FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended Commission File Number
0-14712
Fountain Powerboat Industries, Inc.
(Exact name of registrant as specified in its charter)
Nevada 88-0160250
(State or other jurisdiction (I.R.S. Identification No.)
of incorporation or
organization)
Whichard's Beach Road
P.O. Drawer 457
Washington, NC 27889
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:(919)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
issurer's classes of common stock as of the latest practicable
date.
Class Outstanding at May 1, 1995
Common stock, $.01 par value 3,029,072 shares
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
INDEX
PART I. Financial Information. Page No.
Review Report of Independent Certified
Public Accountants........................... 3
Consolidated Balance Sheets - Assets,
March 31, 1995 and June 30, 1994............. 4
Consolidated Balance Sheets - Liabilities &
Shareholders' Equity, March 31, 1995
and June 30, 1994............................ 5
Consolidated Statements of Income -
Three Months and Nine Months Ended
March 31, 1995 and March 31, 1994...............6
Consolidated Statements of Cash Flows -
Nine Months Ended March 31, 1995
and March 31, 1994........................... 7 - 8
Notes to Consolidated Financial Statements...... 9 - 13
Management's Discussion and Analysis of
Results of Operations and
Financial Condition..........................14 - 15
PART II. Other Information.
Item 6. Exhibits and Reports on Form 8 and Form 8-K..... 16
Signature....................................... 17
PETERSON, SILER & STEVENSON, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
A Professional Corporation
430 East 400 South
Salt Lake City, Utah 84111
Voice (801) 328-2727 - Fax (801) 328-1123
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, 1995, and the
related consolidated statements of income and cash flows for the
three and nine months then ended, in accordance with Statements
on Standards for Accounting and Review services issued by the
American Institute of Certified Public Accountants. All
information included in these financial statements is the
representation of the management of Fountain Powerboat
Industries, Inc.
A review consists principally of inquiries of Company personnel
and analytical procedures applied to financial data. It is
substantially less in scope than an audit 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 accompanying financial
statements in order for them to be in conformity with generally
accepted accounting principles.
/s/ PETERSON, SILER & STEVENSON, P.C.
PETERSON, SILER & STEVENSON, P.C.
May 2, 1995
Page 3
PART I: Financial Information.
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
*** Assets ***
(Unaudited - See Accountants' Review Report)
March 31, June 30,
Assets 1995 1994
------------------------------------------ ------------ ------------
Current assets:
Cash................................... $ 527,761 $ 675,711
Accounts receivable, net (Note 2)...... 2,353,230 412,379
Inventories (Note 3)................... 3,130,259 3,496,950
Deferred cost of sales (Note 4)........ 131,000 850,000
Prepaid expenses....................... 296,126 200,579
------------ ------------
Total current assets................... $ 6,438,376 $ 5,635,619
------------ ------------
Property, plant, and equipment............ $ 18,962,453 $ 18,058,519
Less: Accumulated depreciation........... (8,814,473) (7,580,794)
------------ ------------
$ 10,147,980 $ 10,477,725
------------ ------------
Other assets.............................. $ 162,443 $ 153,443
------------ ------------
Total assets.............................. $ 16,748,799 $ 16,266,787
============ ============
<FN>
See accompanying Notes to Consolidated Financial Statements.
Page 4
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
*** Liabilities & Shareholders' Equity ***
(Unaudited - See Accountants' Review Report)
March 31, June 30,
Liabilities & Shareholders' Equity 1995 1994
------------------------------------------ ------------ ------------
Current liabilities:
Notes payable.......................... $ 649,544 $ 152,287
Current portion/long-term debt (Note 8) 1,240,133 6,550,738
Accounts payable....................... 2,096,394 4,930,149
Accts. pay. - related parties (Note 7) 0 12,800
Accrued expenses....................... 1,150,963 805,771
Accrued exp. - related parties (Note 7) 0 0
Customer deposits...................... 397,023 859,825
Allowance for boat repurchases (Note 5) 250,000 250,000
Reserve for warranty expenses (Note 5) 315,000 315,000
Deferred sales (Note 4)................ 155,000 1,100,000
------------ ------------
Total current liabilities.............. $ 6,254,057 $ 14,976,570
------------ ------------
Long-term debt, less current
portion (Note 8)....................... $ 7,683,000 $ 133,683
Deferred income taxes payable............. 0 0
------------ ------------
Total liabilities......................... $ 13,937,057 $ 15,110,253
------------ ------------
Commitments and contingencies (Notes 6 & 8)
Shareholders' equity:
Common stock, $.01 par value,
200,000,000 shares authorized,
3,029,072 shares issued (Note 10).... $ 30,291 $ 30,291
Capital in excess of par value......... 9,297,450 9,297,450
Accumulated deficit.................... (6,405,251) (8,060,459)
------------ ------------
$ 2,922,490 $ 1,267,282
Less: Treasury stock...................... 110,748 110,748
------------ ------------
Total Shareholders' equity................ $ 2,811,742 $ 1,156,534
------------ ------------
Total liabilities & shareholders' equity.. $ 16,748,799 $ 16,266,787
============ ============
<FN>
See accompanying Notes to Consolidated Financial Statements.
Page 5
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited - See Accountants' Review Report)
Three Months Ended Nine Months Ended
-------------------------- --------------------------
March 31, March 31, March 31, March 31,
1995 1994 1995 1994
------------ ------------ ------------ ------------
Net sales................... $ 9,198,707 $ 6,186,087 $ 28,356,363 $ 17,799,353
Cost of sales............... 7,542,456 5,318,509 22,718,590 15,571,006
------------ ------------ ------------ ------------
Gross margin................ $ 1,656,251 $ 867,578 $ 5,637,773 $ 2,228,347
Selling expense............. 1,145,493 1,197,545 2,550,166 2,429,939
Selling expense -
related parties (Note 7) 0 6,387 0 22,052
General & admin. expense.... 249,094 349,800 924,296 980,101
General & admin. expense -
related parties (Note 7) 26,945 31,635 83,545 85,513
------------ ------------ ------------ ------------
Operating income/(loss)..... $ 234,719 $ (717,789) $ 2,079,766 $ (1,289,258)
------------ ------------ ------------ ------------
Other (income)/expense:
Interest expense......... $ 215,303 $ 167,929 $ 710,591 $ 491,764
Interest expense -
related parties (Note 7) 0 0 0 18,000
Other sundry, net........ (102,187) (66,689) (286,033) (232,044)
------------ ------------ ------------ ------------
$ 113,116 $ 101,240 $ 424,558 $ 277,720
------------ ------------ ------------ ------------
Net income/(loss)
before income taxes...... $ 121,603 $ (819,029) $ 1,655,208 $ (1,566,978)
Current tax expense (benefit) 0 0 0 0
(Note 9)
Deferred tax expense (benefit) 0 0 0 0
(Note 9)
------------ ------------ ------------ ------------
Net income/(loss)........... $ 121,603 $ (819,029) $ 1,655,208 $ (1,566,978)
============ ============ ============ ============
Net income/(loss) per share $ 0.04 $ (0.27) $ 0.55 $ (0.53)
============ ============ ============ ============
Weighted average shares
outstanding.............. 3,019,072 2,990,214 3,019,072 2,951,738
============ ============ ============ ============
<FN>
See accompanying Notes to Consolidated Financial Statements.
Page 6
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited - See Accountants' Review Report)
Nine Months Ended
--------------------------
March 31, March 31,
1995 1994
------------ ------------
Cash flows from operating activities:
-------------------------------------
Net income/(loss).................................... $ 1,655,208 $ (1,566,978)
Adjustments to reconcile net income to net cash
provided/(used) by operating activities:
Depreciation and amortization..................... 1,233,679 1,134,407
(Gain) loss on disposal of property, plant,
and equipment................................ 0 0
(Increase)/decrease in accounts receivable........ (1,940,851) (486,385)
(Increase)/decrease in inventory.................. 366,691 (1,119,628)
(Increase)/decrease in prepaid expenses........... (95,547) (108,572)
(Increase)/decrease in other assets............... (9,000) (18,000)
Increase/(decrease) in accounts payable........... (2,833,755) 1,545,560
Increase/(decrease) in accounts payable -
related parties............................... (12,800) 12,335
Increase/(decrease) in accrued expenses........... 345,192 237,874
Increase/(decrease) in accrued expenses -
related parties............................... 0 (15,673)
Increase/(decrease) in customer deposits.......... (462,802) 700,284
Increase/(decrease) in deferred sales/cost........ (226,000) 0
Increase/(decrease) in allowance for repurchases.. 0 0
------------ ------------
Net cash provided/(used) by operating activities..... $ (1,979,985) $ 315,224
------------ ------------
Cash fows from investing activities:
------------------------------------
Construction of molds, plugs, and other tooling...... $ (550,923) $ (476,572)
Purchases of property, plant, and equipment.......... (353,011) (230,563)
Sales of " " " " .......... 0 0
------------ ------------
Net cash provided/(used) in investing activities..... $ (903,934) $ (707,135)
------------ ------------
Cash flows from financing activities:
-------------------------------------
Proceeds from additional common shares issued........ $ 0 $ 300,000
Advances/(repayments) from (to) stockholder.......... 0 (300,000)
Increase in long-term debt........................... 2,656,576 76,194
Repayment of long-term debt.......................... (417,864) (364,789)
Note payable, revolving line of credit............... 497,257 0
------------ ------------
Net cash provided/(used) in financing activities..... $ 2,735,969 $ (288,595)
------------ ------------
<FN>
(Continued)
Page 7
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
(Unaudited - See Accountants' Review Report)
Nine Months Ended
--------------------------
March 31, March 31,
1995 1994
------------ ------------
Net increase/(decrease) in cash......................... $ (147,950) $ (680,506)
Cash at beginning of the year........................... 675,711 711,523
------------ ------------
Cash at end of the period............................... $ 527,761 $ 31,017
============ ============
Supplemental disclosures of cash flow information:
--------------------------------------------------
Cash paid during the period for:
Interest - unrelated parties......................... $ 710,591 $ 498,455
" - related parties (Note 7).................. 0 18,000
" - capitalized............................... 0 (6,691)
------------ ------------
$ 710,591 $ 509,764
============ ============
Income taxes (Note 9)................................ $ 0 $ 0
============ ============
<FN>
See accompanying Notes to Consolidated Financial Statements.
Page 8
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited - See Accountants' Review Report)
1. Basis of Presentation.
Although these statements have been reviewed by our
independent auditors, they are unaudited. The statements reflect
all adjustments, in management's opinion, that are necessary to
present fairly the Company's financial position and results of
its operations for the interim periods presented. These
adjustments are, for the most part, of a normal, recurring
nature. It is suggested that this unaudited interim period
financial information be read in conjunction with the Company's
audited financial statements for the fiscal year ended June 30,
1994.
2. Accounts receivable.
As of March 31, 1995, accounts receivable were $2,353,230 net
of the allowance for bad debts of $12,869. This represents an
increase of $1,940,851 from the $412,379 in net accounts
receivable recorded at June 30, 1994. This increase in
receivables is entirely due to greater sales volume. Of the
$2,353,230 balance at March 31, 1995, $2,031,933 has subsequently
been collected as of May 1, 1995, and the remaining $321,297 is
believed to be fully collectible.
3. Inventories.
Inventories at March 31, 1995 and June 30, 1994 consisted of
the following:
March 31, June 30,
1995 1994
--------- ----------
Parts and supplies.................$ 2,651,509 $ 1,607,872
Work-in-process.................... 299,631 1,432,233
Finished goods..................... 200,549 478,275
Trailers........................... 28,570 28,570
Obsolete inventory reserve......... (50,000) (50,000)
------------- ------------
Total..............................$ 3,130,259 $ 3,496,950
============= =============
Page 9
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited - See Accountants' Review Report)
4. Revenue Recognition.
At fiscal year-end June 30, 1994, the Company deferred the
recognition of revenues amounting to $1,100,000 (recorded as a
balance sheet liability) and the related cost of sales amounting
to $850,000 (recorded as a balance sheet asset). This had the
effect of reducing the prior year's gross margin on sales and net
income after tax by $250,000 ($0.08 per share). At March 31,
1995, the Company estimated the balances of deferred sales to be
$155,000 and deferred cost of sales to be $131,000. This had the
effect of increasing the current year's gross margin on sales and
net income after tax by $226,000 ($0.07 per share).
5. Allowance and Qualifying Accounts.
For the nine months ended March 31, 1995, 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 repur-
chases $ 250,000 $ -0- $ -0- $ 250,000
Allowance for
doubtful
accounts 30,000 -0- 17,131 12,869
Allowance for
warranty
claims 315,000 305,233 (305,233) 315,000
Allowance for
inventory
values 50,000 -0- -0- 50,000
---------- ---------- ---------- ---------
Total $ 645,000 $ 305,233 $(305,233) $ 645,000
========== ========== ========== =========
In management's opinion, the balances of the allowance and
qualifying accounts are adequate to provide for all reasonably
anticipated future losses.
Page 10
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited - See Accountants' Review Report)
6. Commitments and Contingencies.
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, 1995, 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
$11,200,000. The Company has reserved for the reasonably
anticipated future losses it might incur upon the repossession
and repurchase of boats from commercial lenders. At March 31,
1995, the allowance for losses on boat repurchases was $250,000.
Additionally, the Company regularly pays a portion of
dealers' interest charges for floor plan financing, normally up
to six months for most models but up to nine months for its
larger size models. Such charges amounting to $582,000 for the
first nine months of Fiscal 1995 are included in selling expenses
in the accompanying statement of operations.
7. Transactions with Related Parties.
The Company paid or accrued the following amounts for services
rendered or for interest on indebtedness to related parties:
Nine Months Ended
March 31, March 31,
1995 1994
----------- ------------
Greenwood Helicopters - rentals $ -0- $ 22,052
Eastbrook Apartments - rentals 11,145 12,613
R.M. Fountain, Jr. - aircraft
rental 72,400 72,900
R.M. Fountain, Jr. - interest -0- 18,000
------------ ------------
$ 83,545 $ 125,565
============ ============
Page 11
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - See Accountants' Review Report)
7. Transactions with Related Parties (Continued).
At March 31, 1995, the Company had travel advances receivable
from employees in the amount of $19,736, of which $3,700 was due
from an officer of the Company.
8. Financial Condition.
The Company's financial statements have been prepared on the
basis that it is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. At March 31, 1995, the Company's
current assets exceeded its current liabilities by $184,319. The
Company's financial condition is much improved as a result of the
profit it has earned for the first nine months of Fiscal 1995.
During the third quarter, the Company concluded its
negotiations with Mercury Marine to refinance its indebtedness to
Mercury. Under the terms of the refinancing, the Company has a
longer repayment period at lower interest charges. The Company
also concluded a new agreement with its other major creditor,
MetLife Capital Corporation, which provided for new financial
ratio requirements. The Company is now in compliance with the
new MetLife financial ratio requirements. The Company has made
all of its payments of principal and interest to MetLife on a
timely basis and no amounts are in arrears.
9. Income taxes.
For the nine months ended March 31, 1995, no current or
deferred tax expense was recorded because the net change in the
deferred tax asset valuation allowance of approximately $695,000
equaled the estimated net changes in the Company's net deferred
tax asset account. The primary change in the Company's net
deferred tax asset account was from the reduction of net
operating loss carryforwards due to the current period net
income. The estimated net operating loss carryforward as of
March 31, 1995 is $7,105,000.
Page 12
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - See Accountants' Review Report)
10. Common Stock Options.
On March 23, 1995, the Board of Directors approved the
issuance of 20,000 common stock options to each of the Company's
five directors (100,000 shares total) at the closing price of
$5.375 per share. On April 6, 1995 the Board approved the
issuance of 20,000 common stock options to one of the Company's
officers at the closing price of $5.50 per share. These awards
were made under the Company's 1986 stock option plan. Since the
1986 stock option plan will expire in December, 1996, the Board
authorized the Company's Corporate Counsel to prepare a new stock
option plan, to obtain approval from all regulatory authorities,
and to arrange for an approval vote by the shareholders. If
approved by the shareholders, the new plan will be for a total of
300,000 shares.
******
Page 13
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations.
The net profit for the first nine months of Fiscal 1995 was
$1,655,208 ($0.55 per share). This compares to a net Loss
amounting to $1,566,978 ($0.27 per share) for the first nine
months of the prior year. The profit this year is due primarily
to greater sales volume and to greater gross margin earned on
sales. Net sales were $28,356,363 for the first nine months of
Fiscal 1995 as compared to $17,799,353 for the first nine months
of the prior year.
The improvement in sales is attributed to better market
conditions for recreational boats in general and to the Company's
new positive-lift hull bottom. This new hull design greatly
increases speed, improves handling, and results in better fuel
economy. The Company is seeking patent protection for its new
design.
For the first nine months of Fiscal 1995, the gross margin
on sales was $5,637,773 (19.88%) as compared to $2,228,347
(12.52%) for the first nine months of the prior fiscal year. The
improved margin on sales is from a sales mix of larger, more
profitable models sold, price increases, production and
purchasing efficiencies, and lower fixed costs per unit because
of greater production volume.
Selling expenses were $2,550,166 for the first nine months
of Fiscal 1995 as compared to $2,451,991 for the first nine
months of last year.
General and administrative expenses were $1,007,841 for the
first nine months of Fiscal 1995 as compared to $1,065,614 for
the first nine months of last year.
Interest expense for the first nine months of Fiscal 1995
was $710,591 as compared to $509,764 for the first nine months of
last year. The increase was mostly from interest paid to a major
supplier on a purchasing line of credit.
Other income, principally from consulting, for the first
nine months of Fiscal 1995 was $286,033 as compared to $232,044
for the first nine months of last year.
Page 14
Financial Condition.
The Company's cash flows for the first nine months of Fiscal
1995 are summarized as follows:
Net cash used in operating activities.......$(1,979,985)
" " used in investing activities....... (903,934)
" " provided by financing activities... 2,735,969
-----------
Net decrease in cash........................$ (147,950)
===========
This net decrease compared to a $680,506 net decrease for
the first nine months of the prior fiscal year.
Cash used in the first nine months of Fiscal 1995 to acquire
additional property, plant, and equipment (investing activity)
amounted to $903,934, of which $550,923 was for plugs, molds, and
other product tooling.
For the remainder of Fiscal 1995, the Company expects to
generate sufficient cash from operating activities in order to
meet its obligations. Management believes that the Company will
continue to operate profitably for the remainder of the fiscal
year.
Pursuant to an agreement dated February 24, 1995, among the
Company, Mr. Fountain, and the Mercury Marine Division of the
Brunswick Corporation, until the Company has paid its
indebtedness to Mercury in full, it is required to purchase all
of its requirements for engines and certain other items from
Mercury. Mercury Marine agreed to pay the Company for certain
consulting services provided by Mr. Fountain and for appropriate
endorsements for Mercury's products. Mercury Marine has
established a purchasing line of credit and a variable term loan
for the Company which is secured by a subordinated lien on the
Company's assets and a pledge by Mr. Fountain of substantially
all of his shares of the Company's common stock.
During the third quarter, MetLife Capital Corporation agreed
to amend the Company's financial ratio requirements. The Company
is now in compliance with the new MetLife financial ratio
requirements. The Company has made timely payment of all amounts
owed to MetLife and none of the indebtedness is in arrears.
Page 15
PART II. Other Information.
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
1995.
(b) No Current Reports on Form 8-K were filed by
the Registrant during the first nine months of
Fiscal 1995.
Page 16
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/ Allan L. Krehbiel Date: May 10, 1995
Allan L. Krehbiel
Vice President, Chief Financial
Officer, and Designated Principal
Accounting Officer
Page 17