-----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, Tjq7VXSOK5Ee2Y6sQ9kamWdMYKHmZ6/bQD4qYpuOeSyNjBuJSxgXQ3UhRbUO6EpM arIgDq22nqV66CV54LtYzQ== 0000352956-99-000019.txt : 19991101 0000352956-99-000019.hdr.sgml : 19991101 ACCESSION NUMBER: 0000352956-99-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991029 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: 99736913 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 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 September 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 (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 October 25, 1999, 3,303,311 shares of the Registrant's Common Stock, $.125 par value were issued and outstanding. Part 1 - FINANCIAL INFORMATION Item 1 - Financial Statements FAFCO, Inc. CONSOLIDATED BALANCE SHEET September 30, 1999 December 31, 1998 (unaudited) Assets Current assets: Cash and cash equivalents $ 168,600 $ 477,500 Accounts receivable, less allowance for doubtful accounts of $578,400 in 1999 and $536,300 in 1998 2,042,900 1,876,600 Current portion of long-term notes receivable (net) 72,000 87,600 Inventories 1,167,300 1,265,400 Prepaid expenses and other current assets 183,700 183,500 Other accounts receivable, net of allowance 20,700 7,300 Deferred tax asset, net of allowance 273,000 273,000 Total current assets 3,928,200 4,170,900 Plant and equipment, at cost 3,134,300 2,901,900 Less accumulated depreciation and amortization (2,349,400) (2,318,500) 784,900 583,400 Notes receivable and other assets (net) 31,600 58,200 Deferred tax asset, net of allowance 564,500 564,500 Total assets $ 5,309,200 $ 5,377,000 Liabilities and shareholders' equity Current Liabilities: Bank line of credit $ 258,000 $ Accounts payable and other accrued expenses 993,100 1,065,600 Accrued compensation and benefits 243,500 217,300 Accrued warranty expense 298,300 232,200 Income taxes payable 134,500 18,600 Total current liabilities $ 1,927,400 $ 1,533,700 Subordinated notes ($600,000 was owed to related parties in 1998) 925,000 Other non-current liabilities 19,900 31,900 Total liabilities 1,947,300 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) Deficit (2,082,900) (2,558,400) Total shareholders' equity 3,361,900 2,886,400 Commitments and contingent liabilities Total liabilities and shareholders' equity $ 5,309,200 $ 5,377,000
The accompanying notes are an integral part of this statement. Part I - FINANCIAL INFORMATION (continued) FAFCO, Inc. CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) Quarter Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 Net sales $ 2,100,300 $ 2,426,100 $ 8,713,700 $ 8,936,300 Other income (net) 1,200 14,700 2,900 15,800 Total revenues 2,101,500 2,440,800 8,716,600 8,952,100 Cost of goods sold 1,264,700 1,520,500 5,108,200 5,506,000 Marketing & selling expense 436,100 473,900 1,473,600 1,446,400 General & administrative expense 369,800 342,600 1,164,800 1,096,000 Research & development expense 70,800 50,700 259,800 147,100 Net interest expense 16,500 23,300 64,200 92,700 Total costs and expenses 2,157,900 2,411,000 8,070,600 8,288,200 Income (loss) before income taxes $ (56,400) $ 29,800 $ 646,000 $ 663,900 Provision for income taxes (14,000) 170,500 66,500 Net income (loss) $ (42,400) $ 29,800 $ 475,500 $ 597,400 Basic earnings net income per share $ (0.01) $ 0.01 $ 0.14 $ 0.18 Diluted net income per share $ (0.01) $ 0.01 $ 0.11 $ 0.15
The accompanying notes are an integral part of this statement Part I - FINANCIAL INFORMATION (continued) FAFCO, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended September 30, 1999 1998 Cash flow from operating activities: Net income $ 475,500 $ 597,400 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 126,100 94,300 Allowance for doubtful accounts 42,000 (108,800) Provision for inventory reserve (5,600) (17,900) Gain on sale of fixed assets (19,000) Change in assets and liabilities: Change in accounts receivable (221,700) (482,300) Change in inventories 103,700 140,900 Change in prepaid expenses (200) 16,100 Change in other assets 42,200 190,800 Change in payables and accrued expenses 135,700 176,200 Change in other non-current liabilities (12,000) (17,900) Net cash (used in) provided by operating activities 685,700 569,800 Cash flow from investing activities: Purchase of fixed assets (327,600) (235,800) Proceeds from sale of equipment - 19,000 Cash used in investing activities (327,600) (216,800) Cash flow from financing activities: Proceeds from sale of common stock 2,500 Payments on subordinated debt (925,000) Borrowings on line of credit 258,000 Net cash provided by (used in) financing activities (667,000) 2,500 Net increase (decrease) in cash and cash equivalents (308,900) 355,500 Cash & cash equivalents, beginning of period 477,500 46,300 Cash and cash equivalents, end of period $ 168,600 $ 401,800 Supplemental disclosures of cash flow information: Cash paid during the period for interest $ 99,000 $ 96,400 Cash paid during the period for income taxes $ 55,800 $ 52,900
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 September 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 Registrant'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 using the first in, first out (FIFO) method, and consist of the following. September 30, 1999 December 31, 1998 Raw materi $ 604,900 $ 661,800 Work in process 219,500 211,500 Finished goods 342,900 392,100 $ 1,167,300 $ 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 $742,000 at September 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 (loss) per share were calculated as follows: Quarter Ended Nine Months Ended September 30 September 30 1999 1998 1999 1998 Net income $ (42,400) $ 29,800 $ 475,500 $ 597,400 Average common shares outstanding 3,303,311 3,303,311 3,303,311 3,303,311 Earnings per share $ (0.01 $ 0.0 $ 0.14 $ 0.18
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 (loss) per share were calculated as follows: Quarter Ended Nine Months Ended September 30 September 30 1999 1998 1999 1998 Net income $ (42,400) $ 29,800 $ 475,500 $ 597,400 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 337,155 344,074 331,960 235,697 Add: Exercise of warrants reduced by the number of shares purchased with proceeds 103,661 106,000 102,361 77,344 Add: Expense of warrants attached to debt reduced by the number of shares purchased with proceeds 475,714 481,000 472,778 416,250 Adjusted weighted average shares outstanding 4,219,841 4,234,385 4,210,410 4,032,602 Earnings (loss) per common share assuming full dilution $ (0.01) $ 0.01 $ 0.11 $ 0.15
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 Nine Months Ended September 30 September 30 1999 1998 1999 1998 Product Line Net Sales Solar $1,225,600 $1,033,500 $5,101,400 $4,822,600 Thermal Energy Storage 874,700 1,392,600 3,612,300 4,113,700 $2,100,300 $2,426,100 $8,713,700 $8,936,300
Geographic information for revenues and long-lived assets are as follows: Quarter Ended Nine Months Ended September 30 September 30 1999 1998 1999 1998 Net Sales Domestic $1,658,900 $1,519,800 $6,382,300 $5,758,700 Foreign Japan 129,700 416,000 1,670,600 1,955,200 Other 311,700 490,300 660,800 1,222,400 $2,100,300 $2,426,100 $8,713,700 $8,936,300
Long-lived assets September 30, 1999 December 31, 1998 Domestic $ 784,900 $ 583,400
For the nine months ended September 30, 1999 and 1998, the Company had one major customer who individually accounted for 10% or more of sales totaling $1,670,600 and $1,955,200, respectively. Concentration of Credit Risk: Most of the Company's business activity is with customers located in California, Florida and foreign countries. As of September 30, 1999, unsecured trade accounts receivable from customers in California, Florida, and foreign countries were $567,800, $1,335,600 and $499,400, 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 September 30, 1999 decreased by 13.4% from $2,426,100 in 1998 to $2,100,300 in 1999 as a result of a decrease in sales of the Company's IceStor products combined with a price decrease in the Company's pool products due to competitive market pressures. Net sales decreased by 2.5% from $8,936,300 in the first nine months of 1998 to $8,713,700 in the corresponding period in 1999. This decrease was due to decreased sales of the Company's IceStor products partially offset by increased unit sales of the Company's pool products. Costs of goods sold decreased from $1,520,500 (62.7% of net sales) in the quarter ended September 30, 1998 to $1,264,700 (60.2% of net sales) in the corresponding period in 1999. For the nine months ended September 30, cost of sales decreased from $5,506,000 (61.6% of net sales) in 1998 to $5,108,200 (58.6% of net sales) in 1999. These decreases in cost of goods sold were due primarily to decreased sales of lower margin IceStor products offset slightly by increased sales of higher margin pool products. Marketing and selling expenses remained relatively stable at $436,100 (20.8% of net sales) in the third quarter of 1999 compared to $473,900 (19.5% of sales) in the third quarter of 1998 and $1,473,600 (16.9% of net sales) for the nine months ended September 30, 1999 compared to $1,446,400 (16.2% of net sales) for the corresponding period in 1998. General and administrative expenses increased from $342,600 (14.1% of net sales) in the third quarter of 1998 to $369,800 (17.6% of net sales) in 1999 and from $1,096,000 (12.3% of net sales) for the nine months ended September 30, 1998 to $1,164,800 (13.4% of net sales) for the corresponding period in 1999. These increases were due to small increases in a variety of expense categories, no one of which is by itself significant. Research and development expenses for the quarter ended September 30 increased from $50,700 (2.1% of net sales) in 1998 to $70,800 (3.4% of net sales) in 1999. For the nine month period ended September 30 research and development expenses increased from $147,100 (1.6% of net sales) in 1998 to $259,800 (3.0% of net sales) in 1999. These increases were due mainly to an increase in personnel. Net interest expense decreased to $16,500 (0.8% of net sales) in the third quarter of 1999 from $23,300 (1.0% of net sales) in the second quarter of 1998. Net interest expense for the nine month period ended September 30 decreased from $92,700 (1.0% of net sales) in 1998 to $64,200 (0.7% of net sales) in 1999. These decreases were due primarily to lower average daily borrowing in 1999 than in 1998. Liquidity and Capital Resources The Company's cash position decreased from $477,500 at 1998 fiscal year end to $168,600 at September 30, 1999 principally due to cash flow from financing (subordinated debt pay off) and investing (purchase of fixed assets) activities. At September 30, 1999, the Company's net accounts receivable had increased to $2,042,900 from $1,876,600 at December 31, 1998 primarily as a result of an increase in the number of customers combined with increased sales of the Company's pool products. At September 30, 1999, the Company's inventories were relatively stable at $1,167,300 compared with $1,265,400 at December 31, 1998. At September 30, 1999, the Company's subordinated debt had decreased to $0 from $925,000 at December 31, 1998 due mainly to improved cash flow from operations and an increase in the amount owed on the bank line of credit. At September 30, 1999, the Company's accounts payable and other accrued expenses had decreased to $993,100 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 September 30, 1999, the Company's accrued benefits remained relatively stable at $243,500 as compared to $217,300 at December 31, 1998. The Company's current ratio was 2.04 to 1 at September 30, 1999 compared to 2.72 to 1 at December 31, 1998. The Company had working capital of $2,000,800 at September 30, 1999 compared with $2,637,200 at December 31, 1998. Total assets exceeded total liabilities by $3,361,900 at September 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 September 30, 1998. 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 September 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 September 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: October 28, 1999 BY: /s/ Nancy I. Garvin Nancy I. Garvin Vice President - Finance and Chief Financial Officer X:/Admin/Financial Reporting10Q_3rdQtr99 Page 1 of 10 Revised: 10/27/99 EX-27 2
5 0000352956 FAFCO, INC. 9-MOS DEC-31-1999 SEP-30-1999 168600 0 2745600 607600 1167300 3928200 3134300 2349400 5309200 1927400 19900 0 0 412800 2949100 5309200 8713700 8761600 5108200 5108200 0 45200 73600 646000 170500 475500 0 0 0 475500 0.14 .011
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