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 30,1996
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)
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 November 12, 1996
Common stock, $.01 par value 3,129,072 shares
<PAGE>
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, 1996 and June 30, 1996......... 4
Consolidated Balance Sheets - Liabilities &
Shareholders' Equity, September 30, 1996
and June 30, 1996............................ 5
Consolidated Statements of Income -
Three Months Ended September 30, 1996
and September 30, 1995....................... 6
Consolidated Statements of Cash Flows -
Three Months Ended September 30, 1996
and September 30, 1995....................... 7 - 8
Notes to Consolidated Financial Statements...... 9 - 13
Management's Discussion and Analysis of
Results of Operations and
Financial Condition.......................... 14 - 16
PART II. Other Information.
Item 6. Exhibits and Reports on Form 8 and Form 8-K..... 16
Signature....................................... 17
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<PAGE>
PRITCHETT, SILER & HARDY
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, 1996, and
the related consolidated statements of income and 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 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.
November 8, 1996
-3-
<PAGE>
PART I: Financial Information.
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
*** Assets ***
(Unaudited - See Accountants' Review Report)
September 30, June 30,
Assets 1996 1996
- ---------------------------- ---------------- -----------------
Current assets:
Cash..................................$ 2,524,282 $ 1,360,619
Accounts receivable, net (Note 2)..... 2,463,680 2,853,684
Inventories (Note 3................... 3,580,401 4,009,195
Prepaid expensses..................... 233,201 154,843
------------ -----------
Total current assets..................$ 8,801,564 $ 8,378,341
------------ ------------
Property, plant, and equipment..........$ 21,302,393 $ 20,674,326
Less: Accumulated depreciation.......... (11,148,578) (10,746,140)
------------ ------------
$ 10,153,815 $ 9,928,186
------------ ------------
Other assets............................$ 194,576 $ 191,577
------------ ------------
Total assets............................$ 19,149,955 $ 18,498,104
============ ============
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
***Liabilities & Shareholders' Equity***
(Unaudited - See Accountants' Review Report)
September 30, June 30,
Liabilities & Shareholders' Equity 1996 1996
- ------------------------------------------ ------------ ------------
Current liabilities:
Notes payable............................ $ 1,018,783 $ 1,173,089
Current portion/long-term debt........... 782,738 767,254
Accounts payable......................... 1,380,150 1,713,760
Accrued expenses......................... 1,691,078 1,599,602
Accrued income taxes..................... 80,804 80,804
Customer deposits........................ 127,280 228,608
Allowance for boat repurchases (Note 5).. 207,359 207,359
Reserve for warranty expenses (Note 5)... 410,000 410,000
------------ ------------
Total current liabilities................ $ 5,698,192 $ 6,180,476
------------ ------------
Long-term debt, less current
portion.................................. $ 5,231,930 $ 5,433,184
------------ ------------
Total liabilities.......................... $ 10,930,122 $ 11,613,660
------------ ------------
Commitments and contingencies (Notes 6 & 11)
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...................... (997,160) (2,332,549)
------------ ------------
$ 8,330,581 $ 6,995,192
Less: Treasury stock....................... 110,748 110,748
------------ ------------
Total Shareholders' equity................. $ 8,219,833 $ 6,884,444
------------ ------------
Total liabilities & shareholders' equity... $ 19,149,955 $ 18,498,104
============ ============
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited - See Accountants' Review Report)
Three Months Ended September 30,
-------------------------------------
1996 1995
------------ ------------
Net sales (Note 4).................. $ 12,320,373 $ 8,999,524
Cost of sales....................... 9,073,259 7,353,620
------------ ------------
Gross margin........................ $ 3,247,114 $ 1,645,904
Selling expense..................... 984,044 777,651
General & admin. expense............ 665,980 323,793
General & admin. expense -
related parties (Note 7).......... 83,832 36,540
------------ ------------
Operating income/(loss)............. $ 1,513,258 $ 507,920
------------ ------------
Other (income)/expense:
Interest expense.................. $ 159,053 $ 199,453
Other sundry, net................. (85,864) (122,862)
------------ ------------
$ 73,189 $ 76,591
------------ ------------
Net income/(loss)
before income taxes............... $ 1,440,069 $ 431,329
Current tax expense (benefit) (Note 8) 104,680 0
Deferred tax expense (benefit) (Note 8) 0 0
------------ ------------
Net income.......................... $ 1,335,389 $ 431,329
============ ============
Net income per share................ $ .42 $ .14
============ ============
Weighted average
shares outstanding................ 3,198,906 3,019,072
============ ============
Fully diluted earnings per
share (Note 10)................... $ .42 $ N/A
============ ============
Fully diluted weighted average
shares outstanding (Note 10)...... 3,205,242 N/A
============ ============
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited - See Accountants' Review Report)
Three Months Ended
September 30,
------------------------
1996 1995
Cash flows from operating activities: ------------ ------------
- -------------------------------------
Net income/(loss).................... $ 1,335,389 $ 431,329
Adjustments to reconcile net income to
net cash provided/(used) by
operating activities:
Depreciation and amortization...... 402,438 415,013
(Increase)/decrease in accounts receivable 390,004 (47,257)
(Increase)/decrease in inventory.... 428,794 (30,647)
(Increase)/decrease in prepaid expenses (78,358) 20,672
(Increase)/decrease in other assets (2,999) (1,500)
Increase/(decrease) in accounts payable (333,610) (387,404)
Increase/(decrease) in acounts payable -
related parties................... 0 (3,449)
Increase/(decrease) in accrued expenses 91,476 (512,527)
Increase/(decrease) in customer deposits (101,328) (54,922)
------------ ----------
Net cash provided/(used) by operating
activities......................... $ 2,131,806 $ (170,692)
------------ ------------
Cash fows from investing activities:
- ------------------------------------
Construction of molds, plugs, and other
tooling............................ $ (477,506) $ (197,949)
Purchases of property, plant and
equipment.......................... (150,561) (73,158)
------------ ----------
Net cash provided/(used) in investing
activities......................... $ (628,067) $ (271,107)
------------ ------------
Cash flows from financing activities:
- -------------------------------------
Increase in long-term debt........... $ 0 $ 0
Repayment of long-term debt.......... (185,770) (468,700)
Note payable, revolving line of credit (154,306) 647,779
------------ ----------
Net cash provided/(used) in financing
activities........................ $ (340,076) $ 179,079
------------ ------------
(Continued)
-7-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
(Unaudited - See Accountants' Review Report)
Three Months Ended
September 30,
-------------------------
1996 1995
------------ ------------
Net increase/(decrease) in cash......... $ 1,163,663 $ (262,720)
Cash at beginning of the year........... 1,360,619 490,807
------------ -----------
Cash at end of the period............... $ 2,524,282 $ 228,087
============ =============
Supplemental disclosures of cash flow information:
- --------------------------------------------------
Cash paid during the period for:
Interest - unrelated parties......... $ 159,053 $ 199,453
- related parties........... 0 0
- capitalized............... 0 0
------------ ----------
$ 159,053 $ 199,453
============ ============
Income taxes......................... $ 104,680 $ 0
============ ============
See accompanying Notes to Consolidated Financial Statements.
-8-
<PAGE>
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, 1996.
2. Accounts Receivable.
As of September 30, 1996, accounts receivable were $2,463,680 net of the
allowance for bad debts of $27,000. This represents an decrease of
$390,004 from the $2,853,684 in net accounts receivable recorded at June
30, 1996. Of the $2,463,680 balance at September 30, 1996, $2,240,749 has
subsequently been collected as of November 6, 1996, and the remaining
$222,931 is believed to be fully collectible.
3. Inventories.
Inventories at September 30, 1996 and June 30, 1996 consisted
of the following:
September 30, June 30,
1996 1996
------------- ------------
Parts and supplies.................$ 2,921,255 $ 3,095,379
Work-in-process.................... 684,547 715,133
Finished goods..................... 74,599 260,269
Trailers........................... -0- 38,414
Obsolete inventory reserve......... (100,000) (100,000)
-------------- -------------
Total..............................$ 3,580,401 $ 4,009,195
============= =============
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<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited - See Accountants' Review Report)
4. Revenue Recognition.
The Company recognizes revenue when its products are sold to its
dealers. At this time, all incidents of title pass to the buyer and the
Company receives payment, usually within two weeks, for the products
sold. Revenues are deferred only in instances where there is a direct
repurchase agreement with the dealer or where the Company has agreed to
pay floor plan interest for the dealer for a period of time beyond the
normal six month time alloted by its published sales promotion program.
At September 30, 1996 and June 30, 1996, there were no deferred sales or
cost of sales.
5. Allowance and Qualifying Accounts.
For the three months ended September 30, 1996, 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 27,000 268 (268) 27,000
Allowance for
warranty
claims 410,000 80,568 (80,568) 410,000
Allowance for
inventory
values 100,000 -0- -0- 100,000
---------- ---------- ---------- ---------
Total $ 744,359 $ 80,836 $ (80,836) $ 744,359
========== ========== ========== =========
In management's opinion, the balances of the allowance and
qualifying accounts are adequate to provide for all reasonably
anticipated future losses.
-10-
<PAGE>
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, 1996, 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 $6,400,000. 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, 1996, 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 $113,000 for the first three months of Fiscal 1997 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,
1997 1996
----------- -----------
Eastbrook Apartments - rentals $ 4,370 $ 2,850
R.M. Fountain, Jr. - aircraft
rental 79,462 33,670
----------- -----------
$ 83,832 $ 36,520
=========== ===========
At September 30, 1996 the Company had travel advances and
other receivables from employees in the amount of $19,065, of
which $500 was due from an officer of the Company.
-11-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited - See Accountants' Review Report)
8. Income Taxes.
The Company has available at September 30, 1996, unused operating
loss carryforwards of approximately $1,324,147 which may be applied
against future taxable income and which expire in various years through
2009. The amount and ultimate realization of the benefits from the
operating loss carryforwards for income tax purposes is dependent, in
part, upon the tax laws in effect, the future earnings of the Company,
and other future events, the effects of which cannot be determined.
Because of the uncertainty surrounding the realization of the loss
carryforwards the Company has established a valuation allowance equal to
the tax effect of the loss carryforwards, and, therefore, no deferred tax
asset has been recognized. The net deferred tax assets are approximately
$1,255,088 and the net deferred tax liabilities are approximately
$893,349 as of September 30, 1996, respectively, with an offsetting
valuation allowance of approximately $361,739 resulting in a change in
the valuation allowance of approximately $662,406 for the three month
period ended September 30, 1996.
9. Stock Options.
At September 30, 1996 there were stock options held by officers and
directors of the Company for 420,000 shares atprices ranging from $5.375
to $7.000 per share. None of these stock options were exercised in the
first quarter, however, the Chief Financial Officer exercised a portion
of his incentive stock options for 15,000 shares at $5.50 per share in
the month of October, 1996.
10. Earnings Per Share.
The computations of primary and fully 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.
-12-
<PAGE>
11. Subsequent Event.
The Company acquired Mach Performance, Inc. of Lake Hamilton,
Florida on October 8, 1996. The acquisition was effective as of October
11, 1996. Mach Performance, Inc. principally manufactures stainless
steel propellers for Fountain Powerboats, Inc. and many other customers.
Mach Performance, Inc. has foundry and finishing capabilities that will
permit it to manufacture other products used by Fountain Powerboats,
Inc., in addition to the propellers. The purchase price was $1,041,250
and was paid to the shareholder of Mach Performance, Inc. by the
issuance of 85,000 new restricted common shares of Fountain Powerboat
Industries, Inc. common stock valued at its fair market price on October 11,
1996, of $12.25 per share.
******
-13-
<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 1997 was
$1,335,389, or $.42 per share. This compares to a net profit amounting
to $431,329, or $.14 per share, for the first quarter of the prior
year.
Net sales were $12,320,373 for the first quarter of Fiscal 1997
as compared to $8,999,524 for the first quarter of the prior year.
Unit sales volume for the first quarter of Fiscal 1997 was 110 boats
as compared to 107 boats for the first quarter of last year.
For the first quarter of Fiscal 1997, the gross margin on sales
was $3,247,114 (26.36%) as compared to $1,645,904 (18.29%) for the
first quarter of the prior fiscal year.
Selling expenses were $984,044 for the first quarter of Fiscal
1997 as compared to $777,651 for the first quarter of last year. Most
of the increase for Fiscal 1997 was in magazine advertising and racing
expense.
General and administrative expenses were $749,812 for the first
quarter of Fiscal 1997 as compared to $360,333 for the first quarter of
last year. Most of the increase for Fiscal 1997 is for additional
executive compensation and increased travel expense.
Interest expense for the first quarter of Fiscal 1997 was $159,053
as compared to $199,453 for the first quarter of last year. The
decrease in interest expense is due to lesser overall indebtedness and
to a lesser rate paid on indebtedness to a major supplier.
Other non-operating income for the first quarter includes
consulting revenues from a vendor earned by Mr. Fountain and assigned
to the Company amounting to $65,000. This compares to consulting
revenues amounting to $125,556 for the first quarter of last year. The
decrease is from renegotiation of Mr. Fountain's consulting contract
with the vendor.
-14-
<PAGE>
Financial Condition.
The Company's cash flows for the first quarter of Fiscal 1996 are
summarized as follows:
Net cash provided by operating activities...$ 2,131,806
" " used in investing activities....... (628,067)
" " used in financing activities....... (340,076)
-----------
Net increase in cash........................$ 1,163,663
===========
This net increase compared to a $262,720 net decrease for the
first quarter of the prior fiscal year.
Cash used in the first quarter of Fiscal 1997 to acquire
additional property, plant, and equipment (investing activity) amounted
to $628,067 of which $477,506 was for plugs, molds, and other product
tooling.
For the remainder of Fiscal 1997 and beyond, the Company expects
to generate sufficient cash from operating activities in order to meet
its needs and obligations. Management believes that the Company's sales
and production volume will continue to grow with a commesurate increase
in net earnings and cash flow. Most of the Company's cash resources
will be used to maintain and improve its plant and equipment, for new
product tooling, and to repay existing indebtedness. The Company does
not expect to pay any dividends to shareholders for the forseeable
future.
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 and expects to remain in
compliance with the ratio requirements. The Company has made timely payment
of all amounts owed to MetLife and none of the indebtedness to MetLife, or
any other parties, is in arrears.
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.
-15-
<PAGE>
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 6: Exhibits and Reports on Form 8 and Form 8-K.
(a) No Amendments on Form 8 were filed by the Registrant
during the first nine months of Fiscal 1996.
(b) No Current Reports on Form 8-K were filed by the
Registrant during the first nine months of Fiscal
1996.
-16-
<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: November 12, 1996
Allan L. Krehbiel
Vice President, Chief Financial
Officer, and Designated Principal Accounting Officer
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 2,524
<SECURITIES> 0
<RECEIVABLES> 2,464
<ALLOWANCES> 27
<INVENTORY> 3,580
<CURRENT-ASSETS> 8,802
<PP&E> 21,302
<DEPRECIATION> 11,149
<TOTAL-ASSETS> 19,150
<CURRENT-LIABILITIES> 5,698
<BONDS> 0
0
0
<COMMON> 30
<OTHER-SE> 8,190
<TOTAL-LIABILITY-AND-EQUITY> 19,150
<SALES> 12,320
<TOTAL-REVENUES> 12,320
<CGS> 9,073
<TOTAL-COSTS> 9,073
<OTHER-EXPENSES> 1,734
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 159
<INCOME-PRETAX> 1,440
<INCOME-TAX> 105
<INCOME-CONTINUING> 1,335
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,335
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
