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, 2001 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.
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by this report:
696,036 shares as of January 31, 2001.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ATHANOR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JANUARY 31, 2001 AND OCTOBER 31, 2000
(THOUSANDS)
ASSETS
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2001 2000
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Current Assets:
Cash $ 148 $ 162
Trade Receivables, Less Allowance
for Doubtful Accounts of $18,000
and $20,000 2,704 2,838
Other Receivables 163 151
Inventories:
Raw Materials 716 711
Work in Progress 662 732
Finished Goods 2,041 2,122
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3,419 3,565
Prepaid Expenses 107 74
Deferred Income Tax Assets 350 350
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Total Current Assets 6,891 7,140
Property, Plant and Equipment, at Cost 6,035 6,035
Less Accumulated Depreciation and
Amortization 4,759 4,658
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Net Property, Plant and Equipment 1,276 1,377
Investments, at Cost 386 386
Other Assets 112 113
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$8,665 $9,016
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The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
ATHANOR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JANUARY 31, 2001 AND OCTOBER 31, 2000
(THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
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2001 2000
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Current Liabilities:
Notes Payable $1,923 $1,600
Current Portion of Long-Term Debt 276 342
Accounts Payable 1,294 1,718
Accrued Expenses 837 1,018
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Total Current Liabilities 4,330 4,678
Long-Term Debt, Less Current Portion 42 81
Noncurrent Deferred Income Tax Liability 131 131
Stockholders' Equity:
Common Stock 7 7
Additional Paid-In Capital 879 879
Retained Earnings 3,276 3,240
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Total Stockholders' Equity 4,162 4,126
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$8,665 $9,016
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The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
ATHANOR GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED JANUARY 31,
(THOUSANDS EXCEPT PER SHARE AMOUNTS)
2001 2000
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Net Sales $ 5,555 $ 5,753
Cost of Sales 4,844 4,889
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Gross Profit 711 864
Selling, General & Administrative 687 681
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Operating Profit 24 183
Other Income (Expense)
Interest Expense (59) (54)
Recoveries of advances to Unconsolidated Investee 89 124
Miscellaneous - Net 6 8
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Earnings Before Income Taxes 60 261
Income Tax Expense 24 69
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NET EARNINGS $ 36 $ 192
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Net Earnings Per Common Share:
Basic and Diluted $ 0.05 $ 0.27
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The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
ATHANOR GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
THREE MONTHS ENDED JANUARY 31,2001
(THOUSANDS)
COMMON STOCK
(25,000,000 SHARES ADDITIONAL
AUTHORIZED) PAID-IN RETAINED
SHARES PAR VALUE CAPITAL EARNINGS TOTAL
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Balance at
October 31, 2000 696 $ 7 $ 879 $3,240 $4,126
Net Earnings for
Three Months Ended
January 31, 2001 36 36
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696 $ 7 $ 879 $3,276 $4,162
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The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
ATHANOR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED JANUARY 31,
(THOUSANDS EXCEPT PER SHARE AMOUNTS)
2001 2000
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Cash Flows From Operating Activities
Net Earnings $ 36 $ 192
Adjustments to Reconcile Net Earnings to Net Cash
Provided (Used) by Operating Activities:
Depreciation and Amortization 101 98
(Increase) Decrease in Operating Assets:
Accounts Receivable 134 287
Inventories 146 (277)
Prepaid Expenses (45) (26)
Other 1 (51)
Increase (Decrease) in Operating Liabilities:
Accounts Payable (424) 133
Accrued Liabilities (181) (3)
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Net Cash Provided (Used) by Operating Activities (232) 353
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Cash Flows from Investing Activities
Purchase of Property and Equipment 0 (136)
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Cash Flows from Financing Activities:
Net Borrowings (Repayment) Under Line of Credit 323 (126)
Repurchase of Stock 0 (6)
Fractional share dividends 0 (126)
Payments of Long Term Debt (105) (105)
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Net Cash Provided (Used) in Financing Activities 218 (363)
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Net Decrease in Cash (14) (146)
Cash at Beginning of Year 162 616
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Cash at End of Period $ 148 $ 470
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Supplemental Disclosures of Cash Flow Information:
Interest Paid $ 59 $ 54
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Income Taxes Paid $ 121 $ 135
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The accompanying notes are an integral part of these statements
SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS
Notes to Consolidated Financial Statements
(Unaudited)
January 31, 2001and 2000
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
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Earnings per common share, basic and diluted, have been adjusted retroactively
to reflect the stock splits (see note 9).
Basic and diluted earnings per common share are computed by using the weighted
average number of common shares outstanding during each period 696,036 shares in
2001 and 703,200 shares in 2000. Diluted earnings per common share is computed
by dividing net earnings by the number of weighted average common shares
outstanding during the period, including common stock equivalents. Common stock
equivalents were anti-dilutive for the periods ended January 31, 2001 and
January 31, 2000, and, accordingly, basic and diluted 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.
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 $386,000.
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 had made outstanding loans, in previous years, in the principal
amount of $685,622 to Core Software Technology (Core). As of October 31, 2000,
the total amount outstanding from Core was $356.523, which was fully reserved.
In November 2000 Core made a final payment of $89,465. In accordance with the
terms of the Forbearance Agreement between Core and the Company, the balance of
the outstanding loans of $274,248 was converted into common stock of Core at $3
per share or 91,416 shares.
NOTE 9
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Effective January 31, 2000, the Board of Directors declared two stock splits
that 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 paid a total of $147,168 to fund the fractional shares. The
effects of the stock splits have been recorded retroactively in the consolidated
financial statements.
NOTE 10
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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:
6 months after granting 20%
after one year 20%
after two years 30%
after three years 30%
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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,
2001, of which 69,500 were exercisable. There were 98,000 options to purchase
common stock outstanding as of January 31, 2000, of which 44,500 were
exercisable.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
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Declining sales and profits in the first quarter of fiscal 2001 along with
component changes in working capital assets and liabilities, used 232,000 of
cash from operating activities. The Company's major component changes in working
capital were a reduction in accounts receivable of $134,000 (4%), reduction in
inventory of $146,000 (5%) a reduction in accounts payable of $424,000 (25%) and
an increase in the working capital line of credit of $323,000 (20%). The Company
also reduced long-term debt by $105,000. The Company maintained a very
conservation approach on spending during the first quarter due to the
uncertainty of the economic climate. This approach allowed the Company to
increase working capital by $99,000 or (4%) during the first quarter of 2001
even as sales and profits declined.
The Company did not expend any funds on new equipment during the first three
months of 2001. The Company has ordered $150,000 of the new equipment for
delivery in the second quarter of fiscal 2001 and anticipates acquiring an
additional $200,000 to $300,000 of equipment during the same period. While the
first quarter of fiscal 2001 has shown declining sales, the increase in the
backlog as of January 2001 coupled with the addition of some new customers, has
given rise to the need for additional equipment. The Company is in the process
of re-evaluating the need for additional equipment and major repairs for the
balance of fiscal 2001.
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 2001, the Company
had approximately $989,000 available under the working capital line and $550,000
available under the equipment line as compared to $1,400,000 and $550,000,
respectively, at October 31, 2000 and $1,207,000 and $550,000, respectively, at
January 2000. The Company believes the lines of credit will be adequate to fund
the working capital requirements and anticipated equipment purchases in fiscal
2001. The Company's lines of credit terminates in August 2001. The Company has
been notified by its lender that it does not intend to extend the Company's line
of credit. While the Company has confidence that it will be able to replace its
current lender, there are no assurances that the Company will be successful or
that the terms and conditions will be as favorable as with the current lender.
RESULTS OF OPERATIONS
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Sales for the first three months of fiscal 2001 have decreased 3.4% from 2000.
If we factor in the sales generated from the decline in inventory, the total
decline in sales from production in the first three months rises to 6.7%. The
Company had seen signs of a decrease in business activity in the latter parts of
the fourth quarter of fiscal 2000 as customers delayed shipments and pushed
orders out. The decrease in sales for the first quarter of 2001 seems to be a
continuation of the slowdown that the Company experienced in the last months of
fiscal 2000. The current business climate is somewhat difficult to define as
sales lag, yet the Company's backlog has increased to $10,222,000 at January
2001 compared to $8,946,000 at October 2000 and $9,456,000 at the end of the
first quarter of 2000. The best analysis is that customers have not cancelled
orders, but have only deferred shipment dates and the Company has been able to
attract new business. 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 2001 should
produce improved sales.
The Company's operating profit for the three months ended January 2001 was
$24,000 as compared to $183,000 for 2000. The difference is partially tied to
the 3.4% decrease in sales and partially associated with additional costs
incurred by the Company in servicing customers change order requirements.
Splitting orders, delaying shipments and making multiple changes to accommodate
the many customer requests during the first quarter of 2001 was very costly. Yet
it is a service we deem necessary to keep our customers loyal in these ever
changing economic times. In addition, the majority of the decrease in sales
incurred in the month of December. December is typically a slow month for
shipments due to the closing of our facility over the holidays, however, this
year sales were exceptionally soft. It is difficult to recover from a very poor
month within the timeframe of quarterly reporting.
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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) No reports on Form 8-K have been filed during the quarter for which this
report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATHANOR GROUP, INC.
Date MARCH 13, 2001 By /S/ DUANE L. FEMRITE
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Duane L. Femrite
President, Co-Chief Executive Officer,
Chief Financial Officer, and Director