-----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, Mn9N6+Z4D8qwM+iMV4XIJgsm4GFxtOx+t3TJALp0MXybbHEvnMMR/ydGqSELaAz5 vTF31O2OUmytG+hazF0V9Q== 0000352956-00-000012.txt : 20000516 0000352956-00-000012.hdr.sgml : 20000516 ACCESSION NUMBER: 0000352956-00-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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: SEC FILE NUMBER: 000-10120 FILM NUMBER: 634425 BUSINESS ADDRESS: STREET 1: 2690 MIDDLEFIELD RD CITY: REDWOOD CITY STATE: CA ZIP: 94063 BUSINESS PHONE: 6503632690 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 March 31, 2000 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) (650) 363-2690 (Company's telephone number, including area code) Indicate by check mark whether the Company (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 Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No At May 5, 2000, 3,843,311 shares of the Company's Common Stock, $.125 par value were issued and outstanding. Part 1 - FINANCIAL INFORMATION Item 1 - Financial Statements FAFCO, Inc. CONSOLIDATED BALANCE SHEET March 31, 2000 December 31, 1999 (unaudited) Assets Current assets: Cash and cash equivalents $ 97,200 $ 64,800 Accounts receivable, less allowance for doubtful accounts of $331,000 in 2000 and $317,800 in 1999 2,091,400 1,752,000 Inventories 1,113,900 1,041,600 Prepaid expenses and other current assets 201,800 254,200 Other accounts receivable, net of allowance 19,500 27,700 Deferred tax asset, net of allowance 189,500 189,500 Total current assets $3,713,300 $3,329,800 Plant and equipment, at cost 4,010,100 3,330,100 Less accumulated depreciation and amortization (2,404,900) (2,407,700) 1,605,200 922,400 Notes receivable and other assets (net) 31,300 31,300 Deferred tax asset, net of allowance 734,800 703,300 Total assets $6,084,600 $4,986,800 Liabilities and shareholders' equity Current Liabilities: Bank line of credit $ 731,500 $ 461,500 Note payable to bank 176,500 Accounts payable and other accrued expenses 1,159,600 802,500 Accrued compensation and benefits 252,700 281,100 Accrued warranty expense 302,000 282,700 Other current liabilities 15,000 Total current liabilities 2,622,300 1,842,800 Note payable to bank 295,800 Other non-current liabilities 32,600 16,600 Total liabilities $2,950,700 $1,859,400 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: 3,843,311 issued and outstanding in 2000 and 3,303,311 issues and outstanding in 1999. 480,300 412,800 Capital in excess of par value 5,107,100 5,107,100 Notes receivable secured by Common Stock (75,100) (75,100) Accumulated deficit (2,378,400) (2,317,400) Total shareholders' equity $3,133,900 $3,127,400 Commitments and contingent liabilities Total liabilities and shareholders' equity $6,084,600 $4,986,800
The accompanying notes are an integral part of this statement. Part I - FINANCIAL INFORMATION (continued) FAFCO, Inc. CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) Three Months Ended March 31, 2000 1999 Net sales $ 2,722,100 $ 3,039,900 Other income (net) 2,500 (400) Total revenues 2,724,600 3,039,500 Cost of goods sold 1,748,300 1,772,200 Marketing & selling expense 537,800 529,100 General & administrative expense 406,800 368,300 Research & development expense 117,900 101,700 Net interest expense 6,300 24,500 Total costs and expenses 2,817,100 2,795,800 Income (loss) before income taxes (92,500) 243,700 Provision for (benefit from) income taxes (31,500) 64,000 Net income (loss) $ (61,000) $ 179,700 Basic earnings net income per share $ (0.02) $ 0.05 Diluted net income per share $ (0.02) $ 0.04
The accompanying notes are an integral part of this statement Part I - FINANCIAL INFORMATION (continued) FAFCO, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Three Months Ended March 31, 2000 1999 Cash flow from operating activities: Net income (loss) $ (61,000) $ 179,700 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 48,200 35,500 Write offs and allowance for doubtful accounts 13,300 13,900 Change in assets and liabilities: Accounts receivable (344,500) (738,400) Deferred tax assets (31,500) Inventories (72,300) 198,200 Prepaid expenses and other assets 52,400 29,500 Payables, accrued expenses and other current liabilities 333,000 162,900 Other non-current liabilities 16,000 (5,700) Net cash used in operating activities (46,400) (124,400) Cash flow from investing activities: Purchase of fixed assets (731,000) (103,200) Net cash used in investing activities (731,000) (103,200) Cash flow from financing activities: Proceeds from sale of common stock 67,500 Borrowings from bank 742,300 Net cash provided by financing activities 809,800 Net decrease in cash and cash equivalents 32,400 (227,600) Cash and cash equivalents, beginning of period 64,800 477,500 Cash and cash equivalents, end of period $ 97,200 $ 249,900 Supplemental disclosures of cash flow information: Cash paid during the period for interest $ 13,200 $ 26,400 Cash paid during the period for income taxes $ 24,000
The accompanying notes are an integral part of this statement Part I - FINANCIAL INFORMATION (continued) FAFCO, Inc. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. This information is unaudited; however, in the opinion of the Company's management, all adjustments necessary for a fair statement of results for the periods presented have been included. The results for the period ended March 31, 2000 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 Company's audited annual financial statements for the year ended December 31, 1999, included in its 1999 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 5) 3. Inventories are valued at the lower of cost or market, determined on a first in, first out (FIFO) basis, and consist of the following. March 31, 2000 December 31, 1999 Raw materials $ 525,300 $ 499,400 Work in process 276,300 220,000 Finished goods 312,300 322,200 $1,113,900 $1,041,600
4. The Company has a line of credit agreement with Silicon Valley Bank, which line of credit allows the Company to borrow the lesser of $1,000,000 or an amount determined by a formula applied to accounts receivable. Unused borrowing capacity was $268,500 at March 31, 2000. Amounts borrowed bear interest at prime rate plus 1.5% per annum and are secured by substantially all the assets of the Company. This line of credit expires on June 30, 2000. In addition to the line of credit, the Company has a 36-month term loan available in the amount of $500,000 bearing interest at prime plus 1.8%. At March 31, 2000, the Company had an outstanding balance of $472,300 on this loan. 5. Net Income Per Share Basic earnings per share were calculated as follows: Quarter Ended March 31, 2000 1999 Net income (loss) $ (61,000) $ 179,700 Average common shares outstanding 3,321,113 3,303,311 Earnings (loss) per share $ (0.02) $ 0.05
Basic earnings per share are calculated by dividing net income by the weighted average number of shares issued and outstanding. Part I - FINANCIAL INFORMATION (continued) Diluted earnings per share were calculated as follows: Quarter Ended March 31, 2000 1999 Adjusted net income $ (61,000) $ 179,700 Average common shares outstanding 3,321,113 3,303,311 Add: Exercise of options reduced by the number of shares purchased with proceeds 306,375 Add: Exercise of warrants reduced by the number of shares purchased with proceeds 107,056 Add: Expense of warrants attached to debt reduced by the number of shares purchased with proceeds 485,625 Adjusted weighted average shares outstanding 3,321,113 4,202,367 Earnings per common share assuming dilution $ (0.02) $ 0.04
At March 31, 2000, options and warrants for the purchase of 571,700 shares of common stock at prices ranging from $0.125 to $0.625 were antidilutive and therefore not included in the computation of diluted earnings per share. 6. Business Segment and Concentration of Credit Risk Business Segment. The Company operates in one business segment, the development, production and marketing of polymer heat exchangers for the solar and thermal energy storage markets worldwide. Quarter Ended March 31 2000 1999 Product Line Net Sales Pool Products $ 2,088,700 $ 1,761,900 Thermal Energy Storage Products 633,400 1,278,000 $ 2,722,100 $ 3,039,900
Geographic information for revenues and long-lived assets are as follows: Quarter Ended March 31 2000 1999 Net Sales Domestic $ 2,353,500 $ 2,042,100 Foreign Japan 291,200 850,100 Other 77,400 147,700 $ 2,722,100 $ 3,039,900
Long-lived assets March 31, 2000 March 31, 1999 Domestic $ 1,605,200 $ 922,400
For the three months ended March 31, 2000, the Company had two major customers who individually accounted for 10% or more of sales totaling $291,200 and $343,800, respectively. Part I - FINANCIAL INFORMATION (continued) For the three months ended March 31, 1999, the Company had one major customer accounting for 10% or more of sales totaling $449,000. Concentration of Credit Risk: Most of the Company's business activity is with customers located in California, Florida and foreign countries. As of March 31, 2000, unsecured trade accounts receivable for customers in California, Florida, and foreign countries were $626,200, $819,300 and $353,400. 7. Plant and Equipment Plant and equipment consist of the following: March 31, 2000 December 31, 1999 Machinery and equipment $2,538,700 $2,445,000 Office and computer equipment 581,600 578,300 Leasehold improvements 88,600 88,600 Vehicles 241,000 218,200 Land 551,300 Building construction in progress 8,900 $4,010,100 $3,330,100 Less accumulated depreciation and amortization (2,404,900) (2,407,700) $1,605,200 $ 922,400
8. Commitments The Company plans to move its headquarters and manufacturing operations from Redwood City, CA to Chico, CA. In anticipation of this move, the Company has purchased approximately six acres of land for $551,300 and expects the balance to complete the building to be approximately $2,800,000, for a total of approximately $3,400,000. 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 March 31, 2000 decreased by 10.5% to $2,722,100 in 2000 from $3,039,900 in 1999. This decrease was due to decreased unit sales of the Company's IceStorT products partially offset by increased unit sales of the Company's pool products. Cost of goods sold was relatively stable in absolute dollars at $1,748,300 in the first quarter of 2000 compared with $1,772,200 in the first quarter of 1999 while increasing from 58.3% of net sales to 64.2% of net sales from the first quarter of 1999 to the first quarter of 2000. This increase in cost of goods sold as Part I - FINANCIAL INFORMATION (continued) a percentage of net sales was due primarily to the result of allocating fixed overhead expenses to a decreased sales number along with increased sales of relatively lower margin pool products and decreased sales of relatively higher margin pool products. Marketing and selling expenses were increased slightly in absolute dollars at $537,800 in the first quarter of 2000 compared with $529,100 in the first quarter of 1999 while increasing from 17.4% of net sales to 19.8% of net sales in the first quarter of 2000 due mainly to costs relating to the recently opened Company office located in Tampa. General and administrative expenses increased slightly to $406,800 in the first quarter of 2000 (14.9% of sales) compared with $368,300 (12.1% of sales) in the same quarter in 1999. These increases were due mainly to costs related to operating the recently opened Company office in Tampa. Research and development expenses increased to $117,900 (4.3% of net sales) in 2000 from $101,700 (3.3% of net sales) in the first quarter of 1999 due mainly to an increase in the number of engineering projects which are targeted on introducing new and improved products in the next few years. Net interest expense decreased to $6,300 (0.2% of net sales) in the first quarter of 2000 from $24,500 (0.8% of net sales) in the first quarter of 1999. This decrease was due primarily to paying off the Company's subordinated debt in the third quarter of 1999. Liquidity and Capital Resources The Company's cash position increased slightly from $64,800 at 1999 fiscal year end to $97,200 at March 31, 2000 principally due to an increase in bank borrowings along with issuance of stocks partially offset by purchases of fixed assets along with an increase in accounts receivable. At March 31, 2000, the Company's accounts payable and other accrued expenses had increased to $1,159,600 from $802,500 at December 31, 1999. This increase is primarily due to decreased cash flow during the first quarter of 2000 as a result of the Company's "Early Buy" program for Above Ground Pool systems. At March 31, 2000, the Company's net accounts receivable had increased to $2,091,400 from $1,752,000 at December 31, 1999 due mainly to the Company's "Early Buy" program for Above Ground Pool systems. At March 31, 2000, the Company's net inventories had increased to $1,113,900 from $1,041,600 at December 31, 1999 due mainly to sales being lower than planned during the first quarter of 2000. At March 31, 2000 the Company's current ratio was 1.42 to 1 compared with 1.81 to 1 at December 31, 1999. The Company had working capital of $1,090,900 at March 31, 2000 compared with $1,487,000 at December 31, 1999. Total assets exceeded total liabilities by $3,133,900 at March 31, 2000 compared with $3,127,400 at December 31, 1999. The Company intends to relocate during the next six months and has purchased land on which it will build a new manufacturing facility. The Company expects to realize cost savings in the year 2001 and beyond as a result of this move. At March 31, 2000, total bank debt (line of credit plus term loan) had increased to $1,203,800 from $461,500 at December 31, 1999 due mainly to borrowing to acquire the land in Chico, CA on which the Company intends to build a 50,000 square foot headquarters and manufacturing building. The building is Part I - FINANCIAL INFORMATION (continued) expected to be ready for occupancy by September 2000 and will be financed by Butte Community Bank, Chico, CA (see Note 8). The Company 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. Part II - OTHER INFORMATION Item 5 - Other Information The following table summarizes the outstanding securities during the quarter ended March 31, 2000. Shares Common Stock: authorized 10,000,000 shares of $.125 par value; issued and outstanding at December 31, 1999, as reported in the Registrant's Annual Report on Form 10-K filed for the fiscal year ended December 31, 1999. 3,303,311 Issued during the quarter 540,000 Outstanding at March 31, 2000 3,843,311 Item 6 - Exhibits and Reports on Form 8-K a. The following exhibits are filed as part, to the extent indicated herein, in the Form 10-Q. Exhibit No. Description 27 Financial Data Schedule b. Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31, 2000. 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: May 15, 2000 BY: /s/Nancy I. Garvin Nancy I. Garvin, Vice President - Finance (Principal Financial and Accounting Officer) EX-27 2
5 0000352956 FAFCO, INC. 3-MOS DEC-31-2000 MAR-31-2000 97,200 0 2,501,200 390,300 1,113,900 3,713,200 4,010,100 2,404,900 6,084,600 2,622,300 32,600 0 0 480,300 2,653,600 6,084,600 2,722,100 2,725,100 1,748,300 1,748,300 0 13,300 13,200 (92,500) (31,500) (61,000) 0 0 0 (61,000) (.02) (.02)
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