-----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, GfN7+48ZieRXqQ/ry3HSHm6Jozqap9Kg1ReNeY4xyUi5y3coGIRRrvi0PUcPUZqG WvIZRnWFltvb3Y842JBckQ== 0000352956-97-000012.txt : 19970729 0000352956-97-000012.hdr.sgml : 19970729 ACCESSION NUMBER: 0000352956-97-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970728 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAFCO INC CENTRAL INDEX KEY: 0000352956 STANDARD INDUSTRIAL CLASSIFICATION: HEATING EQUIPMENT, EXCEPT ELECTRIC & WARM AIR FURNACES [3433] IRS NUMBER: 942159547 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-10120 FILM NUMBER: 97646453 BUSINESS ADDRESS: STREET 1: 2690 MIDDLEFIELD RD CITY: REDWOOD CITY STATE: CA ZIP: 94063 BUSINESS PHONE: 4153632690 MAIL ADDRESS: STREET 1: 2690 MIDDLEFIELD ROAD CITY: REDWOOD CITY STATE: CA ZIP: 94063 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1997 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number 0-10120 FAFCO, Inc. (Exact name of Registrant as specified in its charter) California 94-2159547 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 2690 Middlefield Road, Redwood City, California 94063 (Address, including zip code, of Registrant's principal executive offices) (415) 363-2690 (Registrant's telephone number, including area code) 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 At July 31, 1997, 3,298,311 shares of the Registrant's Common Stock, $.125 par value were issued and outstanding. Part I - FINANCIAL INFORMATION Item 1 - Financial Statements FAFCO, Inc. CONSOLIDATED BALANCE SHEET June 30, 1997 December 31, 1996 (unaudited) Assets Current assets: Cash and cash equivalents $219,700 $88,200 Accounts receivable, less allowance for doubtful accounts of $532,400 in 1997 and $512,600 in 1996 2,338,500 1,890,700 Current portion of long-term notes receivable (net) 199,600 229,100 Inventories 728,900 835,400 Prepaid expenses and other current assets 157,200 150,800 Other accounts receivable, net of allowance 10,400 4,500 Deferred tax asset, net of allowance 221,500 221,500 Total current assets 3,875,800 3,420,200 Plant and equipment, at cost 2,542,100 2,465,800 Less accumulated depreciation and amortization (2,165,400) (2,116,200) 376,700 349,600 Notes receivable and other assets (net) 185,100 65,500 Deferred tax asset, net of allowance 427,900 427,900 Total assets $4,865,500 $4,263,200 Liabilities and shareholders'equity Current Liabilities: Bank line of credit $758,600 Accounts payable and other accrued expenses $1,257,700 1,037,800 Accrued compensation and benefits 453,000 187,000 Accrued warranty expanse 252,300 234,100 Total current liabilities 1,963,000 2,217,500 Convertible subordinated notes ($600,000 was owed to related parties in 1997 and 1996) 925,000 925,000 Other non-current liabilities 66,500 26,400 Total liabilities $2,954,500 $3,168,900 Shareholders' equity: Preferred stock-authorized 1,000,000 shares of $1.00 par value, none of which has been issued Common stock-authorized 10,000,000 shares of $0.125 par value; 3,298,311 issued and outstanding in 1997 and 1996. 412,200 412,200 Capital in excess of par value 5,105,200 5,105,200 Notes receivable secured by common stock (75,100) (75,100) Accumulated deficit (3,531,300) (4,348,000) Total shareholders' equity $1,911,000 $1,094,300 Commitments and contingent liabilities Total liabilities and shareholders' equity $4,865,500 $4,263,200
The accompanying notes are an integral part of this statement. Part I - FINANCIAL INFORMATION - Item 1 (continued) FAFCO, Inc. CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) Quarter Ended Six Months Ended June 30 June 30 1997 1996 1997 1996 Net sales $3,291,400 $2,775,500 $6,187,300 $5,059,900 Other income (net) 100,500 20,300 115,200 36,400 Total revenues 3,391,900 2,795,800 6,302,500 5,096,300 Cost of goods sold 1,771,600 1,583,900 3,416,200 2,907,400 Marketing & selling expense 492,400 459,000 962,200 928,100 General & administrative expense 522,400 370,700 863,200 682,700 Research & development expense 55,200 5,400 110,200 58,000 Net interest expense 37,100 40,700 80,000 81,100 Total costs and expenses 2,878,700 2,459,700 5,431,800 4,657,300 Income before income taxes 513,200 336,100 870,700 439,000 Provision for income taxes 40,000 30,500 54,000 32,800 Net income $473,200 $305,600 $816,700 $406,200 Primary net income per share $0.13 $0.09 $0.24 $0.13 Fully diluted net income per share $0.12 $0.09 $0.20 $0.13
The accompanying notes are an integral part of this statement Part I - FINANCIAL INFORMATION - Item 1 (continued) FAFCO, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Six Months Ended June 30 1997 1996* Cash flow from operating activities: Net income $816,700 $406,200 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 59,900 59,500 Allowance for doubtful accounts 19,800 26,000 Gain on sale of fixed assets (6,000) Change in assets and liabilities: Change in accounts receivable (473,500) (818,500) Change in inventories 106,500 (314,500) Change in prepaid expenses (6,400) (6,900) Change in other assets (90,100) 39,200 Change in payables and accrued expenses 504,100 692,800 Change in other non-current liabilities 40,100 (61,800) Net cash provided by operating activities 977,100 16,000 Cash flow from investing activities: Purchase of fixed assets (87,000) (156,500) Proceeds from sale of property & equipment 6,000 Net cash used in investing activities (87,000) (150,500) Cash flow from financing activities: Borrowings under subordinated debt agreements 325,000 Proceeds from sale of common stock 92,800 Payments on line of credit (1,493,900) (695,000) Borrowings on line of credit 735,300 355,000 Net cash (used in) provided by financing activities (758,600) 77,800 Net increase (decrease) in cash and cash equivalents 131,500 (56,700) Cash and cash equivalents, beginning of period 88,200 126,200 Cash and cash equivalents, end of period $219,700 $69,500 Supplemental disclosures of cash flow information: Cash paid during the period for interest $86,700 $73,200 Cash paid during the period for income taxes $7,500 *Reclassified for comparative purposes.
The accompanying notes are an integral part of this statement Part I - FINANCIAL INFORMATION - Item 1 (continued) FAFCO, Inc. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. This information is unaudited; however, in the opinion of the Registrant's management, all adjustments necessary for a fair statement of results for the periods presented have been included. The results for the period ended June 30, 1997 are not necessarily indicative of results to be expected for the entire year. These financial statements, notes and analyses should be read in conjunction with the Registrant's audited annual financial statements for the year ended December 31, 1996, included in its 1996 Annual Report to Shareholders. 2. Net income (loss) per share is calculated using the weighted average number of common and common equivalent shares outstanding during the periods presented. (See Note 6) 3. Inventories are valued at the lower of cost or market, determined on a last in, first out (LIFO) basis, and consist of the following. June 30, 1997 December 31, 1996 Raw materials $408,100 $370,500 Work in process 169,100 100,800 Finished goods 151,700 364,100 $728,900 $835,400
4. The Registrant has a line of credit agreement with Silicon Valley Bank, which line of credit allows the Registrant to borrow the lesser of $1,000,000 or an amount determined by a formula applied to accounts receivable. Unused borrowing capacity was $1,000,000 at June 30, 1997. Amounts borrowed bear interest at prime rate plus 2% per annum and are secured by the Registrant's assets along with The Gregory Company's assets. This line of credit expires on March 31, 1998. 5. Effective as of the beginning of 1993, the Company changed its method of accounting for income taxes by adopting SFAS 109. The cumulative effect of this change on years prior to 1993 increased net income for 1993 by $1,434,800 offset by a valuation allowance of $717,400. The cumulative effect resulted primarily from the recognition of the tax effects of state and federal net operating loss carryforwards and net deductible temporary differences. Financial statements presented for fiscal years prior to 1993 reflect accounting for income taxes under the prior deferred method. Part I - FINANCIAL INFORMATION - Item 1 (continued) Deferred tax assets are comprised of the following at: January 1, 1997 January 1, 1996 Allowance for doubtful accounts $215,600 $197,000 Accrued expenses 184,300 142,300 Loss carryforwards 1,157,800 1,360,500 Tax credits 175,700 178,600 Other 107,800 116,400 1,841,200 1,994,800 Deferred tax asset valuation allowance (1,191,800) (1,383,800) Total deferred taxes, net $649,400 $611,000
6. Net Income Per Share Primary earnings per share were calculated as follows: Quarter Ended Six Months Ended June 30 June 30 1997 1996 1997 1996 Net income $473,200 $305,600 $816,700 $406,200 Average common shares outstanding 3,298,311 3,298,311 3,298,311 3,209,579 Add: Exercise of options reduced by the number of shares purchased with proceeds 208,734 N/A 79,833 N/A Add: Exercise of warrants reduced by the number of shares purchased with proceeds 68,571 N/A 63,173 N/A Adjusted weighted average shares outstanding 3,575,616 3,298,311 3,441,317 3,209,579 Earnings per share $0.13 $0.09 $0.24 $0.13
Primary earnings (loss) per share are calculated by dividing net income (loss) by the weighted average number of shares issued and outstanding and shares issuable upon exercise of dilutive stock options and warrants during each year Part I - FINANCIAL INFORMATION - Item 1 (continued) Fully diluted earnings per share were calculated as follows: Quarter Ended Six Months Ended June 30 June 30 1997 1996 1997 1996 Net income $473,200 $305,600 $816,700 $406,200 Average common shares outstanding 3,298,311 3,298,311 3,298,311 3,209,579 Add: Exercise of options reduced by the number of shares purchased with proceeds 208,734 N/A 79,833 N/A Add: Exercise of warrants reduced by the number of shares purchased with proceeds 68,571 N/A 63,173 N/A Add: Conversion of convertible debt into shares 555,000 N/A 555,000 N/A Adjusted weighted average shares outstanding 4,130,616 3,298,311 3,996,317 3,209,579 Earnings per common share assuming full dilution $0.12 $0.09 $0.20 $0.13
Fully diluted earnings (loss) per share are calculated by dividing net income (loss), adjusted for the dilutive after-tax effect of the interest expense associated with the convertible debt, by the sum of the weighted average number of shares issued and outstanding and shares issuable upon exercise of dilutive stock options and warrants, and upon conversion of convertible debt during each year. Part I - FINANCIAL INFORMATION (continued) Item 2 FAFCO, Inc. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) Results of Operations Net sales for the quarter ended June 30, 1997 increased by 18.6% from $2,775,500 in 1996 to $3,291,400 in 1997. Net sales increased by 22.3% from $5,059,900 in the first half of 1996 to $6,187,300 in the corresponding period in 1997. These increases were due mainly to increased unit sales of the Company's pool panel products, along with increased unit sales of the Company's IceStor products partially offset by the effect of discontinuance of the Company's automated swimming pool controls. Cost of goods sold increased from $1,583,900 in the quarter ended June 30, 1996 to $1,771,600 in the corresponding period in 1997, while decreasing as a percentage of net sales from 57.1% in 1996 to 53.8% in 1997. For the six months ended June 30 cost of sales increased from $2,907,400 in 1996 to $3,416,200 in 1997 while decreasing as a percentage of sales from 57.5% in 1996 to 55.2% in 1997. These decreases as a percent of net sales were due mainly to the spreading of decreased overhead costs over higher net sales. Marketing and selling expenses increased slightly in absolute terms from $459,000 and $928,100 for the quarter and six month period ended June 30, 1996 respectively to $492,400 and $962,200 in the same periods in 1997. Marketing and selling expenses declined as a percentage of net sales from 16.5% for the quarter ended June 30, 1996 and 18.3% for the six months ended June 30, 1996 to 15.0% and 15.6% of net sales for the corresponding periods in 1997 due entirely to the increased level of sales experienced in 1997 compared with 1996. General and administrative expenses for the quarter ended June 30 increased from $370,700 (13.4% of net sales) in 1996 to $522,400 (15.9% of net sales) in 1997 and for the six month period ended June 30 increased from $682,700 (13.5% of net sales) in 1996 to $863,200 (14.0% of net sales) in 1997. These increases were due mainly to increased personnel costs. Research and development expenses for the quarter ended June 30 increased from $5,400 (0.2% of net sales) in 1996 to $55,200 (1.7% of net sales) in 1997 and for the six month period ended June 30 increased from $58,000 (1.2% of net sales) in 1996 to $110,200 (1.8% of net sales) in 1997. These increases were due mainly to increased personnel and consulting costs. Net interest expense was relatively stable in absolute dollars at $40,700 and $37,100 in the quarter ended June 30, 1996 and 1997 respectively while decreasing as a percentage of net sales from 1.5% in 1996 to 1.1% in 1997. Net interest expense was also relatively stable in absolute dollars at $81,100 and $80,000 in the six month period ended June 30, 1996 and 1997 respectively while decreasing as a percentage of net sales from 1.6% in 1996 to 1.3% in 1997. Other income (net) included $15,800 in refunds of prior year's insurance premiums in the first half of 1997 compared with $14,000 in the second quarter and $30,000 during the first half of 1996. Other income (net) also included $100,000 in license fees. Liquidity and Capital Resources At June 30, 1997, the Registrant's inventories had decreased to $728,900 from $835,400 at December 31,1996. This decrease was due mainly to aggressive management of inventories resulting from increased planning accuracy and purchasing strategy. At June 30, 1997, the Registrant's accounts payable and other accrued expenses had increased to $1,257,700 from $1,037,800 at December 31, 1996. This increase is primarily due to the increased volume of business during the first half of 1997 and especially during the quarter ended June 30, 1997. Part I - FINANCIAL INFORMATION - Item 2 (continued) At June 30, 1997, the Registrant's accounts receivable had increased to $2,338,500 from $1,890,700 at December 31, 1996 due mainly to the effect of increased sales levels of all of the Company's products. At June 30, 1997, the Registrant's accrued compensation and benefits had increased to $453,000 from $187,000 at December 31, 1996, due mainly to accruals for employee profit sharing bonuses along with the fact that the December 1996 level was abnormally low due to heavy use of vacation while the Company was closed in the latter half of December. Another factor was increased accrual for employee vacation during the first half of 1997 as a result of the volume of business combined with lean staffing making it difficult for employees to take time off during this period. At June 30, 1997, the Registrant's current ratio was 1.97 to 1 compared with 1.54 to 1 at December 31, 1996. The Registrant had working capital of $1,912,800 at June 30, 1997 compared with $1,202,700 at December 31, 1996. Total assets exceeded total liabilities by $1,911,000 at June 30, 1997 compared with $1,094,300 at December 31, 1996 The Registrant believes that its cash flow from operations along with its available line of credit will be sufficient to support operations during the next twelve months. Significant Accounting Policies - Income Taxes Effective as of the beginning of 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109), on a prospective basis. The new standard requires an asset and liability approach for financial accounting and reporting for income taxes. Under this approach, deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. See Note 5 of Notes to Interim Consolidated Financial Statements. For periods prior to 1993, the Company followed the deferred method prescribed by Accounting Principles Board Opinion No. 11. Part II - OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders a. The Annual Meeting of Shareholders was held on April 24, 1997. Certain business was conducted at that time, including the voting on items (1) and (2) set forth under subsection (c.) below. b. The following directors were elected at the meeting: Freeman A. Ford William A. Berry Robert W. Selig, Jr. c. The matters voted upon at the meeting and results of the vote with respect to those matters were as follows: (1) Election of Directors For Withheld Result Freeman A. Ford 2,457,782 82,125 Elected William A. Berry 2,458,782 81,125 Elected Robert W. Selig, Jr. 2,458,782 81,125 Elected (2) Election of Burr, Pilger For Against Abstained & Mayer LLP as the Company's independent 2,461,932 2,075 75,900 auditors for the fiscal year 1997
Part II - OTHER INFORMATION (continued) Item 5 - Other Information The following table summarizes the outstanding securities during the quarter ended March 31, 1997. Shares Common Stock: authorized 10,000,000 shares of $.125 par value; issued and outstanding at December 31, 1996, as reported in the Registrant's Annual report on Form 10-K filed for the fiscal year ended December 31, 1996. 3,298,311 Issued during the quarter 0 Outstanding at June 30, 1997 3,298,311
Item 6 - Exhibits and Reports on Form 8-K b. Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended June 30, 1997. SIGNATURE 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. FAFCO, Inc. (Registrant) DATE: July 25, 1997 BY:/s/Alex N. Watt Alex N. Watt, Vice President - Finance and Administration and Chief Financial Officer (Principal Financial and Accounting Officer) EX-27 2
5 0000352956 FAFCO, INC. 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 856,700 0 3,298,900 595,200 728,900 3,875,800 2,542,100 2,165,400 4,865,500 1,963,000 991,500 0 0 412,200 1,498,800 4,865,500 6,187,300 6,302,500 3,416,200 3,416,200 0 19,800 80,000 870,700 54,000 816,700 0 0 0 816,700 .24 .20
-----END PRIVACY-ENHANCED MESSAGE-----