10-Q 1 f75187e10-q.txt FORM 10-Q QUARTER ENDED MARCH 31, 2001 1 ================================================================================ 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, 2001 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.)~~

435 Otterson Drive, Chico, California 95928 (Address, including zip code, of Registrant's principal executive offices) (530) 332-2100 (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 June 9th, 2001, 3,854,791 shares of the Company's Common Stock, $.125 par value were issued and outstanding. ================================================================================ 2 Part 1 - FINANCIAL INFORMATION Item 1 - Financial Statements FAFCO, Inc. CONSOLIDATED BALANCE SHEET

~~FAFCO~~MARCH 31, ~~Inc.~~2001 ~~CONSOLIDATED~~(UNAUDITED) ~~BALANCE SHEET SEPTEMBER 30,~~ DECEMBER 31, 2000 ~~1999 (UNAUDITED)~~ ------------ ------------~~-----------------------------------------------------------------------------------~~ ASSETS Current assets: Cash and cash equivalents $ 3177,~~600~~500 $ 6410,~~800~~100 Accounts receivable, less allowance for doubtful accounts of $~~324~~413,300 in ~~2000~~2001 and $~~317~~400,~~800~~000 in ~~1999~~2000 2,~~021~~238,~~700~~100 1,~~752~~969,~~000~~400 Inventories ~~946~~1,~~500~~161,700 1,~~041~~225,~~600~~900 Prepaid expenses and other current assets ~~240~~263,~~300~~500 ~~254~~211,~~200~~500 Other accounts receivable, net of allowance 4121,~~300~~600 2721,~~700~~600 Deferred tax asset, net of allowance ~~189~~215,~~500~~700 ~~189~~215,~~500~~700 ------------ ------------~~-----------------------------------------------------------------------------------~~ Total current assets $ 3,~~470~~978,~~900~~100 $ 3,~~329~~654,~~800~~200 ------------ ------------~~-----------------------------------------------------------------------------------~~ Property, plant and equipment, at cost 57,~~391~~604,~~500~~100 37,~~330~~104,~~100~~000 Less accumulated depreciation and amortization (1,~~613~~825,~~800~~000) (21,~~407~~760,~~700~~000) ------------ ------------~~-----------------------------------------------------------------------------------~~ 35,~~777~~779,~~700~~100 ~~922~~5,~~400~~344,000 ------------ ------------~~-----------------------------------------------------------------------------------~~ Notes receivable and other assets (net) 329,~~200~~300 319,300 Deferred tax asset, net of allowance ~~703~~648,~~300~~600 ~~703~~648,~~300~~600 ------------ ------------~~-----------------------------------------------------------------------------------~~ Total assets 7$ 10,~~984~~415,100 4$ 9,~~986~~656,~~800~~100 ------------ ------------~~-----------------------------------------------------------------------------------~~ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Bank line of credit $ ~~565~~543,~~400~~900 $ ~~461~~450,500 ~~Note~~Notes payable to bank ~~148~~231,~~300~~900 ~~Construction loan 2~~143,~~129,600~~000 Accounts payable and other accrued expenses 1,~~524~~971,~~500~~200 ~~802~~1,~~500~~744,700 Accrued compensation and benefits ~~225~~244,~~900~~200 ~~281~~267,~~100~~800 Accrued warranty expense ~~315~~306,700 ~~282~~287,700 Other current liabilities ~~15,000~~100 =========================================================================================================== Total current liabilities 4,909,400 1,842,800 =========================================================================================================== Note payable to bank 253,800 Other non-current liabilities 42,300 16,600 =========================================================================================================== Total liabilities $5,~~205,500~~100 ~~$1,859,400~~ ------------ ------------ Total current liabilities 3,298,000 2,898,800 ------------ ------------ Mortgage 3,362,600 3,366,500 Notes payable to bank 561,200 224,000 Other non-current liabilities 34,200 34,200 ------------ ------------ Total liabilities $ 7,256,000 $ 6,523,500 ------------ ------------~~----------~~ Commitments and contingent liabilities Shareholders' equity: Preferred ~~stock~~Stock-authorized 1,000,000 shares of $1.00 par value, none of which has been issued Common ~~stock~~Stock-authorized 10,000,000 shares of $0.125 par value;, 3,~~843~~854,~~311~~791 shares issued and outstanding in ~~2000~~2001 and 3,~~303~~834,~~311~~791 issued and outstanding in ~~1999.~~2000 ~~480~~481,~~300~~800 ~~412~~479,~~800~~300 Capital in excess of par value 5,~~107~~108,~~100~~500 5,~~107~~106,~~100~~000 Notes receivable secured by Common Stock (75,100) (75,100) Accumulated deficit (2,~~733~~356,~~700~~100) (2,~~317~~377,~~400~~600) ------------ ------------~~-----------------------------------------------------------------------------------~~ Total shareholders' equity $2 3,~~778~~159,~~600~~100 $ 3,~~127~~132,~~400~~600 ------------ ------------~~-----------------------------------------------------------------------------------~~ Commitments and contingent liabilities ~~-----------------------------------------------------------------------------------------------------------~~ Total liabilities and shareholders' equity $7 10,~~984~~415,100 $4 9,~~986~~656,~~800~~100 ------------ ------------~~----------------------------------------------------------------------------------- The accompanying notes are an integral part of this statement.~~

The accompanying notes are an integral part of this statement. 2 3 Part I - FINANCIAL INFORMATION (continued) FAFCO, Inc. CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)

~~QUARTER~~THREE ~~ENDED NINE~~ MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ~~SEPTEMBER 30~~ -----------------------------~~---~~ ~~----------------------------------~~2001 2000 ~~1999 2000 1999~~ -----------~~---------------------~~ -----------~~-----------------------~~ Net sales $~~2,595,800~~ $2,~~100~~862,~~300~~600 $~~8,904,200~~ $82,~~713~~722,~~700~~100 Other income (net) 5(38,~~300 1,~~200) ~~700~~ 2,~~900~~500 -----------~~---------------------~~ -----------~~-----------------------~~ Total revenues 2,~~601~~824,~~100~~400 2,~~101~~724,~~500 8,904,900 8,716,~~600 -----------~~---------------------~~ -----------~~-----------------------~~ Cost of goods sold 1,~~730~~663,~~500~~800 1,~~264~~748,~~700~~300 ~~5,625,100 5,108,200~~ Marketing & selling expense ~~503~~584,~~300~~700 ~~436~~537,~~100 1,572,~~800 ~~1,473,600~~ General & administrative expense ~~417~~406,~~100~~600 ~~369~~406,800 ~~1,215,800 1,164,800~~ Research & development expense 3654,~~900 70,800 242,~~500 ~~259~~117,~~800~~900 Net interest expense 4885,~~400~~600 166,~~500 94,~~300 ~~64,200 Relocation costs 388,800 570,700~~ -----------~~---------------------~~ -----------~~-----------------------~~ Total costs and expenses ~~3,125,000~~ 2,~~157~~795,~~900 9,321,~~200 82,~~070~~817,~~600~~100 -----------~~---------------------~~ -----------~~-----------------------~~ Income (loss) before income taxes ~~(523~~29,~~900)~~200 (5692,~~400~~500) ~~(416,300) 646,000~~ Provision for (benefit from) income taxes ~~(36~~7,~~600)~~700 (1431,~~000~~500) ~~170,500~~ -----------~~---------------------~~ -----------~~-----------------------~~ Net income (loss) $ ~~(487~~21,~~300)~~500 $ (4261,~~400~~000) ~~$ (416,300) $ 475,500~~ ===========~~=====================~~ ===========~~=======================~~ Basic earnings net income ~~(loss)~~ per share $ (0.~~13) $ (0.~~01) $ (0.1102) ~~$ 0.14~~ Diluted net income ~~(loss)~~ per share $ (0.~~13) $ (0.~~01) $ (0.1102) ~~$ 0.11 -------------------------------- ----------------------------------~~

The accompanying notes are an integral part of this statement. 3 4 Part I - FINANCIAL INFORMATION (continued) FAFCO, Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, -------------------------~~--------------~~ 2001 2000 ~~1999~~ ---------~~-------~~ ---------~~---------~~ CASH FLOW FROM OPERATING ACTIVITIES: Net income $ (~~416,300~~loss) $ ~~475~~21,500 $ (61,000) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation ~~151~~65,000 ~~126~~48,~~100~~200 ~~Loss on disposition of fixed assets 1,100~~ Write offs and allowance for doubtful accounts 4213,~~800~~300 4213,~~000~~300 Provision for inventory reserve Change in assets and liabilities: Accounts receivable (~~326~~282,~~100~~000) (~~221~~344,~~700~~500) ~~Inventories~~Deferred ~~95,100~~tax 98assets (31,~~100~~500) ~~Prepaid~~Inventories ~~expenses and other assets 13~~64,~~900~~200 (~~200~~72,300) ~~Notes~~Prepaid ~~receivable~~expenses and other ~~long term~~ assets (~~900~~52,000) 4252,~~200~~400 Payables, ~~and~~ accrued expenses and other current liabilities ~~684~~216,~~800~~900 ~~135~~333,~~700~~000 Other non-current liabilities 2516,~~700 (12,~~000) ---------~~-------~~ ---------~~---------~~ Net cash provided by ~~operating~~(used ~~activities~~in) ~~271~~operations 46,~~100~~900 ~~685~~(46,~~700~~400) ---------~~-------~~ ---------~~---------~~ CASH FLOW FROM INVESTING ACTIVITIES: Purchase of fixed assets (3500,~~007,400~~100) (~~327~~731,~~600~~000) ---------~~-------~~ --- ------~~------------~~ Net cash used in investing activities (3500,~~007,400~~100) (~~327~~731,~~600~~000) ---------~~-------~~ ---------~~---------~~ CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from exercise of ~~common~~options ~~stock~~5,000 ~~warrants~~ 67,500 ~~Repayment of subordinated debt (925,000)~~ Borrowings onfrom bank line of credit ~~103~~93,~~900~~400 ~~258~~270,000 ~~Proceeds~~Borrowings from ~~term~~bank ~~loan 500~~422,~~000~~200 ~~Repayment of term loan (97~~472,~~900)~~300 ~~Proceeds from construction loan 2,129,600~~ ---------~~-------~~ ---------~~---------~~ Net cash provided by financing activities 2520,~~703,100~~600 ~~(667~~809,~~000)~~800 ~~================~~--------- ~~==================~~--------- Net increase ~~(decrease)~~ in cash and cash equivalents ~~(33~~67,~~200)~~400 ~~(308~~32,~~900)~~400 Cash and cash equivalents, beginning of period 10,100 64,800 ~~477,500~~ ---------~~-------~~ ---------~~---------~~ Cash and cash equivalents, end of period 31$ 77,~~600~~500 ~~168~~$ 97,~~600~~200 =========~~=======~~ =========~~=========~~ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 84109,~~800~~400 $ 9913,~~000 Cash paid during the period for income taxes $ 55,800~~200

The accompanying notes are an integral part of this statement. 4 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 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, 2001 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, 2000, included in its 2000 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 consists of the following.

~~--------------------------------------------------------------------------------~~MARCH ~~SEPTEMBER 30~~31, ~~2000~~2001 DECEMBER 31, ~~1999~~2000 ---------- ----------~~------------------------------------------------------------~~ Raw materials $~~452~~ 619,~~500~~100 ~~499~~$ 606,~~400~~500 Work in process ~~248~~256,~~300~~700 ~~220~~269,~~000~~900 Finished goods ~~245~~285,~~700~~900 ~~322~~349,~~200~~500 ---------- ----------~~------------------------------------------------------------~~ $~~946~~1,~~500~~161,700 $1,~~041~~225,~~600~~900 ========== ==========~~===========================================================~~

4. The Company has a line of credit agreement with Butte Community Bank, which 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 $456,100 at March 31, 2001. 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 August 10, 2002. At March 31, 2001, the Company had complied with or obtained waivers for compliance with the loan covenants. In addition to the line of credit, the Company has a 36-month term loan in the amount of $445,000 bearing interest at prime plus 1.5%. At March 31, 2001, the Company had an outstanding balance of $333,100 on this loan. The Company also has a 60- month term loan available in the amount of $500,000 bearing interest at prime plus 1.5%. At March 31, 2001, the Company had utilized $460,100 of this loan facility. 5. Net Income Per Share Basic earnings per share were calculated as follows:

~~--------------------------------------------------------------------------------~~QUARTER ~~SEPTEMBER~~ENDED ~~30,~~MARCH ~~2000 DECEMBER~~ 31, ~~1999~~ --------------------------------- 2001 2000 ---------- -------------~~------------------------~~ ~~Building~~Net ~~$1,948,800~~income ~~Land~~(loss) ~~550,400~~$ ~~Machinery and equipment 2~~21,~~205,600~~500 $2 (61,~~445,~~000) ~~Office~~Average ~~and~~common ~~computer~~shares ~~equipment~~outstanding ~~414~~3,~~800 578~~842,~~300~~347 ~~Leasehold improvements 88~~3,~~600 Vehicles 268~~321,~~900~~113 ~~218,200~~ ----------- -----------~~----------------------------------------------------------~~ ~~$5,391,500~~Earnings ~~$3,330,100 Less accumulated deprecation and amortization~~ (~~1,613,800~~loss) ~~(2,407,700)~~per ~~--------------------------------------------------------------------------------~~share $~~3,777,00~~ 0.01 $~~922,400~~ ~~================================================================================~~(0.02)

Basic earnings per share are calculated by dividing net income by the weighted average number of shares issued and outstanding. 5 6 Part I - FINANCIAL INFORMATION (continued) Diluted earnings per share were calculated as follows:

QUARTER ENDED ~~NINE~~MARCH ~~MONTHS~~31, ~~ENDED SEPTEMBER 30 SEPTEMBER 30~~ ------------------------------- -~~-----------------------------~~ ~~2000~~2001 ~~1999~~ 2000 ~~1999~~ -----------~~--------------------~~ -----------~~-------------------~~ ~~Net~~Adjusted net income $ ~~(487~~21,~~300)~~500 $ (4261,~~400~~000) ~~$ (416,300) $ 475,500~~ Average common shares outstanding 3,~~843~~842,~~311~~347 3,~~303~~321,~~311~~113 ~~3,669,880~~Add: 3Exercise of options reduced by the number of shares purchased with proceeds Add: Exercise of warrants reduced by the number of shares purchased with proceeds 30,~~303,311~~927 Add: Expense of warrants attached to debt reduced by the number of shares purchased with proceeds ----------- -----------~~---------~~ Adjusted weighted average shares outstanding 3,873,274 3,321,113 ----------- -----------~~--------~~ Earnings ~~(loss)~~ per common share $assuming ~~(0.13)~~dilution $ (0.01) $ (0.1102) ~~$ 0.14~~ ===========~~====================~~ ===========~~===================~~

At March 31, 2001 and 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.

QUARTER ENDED ~~NINE~~MARCH ~~MONTHS~~31 ~~ENDED SEPTEMBER 30 SEPTEMBER 30~~ ----------------------------- -~~--------------------------~~ ~~2000~~2001 ~~1999~~ 2000 ~~1999~~ ----------~~-------------------~~ ----------~~-----------------~~ ~~Adjusted~~Product ~~net~~Line ~~income~~Net $Sales ~~(487,300)~~Pool $Products ~~42,400~~ $ ~~(416~~2,~~300) $ 475~~248,~~500~~700 ~~Average common shares outstanding 3,843,311 3,303,311~~ $32,~~669~~088,~~880~~700 ~~3,303,311~~Thermal ~~Add:~~Energy ~~Exercise~~Storage ofProducts ~~options reduced by the number of shares purchased with proceeds N/A 337~~613,~~155~~900 ~~N/A 331~~633,~~960~~400 Add: Exercise of warrants reduced by the number of shares purchased with proceeds N/A 103,661 N/A 102,361 Add: Expense of warrants attached to debt reduced by the number of shares purchased with proceeds N/A 475,714 N/A 472,778 ---------- ----------~~--------------------------------------~~ ~~Adjusted weighted average shares outstanding~~ $32,~~843~~862,~~311~~600 $42,~~219~~722,~~841~~100 ~~$3,669,880 4,210,410 ---------------------------------------------------------- Earnings (loss) per common share assuming full dilution $ (0.13) $ (0.01) $ ( 0.11) $ 0.11~~ ========== ==========~~======================================~~

Geographic information for revenues and long-lived assets are as follows:

QUARTER ENDED ~~NINE~~MARCH ~~MONTHS~~31 ~~ENDED SEPTEMBER 30 SEPTEMBER 30~~ ---------------------------- --~~---------------------------~~ ~~2000~~2001 ~~1999~~ 2000 ~~1999~~ ----------~~------------------~~ ----------~~-------------------~~ ~~Product Line~~ Net Sales ~~Pool~~Domestic ~~Products~~ $12,~~606~~342,~~200~~000 $12,~~225~~353,~~600~~500 ~~$6,135,400~~Foreign ~~$5,101,400~~Japan ~~Thermal Energy Products 989~~96,~~600~~700 ~~874~~291,~~700~~200 2Other 423,~~768,800~~900 377,~~612,300~~400 ----------~~---~~ ----------~~---~~ ~~------------- -----------~~ $2,~~595~~862,~~800~~600 $2,~~100~~722,~~300~~100 ~~$8,904,200 $8,713,700~~ ==========~~===~~ == ========~~===== ============= ===========~~

~~QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30~~ Long-~~---------------------------~~lived ~~----------------------------~~assets ~~2000~~MARCH ~~1999 2000 1999 ---------------------------- ---------------------------- Net Sales Domestic $1~~31,~~692,600~~ ~~$1,658,900~~2001 ~~$6,766,700~~MARCH $631,~~382,300~~ ~~Foreign~~2000 ~~Japan 569,500 129,700 1,642,100 1,670,600 Other 333,700 311,700 495,400 660,800~~ ----------~~---~~ ----------~~----~~ ~~-------------~~Domestic ~~-------------~~ $25,~~595~~779,~~800 $2,~~100~~,300~~ $81,~~904~~605,200 ~~$8,713,700 ============= ============== ============= =============~~ ----------~~----------------------------------------------------------------------------------------~~ ~~Long~~-~~lived assets September 30, 2000 December 31, 1999~~ ---------~~--------- ----------------- Domestic $3,777,700 $922,400~~

For the three months ended March 31, 2001, the Company had one major customer who accounted for 10% or more of sales totaling $321,200. 6 7 Part I - FINANCIAL INFORMATION (continued) For the three months ended March 31, 2000, the Company had two major customers accounting for 10% or more of sales totaling $291,200 and $343,800. 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, 2001, unsecured trade accounts receivable for customers in California, Florida, and foreign countries were $565,100, $1,264,800 and $364,300. 7. Property, plant and Equipment Property, plant and equipment consist of the following:

~~Shares~~MARCH 31, 2001 DECEMBER 31, 2000 ----------- ----------- ~~Common~~Building ~~Stock:~~$ ~~authorized 10~~3,~~000~~595,~~000~~400 ~~shares~~$ of3,441,400 ~~$.125~~Land ~~par~~550,400 ~~value;~~550,400 ~~issued~~Machinery and ~~outstanding~~equipment ~~at December 31~~2,643,200 ~~1999~~2,332,500 asOffice ~~reported~~and incomputer ~~the~~equipment ~~Registrant's~~524,900 ~~Annual~~510,800 ~~report~~Vehicles on290,200 ~~Form~~268,900 10-K---------- ~~filed~~----------- ~~for~~$ ~~the fiscal year ended December 31~~7,604,100 ~~1999.~~$ 37,~~303~~104,~~311~~000 ~~Warrants~~Less ~~exercised~~accumulated ~~during~~depreciation ~~the~~and ~~period~~amortization ~~540~~(1,825,000) (1,760,000) ----------- ----------- ~~Outstanding~~$ ~~at September 30~~5,779,100 ~~2000~~$ 35,~~843~~344,~~311~~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, 2001 increased by 5.2% to $2,862,600 in 2001 from $2,722,100 in 2000. This increase was due to increased unit sales of the Company's Pool products. Cost of goods sold decreased to $1,663,800 (58.1% of net sales) in the first quarter of 2001 compared with $1,748,300 (64.2% of net sales) in the first quarter of 2000. This decrease was due primarily to decreased fixed overhead expenses and to decreased direct labor costs, both attributable to the Company's relocation to Chico, CA. Marketing and selling expenses increased slightly to $584,700 in the first quarter of 2001 (20.4% of net sales) from $537,800 (19.8% of net sales) in the first quarter of 2000. General and administrative expenses remained stable at $406,600 (14.2% of net sales) in the first quarter of 2001 compared with $406,800 (14.9% of net sales) in the first quarter of 2000. 7 8 Part I - FINANCIAL INFORMATION (continued) Research and development expenses decreased to $54,500 (1.9% of net sales) in the first quarter of 2001 compared with $117,900 (4.3% of net sales) in the first quarter of 2000 due to the fact that engineering projects for 2001 are capital equipment projects whereas in 2000 they were expensed projects. Net interest expense increased to $85,600 (3.0% of net sales) in the first quarter of 2001 compared with $6,300 (0.2% of net sales) in the first quarter of 2000. This increase was due to increase bank borrowing, primarily related to the Company's mortgage. Liquidity and Capital Resources The Company's cash position increased from $10,100 at 2000 fiscal year end to $77,500 at March 31, 2001 principally due to an increase in bank borrowings. At March 31, 2001, the Company's accounts payable and other accrued expenses had increased to $1,971,200 from $1,744,700 at December 31, 2000. This increase is primarily due to decreased cash flow during the first quarter of 2001 as a result of the Company's "Early Buy" program for Above Ground Pool systems. At March 31, 2001, the Company's net accounts receivable had increased to $2,238,100 from $1,969,400 at December 31, 2000 due mainly to the Company's "Early Buy" program for Above Ground Pool systems. At March 31, 2001, the Company's net inventories had decreased slightly to $1,161,700 from $1,225,900 at December 31, 2000. At March 31, 2001 the Company's current ratio was 1.21 to 1 compared with 1.26 to 1 at December 31, 2000. The Company had working capital of $680,200 at March 31, 2001 compared with $755,500 at December 31, 2000. Total assets exceeded total liabilities by $3,159,200 at March 31, 2001 compared with $3,132,600 at December 31, 2000. At March 31, 2001, total bank debt (line of credit plus term loan plus mortgage) had increased to $4,699,600 from $4,184,000 at December 31, 2000 due mainly to borrowing to cover costs related to the acquisition of new machinery and equipment. 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, 2001.

~~Exhibit~~Shares ~~No. Description~~ --------- Common Stock: authorized 10,000,000 shares of $.125 par value; issued and outstanding at December 31, 2000, as reported in the Registrant's Annual Report on Form 10--K filed for the fiscal year ended December 31, 2000 3,834,791 Issued during the quarter 20,000 ----------- 27Outstanding ~~Financial~~at ~~Data~~March ~~Schedule~~31, 2001 3,854,791

8 9 Part II -- OTHER INFORMATION (continued) 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, 2001. 9 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: August 14, 2001 BY: /s/Nancy I. Garvin --------------- -------------------------------------- Nancy I. Garvin, Vice President - Finance (Principal Financial and Accounting Officer) 10

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