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 December 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
0-14712
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)
1653 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: (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
issurer's classes of common stock as of the latest practicable
date.
Class Outstanding at January 31, 1999
Common stock, $.01 par value 4,702,608 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,
December 31, 1998 and June 30, 1998......... 4
Consolidated Balance Sheets - Liabilities &
Shareholders' Equity, December 31, 1998
and June 30, 1998............................ 5
Consolidated Statements of Operations -
Three and Six Months Ended December 31, 1998
and December 31, 1997......................... 6-7
Consolidated Statements of Cash Flows -
Six Months Ended December 31, 1998
and December 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............................. 18
Item 6. Exhibits and Reports on Form 8 and Form 8-K....... 18
Signature........................................ 18
-2-
PRITCHETT, SILER & HARDY, P.C.
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 December 31, 1998, and
the related consolidated statements of income and cash flows for
the three and six 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
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.
February 10, 1999
Salt Lake City, Utah
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited - See Accountants' Review Report)
December 31, June 30,
1998 1998
___________ ___________
CURRENT ASSETS:
Cash and cash equivalents $ 2,727,330 $1,376,984
Accounts receivable, net 469,416 2,715,754
Inventories 7,442,027 7,077,540
Prepaid expenses 1,003,712 489,290
Deferred tax assets 1,280,493 1,058,967
___________ ___________
Total Current Assets 12,932,981 12,718,535
___________ ___________
PROPERTY, PLANT AND EQUIPMENT 33,698,556 33,411,011
Less: Accumulated depreciation (15,061,159) (14,254,156)
___________ __________
18,637,397 19,156,855
___________ __________
DEFERRED TAX ASSETS 208,293 -
OTHER ASSETS 693,527 622,003
___________ ___________
TOTAL ASSETS $32,472,198 $32,497,393
___________ ___________
-4-
[Continued]
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited - See Accountants' Review Report)
[Continued]
December 31, June 30,
1998 1998
___________ ___________
CURRENT LIABILITIES:
Current portion/long-term debt $1,998,609 $ 981,365
Notes payable - related party 157,910 415,821
Accounts payable 3,003,556 3,591,489
Accrued expenses 2,105,053 1,939,791
Dealer territory service accrual 2,065,256 2,046,939
Customer deposits 362,984 510,967
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 10,403,368 10,289,984
LONG-TERM DEBT, LESS CURRENT PORTION 11,668,835 9,499,895
DEFERRED TAX LIABILITY - 926,807
COMMITMENTS AND CONTINGENCIES [NOTE 6] - -
___________ ___________
Total Liabilities 22,072,203 20,716,686
___________ ___________
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value,
200,000,000 shares authorized,
4,755,108 shares issued 47,026 47,026
Capital in excess of par value 10,196,540 10,196,540
Retained earnings 267,177 1,647,889
___________ ___________
10,510,743 11,891,454
Less: Treasury stock (110,748) (110,748)
___________ ___________
Total Stockholders' Equity 10,399,995 11,780,707
___________ ___________
$32,472,198 $32,497,393
___________ ___________
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 Six Months Ended
December 31, December 31,
________________________ ______________________
1998 1997 1998 1997
____________ __________ __________ __________
NET SALES $13,254,267 $13,091,803 $25,676,494 $24,613,237
____________ __________ __________ __________
COST OF SALES 10,238,921 9,143,760 20,077,832 17,711,833
____________ __________ __________ __________
Gross Profit 3,015,346 3,948,043 5,598,662 6,901,404
EXPENSES:
Selling expense 2,151,203 883,669 4,094,385 1,916,763
General and administrative 676,984 776,467 1,318,616 1,497,200
General and administrative-
Related parties 2,513 932 4,433 73,853
____________ __________ __________ __________
Total Expenses 2,830,700 1,661,068 5,417,434 3,487,816
____________ __________ __________ __________
OPERATING INCOME BEFORE
STRATEGIC CHARGE 184,649 2,286,975 181,228 3,413,588
STRATEGIC CHARGE (2,440,000) - (2,440,000) -
____________ __________ __________ __________
OPERATING INCOME (LOSS) (2,255,353) 2,286,975 (2,258,772) 3,413,588
NON-OPERATING INCOME
(EXPENSE):
Other income 59,088 23,707 54,996 40,165
Interest expense (264,474) (135,161) (519,631) (281,133)
Interest expense-
related party (5,097) - (13,933) -
_____________ _________ ___________ _________
INCOME (LOSS) BEFORE TAXES (2,465,837) 2,175,521 (2,737,340) 3,172,620
CURRENT TAX EXPENSE - 720,116 - 954,448
DEFERRED TAXES (BENEFIT) (1,283,120) 109,154 (1,356,628) (71,818)
_____________ _________ ___________ _________
INCOME (LOSS) FROM
CONTINUING OPERATIONS (1,182,717) 1,346,251 (1,380,712) 2,289,990
DISCONTINUED OPERATIONS:
Income on disposal of
operations of Fountain
Power, Inc. and
Mach Performance, Inc. - - - 26,600
____________ _________ __________ __________
INCOME FROM DISCONTINUED
OPERATIONS - - - 26,600
____________ _________ __________ ___________
NET INCOME (LOSS) $(1,182,717) $1,346,251 $(1,380,712) $2,316,590
____________ __________ ___________ ___________
-6-
[Continued]
FOUNTAIN POWERBOAT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - See Accountants' Review Report)
[Continued]
For the Three Months Ended For the Six Months Ended
December 31, December 31,
___________________ _____________________
1998 1997 1998 1997
_________ ________ __________ _________
EARNINGS (LOSS) PER SHARE:
Continuing Operations $(.25) $.28 $(.29) $.48
Income from Operations of
Discontinued Segments - - - -
Estimated Loss on Disposal
of Discontinued Segments - - - .01
_________ _________ __________ _________
EARNINGS (LOSS) PER SHARE $(.25) $.28 $(.29) $.49
_________ _________ __________ _________
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,702,608 4,740,108 4,702,608 4,737,499
_________ _________ __________ _________
DILUTED EARNINGS PER SHARE:
Continuing Operations $ N/A $ .27 $ N/A $ .45
Loss from Operations of
Discontinued Segments N/A - N/A -
Estimated Loss on Disposal
of Discontinued Segments N/A - N/A .01
________ _________ ___________ ________
DILUTED EARNINGS PER SHARE: $ N/A $.27 $ N/A $.46
________ _________ ___________ ________
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING N/A 5,028,127 N/A 5,078,379
________ _________ ___________ ________
The accompanying notes are an integral part of these financial
statements.
-7-
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 Six Months Ended
December 31,
__________________________
1998 1997
___________ ____________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,380,712) $2,316,590
___________ ___________
adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation expense 1,192,402 860,302
Strategic Charge 2,440,000 -
Change in assets and liabilities:
(Increase) decrease in
accounts receivable 2,246,338 (2,256,197)
(Increase) decrease in
inventories (1,293,310) (2,316,031)
(Increase) decrease in
prepaid expenses (514,422) 420,071
Increase (decrease) in
accounts payable (587,933) 894,705
Increase (decrease) in
accrued expenses 165,262 278,639
Increase (decrease) in dealer
territory service accrual 18,317 (2,55,310)
Increase (decrease) in
customer deposits (147,983) (49,926)
Net deferred taxes (1,356,629) 752,912
Net liabilities of
discontinued operations (93,612) (138,923)
____________ ___________
Net Cash Provided (Used) by
Operating Activities $ 687,718 $ 506,832
____________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase) sale of
certificates of deposit, net - 696,155
Investment in molds, plugs,
and other tooling (398,078) (869,007)
Purchase of property, plant,
and equipment (1,786,043) (4,035,222)
(Increase) in other assets (71,524) (6,296)
___________ ___________
Net Cash Provided (Used) by
Investing Activities $(2,255,645) $(4,214,370)
____________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt $4,000,000 $2,875,000
Repayment of long-term debt (813,816) (316,776)
Repayment of long-term debt - related party (257,911) -
Proceeds from issuance of common stock - 107,500
___________ ____________
Net Cash Provided (Used) by Financing
Activities $2,928,273 $2,665,724
___________ ____________
Net increase (decrease) in cash
and cash equivalents $1,360,346 $(1,041,814)
Cash and cash equivalents at
beginning of period 1,376,984 2,994,503
___________ ____________
Cash and cash equivalents at
end of period $2,737,330 $ 1,952,689
___________ ____________
-8-
[Continued]
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
December 31,
__________________________
1998 1997
____________ __________
Supplemental Disclosures of Cash Flow information:
Cash paid during the period for:
Interest:
Unrelated parties $ 502,752 $ 272,297
Related parties 16,879 -
_____________ ___________
$ 519,631 $ 272,297
_____________ ___________
Income taxes $ 263,345 $ 8,836
_____________ ___________
Supplemental Disclosures of Noncash investing and financing
activities:
For the six month period ended December 31, 1998:
There were no non-cash investing and financing activities.
For the six month period ended December 31, 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 financial
statements.
-9-
FOUNTAIN POWERBOAT INDUSTRIES, INC.
Notes to Consolidated Financial Statements
(Unaudited - See Accountants' Review Report)
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 December 31, 1998 and for all periods
presented have been made.
Certain information and footnote disclosures normally included in
the 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 December 31, 1998 are not necessarily indicative
of the operating results for the full year.
2. Accounts Receivable.
As of December 31, 1998, accounts receivable were $469,416 net
of the allowance for bad debts of $34,679. This represents a
decrease of $2,246,338 from the $2,715,754 in net accounts
receivable recorded at June 30, 1998. Of the $469,416 balance at
December 31, 1998, $312,800 has subsequently been collected as of
January 31, 1998, and the remaining $156,616 is believed to be
fully collectible.
3. Inventories.
Inventories at December 31, 1998 and June 30, 1998 consisted of
the following:
December 31, June 30,
1998 1998
____________ _____________
Parts and supplies.................$ 4,588,499 $ 4,510,373
Work-in-process.................... 2,698,694 2,235,394
Finished goods..................... 151,102 451,773
Sportswear......................... 123,733 -0-
Obsolete inventory reserve......... (120,000) (120,000)
____________ _____________
Total..............................$ 7,442,027 $ 7,077,540
============= =============
-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 six months ended December 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 30,000 -0- 4,679 34,679
Allowance for
warranty claims 500,000 427,466 427,466 500,000
Allowance for
inventory values 120,000 -0- -0- 120,000
---------- ---------- ---------- ---------
Total $850,000 $427,466 $432,145 $854,679
========== ========== ========== =========
In management's opinion, the balances of the allowance and
qualifying accounts are adequate to provide for all reasonably
anticipated future losses.
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
-12-
note with the same outstanding balance. The note provides for 39
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 April 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. On
December 1, 1998, the two GECC loans were converted to fixed rates
of 7.02% on the $9,007,797 loan and 7.26% on the $855,050 loan.
7. Commitments and Contingencies.
Manufacturer Repurchase Agreements - The Company makes available
through third-party finance companies floor plan financing for many
of its dealers. Sales to participating dealers are approved by the
respective finance companies. If a participating dealer does not
satisfy its obligations under the floor plan financing agreement in
effect with its commercial lender(s) and boats are subsequently
repossessed by the lender(s), then under certain circumstances the
Company may be required to repurchase the repossessed boats if it
has executed a repurchase agreement with the lender(s). At
December 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 $27,300,000.
The Company has reserved for 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, 1998, the allowance
for boat repurchases was $200,000.
Dealer Interest - The Company regularly pays a portion of dealers'
interest charges for floor plan financing for up to six months.
These interest charges amounted to approximately $879,000 for the
first six months of Fiscal 1999 and are included in the
accompanying consolidated statements of operations as part of
selling expense. At December 31, 1998, the estimated unpaid dealer
incentive interest included in accrued expenses amounted to
$511,197.
8. Transactions with Related Parties.
The Company paid or accrued the following amounts for services
rendered or for interest on indebtedness to related parties:
-13-
Six Months Ended
December 31,
-------------------------
1999 1998
---------- -----------
Apartments - rentals $ 4,433 $ 1,902
R.M. Fountain, Jr. - Interest 16,879 -0-
- Aircraft
Rental -0- 71,951
----------- -----------
$ 21,312 $ 73,853
=========== ===========
At December 31, 1998 the Company had travel advances and other
receivables from employees in the amount of $87,692, of which
$71,729 was due from an officer of the Company. For the six months
ended December 31, 1998 the Company paid interest expense of
$16,879 to an Officer/Director of the Company.
9. Income Taxes.
For the six-month period ended December 31, 1998, the Company
provided $-0- for current income taxes and a benefit of $1,356,628
for deferred income taxes.
10. Stock Options.
At December 31, 1998 there were 606,000 unexercised stock
options, of which 546,000 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 second quarter of this Fiscal
year.
11. Earnings Per Share.
The computation 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, 1998, was not
presented, as its effect was anti-dilutive.
12. Strategic Charge.
During December 1998, the Company designed and implemented a
restructuring plan to aggressively improve the Company's cost
structure, refocus sales and marketing expenditures and divest the
Company of certain non-realizable assets. In connection with the
restructuring plan the Company reviewed components of its business
for possible improvement of future profitability through
reengineering or restructuring. As part of this plan the Company
decided to eliminate its racing program and write off the balance
of excess yacht
-14-
tooling cost along with other discontinued unused tooling. The
Company expects to complete the majority of these actions during
the third and fourth quarter of Fiscal 1999. The carrying value of
the assets held was reduced to fair value based on estimated
realizable value based on future cash flows from use of the asset
or sale of the related assets. The resulting pretax adjustment of
$2,440,000 was recorded as a strategic charge in the statement of
operations of the Company.
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations.
The operating income (before strategic charge) for the second
quarter ended December 31, 1998 was $184,649 or $.04 per share
versus operating income of $2,286,975 or $.48 per share for the
corresponding period of the previous year. Operating income
(before strategic charge) as a percent of sales for the second
quarter of Fiscal 1999 was 1.4% versus 17.5% for the same period
the previous Fiscal year. The net loss for the second quarter of
Fiscal 1999 was $(1,182,717) or $(.25) per share. This compares to
net income amounting to $1,346,251, or $.28 per share for the
second quarter of Fiscal 1998. During the second quarter, it was
determined that the Company make a strategic redirection to focus
its efforts on profitable growth (See Note 12).
Net sales were $13,254,267 for the second quarter of Fiscal
1999 as compared to $13,091,803 for the second quarter of the prior
Fiscal year. Unit sales volume for the second quarter of Fiscal
1999 was 114 boats as compared to 117 boats for the second quarter
of Fiscal 1998. A smaller number of larger, higher priced, boats
accounted for the overall higher sales volume than the second
quarter of the previous Fiscal year.
For the second quarter of Fiscal 1999, the gross margin on
sales was $3,015,347 (22.8%) as compared to $3,948,043 (30.2%) for
the second quarter of Fiscal 1998.
Selling expenses were $2,151,203 for the second quarter of
Fiscal 1999 as compared to $883,669 for the second quarter of last
Fiscal year. Most of the increase for Fiscal 1999 was in
promotional racing and advertising expense.
General and administrative expenses were $679,497 for the
second quarter of Fiscal 1999 as compared to $777,399 for the
second quarter of last Fiscal year. Most of the decrease was in
legal expense.
Interest expense for the second quarter of Fiscal 1999 was
$269,571 as compared to $135,161 for the second quarter of last
Fiscal year. Interest expense is up due to an overall increase in
long-term debt.
-15-
Other non-operating (income)/expense for the second quarter of
Fiscal 1999 was $(59,088) as compared to $(23,707) for the second
quarter of last Fiscal year.
Financial Condition.
The Company's cash flows for the second six months of Fiscal
1999 are summarized as follows:
Net cash provided by operating activities ..... $ 687,718
" " used by investing activities ....... (2,255,645)
" " provided by financing activities..... 2,928,273
Net increase in cash................... $ 1,360,346
===========
This net increase compared to a $(1,041,814) net decrease for the
second six months of the prior fiscal year.
Cash used in the first six months of Fiscal 1999 to acquire
additional property, plant, and equipment (investing activity)
amounted to $2,255,645 of which $398,078 was for plugs, molds, and
other product tooling.
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 1999 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 return to net
earnings and positive cash flow. Most of the Company's cash
resources will be used to maintain its plant and equipment, for new
product tooling and for work in process inventory in the new yacht
facility.
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
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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.
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PART II. Other Information.
ITEM 2: Change in Securities.
There were no change in securities during the second quarter
of Fiscal 1999.
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 six months of Fiscal 1999.
(b) No Current Reports on Form 8-K were filed by the
Registrant during the first six months of Fiscal 1999.
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: February 11, 1999
__________________________ __________________
Joseph F. Schemenauer
Vice President, Chief Financial
Officer, and Designated Principal
Accounting Officer
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