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 March 31, 2000 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 Company (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 Company 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 5, 2000, 3,843,311 shares of the Company's Common Stock,
$.125 par value were issued and outstanding.
Part 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
FAFCO, Inc.
CONSOLIDATED BALANCE SHEET
<TABLE>
March 31, 2000 December 31, 1999
(unaudited)
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 97,200 $ 64,800
Accounts receivable, less
allowance for doubtful accounts
of $331,000 in 2000 and $317,800
in 1999 2,091,400 1,752,000
Inventories 1,113,900 1,041,600
Prepaid expenses and other current
assets 201,800 254,200
Other accounts receivable, net of
allowance 19,500 27,700
Deferred tax asset, net of
allowance 189,500 189,500
Total current assets $3,713,300 $3,329,800
Plant and equipment, at cost 4,010,100 3,330,100
Less accumulated depreciation and
amortization (2,404,900) (2,407,700)
1,605,200 922,400
Notes receivable and other assets
(net) 31,300 31,300
Deferred tax asset, net of
allowance 734,800 703,300
Total assets $6,084,600 $4,986,800
Liabilities and shareholders' equity
Current Liabilities:
Bank line of credit $ 731,500 $ 461,500
Note payable to bank 176,500
Accounts payable and other
accrued expenses 1,159,600 802,500
Accrued compensation and benefits 252,700 281,100
Accrued warranty expense 302,000 282,700
Other current liabilities 15,000
Total current liabilities 2,622,300 1,842,800
Note payable to bank 295,800
Other non-current liabilities 32,600 16,600
Total liabilities $2,950,700 $1,859,400
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: 3,843,311 issued and
outstanding in 2000 and
3,303,311 issues and outstanding
in 1999. 480,300 412,800
Capital in excess of par value 5,107,100 5,107,100
Notes receivable secured by
Common Stock (75,100) (75,100)
Accumulated deficit (2,378,400) (2,317,400)
Total shareholders' equity $3,133,900 $3,127,400
Commitments and contingent
liabilities
Total liabilities and
shareholders' equity $6,084,600 $4,986,800
</TABLE>
The accompanying notes are an integral part of this statement.
Part I - FINANCIAL INFORMATION (continued)
FAFCO, Inc.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
Net sales $ 2,722,100 $ 3,039,900
Other income (net) 2,500 (400)
Total revenues 2,724,600 3,039,500
Cost of goods sold 1,748,300 1,772,200
Marketing & selling expense 537,800 529,100
General & administrative expense 406,800 368,300
Research & development expense 117,900 101,700
Net interest expense 6,300 24,500
Total costs and expenses 2,817,100 2,795,800
Income (loss) before income taxes (92,500) 243,700
Provision for (benefit from)
income taxes (31,500) 64,000
Net income (loss) $ (61,000) $ 179,700
Basic earnings net income per share $ (0.02) $ 0.05
Diluted net income per share $ (0.02) $ 0.04
</TABLE>
The accompanying notes are an integral part of this statement
Part I - FINANCIAL INFORMATION (continued)
FAFCO, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
Three Months Ended
March 31,
2000 1999
Cash flow from operating activities:
<S> <C> <C>
Net income (loss) $ (61,000) $ 179,700
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 48,200 35,500
Write offs and allowance for
doubtful accounts 13,300 13,900
Change in assets and liabilities:
Accounts receivable (344,500) (738,400)
Deferred tax assets (31,500)
Inventories (72,300) 198,200
Prepaid expenses and other assets 52,400 29,500
Payables, accrued expenses and other
current liabilities 333,000 162,900
Other non-current liabilities 16,000 (5,700)
Net cash used in operating activities (46,400) (124,400)
Cash flow from investing activities:
Purchase of fixed assets (731,000) (103,200)
Net cash used in investing activities (731,000) (103,200)
Cash flow from financing activities:
Proceeds from sale of common stock 67,500
Borrowings from bank 742,300
Net cash provided by financing
activities 809,800
Net decrease in cash and cash
equivalents 32,400 (227,600)
Cash and cash equivalents, beginning
of period 64,800 477,500
Cash and cash equivalents, end of
period $ 97,200 $ 249,900
Supplemental disclosures of cash flow
information:
Cash paid during the period for
interest $ 13,200 $ 26,400
Cash paid during the period for
income taxes $ 24,000
</TABLE>
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 March 31, 2000 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, 1999, included in
its 1999 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 first in, first out (FIFO) basis, and consist of the following.
<TABLE>
March 31, 2000 December 31, 1999
<S> <C> <C>
Raw materials $ 525,300 $ 499,400
Work in process 276,300 220,000
Finished goods 312,300 322,200
$1,113,900 $1,041,600
</TABLE>
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 $268,500 at March 31, 2000. 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 June 30, 2000.
In addition to the line of credit, the Company has a 36-month term loan
available in the amount of $500,000 bearing interest at prime plus 1.8%.
At March 31, 2000, the Company had an outstanding balance of $472,300 on
this loan.
5. Net Income Per Share
Basic earnings per share were calculated as follows:
<TABLE>
Quarter Ended March 31,
2000 1999
<S> <C> <C>
Net income (loss) $ (61,000) $ 179,700
Average common shares outstanding 3,321,113 3,303,311
Earnings (loss) per share $ (0.02) $ 0.05
</TABLE>
Basic earnings per share are calculated by dividing net income by
the weighted average number of shares issued and outstanding.
Part I - FINANCIAL INFORMATION (continued)
Diluted earnings per share were calculated as follows:
<TABLE>
Quarter Ended March 31,
2000 1999
<S> <C> <C>
Adjusted net income $ (61,000) $ 179,700
Average common shares outstanding 3,321,113 3,303,311
Add: Exercise of options reduced
by the number of shares
purchased with proceeds 306,375
Add: Exercise of warrants reduced
by the number of shares
purchased with proceeds 107,056
Add: Expense of warrants attached
to debt reduced by the
number of shares purchased with
proceeds 485,625
Adjusted weighted average shares
outstanding 3,321,113 4,202,367
Earnings per common share assuming
dilution $ (0.02) $ 0.04
</TABLE>
At March 31, 2000, options and warrants for the purchase of 571,700
shares of common stock at prices ranging from $0.125 to $0.625 were
antidilutive and therefore not included in the computation of diluted
earnings per share.
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.
<TABLE>
Quarter Ended March 31
2000 1999
Product Line
Net Sales
<S> <C> <C>
Pool Products $ 2,088,700 $ 1,761,900
Thermal Energy Storage Products 633,400 1,278,000
$ 2,722,100 $ 3,039,900
</TABLE>
Geographic information for revenues and long-lived assets are as follows:
<TABLE>
Quarter Ended March 31
2000 1999
Net Sales
<S> <C> <C>
Domestic $ 2,353,500 $ 2,042,100
Foreign
Japan 291,200 850,100
Other 77,400 147,700
$ 2,722,100 $ 3,039,900
</TABLE>
<TABLE>
<S> <C> <C>
Long-lived assets March 31, 2000 March 31, 1999
Domestic $ 1,605,200 $ 922,400
</TABLE>
For the three months ended March 31, 2000, the Company had two major
customers who individually accounted for 10% or more of sales totaling
$291,200 and $343,800, respectively.
Part I - FINANCIAL INFORMATION (continued)
For the three months ended March 31, 1999, the Company had one major
customer accounting for 10% or more of sales totaling $449,000.
Concentration of Credit Risk: Most of the Company's business activity is
with customers located in California, Florida and foreign countries. As
of March 31, 2000, unsecured trade accounts receivable for customers in
California, Florida, and foreign countries were $626,200, $819,300 and
$353,400.
7. Plant and Equipment
Plant and equipment consist of the following:
<TABLE>
March 31, 2000 December 31, 1999
<S> <C> <C>
Machinery and equipment $2,538,700 $2,445,000
Office and computer equipment 581,600 578,300
Leasehold improvements 88,600 88,600
Vehicles 241,000 218,200
Land 551,300
Building construction in
progress 8,900
$4,010,100 $3,330,100
Less accumulated depreciation
and amortization (2,404,900) (2,407,700)
$1,605,200 $ 922,400
</TABLE>
8. Commitments
The Company plans to move its headquarters and manufacturing operations
from Redwood City, CA to Chico, CA. In anticipation of this move, the
Company has purchased approximately six acres of land for $551,300 and
expects the balance to complete the building to be approximately $2,800,000,
for a total of approximately $3,400,000.
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, 2000 decreased by 10.5% to
$2,722,100 in 2000 from $3,039,900 in 1999. This decrease was due to
decreased unit sales of the Company's IceStorT products partially offset
by increased unit sales of the Company's pool products.
Cost of goods sold was relatively stable in absolute dollars at $1,748,300
in the first quarter of 2000 compared with $1,772,200 in the first quarter
of 1999 while increasing from 58.3% of net sales to 64.2% of net sales
from the first quarter of 1999 to the first quarter of 2000. This increase
in cost of goods sold as
Part I - FINANCIAL INFORMATION (continued)
a percentage of net sales was due primarily to the result of allocating
fixed overhead expenses to a decreased sales number along with increased
sales of relatively lower margin pool products and decreased sales of
relatively higher margin pool products.
Marketing and selling expenses were increased slightly in absolute dollars
at $537,800 in the first quarter of 2000 compared with $529,100 in the
first quarter of 1999 while increasing from 17.4% of net sales to
19.8% of net sales in the first quarter of 2000 due mainly to
costs relating to the recently opened Company office located in
Tampa.
General and administrative expenses increased slightly to $406,800 in the
first quarter of 2000 (14.9% of sales) compared with $368,300 (12.1% of
sales) in the same quarter in 1999. These increases were due mainly to
costs related to operating the recently opened Company office in Tampa.
Research and development expenses increased to $117,900 (4.3% of net sales)
in 2000 from $101,700 (3.3% of net sales) in the first quarter of 1999
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 $6,300 (0.2% of net sales) in the first
quarter of 2000 from $24,500 (0.8% of net sales) in the first quarter of
1999. This decrease was due primarily to paying off the Company's
subordinated debt in the third quarter of 1999.
Liquidity and Capital Resources
The Company's cash position increased slightly from $64,800 at 1999 fiscal
year end to $97,200 at March 31, 2000 principally due to an increase in
bank borrowings along with issuance of stocks partially offset by purchases
of fixed assets along with an increase in accounts receivable.
At March 31, 2000, the Company's accounts payable and other accrued expenses
had increased to $1,159,600 from $802,500 at December 31, 1999. This
increase is primarily due to decreased cash flow during the first quarter
of 2000 as a result of the Company's "Early Buy" program for Above Ground
Pool systems.
At March 31, 2000, the Company's net accounts receivable had increased to
$2,091,400 from $1,752,000 at December 31, 1999 due mainly to the Company's
"Early Buy" program for Above Ground Pool systems.
At March 31, 2000, the Company's net inventories had increased to $1,113,900
from $1,041,600 at December 31, 1999 due mainly to sales being lower than
planned during the first quarter of 2000.
At March 31, 2000 the Company's current ratio was 1.42 to 1 compared with
1.81 to 1 at December 31, 1999. The Company had working capital of
$1,090,900 at March 31, 2000 compared with $1,487,000 at December 31, 1999.
Total assets exceeded total liabilities by $3,133,900 at March 31, 2000
compared with $3,127,400 at December 31, 1999.
The Company intends to relocate during the next six months and has purchased
land on which it will build a new manufacturing facility. The Company
expects to realize cost savings in the year 2001 and beyond as a result of
this move.
At March 31, 2000, total bank debt (line of credit plus term loan) had
increased to $1,203,800 from $461,500 at December 31, 1999 due mainly to
borrowing to acquire the land in Chico, CA on which the Company intends to
build a 50,000 square foot headquarters and manufacturing building.
The building is
Part I - FINANCIAL INFORMATION (continued)
expected to be ready for occupancy by September 2000 and will be financed
by Butte Community Bank, Chico, CA (see Note 8).
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 March 31, 2000.
Shares
Common Stock: authorized 10,000,000
shares of $.125 par value; issued and
outstanding at December 31, 1999, as
reported in the Registrant's Annual
Report on Form 10-K filed for the
fiscal year ended December 31, 1999. 3,303,311
Issued during the quarter 540,000
Outstanding at March 31, 2000 3,843,311
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 March 31, 2000.
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 15, 2000 BY: /s/Nancy I. Garvin
Nancy I. Garvin,
Vice President - Finance
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000352956
<NAME> FAFCO, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 97,200
<SECURITIES> 0
<RECEIVABLES> 2,501,200
<ALLOWANCES> 390,300
<INVENTORY> 1,113,900
<CURRENT-ASSETS> 3,713,200
<PP&E> 4,010,100
<DEPRECIATION> 2,404,900
<TOTAL-ASSETS> 6,084,600
<CURRENT-LIABILITIES> 2,622,300
<BONDS> 32,600
0
0
<COMMON> 480,300
<OTHER-SE> 2,653,600
<TOTAL-LIABILITY-AND-EQUITY> 6,084,600
<SALES> 2,722,100
<TOTAL-REVENUES> 2,725,100
<CGS> 1,748,300
<TOTAL-COSTS> 1,748,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 13,300
<INTEREST-EXPENSE> 13,200
<INCOME-PRETAX> (92,500)
<INCOME-TAX> (31,500)
<INCOME-CONTINUING> (61,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (61,000)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
</TABLE>