-----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, IXRMB18X25dsk+3ZR587l4KASiJIVjsXs8gUg19x34BqPACDq9OfiPf9Ng+oOIXq FWQxzcudZuiobpK1J3SxVw== 0000891618-98-005054.txt : 19981120 0000891618-98-005054.hdr.sgml : 19981120 ACCESSION NUMBER: 0000891618-98-005054 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981119 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/A SEC ACT: SEC FILE NUMBER: 000-10120 FILM NUMBER: 98755515 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/A 1 AMENDMENT #1 TO THE 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, 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 (I.R.S. Employer of incorporation or organization) Identification No.)
2690 Middlefield Road, Redwood City, California 94063 (Address, including zip code, of Registrants 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 November 11, 1998, 3,303,311 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 September 30, December 31, 1998 1997 (unaudited) (unaudited) Assets Current assets: Cash and cash equivalents $ 401,800 $ 46,300 Accounts receivable, less allowance for doubtful accounts of $557,700 in 1998 and $540,100 in 1997 2,310,300 1,833,400 Current portion of long-term notes receivable (net) 88,800 88,800 Inventories 959,900 1,082,900 Prepaid expenses and other current assets 157,900 174,000 Other accounts receivable, net of allowance 12,200 Deferred tax asset, net of allowance 183,300 183,300 Total current assets 4,102,000 3,420,900 Plant and equipment, at cost 2,795,300 2,614,900 Less accumulated depreciation and amortization (2,275,300) (2,236,300) 520,000 378,600 Notes receivable and other assets (net) 86,900 151,200
3 Deferred tax asset, net of allowance 485,800 485,800 Total assets $ 5,194,700 $4,436,500 Liabilities and shareholders' equity Current Liabilities: Accounts payable and other accrued expenses $ 1,007,500 $ 850,900 Accrued compensation and benefits 289,600 331,600 Accrued warranty expense 259,000 211,000 Income taxes payable 34,200 20,600 Total current liabilities $ 1,590,300 $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 37,200 55,100 Total liabilities 2,552,500 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 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) Deficit (2,802,600) (3,400,000) Total shareholders' equity 2,642,200 2,042,300 Commitments and contingent liabilities Total liabilities and shareholders' equity $5,194,700 $4,436,500 The accompanying notes are an integral part of this statement.
4 Part I - FINANCIAL INFORMATION (continued) FAFCO, Inc. CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) Quarter Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 Net sales $2,426,100 $2,065,200 $8,936,300 $ 8,252,500 Other income (net) 14,700 (3,500) 15,800 111,700 Total revenues 2,440,800 2,061,700 8,952,100 8,364,200 Cost of goods sold 1,520,500 1,378,800 5,506,000 4,795,000 Marketing & selling expense 473,900 432,400 1,446,400 1,394,600 General & administrative expense 342,600 317,700 1,096,000 1,180,900 Research & development expense 50,700 41,400 147,100 151,600 Net interest expense 23,300 25,400 92,700 105,400 Total costs and expenses 2,411,000 2,195,700 8,288,200 7,627,500 Income before income taxes $ 29,800 $ (134,000) $ 663,900 $ 736,700 Provision for income taxes 66,500 54,000 Net income $ 29,800 $ (134,000) $ 597,400 $ 682,700 Basic Earnings (Loss) per share $ 0.01 $ (0.04) $ 0.18 $ 0.21 Diluted Earnings (Loss) per share $ 0.01 $ (0.04) $ 0.15 $ 0.17
The accompanying notes are an integral part of this statement 5 Part I - FINANCIAL INFORMATION (continued) FAFCO, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended September 30, 1998 1997* Cash flow from operating activities: Net income $ 597,400 $ 682,700 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 94,300 94,900 Allowance for doubtful accounts (108,800) 28,800 Provision for inventory reserve (17,900) (54,500) Gain on sale of fixed assets (19,000) Change in assets and liabilities: Change in accounts receivable (482,300) 360,500 Change in inventories 140,900 248,400 Change in prepaid expenses 16,100 (32,400) Change in other assets 190,800 (62,600) Change in payables and accrued expenses 176,200 171,100 Change in other non-current liabilities (17,900) 34,500 Net cash provided by operating activities 569,800 1,471,400 Cash flow from investing activities: Purchase of fixed assets (235,800) (121,800) Proceeds from sale of equipment 19,000 - Net cash used in investing activities (216,800) (121,800) 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 by (used in) financing activities 2,500 (758,600) Net increase in cash and cash equivalents 355,500 591,000 Cash & cash equivalents, beginning of period 46,300 88,200 Cash and cash equivalents, end of period $ 401,800 $ 679,200 Supplemental disclosures of cash flow information: Cash paid during the period for interest $ 96,400 $ 114,200 Cash paid during the period for income taxes $ 52,900
*Reclassified for comparative purposes The accompanying notes are an integral part of this statement 6 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, 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 Registrant'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. September 30, 1998 December 31, 1997 Raw materials $ 499,000 $ 462,800 Work in process 191,900 114,000 Finished goods 269,000 506,100 $ 959,900 $ 1,082,900
4. The Registrant has 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 $1,000,000 at September 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 30, 1999. 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
7 Part I - FINANCIAL INFORMATION (continued) FAFCO, Inc. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 6. Net Income Per Share Basic earnings (loss) per share were calculated as follows: Quarter Ended Nine Months Ended September 30 September 30 1998 1997 1998 1997 Net income $ 29,800 $ (134,000) $ 597,400 $ 682,700 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 (loss) per share $ 0.01 $ (0.04) $ 0.18 $ 0.21
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. Diluted earnings (loss) per share were calculated as follows: Quarter Ended Nine Months Ended September 30 September 30 1998 1997 1998 1997 Net income $ 43,563 $ (134,000) $ 638,689 $ 707,600 Average common shares outstanding 3,303,311 3,298,311 3,303,311 3,298,311
8 Add: Exercise of options reduced by the number of shares purchased with proceeds 344,074 N/A 235,697 243,093 Add: Exercise of warrants reduced by the number of shares purchased with proceeds 106,000 N/A 77,344 80,956 Add: Conversion of convertible debt into shares 555,000 N/A 555,000 555,000 Adjusted weighted average shares outstanding 4,308,385 N/A 4,171,352 4,177,360 Earnings (loss) per common share assuming dilution $ 0.01 $ (0.04) $ 0.15 $ 0.17
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 Management's Discussion and Analysis Results of Operations Net sales for the quarter ended September 30, 1998 increased by 17.5% from $2,065,200 in 1997 to $2,426,100 in 1998. Net sales for the nine months ended September 30, 1998 increased by 8.3% from $8,252,500 in 1997 to $8,936,300 in 1998. These increases were due mainly to increased unit sales of the Companys IceStor and aboveground pool heating products. Cost of goods sold increased in absolute terms from $1,378,800 in the quarter ended September 30, 1997 to $1,520,500 in the corresponding quarter in 1998 but decreased as a percent of net sales from 66.8% to 62.7% for the quarter due primarily to fixed overhead expenses being allocated over higher sales along with some increases in manufacturing efficiency partially offset by increased sales of lower margin IceStor products. For the nine months ended September 30 cost of sales increased from $4,795,000 (58.1% of net sales) in 1997 to $5,506,000 (61.6% 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 IceStor products. Marketing and selling expenses increased from $432,400 in the quarter ended September 30, 1997 to $473,900 in the same quarter of 1998 and increased from $1,394,600 in the nine month period 9 ended September 30, 1997 to $1,446,400 for the corresponding period in 1998. However marketing and selling expenses decreased as a percent of net sales from 20.9% to 19.5% for the quarter and from 16.9% to 16.2% for the nine-month period General and administrative expenses for the quarter ended September 30 increased from $317,700 (15.4% of net sales) in 1997 to $342,600 (14.1% of net sales) in 1998 and decreased from $1,180,900 (14.3% of net sales) in the nine-month period ended September 30, 1997 to $1,096,000 (12.3% of net sales) for the corresponding period in 1998. These decreases were due mainly to decreased personnel costs. Research and development expenses remained relatively stable at $41,400 (2.0% of net sales) and $151,600 (1.8% of net sales) for the quarter and nine month period ended September 30, 1997, respectively, compared to $50,700 (2.1% of net sales) and $147,100 (1.6% of net sales) in the same periods in 1998. Net interest expense was relatively stable in absolute dollars at $25,400 (1.2% of net sales) and $23,300 (1.0% of net sales) in the quarter ended September 30, 1997 and 1998, respectively. Net interest expense for the nine month period ended September 30 decreased from $105,400 (1.3% of net sales) in 1997 to $92,700 (1.0% 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 years insurance premiums during the first nine months of 1998 compared with $15,800 during the first nine months of 1997. Other income (net) also included $100,000 in license fees during the first nine months of 1997; there were no such fees during the corresponding period in 1998. Liquidity and Capital Resources At September 30, 1998, the Company's cash position had increased to $401,800 from $46,300 at December 31, 1997. This increase was due primarily to the increased sales during the period along with decreased inventories and increased accounts payable partly offset by increased accounts receivable. At September 30, 1998, the Company's net accounts receivable had increased to $2,310,300 from $1,833,400 at December 31, 1997, primarily as a result of increased sales levels of the Company's IceStor products. At September 30, 1998, the Company's accounts payable and other accrued expenses had increased to $1,007,500 from $850,900 at December 31, 1997. This increase is primarily due to the increased volume of business during 1998. 10 At September 30, 1998, the Company's inventories had decreased to $959,900 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 September 30, 1998, the Company's current ratio was 2.58 to 1 compared with 2.42 to 1 at December 31, 1997. The Company had working capital of $2,511,700 at September 30, 1998 compared with $2,006,800 at December 31, 1997. Total assets exceeded total liabilities by $2,642,200 at September 30, 1998 compared with $2,042,300 at December 31, 1997. 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. The Company has reviewed its internal computer systems for year 2000 compliance and is satisfied that all of its internal computer systems are either already year-2000 compliant or can be made year-2000 compliant through simple upgrades. The Company does not expect the costs of achieving full year-2000 compliance to be material for the internal systems. However, there can be no assurance that coding errors or other defects will not be discovered in the future. In addition, since the Company is very small in relation to many of its customers and suppliers, the Company has been unable to ascertain if its suppliers and customers are year-2000 compliant. Therefore, there can be no assurances that the Company's cash flow and materials from suppliers will not be interrupted, which could result in severe disruptions in the Company's operations. 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. 11 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 June 30, 1998, as reported in the Company's report on Form 10-Q filed for the period ended June 30, 1998. 3,303,311 Issued during the quarter 0 ---------------------- 3,303,311 Outstanding at September 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 September 30, 1998. 12 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 12, 1998 BY:/s/Alex N. Watt ------------------ ---------------------------------------- Alex N. Watt, Vice President - Finance and Administration and Chief Financial Officer (Principal Financial and Accounting Officer) - -------------------------------------------------------------------------------- 13 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION ---------- --------------------------------------- 27 Financial Data Schedule EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 401,800 0 3,139,900 586,900 959,900 4,102,000 2,795,300 2,275,300 5,194,700 1,590,300 962,200 0 0 412,800 2,229,400 5,149,700 8,936,300 8,963,100 5,506,000 5,506,000 0 27,300 96,400 663,900 66,500 597,400 0 0 0 597,400 0.18 0.15
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