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 March 31, 1997
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
0-10316
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 April 30, 1997
Common stock, $.01 par value 3,140,072 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,
March 31, 1997 and June 30, 1996............. 4
Consolidated Balance Sheets - Liabilities &
Shareholders' Equity, March 31, 1997
and June 30, 1996............................ 5
Consolidated Statements of Income -
Three and Nine Months Ended March 31, 1997
and March 31, 1996........................... 6
Consolidated Statements of Cash Flows -
Nine Months Ended March 31, 1997
and March 31, 1996........................... 7 - 8
Notes to Consolidated Financial Statements...... 9 - 14
Management's Discussion and Analysis of
Results of Operations and
Financial Condition..........................15 - 18
PART II. Other Information.
Item 6. Exhibits and Reports on Form 8 and Form 8-K..... 18
Signature....................................... 19
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<PAGE>
PART I: Financial Information.
PRITCHETT, SILER & HARDY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
430 EAST 400 SOUTH
SALT LAKE CITY, UTAH 84111
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 March 31, 1997, and the
related consolidated statements of income and cash flows for the
three and nine 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.
April 30, 1997
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<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
*** Assets ***
(Unaudited - See Accountants'Review Report)
March 31, June 30,
Assets 1997 1996
------------------------------- ----------- -----------
Current assets:
Cash........................ $ 2,937,617 $ 1,360,619
Accounts receivable, net
(Note 2)................... 2,391,722 2,853,684
Inventories (Note 3)........ 4,979,289 4,009,195
Prepaid expenses............ 983,933 154,843
----------- -----------
Total current assets....... $ 11,292,561 $ 8,378,341
----------- -----------
Property, plant, and equipment $ 23,905,956 $20,674,326
Less: Accumulated depreciation (11,985,291) (10,746,140)
----------- -----------
$ 11,920,665 $ 9,928,186
----------- -----------
Other assets................. $ 851,560 $ 191,577
----------- -----------
Total assets................. $ 24,064,786 $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)
March 31, June 30,
Liabilities & Shareholders' Equity 1997 1996
------------------------------------ ---------- ------------
Current liabilities:
Notes payable.................... $ 0 $ 1,173,089
Current portion/long-term debt... 515,291 767,254
Accounts payable................. 2,101,699 1,713,760
Accounts payable - related party 24,025 0
Accrued expenses................. 2,528,015 1,680,406
Customer deposits................ 205,246 228,608
Allowance for boat
repurchases (Note 5)............ 207,359 207,359
Reserve for warranty
expenses (Note 5)............... 410,000 410,000
----------- ------------
Total current liabilities....... $ 5,991,635 $ 6,180,476
Long-term debt, less current
portion........................... $ 7,899,739 $ 5,433,184
Deferred income taxes.............. $ 136,000 $ 0
----------- ------------
Total liabilities.................. $14,027,374 $11,613,660
----------- ------------
Commitments and contingencies
(Notes 6 & 11)
Shareholders' equity:
Common stock, $.01 par value,
200,000,000 shares authorized,
3,247,572 and 3,129,072 shares
issued (Note 9) $ 31,476 $ 30,291
Capital in excess of par value... 10,519,765 9,297,450
Deficit in retained earnings..... (403,081) (2,332,549)
----------- ------------
$10,148,160 $ 6,995,192
Less: Treasury stock............... 110,748 110,748
----------- ------------
Total Shareholders' equity......... $10,037,412 $ 6,884,444
----------- ------------
Total liabilities & shareholders'
equity............................ $24,064,786 $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 Nine Months Ended
March 31, March 31,
-----------------------------------------------
1997 1996 1997 1996
---------- ----------- ----------- -----------
Net sales (Note 4).... $ 12,575,520 $10,748,665 $37,401,438 $29,035,656
Cost of sales........ 9,931,764 8,409,285 28,131,994 23,066,399
---------- ----------- ----------- -----------
Gross margin........ $ 2,643,756 $ 2,339,380 $ 9,269,444 $ 5,969,257
Percent........... 21.01% 21.76% 24.78% 20.56%
Selling expense...... 2,447,690 1,381,367 4,668,438 3,260,534
General & admin. expense 629,295 413,526 1,848,203 1,172,188
General & admin. expense -
related parties (Note 7) 63,321 36,148 233,934 108,502
---------- ----------- ----------- -----------
Operating income/(loss) $ (496,550) $ 508,339 $ 2,518,869 $ 1,428,033
---------- ----------- ----------- -----------
Other (income)/expense:
Interest expense.... $ 88,475 $ 166,445 $ 414,235 $ 570,077
Other sundry, net... (110,052) (161,129) (237,923) (434,037)
Non-recurring gain.. 0 0 0 (800,000)
---------- ----------- ----------- -----------
$ (21,577) $ 5,316 $ 176,312 $ (663,960)
---------- ----------- ----------- -----------
Net income/(loss)
before income taxes $ (474,973) $ 503,023 $ 2,342,557 $ 2,091,993
Current tax expense/
(benefit) (Note 8) (192,802) 0 277,089 0
Deferred tax expense/
(benefit) (Note 8) 136,000 0 136,000 0
---------- ----------- ----------- -----------
Net (loss) or income $ (418,171) $ 503,023 $ 1,929,468 $ 2,091,993
========== =========== =========== ===========
Primary net(loss) or
income per share... $ (.12) $ .17 $ .58 $ .69
========== =========== =========== ===========
Primary weighted average
shares outstanding 3,400,202 3,019,072 3,310,116 3,019,072
========== =========== =========== ===========
Fully diluted earnings
per share (Note 10) $ N/A $ N/A $ .58 $ N/A
========== =========== =========== ===========
Fully diluted weighted
avg. shs. outstanding
(Note 10) N/A N/A 3,323,655 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)
Nine Months Ended
March 31,
--------------------------
1997 1996
------------ ------------
Cash flows from operating activities:
- -------------------------------------
Net income.......................... $ 1,929,468 $ 2,091,993
Adjustments to reconcile net income
to net cash provided/(used) by
operating activities:
Depreciation and amortization..... 1,239,151 1,135,781
(Increase)/decrease in accounts
receivable...................... 461,962 (665,212)
(Increase)/decrease in inventory.. (970,094) 43,699
(Increase)/decrease in prepaid
expenses........................ (829,090) 30,151
(Increase)/decrease in other assets (659,983) (4,500)
Increase/(decrease) in accounts
payable......................... 387,939 (283,541)
Increase/(decrease) in accounts
payable - related parties....... 24,025 7,909
Increase/(decrease) in accrued
expenses........................ 976,705 246,842
Increase/(decrease) in customer
deposits........................ (23,362) (47,657)
Increase/(decrease) in taxes
payable - current............... (129,096) 0
Increase/(decrease) in taxes
payable - deferred.............. 136,000 0
------------ ------------
Net cash provided/(used) by
operating activities........... $ 2,543,625 $ 2,555,465
------------ ------------
Cash fows from investing activities:
- ------------------------------------
Construction of molds, plugs, and
other tooling.................... $ (1,232,148)$ (600,940)
Purchases of property, plant, and
equipment........................ (1,999,482) (511,921)
------------ ------------
Net cash provided/(used) in
investing activities.......... $ (3,231,630)$ (1,112,861)
------------ ------------
Cash flows from financing activities:
- -------------------------------------
Common stock issued................ $ 1,223,500 $ 0
Borrowing from G.E. Capital
Corporation...................... 8,500,000 600,000
Repayment of long-term debt........ (6,285,408) (2,639,292)
Note payable, revolving line of
credit........................... (1,173,089) 625,276
Note payable to shareholder........ 0 170,000
------------ -------------
Net cash provided/(used) in
financing activities........... $ 2,265,003 $ (1,244,016)
------------ -------------
(Continued)
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<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
(Unaudited - See Accountants' Review Report)
Nine Months Ended
March 31,
--------------------------
1997 1996
------------ ------------
Net increase/(decrease) in
cash......................... $ 1,576,998 $ 198,588
Cash at beginning of the
year......................... 1,360,619 490,807
------------ ------------
Cash at end of the period..... $ 2,937,617 $ 689,395
============ ============
Supplemental disclosures of cash flow information:
- --------------------------------------------------
Cash paid during the period for:
Interest - unrelated parties....... $ 414,235 $ 570,077
- related parties......... 0 0
- capitalized............. 0 0
------------ ------------
$ 414,235 $ 570,077
============ ============
Income taxes....................... $ 325,381 $ 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, in
management's opinion, present fairly the Company's financial
position and results of its operations for the interim periods
presented. 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 March 31, 1997, accounts receivable were $2,391,722 net
of the allowance for bad debts of $25,303. This represents a
decrease of $461,962 from the $2,853,684 in net accounts
receivable recorded at June 30, 1996. Of the $2,391,722 balance
at March 31, 1997, $2,347,522 has subsequently been collected as
of April 30, 1997, and the remaining $44,200 is believed to be
fully collectible.
3. Inventories.
Inventories at March 31, 1997 and June 30, 1996 consisted of
the following:
March 31, June 30,
1997 1996
Parts and supplies.................$ 3,236,395 $ 3,095,379
Work-in-process.................... 1,168,433 715,133
Finished goods..................... 694,461 260,269
Trailers........................... -0- 38,414
Obsolete inventory reserve......... (120,000) (100,000)
Total..............................$ 4,979,289 $ 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 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.
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<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited - See Accountants' Review Report)
5. Allowance and Qualifying Accounts.
For the nine months ended March 31, 1997, 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 3,268 (4,965) 25,303
Allowance for
warranty claims 410,000 335,492 (335,492) 410,000
Allowance for
inventory
values 100,000 20,000 -0- 120,000
---------- ---------- ---------- ---------
Total $ 744,359 $ 358,760 $(340,457) $ 762,662
========== ========== ========== =========
In management's opinion, the balances of the allowance and
qualifying accounts are adequate to provide for all reasonably
anticipated future losses.
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 March 31, 1997, 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 $14,600,000.
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<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited - See Accountants' Review Report)
The Company has reserved for probable future losses it is
expected to incur upon the repossession and repurchase of boats
from commercial lenders. At March 31, 1997, the allowance for
losses on boat repurchases was $207,359. The amount of the
allowance is based upon probable future events which can be
reasonably estimated.
Additionally, as part of its normal sales program, the
Company regularly pays a portion of dealers' interest charges for
floor plan financing for up to six months. Such charges
amounting to $778,000 for the first nine 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:
Nine Months Ended
March 31,
1997 1996
Eastbrook Apartments - rentals $ 13,195 $ 11,790
R.M. Fountain, Jr. - aircraft
rental 220,739 96,712
----------- -----------
$ 233,934 $ 108,502
=========== ===========
At March 31, 1997 the Company had travel advances and other
receivables from employees in the amount of $20,946, of which
$500 was due from an officer of the Company.
8. Income Taxes.
During Fiscal 1997, the Company will use up all of its net
operating loss carryforwards. Consequently, for the nine month
period ended March 31, 1996, the Company provided $277,089 for
current income taxes and $136,000 for deferred income taxes.
-12-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited - See Accountants' Review Report)
9. Stock Options.
At March 31, 1997 there were 406,500 unexercised stock options,
of which 402,500 were held by officers and directors of the
Company at prices ranging from $5.375 to $7.000 per share. The
Chief Financial Officer exercised a portion of his employee
incentive stock options for 17,500 shares at $5.50 per share
during the nine months ended March 31, 1997, and subsequently
sold the shares. The Chief Financial Officer also exercised his
option for an additional 2,500 shares at $5.50 subsequent to
March 31, 1997. During the nine months ended March 31, 1997, one
of the Company's directors assigned 4,000 of his options to
another party and also exercised his remaining 16,000 options at
$5.375 per share.
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.
11. Acquisition of Mach Performance, Inc.
The Company acquired Mach Performance, Inc. of Lake Hamilton,
Florida on October 11, 1996. Mach Performance, Inc. principally
manufactures stainless steel propellers for Fountain Powerboats,
Inc. and several 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 shareholders 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
Notes to Consolidated Financial Statements
(Unaudited - See Accountants' Review Report)
12. Debt Refinancing.
On December 31, 1996, the Company concluded a $10,000,000
credit agreement with General Electric Capital Corporation.
Under the terms of the new credit agreement, the Company
refinanced substantially all of its interest bearing debts and
will have additional funds made available to it for expansion.
Initially, the Company borrowed $7,500,000 from GE Capital
Services primarily to refinance existing debts. All of the
Company's prior interest bearing debts to MetLife Capital
Corporation, Deutsche Financial Services, GE Capital Corporation,
Branch Bank & Trust Leasing Corp., and other smaller creditors
were paid off entirely. The Company borrowed another
$1,000,000 to fund plant and equipment additions. An additional
$1,500,000 is available to the Company for further expansion
until December 31, 1997. The Company expects to have borrowed the
remaining $1,500,000 prior to December 31, 1997. The interest rate
on the indebtedness to GE Capital Services is variable. There is
a ten-year amortization of the debt with a five-year call. The
loan is 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.
******
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<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations.
The net loss for the third quarter of Fiscal 1997 was
$418,171, or $.12 per share. This compares to net income
amounting to $503,023, or $.17 per share, for the third quarter
of the prior year. Net income for the first nine months of
Fiscal 1997 was $1,929,479, or $.58 per share. This compares to
net income amounting to $2,091,993, or $.69 per share, for the
first nine months of last year. Last year's net income for the
first nine months included an $800,000 or $.27 per share non-
recurring amount received from a major vendor to compensate the
Company for the vendor's delivery failures in Fiscal 1994 and to
assure continued promotion of the vendor's products.
Net sales were $12,575,520 for the third quarter of Fiscal
1997 as compared to $10,748,665 for the third quarter of the
prior year. Unit sales volume for the third quarter of Fiscal
1997 was 122 boats as compared to 111 boats for the third quarter
of last year. Net sales were $37,401,438 for the first nine
months of Fiscal 1997 as compared to $29,035,656 for the first
nine months of last year. Unit sales volume for the first nine
months of Fiscal 1997 was 352 as compared to 315 for the first
nine months of last year. The mix of sales for the first nine
months of Fiscal 1997 was more heavily weighted with sales of
high margin, large sport boats than it was for the first nine
months of last year.
For the third quarter of Fiscal 1997, the gross margin on
sales was $2,643,756 (21.02%) as compared to $2,339,380 (21.76%)
for the third quarter of the prior fiscal year. For the first
nine months of Fiscal 1997, the gross margin on sales was
$9,269,444 (24.78%) as compared to $5,969,257 (20.56%) for the
first nine months of last year. Included in the cost of sales
for the third quarter were research and development expenses
amounting to $103,654 as compared to $36,472 for the third
quarter of the prior year. Research and development expenses
included in the cost of sales were $557,293 for the nine months
ended March 31, 1997, as compared to $154,751 for first nine
months of last year. Most of the research and development
expense was incurred for the new surface drive propulsion system
and further improvements to the positive lift hull design.
The propeller manufacturing and sales operation posted a
pretax loss of $487,887 for the third quarter and a pretax loss
of $611,369 for the six months since October 11, 1996 when
operations commenced with the acquisition of Mach Performance,
Inc. The Company is reorganizing this operation to improve
profitability.
-15-
<PAGE>
Selling expenses were $2,447,690 for the third quarter of
Fiscal 1997 as compared to $1,381,367 for the third quarter of
last year. Selling expenses were $4,668,438 for the first nine
months of Fiscal 1997 as compared to $3,260,534 for the first
nine months of last year. Most of the increase for Fiscal 1997
was in salaries and wages, advertising and brochures, boat shows,
and dealer floor plan interest expense.
General and administrative expenses were $692,616 for the
third quarter of Fiscal 1997 as compared to $449,674 for the
third quarter of last year. General and administrative expenses
were $2,082,126 for the first nine months of Fiscal 1997 as
compared to $1,280,690 for the first nine months of last year.
Most of the increase for Fiscal 1997 was in salaries and wages,
travel expense, professional fees, and investor relations
expense.
Interest expense for the third quarter of Fiscal 1997 was
$88,475 as compared to $166,445 for the third quarter of last
year. Interest expense for the first nine months if Fiscal 1997
was $414,235 as compared to $570,077 for the first nine months of
last year. The decrease in interest expense was due to lesser
rates paid on interest bearing indebtedness.
Other non-operating income for the third 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 $156,103 for the third quarter
of last year. Consulting revenues for the first nine months of
Fiscal 1997 were $195,000 as compared to $428,338 for the first
nine months of last year. The decrease is from renegotiation of
Mr. Fountain's consulting contract with the vendor.
As previously noted, other non-operating income for the
prior year includes an $800,000 or $.27 per share non-recurring
amount received from a major vendor to compensate the company for
the vendor's delivery failures in Fiscal 1994 and to assure
continued promotion of the vendor's products.
Financial Condition.
The Company's cash flows for the first nine months of Fiscal
1997 are summarized as follows:
Net cash provided by operating activities...$ 2,543,625
" " used in investing activities....... (3,231,630)
" " provided by financing activities... 2,265,003
Net increase in cash........................$ 1,576,998
===========
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<PAGE>
This net increase compared to a $198,588 net increase for
the first nine months of the prior fiscal year.
Cash used in the first nine months of Fiscal 1997 to acquire
additional property, plant, and equipment (investing activity)
amounted to $3,231,630 of which $1,232,148 was for plugs, molds,
and other product tooling.
On December 31, 1996, the Company concluded a $10,000,000
credit agreement with General Electric Capital Corporation.
Under the terms of the new credit agreement, the Company
refinanced substantially all of its interest bearing debts and
will have additional funds made available to it for expansion.
Initially, the Company borrowed $7,500,000 from GE Capital Services
primarily to refinance existing debts. All of the Company's
prior interest bearing debts to MetLife Capital Corporation,
Deutsche Financial Services, GE Capital Corporation, Branch Bank
& Trust Leasing Corp., and other smaller creditors were paid off
entirely.
The Company borrowed another $1,000,000 from GE Capital Services
to fund plant and equipment additions. An additional $1,500,000 is
available to the Company for further expansion until December 31, 1997.
The Company expects to have borrowed the remaining $1,500,000 prior
to December 31, 1997. The interest rate on the indebtedness to GE
Capital Services is variable. There is a ten-year amortization of
the debt with a five-year call. The loan is 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 Fiscal 1997 and beyond, in addition to
the foregoing borrowing from GE Capital Services, 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 commensurate 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.
-17-
<PAGE>
Cautionary Statement for Purposes of "Safe Harbor" Under the
Private Securities Reform Act of 1995.
The Company may from time to time make forward-looking
statements, including statements projecting, forecasting, or
estimating the Company's performance and industry trends. The
achievement of the projections, forecasts, or estimates contained
in these statements is subject to certain risks and
uncertainties, and actual results and events may differ
materially from those projected, forecasted, or estimated.
The applicable risks and uncertainties include general
economic and industry conditions that affect all businesses, as
well as, matters that are specific to the Company and the markets
it serves. For example, the achievement of projections,
forecasts, or estimates contained in the Company's forward-
looking statements may be impacted by national and international
economic conditions; compliance with governmental laws and
regulations; accidents and acts of God; and all of the general
risks associated with doing business.
Risks that are specific to the Company and its markets
include but are not limited to compliance with increasingly
stringent environmental laws and regulations; the cyclical nature
of the industry; competition in pricing and new product
development from larger companies with substantial resources; the
concentration of a substantial percentage of the Company's sales
with a few major customers, the loss of, or change in demand from,
any of which could have a material impact upon the Company; labor
relations at the Company and at its customers and suppliers; and
the Company's single-source supply and just-in-time inventory
strategies for some critical boat components, including high
performance engines, which could adversely affect production if
a single-source supplier is unable for any reason to meet the
Company's requirements on a timely basis.
PART II. Other Information.
ITEM 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 1997.
(b) No Current Reports on Form 8-K were filed by the
Registrant during the first nine months of Fiscal 1997.
-18-
<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: May 14, 1997
Allan L. Krehbiel
Vice President, Chief Financial
Officer, and Designated Principal
Accounting Officer
-19-
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