-----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, BPL4uDxLrXXqrOqc6ni1VJxT+cRMO4sJWgCrHWcU9LvkClbQW3Es6ef7D32zUIGs TX3/4hb2fYSS5wg0eySi+w== 0000891618-96-002568.txt : 19961108 0000891618-96-002568.hdr.sgml : 19961108 ACCESSION NUMBER: 0000891618-96-002568 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961107 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: 96656170 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 FORM 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, 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 November 1, 1996, 3,298,311 shares of the Registrant's Common Stock, $.125 par value were issued and outstanding. Page 1 of 10 2 Part 1 - FINANCIAL INFORMATION Item 1 - Financial Statements FAFCO, Inc. CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996 DECEMBER 31, 1995 (UNAUDITED) ------------------ ----------------- ASSETS Current assets: Cash and cash equivalents $ 121,500 $ 126,200 Accounts receivable, less allowance for doubtful accounts of $497,000 in 1996 and $463,900 in 1995 1,770,000 1,149,600 Current portion of long-term notes receivable (net) 232,600 64,000 Inventories 712,900 717,200 Prepaid expenses and other current assets 139,500 145,500 Other accounts receivable 8,400 Deferred tax asset, net of allowance 125,200 125,200 ----------- ----------- Total current assets 3,110,100 2,327,700 ----------- ----------- Plant and equipment, at cost 2,456,600 2,345,100 Less accumulated depreciation and amortization (2,113,000) (2,085,900) ----------- ----------- 343,600 259,200 ----------- ----------- Notes receivable and other assets (net) 103,200 327,700 Deferred tax asset, net of allowance 485,800 485,800 ----------- ----------- Total assets $ 4,042,700 $ 3,400,400 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable to bank $ 712,600 $ 751,300 Accounts payable and other accrued expenses 1,009,900 949,100 Accrued compensation and benefits 275,900 188,900 Accrued warranty expanse 225,400 216,000 Income taxes payable 18,800 ----------- ----------- Total current liabilities 2,242,600 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 29,300 80,400 ----------- ----------- Total liabilities 3,196,900 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 (4,596,400) (4,734,800) ----------- ----------- Total shareholders' equity 845,800 614,700 ----------- ----------- Commitments and contingent liabilities ----------- ----------- Total liabilities and shareholders' equity $ 4,042,700 $ 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)
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------ ------------------------------ 1996 1995 1996 1995 ----------- ----------- ----------- ----------- Net sales $ 1,757,900 $ 1,707,500 $ 6,817,800 $ 6,509,300 Other income (net) (3,400) 7,600 33,000 34,400 ----------- ----------- ----------- ----------- Total revenues 1,754,500 1,715,100 6,850,800 6,543,700 ----------- ----------- ----------- ----------- Cost of goods sold 1,239,300 1,432,100 4,146,700 4,659,700 Marketing & selling expense 381,600 532,000 1,309,700 1,700,500 General & administrative expense 330,600 436,200 1,013,300 1,201,100 Research & development expense 28,200 109,900 86,200 388,100 Net interest expense 42,600 25,700 123,700 59,300 ----------- ----------- ----------- ----------- Total costs and expenses 2,022,300 2,535,900 6,679,600 8,008,700 ----------- ----------- ----------- ----------- Income (loss) before income taxes (267,800) (820,800) 171,200 (1,465,000) Provision for income taxes 32,800 ----------- ----------- ----------- ----------- Net income (loss) ($ 267,800) ($ 820,800) $ 138,400 ($1,465,000) =========== =========== =========== =========== Primary net income (loss) per share $ (0.08) $ (0.24) $ 0.04 $ (0.43) ----------- ----------- ----------- ----------- Fully diluted net income per share $ (0.08) $ (0.24) $ 0.04 $ (0.43)
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)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------- 1996 1995 --------- ----------- CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss) $ 138,400 ($1,465,000) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 88,300 128,800 Allowance for doubtful accounts 33,100 28,300 (Gain) loss on sale of fixed assets (6,100) 16,100 Provision for inventory reserve 45,000 Change in assets and liabilities: Change in accounts receivable (869,500) 1,201,300 Change in inventories 4,300 (69,400) Change in prepaid expenses 6,000 (40,400) Change in other assets 263,500 (412,700) Change in payables and accrued expenses 187,300 (295,500) Decrease in other non-current liabilities (63,300) (4,800) --------- ----------- Net cash used in operating activities (218,000) (868,300) --------- ----------- CASH FLOW FROM INVESTING ACTIVITIES: Purchase of fixed assets (172,700) (68,600) Proceeds from sale of property & equipment 6,100 --------- ----------- Net cash used in investing activities (166,600) (68,600) --------- ----------- CASH FLOW FROM FINANCING ACTIVITIES: Borrowings under subordinated debt agreements ($175,000 from related parties) 325,000 Proceeds from sale of common stock 92,800 Net borrowings (repayments) under bank revolving line of credit (38,700) 701,300 Net increase (reduction) in capital lease obligations 800 (16,100) Repurchase of common stock (4,500) --------- ----------- Net cash provided by financing activities 379,900 680,700 --------- ----------- Net decrease in cash and cash equivalents (4,700) (256,200) Cash & cash equivalents, beginning of period 126,200 338,000 ========= =========== Cash and cash equivalents, end of period $ 121,500 $ 81,800 ========= =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 73,200 $ 55,900 Cash paid during the period for income taxes $ 7,500 $ 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 September 30, 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.
SEPTEMBER 30, 1996 DECEMBER 31, 1995 ------------------------ -------------------------- Raw materials $319,300 $395,200 Work in process 194,300 118,500 Finished goods 199,300 203,500 ======== ======== 712,900 $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 $287,400 at September 30, 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 1996 1995 ---- ---- ---- ---- Net income (loss) ($ 267,800) ($ 820,800) $ 138,400 ($1,465,000) ----------- ----------- ---------- ----------- Average common shares outstanding 3,298,311 3,097,887 3,209,579 3,097,887 Add: Exercise of options reduced by the number of shares purchased with proceeds N/A 223,635 N/A 194,823 Add: Exercise of warrants reduced by the number of shares purchased with proceeds N/A 111,458 N/A 111,458 Adjusted weighted average shares outstanding 3,298,311 3,432,980 3,209,579 3,404,168 ----------- ----------- ---------- ----------- Earnings net (loss) per share ($ 0.08) ($ 0.24) $ 0.04 ($ .43) =========== =========== ========== ===========
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 NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30, 1996 1995 1996 1995 ----------- ----------- ---------- ----------- Adjusted net (increase) ($ 267,800) ($ 820,800) $ 138,400 ($1,465,500) ----------- ----------- ---------- ----------- Average common shares outstanding 3,298,311 3,097,887 3,209,579 3,097,887 Add: Exercise of options reduced by the number of shares purchased with proceeds N/A 223,635 N/A 194,823 Add: Exercise of warrants reduced by the number of shares purchased with proceeds N/A 111,458 N/A 111,458 Add: conversion of convertible debt into shares N/A N/A N/A N/A ----------- ----------- ---------- ----------- Adjusted weighted average shares outstanding 3,298,311 3,432,980 3,209,579 3,404,168 ----------- ----------- ---------- ----------- Net (loss) per common share assuming full dilution ($ 0.08) ($ 0.24) $ 0.04 ($ .43) =========== =========== ========== ===========
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 - 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, 1996 increased by 3.0% from $1,707,500 in 1995 to $1,757,900 in 1996. Net sales for the nine months ended September 30, 1996 increased by 4.7% from $6,509,300 in 1995 to $6,817,800 in 1996. These increases were primarily due to increased IceStor(TM) and pool panel product sales partially offset by decreased unit sales of the Company's automated swimming pool controls. Cost of goods sold decreased from $1,432,100 (83.9% of net sales) in the quarter ended September 30, 1995 to $1,239,300 (70.5% of net sales) in the corresponding quarter in 1996, and decreased from $4,659,700 (71.6% of net sales) for the nine month period ended September 30, 1995 to $4,146,700 (60.8% of net sales) for the corresponding period in 1996. These decreases in cost of goods sold were due primarily to the spreading of reduced overhead costs over slightly higher net sales. Marketing and selling expenses decreased from $532,000 (31.2% of net sales) in the quarter ended September 30 1995 to $381,600 (21.7% of net sales) in the same quarter of 1996 and decreased from $1,700,500 (26.1% of net sales) in the nine month period ended September 30, 1995 to $1,309,700 (19.2% of net sales) for the corresponding period in 1996. These decreases were due mainly to the decrease of in-house sales support personnel. General and administrative expenses decreased from $436,200 (25.5% of net sales) in the quarter ended September 30, 1995 to $330,600 (18.8% of net sales) in the same quarter in 1996 and from $1,201,100 (18.5% of net sales) in the nine month period ended September 30, 1995 to $1,013,300 (14.9% of net sales) for the corresponding period in 1996. These decrease were due mainly to a reduction of cost associated with decreases in personnel throughout the company. Research and development expensed decreased from $109,900 (6.4% of net sales) for the quarter ended September 30, 1995 to $28,200 (1.6% of net sales) for the quarter ended September 30, 1996 and decreased from $388,100 (6.0% of net sales) in the nine month period ended September 30, 1995 to $86,200 (1.3% of net sales) for the corresponding period in 1996. These decreases were primarily a result of a decrease in personnel in the research and development area. Net interest expense increased from $25,700 (1.5% of net sales) in the quarter ended September 30, 1995 to $42,600 (2.4% of net sales) for the quarter ended September 30, 1996 and increased from $59,300 (0.9% of net sales) in the nine month period ended September 30, 1995 to $123,700 (1.8% of net sales) for the corresponding period in 1996. These increases were mainly due to higher average daily borrowing in 1996 along with higher interest rates in 1996. Other income (net) included $30,000 in refunds of prior year's insurance premiums during the first nine months of 1996 compared with $24,000 during the first nine months of 1995. Liquidity and Capital Resources At September 30, 1996, the Registrant's inventories were stable at $712,900 compared with $717,200 at December 31, 1995. Part I - FINANCIAL INFORMATION (continued) Page 8 of 10 9 At September 30, 1996, the Registrant's accounts payable and other accrued expenses had increased to $1,009,900 from $949,100 at December 31, 1995. This increase is primarily due to slightly increased sales levels experienced during the year. At September 30, 1996, the Registrant's accounts receivable had increased to $1,770,000 from $1,149,600 at December 31, 1995 due mainly to the increase in sales of IceStor(TM) products during the period along with new customer sales of Above Ground Pool panels. At September 30, 1996, the Registrant's accrued compensation and benefits had increased to $275,900 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 September 30, 1996, the Registrant's current ratio was 1.39 to 1 compared with 1.11 to 1 at December 31, 1995. The Registrant had working capital of $867,500 at September 30, 1996 compared with $222,400 at December 31, 1995. Total assets exceeded total liabilities by $845,800 at September 30, 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. Part II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K a. Exhibits: 27 Financial Data Schedule b. Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended September 30, 1996. 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: November 1, 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 11 Exhibit Index
Exhibit Description - ------- ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 US DOLLARS 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 1 121,500 0 2,621,700 536,100 712,900 3,110,100 2,456,600 (2,113,000) 4,042,700 2,242,600 954,300 0 0 412,200 433,600 4,042,700 6,817,800 6,850,800 4,146,700 4,146,700 86,200 34,900 123,700 171,200 32,800 138,400 0 0 0 138,400 .04 .04
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