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 September 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended Commission File Number
0-14712
Fountain Powerboat Industries, Inc.
(Exact name of registrant as specified in its charter)
Nevada 88-0160250
(State or other jurisdiction (I.R.S. Identification No.)
of incorporation or
organization)
Whichard's Beach Road
P.O. Drawer 457
Washington, NC 27889
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (919)975-2000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the
issurer's classes of common stock as of the latest practicable
date.
Class Outstanding at October 30,1995
Common stock, $.01 par value 3,029,072 shares
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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,
September 30, 1995 and June 30, 1995......... 4
Consolidated Balance Sheets - Liabilities &
Shareholders' Equity, September 30, 1995
and June 30, 1995............................ 5
Consolidated Statements of Income -
Three Months Ended September 30, 1995
and September 30, 1994..........................6
Consolidated Statements of Cash Flows -
Three Months Ended September 30, 1995
and September 30, 1994....................... 7 - 8
Notes to Consolidated Financial Statements...... 9 - 12
Management's Discussion and Analysis of
Results of Operations and
Financial Condition..........................13 - 14
PART II. Other Information.
Item 6. Exhibits and Reports on Form 8 and Form 8-K..... 15
Signature....................................... 16
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PETERSON, SILER & STEVENSON, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
A PROFESSIONAL CORPORATION
430 EAST 400 SOUTH
SALT LAKE CITY, UTAH 84111
Voice (801) 328-2727 Fax (801) 328-1123
To the Board of Directors
FOUNTAIN POWERBOAT INDUSTRIES, INC.
Washington, North Carolina
We have reviewed the accompanying consolidated balance sheet of
Fountain Powerboat Industries, Inc. as of September 30, 1995, and
the related consolidated statements of income and cash flows for
the three months then ended, in accordance with Statements on
Standards for Accounting and Review services issued by the
American Institute of Certified Public Accountants. All
information included in these financial statements is the
representation of the management of Fountain Powerboat
Industries, Inc.
A review consists principally of inquiries of Company personnel
and analytical procedures applied to financial data. It is
substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying financial
statements in order for them to be in conformity with generally
accepted accounting principles.
/s/ PETERSON, SILER & STEVENSON, P.C.
PETERSON, SILER & STEVENSON, P.C.
October 25, 1995
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PART I: Financial Information.
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
*** Assets ***
(Unaudited - See Accountants' Review Report)
<CAPTION>
September 30, June 30,
Assets 1995 1995
------------------------------------------ ------------ ------------
<S> <C> <C>
Current assets:
Cash................................... $ 228,087 $ 490,807
Accounts receivable, net (Note 2)...... 1,946,111 1,898,854
Inventories (Note 3)................... 3,438,373 3,407,726
Deferred cost of sales (Note 4)........ 183,393 183,393
Prepaid expenses....................... 184,275 204,947
------------ ------------
Total current assets................... $ 5,980,239 $ 6,185,727
------------ ------------
Property, plant, and equipment............ $ 19,470,850 $ 19,199,743
Less: Accumulated depreciation........... (9,624,674) (9,209,661)
------------ ------------
$ 9,846,176 $ 9,990,082
------------ ------------
Other assets.............................. $ 160,448 $ 158,948
------------ ------------
Total assets.............................. $ 15,986,863 $ 16,334,757
============ ============
See accompanying Notes to Consolidated Financial Statements.
<FN>
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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
*** Liabilities & Shareholders' Equity ***
(Unaudited - See Accountants' Review Report)
<CAPTION>
September 30, June 30,
Liabilities & Shareholders' Equity 1995 1995
------------------------------------------ ------------ ------------
<S> <C> <C>
Current liabilities:
Notes payable.......................... $ 1,181,964 $ 534,185
Current portion/long-term debt......... 1,141,905 1,371,554
Accounts payable....................... 1,413,188 1,800,592
Accts. pay. - related parties (Note 7) 1,320 4,769
Accrued expenses....................... 639,962 1,152,489
Customer deposits...................... 357,887 412,809
Allowance for boat repurchases (Note 5) 207,359 207,359
Reserve for warranty expenses (Note 5) 400,000 400,000
Deferred sales (Note 4)................ 197,541 197,541
------------ ------------
Total current liabilities.............. $ 5,541,126 $ 6,081,298
------------ ------------
Long-term debt, less current
portion................................ $ 6,809,998 $ 7,049,049
------------ ------------
Total liabilities......................... $ 12,351,124 $ 13,130,347
------------ ------------
Commitments and contingencies (Note 6)
Shareholders' equity:
Common stock, $.01 par value,
200,000,000 shares authorized,
3,029,072 shares issued (Note 9).... $ 30,291 $ 30,291
Capital in excess of par value......... 9,297,450 9,297,450
Accumulated deficit.................... (5,581,254) (6,012,583)
------------ ------------
$ 3,746,487 $ 3,315,158
Less: Treasury stock...................... 110,748 110,748
------------ ------------
Total Shareholders' equity................ $ 3,635,739 $ 3,204,410
------------ ------------
Total liabilities & shareholders' equity.. $ 15,986,863 $ 16,334,757
============ ============
<FN>
See accompanying Notes to Consolidated Financial Statements.
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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited - See Accountants' Review Report)
Three Months Ended
--------------------------
<CAPTION>
September 30, September 30,
1995 1994
------------ ------------
<S> <C> <C>
Net sales................................. $ 8,999,524 $ 9,499,059
Cost of sales............................. 7,353,620 7,553,782
------------ ------------
Gross margin.............................. $ 1,645,904 $ 1,945,277
Selling expense........................... 777,651 672,428
General & admin. expense.................. 323,793 302,029
General & admin. expense -
related parties (Note 7)............... 36,540 31,465
------------ ------------
Operating income/(loss)................... $ 507,920 $ 939,355
------------ ------------
Other (income)/expense:
Interest expense....................... $ 199,453 $ 244,008
Other sundry, net...................... (122,862) (75,386)
------------ ------------
$ 76,591 $ 168,622
------------ ------------
Net income/(loss)
before income taxes.................... $ 431,329 $ 770,733
Current tax expense (benefit) (Note 8).... 0 0
Deferred tax expense (benefit) (Note 8)... 0 0
------------ ------------
Net income/(loss)......................... $ 431,329 $ 770,733
============ ============
Net income/(loss) per share............... $ .14 $ .26
============ ============
Weighted average
shares outstanding..................... 3,019,072 3,019,072
============ ============
<FN>
See accompanying Notes to Consolidated Financial Statements.
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<TABLE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited - See Accountants' Review Report)
Three Months Ended
--------------------------
<CAPTION>
September 30, September 30,
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
-------------------------------------
Net income/(loss).................................... $ 431,329 $ 770,733
Adjustments to reconcile net income to net cash
provided/(used) by operating activities:
Depreciation and amortization..................... 415,013 404,022
(Increase)/decrease in accounts receivable........ (47,257) (958,546)
(Increase)/decrease in inventory.................. (30,647) 470,434
(Increase)/decrease in prepaid expenses........... 20,672 (278,138)
(Increase)/decrease in other assets............... (1,500) (3,000)
Increase/(decrease) in accounts payable........... (387,404) (714,284)
Increase/(decrease) in accounts payable -
related parties............................... (3,449) 400
Increase/(decrease) in accrued expenses........... (512,527) 293,607
Increase/(decrease) in customer deposits.......... (54,922) (449,507)
------------ ------------
Net cash provided/(used) by operating activities..... $ (170,692) $ (464,279)
------------ ------------
Cash fows from investing activities:
------------------------------------
Construction of molds, plugs, and other tooling...... $ (197,949) $ (229,343)
Purchases of property, plant, and equipment.......... (73,158) (212,195)
------------ ------------
Net cash provided/(used) in investing activities..... $ (271,107) $ (441,538)
------------ ------------
Cash flows from financing activities:
-------------------------------------
Increase in long-term debt........................... $ 0 $ 102,410
Repayment of long-term debt.......................... (468,700) (139,602)
Note payable, revolving line of credit............... 647,779 276,263
------------ ------------
Net cash provided/(used) in financing activities..... $ 179,079 $ 239,071
------------ ------------
<FN>
(Continued)
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<TABLE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
(Unaudited - See Accountants' Review Report)
Three Months Ended
--------------------------
<CAPTION>
September 30, September 30,
1995 1994
------------ ------------
<S> <C> <C>
Net increase/(decrease) in cash......................... $ (262,720) $ (666,746)
Cash at beginning of the year........................... 490,807 675,711
------------ ------------
Cash at end of the period............................... $ 228,087 $ 8,965
============ ============
Supplemental disclosures of cash flow information:
--------------------------------------------------
Cash paid during the period for:
Interest - unrelated parties........................ $ 199,453 $ 244,008
- related parties.......................... 0 0
- capitalized.............................. 0 0
------------ ------------
$ 199,453 $ 244,008
============ ============
Income taxes......................................... $ 0 $ 0
============ ============
<FN>
See accompanying Notes to Consolidated Financial Statements.
-8-
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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited - See Accountants' Review Report)
1. Basis of Presentation.
Although these statements have been reviewed by our
independent auditors, they are unaudited. The statements reflect
all adjustments, in management's opinion, that are necessary to
present fairly the Company's financial position and results of
its operations for the interim periods presented. These
adjustments are, for the most part, of a normal, recurring
nature. It is suggested that this unaudited interim period
financial information be read in conjunction with the Company's
audited financial statements for the fiscal year ended June 30,
1995.
2. Accounts receivable.
As of September 30, 1995, accounts receivable were $1,946,111
net of the allowance for bad debts of $15,950. This represents
an increase of $47,257 from the $1,898,854 in net accounts
receivable recorded at June 30, 1995. Of the $1,946,111 balance
at September 30, 1995, $1,519,766 has subsequently been collected
as of October 24, 1995, and the remaining $426,345 is believed to
be fully collectible.
3. Inventories.
Inventories at September 30, 1995 and June 30, 1995 consisted
of the following:
September 30, June 30,
1995 1995
------------ ------------
Parts and supplies.................$ 2,742,462 $ 2,707,702
Work-in-process.................... 675,308 704,354
Finished goods..................... 72,189 48,512
Trailers........................... 38,414 37,158
Obsolete inventory reserve......... (90,000) (90,000)
------------- -------------
Total..............................$ 3,438,373 $ 3,407,726
============= =============
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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited - See Accountants' Review Report)
4. Revenue Recognition.
At fiscal year-end June 30, 1995, the Company deferred the
recognition of revenues amounting to $197,541 (recorded as a
balance sheet liability) and the related cost of sales amounting
to $183,393 (recorded as a balance sheet asset). This had the
effect of reducing the prior year's gross margin on sales and net
income after tax by $235,852 ($0.08 per share). At September 30,
1995, the Company estimated the balances of deferred sales and
deferred cost of sales to be the same as they were at year-end
June 30, 1995. Therefore, there was no effect in the first
quarter on gross margin or net income from a change in these
estimates.
5. Allowance and Qualifying Accounts.
For the three months ended September 30, 1995, the Company
adjusted its allowance and qualifying accounts as follows:
Balance at Charged to Balance
Beginning Cost and Additions at End
of Period Expense (Deductions) of Period
Allowance for
boat repur-
chases $ 207,359 $ -0- $ -0- $ 207,359
Allowance for
doubtful
accounts 12,869 -0- 3,081 15,950
Allowance for
warranty
claims 400,000 66,311 (66,311) 400,000
Allowance for
inventory
values 90,000 -0- -0- 90,000
---------- ---------- ---------- ---------
Total $ 710,228 $ 66,311 $ (63,230) $ 713,309
========== ========== ========== =========
In management's opinion, the balances of the allowance and
qualifying accounts are adequate to provide for all reasonably
anticipated future losses.
-10-
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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited - See Accountants' Review Report)
6. Commitments and Contingencies.
The Company makes available through third-party finance
companies floor plan financing for many of its dealers. Sales to
participating dealers are approved by the respective finance
companies. If a participating dealer does not satisfy its
obligations under the floor plan financing agreement in effect
with its commercial lender(s) and boats are subsequently
repossessed by the lender(s), then under certain circumstances
the Company may be required to repurchase the repossessed boats
if it has executed a repurchase agreement with the lender(s). At
September 30, 1995, the Company had a total contingent liability
to repurchase boats in the event of dealer defaults and if
repossessed by the commercial lenders amounting to approximately
$7,000,000. The Company has reserved for the reasonably
anticipated future losses it might incur upon the repossession
and repurchase of boats from commercial lenders. At September
30, 1995, the allowance for losses on boat repurchases was
$207,359.
Additionally, the Company regularly pays a portion of
dealers' interest charges for floor plan financing for up to six
months. Such charges amounting to $152,000 for the first three
months of Fiscal 1996 are included in selling expenses in the
accompanying statement of operations.
7. Transactions with Related Parties.
The Company paid or accrued the following amounts for services
rendered or for interest on indebtedness to related parties:
Three Months Ended
September 30, September 30,
1995 1994
------------ ------------
Greenwood Helicopters - rentals $ -0- $ 22,052
Eastbrook Apartments - rentals 2,850 3,915
R.M. Fountain, Jr. - aircraft
rental 33,670 27,550
------------ ------------
$ 36,520 $ 53,517
============ ============
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<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - See Accountants' Review Report)
7. Transactions with Related Parties (Continued).
At September 30, 1995, the Company had travel advances and
other receivables from employees in the amount of $16,834, of
which $1,000 was due from an officer of the Company.
8. Income taxes.
For the three months ended September 30, 1995, no current or
deferred tax expense was recorded because the net change in the
deferred tax asset valuation allowance of approximately $181,000
equaled the estimated net changes in the Company's net deferred
tax asset account. The primary change in the Company's net
deferred tax asset account was from the reduction of net
operating loss carryforwards due to the current period net
income. The estimated net operating loss carryforward as of
September 30, 1995 is $6,400,000.
9. Common Stock Options.
On June 21, 1995, a special meeting of the shareholders was
held to vote upon the adoption of the 1995 stock option plan.
The new plan as adopted by the shareholders allowed up to 300,000
common stock options to be granted by the Board of Directors to
employees or directors of the Company on either a qulified or non-
qualified basis. Subsequently, on August 4, 1995, the Board
unanimously voted to grant the entire 300,000 stock options
authorized under the 1995 stock option plan to Mr. Reginald M.
Fountain, Jr. at $7.00 per share on a non-qualified basis. None
of the options granted to Mr. Fountain under the 1995 stock
option plan have been exercised.
There are other outstanding stock options for 52,500 shares
under the 1986 Incentive Stock Option Plan and for 80,000 shares
under the special plan of March 23, 1995 for outside directors.
**** END OF FINANCIAL STATEMENTS ****
-12-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations.
The net profit for the first quarter of Fiscal 1996 was
$431,329 ($0.14 per share). This compares to a net profit
amounting to $770,733 ($0.26 per share) for the first quarter of
the prior year. Profit was less for the first quarter of this
fiscal year primarily because net sales and gross margin on sales
were less than for the first quarter of last year. Also,
operating expenses were somewhat higher this year than last year.
Net sales were $8,999,524 for the first quarter of Fiscal 1996 as
compared to $9,499,059 for the first quarter of the prior year.
For the first quarter of Fiscal 1996, the gross margin on
sales was $1,645,904 (18.29%) as compared to $1,945,277 (20.48%)
for the first quarter of the prior fiscal year. Selling price
increases planned for the new fiscal year were only partially in
effect for the first quarter because orders for most of the boats
sold in the first quarter were taken prior to the effective date
of the price increases. Beginning in October, all sales will be
at the new, higher prices.
Selling expenses were $777,651 for the first quarter of
Fiscal 1996 as compared to $672,428 for the first quarter of last
year. Most of the increase for Fiscal 1996 was in magazine
advertising and racing expense.
General and administrative expenses were $323,793 for the
first quarter of Fiscal 1996 as compared to $302,029 for the
first quarter of last year.
Interest expense for the first quarter of Fiscal 1996 was
$199,453 as compared to $244,008 for the first quarter of last
year. The decrease in interest expense is due to lesser overall
indebtedness and to a lesser rate paid to Mercury Marine than was
in effect last year.
Other income, principally from consulting, for the first
quarter of Fiscal 1996 was $122,862 as compared to $75,386 for
the first quarter of last year.
-13-
<PAGE>
Financial Condition.
The Company's cash flows for the first quarter of Fiscal
1996 are summarized as follows:
Net cash used in operating activities.......$ (170,692)
" " used in investing activities....... (271,107)
" " provided by financing activities... 179,079
-----------
Net decrease in cash........................$ (262,720)
===========
This net decrease compared to a $666,746 net decrease for
the first quarter of the prior fiscal year.
Cash used in the first quarter of Fiscal 1996 to acquire
additional property, plant, and equipment (investing activity)
amounted to $271,107, of which $197,949 was for plugs, molds, and
other product tooling.
For the remainder of Fiscal 1996, the Company expects to
generate sufficient cash from operating activities in order to
meet its obligations. Management believes that the Company will
continue to operate profitably for the remainder of the fiscal
year.
Pursuant to an agreement dated February 24, 1995, among the
Company, Mr. Fountain, and the Mercury Marine Division of the
Brunswick Corporation, until the Company has paid its
indebtedness to Mercury in full, it is required to purchase all
of its requirements for engines and certain other items from
Mercury. Mercury Marine agreed to pay the Company for certain
consulting services provided by Mr. Fountain and for appropriate
endorsements for Mercury's products. Mercury Marine has
established a purchasing line of credit and a variable term loan
for the Company which is secured by a subordinated lien on the
Company's assets and a pledge by Mr. Fountain of substantially
all of his shares of the Company's common stock.
During Fiscal 1995, MetLife Capital Corporation agreed to
amend the Company's financial ratio requirements. The Company is
now in compliance with the new MetLife financial ratio
requirements. The Company has made timely payment of all amounts
owed to MetLife and none of the indebtedness is in arrears.
-14-
<PAGE>
PART II. Other Information.
ITEM 6: Exhibits and Reports on Form 8 and Form 8-K.
(a) No Amendments on Form 8 were filed by the
Registrant during the first quarter of Fiscal
1996.
(b) No Current Reports on Form 8-K were filed by the
Registrant during the first quarter of Fiscal
1996.
-15-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FOUNTAIN POWERBOAT INDUSTRIES, INC.
(Registrant)
By: /S/ ALLAN L. KREHBIEL Date: October 30, 1995
Allan L. Krehbiel
Vice President, Chief Financial
Officer, and Designated Principal
Accounting Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1995
<CASH> 228
<SECURITIES> 0
<RECEIVABLES> 1,962
<ALLOWANCES> 16
<INVENTORY> 3,438
<CURRENT-ASSETS> 5,980
<PP&E> 19,471
<DEPRECIATION> 9,625
<TOTAL-ASSETS> 15,987
<CURRENT-LIABILITIES> 5,541
<BONDS> 6,810
<COMMON> 30
0
0
<OTHER-SE> 3,605
<TOTAL-LIABILITY-AND-EQUITY> 15,987
<SALES> 9,000
<TOTAL-REVENUES> 9,000
<CGS> 7,354
<TOTAL-COSTS> 7,354
<OTHER-EXPENSES> 1,138
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 199
<INCOME-PRETAX> 431
<INCOME-TAX> 0
<INCOME-CONTINUING> 431
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 431
<EPS-PRIMARY> .14
<EPS-DILUTED> 0
</TABLE>
