FOUNTAIN POWERBOAT INDUSTRIES, INC.
FORM 10-Q
QUARTERLY REPORT
FOR THE QUARTER ENDED SEPTEMBER 30, 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 September 30, 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
0-14712
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.)
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 October 11, 2000
Common Stock, $.01 par value 4,732,608 shares
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
INDEX
Page No.
Part I Financial Information
Review Report of Independent Certified
Public Accountants 1
Unaudited Consolidated Balance Sheets,
September 30, 2000 and June 30, 2000 2 - 3
Unaudited Consolidated Statements of Operations,
for the three months ended September 30,
2000 and September 30, 1999 4
Unaudited Consolidated Statements of Cash
Flows, for the three months ended
September 30, 2000 and September 30, 1999 5 - 6
Notes to Unaudited Consolidated Financial
Statements 7 - 10
Management's Discussion and Analysis of
Results of Operations and Financial Condition 11 - 13
Part II Other Information
Item 6 Exhibits and Reports on Form 8 and
Form 8-K 13
Signature 14
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 September 30,
2000, and the related consolidated statements of operations
and cash flows for the three months ended September 30, 2000.
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
October 30, 2000
1
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
September 30, June 30,
2000 2000
_____________ _____________
CURRENT ASSETS:
Cash and cash equivalents $ 1,232,952 $ 1,983,439
Accounts receivable, net 2,282,950 1,701,643
Inventories 5,808,990 7,880,136
Prepaid expenses 1,036,871 574,615
Current tax assets 1,772,536 1,481,666
_____________ _____________
Total Current Assets 12,134,299 13,621,499
_____________ _____________
PROPERTY, PLANT AND EQUIPMENT 38,372,328 37,686,040
Less: Accumulated depreciation (19,351,243) (18,752,789)
_____________ _____________
19,021,085 18,933,251
_____________ _____________
OTHER ASSETS 901,991 876,334
_____________ _____________
$32,057,375 $33,431,084
_____________ _____________
2
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
[Continued]
September 30, June 30,
2000 2000
_____________ _____________
CURRENT LIABILITIES:
Current maturities - long-term
debt $ 2,616,834 $ 2,613,534
Current maturities - capital
lease 12,999 12,999
Accounts payable 5,390,275 4,993,717
Accrued expenses 2,195,078 2,504,603
Dealer territory service
accrual 854,822 907,230
Customer deposits 31,470 322,040
Allowance for boat repurchases 200,000 200,000
Reserve for warranty expense 590,000 590,000
_____________ _____________
Total Current Liabilities 11,891,478 12,144,123
LONG-TERM DEBT, less current
maturities 7,520,741 8,151,546
CAPITAL LEASE, less current
maturities 63,940 63,940
DEFERRED TAX LIABILITY 1,181,283 1,180,817
COMMITMENTS AND CONTINGENCIES
[NOTE 7] - -
_____________ _____________
Total Liabilities 20,657,442 21,540,426
_____________ _____________
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value,
200,000,000 shares authorized,
4,732,608 shares issued 47,326 47,326
Additional paid -in
capital 10,303,640 10,303,640
Retained earnings 1,159,715 1,650,440
_____________ _____________
11,510,681 12,001,406
Less: Treasury stock, at cost,
15,000 shares (110,748) (110,748)
_____________ _____________
Total Stockholders' Equity 11,399,933 11,890,658
_____________ _____________
$32,057,375 $33,431,084
_____________ _____________
The accompanying notes are an integral part of these financial
statements.
3
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
September 30,
____________________________
2000 1999
_____________ ______________
NET SALES $ 13,686,344 $ 10,795,168
COST OF SALES 11,791,217 8,759,941
_____________ ______________
Gross Profit 1,895,127 2,035,227
_____________ ______________
EXPENSES:
Selling expense 1,598,692 1,586,283
Selling expense - related parties 75,082 127,097
General and administrative 747,692 721,503
_____________ ______________
Total expenses 2,421,466 2,434,883
_____________ ______________
OPERATING INCOME (LOSS) (526,339) (399,656)
NON-OPERATING INCOME (EXPENSE):
Other income (expense) 8,687 28,986
Interest expense (253,691) (283,391)
_____________ ______________
INCOME (LOSS) BEFORE INCOME TAXES (771,343) (654,061)
CURRENT TAX EXPENSE 9,785 -
DEFERRED TAX (BENEFIT) (290,404) (284,303)
_____________ ______________
NET INCOME (LOSS) $ (490,724)$ (369,758)
_____________ ______________
EARNINGS (LOSS) PER SHARE $ (.10)$ (.08)
_____________ ______________
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,732,608 4,732,608
_____________ ______________
DILUTED EARNINGS PER SHARE: $ N/A $ N/A
_____________ ______________
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING N/A N/A
_____________ ______________
The accompanying notes are an integral part of these financial
statements.
4
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
For the Three Months Ended
September 30,
__________________________________
2000 1999
________________ ________________
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (490,724) $ (369,758)
________________ ________________
Adjustments to reconcile
net income (loss)to net
cash provided by operating
activities:
Depreciation expense 598,453 637,896
Net deferred taxes (290,404) (284,303)
Change in assets and
liabilities:
(Increase) decrease in
accounts receivable (581,308) (232,922)
(Increase) decrease in
inventories 2,071,146 (1,053,428)
(Increase) decrease in
prepaid expenses (462,256) (68,601)
Increase (decrease) in
accounts payable 396,558 1,496,682
Increase (decrease) in
accrued expenses (300,525) (593,501)
Increase (decrease) in
dealer territory
service accrual (52,408) (107,026)
Increase (decrease) in
customer deposits (290,569) 5,350
________________ ________________
Net Cash Provided
(Used) by Operating
Activities $ 588,963 $ (569,611)
________________ ________________
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property, plant,
and equipment (686,288) (472,545)
(Increase) in other assets (25,657) (33,744)
________________ ________________
Net Cash Provided
(Used) by Investing
Activities $ (711,945) $ (506,289)
________________ ________________
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayment of long-term debt $ (627,505) $ (237,177)
________________ ________________
Net Cash Provided
(Used) by Financing
Activities $ (627,505) $ (237,177)
________________ ________________
Net increase (decrease) in
cash and cash equivalents $ (750,487) $ (1,313,077)
Cash and cash equivalents
at beginning of year 1,983,439 2,217,301
________________ ________________
Cash and cash equivalents at
end of period $ 1,232,952 $ 904,224
________________ ________________
5
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
[Continued]
For the Three Months Ended
September 30,
__________________________________
2000 1999
________________ ________________
Supplemental Disclosures of
Cash Flow information:
Cash paid during the period
for:
Interest $ 270,140 $ 280,805
Income taxes $ 9,785 $ -
Supplemental Disclosures of Noncash investing and financing activities:
For the three month period ended September 30, 2000:
None
For the three month period ended September 30, 1999:
None
The accompanying notes are an integral part of these financial
statements.
6
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited)
NOTES TO 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
September 30, 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, 2000 audited financial statements. The
results of operations for the period ended September 30, 2000
is not necessarily indicative of the operating results for the
full year.
NOTE 2 - GAIN ON INSURANCE CLAIMS FROM HURRICANES
During September 1999, the Company experienced flooding and
the 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
of approximately $277,172 to inventory and $389,063 to property,
plant and equipment, which includes $300,000 in damages
to the Company's yacht mold and $51,658 in additional expenses.
The Company filed a business interruption claim for damages due
to lost revenues from the closure of the production facility
and inefficiencies due to storm preparation, cleanup and work
force shortages. As of September 30, 2000, the insurance
carriers have paid $1,058,618 for damages to the inventory,
property, plant, and equipment including the Yacht Mold and
other expenses. The Company filed its claim for business
interruption and believes 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 September 30, 2000 the insurance carrier has
advanced $951,650 towards the business interruption claim.
During fiscal year 2000 the Company has recorded a gain on
insurance claims from the hurricanes of $891,539. On October
10, 2000 checks totaling $1,350,000 were received by the
Company from the insurance carrier in full and final payment
of all claims.
NOTE 3 - ACCOUNTS RECEIVABLE
As of September 30, 2000, accounts receivable were $2,282,950
net of the allowance for bad debts of $27,841. This
represents an increase of $581,307 from the $1,701,643 in net
accounts receivable recorded at June 30, 2000. Of the
$2,282,950 balance at September 30, 2000, $1,767,509 has
subsequently been collected as of October 11, 2000, and the
remaining $515,441 is believed to be fully collectible.
7
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - INVENTORIES
Inventories at September 30, 2000 and June 30, 2000 consisted
of the following:
September 30, June 30,
2000 2000
_____________ _____________
Parts and supplies $ 3,395,605 $ 3,402,176
Work-in-process 1,691,303 3,743,713
Finished goods 872,082 884,247
Obsolete inventory reserve (150,000) (150,000)
_____________ _____________
Total $ 5,808,990 $ 7,880,136
_____________ _____________
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.
The sales incentives 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 the 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.
8
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - 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
September 30, 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 $32,235,188. The Company has reserved for the
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 September 30, 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 $372,675 for
the first three months of Fiscal 2001 and are included in the
accompanying consolidated statements of operations as part of
selling expense. At September 30, 2000, the estimated unpaid
dealer incentive interest included in accrued expenses
amounted to $534,978.
9
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - TRANSACTIONS WITH RELATED PARTIES
At September 30, 2000, the Company had receivables from and
advances to employees of the Company amounting to $9,198.
The Company paid $75,082 for the three month period ended
September 30, 2000, for advertising and public relations
services from an entity owned by a director of the Company.
NOTE 8 - INCOME TAXES
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109.
SFAS 109 requires the Company to provide a net deferred tax
asset or liability equal to the expected future tax benefit or
expense of temporary reporting differences between book and
tax accounting and any available operating loss or tax credit
carry forwards.
For the three month period ended September 30, 2000, the
Company provided $0 for current income taxes and a benefit $0
for deferred income taxes.
NOTE 9 - STOCK OPTIONS
At September 30, 2000 there were 526,000 unexercised stock
options, of which 510,000 were held by officers and directors
of the Company at prices ranging from $3.1875 to $5.00 per
share.
NOTE 10 - EARNINGS (LOSS) PER SHARE
The computations of earnings (loss) per share and diluted
earnings 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 per share for the three month
period ended September 30, 2000 and 1999, was not presented as
its effect was anti-dilutive.
NOTE 11 - SUBSEQUENT EVENTS
On October 10, 2000, checks totaling $1,350,000 were received
by the Company from the insurance carrier in full and final
payment of all insurance claims (See Note 2). Proceeds will
be used to pay legal, accounting, and other hurricane claims
associated expenses of approximately $202,000.
10
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations.
The operating loss for the first quarter ended September 30,
2000 was $(526,339) or $(.11) per share versus $(399,656) or
$(.08) per share for the corresponding period of the previous
year. The operating loss as a percent of sales for the first
quarter of Fiscal 2001 was (3.8)% versus (3.7)% for the same
period the previous Fiscal year. The net loss for the first
quarter of Fiscal 2001 was $(490,724) or $(.10) per share. This
compares to a net loss of $(369,758) or $(.08) per share for the
first quarter of Fiscal 2000.
Net sales were $13,686,344 for the first quarter of Fiscal
2001 as compared to $10,795,168 for the first quarter of the
prior Fiscal year. Unit sales volume for the first quarter of
Fiscal 2001 was 96 boats as compared to 89 boats for the first
Fiscal quarter of 2000. The hurricanes that hit eastern North
Carolina in September, 1999 (see Note 2) disrupted production and
shipments of boats and had an adverse effect on the first quarter
of Fiscal 2000. Sales revenue for the three months ended
September 30, 2000, was 3 % below planned sales revenue. Sales
were affected by the cooler than normal weather experienced by
much of the United States this past summer.
The Company believes the introduction of the new line of wide
beam cruisers, which is intended to address the growing demand
for family-oriented cruisers in the North American middle market,
will generate additional sales revenue and the Company will meet
its planned boat sales revenue of $54,000,000 for fiscal 2001.
For the first quarter of Fiscal 2001, the gross margin on
sales was $1,895,127 (14%) as compared to $2,035,227 (19%) for
the first quarter of the prior fiscal year. The decrease in
gross margin was due primarily to higher than expected production
costs, particularly cost of sale for the 65 Yacht, higher
insurance costs because of increased rates caused by the
hurricanes, and higher development costs associated with the wide
beam cruisers mentioned above.
Selling expenses were $1,673,774 for the first quarter of
Fiscal 2001 as compared to $1,713,380 for the first quarter of
last Fiscal year. Decreased selling expense was primarily due to
a decrease in racing expense (383,000) and an increase in
advertising expense (188,000) and dealer floor plan interest
(162,000).
General and administrative expenses were $747,692 for the
first quarter of Fiscal 2001 as compared to $721,503 for the
first quarter of last Fiscal year.
Interest expense for the first quarter of Fiscal 2001 was
$253,691 as compared to $283,391 for the first quarter of last
year.
11
Other non-operating (income)/expense for the first quarter
was $(8,687) as compared to $(28,986) for the first quarter of
last fiscal year.
Financial Condition.
The Company's cash flows for the three months ended
September 30, 2000 are summarized as follows:
Net cash provided by operating activities....$ 588,963
" " used in investing activities..............(711,945)
" " used by financing activities............(627,505)
Net decrease in cash..................$ (750,487)
=============
This net decrease compares to a $(1,313,077) net decrease
for the first three months of the prior fiscal year.
Cash used in the first three months of Fiscal 2001 to
acquire additional property, plant, and equipment (investing
activity) amounted to $711,945 of which $25,657 was for other
assets.
For the remainder of the year ending June 30, 2001 and
beyond, the Company expects to generate sufficient cash through
operations to meet its needs and obligations. In addition,
management believes that with the near term settlement of its
pending insurance claim, the Company's sales and production
volume will continue to grow with a gradual improvement in net
earnings and cash flow. Most of the Company's cash resources
will be used to maintain and improve its plant and equipment and
for new product tooling.
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.
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.
12
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 6: Exhibits and Reports on Form 8-K.
(a) No Exhibits
(b) The Registrant filed no Current Reports on Form 8-K during
the first three months of Fiscal 2001.
13
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: /S/David A. Simmons Date: October 31, 2000
Chief Financial Officer and
Designated Principal Accounting
Officer
14