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, 1998
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
______________________ 000-14712
Fountain Powerboat Industries, Inc.
(Exact name of registrant as specified in its charter)
Nevada 56-1774895
(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 March 31, 1998
Common stock, $.01 par value 4,755,108 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, 1998 and June 30, 1997............ 4
Consolidated Balance Sheets - Liabilities &
Shareholders' Equity, March 31, 1998
and June 30, 1997............................ 5
Consolidated Statements of Income -
Three and Nine Months Ended March 31, 1998
and March 31, 1997......................... 6-7
Consolidated Statements of Cash Flows -
Nine Months Ended March 31, 1998
and March 31, 1997........................ 8-9
Notes to Consolidated Financial Statements .... 10-14
Management's Discussion and Analysis of
Results of Operations and
Financial Condition.......................... 15-17
PART II. Other Information.
Item 2. Changes in Securities............................. 17
Item 6. Exhibits and Reports on Form 8 and Form 8-K....... 17
Signature........................................ 18
-2-
PRITCHETT, SILER & HARDY
CERTIFIED PUBLIC ACCOUNTANTS
430 EAST 400 SOUTH
SALT LAKE CITY, UTAH 84111
(801)328-2727 FAX (801)328-1123
To the Board of Directors
FOUNTAIN POWERBOAT INDUSTRIES, INC.
Washington, North Carolina
We have made a review of the accompanying consolidated balance sheet of
Fountain Powerboat Industries, Inc. as of March 31, 1998, and the related
consolidated statements of income and cash flows for the three and nine
months then ended,in accordance with standards established by the American
Institute of Certified Public Accountants.
A review of interim financial information consists
principally of obtaining an understanding of the system
for the preparation of interim financial information, 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.
April 29, 1998
Salt Lake City, Utah
-3-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited - See Accountants' Review Report)
March 31, June 30,
1998 1997
___________ ___________
CURRENT ASSETS:
Cash and cash equivalents $ 300,765 $ 2,994,503
Certificates of deposit - 696,155
Accounts receivable, net 4,304,521 1,867,747
Inventories 7,544,386 3,937,757
Prepaid expenses 1,410,593 1,131,703
Deferred tax assets 1,055,833 369,268
___________ ___________
Total Current Assets 14,616,098 10,997,133
___________ ___________
PROPERTY, PLANT AND EQUIPMENT 31,066,946 24,554,322
Less: Accumulated depreciation (13,693,373) (12,335,166)
___________ ___________
17,373,573 12,219,156
___________ ___________
OTHER ASSETS 610,319 497,607
___________ ___________
TOTAL ASSETS $32,599,990 $23,713,896
___________ ___________
-4-
[Continued]
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited - See Accountants' Review Report)
[Continued]
March 31, June 30,
1998 1997
___________ ___________
CURRENT LIABILITIES:
Current portion/long-term debt $ 892,794 $ 595,607
Accounts payable 2,703,641 1,987,508
Accrued expenses 1,415,724 860,786
Dealer territory service accrual 1,655,075 1,637,572
Customer deposits 464,070 310,042
Allowance for boat repurchases 200,000 200,000
Reserve for warranty expense 500,000 500,000
Net liabilities of discontinued operations 135,066 213,697
Income taxes payable 1,272,771 -
___________ ___________
Total Current Liabilities 9,239,141 6,305,212
___________ ___________
LONG-TERM DEBT, LESS CURRENT PORTION 9,315,083 7,677,771
NOTE PAYABLE - RELATED PARTY 415,821 -
DEFERRED TAX LIABILITY 1,131,589 369,268
___________ ___________
Total Liabilities 20,101,634 14,352,251
___________ ___________
COMMITMENTS AND CONTINGENCIES [NOTE 6] - -
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value,
200,000,000 shares authorized,
4,755,108 shares issued 47,551 47,251
Capital in excess of par value 10,624,940 10,517,740
Retained earnings (Deficit) accumulated 1,936,613 (1,092,598)
___________ ___________
12,609,104 9,472,393
Less: Treasury stock (110,748) (110,748)
___________ ___________
Total Stockholders' Equity 12,498,356 9,361,645
___________ ___________
$32,599,990 $23,713,896
___________ ___________
The accompanying notes are an integral part of these financial statements.
-5-
FOUNTAIN POWERBOAT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - See Accountants' Review Report)
For The Three Months Ended For The Nine Months Ended
March 31 March 31
____________________________ _________________________
1998 1997 1998 1997
_______________ ___________ ___________ ___________
NET SALES $ 12,699,853 $12,575,520 $37,313,090 $37,401,438
COST OF SALES 8,727,403 9,931,764 26,456,149 28,131,994
__________ ____________ ____________ ___________
Gross Profit 3,927,450 2,643,756 10,856,941 9,269,444
EXPENSES
Selling Expense 1,920,241 2,447,690 3,869,103 4,668,438
General & Administrative 567,434 629,295 2,089,473 1,848,203
General & Administrative -
related parties 73,853 63,321 73,853 233,934
___________ ____________ ___________ __________
Total Expenses 2,561,528 3,140,306 6,032,429 6,750,575
OPERATING INCOME(LOSS) 1,410,922 (496,550) 4,824,512 2,518,869
NON-OPERATING INCOME
(EXPENSE):
Other Income 21,934 110,052 62,099 237,923
Interest Expense (199,734) (88,475) (480,867) (414,235)
____________ ____________ ___________ __________
INCOME BEFORE INC. TAXES 1,233,122 (474,973) 4,405,744 2,342,557
CURRENT TAX EXPENSE 312,618 (192,802) 1,267,066 277,089
DEFERRED TAXES (BENEFIT) 147,574 136,000 75,756 136,000
_____________ __________ ___________ _________
INCOME(LOSS)FROM CONTINUING
OPERATIONS 772,930 (418,171) 3,062,922 1,929,468
DISCONTINUED OPERATIONS:
Loss from Operations of
Fountain Power, Inc. and
Mach Performance, Inc. - - - -
Estimated loss on disposal
of operations of Fountain
Power, Inc. and Mach
Performance, Inc. 60,310 - 33,710 -
____________ _____________ ____________ ________
INCOME (LOSS) FROM
DISCONTINUED OPER'S (60,310) - (33,710) -
NET INCOME (LOSS) $ 712,620 $ (418,171) $3,029,212 1,929,468
___________ ____________ ___________ ___________
[Continued]
-6-
FOUNTAIN POWERBOAT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - See Accountants' Review Report)
[Continued]
For The Three Months Ended For The Nine Months Ended
March 31 March 31
_____________________________________________________
1998 1997 1998 1997
_______________ ____________ ____________ ___________
BASIC EARNINGS(LOSS)PER SHARE:
Continuing Operations $ .16 $ (.09) $ .65 $ .42
Loss from Operations of
Discontinued Segments - - - -
Estimated Loss on Disposal
of Discontinued Segments .01 - .01 -
TOTAL BASIC EARNINGS(LOSS)
PER SHARE .15 (.09) .64 .42
TOTAL SHARES OUTSTANDING 4,740,108 4,698,533 4,738,356 4,629,341
DILUTED EARNINGS(LOSS)
PER SHARE:
Continuing Operations $ .15 $ (.09) $ .60 $ .39
Loss from Operations of
Discontinued Segments - - - -
Estimated Loss on Disposal
of Discontinued Segments .01 - - -
TOTAL DILUTED
EARNINGS(LOSS)PER SHARE .14 (.09) .60 .39
DILUTED WEIGHTED
AVERAGE SHARES O/S 5,068,713 4,698,533 5,088,913 4,964,041
The accompanying notes are an integral part of these financial statements.
-7-
FOUNTAIN POWERBOAT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - See Accountants' Review Report)
Nine Months Ended March 31,
________________ ________________
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,029,212 $ 1,929,468
Adjustments to reconcile net income (loss) to net
Cash provided by operating activities:
Depreciation Expense 1,418,965 1,239,151
(Increase) decrease in accounts receivable (2,436,774) 461,962
(Increase) decrease in inventory (3,606,629) (970,094)
(Increase) decrease in prepaid expenses 446,220 (829,090)
(Increase) decrease in other assets (112,712) (659,983)
Increase (decrease) in accounts payable 716,133 411,964
Increase (decrease) in accrued expenses 229,995 976,705
Increase (decrease) in dealer service territory
Accrual 337,497 -
Increase (decrease) in customer deposits 154,028 (23,362)
Net deferred taxes 623,417 6,904
Net liabilities of discontinued operations (134,441) -
____________________________
Net cash Provided by (Used in)
Operating Activities 664,911 2,543,625
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction of molds, plugs and other tooling (1,060,026) (1,232,148)
Purchase of property plant and equipment 5,452,598) (1,999,482)
Proceeds from certificates of deposit, net 696,155 -
_____________ ____________
Net Cash Provided by (Used) Investing
Activities (5,816,469) (3,231,630)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 2,875,000 8,500,000
Repayment of long-term debt (524,680) (7,458,497)
Note payable - -
Proceeds from issuance of common stock 107,500 1,223,500
______________ ____________
Net Cash Provided by (Used in) Financing
Activities 2,457,820 2,265,003
Net increase (decrease) in cash (2,693,738) 1,576,998
______________ ____________
Cash at beginning of year 2,994,503 1,360,619
Cash at end of period 300,765 2,937,617
_______________ ____________
[Continued]
-8-
FOUNTAIN POWERBOAT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - See Accountants' Review Report)
[Continued]
For the Nine Months Ended
March 31,
_____________________________
1998 1997
_____________ _______________
Supplemental Disclosures of Cash Flow information:
Cash paid during the period for:
Interest:
Unrelated parties $ 570,688 $ 414,235
Related parties 17,672 -
_____________ ____________
$ 588,360 $ 414,235
_____________ _____________
Income taxes $ 796,467 $ 325,381
_____________ _____________
See accompanying Notes to Consolidated Financial Statements.
-9-
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, in management's opinion, present fairly
the Company's financial position and results of its operations for the
interim periods presented. Certain information and footnotes disclosures
normally included in the financial statements have been omitted. 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, 1997. The results of operations for the period ended
March 31, 1998 are not necessarily indicative of the operating results for
the full year.
2. Accounts Receivable.
As of March 31, 1998, accounts receivable were $4,304,521 net of the
allowance for bad debts of $31,928. This represents a increase of $2,436,774
from the $1,867,747 in net accounts receivable recorded at June 30, 1997. Of
the $4,304,521 balance at March 31, 1998, $2,923,299 has subsequently been
collected as of April 30, 1998, and the remaining $1,381,222 is believed to
be fully collectible.
3. Inventories.
Inventories at March 31, 1998 and June 30, 1997 consisted of the
following:
March 31, June 30,
1998 1997
__________ __________
Parts and supplies.................$ 4,816,961 $ 2,985,615
Work-in-process.................... 2,759,796 882,323
Finished goods..................... - 169,819
Sportswear......................... 107,629 -0-
Obsolete inventory reserve......... (140,000) (100,000)
Total..............................$ 7,544,386 $ 3,937,757
============= =============
-10-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited - See Accountants' Review Report)
4. Revenue Recognition.
The Company 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 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.
-11-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited - See Accountants' Review Report)
5. Allowance and Qualifying Accounts.
For the nine months ended March 31, 1998, 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 31,928 -0- -0- 31,928
Allowance for
warranty claims 500,000 -0- -0- 500,000
Allowance for
inventory values 100,000 -0- 40,000 140,000
---------- ---------- ---------- ---------
Total $ 831,928 -0- 40,000 $871,928
========== ========== ========== =========
In management's opinion, the balances of the allowance and qualifying
accounts are adequate to provide for all reasonably anticipated future
losses.
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, 1998, 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 $22,642,000.
-12-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited - See Accountants' Review Report)
The Company has reserved for probable future losses it is expected to
incur upon the repossession and repurchase of boats from commercial lenders.
At March 31, 1998, the allowance for losses on boat repurchases was $200,000.
The amount of the allowance is based upon probable future events which can be
reasonably estimated.
Additionally, as part of its normal sales program, the Company regularly
pays a portion of dealers' interest charges for floor plan financing for up
to six months. Such charges amounting to $367,118 for the third quarter of
Fiscal 1998 are included in selling expenses in the accompanying statement of
operations.
7. Transactions with Related Parties.
A. Prior to 1993, the Company owned and operated an aircraft. During
Fiscal 1993, the aircraft was sold to an officer and director of the Company.
The Company has been leasing airplane services from the officer and director
since that time. During the first quarter of Fiscal 1998, the board of
directors determined to acquire an airplane for the Company and approved the
acquisition of an airplane from Mr. Fountain for $1,375,000. The Company
issued a note payable to Mr. Fountain for $415,821 and assumed the balance of
a note payable to General Electric Capital Corporation for $959,179.
B. The Company paid or accrued the following amounts for services rendered
or for interest on indebtedness to related parties:
Nine Months Ended
March 31,
1998 1997
________________________
Apartments - rentals $ 3862 $ 8,740
R.M. Fountain, Jr. - aircraft
rental 137,219 161,872
----------- -----------
$ 141,081 $ 170,612
=========== ===========
At March 31, 1998 the Company had travel advances and other receivables
from employees in the amount of $23,694. For the nine months ended March
31, 1998 the Company paid interest expense of $17,672 to an Officer/Director
of the Company.
-13-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited - See Accountants' Review Report)
8. Income Taxes.
During the third quarter of Fiscal 1998 ending March 31, 1998, as the
Company has previously used up all of its net operating loss carry-forwards,
the Company has provided $312,618 for current income taxes.
9. Stock Options.
At March 31, 1998 there were 576,000 unexercised stock options, of which
516,000 were held by officers and directors of the Company at prices ranging
from $3.583 to $8.167 per share. No options were exercised during the
third quarter of this Fiscal year.
10. Earnings Per Share.
In calculating earnings (loss) per common and common equivalent share, the
net income was the same for the basic and diluted calculations. Additionally,
the weighted average common shares and common equivalent shares outstanding for
purposes of calculating earnings (loss) per share was as follows:
For the Three months For the nine months
Ended March 31, Ended March 31,
____________________ ___________________
1998 1997 1998 1997
__________ _________ _________ __________
Weighted average common 4,740,108 4,698,533 4,738,356 4,629,341
shares outstanding used in
basic earnings per share for
the years ending.
Effect of dilutive stock options 328,605 - 350,557 334,700
__________ _________ __________ _________
Weighted average common shares
and potential dilutive common
equivalent shares outstanding
used in dilutive earning per
share 5,068,713 4,698,533 5,088,913 4,964,041
___________ __________ __________ _________
For the three months ended March 31, 1997 the Company had 609,750 stock options
that could potentially dilute earning per share in the future that were not in-
cluded in the diluted computation because to do so would have been antidilutive
for the periods presented.
11. Discontinued Operations.
Net (liabilities) of discontinued operations at March 31, 1998 consisted
of the following:
Equipment, net 507,464
Accounts Payable (38,226)
Warranty & returns reserve (98,645)
Customer Deposits (4,967)
Estimated loss on disposal (500,692)
_________
$ (135,066)
_________
-14-
12. Common Stock Split.
During July 1997, the Company approved a three-for-two forward stock
split of all its previously issued and outstanding common stock
including options to purchase common stock (effectively a three share
for two share stock dividend). The shareholder record date was August
1, 1997. The split was accomplished during August. The effect of the
common stock split has been reflected in these financial statements.
13. Dissolution of Subsidiaries.
Effective October 1, 1997, Fountain Trucking,Inc., Fountain Sportswear,
Inc., Fountain Aviation, Inc. and Fountain Unlimited, Inc. were
dissolved. In connection with the dissolution of the subsidiaries,
the operations of Fountain Trucking, Inc. and Fountain Sportswear,
Inc. were transferred to Fountain Powerboats, Inc.
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations.
The operating income for the third quarter ended March 31, 1998 was
$1,410,922 or $.30 per share versus $(496,550) or $(-.10) per share for the
corresponding period of the previous year. Operating income as a percent of
sales for the third quarter of Fiscal 1998 was 11.1% versus (3.9%) for the
same period the previous Fiscal year. The net income for the third quarter
of Fiscal 1998 was $712,620 or $.15 per share. This compares to a net Loss
amounting to $(418,171), or $(-.09) per share for the third quarter of Fiscal
1997. For the third quarter of Fiscal 1998, our actual net income was better
than planned.
Net sales were $12,699,853 for the third quarter of Fiscal 1998 as
compared to $12,575,520 for the third quarter of the prior Fiscal year. Unit
sales volume for the third quarter of Fiscal 1998 was 109 boats as compared
to 122 boats for the third quarter of 1997. A smaller number of larger,
higher priced, higher margin boats accounted for the overall higher sales
volume than the third quarter of the previous Fiscal year.
For the third quarter of Fiscal 1998, the gross margin on sales rose to
$3,927,450 (30.9%) as compared to $2,643,756 (21.0%) for the third quarter of
Fiscal 1997.
Selling expenses were $1,920,241 for the third quarter of Fiscal 1998 as
compared to $2,447,690 for the third quarter of last year. Most of the
decrease for Fiscal 1998 was in boat shows and wages.
General and administrative expenses were $641,287 for the third quarter
of Fiscal 1998 as compared to $692,616 for the third quarter of last year.
Most of the increase was in legal expense and wages.
-15-
Interest expense for the third quarter of Fiscal 1998 was $199,734 as
compared to $88,475 for the third quarter of last year. Interest expense for
the first nine months of Fiscal 1998 was $480,867 as compared to $414,235 for
the first nine months of Fiscal 1997. The increase in interest expense
between the third quarter of Fiscal 1997 and the third quarter of Fiscal 1998
was primarily due to a change in the billing cycle following the December
1996 new credit agreement whereas several smaller loans were consolidated
into a single loan with General Electric Capital Corporation.
Other non-operating (income)/expense for the third quarter of Fiscal
1998 was $(21,934) as compared to $(110,052) for the third quarter of the
last Fiscal year.
Financial Condition.
The Company's cash flows for the Nine months ended March, 1998 are
summarized as follows:
Net cash used in operating activities....... $ 664,911
" " used in investing activities..... (5,816,469)
" " provided by financing activities. 2,457,820
Net decrease in cash................... $(2,693,738)
===========
This net decrease compared to a $1,576,998 net increase for the first nine
months of the prior fiscal year.
Cash used in the nine months of Fiscal 1998 to acquire additional
property, plant, and equipment (investing activity) amounted to
$6,512,624 of which $1,060,026 was for plugs, molds, and other product
tooling.
On December 31, 1996, the Company concluded a $10,000,000 credit
agreement with General Electric Capital Corporation. Under the terms of the
new credit agreement, the Company refinanced substantially all of its
interest bearing debts and will have additional funds made available to it
for expansion. Initially, the Company borrowed $7,500,000 from GE Capital
Services primarily to refinance existing debts. All of the Company's prior
interest bearing debts to MetLife Capital Corporation, Deutsche Financial
Services, GE Capital Corporation, Branch Bank & Trust Leasing Corp., and
other smaller creditors were paid off entirely.
During the last Fiscal year, the Company borrowed another $1,000,000
from GE Capital Services to fund plant and equipment additions. An
additional $1,500,000 was borrowed from GE Capital services during the second
quarter of Fiscal 1998 to fund site development to accomodate testing of the
65' Super Cruiser, the initial yacht manufacturing facility and the tooling
for the 65' Super Cruiser.
-16-
The interest rate on the indebtedness to GE Capital Services is
variable. There is a ten-year amortization of the debt with a five-year
call. The loan is secured by all of the Company's real and personal property
and by the Company's assignment of a $1,000,000 key man life insurance
policy.
For the remainder of 1998 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 corresponding increase in net earnings and cash flow.
Most of the Company's cash resources will be used to maintain and improve its
plant and equipment, for new product tooling and for line startup in the new
interim yacht facility. We anticipate finishing and shipping our first yacht
during the fourth quarter.
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 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.
There were no change in securities during the third quarter of Fiscal
1998.
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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 1998.
(b) No Current Reports on Form 8-K were filed by the Registrant
during the first nine months of Fiscal 1998.
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/ Joseph F. Schemenauer Date: May 8, 1998
Joseph F. Schemenauer
Vice President, Chief Financial
Officer, and Designated Principal
Accounting Officer
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