FOUNTAIN POWERBOAT INDUSTRIES, INC.
FORM 10-Q
QUARTERLY REPORT
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
For the Quarter Ended Commission File Number
___________________ 0-14712
FOUNTAIN POWERBOAT INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Nevada 56-1774895
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
Whichard's Beach Road, P.O. Drawer 457, Washington, NC 27889
(Address of principal executive offices)
Registrant's telephone no., including area code: (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, 1999
Common Stock, $.01 par value 4,732,608 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, 1999 and June 30, 1999 2 - 3
Unaudited Consolidated Statements of Operations, for the
three months ended September 30, 1999
and September 30, 1998 4
Unaudited Consolidated Statements of Cash Flows, for the
three months ended September 30, 1999
and September 30, 1998 5 - 6
Notes to Unaudited Consolidated Financial Statements 7 - 11
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
2
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited - See Accountant's Review Report)
ASSETS
September 30, June 30,
1999 1999
_____________ _____________
CURRENT ASSETS:
Cash and cash equivalents $ 904,224 $ 2,217,301
Accounts receivable, net 1,809,634 1,576,712
Inventories 8,361,317 7,307,890
Prepaid expenses 830,088 761,486
Current tax assets 2,504,621 2,221,499
_____________ _____________
Total Current Assets 14,409,884 14,084,888
_____________ _____________
PROPERTY, PLANT AND EQUIPMENT 36,682,128 36,209,584
Less: Accumulated depreciation (17,782,209) (17,144,314)
_____________ _____________
18,899,919 19,065,270
_____________ _____________
OTHER ASSETS 814,546 780,802
_____________ _____________
$34,124,349 $33,930,960
_____________ _____________
[Continued]
3
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited - See Accountant's Review Report)
LIABILITIES AND STOCKHOLDERS' EQUITY
[Continued]
September 30, June 30,
1999 1999
_____________ _____________
CURRENT LIABILITIES:
Current maturities - long-term debt $ 2,464,535 $ 2,464,535
Current maturities - capital lease 11,788 11,788
Accounts payable 5,458,198 3,961,516
Accrued expenses 1,637,561 2,231,061
Dealer territory service accrual 1,930,144 2,037,170
Customer deposits 692,910 687,560
Allowance for boat repurchases 200,000 200,000
Reserve for warranty expense 590,000 590,000
_____________ _____________
Total Current Liabilities 12,985,136 12,183,630
LONG-TERM DEBT, less current maturities 9,901,218 10,138,395
CAPITAL LEASE, less current maturities 76,939 76,939
DEFERRED TAX LIABILITY 898,498 899,680
COMMITMENTS AND CONTINGENCIES [NOTE 7] - -
_____________ _____________
Total Liabilities 23,861,791 23,298,644
_____________ _____________
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value,
200,000,000 shares authorized,
4,732,608 shares issued 47,326 47,326
Capital in excess of par value 10,303,640 10,303,640
Accumulated earnings 22,340 392,098
_____________ _____________
10,373,306 10,743,064
Less: Treasury stock, at cost 15,000
shares (110,748) (110,748)
_____________ _____________
Total Stockholders' Equity 10,262,558 10,632,316
_____________ _____________
$34,124,349 $33,930,960
_____________ _____________
The accompanying notes are an integral part of these financial statements.
4
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - See Accountant's Review Report)
For the Three Months Ended
September 30,
___________________________
1999 1998
_____________ _____________
NET SALES $10,795,168 $12,422,227
COST OF SALES 8,759,941 9,838,912
_____________ _____________
Gross Profit 2,035,227 2,583,315
_____________ _____________
EXPENSES:
Selling expense 1,586,283 1,841,102
Selling - related parties 127,097 102,080
General and administrative 721,503 643,551
_____________ _____________
Total expenses 2,434,883 2,586,733
_____________ _____________
OPERATING INCOME (LOSS) (399,656) (3,418)
NON-OPERATING INCOME (EXPENSE):
Other income (expense) 28,986 (4,092)
Interest expense (283,391) (255,157)
Interest expense - related parties - (8,836)
_____________ _____________
INCOME (LOSS) BEFORE INCOME TAXES (654,061) (271,503)
CURRENT TAX EXPENSE - -
DEFERRED TAX EXPENSE (BENEFIT) (284,303) (73,508)
_____________ _____________
NET INCOME (LOSS) $ (369,758) $ (197,995)
_____________ _____________
EARNINGS (LOSS) PER SHARE $ (.08) $ (.04)
_____________ _____________
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,732,608 4,702,608
_____________ _____________
DILUTED EARNINGS PER SHARE $ N/A $ N/A
_____________ _____________
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING $ N/A $ N/A
_____________ _____________
The accompanying notes are an integral part of these 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,
___________________________
1999 1998
_____________ _____________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (369,758) $ (197,995)
_____________ _____________
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation expense 637,896 590,658
Net change in deferred tax asset and
liabilities (284,303) (73,508)
Change in assets and liabilities:
(Increase) decrease in accounts receivable (232,922) 1,157,045
(Increase) decrease in inventories (1,053,428) (357,532)
(Increase) decrease in prepaid expenses (68,601) (216,186)
Increase (decrease) in accounts payable 1,496,682 (810,892)
Increase (decrease) in accrued expenses (593,501) (168,032)
Increase (decrease) in dealer territory
service accrual (107,026) (236,729)
Increase (decrease) in customer deposits 5,350 (189,328)
Net liabilities of discontinued operations - (93,612)
_____________ _____________
Net Cash Provided (Used) by
Operating Activities $ (569,611) $ (596,111)
_____________ _____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in additional molds, plugs,
and other tooling (83,033) -
Purchase of property, plant, and equipment (389,512) (1,125,498)
(Increase) in other assets (33,744) (2,999)
_____________ _____________
Net Cash Provided (Used) by Investing
Activities $ (506,289) $(1,128,497)
_____________ _____________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt $ - $ 4,000,000
Repayment of long-term debt (237,177) (233,340)
Repayment of long-term debt - related party - (59,911)
_____________ _____________
Net Cash Provided (Used) by Financing
Activities $ (237,177) $ 3,706,749
_____________ _____________
Net increase (decrease) in cash and cash
equivalents $(1,313,077) $ 1,982,141
Cash and cash equivalents at beginning of year 2,217,301 1,376,984
_____________ _____________
Cash and cash equivalents at end of period $ 904,224 $ 3,359,125
_____________ _____________
[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,
___________________________
1999 1998
_____________ _____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest:
Unrelated parties $ 280,805 $ 216,480
Related parties - 8,836
_____________ _____________
$ 280,805 $ 225,316
_____________ _____________
Income taxes $ - $ 222,538
_____________ _____________
Supplemental Disclosures of Noncash Investing and Financing Activities:
For the three month period ended September 30, 1999:
None
For the three month period ended September 30, 1998:
None
The accompanying notes are an integral part of these financial statements.
7
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited - See Accountant's Review Report)
NOTES TO 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,
1999 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, 1999 audited financial statements. The results of operations for
the periods ended September 30, 1999 are not necessarily indicative of the
operating results for the full year.
NOTE 2 - HURRICANE
During September 1999, the Company experienced flooding and the temporary
closure of the production facility as a result of hurricanes "Dennis" and
"Floyd" hitting Eastern North Carolina. As a result of the hurricanes the
Company sustained damages to inventory and property plant and equipment not
including the damages sustained to the yacht mold and lost revenue and
additional expenses from the business interruption.
As of November 8, 1999 the insurance companies have agree to pay $433,000
for damages to inventory and property, plant and equipment less the
$100,000 deductible. The Company has reclassified the following assets and
recorded in accounts receivable $333,000 for the insurance proceeds.
Review is still in process by the insurance carrier on the repair or
replacement of the Company's 65' foot yacht mold and certain air-
conditioning equipment that was flooded during the storm.
The Company also experienced losses resulting from the closure of the
production facility and inefficiencies due to storm preparation, cleanup
and the inability of the full work force to report once the plant re-opened.
The Company has filed its business interruption insurance claim, which is
now in the review and approval process with Company's insurance carrier. As
of September 30, 1999, the amount to be received for the business
interruption claim cannot be reasonably estimated and will be recorded in
the future when collected.
NOTE 3 - ACCOUNTS RECEIVABLE
As of September 30, 1999, accounts receivable were $1,809,634 net of the
allowance for bad debts of $27,841. This represents a increase of $232,922
from the $1,576,712 in net accounts receivable recorded at June 30, 1999.
Of the $1,809,634 balance at September 30, 1999, $1,275,300 has
subsequently been collected as of October 31, 1999, and the remaining
$534,334 is believed to be fully collectible.
8
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited - See Accountant's Review Report)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - INVENTORIES
Inventories at September 30, 1999 and June 30, 1999 consisted of the
following:
September 30, June 30,
1999 1999
____________ ____________
Parts and supplies $3,937,761 $3,296,244
Work-in-process 3,499,657 3,208,982
Finished goods 1,043,899 922,664
Obsolete inventory reserve (120,000) (120,000)
____________ ____________
Total $8,361,317 $7,307,890
____________ ____________
NOTE 5 - REVENUE RECOGNITION
The Company generally sells boats only to authorize 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 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.
9
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited - See Accountant's Review Report)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - ALLOWANCE AND QUALIFYING ACCOUNTS
For the three months ended September 30, 1999, 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 27,841 - - 27,841
Allowance for warranty
claims 590,000 160,489 (160,489) 590,000
Allowance for inventory
values 120,000 - - 120,000
___________ ___________ ___________ ___________
Total $ 937,841 $ 160,489 $(160,489) $ 937,841
___________ ___________ ___________ ___________
In management's opinion, the balances of the allowance and qualifying
accounts are adequate to provide for all reasonably anticipated future
losses.
NOTE 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 September 30, 1999, 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
$20,493,000. 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, 1999, 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 $210,460 for the first three months ended
September 30, 1999 and are included in the accompanying consolidated
statements of operations as part of selling expense. At September 30,
1999, the estimated unpaid dealer incentive interest included in accrued
expenses amounted to $334,000.
10
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited - See Accountant's Review Report)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, or to entities
owned or controlled by him:
For the Three Months Ended
September 30,
___________________________
1999 1998
_____________ _____________
R.M. Fountain, Jr. - interest on loans $ - $ 8,836
_____________ _____________
$ - $ 8,836
_____________ _____________
At September 30, 1999, the Company had receivables and advances from
employees of the Company amounting to $13,006.
The Company paid $127,097 and $102,080 for the three month period ended
September 30, 1999 and 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, 1999 and 1998, the Company
provided $0 and $0 for current income taxes and a benefit $284,303 and
$73,508 for deferred income taxes.
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,
1999 and 1998, was not presented as its effect was anti-dilutive. At
September 30, 1999 there were 551,000 unexercised stock options, of which
546,000 were held by officers and directors of the Company at prices
ranging from $3.58 to $5.00 per share, that were not included in the
computation of earnings per share because there effect is anti-dilutive.
11
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, 1999 was
$(399,656) or $(.08) per share versus $(3,418) or $.00 per share for the
corresponding period of the previous year. The operating loss as a percent of
sales for the three months ended September 30, 1999, was (3.7)% versus (.0)%
for the three months ended September 30, 1998. The net loss for the three
months ended September 30, 1999, was $(369,758) or $(.08) per share. This
compares to a net loss of $(197,995) or $(.04) per share for the three months
ended September 30, 1998.
Net sales were $10,795,168 for the three months ended September 30, 1999,
as compared to $12,422,227 for the three months ended September 30, 1998.
Unit sales volume for three months ended September 30, 1999 was 89 boats as
compared to 104 boats for the three months ended September 30, 1998. The
overall sales decrease was due to the business interruption from the
hurricanes "Dennis" & "Floyd" that hit Eastern North Carolina in September
1999.
For the three months ended September 30, 1999, the gross margin on sales
was $2,035,227 (19%) as compared to $2,583,315 (21%) for the three months
ended September 30, 1998. The decrease in gross margin was due primarily to a
lower number of sportboat sales in relation to fishboat sales, in particular
resulting from the volume drop in September as a result of the work loss from
the Hurricane.
Selling expenses were $1,713,380 for the three months ended September 30,
1999, as compared to $1,943,182 for the three months ended September 30, 1998.
Decreased selling expense was primarily due to a decrease in dealer floor plan
interest.
General and administrative expenses were $721,503 for the three months
ended September 30, 1999 as compared to $643,552 for the three months ended
September 30, 1998.
Interest expense for the three months ended September 30, 1999 was
$283,391 as compared to $263,993 for the three months ended September 30,
1998.
Other non-operating (income)/expense for the three months September 30,
1999 was $(28,986) as compared to $4,092 for the three months ended September
30, 1998, primarily due to an increase in vender cash discounts and rebates.
12
Below is a chart detailing net sales and pre-tax net income for three months
ended September 30, 1999 and 1998 [In Thousands]:
July August September Total
Net Sales
1999 $ 4,797 $ 4,410 $ 1,588 $ 10,795
1998 3,555 4,500 4,367 12,422
Pre-tax Net Income
1999 $ 225 $ 173 $ (1,052) $ (654)
1998 (652) 104 276 (272)
Financial Condition.
The Company's cash flows for the three months ended September 30, 1999
are summarized as follows:
Net cash used in operating activities....$ (596,611)
" " used in investing activities..... (506,289)
" " used by financing activities..... (237,177)
__________
Net decrease in cash.....................$(1,313,077)
==========
This net decrease compares to a $1,982,141 net increase for the three
months ended September 30, 1998.
Cash used in the three months ended September 30, 1999 to acquire
additional property, plant, and equipment (investing activity) amounted to
$472,545.
For the remainder of the year ending June 30, 2000 and beyond, the
Company expects to generate sufficient cash through operations to meet its
needs and obligations. In addition, management believes that along with the
near term settlement of its pending insurance claim, 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 and for new product tooling.
13
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.
14
PART II. Other Information.
ITEM 2: Change in Securities.
There was no change in securities during the first quarter ending
September 30, 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 three months of Fiscal 2000.
(b) No Current Reports on Form 8-K were filed by the Registrant during
the first three months of Fiscal 2000.
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 12, 1999
Vice President, Chief Financial
Officer, and Designated Principal
Accounting Officer