-----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, HUo0dyTZaiukloUZp6FOYNDovpvcvHDoWQYc7fGKebTjCe6UmzS/UqQwJluWVaeK iB7ZuS5l6olNuU9ITeCE2w== 0000891618-96-000299.txt : 19960507 0000891618-96-000299.hdr.sgml : 19960507 ACCESSION NUMBER: 0000891618-96-000299 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960506 SROS: NASD 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: 96556772 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 FAFCO, INC. FORM 10-Q FOR PERIOD ENDED 3/31/96 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMISSION 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, 1996 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 (I.R.S. Employer Identification No.) incorporation or organization) 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 May 3, 1996 , 3,298,311 shares of the Registrant's Common Stock, $.125 par value were issued and outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 Part 1 - FINANCIAL INFORMATION Item 1 - Financial Statements FAFCO, Inc. CONSOLIDATED BALANCE SHEET
MARCH 31, 1996 DECEMBER 31, 1995 (UNAUDITED) - ---------------------------------------------------------------- ------------------------ ---------------------- ASSETS Current assets: Cash and cash equivalents $ 211,700 $ 126,200 Accounts receivable, less allowance for doubtful accounts of $475,400 in 1996 and $463,900 in 1995 1,869,900 1,149,600 Current portion of long-term notes receivable (net) 262,600 64,000 Inventories 851,100 717,200 Prepaid expenses and other current assets 217,000 145,500 Other accounts receivable 4,600 Deferred tax asset, net of allowance 125,200 125,200 - -------------------------------------------------------------------------------------------------------------- Total current assets 3,542,100 2,327,700 - -------------------------------------------------------------------------------------------------------------- Plant and equipment, at cost 2,418,200 2,345,100 Less accumulated depreciation and amortization (2,117,500) (2,085,900) - -------------------------------------------------------------------------------------------------------------- 300,700 259,200 - -------------------------------------------------------------------------------------------------------------- Notes receivable and other assets (net) 109,500 327,700 Deferred tax asset, net of allowance 485,800 485,800 - -------------------------------------------------------------------------------------------------------------- Total assets $4,438,100 $3,400,400 - -------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable to bank $ 651,300 $ 751,300 Accounts payable and other accrued expenses 1,504,000 949,100 Accrued compensation and benefits 314,400 188,900 Accrued warranty expanse 212,900 216,000 Income taxes payable 2,300 - ---------------------------------------------------------------- ------------------------ ---------------------- Total current liabilities 2,684,900 2,105,300 - ---------------------------------------------------------------- ------------------------ ---------------------- Convertible subordinated notes $550,000 and $425,000 was owed to related parties in 1996 and 1995 respectively 925,000 600,000 Other non-current liabilities 20,200 80,400 - ---------------------------------------------------------------- ------------------------ ---------------------- Total liabilities 3,630,100 2,785,700 - ---------------------------------------------------------------- ------------------------ ---------------------- 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 1996 and 3,112,687 was outstanding in 1995. 412,200 389,000 Capital in excess of par value 5,105,100 5,035,600 Notes receivable secured by Common Stock (75,100) (75,100) Deficit (4,634,200) (4,734,800) - ---------------------------------------------------------------- ------------------------ ---------------------- Total shareholders' equity 808,000 614,700 - ---------------------------------------------------------------- ------------------------ ---------------------- Commitments and contingent liabilities - ---------------------------------------------------------------- ------------------------ ---------------------- Total liabilities and shareholders' equity $4,438,100 $3,400,400 - ---------------------------------------------------------------- ------------------------ ----------------------
The accompanying notes are an integral part of this statement. Page 2 of 10 3 Part I - FINANCIAL INFORMATION (continued) FAFCO, Inc. CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
Three Months Ended March 31, ----------------------------- 1996 1995 ---------- ----------- Net sales $2,284,400 $ 2,089,300 Other income (net) 16,100 800 ---------- ----------- Total revenues 2,300,500 2,090,100 ---------- ----------- Cost of goods sold 1,323,500 1,384,200 Marketing & selling expense 469,100 566,100 General & administrative expense 312,000 361,000 Research & development expense 52,600 127,700 Net interest expense 40,400 15,800 ---------- ----------- Total costs and expense 2,197,600 2,454,800 ---------- ----------- Income (loss) before income taxes 102,900 $ (364,700) Provision for income taxes 2,300 ---------- ----------- Net income (loss) $ 100,600 $ (364,700) ========== =========== Primary net income (loss) per share $ 0.03 $ (0.10) ========== =========== Fully diluted net income per share $ 0.03 $ (0.10) ========== ===========
The accompanying notes are an integral part of this statement. Page 3 of 10 4 Part I - FINANCIAL INFORMATION (continued) FAFCO, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended March 31, -------------------------- 1996 1995 ----------- ------------ CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss) $ 100,600 $(364,700) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 31,600 40,100 Allowance for doubtful accounts 11,500 10,300 Change in assets and liabilities: Change in accounts receivable (974,100) 456,100 Increase in inventories (133,900) (201,200) Increase in prepaid expenses (71,500) (12,200) Decrease in other assets 257,300 2,700 Change in payables and accrued expenses 685,200 (105,200) Decrease in other non-current liabilities (60,100) (1,600) --------- --------- Net Cash used in operating activities (153,400) (175,700) --------- --------- CASH FLOW FROM INVESTING ACTIVITIES: Purchase of fixed assets (73,100) (41,000) --------- --------- Net cash used in investing activities (73,100) (41,000) --------- --------- CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from borrowing 325,000 50,000 Proceeds from sale of common stock 92,800 Repayment of borrowings (105,800) (47,100) --------- --------- Net cash provided by financing activities 312,000 2,900 --------- --------- Net increase (decrease) in cash and cash equivalents 85,500 (213,800) Cash and cash equivalents, beginning of period 126,200 338,000 --------- --------- Cash and cash equivalents, end of period $ 211,700 $ 124,200 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 36,600 $ 16,700 Cash paid during the period for income taxes $ 49,000
The accompanying notes are an integral part of this statement. Page 4 of 10 5 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 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 March 31, 1996 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, 1995, included in its 1995 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.
March 31, 1996 December 31, 1995 -------------- ----------------- Raw materials $462,900 $395,200 Work in process 212,800 118,500 Finished goods 175,400 203,500 -------- -------- $851,100 $717,200 ======== ========
4. In February 1996, the Registrant entered into 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 $348,700 at March 31, 1996. Amounts borrowed bear interest at prime rate plus 2 -1/2% per annum and are secured by the Registrant's assets along with The Gregory Company's assets. This line of credit expires on June 5, 1997. Page 5 of 10 6 Part I - FINANCIAL INFORMATION (continued) Deferred tax assets are comprised of the following at:
January 1, 1996 January 1, 1995 --------------- --------------- Allowance for doubtful accounts $ 197,000 $ 199,400 Accrued expenses 142,300 140,000 Loss carryforwards 1,360,500 625,000 Tax credits 178,600 193,600 Other 116,400 53,900 ----------- ----------- 1,994,800 1,211,900 Deferred tax asset valuation allowance (1,383,800) (600,900) ----------- ----------- Total deferred taxes, net $ 611,000 $ 611,000 =========== ===========
6. Net Income (Loss) Per Share Primary earnings per share were calculated as follows:
QUARTER ENDED MARCH 31, ------------------------ 1996 1995 ---------- ----------- Net income (loss) $ 100,600 $ (364,700) ---------- ----------- Average common shares outstanding 3,298,311 3,100,887 Add: Exercise of options reduced by the number of shares purchased with proceeds N/A 262,892 Add: Exercise of warrants reduced by the number of shares purchased with proceeds N/A 118,261 Adjusted weighted average shares outstanding 3,298,311 3,482,040 ---------- ----------- Net loss per share $ 0.03 $ (0.10) ========== ===========
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. Page 6 of 10 7 Part I - FINANCIAL INFORMATION (continued) Fully diluted earnings per share were calculated as follows:
QUARTER ENDED MARCH 31, 1996 1995 ---------- ----------- Adjusted net (increase) $ 100,600 $ (357,000) ---------- ----------- Average common shares outstanding 3,298,311 3,100,887 Add: Exercise of options reduced by the number of shares purchased with proceeds N/A 262,892 Add: Exercise of warrants reduced by the number of shares purchased with proceeds N/A 118,261 Add: conversion of convertible debt into shares N/A 270,000 ---------- ----------- Adjusted weighted average shares outstanding 3,298,311 3,752,040 ---------- ----------- Net loss per common share assuming full dilution $ 0.03 $ (0.10) ========== ===========
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. Page 7 of 10 8 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 March 31, 1996 increased by 9.34% from $2,089,300 in 1995 to $2,284,400 in 1996. Revenues increased during the first quarter of 1996 over the corresponding quarter in 1995 due to increased unit sales of the Company's IceStor(TM) products and pool panel products. These increases were partially offset by decreased unit sales of the Company's automated swimming pool controls. Costs of goods sold decreased from $1,384,200 (66.3% of net sales) in the first quarter of 1995 to $1,323,500 (57.9% of net sales) in the first quarter of 1996 due mainly to reductions in overhead which took place in the second half of 1995. Marketing and selling expenses decrease from $566,100 (27.1% of net sales) in the in the first quarter of 1995 to $469,100 (20.5% of net sales) in the first quarter of 1996 due mainly to reduction in personnel in marketing support functions. General and administrative expenses decreased from $361,000 (17.3% of net sales) in the first quarter of 1995 to $312,000 (13.7% of net sales) in the same quarter of 1996 due mainly to reductions in personnel. Research and development expenses decreased from $127,700 (6.1% of net sales) in the first quarter of 1995 to $52,600 (2.3% of net sales) in the same quarter of 1996 due mainly to reductions in personnel. Net interest expense increased by 155.7% from $15,800 (0.8% of net sales) in 1995 to $40,400 (1.8% of net sales) in 1996. This increase was due mainly to higher average daily borrowing in 1996 at higher interest rates. Other income (net) included $15,900 in refunds of prior years' insurance premiums in the first quarter of 1996. Liquidity and Capital Resources At March 31, 1996, the Registrant's inventories had increased to $851,100 from $717,200 at December 31, 1995. This increase was due mainly to acquisition of inventories required to support the increased sales levels experienced during the first quarter of 1996. At March 31, 1996, the Registrant's accounts payable and other accrued expenses had increased to $1,504,000 from $949,100 at December 31, 1995. This increase is primarily due to decreased cash flow during the quarter as a result of the Registrant's "Early Buy" program for Above Ground Pool systems and increased sales levels experienced during the quarter. At March 31, 1996, the Registrant's accounts receivable had increased to $1,869,900 from $1,149,600 at December 31, 1995 due mainly to the effect of the Company's "Early Buy" program for Above Ground Pool panel sales which was introduced in 1996 along with increased sales levels experienced during the first quarter of 1996. Page 8 of 10 9 Part I - FINANCIAL INFORMATION (continued) At March 31, 1996, the Registrant's accrued compensation and benefits had increased to $314,400 from $188,900 at December 31, 1995, due mainly to the fact that the December 1995 level was abnormally low due to heavy use of vacation while the Company was closed in the latter half of December. At March 31, 1995, the Registrant's current ratio was 1.32 to 1 compared with 1.11 to 1 at December 31, 1995. The Registrant had working capital of $857,200 at March 31, 1996 compared with $222,400 at December 31, 1995. Total assets exceeded total liabilities by $808,000 at March 31, 1996 compared with $614,700 at December 31, 1995. 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 6 - Exhibits and Reports on Form 8-K a. Exhibits None. b. Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31, 1995. Page 9 of 10 10 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 3, 1996 BY:/s/Alex N. Watt ----------- --------------- Alex N. Watt, Vice President - Finance and Administration and Chief Financial Officer (Principal Financial and Accounting Officer) Page 10 of 10 EX-27 2 FINANCIAL DATA SCHEDULE
5 0000352956 FAFCO INCORPORATED U.S. DOLLARS YEAR DEC-31-1996 JAN-01-1996 MAR-31-1996 1 211,700 0 2,733,254 514,500 851,100 3,542,100 2,418,200 (2,117,500) 4,438,100 2,684,900 945,200 0 0 412,200 395,800 4,438,100 2,284,400 2,300,600 1,323,500 1,323,500 52,700 11,500 40,400 102,900 2,300 100,600 0 0 0 100,600 .03 .03
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