-----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, L5y+bXl8A4gzyCYhJ3tyifqmh90dObI4gurq8AnBSYq7o6XM8VrZoXo2JHvQiKsG Ju0/Zw58Gm+PABhYj79CZQ== 0000352956-98-000011.txt : 19980807 0000352956-98-000011.hdr.sgml : 19980807 ACCESSION NUMBER: 0000352956-98-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980806 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: SEC FILE NUMBER: 000-10120 FILM NUMBER: 98677994 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, 1998 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 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, 1998, 3,303,311 shares of the Company'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, 1998 December 31, 1997 (unaudited) Assets Current assets: Cash and cash equivalents $ 39,500 $ 46,300 Accounts receivable, less allowance for doubtful accounts of $548,600 in 1998 and $532,400 in 1997 2 ,867,000 1,833,400 Current portion of long-term notes receivable (net) 88,800 88,800 Inventories 934,800 1,082,900 Prepaid expenses and other current assets 176,900 174,000 Other accounts receivable, net of allowance- 1,900 12,200 Deferred tax asset, net of allowance 183,300 183,300 Total current assets 4,292,200 3,420,900 Plant and equipment, at cost 2,685,800 2,614,900 Less accumulated depreciation and amortization (2,296,100) (2,236,300) 389,700 378,600 Notes receivable and other assets (net) 108,900 151,200 Deferred tax asset, net of allowance 485,800 485,800 Total assets $ 5,276,600 $ 4,436,500 Liabilities and shareholders' equity Current Liabilities: Accounts payable and other accrued expenses $ 1,094,600 $ 850,900 Accrued compensation and benefits 284,600 331,600 Accrued warranty expense 250,200 211,000 Income taxes payable 66,500 20,600 Total current liabilities 1,695,900 1,414,100 Convertible subordinated notes ($600,000 was owed to related parties in 1998 and 1997) 925,000 925,000 Other non-current liabilities 43,300 55,100 Total liabilities $ 2,664,200 $ 2,394,200 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; 3,303,311 issued and outstanding in 1998 and 3,298,311 issued and outstanding in 1997. 412,800 412,200 Capital in excess of par value 5,107,100 5,105,200 Notes receivable secured by common stock (75,100) (75,100) Accumulated deficit (2,832,400) (3,400,000) Total shareholders' equity $ 2,612,400 $ 2,042,300 Commitments and contingent liabilities Total liabilities and shareholders' equity $ 5,276,600 $ 4,436,500 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 1998 1997 1998 1997 Net sales $ 3,810,700 $3,291,400 $ 6,510,200 $6,187,300 Other income (net) 4,000 100,500 1,100 115,200 Total revenues 3,814,700 3,391,900 6,511,300 6,302,500 Cost of goods sold 2,222,100 1,771,600 3,985,500 3,416,200 Marketing & selling expense 466,900 492,400 972,500 962,200 General & administrative expense 408,600 522,400 753,400 863,200 Research & development expense 50,900 55,200 96,400 110,200 Net interest expense 34,300 37,100 69,400 80,000 Total costs and expenses 3,182,800 2,878,700 5,877,200 5,431,800 Income before income taxes 631,900 513,200 634,100 870,700 Provision for income taxes 66,500 40,000 66,500 54,000 $ 565,400 $ 473,200 $ 567,600 $ 816,700 Primary net income per share $ 0.17 $ 0.14 $ 0.17 $ 0.25 Fully diluted net income per share $ 0.14 $ 0.12 $ 0.15 $ 0.20
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 1998 1997* Cash flow from operating activities: Net income $ 567,600 $ 816,700 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 59,800 59,900 Allowance for doubtful accounts (117,800) 19,800 Provision for inventory reserve (5,600) (58,500) Change in assets and liabilities: Change in accounts receivable (1,031,900) (473,500) Change in inventories 153,700 165,000 Change in prepaid expenses (2,900) (6,400) Change in other assets 168,700 (90,100) Change in payables and accrued expenses 281,800 504,100 Change in other non-current liabilities (11,800) 40,100 Net cash provided by operating activities 61,600 977,100 Cash flow from investing activities: Purchase of fixed assets (70,900) (87,000) Net cash used in investing activities (70,900) (87,000) Cash flow from financing activities: Proceeds from sale of common stock 2,500 Payments on line of credit (1,305,000) (1,493,900) Borrowings on line of credit 1,305,000 735,300 Net cash provided (used in) by financing activities 2,500 (758,600) Net increase (decrease) in cash and cash equivalents (6,800) 131,500 Cash and cash equivalents, beginning of period 46,300 88,200 Cash and cash equivalents, end of period $ 39,500 $ 219,700 Supplemental disclosures of cash flow information: Cash paid during the period for interest $ 69,300 $ 86,700 Cash paid during the period for income taxes $ 32,000
*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 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 June 30, 1998 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, 1997, included in its 1997 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, 1998 December 31, 1997 Raw materials $ 539,200 $ 462,800 Work in process 181,700 114,000 Finished goods 213,900 506,100 $ 934,800 $1,082,900
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 $1,000,000 at June 30, 1998. 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 March 31, 1998. 5. The company records its deferred taxes on a tax jurisdiction basis and, with the adoption of FAS No. 109 in 1993, classified those net amounts as current or non-current based on the balance sheet classifications. Deferred tax assets are comprised of the following at: January 1, 1998 January 1, 1997 Allowance for doubtful accounts $ 227,700 $ 215,600 Accrued expenses 132,500 184,300 Loss carryforwards 837,400 1,157,800 Tax credits 71,200 175,700 Other 108,300 107,800 1,377,100 1,841,200 Deferred tax asset valuation allowance (708,000) (1,191,800) Total deferred taxes,net $ 669,100 $ 649,400
Part I - FINANCIAL INFORMATION - Item 1 (continued) 6. Net Income Per Share Basic earnings per share were calculated as follows: Quarter Ended Six Months Ended June 30 June 30 1998 1997 1998 1997 Net income $ 565,400 $ 473,200 $ 567,600 $ 816,700 Average common shares outstanding 3,303,311 3,298,311 3,303,311 3,298,311 Adjusted weighted average shares outstanding 3,303,311 3,298,311 3,303,311 3,298,311 Earnings per share $ 0.17 $ 0.14 $ 0.17 $ 0.25
Basic earnings (loss) per share are calculated by dividing net income (loss) by the weighted average number of shares issued and outstanding during each year. Part I - FINANCIAL INFORMATION - Item 1 (continued) Diluted earnings per share were calculated as follows: Quarter Ended Six Months Ended June 30 June 30 1998 1997 1998 1997 Net income $ 579,200 $ 473,200 $ 595,100 $ 816,700 Average common shares outstanding 3,303,311 3,298,311 3,303,311 3,298,311 Add: Exercise of options reduced by the number of shares purchased with proceeds 256,357 208,734 163,820 79,833 Add: Exercise of warrants reduced by the number of shares purchased with proceeds 96,033 68,571 77,344 63,173 Add: Conversion of convertible debt into shares 555,000 555,000 555,000 555,000 Adjusted weighted average shares outstanding 4,210,720 4,130,616 4,099,475 3,996,317 Earnings per common share assuming full dilution $ 0.14 $ 0.12 $ 0.15 $ 0.20
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 15.8 % from $3,291,400 in 1997 to $3,810,700 in 1998. Net sales increased by 5.2 % from $6,187,300 in the first half of 1997 to $6,510,200 in the corresponding period in 1998. These increases were due mainly to increased unit sales of the Company's IceStorT and aboveground pool heating products. Cost of goods sold increased from $1,771,600 (53.8% of net sales) in the quarter ended June 30, 1997 to $2,222,100 (58.3% of net sales) in the corresponding period in 1998. For the six months ended June 30 cost of sales increased from $3,416,200 (55.2% of net sales) in 1997 to $3,985,500 (61.2% of net sales) in 1998. These increases in cost of goods sold were due primarily to lower sales of the higher margin pool panel products along with higher sales of the lower margin IceStorT products. Marketing and selling expenses remained relatively stable at $492,400 and $962,200 for the quarter and six month period ended June 30, 1997, respectively, compared to $466,900 and $972,500 in the same periods in 1998. Marketing and selling expenses declined as a percentage of net sales from 15.0% for the quarter ended June 30, 1997 and 15.6% for the six months ended June 30, 1997 to 12.3 % and 14.9 % of net sales for the corresponding periods in 1998. General and administrative expenses for the quarter ended June 30 decreased from $522,400 (15.9% of net sales) in 1997 to $408,600 (10.7% of net sales) in 1998 and for the six month period ended June 30 decreased from $863,200 (14.0% of net sales) in 1997 to $753,400 (11.6 % of net sales) in 1998. These decreases were due mainly to decreased personnel costs. Research and development expenses for the quarter ended June 30 decreased from $55,200 (1.7% of net sales) in 1997 to $50,900 (1.3 % of net sales) in 1998 and for the six month period ended June 30 decreased from $110,200 (1.8% of net sales) in 1997 to $96,400 (1.5 % of net sales) in 1998. These decreases were due mainly to a decrease in engineering project costs. Net interest expense was relatively stable in absolute dollars at $37,100 and $34,300 in the quarter ended June 30, 1997 and 1998, respectively, while decreasing as a percentage of net sales from 1.1% in 1997 to 1998. Net interest expense for the six month period ended June 30 decreased from at $80,000 (1.3% of net sales) in 1997 to $69,400 (1.1% of net sales) in 1998 due primarily to lower average daily borrowing in 1998 at lower interest rates than 1997. Other income (net) included $5,700 in refunds of prior year's insurance premiums in the first half of 1998 compared with $15,800 during the first half of 1997. Other income (net) also included $100,000 in license fees during the first half of 1997; there were no such fees during the corresponding period in 1998. Liquidity and Capital Resources At June 30, 1998, the Registrant's inventories had decreased to $934,800 from $1,082,900 at December 31,1997. This decrease was due mainly to the fact that the December,1997 level was abnormally high due to the buildup of inventories for a specific order that shipped in 1998. At June 30, 1997, the Registrant's accounts payable and other accrued expenses had increased to $1,094,600 from $850,900 at December 31, 1997. This increase is primarily due to the increased volume of business during the first half of 1998 and especially during the quarter ended June 30, 1998. Part I - FINANCIAL INFORMATION - Item 2 (continued) At June 30, 1998, the Company's accounts receivable had increased to $2,867,000 from $1,833,400 at December 31, 1997 due mainly to the effect of increased sales levels of all of the Company's products along with a large overdue foreign receivable which has since been collected. At June 30, 1998, the Company's current ratio was 2.53 to 1 compared with 2.42 to 1 at December 31, 1997. The Registrant had working capital of $2,596,300 at June 30, 1998 compared with $2,006,800 at December 31, 1997. Total assets exceeded total liabilities by $2,612,400 at June 30, 1998 compared with $ 2,042,300 at December 31, 1997. 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 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. Part II - OTHER INFORMATION Item 5 - Other Information The following table summarizes the outstanding securities during the quarter ended June 30, 1998. Shares Common Stock: authorized 10,000,000 shares of $.125 par value; issued and outstanding at March 31, 1998, as reported in the Company's report on Form 10-Q filed for the period ended March 31, 1997. 3,303,311 Issued during the quarter 0 3,303,311 Outstanding at June 30, 1998 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, 1998. 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: BY Alex N. Watt, Vice President - Finance and Administration and Chief Financial Officer (Principal Financial and Accounting Officer) X:\Administration\FinancialReporting\10Q_2ndQtr98.doc Page 1 of 11 Revised: 8/4/98 EX-27 2
5 0000352956 FAFCO, INC. 6-MOS DEC-31-1998 JUN-30-1998 39,500 0 3,609,700 577,900 934,800 4,292,200 2,685,800 2,269,100 5,276,600 1,695,900 968,300 0 0 412,800 2,199,600 5,276,600 6,510,200 6,519,700 3,985,500 3,985,500 0 14,700 69,400 634,100 66,500 567,600 0 0 0 567,600 0.17 0.15
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