FOUNTAIN POWERBOAT INDUSTRIES, INC.
FORM 10-Q/A
QUARTERLY REPORT
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
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, 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 the Quarter Ended Commission File Number
___________________ 0-14712
FOUNTAIN POWERBOAT INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Nevada 56-1774895
(State of other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
Whichard's Beach Road, P.O. Drawer 457, Washington, NC 27889
(Address of principal executive offices)
Registrant's telephone no., 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
issuer's classes of common stock as of the latest practicable
date.
Class Outstanding at October 27, 1998
Common Stock, $.01 par value 4,702,608 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, 1998 and June 30, 1998 2 - 3
Unaudited Consolidated Statements of Income, for the
three months ended September 30, 1998
and September 30, 1997 4 - 5
Unaudited Consolidated Statements of Cash Flows, for the
three months ended September 30, 1998
and September 30, 1997 6 - 7
Notes to Unaudited Consolidated Financial Statements 8 - 12
Management's Discussion and Analysis of Results
of Operations and Financial Condition 12 - 14
Part II Other Information
Item 2 Change in Securities 14
Item 6 Exhibits and Reports on Form 8 and Form 8-K 14
Signature 15
PRITCHETT, SILER & HARDY, P.C.
Certified Public Accountants
430 East 400 South
Salt Lake City, Utah 84111
(801) 328-2727
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, 1998, and
the related consolidated statement of income for the three months
then ended and the related consolidated statement of cash flows
for the three months then ended. 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
inquires 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.
October 27, 1998
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited - See Accountant's Review Report)
ASSETS
September 30, June 30,
1998 1998
_____________ _____________
CURRENT ASSETS:
Cash and cash equivalents $ 3,359,125 $ 1,376,984
Accounts receivable, net 1,558,709 2,715,754
Inventories 7,435,072 7,077,540
Prepaid expenses 705,476 489,290
Current tax assets 1,019,303 1,058,967
_____________ _____________
Total Current Assets 14,077,685 12,718,535
_____________ _____________
PROPERTY, PLANT AND EQUIPMENT 34,536,509 33,411,011
Less: Accumulated depreciation (14,844,814) (14,254,156)
_____________ _____________
19,691,695 19,156,855
_____________ _____________
OTHER ASSETS 625,002 622,003
_____________ _____________
$34,394,382 $32,497,393
_____________ _____________
[Continued]
- 2 -
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited - See Accountant's Review Report)
LIABILITIES AND STOCKHOLDERS' EQUITY
[Continued]
September 30, June 30,
1998 1998
_____________ _____________
CURRENT LIABILITIES:
Notes payable - related party 355,910 415,821
Current maturities - long-term debt 2,296,112 981,365
Accounts payable 2,780,597 3,591,489
Accrued expenses 1,771,759 1,939,791
Dealer territory service accrual 1,810,210 2,046,939
Customer deposits 321,639 510,967
Allowance for boat repurchases 200,000 200,000
Reserve for warranty expense 500,000 500,000
Net liabilities of discontinued operations 10,000 103,612
_____________ _____________
Total Current Liabilities 10,046,227 10,289,984
LONG-TERM DEBT, less current maturities 11,951,808 9,499,895
DEFERRED TAX LIABILITY 813,635 926,807
COMMITMENTS AND CONTINGENCIES [NOTE 6] - -
_____________ _____________
Total Liabilities 22,811,670 20,716,686
_____________ _____________
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value,
200,000,000 shares authorized,
4,702,608 shares issued 47,026 47,026
Capital in excess of par value 10,196,540 10,196,540
Accumulated earnings 1,449,894 1,647,889
_____________ _____________
11,693,460 11,891,455
Less: Treasury stock, at cost 15,000 shares (110,748) (110,748)
_____________ _____________
Total Stockholders' Equity 11,582,712 11,780,707
_____________ _____________
$34,394,382 $32,497,393
_____________ _____________
The accompanying notes are an integral part of these unaudited
financial statements.
- 3 -
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - See Accountant's Review Report)
For the Three Months Ended
September 30,
___________________________
1998 1997
_____________ _____________
NET SALES $12,422,227 $11,521,434
COST OF SALES 9,838,911 8,568,073
_____________ _____________
Gross Profit 2,583,316 2,953,361
_____________ _____________
EXPENSES:
Selling expense 1,943,182 1,033,094
General and administrative 632,796 720,733
General and administrative - related
parties 10,756 72,921
_____________ _____________
Total expenses 2,586,734 1,826,748
_____________ _____________
OPERATING INCOME (LOSS) (3,418) 1,126,613
NON-OPERATING INCOME (EXPENSE):
Other income (expense) (4,092) 16,458
Interest expense (255,157) (145,972)
Interest expense - related parties (8,836) -
_____________ _____________
INCOME (LOSS) BEFORE INCOME TAXES (271,503) 997,099
CURRENT TAX EXPENSE - 234,332
DEFERRED TAX (BENEFIT) (73,508) (180,972)
_____________ _____________
INCOME (LOSS) FROM CONTINUING OPER'S (197,995) 943,739
_____________ _____________
DISCONTINUED OPERATIONS:
Income from Operations of Fountain
Power, Inc. and Mach Performance, Inc.
(Net of no income tax effect) - 26,600
Estimated losses on disposal of the
operations of Fountain Power, Inc. and
Mach Performance, Inc. (Net of no
income tax effect) - -
_____________ _____________
INCOME FROM DISCONTINUED OPERATIONS - 26,600
_____________ _____________
NET INCOME (LOSS) $(197,995) $ 970,339
_____________ _____________
[Continued]
- 4 -
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - See Accountant's Review Report)
[Continued]
For the Three Months Ended
September 30,
___________________________
1998 1997
_____________ _____________
EARNINGS (LOSS) PER SHARE:
Continuing Operations $ (.04) $ .20
Income from Operations of
Discontinued Segments - .01
Estimated Loss on Disposal
of Discontinued Segments - -
_____________ _____________
EARNINGS (LOSS) PER SHARE $ (.04) $ .21
_____________ _____________
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,702,608 4,734,891
_____________ _____________
DILUTED EARNINGS PER SHARE:
Continuing Operations $ N/A .18
Loss from Operations of
Discontinued Segments N/A .01
Estimated Loss on Disposal
of Discontinued Segments N/A -
_____________ _____________
DILUTED EARNINGS PER SHARE: $ N/A $ .19
_____________ _____________
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING N/A 5,113,349
_____________ _____________
The accompanying notes are an integral part of these unaudited
financial statements.
- 5 -
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - See Accountant's Review Report)
Increase (Decrease) in Cash and Cash Equivalents
For the Three Months Ended
September 30,
_______________________
1998 1997
__________ __________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(197,995) $ 970,339
__________ __________
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation expense 590,658 392,312
Change in assets and liabilities:
(Increase) decrease in accounts receivable 1,157,045 (2,080,838)
(Increase) decrease in inventories (357,532) (1,766,154)
(Increase) decrease in prepaid expenses (216,186) 111,401
(Increase) decrease in net tax asset - -
Increase (decrease) in accounts payable (810,892) 1,793,131
Increase (decrease) in accrued expenses (168,032) 197,315
Increase (decrease) in dealer territory
service accrual (236,729) (416,755)
Increase (decrease) in customer deposits (189,328) (98,770)
Increase (decrease) in allowance for
boat returns - -
Increase (decrease) in warranty reserve - -
Net deferred taxes (73,508) (180,972)
Net liabilities of discontinued operations (93,612) (131,701)
__________ __________
Net Cash Provided (Used) by
Operating Activities $(596,111) $(1,210,692)
__________ __________
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase) sale of certificates of deposit, net - 696,155
Investment in additional molds, plugs, and
other tooling (82,384) (789,878)
Purchase of property, plant, and equipment (1,043,114) (122,481)
(Increase) in other assets (2,999) (3,000)
__________ __________
Net Cash Provided (Used) by Investing
Activities $(1,128,497) $(219,204)
__________ __________
[Continued]
- 6 -
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - See Accountant's Review Report)
Increase (Decrease) in Cash and Cash Equivalents
[Continued]
For the Three Months Ended
September 30,
_______________________
1998 1997
__________ __________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt $4,000,000 $ -
Repayment of long-term debt (233,340) (139,113)
Repayment of long-term debt - related party (59,911) -
Proceeds from issuance of common stock - 107,500
__________ __________
Net Cash Provided (Used) by Financing
Activities $3,706,749 $(31,613)
__________ __________
Net increase (decrease) in cash and cash equiv.'s $1,982,141 $(1,461,509)
Cash and cash equivalents at beginning of year 1,376,984 2,994,503
__________ __________
Cash and cash equivalents at end of period $3,359,125 $ 1,532,994
__________ __________
Supplemental Disclosures of Cash Flow information:
Cash paid during the period for:
Interest:
Unrelated parties $ 216,480 $ 139,619
Related parties 8,836 -
__________ __________
$ 225,316 $ 139,619
__________ __________
Income taxes $ 222,538 $ 55,264
__________ __________
Supplemental Disclosures of Noncash investing and financing
activities:
For the three month period ended September 30, 1998:
None
For the three month period ended September 30, 1997:
On September 30, 1997 the Company purchased an airplane for
$1,375,000 from a related party through the issuance of a
$415,821 note payable to the related party and assuming
$959,179 underlying indebtedness on the plane.
The accompanying notes are an integral part of these unaudited
financial statements.
- 7 -
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited - See Accountant's Review Report)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
Although these statements have been reviewed by our
independent auditors, they are unaudited. In the opinion of
management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at
September 30, 1998 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, 1998 audited financial statements. The
results of operations for the period ended September 30, 1998
and 1997 are not necessarily indicative of the operating
results for the full year.
NOTE 2 - ACCOUNTS RECEIVABLE
As of September 30, 1998, accounts receivable were $1,558,709
net of the allowance for bad debts of $30,000. This
represents a decrease of $1,157,045 from the $2,715,754 in net
accounts receivable recorded at June 30, 1998. Of the
$1,558,709 balance at September 30, 1998, $863,225 has
subsequently been collected as of October 31, 1998, and the
remaining $695,484 is believed to be fully collectible.
NOTE 3 - INVENTORIES
Inventories at September 30, 1998 and June 30, 1998 consisted
of the following:
September 30, June 30,
1998 1998
__________ __________
Parts and supplies $4,337,621 $4,510,373
Work-in-process 2,872,768 2,235,394
Finished goods 344,683 451,773
Obsolete inventory reserve (120,000) (120,000)
__________ __________
Total $7,435,072 $7,077,540
__________ __________
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 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.
- 8 -
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited - See Accountant's Review Report)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - REVENUE RECOGNITION [Continued]
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 manufactures, but may from time to time
adopt and publish different programs as necessary in order to
meet competition.
NOTE 5 - ALLOWANCE AND QUALIFYING ACCOUNTS
For the three months ended September 30, 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 $ - $ - $ 200,000
Allowance for doubtful
accounts 30,000 - - 30,000
Allowance for warranty
claims 500,000 200,478 (200,478) 500,000
Allowance for inventory
values 120,000 - - 120,000
__________ __________ __________ __________
Total $850,000 $ 200,478 $ (200,478) $ 850,000
__________ __________ __________ __________
In management's opinion, the balances of the allowance and
qualifying accounts are adequate to provide for all reasonably
anticipated future losses.
- 9 -
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited - See Accountant's Review Report)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - NOTES PAYABLE AND LINE OF CREDIT
During September, 1998 the Company concluded negotiations for
a new $4,000,000 promissory note with Transamerica Business
Credit Corporation, which included restatement and amendment
of certain existing promissory notes with General Electric
Capital Corporation ("GECC"). An omnibus Agreement was
entered into which provides that all the underlying collateral
and encumbered property would apply ratably to all of the
Notes Payable. The $4,000,000 promissory note provides for
thirty-nine monthly principal payments in the amount of
$100,000 beginning October 1, 1998 with a final payment of the
entire outstanding payment due on January 2, 2002. Accrued
interest will be paid monthly in addition to the principal
payment. Interest will be calculated at 2.7% per annum above
the published LIBOR Rate (London Interbank Offered Rates) and
is calculated monthly. The Company executed a restated and
amended Note to GECC in the amount of $9,007,797, which
replaces a previous note with the same outstanding balance.
The note provides for thirty-nine monthly payments of
$123,103, which includes principal and interest. A final
payment of the outstanding balance will be due on January 2,
2002. Interest is calculated at 2.7% per annum above the
published LIBOR Rate. The Company also executed a restated and
amended Note to GECC in the amount of $855,050, which replaces
a previous note with the same outstanding balance. The note
provides for seventy monthly payments of $15,181, which
includes principal and interest. A final payment of the
outstanding balance will be due on August 1, 2004. Interest
is calculated at 2.7% per annum above the published LIBOR
Rate. All of the notes provide for prepayment penalties
according to a predefined timetable.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Employment Agreement - The Company entered into a three-year
employment agreement on August 24, 1998 with its Chief
Operating Officer and Executive Vice President. The agreement
provides for a base salary of $160,000 per annum with an
annual bonus equal to one percent of the Company's pre-tax
profits. The agreement also grants the Chief Operating
Officer and Executive Vice President a total of 30,000 stock
options to purchase the Company's common shares of stock (See
Note 10).
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, 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 $10,300,000. 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, 1998, the allowance
for boat repurchases was $200,000.
- 10 -
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited - See Accountant's Review Report)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - COMMITMENTS AND CONTINGENCIES [Continued]
Dealer Interest - The Company regularly pays a portion of
dealers' interest charges for floor plan financing for up to
six months. These interest charges amounted to approximately
$380,000 for the first three months of Fiscal 1999 and are
included in the accompanying consolidated statements of
operations as part of selling expense. At September 30, 1998,
the estimated unpaid dealer incentive interest included in
accrued expenses amounted to $400,000.
NOTE 8 - TRANSACTIONS WITH RELATED PARTIES
The Company paid or accrued the following amounts for services
rendered or for interest on indebtedness to Mr. Reginald M.
Fountain, Jr., the Company's Chairman, President, Chief
Executive Officer, and Chief Operating Officer, or to entities
owned or controlled by him:
For the Three Months Ended
September 30,
______________________
1998 1997
__________ __________
Apartments rentals $ 1,920 $ 970
R.M. Fountain, Jr. - airplane rental - 71,951
R.M. Fountain, Jr. - interest on loans 8,836 -
__________ __________
$ 10,756 $ 72,921
__________ __________
At September 30, 1998, the Company had receivables and
advances from employees of the Company amounting to $88,679,
which $69,824 was due from Mr. Fountain.
During the year ended June 30, 1998, the Company purchased an
airplane from Mr. Fountain for $1,375,000 by assuming the loan
on the airplane from G.E. Capital Services for $959,179, and
issuing a note to Mr. Fountain in the amount of $415,821. For
the three months ended September 30, 1998, the Company paid
$257,910 to Mr. Fountain leaving a balance of $157,911 still
owing at September 30, 1998.
The Company paid $22,500 for the three month period ended
September 30, 1998, for advertising and public relations
services from an entity owned by a director of the Company.
NOTE 9 - INCOME TAXES
For the three month period ended September 30, 1998, the
Company provided $0 for current income taxes and a benefit
of $73,508 for deferred income taxes.
- 11 -
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited - See Accountant's Review Report)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - STOCK OPTIONS
At September 30, 1998 there were 576,000 unexercised stock
options, which 570,000 were held by officers and directors of
the Company at prices ranging from $3.58 to $7.8125 per share.
During August 1998, the Company granted 30,000 stock options
in connection with an employment agreement with the Company's
Chief Operating Officer and Executive Vice President. The
options vest at a rate of 6,000 options per year beginning on
June 30, 1999 and expire ten years after the date vested.
NOTE 11 - 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, 1998, was not presented as its
effect was anti-dilutive.
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,
1998 was $(3,418) or $(.00) per share versus $1,126,613 or $.24
per share for the corresponding period of the previous year. The
operating loss as a percent of sales for the first quarter of
Fiscal 1999 was (.0)% versus 9.8% for the same period the
previous Fiscal year. The net loss for the first quarter of
Fiscal 1999 was $(197,995) or $(.04) per share. This compares to
net income amounting to $970,339, or $.21 per share (increased
from effect of NOL carry-forward from 1994) for the first quarter
of Fiscal 1998.
Net sales were $12,422,227 for the first quarter of Fiscal
1999 as compared to $11,521,434 for the first quarter of the
prior Fiscal year. Unit sales volume for the first quarter of
Fiscal 1999 was 104 boats as compared to 110 boats for the first
quarter of Fiscal 1998. The overall sales increase with a smaller
number of units resulted in a higher average price per boat and a
higher concentration of larger boats. Overall, sales were as
planned for the first quarter of Fiscal 1999.
For the first quarter of Fiscal 1999, the gross margin on
sales was $2,583,316 (21%) as compared to $2,953,361 (26%) for
the first quarter of the prior fiscal year. The decrease in
gross margin was due primarily to increased expenses associated
with the new yacht program. Management anticipates delivery of
the first yacht in the second quarter and the next yacht in the
third quarter.
Selling expenses were $1,943,182 for the first quarter of
Fiscal 1999 as compared to $1,033,094 for the first quarter of
last Fiscal year. Increased selling expense was due to an
increase in the number of dealers participating in the Company's
floor plan interest program, added advertising expense to support
retail sales and promotional racing activities.
- 12 -
General and administrative expenses were $643,552 for the
first quarter of Fiscal 1999 as compared to $793,654 for the
first quarter of last Fiscal year.
Interest expense for the first quarter of Fiscal 1999 was
$263,993 as compared to $145,972 for the first quarter of last
Fiscal year. Interest expense is up due to an increase in notes
payable during the first quarter of Fiscal 1998.
Other non-operating (income)/expense for the first quarter
was $4,092 as compared to $(16,458) for the first quarter of last
fiscal year, primarily due to a decrease in vender cash discounts
which traditionally offset miscellaneous other expenses.
Financial Condition.
The Company's cash flows for the first three months of
Fiscal 1999 are summarized as follows:
Net cash used in operating activities.....$ (596,111)
" " used in investing activities.......(1,128,497)
" " provided by financing activities... 3,706,749
Net increase in cash.......................$ 1,982,141
==========
This net increase compares to a $(1,461,509) net decrease
for the first three months of the prior fiscal year.
Cash used in the first three months of Fiscal 1999 to
acquire additional property, plant, and equipment (investing
activity) amounted to $1,128,497 of which $2,999 was for other
assets.
During the first quarter of Fiscal 1999, the Company
borrowed $4,000,000 to supplement and offset the cash used during
Fiscal 1998 to increase property, plant and equipment by
$6,937,699 and inventory by $3,139,783. Refer to Note 6 to the
Consolidated Financial Statements for complete notes payable
details. Both the General Electric Capital Corporation loan and
the Transamerica Business Credit Corporation loans are 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 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, for new product tooling, and for work-on-process
inventory in its new yacht production facility. We anticipate
finishing our first yacht during the second quarter.
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The Year 2000.
A current concern, known as the "Year 2000" or "Y2K" Bug
is expected to effect a large number of computer systems and
software during or after the year 1999. The concern is
that any computer function that requires a date
calculation may produce errors. The Year 2000 issue affects
virtually all companies and organizations, including the
Company. The Company plans on taking all steps necessary
to prevent these errors from occurring. With respect to
third party providers whose services are critical to the
Company, The Company intends to monitor the efforts of such
vendors, as they become Year 2000 compliant. Management is not
presently aware of any Year 2000 issues that have been
encountered by any such third party, which could materially
affect the Company's operations. At present, the Company
anticipates the costs of upgrading some of its software
and hardware in order to avoid any problems resulting from
the Millennium bug will cost approximately $300,000. There is
no assurance that the Company will not experience operational
difficulties as a result of Year 2000 issues.
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.
During the first quarter of Fiscal 1998, the Company an
nounced a three for two forward stock split, The shareholder
record date was set at August 1, 1997, with fractional shares
paid in cash on the payable date, August 14, 1997.
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 three months of Fiscal 1999.
(b) No Current Reports on Form 8-K were filed by the
Registrant during the first three months of Fiscal 1998.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FOUNTAIN POWERBOAT INDUSTRIES, INC.
(Registrant)
/s/ Joseph F. Schemenauer
By: Joseph F. Schemenauer Date: November 13, 1998
Vice President, Chief Financial
Officer, and Designated Principal
Accounting Officer
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