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 APRIL 30, 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.
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 April 30, 2001.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ATHANOR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
APRIL 30, 2001 AND OCTOBER 31, 2000
(THOUSANDS)
ASSETS
------
2001 2000
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Current Assets:
Cash $ 364 $ 162
Trade Receivables, Net of Allowances 2,989 2,838
Other Receivables 140 151
Inventories:
Raw Materials 546 711
Work in Progress 513 732
Finished Goods 2,292 2,122
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3,351 3,565
Prepaid Expenses 76 74
Deferred Income Tax Asset 350 350
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Total Current Assets 7,270 7,140
Property, Plant and Equipment, at Cost 6,285 6,035
Less Accumulated Depreciation and Amortization 4,868 4,658
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Net Property, Plant and Equipment 1,417 1,377
Investments, at Cost 201 386
Other Assets 111 113
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$8,999 $9,016
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The accompanying notes are an integral part of these statements
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ATHANOR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
APRIL 30, 2001 AND OCTOBER 31, 2000
(THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
2001 2000
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Current Liabilities:
Notes Payable $1,878 $1,600
Current Portion of Long-Term Debt 658 342
Accounts Payable 1,572 1,718
Accrued Expenses 592 1,018
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Total Current Liabilities 4,700 4,678
Long-Term Debt, Less Current Portion 9 81
Noncurrent Deferred Income Tax Liability 131 131
Stockholders' Equity:
Common Stock 7 7
Additional Paid-In Capital 879 879
Retained Earnings 3,273 3,240
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Total Stockholders' Equity 4,159 4,126
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$8,999 $9,016
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The accompanying notes are an integral part of these statements
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ATHANOR GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED APRIL 30,
(THOUSANDS EXCEPT PER SHARE AMOUNTS)
2001 2000
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Net Sales $ 11,489 $ 12,247
Cost of Sales 9,785 10,297
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Gross Profit 1,704 1,950
Selling, General & Administrative 1,397 1,492
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Operating Profit 307 458
Other Income (Expense)
Interest Expense (113) (115)
Impairment Charge (239) 0
Recoveries of Advances of Unconsolidated Investee 89 305
Miscellaneous - Net 11 9
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Earnings Before Income Taxes 55 657
Income Tax Expense 22 206
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NET EARNINGS $ 33 $ 451
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Net Earnings Per Common Share:
Basic and Diluted $ 0.05 $ 0.65
======== ========
The accompanying notes are an integral part of these statements
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ATHANOR GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED APRIL 30,
(THOUSANDS EXCEPT PER SHARE AMOUNTS)
2001 2000
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Net Sales $ 5,934 $ 6,494
Cost of Sales 4,941 5,408
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Gross Profit 993 1,086
Selling, General & Administrative 710 811
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Operating Profit 283 275
Other Income (Expense)
Interest Expense (54) (61)
Impairment Charge (239) 0
Recoveries of Advances to Unconsolidated Investee 0 181
Miscellaneous - Net 5 1
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Earnings (Loss) Before Income Taxes (5) 396
Income Tax Expense (Benefit) (2) 137
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NET EARNINGS (LOSS) $ (3) $ 259
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Net Earnings Per Common Share:
Basic and Diluted $ 0.00 $ 0.37
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The accompanying notes are an integral part of these statements
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ATHANOR GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
SIX MONTHS ENDED APRIL, 2001
(THOUSANDS)
COMMON STOCK
(25,000,000 SHARES ADDITIONAL
AUTHORIZED) PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ------- -------- -----
Balance at
October 31, 2000 696 $ 7 $ 879 $3,240 $4,126
Net Earnings for
Six Months Ended
April 30, 2001 -- -- -- 33 33
------ ------ ------ ------ ------
Balance at April 30, 2001 696 $ 7 $ 879 $3,273 $4,159
====== ====== ====== ====== ======
The accompanying notes are an integral part of these statements
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ATHANOR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED APRIL 30,
(THOUSANDS)
2001 2000
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Cash Flows From Operating Activities
Net Earnings $ 33 $ 451
Adjustments to Reconcile Net Earnings to Net Cash
Provided (Used) by Operating Activities:
Depreciation and Amortization 210 199
Impairment Charge 239 0
(Increase) Decrease in Operating Assets:
Accounts Receivable (151) (264)
Inventories 214 (161)
Prepaid Expenses (2) 38
Other (41) 13
Increase (Decrease) in Operating Liabilities:
Accounts Payable (146) 506
Accrued Liabilities (426) (85)
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Net Cash Provided (Used) by Operating Activities (70) 697
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Cash Flows from Investing Activities:
Issuance of Note Receivable 0 (100)
Purchase of Property and Equipment (250) (327)
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Net Cash Used in Investing Activities (250) (427)
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Cash Flows from Financing Activities:
Net Borrowings Under Line of Credit 278 381
Repurchase of Stock 0 (12)
Fractional Share Dividends 0 (147)
Borrowings of Long Term Debt 405 0
Payments of Long Term Debt (161) (212)
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Net Cash Provided by Financing Activities 522 10
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Net Increase in Cash 202 280
Cash at Beginning of Year 162 616
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Cash at End of Period $ 364 $ 896
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The accompanying notes are an integral part of these statements
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ATHANOR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
SIX MONTHS ENDED APRIL 30,
(THOUSANDS)
2001 2000
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Supplemental Disclosures of Cash Flow Information:
Interest Paid $113 $115
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Income Taxes Paid $171 $304
==== ====
The accompanying notes are an integral part of these statements
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Notes to Consolidated Financial Statements
(Unaudited)
April 30, 2001 and 2000
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:
2001 2000
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Weighted average outstanding shares
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of common stock - basic 696,036 699,502
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Dilutive effect of employee stock options 0 2,483
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Common stock and common stock
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equivalents - diluted 696,036 701,985
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NOTE 4
The Company accounts for income taxes under the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. In addition, net operating loss carryforwards and
credit carryforwards are included as deferred tax assets. A valuation allowance
against deferred tax assets is recorded if necessary. All deferred tax amounts
are measured using enacted tax rated expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Changes in tax rates are recognized in income in the period that
includes the enactment date.
NOTE 5
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.
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NOTE 6
The Company accounts for its investments in minority-owned companies on the cost
method. The carrying value of all such investments, as of April 30 2001, is
$201,000. In the second quarter of fiscal 2001, the Company wrote off its
investment in Fluid Light Technologies (FLT), in the amount of $239,000. FLT has
been unable to secure the additional financing it needed to complete its
business plan. FLT has closed its offices and is attempting to sell its
technology. The current market for financing of start up companies has become
extremely difficult, especially with all the failures of Internet related
businesses.
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 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
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
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:
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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 April 30,
2001 of which 69,500 were exercisable. There were 98,000 options to purchase
common stock outstanding as of April 30, 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
The Company's working capital increased by $108,000, or (4%), during the first
six months of Fiscal 2001. The major component changes in working capital were
an increase in accounts receivable of $151,000 (5%), reduction in inventory of
$214,000 (6%) a reduction in accounts payable of $146,000 (8%) an increase in
the working capital line of credit of $278,000 (17%) and a reduction of accrued
liabilities of $426,000 (42%). The Company continued to maintain a conservative
approach on spending during the second quarter of fiscal 2001 due to the
uncertainty of the economic climate. This cautious spending program and the
improved operating profit in the second quarter, accounted for the vast majority
of the increase in working capital.
The Company increased short and long-term debt by $244,000. This increase
included new equipment loans of $405,000 and payments of $161,000. The increase
in debt included an equipment loan of $200,000, whereby the Company utilized its
equipment line of credit to finance equipment originally purchased in fiscal
2000 with operating capital. 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. The equipment line terminated on April 30, 2001. At April
2001, the Company had approximately $1,122,000 available under the working
capital line and $0 available under the equipment line as compared to $1,400,000
and $550,000, respectively, at October 31, 2000 and $1,021,000 and $550,000,
respectively, at January 2000. The Company's working capital line 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. The Company has
therefore classified all debt associated with its lines of credit as current
debt. 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.
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The Company purchased $250,000 of new equipment during the first six months of
2001. The Company financed $205,000 of the equipment purchased and also utilized
the equipment line of credit to finance $200,000 of equipment originally
purchased in fiscal 2000. The Company anticipates acquiring an additional
$200,000 to $300,000 of equipment during the balance of the fiscal year. While
the first six months of fiscal 2001 has shown declining sales, the increase in
the backlog as of April 2001 coupled with the addition of some new customers,
has given rise to the need for additional equipment to satisfy those specific
requirements. The Company is in the process of re-evaluating the need for
additional equipment and major repairs for the balance of fiscal 2001.
RESULTS OF OPERATIONS
Sales for the first six months and three months ended April 2001 have decreased
6% and 9% respectively from 2000. 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 six months 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 $10,109,000 at April 2001 compared to $8,946,000 at October
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 addition, a substantial portion of the new business is long-term
contracts. 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. While the
continued strength of the Company's backlog is a positive sign, decreasing sales
and customers continually delaying production and shipment of orders, lead us to
believe the current weakness in the economy will continue for at least the next
quarter.
The Company's operating profit for the six months and three months ended April
2001 of $307,000 and $283,000 respectively, as compared to $458,000 and $275,000
for 2000, are a direct reflection of the decrease in sales during 2001. The
difference is partially tied to the 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. During the second quarter
of fiscal 2001, even with lower sales, the Company was better prepared to deal
with the varying customer change orders and delays and was therefore able to
reduce the costs associated with those changes.
In the second quarter of fiscal 2001, the Company wrote off its investment in
Fluid Light Technologies (FLT), in the amount of $239,000. FLT has been unable
to secure the additional financing it needed to complete its business plan. FLT
has closed its offices and is attempting to sell its technology. The current
market for financing of start up companies has become extremely difficult,
especially with all the failures of Internet related businesses. During fiscal
2001, the Company had a profit of $89,465 (before tax) from the recovery of
loans, made to Core Software, which had been fully reserved in previous years.
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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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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(a) The annual meeting of registrant was held April 30, 2001.
(b) At the annual meeting, the following individuals were elected
to the Board of Directors:
Gregory J. Edwards
Duane L. Femrite
Richard A. Krause
Robert W. Miller
Earl L. Yager
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) None
(b) No reports on Form 8-K have been filed during the
quarter for which this report is filed.
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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 JUNE 13, 2001 By /S/ DUANE L. FEMRITE
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Duane L. Femrite
President, Co-Chief Executive Officer,
Chief Financial Officer, and Director
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