-----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, NxXkEy0w+gAvWBjzWUf08oVLMEb7IMjBgIT8jpKEUAWQEYVJWCFEsRWyUhvzSOeZ xdVZAnQbrLc7dE1ZqH934A== 0000352956-99-000015.txt : 19990805 0000352956-99-000015.hdr.sgml : 19990805 ACCESSION NUMBER: 0000352956-99-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990804 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: 99677457 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 June 30, 1999 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 August 2, 1999, 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, 1999 December 31, 1998 (unaudited) Assets Current assets: Cash and cash equivalents $ 784,800 $ 477,500 Accounts receivable, less allowance for doubtful accounts of $568,800 in 1999 and $536,300 in 1998 2,578,000 1,876,600 Current portion of long-term notes receivable (net) 85,500 87,600 Inventories 960,200 1,265,400 Prepaid expenses and other current assets 187,500 183,500 Other accounts receivable, net of allowance 13,900 7,300 Deferred tax asset, net of allowance 273,000 273,000 Total current assets 4,882,900 4,170,900 Plant and equipment, at cost 2,985,200 2,901,900 Less accumulated depreciation and amortization (2,317,400) (2,318,500) 667,800 583,400 Notes receivable and other assets (net) 32,200 58,200 Deferred tax asset, net of allowance 564,500 564,500 Total assets 6,147,400 5,377,000 Liabilities and shareholders' equity Current Liabilities: Accounts payable and other accrued expenses 1,012,500 1,065,600 Accrued compensation and benefits 357,200 217,300 Accrued warranty expense 275,700 232,200 Income taxes payable 149,600 18,600 Total current liabilities 1,795,000 1,533,700 Convertible subordinated notes ($600,000 was owed to related parties in 1999 and 1998) 925,000 925,000 Other non-current liabilities 23,100 31,900 Total liabilities 2,743,100 2,490,600 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 1999 and 1998. 412,800 412,800 Capital in excess of par value 5,107,100 5,107,100 Notes receivable secured by common stock (75,100) (75,100) Accumulated deficit (2,040,500) (2,558,400) Total shareholders' equity 3,404,300 2,886,400 Commitments and contingent liabilities Total liabilities and shareholders' equity 6,147,400 5,377,000
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 Month Ended June 30 June 30 1999 1998 1999 1998 Net sales $3,573,500 $3,810,700 $6,613,400 $6,510,200 Other income (net) 2,100 4,000 1,700 1,100 Total revenues 3,575,600 3,814,700 6,615,100 6,511,300 Cost of goods sold 2,071,300 2,222,100 3,843,500 3,985,500 Marketing & selling expense 508,400 466,900 1,037,500 972,500 General & administrative expense 426,700 408,600 795,000 753,400 Research & development expense 87,300 50,900 189,000 96,400 Net interest expense 23,200 34,300 47,700 69,400 Total costs and expenses 3,116,900 3,182,800 5,912,700 5,877,200 Income before income taxes 458,700 631,900 702,400 634,100 Provision for income taxes 120,500 66,500 184,500 66,500 Net income (loss) $ 338,200 $ 565,400 $ 517,900 $ 567,600 Basic earnings net income per share $ 0.10 $ 0.17 $ 0.16 $ 0.17 Diluted net income per share $ 0.08 $ 0.14 $ 0.12 $ 0.14
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 1999 1998 Cash flow from operating activities: Net income $ 517,900 $ 567,600 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 78,900 59,800 Allowance for doubtful accounts 32,400 (117,800) Provision for inventory reserve (2,400) (5,600) Change in assets and liabilities: Change in accounts receivable (740,400) (1,031,900) Change in inventories 307,600 153,700 Change in prepaid expenses (4,000) (2,900) Change in other assets 28,100 168,700 Change in payables and accrued expenses 261,300 281,800 Change in other non-current liabilities (8,800) (11,800) Net cash provided by operating activities 470,600 61,600 Cash flow from investing activities: Purchase of fixed assets (163,300) (70,900) Cash used in investing activities (163,300) (70,900) Cash flow from financing activities: Proceeds from sale of common stock 2,500 Net cash provided by financing activities 2,500 Net increase (decrease) in cash and cash equivalents 307,300 (6,800) Cash and cash equivalents, beginning of period 477,500 46,300 Cash and cash equivalents, end of period $ 784,800 $ 39,500 Supplemental disclosures of cash flow information: Cash paid during the period for interest $ 53,200 $ 69,300 Cash paid during the period for income taxes $ 53,500 $ 32,000
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, 1999 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, 1998, included in its 1998 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 last in, first out (LIFO) basis, and consist of the following. June 30, 1999 December 31, 1998 Raw materials $ 540,200 $ 661,800 Work in process 238,600 211,500 Finished goods 181,400 392,100 $ 960,200 $ 1,265,400
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, 1999. 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 30, 2000. 5. Net Income Per Share Basic earnings per share were calculated as follows: Quarter Ended Six Months Ended June 30 June 30 1999 1998 1999 1998 Net income $ 338,200 $ 565,400 $ 517,900 $ 567,600 Average common shares outstanding 3,303,311 3,303,311 3,303,311 3,303,311 Earnings per share $ 0.10 $ 0.17 $ 0.16 $ 0.17
Basic earnings per share are calculated by dividing net income by the weighted average number of shares issued and outstanding. Part I - FINANCIAL INFORMATION - Item 1 (continued) Diluted earnings per share were calculated as follows: Quarter Ended Six Months Ended June 30 June 30 1999 1998 1999 1998 Net income $ 338,200 $ 565,400 $ 517,900 $ 567,600 Average common shares outstanding 3,303,311 3,303,311 3,303,311 3,303,311 Add: Exercise of options reduced by the number of shares purchased with proceeds 318,752 256,377 313,633 163,820 Add: Exercise of warrants reduced by the number of shares purchased with proceeds 108,047 96,033 107,056 77,344 Expense of warrants attached to debt reduced by the number of shares purchased with proceeds 485,625 458,478 483,387 416,250 Adjusted weighted average shares outstanding 4,215,735 4,114,199 4,207,388 3,960,725 Earnings per common share assuming full dilution $ 0.08 $ 0.14 $ 0.12 $ 0.14
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 Six Months Ended June 30 June 30 1999 1998 1999 1998 Product Line Net Sales Solar $2,113,900 $2,306,500 $3,875,800 $3,789,100 Thermal Energy Storage 1,459,600 1,504,200 2,737,600 2,721,100 $3,573,500 $3,810,700 $6,613,400 $6,510,200
Geographic information for revenues and long-lived assets are as follows: Quarter Ended Six Months Ended June 30 June 30 1999 1998 1999 1998 Net Sales Domestic $2,681,300 $2,513,000 $4,723,400 $4,238,900 Foreign Japan 690,800 1,090,100 1,540,900 1,539,200 Thermal Energy Storage 201,400 207,600 349,100 732,100 $3,573,500 $3,810,700 $6,613,400 $6,510,200
Long-lived assets June 30, 1999 December 31, 1998 Domestic $667,800 $583,400
For the six months ended June 30, 1999 and 1998, the Company had one major customer who individually accounted for 10% or more of sales totaling $1,540,900 and $1,539,200 respectively. Concentration of Credit Risk: Most of the Company's business activity is with customers located in California, Florida and foreign countries. As of June 30, 1999, unsecured trade accounts receivable from customers in California, Florida, and foreign countries were $608,300, $1,467,300 and $377,000, respectively 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, 1999 decreased by 6.2 % from $3,810,700 in 1998 to $3,573,500 in 1999 due to a decrease in unit sales of the Company's pool products combined with a price decrease due to competitive market pressures.. Net sales increased by 1.6% from $6,510,200 in the first half of 1998 to $6,613,400 in the corresponding period in 1999. This increase was due to increased unit sales of the Company's pool products, partially offset by the decreased pricing. Cost of goods sold decreased from $2,222,100 (58.3% of net sales) in the quarter ended June 30, 1998 to $2,071,300 (58.0% of net sales) in the corresponding period in 1999. For the six months ended June 30, cost of sales decreased from $3,985,500 (61.2% of net sales) in 1998 to $3,843,500 (58.1% of net sales) in 1999. These decreases in cost of goods sold were due primarily to increased labor efficiency in manufacturing partially offset by lower sales of the higher margin pool panel products and with higher sales of the lower margin Icestor products. Marketing and selling expenses for the quarter ended June 30 increased from $466,900 (12.3%) of net sales in 1998 to $508,400 (14.2% of net sales) in 1999 and for the six-month period ended June 30 increased from $972,500 (14.9% of net sales) in 1998 to $1,037,500 (15.7% of net sales) in 1999. These increases were due mainly to increased advertising expenses. General and administrative expenses were relatively stable at $426,700 in the second quarter of 1999 (11.9% of net sales) compared with $408,600 (10.7% of net sales) in the second quarter of 1998 and $795,000 (12.0% of net sales) for the first six months of 1999 compared to $753,000 (11.6% of net sales) for the corresponding period in 1998. Research and development expenses for the quarter ended June 30 increased from $50,900 (1.3% of net sales) in 1998 to $87,300 (2.4 % of net sales) in 1999. For the six-month period ended June 30 research and development expenses increased from $96,400 (1.5% of net sales) in 1998 to $189,000 (2.9% of net sales) in 1999. These increases were 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 $23,200 (0.6% of net sales) in the second quarter of 1999 from $34,300 (0.9% of net sales) in the first quarter of 1998. Net income expense for the six-month period ended June 30 Part I - FINANCIAL INFORMATION - Item 2 (continued) Liquidity and Capital Resources The Company's cash position increased from $477,500 at 1998 fiscal year end to $784,800 at June 30 1999 principally due to cash flow from operations (primarily net income) during the period and increased accounts receivable, partially offset by decreased inventories and increased accounts payable and accrued benefits and taxes. At June 30, 1999, the Company's accounts payable and other accrued expenses had decreased to $1,012,500 from $1,065,600 at December 31, 1998. This decrease is primarily due to slightly faster payment of payables made possible by improved cash flows during the year. At June 30, 1999, the Company's accrued benefits increased to $357,200 from $217,300 at December 31, 1998. This increase was due mainly to accruals for employee profit sharing bonuses along with the fact that the December 1998 level was low due to the heavy use of vacation while the Company was closed in the latter half of December. The Company's current ratio was 2.72 to 1 at June 30, 1999 and at December 31, 1998. The Company had working capital of $3,087,900 at June 30,1999 compared with $2,637,200 at December 31, 1998. Total assets exceeded total liabilities by $3,404,300 at June 30, 1999 compared with $2,886,400 at December 31, 1998. 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 June 30, 1999. Shares Common Stock: authorized 10,000,000 shares of $.125 par value; issued and outstanding at December 31, 1998, as reported in the Registrant's Annual report on Form 10-K filed for the fiscal year ended December 31, 1998. 3,303,311 Issued during the quarter 0 Outstanding at June 30, 1999 3,303,311 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 June 30, 1999. 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 Nancy I. Garvin, Vice President - Finance and Chief Financial Officer N:\ELINK\FILING\10Q_2ndQtr99.doc Page 1 of 11 Revised: 8/3/99 EX-27 2
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