-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NXheLzcQBseeXzXb3kJnqxyDaAukd9p3RiB1Ql4rfyhQAeq4eN5NoA9ohqLWA36q 3rr0m2wWhhkE1vziFe5Gxg== 0000909012-99-000508.txt : 19990915 0000909012-99-000508.hdr.sgml : 19990915 ACCESSION NUMBER: 0000909012-99-000508 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990731 FILED AS OF DATE: 19990914 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATHANOR GROUP INC CENTRAL INDEX KEY: 0000278314 STANDARD INDUSTRIAL CLASSIFICATION: SCREW MACHINE PRODUCTS [3451] IRS NUMBER: 952026100 STATE OF INCORPORATION: CA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 002-63481 FILM NUMBER: 99710955 BUSINESS ADDRESS: STREET 1: 921 E CALIFORNIA AVENUE CITY: ONTARIO STATE: CA ZIP: 91761 BUSINESS PHONE: 9094671205 MAIL ADDRESS: STREET 2: 921 E CALIFORNIA AVE CITY: ONTARIO STATE: CA ZIP: 91016 FORMER COMPANY: FORMER CONFORMED NAME: ALGERAN INC DATE OF NAME CHANGE: 19861015 10QSB 1 QUARTERLY REPORT 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, 1999 Commission File Number 2-63481 --------------------------------------------------------------- Athanor Group, Inc. - -------------------------------------------------------------------------------- (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 - -------------------------------------------------------------------------------- (Address of principal executive offices) Registrant's telephone number, including area code (909) 467-1205 ------------------------------ 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: 1,458,854 shares as of July 31, 1999. PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS -------------------- ATHANOR GROUP, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) JULY 31, 1999 AND OCTOBER 31, 1998 (Thousands)
ASSETS 1999 1998 ---- ---- Current Assets: Cash $ 100 $ 236 Trade Receivables, Less Allowance for Doubtful Accounts of $20,000 and $12,000 2,917 2,369 Notes Receivable: Net of Allowance of $534,062 at July 31, 1999 48 0 and October 31, 1998 Inventories: Raw Materials 640 690 Work in Progress 716 438 Finished Goods 2,062 2,290 ------ ------ 3,418 3,418 Prepaid Expenses 108 67 Deferred Income Tax Asset 204 204 ------ ------ Total Current Assets 6,795 6,294 Property, Plant and Equipment, at Cost 5,700 5,476 Less Accumulated Depreciation and Amortization 4,204 3,932 ------ ------ Net Property, Plant and Equipment 1,496 1,544 Other Assets 343 388 ------ ------ $8,634 $8,226 ====== ======
The accompanying notes are an integral part of these statements SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS -2- ATHANOR GROUP, INC. CONSOLIDATED BALANCE SHEETS (UNAUDITED) JULY 31, 1999 AND OCTOBER 31, 1998 (THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998 ---- ---- Current Liabilities: Notes Payable $1,592 $1,273 Current Portion of Long-Term Debt 467 546 Accounts Payable 1,603 1,477 Accrued Expenses 725 716 ------ ------ Total Current Liabilities 4,387 4,012 Long-Term Debt, Less Current Portion 488 680 Noncurrent Deferred Income Tax Liability 130 130 Stockholders' Equity: Common Stock 15 15 Additional Paid-In Capital 1,447 1,447 Retained Earnings 2,167 1,942 ------ ------ Total Stockholders' Equity 3,629 3,404 ------ ------ $8,634 $8,226 ====== ======
The accompanying notes are an integral part of these statements SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS -3- ATHANOR GROUP, INC. Consolidated Statements of Operations (Unaudited) Nine Months Ended July 31, (Thousands)
1999 1998 ---- ---- Net Sales $ 15,517 $ 18,287 Cost of Sales 13,085 15,356 -------- -------- Gross Profit 2,432 2,931 Selling, General & Administrative 1,884 2,008 -------- -------- Operating Profit 548 923 Other Income (Expense) Interest Expense (184) (241) Miscellaneous - Net 18 15 -------- -------- Earnings Before Income Taxes 382 697 Income Tax Expense 157 285 -------- -------- NET EARNINGS $ 225 $ 412 ======== ======== Net Earnings Per Common Share: Basic and Diluted $ 0.15 $ 0.28 ======== ========
The accompanying notes are an integral part of these statements SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS -4- ATHANOR GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED JULY 31, (THOUSANDS)
1999 1998 ---- ---- Net Sales $ 5,689 $ 5,578 Cost of Sales 4,520 4,673 ------- ------- Gross Profit 1,169 905 Selling, General & Administrative 680 663 ------- ------- Operating Profit 489 242 Other Income (Expense) Interest Expense (64) (77) Miscellaneous - Net 0 (1) ------- ------- Earnings Before Income Taxes 425 164 Income Tax Expense 172 66 ------- ------- NET EARNINGS $ 253 $ 98 ======= ======= Net Earnings Per Common Share: Basic and Diluted $ 0.17 $ 0.07 ======= =======
The accompanying notes are an integral part of these statements SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS -5- ATHANOR GROUP, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED) NINE MONTHS ENDED JULY 31, 1999 (THOUSANDS)
Common Stock (25,000,000 Shares Additional Authorized) Paid-In Retained Shares Par Value Capital Earnings Total ------ --------- ------- -------- ----- Balance at October 31, 1998 1,459 $ 15 $1,447 $1,942 $3,404 Net Earnings for Nine Months Ended July 31, 1999 225 225 ------ ------ ------ ------ ------ 1,459 $ 15 $1,447 $2,167 $3,629 ====== ====== ====== ====== ======
The accompanying notes are an integral part of these statements SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS -6- ATHANOR GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED JULY 31, (THOUSANDS)
1999 1998 ---- ---- Cash Flows From Operating Activities Net Earnings $ 225 $ 412 Adjustments to Reconcile Net Earnings to Net Cash Provided by Operating Activities: Depreciation and Amortization 299 333 (Increase) Decrease in Operating Assets: Accounts Receivable (548) 190 Inventories 0 159 Prepaid Expenses (41) (6) Other (3) (80) Increase (Decrease) in Operating Liabilities: Accounts Payable 126 (147) Accrued Liabilities 9 134 ----- ----- Net Cash Provided by Operating Activities 67 995 ----- ----- Cash Flows from Investing Activities: Purchase of Property and Equipment (251) (81) Investment / Advances In Unconsolidated Investee 0 (35) ----- ----- Net Cash Used in Investing Activities (251) (116) ----- ----- Cash Flows from Financing Activities: Net Borrowings (Repayment) Under Line of Credit 319 (338) Repurchase of stock 0 (13) Net Payments of Long Term Debt (271) (412) ----- ----- Net Cash Provided (Used) in Financing Activities 48 (763) ----- ----- Net increase (decrease) in Cash (136) 116 Cash at Beginning of Year 236 138 ----- ----- Cash at End of Period $ 100 $ 254 ===== ===== Supplemental Disclosures of Cash Flow Information: Interest Paid $ 184 $ 241 ===== ===== Income Taxes Paid $ 23 $ 114 ===== =====
The accompanying notes are an integral part of these statements SUBJECT TO AUDITOR'S YEAR END ADJUSTMENTS -7- Notes to Consolidated Financial Statements (Unaudited) July 31, 1999 and 1998 Note 1 - ------ In management's opinion, all adjustments necessary for a fair presentation 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. (Company), and its subsidiary, Alger Manufacturing Co., Inc. (Alger). Significant inter-company accounts and transactions have been eliminated. Note 3 - ------ Basic and diluted earnings per common share are computed by dividing net earnings by the weighted average number of common shares outstanding during each period. The weighted average number of shares outstanding during the nine months and three months ended July 31, 1999 and 1998 was 1,458,854 and 1,462,854, respectively. As of July 31, 1999, there were 196,000 options to acquire shares of common stock with a weighted average exercise price of $1.66 that could potentially dilute basic earnings per share in the future, but which were not included in the computation of diluted earnings per share for the nine and three months periods ended July 31, 1999 as their effect would be anti-dilutive for those periods. 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 - ------ In 1997, the Financial Accounting Standards Board (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. There is no difference between net earnings and comprehensive income for the Company. -8- In 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SAFS 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 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. The Company operates in one segment of the precision-machined parts industry. Note 6 - ------ In prior years, the Company has accounted for its investment in Core Software Technology (Core) on the equity method of accounting, which requires the Company to record its shares of Core's earnings or losses. The investment in Core has been reduced to $35,000 due to Core's accumulated losses. For years beginning in fiscal 1998, the Company is carrying its investment in Core at cost, due to its percentage reduction in ownership interest and its continuation as the senior secured lender. At July 1999 and 1998 the Company owned approximately 13.6% and 18.3% respectively of the issued and outstanding common stock of Core. Note 7 - ------ 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 December 1998, the Company granted 35,000 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 December 11, 1998). 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 196,000 options to purchase common stock outstanding as of July 31, 1999, of which 75,000 were exercisable. There were 205,000 options to purchase stock as of July 31, 1998, none of which were exercisable. -9- 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, which had steadily declined during the first two fiscal quarters of 1999, has improved during the third quarter. The increase is primarily associated with the increase in sales and profits for the third quarter of 1999. During the first six months of 1999 as the Company's working capital was declining, the Company was able to offset the negative effects with more favorable terms from some of its major suppliers. These extended terms were granted for a limited time. During the third quarter of 1999 the Company was able to bring the extended payment terms, with these suppliers, back to normal payment terms. In July 1999 the Company completed an amendment to its credit agreement, which extended the agreement to August 2002 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. At July 1999, the Company had approximately $1,408,000 available under the working capital line and $550,000 available under the equipment line as compared to $1,185,000 and $650,000, respectively, at October 1998 and $1,558,000 and $650,000, respectively, at July 1998. The Company believes the lines of credit will be adequate to fund the working capital requirements and anticipated equipment purchases in fiscal 1999. The Company expended $251,000 on new equipment during the first nine months of 1999. The Company financed the equipment through a $100,000 utilization of its equipment line of credit, with the balance coming from cash flow. In addition, the Company has ordered approximately $125,000 of additional equipment for delivery in the fourth quarter of fiscal 1999. The Company`s current equipment line of credit is expected to be adequate to fund the planned equipment purchases. -10- RESULTS OF OPERATIONS Sales for the first nine months ended July 1999 decreased 15% as compared to 1998, while sales for the three months ended July 1999 increased 2% from 1998. The Company had seen a gradual slow-down in its business the last six months of fiscal 1998 as customers delayed shipment on existing orders and the Company's backlog had slipped. The accelerated decline in sales for the first six months of 1999 of 23% seemed to be a continuation of the slowdown the Company experienced in the last half of 1998. There are some signs that the slowdown has reached a bottom as the Company's sales and backlog, for the three months ended July 1999, have shown a steady increase. The backlog has improved to $7,583,000 at July 1999 compared to $6,986,000 at October 1998 and $7,310,000 at July 1998. 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 sales and backlog are signs that the market for the Company's services may be improving. The Company will be proceeding cautiously until we see signs of a stronger economy. The Company's operating profit for the nine months and three months ended July 1999 of $548,000 and $489,000 respectively, as compared to $923,000 and $242,000 for 1998, are a direct reflection of the decline in sales during the first six months1999 and the subsequent improvement during the third quarter of fiscal 1999. During the last half of 1998 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. The improvement in profits for the third quarter of 1999 can partially be attributed to this ongoing evaluation and the benefits it has created. This evaluation is continuing, even as the climate for the Company's services have improved. During 1998 and early 1999 Alger devoted substantial financial and manpower resources toward the completion of an ISO 9002 Certification. ISO 9000 is an international quality standard. While the ISO 9002 Certification is being required by many of Alger's current customers, it is expected to enhance Alger'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 9002 Certificate in March 1999. In August 1999 Alger's Glendale, Arizona facility passed its certifying audit. 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, 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. -11- 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. 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 July 1999 was approximately $28,000. The estimated future cost of completing the Year 2000 effort is estimated to be approximately $8,000. 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. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- None -12- Item 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Financial Data Schedule, July 31, 1999 (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 September 1, 1999 By /s/ Duane L. Femrite ------------------ ------------------------------ Duane L. Femrite President, Co-Chief Executive Officer, Chief Financial Officer, and Director -13- EX-27 2 FINANCIAL DATA SCHEDULE
5 THE COMPANY'S CONSOLIDATED STATEMENTS OF EARNINGS AND CONSOLIDATED BALANCE SHEETS. 1,000 9-MOS OCT-31-1999 NOV-01-1998 JUL-31-1999 100 0 2,937 20 3,418 6,795 5,700 4,204 8,634 4,387 0 15 0 0 3,614 8,634 15,517 15,517 13,085 14,969 0 0 184 382 157 0 0 0 0 225 .15 .15
-----END PRIVACY-ENHANCED MESSAGE-----