FOUNTAIN POWERBOAT INDUSTRIES, INC.
FORM 10-Q
QUARTERLY REPORT
FOR THE QUARTER ENDED MARCH 31, 2000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[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 ___________
For the Quarter Ended Commission File Number
___________________ 0-14712
FOUNTAIN POWERBOAT INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Nevada 56-1774895
(State of other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
1653 Whichard's Beach Road, P.O. Drawer 457, Washington, NC 27889
(Address of principal executive offices)
Registrant's telephone no., including area code: (252) 975-2000
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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at May 10, 2000
_________________________ ______________________________
Common Stock, $.01 par value 4,732,608 Shares
2
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
INDEX
PART I. Financial Information. Page No.
Review Report of Independent Certified
Public Accountants........................... 4
Consolidated Balance Sheets - Assets,
March 31, 2000 and June 30, 1999............. 5
Consolidated Balance Sheets - Liabilities &
Stockholders' Equity, March 31, 2000
and June 30, 1999............................ 6
Consolidated Statements of Operations -
Three and Nine Months Ended March 31, 2000
and March 31, 1999......................... 7-8
Consolidated Statements of Cash Flows -
Nine Months Ended March 31, 2000
and March 31, 1999........................ 9-10
Notes to Consolidated Financial Statements ... 11-15
Management's Discussion and Analysis of
Results of Operations and
Financial Condition.......................... 16-18
PART II. Other Information.
Item 2. Changes in Securities............................. 18
Item 6. Exhibits and Reports on Form 8 and Form 8-K....... 18
Signature........................................ 19
3
To the Board of Directors
FOUNTAIN POWERBOAT INDUSTRIES, INC.
Washington, North Carolina
We have reviewed the accompanying consolidated balance sheet of Fountain
Powerboat Industries, Inc. as of March 31, 2000, and the related consolidated
statements of operations for the three and nine months ended March 31, 2000 and
1999 and the related consolidated statements of cash flows for the nine months
ended March 31, 2000 and 1999. All information included in these financial
statements is the representation of the management of Fountain Powerboat
Industries, Inc.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of Company personnel responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
/s/ Pritchett, Siler & Hardy, P.C.
PRITCHETT, SILER & HARDY, P.C.
Salt Lake City, Utah
May 3, 2000
4
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited - See Accountants' Review Report)
ASSETS
March 31, June 30,
2000 1999
___________ ___________
CURRENT ASSETS:
Cash and cash equivalents $ 151,000 $ 2,217,301
Accounts receivable, net 2,672,045 1,576,712
Inventories 9,195,423 7,307,890
Prepaid expenses 500,737 761,486
Deferred tax assets 2,317,295 2,221,499
___________ ___________
Total Current Assets 14,836,500 14,084,888
___________ ___________
PROPERTY, PLANT AND EQUIPMENT 36,922,649 36,209,584
Less: Accumulated depreciation (18,892,080) (17,144,314)
___________ ___________
18,030,569 19,065,270
___________ ___________
OTHER ASSETS 870,625 780,802
___________ ___________
TOTAL ASSETS $33,737,694 $33,930,960
___________ ___________
[Continued]
5
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited - See Accountants' Review Report)
LIABILITIES AND STOCKHOLDERS' EQUITY
[Continued]
March 31, June 30,
2000 1999
___________ ___________
CURRENT LIABILITIES:
Current maturities - long-term debt $ 2,464,535 $ 2,464,535
Current maturities - capital lease 11,788 11,788
Accounts payable 5,030,810 3,961,516
Accrued expenses 1,475,689 2,231,061
Dealer territory service accrual 1,870,071 2,037,170
Customer deposits 644,546 687,560
Allowance for boat repurchases 200,000 200,000
Reserve for warranty expense 590,000 590,000
Accrued Income Taxes 175,474 -
___________ ___________
Total Current Liabilities
12,462,913 12,183,630
LONG-TERM DEBT, less current portion 8,973,135 10,138,395
CAPITAL LEASE, less current maturities 76,939 76,939
DEFERRED TAX LIABILITY 1,022,543 899,680
COMMITMENTS AND CONTINGENCIES [NOTE 7] - -
___________ ___________
Total Liabilities 22,535,530 23,298,644
___________ ___________
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value,
200,000,000 shares authorized,
4,732,608 shares issued 47,326 47,326
Capital in excess of par value 10,303,640 10,303,640
Retained earnings - accumulated 961,946 392,098
___________ ___________
11,312,912 10,743,064
Less: Treasury stock (110,748) (110,748)
___________ ___________
Total Stockholders' Equity 11,202,164 10,632,316
___________ ___________
$33,737,694 $33,930,960
___________ ___________
Note: The balance sheet at June 30, 1999 was taken from the audited financial
statements at that date and condensed.
The accompanying notes are an integral part of these unaudited financial
statements.
6
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - See Accountants' Review Report)
For The Three Months For The Nine Months
Ended March 31 Ended March 31
__________________________ __________________________
2000 1999 2000 1999
____________ ____________ ____________ ____________
NET SALES $14,306,940 $14,041,832 $40,486,130 $39,718,327
COST OF SALES 11,789,264 11,094,281 32,607,955 31,172,114
____________ ____________ ____________ ____________
Gross Profit 2,517,676 2,947,551 7,878,175 8,546,213
EXPENSES
Selling Expense 1,941,220 1,761,294 5,160,257 5,855,679
General &
Administrative 699,508 734,898 2,305,590 2,053,514
General &
Administrative -
Related Parties - 4,325 - 8,758
____________ ____________ ____________ ____________
Total Expenses 2,640,728 2,500,517 7,465,847 7,917,951
OPERATING INCOME BEFORE
STRATEGIC CHARGE (123,052) 447,034 412,328 628,262
STRATEGIC CHARGE - - - (2,440,000)
____________ ____________ ____________ ____________
OPERATING INCOME (LOSS) (123,052) 447,034 412,328 (1,811,738)
NON-OPERATING
INCOME (EXPENSE)
Gain on insurance
claim 1,078,697 - 1,078,697 -
Other Income 22,121 25,937 67,682 80,933
Interest Expense (249,694) (249,732) (777,180) (769,363)
Interest Expense
Related Expense - (6,514) - (20,447)
____________ ____________ ____________ ___________
TOTAL NON-OPERATING
INCOME (EXPENSE) 851,124 (230,309) (369,199) (708,877)
INCOME (LOSS) BEFORE TAX 728,072 216,725 781,527 (2,520,615)
CURRENT TAX EXPENSE 184,612 - 184,612 -
DEFERRED TAX EXPENSE
(BENEFIT) (14,733) (120,960) 27,067 (1,477,588)
____________ ____________ ____________ ____________
NET INCOME (LOSS) $ 558,193 $ 337,685 $ 569,848 $(1,043,027)
____________ ____________ ____________ ____________
[Continued]
7
FOUNTAIN POWERBOAT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - See Accountants' Review Report)
[Continued]
For The Three Months For The Nine Months
Ended March 31 Ended March 31
__________________________ __________________________
2000 1999 2000 1999
____________ ____________ ____________ ____________
EARNINGS (LOSS) PER
SHARE $ .12 $ .07 $ .12 $ (.22)
____________ ____________ ____________ ____________
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,732,608 4,702,608 4,732,608 4,705,017
____________ ____________ ____________ ____________
DILUTED EARNINGS PER
SHARE $ N/A $ .07 $ N/A $ N/A
____________ ____________ ____________ ____________
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING N/A 4,794,363 N/A N/A
____________ ____________ ____________ ____________
The accompanying notes are an integral part of these unaudited financial
statements.
8
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - See Accountants' Review Report)
Increase (Decrease) in Cash and Cash Equivalents
For the Nine
Months Ended March 31,
__________________________
2000 1999
____________ ____________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 569,848 $(1,043,027)
Adjustments to reconcile net income (loss)
to net Cash provided by operating
activities:
Depreciation Expense 1,747,766 1,741,646
Strategic Charge - 2,440,000
(Increase) decrease in accounts receivable (1,095,333) 1,791,053
(Increase) decrease in inventory (1,887,533) 197,060
(Increase) decrease in prepaid expenses 260,749 (408,949)
Increase (decrease) in accounts payable 1,069,294 (1,395,072)
Increase (decrease) in accrued expenses (185,516) 235,632
Increase (decrease) in dealer service
territory accrual (561,481) 345,618
Increase (decrease) in customer deposits (43,014) (96,971)
Net deferred taxes 27,067 (1,477,588)
Net liabilities of discontinued operations - (93,612)
____________ ____________
Net Cash Provided by (Used in)
Operating Activities $ (98,153) $ 2,235,790
____________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction of molds, plugs and other
tooling $ (215,615) (635,272)
Purchase of property plant and equipment (497,451) (2,121,691)
(Increase) in other assets (89,823) (102,969)
____________ ____________
Net Cash Provided by (Used) Investing
Activities $ (802,889) $(2,859,932)
____________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt $ - $ 4,000,000
Repayment of long-term debt (1,165,259) (1,391,817)
Repayment of long-term debt - related party - (257,911)
Proceeds from issuance of common stock - 107,400
____________ ____________
Net Cash Provided by (Used in) Financing
Activities $(1,165,259) $ 2,457,672
____________ ____________
Net increase (decrease) in cash $(2,066,301) $ 1,833,530
Cash and Cash Equivalents at beginning of year $ 2,217,301 $ 1,376,984
____________ ____________
Cash and Cash Equivalents at end of period $ 151,000 $ 3,210,514
____________ ____________
[Continued]
9
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - See Accountants' Review Report)
Increase (Decrease) in Cash and Cash Equivalents
[Continued]
For the Nine
Months Ended March 31,
__________________________
2000 1999
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest:
Unrelated parties $ 789,270 $ 769,363
Related parties - 20,447
____________ ____________
$ 789,270 $ 789,810
____________ ____________
Income taxes $ - $ 263,345
____________ ____________
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
For the nine-month period ended March 31, 2000:
None
For the nine-month period ended March 31, 1999:
During December 1998, the Company recorded a $2,440,000 strategic charge
reducing the value of their assets to their estimated realizable value.
The accompanying notes are an integral part of these unaudited financial
statements.
10
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited - See Accountants' Review Report)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
Although these statements have been reviewed by our independent auditors, they
are unaudited. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at March 31, 2000 and for all
periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted for purposes of filing interim financial
statements with the Securities and Exchange Commission. It is suggested that
these condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's June 30, 1999 audited
financial statements. The results of operations for the periods ended March 31,
2000 and 1999 are not necessarily indicative of the operating results for the
full year.
NOTE 2 - HURRICANE
During September 1999, the Company experienced flooding and temporary closure
of the production facility as a result of hurricanes "Dennis" and "Floyd"
hitting Eastern North Carolina. As a result of the hurricanes, the Company
sustained damages to inventory and property, plant and equipment, including
damages to a yacht mold as well as lost revenue and additional expenses from
the business interruption.
As of March 2000, the insurance carrier has paid for the damage to the
inventory and most of the damage to the property, plant and equipment
including the yacht mold. Review is still in process by the insurance carrier
on the repair or replacement of certain air-conditioning and heating equipment
that was flooded during the storm. The final net effect of the property,
plant, equipment and inventory settlement cannot be reasonably estimated
until the balance of this claim is collected. Ths Company has recorded other
income of $117,137 for the claims that have been paid.
The Company also experienced losses resulting from the closure of the
production facility and efficiencies due to storm preparation, cleanup and the
inability of the full work force to report to work once the plant re-opened.
The Company immediately filed its claims for business interruption and
believed it complied with all aspects of its policy. When a timely and
reasonable resolution could not be reached, the Company filed suit against its
insurance carrier. As of March 31, 2000, a partial payment of $961,560 has
been made by the insurance carrier and recorded as other income. The
Company and the insurance carrier have come to an impasse as to the policy
limits and interpretation of the ingress/egress language and have submitted
the process to arbitration. If the differences cannot be resolved through
arbitration, the suit will be continued for a final conclusion.
11
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited - See Accountants' Review Report)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - ACCOUNTS RECEIVABLE
As of March 31, 2000, accounts receivable were $2,672,045 net of the allowance
for bad debts of $27,841. This represents an increase of $1,095,333 from the
$1,576,712 in net accounts receivable recorded at June 30, 1999. Of the
$2,672,045 balance at March 31, 2000, $2,562,602 has subsequently been collected
as of April 28, 2000, and the remaining $109,443 is believed to be fully
collectible.
NOTE 4 - INVENTORIES
Inventories at March 31, 2000 and June 30, 1999 consisted of the following:
March 31, June 30,
2000 1999
_____________ _____________
Parts and supplies................. $ 3,439,922 $ 3,296,244
Work-in-process.................... 5,099,819 3,208,982
Finished goods..................... 775,682 922,664
Obsolete inventory reserve......... (120,000) (120,000)
_____________ _____________
Total.............................. $ 9,195,423 $ 7,307,890
_____________ _____________
NOTE 5 - REVENUE RECOGNITION
The Company generally sells boats only to authorized dealers and to the U.S.
Government. A sale is recorded when a boat is shipped to a dealer or to the
Government, legal title and all other incidents of ownership have passed from
the Company to the dealer or to the Government, and an account receivable is
recorded or payment is received from the dealer, from the Government, or from
the dealer's third-party commercial lender. This is the method of sales
recognition in use by most boat manufacturers.
The Company has developed criteria for determining whether a shipment should be
recorded as a sale or as a deferred sale (a balance sheet liability). The
criteria for recording a sale are that the boat has been completed and shipped
to a dealer or to the Government, that title and all other incidents of
ownership have passed to the dealer or to the Government, and that
there is no direct or indirect commitment to the dealer or to the Government to
repurchase the boat or to pay floor plan interest for the dealer beyond the
normal, published sales program terms.
12
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited - See Accountants' Review Report)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - REVENUE RECOGNITION - [Continued]
The sales incentive floor plan interest expense for each individual boat sale is
accrued for the maximum six-month (180 days) interest payment period in the same
fiscal accounting period that the related boat sale is recorded. The entire six
months' interest expense is accrued at the time of the sale because the Company
considers it a selling expense. The amount of interest accrued is subsequently
adjusted to reflect the actual number of days of remaining liability for floor
plan interest for each individual boat remaining in the dealer's inventory and
on floor plan.
Presently, the Company's normal sales program provides for the payment of floor
plan interest on behalf of its dealers for a maximum of six months. The Company
believes that this program is currently competitive with the interest payment
programs offered by other boat manufacturers, but may from time to time adopt
and publish different programs as necessary in order to meet competition.
NOTE 6 - ALLOWANCE AND QUALIFYING ACCOUNTS
For the nine months ended March 31, 2000, the Company adjusted its
allowance and qualifying accounts as follows:
Balance at Charged to Balance
Beginning Cost and Additions at End
of Period Expense (Deductions) of Period
____________ ____________ ____________ ____________
Allowance for
boat repurchases $ 200,000 $ -0- $ -0- $ 200,000
Allowance for
doubtful accounts 27,841 -0- -0- 27,841
Allowance for
warranty claims 590,000 621,703 (621,703) 590,000
Allowance for
inventory values 120,000 -0- -0- 120,000
____________ ____________ ____________ ____________
Total $ 937,841 $ 621,703 $(621,703) $ 937,841
____________ ____________ ____________ ____________
In management's opinion, the balances of the allowance and qualifying
accounts are adequate to provide for all reasonably anticipated future losses.
13
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited - See Accountants' Review Report)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Manufacturer Repurchase Agreements - The Company makes available through third-
party finance companies floor plan financing for many of its dealers. Sales to
participating dealers are approved by the respective finance companies. If a
participating dealer does not satisfy its obligations under the floor plan
financing agreement in effect with its commercial lender(s) and boats are
subsequently repossessed by the lender(s), then under certain circumstances the
Company may be required to repurchase the repossessed boats if it has executed a
repurchase agreement with the lender(s). At March 31, 2000, the Company had a
total contingent liability to repurchase boats in the event of dealer defaults
and if repossessed by the commercial lenders amounting to approximately
$28,500,000. The Company has reserved for future losses it might incur upon the
repossession and repurchase of boats from commercial lenders. The amount of the
allowance is based upon probable future events, which can be reasonably
estimated. At March 31, 2000, the allowance for boat repurchases was $200,000.
Dealer Interest - The Company regularly pays a portion of dealers' interest
charges for floor plan financing for up to six months. These interest charges
amounted to approximately $894,135 for the first nine months of Fiscal 2000 and
are included in the accompanying consolidated statements of operations as part
of selling expense. At March 31, 2000, the estimated unpaid dealer incentive
interest included in accrued expenses amounted to $465,290.
NOTE 8 - TRANSACTIONS WITH RELATED PARTIES
For the nine months ended March 31, 2000 and 1999 the Company paid or accrued
$ -0- and $7,808 for use of apartments and $ -0- and $20,447 for interest on
indebtedness to Mr. Reginald M. Fountain, Jr. the Company's Chairman, President
and Chief Executive Officer, or to entities owned or controlled by him.
At March 31, 2000 the Company had travel advances and other receivables due
from employees in the amount of $15,225.
The Company paid $208,652 during the nine-month period ended March 31, 2000 for
advertising and public relations services from an entity owned by a director of
the Company.
14
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited - See Accountants' Review Report)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes". SFAS 109
requires the Company to provide a net deferred tax asset/liability equal to the
expected future tax benefit/expense of temporary reporting differences between
book and tax accounting methods and any available operating loss or tax credit
carryforwards. The Company has available at March 31, 2000, an operating loss
carryforward of approximately $1,769,640, which may be applied against future
taxable income and which expires in various years through 2020. The deferred
tax asset is approximately $2,317,295 as of March 31, 2000 and the deferred
liability is approximately $1,022,543. The net change in deferred tax assets
and liabilities of $(27,067) for the nine months ended March 31, 2000 has been
recorded as a deferred tax expense on the statement of operations.
NOTE 10 - EARNINGS (LOSS) PER SHARE
The computation of earnings (loss) per share and diluted earnings (loss) per
share amounts are based upon the weighted average number of outstanding common
shares during the periods, plus, when their effect is dilutive, additional
shares assuming the exercise of certain vested stock options, reduced by the
number of shares which could be purchased from the proceeds from the exercise of
the stock options assuming they were exercised. Diluted earnings (loss) per
share for the nine-month period ended March 31, 2000 and 1999, was not
presented, as its effect was anti-dilutive. At March 31, 2000 there were
551,000 unexercised stock options, of which 546,000 were held by officers and
directors of the company at prices ranging from $3.58 to $5.00 per share, that
were not included in the computation of earnings per share because their effect
is anti-dilutive.
NOTE 11 - STRATEGIC CHARGE
During December 1998, the Company designed and implemented a restructuring
plan to aggressively improve the Company's cost structure, refocus sales and
marketing expenditures and divest the Company of certain non-realizable assets.
In connection with the restructuring plan the Company reviewed components of its
business for possible improvement of future profitability through reengineering
or restructuring. As part of this plan the Company decided to eliminate its
racing program and write off the balance of excess yacht tooling cost along with
other discontinued unused tooling. The Company completed the majority of these
actions during the third and fourth quarter of Fiscal 1999. The carrying value
of the assets held was reduced to fair value based on estimated realizable value
based on future cash flows from use of the asset or sale of the related assets.
The resulting pretax adjustment of $2,440,000 was recorded as a strategic charge
in the statement of operations of the Company for the periods ended March 31,
1999.
15
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations.
The operating income(loss) for the third quarter ended March 31, 2000 was
$(123,052) or $(.03) per share versus operating income of $447,034 or $.09 per
share for the corresponding period of the previous year. Operating income as a
percent of sales for the third quarter of Fiscal 2000 was (.9)% versus 3.2% for
the same period the previous Fiscal year. The net profit for the third quarter
of Fiscal 2000 was $558,193 or $.12 per share. This compares to net profit
amounting to $337,685, or $.07 per share for the third quarter of Fiscal 1999.
Net sales increased by 1.9% to $14,306,940 for the third quarter of Fiscal
2000 as compared to $14,041,832 for the third quarter of the prior Fiscal year.
Unit sales volume for the third quarter of Fiscal 2000 was 111 boats as compared
to 111 boats for the third quarter of Fiscal 1999. Revenue increased slightly
due to heavier sales of sportboats versus fishing boats from the same period in
the prior Fiscal year.
For the third quarter of Fiscal 2000, the gross margin on sales was
$2,517,676 (17.6%) as compared to $2,947,551 (21.0%) for the third quarter of
Fiscal 1999. Gross margins have been reduced by the Company's decision to hold
prices constant through the winter and spring selling seasons, rather than
forfeit market share to its aggressive price competitors.
Selling expenses were $1,941,220 for the third quarter of Fiscal 2000 as
compared to $1,761,294 for the third quarter of last Fiscal year. Most of the
increase for Fiscal 2000 was from increased promotion expenditures primarily at
the New York and Miami Boat Shows as well as creation of dramatically new
product promotional brochures.
General and administrative expenses were $699,508 for the third
quarter of Fiscal 2000 as compared to $739,223 for the third quarter of last
Fiscal year.
Interest expense for the third quarter of Fiscal 2000 was $249,694 as
compared to $256,246 for the third quarter of last Fiscal year. Most of the
decrease resulted from a reduction of related party interest from the third
quarter of Fiscal 1999.
Other non-operating (income)/expense for the third quarter of Fiscal 2000
was $(1,100,818) as compared to $(25,937) for the third quarter of last Fiscal
year. Substantially all of the increase is due to receipt of a partial payment
from our business interruption insurance carrier.
16
Financial Condition.
The Company's cash flows for the first nine months of Fiscal 2000 are
summarized as follows:
Net cash used by operating activities............ $ (98,153)
" " used by investing activities ........... (802,889)
" " provided by financing activities .... (1,165,259)
____________
Net decrease in cash..................... $(2,066,301)
____________
This net decrease compared to a $1,833,530 net increase for the first nine
months of the prior fiscal year.
Cash used in the first nine months of Fiscal 2000 to acquire additional
property, plant, and equipment (investing activity) amounted to $802,889 of
which $215,615 was for plugs, molds, and other product tooling.
For the remainder of Fiscal 2000 and beyond, the Company expects to
generate sufficient cash through operations to meet its needs and obligations.
Management believes that the Company's sales and production volume will continue
to grow with a return to net earnings and positive cash flow. Most of the
Company's cash resources will be used to maintain its plant and equipment and
for new product tooling for the cruiser line.
The Year 2000.
A concern, known as the "Year 2000" or "Y2K" Bug was expected to effect a
large number of computer systems and software during or after the year 1999.
The concern was that any computer function that requires a date calculation may
produce errors. The Year 2000 issue could have virtually affected all companies
computer systems. The Company planned and put into effect an updated computer
system with new hardware and software, which allowed it to become compliant with
the year 2000 dates and avoid any of the previously anticipated "Y2K" errors
from occurring. With respect to third party providers whose services are
critical to the Company, the Company has not seen any effects since the 2000
year began.
Cautionary Statement for Purposes of "Safe Harbor" Under the
Private Securities Reform Act of 1995.
The Company may from time to time make forward-looking statements, including
statements projecting, forecasting, or estimating the Company's performance and
industry trends. The achievement of the projections, forecasts, or estimates
contained in these statements is subject to certain risks and uncertainties, and
actual results and events may differ materially from those projected,
forecasted, or estimated.
[Continued]
17
Cautionary Statement for Purposes of "Safe Harbor" Under the
Private Securities Reform Act of 1995.
The applicable risks and uncertainties include general economic and
industry conditions that affect all businesses, as well as, matters that are
specific to the Company and the markets it serves. For example, the achievement
of projections, forecasts, or estimates contained in the Company's forward-
looking statements may be impacted by national and international economic
conditions; compliance with governmental laws and regulations; accidents and
acts of God; and all of the general risks associated with doing business.
Risks that are specific to the Company and its markets include but are not
limited to compliance with increasingly stringent environmental laws and
regulations; the cyclical nature of the industry; competition in pricing and new
product development from larger companies with substantial resources; the
concentration of a substantial percentage of the Company's sales with a few
major customers, the loss of, or change in demand from, any of which could have
a material impact upon the Company; labor relations at the Company and at its
customers and suppliers; and the Company's single-source supply and just-in-time
inventory strategies for some critical boat components, including high
performance engines, which could adversely affect production if a single-source
supplier is unable for any reason to meet the Company's requirements on a timely
basis.
PART II. Other Information.
ITEM 2: Change in Securities.
During the third quarter of Fiscal 1999, 30,000 stock options were
exercised by a former director of the Company at an option price of $3.58
per share. There was no change in securities during the third quarter of
Fiscal 2000.
ITEM 6: Exhibits and Reports on Form 8 and Form 8-K.
(a) No Amendments on Form 8 were filed by the Registrant during the
first nine months of Fiscal 2000.
(b) No Current Reports on Form 8-K were filed by the Registrant
during the first nine months of Fiscal 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOUNTAIN POWERBOAT INDUSTRIES, INC.
(Registrant)
By: Joseph F. Schemenauer Date: May 12, 2000
Joseph F. Schemenauer
Vice President, Chief Financial
Officer, and Designated Principal
Accounting Officer