) 226
Cash at Beginning of Year 616 236
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Cash at End of Period $ 470 $ 462
===== =====
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 54 $ 59
===== =====
Income Taxes Paid $ 135 $ 22
===== =====
</TABLE>
The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
-6-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JANUARY 31, 2000 AND 1999
NOTE 1
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In management's opinion, all adjustments necessary to a fair settlement of the
results of operations for the interim periods, have been reflected.
NOTE 2
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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 and diluted earnings (loss) per common share are computed by using the
weighted average number of common shares outstanding during each period 703,200
shares in 2000 and 704,000 shares in 1999. Diluted earnings (loss) per common
share is computed by dividing net earnings (loss) by the number of weighted
average common shares outstanding during the period, including common stock
equivalents. Common stock equivalents were anti-dilutive for the period ended
January 31, 2000 and January 31, 1999, and, accordingly, basic and diluted loss
per share is equal.
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.
NOTE 5
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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.
-7-
<PAGE>
NOTE 6
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The Company accounts for its investments in minority-owned companies on the cost
method. The carrying value of all such investments is $411,000.
NOTE 7
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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
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The Company has made outstanding loans in the principal amount of $685,622 to
Core Software Technology (Core) through October 31, 19999. All but $35,000 of
the outstanding balance had been reserved as of October 1999. During November
and December 1999 Core repaid $159,194 of the outstanding loans, resulting in a
recovery of $124,194. The Company currently has $477,492 in outstanding loans to
Core, all of which has been fully reserved, as of January 2000.
NOTE 9
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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
will receive cash at the rate of $2.51 per share (as determined before the two
splits). The Company accrued $126,000, as of January 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
-8-
<PAGE>
splits). All stock options vest and become fully exercisable as shown below:
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 January 31,
2000, of which 44,500 were exercisable. There were 102,500 options to purchase
common stock outstanding as of January 31, 1999, of which 17,000 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 declined by $149,000 or (7%) during the first
quarter of 2000. Sales and profits improved for the first quarter of fiscal 2000
and along with component changes in working capital assets and liabilities,
provided $353,000 of cash from operating activities. The Company's major uses of
cash included purchases of equipment for $136,000, reduction of long-term debt
by $105,000 and dividends on fractional shares associated with the reverse stock
split of approximately $126,000.
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
will receive cash at the rate of $2.51 per share (as determined before the two
splits). The Company accrued $126,000, as of January 2000, to fund the
fractional shares.
-9-
<PAGE>
The Company reduced short and long-term debt by $105,000 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 a minimum of $100,000 and shall
not exceed 100% of the purchase price of equipment. At January 2000, the Company
had approximately $1,207,000 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 $709,000 and $550,000, respectively,
at January 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 $136,000 on new equipment during the first three months of
2000. In addition, the Company has ordered $167,000 of the new equipment for
delivery in fiscal 2000. Since the last six months of fiscal 1999 and the first
quarter of fiscal 2000 have shown a substantial improvement in sales, the
Company is in the process of re-evaluating the need for additional equipment and
major repairs in fiscal 2000.
During the first quarter of fiscal 2000, the Company used $50,000 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.
RESULTS OF OPERATIONS
- ---------------------
Sales for the first three months of fiscal 2000 have increased 30% 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 accelerated increase in sales for the
first quarter 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
recovery is continuing as the Company's backlog has increased to $9,456,000 at
January 2000 compared to $8,434,000 at October 1999 and $7,710,000 at the end of
the first quarter of 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. It is difficult at
this juncture to determine the state of the economy and the Company's market.
However, the increased backlog is an indication that the Company's current
business climate is improving and that the second quarter of fiscal 2000 should
produce improved sales.
The Company's operating profit for the three months ended January 2000 was
$192,000 as compared to a loss of $208,000 for 1999. The difference is tied
directly to the 30% increase in sales in 2000 and the profit of $124,000 (before
tax) from the recovery of loans made to Core.
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.
-10-
<PAGE>
YEAR 2000 COMPUTER REQUIREMENTS
- -------------------------------
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, was completed during fiscal 1999. All applications that were
previously not Year 2000 compliant were replaced by new systems. The costs of
new systems were 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 was not material. Accordingly, the Year 2000 effort did not
have a material impact on the Company's 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 current results of operations,
liquidity or financial condition.
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
---------------------------------------------------
(a) On December 15, 1999 a Written Consent was mailed to the
shareholders to approve a resolution authorizing the Company's
Board of Directors, in their absolute discretion, to effect a
one (1) for eight hundred (800) reverse stock split of the
Company's presently issued and outstanding shares of Common
Stock and to provide for the payment of cash in lieu of
fractional shares otherwise issuable, and further thereafter
immediately to effect a four hundred (400) for one (1) forward
stock split of the Company's Common Stock.
(b) N/A
(c) The resolution was approved:
For 1,035,505
Against 67,386
Abstain 1,408
Brk. Non. Votes 0
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
---------------------------------
(a) None
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
-11-
<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 MARCH 13, 2000 By /S/ DUANE L. FEMRITE
---------------- ------------------------
Duane L. Femrite
President, Co-Chief Executive Officer,
Chief Financial Officer, and Director
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S CONSOLIDATED STATEMENTS OF EARNINGS AND
CONSOLIDATED BALANCE SHEETS, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER>
1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-2000
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 470
<SECURITIES> 0
<RECEIVABLES> 2,515
<ALLOWANCES> 20
<INVENTORY> 3,360
<CURRENT-ASSETS> 6,692
<PP&E> 5,846
<DEPRECIATION> 4,390
<TOTAL-ASSETS> 8,688
<CURRENT-LIABILITIES> 4,736
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 3,502
<TOTAL-LIABILITY-AND-EQUITY> 8,688
<SALES> 5,753
<TOTAL-REVENUES> 5,753
<CGS> 4,889
<TOTAL-COSTS> 5,570
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54
<INCOME-PRETAX> 261
<INCOME-TAX> 69
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 192
<EPS-BASIC> 0.27
<EPS-DILUTED> 0.27
</TABLE>
