FOUNTAIN POWERBOAT INDUSTRIES, INC.
FORM 10-Q
QUARTERLY REPORT
FOR THE QUARTER ENDED DECEMBER 31, 2001
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 December 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 _______________
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 or 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 January 31, 2002
Common Stock, $.01 par value 4,732,608 shares
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
INDEX
Page No.
Part I Financial Information
Unaudited Consolidated Balance Sheets,
December 31, 2001 and June 30, 2001 1 - 2
Unaudited Consolidated Statements of Operations, for the
three and six months ended December 31, 2001
and December 31, 2000 3
Unaudited Consolidated Statements of Cash Flows, for the
six months ended December 31, 2001
and December 31, 2000 4 - 5
Notes to Unaudited Consolidated Financial Statements 6 - 8
Management's Discussion and Analysis of Results
of Operations and Financial Condition 9 - 10
Part II Other Information
Item 6 Exhibits and Reports on Form 8 and Form 8-K 11
Signature 12
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, June 30,
2001 2001
_____________ _____________
CURRENT ASSETS:
Cash and cash equivalents $ 445,338 $ 796,606
Accounts receivable, net 569,582 1,939,886
Inventories 4,009,032 4,555,969
Prepaid expenses 373,812 172,538
Current tax assets 2,729,619 1,469,937
_____________ _____________
Total Current Assets 8,127,383 8,934,936
_____________ _____________
PROPERTY, PLANT AND EQUIPMENT 40,257,740 39,352,236
Less: Accumulated depreciation (21,558,870) (20,432,602)
_____________ _____________
18,698,870 18,919,634
_____________ _____________
OTHER ASSETS 1,412,710 1,093,182
_____________ _____________
$28,238,963 $28,947,752
_____________ _____________
[Continued]
1
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
[Continued]
December 31, June 30,
2001 2001
_____________ _____________
CURRENT LIABILITIES:
Current maturities - long-term debt $ 1,012,023 $ 722,661
Current maturities - capital lease 15,053 13,989
Accounts payable 4,195,801 5,682,729
Accrued expenses 895,267 1,006,459
Dealer incentives 854,616 2,030,126
Customer deposits 470,546 321,175
Allowance for boat repurchases 200,000 200,000
Reserve for warranty expense 590,000 590,000
_____________ _____________
Total Current Liabilities 8,233,306 10,567,139
LONG-TERM DEBT, less current maturities 10,076,995 6,580,299
CAPITAL LEASE, less current maturities 48,887 49,605
DEFERRED TAX LIABILITY 812,936 759,577
COMMITMENTS AND CONTINGENCIES [NOTE 5] - -
_____________ _____________
Total Liabilities 19,172,124 17,956,620
_____________ _____________
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value,
200,000,000 shares authorized,
4,732,608 shares issued and
outstanding 47,326 47,326
Additional paid-in capital 10,303,640 10,303,640
Accumulated earnings (1,173,379) 750,914
_____________ _____________
9,177,587 11,101,880
Less: Treasury stock, at cost,
15,000 shares (110,748) (110,748)
_____________ _____________
Total Stockholders' Equity 9,066,839 10,991,132
_____________ _____________
$28,238,963 $28,947,752
_____________ _____________
The accompanying notes are an integral part of these financial statements.
2
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three For The Six
Months Ended Months Ended
December 31 December 31
_________________________ _________________________
2001 2000 2001 2000
____________ ____________ ____________ ____________
NET SALES $ 6,553,076 $ 8,838,621 $15,003,869 $22,524,964
COST OF SALES 7,148,277 7,816,539 14,911,584 19,607,756
____________ ____________ ____________ ____________
Gross Profit (595,201) 1,022,082 92,285 2,917,208
EXPENSES
Selling Expense 987,379 1,278,544 1,859,313 2,912,198
Selling Expense-
related parties - 117,255 - 157,375
General & Administrative 475,781 720,005 963,506 1,467,697
____________ ____________ ____________ ____________
Total Expenses 1,463,160 2,115,804 2,822,819 4,537,270
____________ ____________ ____________ ____________
OPERATING INCOME (LOSS) (2,058,361) (1,093,722) (2,730,534) (1,620,062)
NON-OPERATING
INCOME/(EXPENSE)
Other Income 5,135 1,569,633 4,283 1,578,320
Interest Expense (262,516) (217,764) (404,365) (471,455)
____________ ____________ ____________ ____________
INCOME (LOSS) BEFORE TAX (2,315,742) 258,147 (3,130,616) (513,197)
CURRENT TAX EXPENSE - (9,785) - -
DEFERRED TAXES (BENEFIT) (898,091) 111,569 (1,206,323) (178,835)
____________ ____________ ____________ ____________
NET INCOME (LOSS) (1,417,651) 156,363 (1,924,293) (334,362)
EARNINGS (LOSS) PER SHARE (.30) .03 (.41) (.07)
____________ ____________ ____________ ____________
WEIGHTED AVERAGE
SHARES OUTSTANDING 4,732,608 4,732,608 4,732,608 4,732,608
____________ ____________ ____________ ____________
DILUTED EARNINGS PER SHARE N/A N/A N/A N/A
____________ ____________ ____________ ____________
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING N/A N/A N/A N/A
____________ ____________ ____________ ____________
3
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
For the Six Months Ended
December 31,
_____________________________
2001 2000
______________ ______________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,924,293) $ (334,362)
______________ ______________
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation expense 1,126,268 1,193,082
Gain on sale of fixed asset - (500,446)
Net deferred taxes (1,206,323) (178,835)
Change in assets and liabilities:
(Increase) decrease in accounts receivable 1,370,303 973,888
(Increase) decrease in inventories 546,938 2,616,816
(Increase) decrease in prepaid expenses (201,275) (314,745)
Increase (decrease) in deferred sales - 102,496
Increase (decrease) in accounts payable (1,486,903) (756,182)
Increase (decrease) in accrued expenses (111,216) (294,753)
Increase (decrease) in dealer incentives (1,175,510) 231,054
Increase (decrease) in customer deposits 149,371 (157,005)
______________ ______________
Net Cash Provided (Used) by
Operating Activities $ (2,912,640) $ 2,581,008
______________ ______________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment (905,504) (1,741,649)
Proceeds from sale of fixed assets - 1,750,920
(Increase) in other assets 172,801 (51,314)
______________ ______________
Net Cash Provided (Used) by Investing
Activities $ (732,703) $ (42,243)
______________ ______________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt $ 3,344,344 $ -
Repayment of long-term debt (50,270) (2,473,314)
______________ ______________
Net Cash Provided (Used) by Financing
Activities $ 3,294,074 $ (2,473,314)
______________ ______________
Net increase (decrease) in cash and cash
equivalents $ (351,269) $ 65,451
Cash and cash equivalents at beginning of year $ 796,606 $ 1,983,439
______________ ______________
Cash and cash equivalents at end of period $ 445,337 $ 2,048,890
______________ ______________
[Continued]
4
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
[Continued]
For the Six Months Ended
December 31,
_____________________________
2001 2000
______________ ______________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 164,865 $ 474,502
Income Taxes $ - $ -
Supplemental Disclosures of Noncash Investing and Financing Activities:
For the six month period ended December 31, 2001:
None
For the six month period ended December 31, 2000:
None
The accompanying notes are an integral part of these financial statements.
5
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared by the Company
without audit. 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
December 31, 2001 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, 2001 audited financial statements.
The results of operations for the period ended December 31, 2001 is not
necessarily indicative of the operating results for the full year.
NOTE 2 - ACCOUNTS RECEIVABLE
As of December 31, 2001, accounts receivable were $569,582 net of the
allowance for bad debts of $27,841. This is a decrease from the
$1,939,886 in net accounts receivable recorded at June 30, 2001. Of
the balance at December 31, 2001, $301,850 subsequently has been
collected as of January 31, 2002, and the remaining $267,732 is
believed to be fully collectible.
NOTE 3 - INVENTORIES
Inventories at December 31, 2001 and June 30, 2001 consisted of the
following:
December 31, June 30,
2001 2001
_____________ _____________
Parts and supplies $ 2,264,110 $ 2,829,705
Work-in-process 1,657,051 1,308,998
Finished goods 237,871 567,266
Obsolete inventory reserve (150,000) (150,000)
_____________ _____________
Total $ 4,009,032 $ 4,555,969
_____________ _____________
6
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4- 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 incidents of ownership have
passed from the Company to the dealer or Government, and an accounts
receivable is recorded or payment is received from the dealer, the
Government, or 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. 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 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.
Sales incentive interest payments for boats sold are accrued for a six
month (180 days) interest period in the same fiscal accounting period
that the related sale is recorded, since 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 six months. The
Company believes that this program is competitive with the interest
payment programs offered by other boat manufacturers, but may from time
to time adopt and publish different programs as deemed necessary in
order to meet or exceed the competition.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Manufacturer Repurchase Agreements - The Company makes available
through third-party finance companies a floor plan financing program
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 December 31,
2001, 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 $18,688,716. 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 December 31, 2001, the allowance for boat repurchases
was $200,000.
Dealer Interest - The Company regularly pays a portion of dealers'
interest charges for floor plan financing. These interest charges
amounted to approximately $308,882 for the first six months ended
December 31, 2001 and are classified in the accompanying consolidated
statements of operations as selling expense. At December 31, 2001, the
estimated unpaid dealer interest included in accrued expenses was
$144,830.
7
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - TRANSACTIONS WITH RELATED PARTIES
At December 31, 2001, the Company had receivables and advances from its
employees amounting to $6,124.
During the six month period ended December 31, 2001, the Company paid
$11,900 for services rendered to entities owned or controlled by the
Company's Chairman, President, and Chief Executive Officer.
The Company paid $24,868 during the six month period ended December 31,
2001 for advertising services received from an entity owned by a
Company director.
NOTE 7- INCOME TAXES
For the six month period ended December 31, 2001 and 2000, the Company
paid $0 and $0 for current income taxes and had a benefit of $1,206,323
and $178,835 for deferred income taxes.
NOTE 8 - 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 six month period ended
December 31, 2001 and 2000, was not presented as its effect was anti-
dilutive. At December 31, 2001 there were 576,000 unexercised stock
options, of which 550,000 were held by officers and directors of the
Company at prices ranging from $1.34 to $5.00 per share that were not
included in the computation of earnings per share because the effect is
anti-dilutive.
NOTE 9 - GOING CONCERN
Due to the recent recession and weakening consumer confidence the
Company has experienced a significant decrease in sales resulting in
recent operating losses and working capital deficiencies raising
substantial doubt about its ability to continue as a going concern. In
this regard, management has continued new product development and plans
to release the Company's new 34 foot wide beam fishing boat and 48 foot
wide beam sports cruiser. The Company at February 1, 2002 has a sales
order back log thru the end of April 2002 for the new 38 foot wide beam
series. Further, the Company has reduced operating expenditures and
restructured long term debt financing . Management believes that the
current increase in sales orders combined with continued expense
control will allow the Company to weather the current recession. The
financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
8
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations.
The operating loss for the three months ended December 31, 2001 was
$2,058,361 or $(.43) per share versus $1,093,722 or $(.23) per share for
the same period in 2000. The net loss for the six months ended December
31, 2001, was $1,924,293 or $(.41) per share. This compares to a net loss
of $334,362 or $(.07) per share for the six months ended December 31,
2000, which included non-operating income of $1,569,633.
Net sales were $6,553,076 for the second quarter of Fiscal 2002, as
compared to $8,838,621 for the three months ended December 31, 2000.
Sales volume for three months ended December 31, 2001 was 50 units
compared to 69 units for the prior year. During the second quarter of
Fiscal 2002, while unit volume dropped almost 30%, the mix also shifted
dramatically. Lower margin fish boats, which normally represent about 20%
of units shipped, rose to almost 50%. During this same time, the sport
boat mix shifted to smaller units at lower than average margins.
Gross margin on sales for the three months ended December 31, 2001, was
$(595,201) as compared to $1,022,082 for the three months ended December
31, 2000. Gross margin for the six months ended December 31, 2001 was
$92,285 compared with $2,917,208 for the same period of the previous year.
The decrease in margin was due to three weeks of plant shutdown in the
Fiscal 2002 quarter, combined with low sales volume, a dramatic shift in
product mix, and additional discounts provided to assist dealers in moving
aged inventory. Currently, dealer inventories are down more than 20% from
inventory levels of the last 3 years.
Selling expenses were $987,379 for the three months ended December 31,
2001, as compared to $1,395,799 for the three months ended December 31,
2000. Decreased selling expenses were a result of budget expense cuts
which included lower race and advertising expense, and over $80,000
savings in dealer interest incentives.
General and administrative expenses were $475,781 for the three months
ended December 31, 2001 compared to $720,005 for the three months ended
December 31, 2000. Over $130,000 of these savings resulted from the
December 2000 sale of the corporate plane, reducing depreciation and
related travel cost.
Interest expense for the three months ended December 31, 2001 was $262,516
as compared to $217,764 for the three months ended December 31, 2000.
Other non-operating (income)/expense for the three months December 31,
2001 was $(5,135) as compared to $(1,569,633) for the three months ended
December 31, 2000. December 2000 other income resulted from the sale of
the corporate plane and the full and final payment of insurance claims
arising from hurricane damage.
9
Financial Condition.
The Company's summary cash flows for the six months ended December 31,
2001 are:
Net cash used in operating activities $ (2,912,640)
Net cash used in investing activities (732,703)
Net cash provided by financing activities 3,294,074
_____________
Net decrease in cash $ (351,269)
This net decrease compares to a $65,451 net increase for the six months
ended December 31, 2000, which included $1,750,920 from the sale of the
corporate aircraft.
Cash used in the six months ended December 31, 2001 to acquire additional
property, plant, and equipment (investing activity) amounted to $905,504
which was invested in tooling of brand new product designs, including the
48' wide beam cruiser and the 34' wide beam fish boat. These new designs
have generated significant interest in the retail market, with the 34'
fish boat producing retail orders before the tooling was completed.
Cash provided by financing activities were a result of new long term debt
refinancing which was completed during the second quarter, yielding
proceeds of $3,344,344.
For the remainder of the year ending June 30, 2002 and beyond, the Company
expects to generate sufficient cash through operations to meet its needs
and obligations. The Company maintained its new product development in
the first six months of the fiscal year, despite the volume decrease and
sales mix. The Company will introduce 2 new key models at the Miami
International Boat Show in February 2002. Previous experience leads the
Company to believe that related new product sales will generate a
sufficient source of revenue and will result in corresponding earnings
improvement.
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.
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
10
Cautionary Statement for Purposes of "Safe Harbor" Under the Private
Securities Reform Act of 1995. (continued)
companies with substantial resources; the concentration of a substantial
percentage of he 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.
There was no change in securities during the quarter ending December 31,
2001.
ITEM 6: Exhibits and Reports on Form 8 and Form 8-K.
(1) Exhibits. The following exhibits are filed in with this report:
None
(a) No Amendments on Form 8 were filed by the Registrant during the
second three months of Fiscal 2002.
(b) No Current Reports on Form 8-K were filed by the Registrant
during the first six months of Fiscal 2002.
11
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/ Hannah Hale Date: February 6, 2002
Chief Financial Officer
12