FOUNTAIN POWERBOAT INDUSTRIES, INC.
FORM 10-Q
QUARTERLY REPORT
FOR THE QUARTER ENDED DECEMBER 31, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
<PAGE>
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 December 31, 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 of 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:(252)975-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding at February 10, 2000
_________________________ ______________________________
Common Stock, $.01 par value 4,732,608 Shares
1
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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,
December 31, 1999 and June 30, 1999......... 4
Consolidated Balance Sheets - Liabilities &
Shareholders' Equity, December 31, 1999
and June 30, 1999............................ 5
Consolidated Statements of Operations -
Three and Six Months Ended December 31, 1999
and December 31, 1998......................... 6-7
Consolidated Statements of Cash Flows -
Six Months Ended December 31, 1999
and December 31, 1998........................ 8-9
Notes to Consolidated Financial Statements ... 10-15
Management's Discussion and Analysis of
Results of Operations and
Financial Condition.......................... 15-17
PART II. Other Information.
Item 2. Changes in Securities............................. 17
Item 6. Exhibits and Reports on Form 8 and Form 8-K....... 17
Signature........................................ 18
2
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To the Board of Directors
FOUNTAIN POWERBOAT INDUSTRIES, INC.
Washington, North Carolina
We have reviewed the accompanying consolidated balance sheet of Fountain
Powerboat Industries, Inc. as of December 31, 1999, and the related
consolidated statements of operations and cash flows for the three and six
months then ended. All information included in these financial statements is
the representation of the management of Fountain Powerboat Industries, Inc.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of Company personnel responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
/s/ Pritchett, Siler & Hardy, P.C.
PRITCHETT, SILER & HARDY, P.C.
February 11, 2000
Salt Lake City, Utah
3
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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited - See Accountants' Review Report)
ASSETS
December 31, June 30,
1999 1999
___________ ___________
CURRENT ASSETS:
Cash and cash equivalents $ 842,867 $ 2,217,301
Accounts receivable, net 2,085,129 1,576,712
Inventories 8,628,767 7,307,890
Prepaid expenses 802,943 761,486
Current deferred tax assets 2,192,135 2,221,499
___________ ___________
Total Current Assets 14,551,841 14,084,888
___________ ___________
PROPERTY, PLANT AND EQUIPMENT 36,775,371 36,209,584
Less: Accumulated depreciation (18,197,612) (17,144,314)
___________ ___________
18,577,759 19,065,270
___________ ___________
OTHER ASSETS 845,199 780,802
___________ ___________
TOTAL ASSETS $33,974,799 $33,930,960
___________ ___________
[Continued]
4
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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited - See Accountants' Review Report)
LIABILITIES AND STOCKHOLDERS' EQUITY
[Continued]
December 31, 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 5,506,791 3,961,516
Accrued expenses 1,920,482 2,231,061
Dealer territory service accrual 1,804,916 2,037,170
Customer deposits 555,314 687,560
Allowance for boat repurchases 200,000 200,000
Reserve for warranty expense 590,000 590,000
___________ ___________
Total Current Liabilities
13,053,826 12,183,630
___________ ___________
LONG-TERM DEBT, less current portion 9,287,947 10,138,395
CAPITAL LEASE, less current maturities 76,939 76,939
DEFERRED TAX LIABILITY 912,116 899,680
COMMITMENTS AND CONTINGENCIES [NOTE 7] - -
___________ __________
Total Liabilities 23,330,828 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
Retained earnings - accumulated 403,753 392,098
___________ ___________
10,754,719 10,743,064
Less: Treasury stock (110,748) (110,748)
___________ ___________
Total Stockholders' Equity 10,643,971 10,632,316
___________ ___________
$33,974,799 $33,930,960
___________ ___________
The accompanying notes are an integral part of these unaudited financial
statements.
5
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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - See Accountants' Review Report)
For The Three For The Six
Months Ended Months Ended
December 31 December 31
________________________ ________________________
1999 1998 1999 1998
___________ ___________ ___________ ___________
NET SALES $15,384,022 $13,254,267 $26,179,190 $25,676,494
COST OF SALES 12,213,163 10,238,921 20,973,104 20,077,832
___________ ___________ ___________ ___________
Gross Profit 3,170,859 3,015,346 5,206,086 5,598,662
EXPENSES
Selling Expense 1,502,305 2,151,203 3,215,685 4,094,385
General &
Administrative 694,530 676,984 1,416,033 1,318,616
___________ ___________ ___________ ___________
Total Expenses 2,196,835 2,830,700 4,631,718 5,417,434
___________ ___________ ___________ ___________
OPERATING INCOME BEFORE
STRATEGIC CHARGE 974,024 184,649 574,368 181,228
STRATEGIC CHARGE - (2,440,000) - (2,440,000)
___________ ___________ ___________ ___________
OPERATING INCOME (LOSS) 974,024 (2,255,353) 574,368 (2,258,772)
NON-OPERATING
INCOME(EXPENSE)
Other Income 10,867 59,088 39,853 54,996
Interest Expense (244,095) (264,474) (527,486) (519,631)
Interest Expense -
Related party - (5,097) - (13,933)
Other expense (33,280) - (33,280) -
___________ ___________ ___________ ___________
INCOME (LOSS) BEFORE TAX 707,516 (2,465,838) 53,455 (2,737,340)
CURRENT TAX EXPENSE - - - -
DEFERRED TAXES (BENEFIT) 326,103 (1,283,120) 41,800 (1,356,628)
___________ ___________ ___________ ___________
NET INCOME (LOSS) $ 381,413 $(1,182,717) $ 11,655 $(1,380,712)
___________ ___________ ___________ ___________
[Continued]
6
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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - See Accountants' Review Report)
[Continued]
For The Three For The Six
Months Ended Months Ended
December 31 December 31
________________________ ________________________
1999 1998 1999 1998
___________ ___________ ___________ ___________
EARNINGS (LOSS) PER SHARE $ .081 $ (.252) $ .002 $ (.294)
___________ ___________ ___________ ___________
WEIGHTED AVERAGE
SHARES OUTSTANDING 4,732,608 4,732,608 4,732,608 4,732,608
___________ ___________ ___________ ___________
DILUTED EARNINGS PER
SHARE $ N/A $ N/A $ N/A $ N/A
___________ ___________ ___________ ___________
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING N/A N/A N/A N/A
___________ ___________ ___________ ___________
The accompanying notes are an integral part of these unaudited financial
statements.
7
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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - See Accountants' Review Report)
Increase (Decrease) in Cash and Cash Equivalents
For the Six Months Ended
December 31,
__________________________
1999 1998
____________ ____________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 11,655 $(1,380,712)
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation Expense 1,053,298 1,192,402
Strategic Charge - 2,440,000
(Increase) decrease in accounts
receivable (508,416) 2,246,338
(Increase) decrease in inventory (1,320,877) (1,293,310)
(Increase) decrease in prepaid expenses (41,457) (514,422)
Increase (decrease)in accounts payable 1,545,274 (587,933)
Increase (decrease)in accrued expenses (258,528) 165,262
Increase (decrease)in dealer service
territory accrual - 18,317
Increase (decrease)in customer deposits (132,247) (147,983)
Net deferred taxes (242,504) (1,356,629)
Net liabilities of discontinued
operations - (93,612)
____________ ____________
Net Cash Provided by Operating
Activities $ 106,198 $ 687,718
____________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in molds, plugs and other
tooling, net $ (83,033) $ (398,078)
Purchase of property plant and
equipment, net (482,754) (1,786,043)
(Increase) in other assets (64,397) (71,524)
____________ ____________
Net Cash(Used) by Investing
Activities $ (630,184) $(2,255,645)
____________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - 4,000,000
Repayment of long-term debt (850,447) (813,816)
Repayment of long-term debt
- related party - (257,911)
Proceeds from issuance of common
stock - -
____________ ____________
Net Cash Provided (Used) by
Financing Activities $ (850,447) $ 2,928,273
____________ ____________
Net increase (decrease) in cash
and cash equivalents $(1,374,433) $ 1,360,346
Cash and cash equivalents at
beginning of year 2,217,300 1,376,984
____________ ____________
Cash and cash equivalents at
end of period $ 842,867 $ 2,737,330
____________ ____________
[Continued]
8
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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - See Accountants' Review Report)
Increase (Decrease) in Cash and Cash Equivalents
[Continued]
For the Six Months Ended
December 31,
__________________________
1999 1998
____________ ____________
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest:
Unrelated parties $ 527,486 $ 519,631
Related parties - 13,933
____________ ____________
$ 527,486 $ 533,564
____________ ____________
Income taxes $ - $ -
____________ ____________
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
For the six month period ended December 31, 1999:
None
For the six month period ended December 31, 1998:
During December 1998, the Company recorded a $2,440,000 strategic
charge reducing the value of their assets to their estimated
realizable value.
The accompanying notes are an integral part of these unaudited
financial statements.
9
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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited - See Accountants' Review Report)
NOTES TO UNAUDITED 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 December 31, 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 period ended December
31, 1999 and 1998 are not necessarily indicative of the operating results for
the full year.
NOTE 2 - HURRICANE
During September 1999, the Company experienced flooding and 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, including
damages to the yacht mold as well as lost revenue and additional expenses from
the business interruption.
As of November 1999, the insurance carrier has paid for the damage to the
inventory and most of the damage to the property, plant and equipment
including the yacht mold. Review is still in process by the insurance carrier
on the repair or replacement of certain air-conditioning and heating equipment
that was flooded during the storm. The net effect of the property, plant,
equipment and inventory settlement cannot be reasonably estimated until the
balance of this claim is collected.
The Company also experienced losses resulting from the closure of the
production facility and efficiencies due to storm preparation, cleanup and the
inability of the full work force to report to work once the plant re-opened.
The Company immediately filed its claims for business interruption and
believed it complied with all aspects of its policy. When a timely and
reasonable resolution could not be reached, the Company filed suit against its
insurance carrier. As of February 8, 2000 the Company and the insurance
carrier have re-initiated meaningful discussions to resolve the claim. In
addition, the insurance carrier has agreed to make an advance toward the
business interruption claim and the remaining equipment outlined above. The
full effect of a business interruption settlement cannot be reasonably
estimated and will be recorded in the future when collected.
10
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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited - See Accountants' Review Report)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - ACCOUNTS RECEIVABLE
As of December 31, 1999, accounts receivable were $2,085,129 net of the
allowance for bad debts of $27,841. This represents a increase of $508,417 from
the $1,576,712 in net accounts receivable recorded at June 30, 1999. Of the
$2,085,129 balance at December 31, 1999, $1,813,420 has subsequently been
collected as of February 8, 2000, and the remaining $271,709 is believed to be
fully collectible.
NOTE 4 - INVENTORIES
Inventories at December 31, 1999 and June 30, 1999 consisted of the following:
December 31, June 30,
1999 1999
____________ _____________
Parts and supplies.................$ 4,419,550 $ 3,296,244
Work-in-process.................... 3,339,018 3,208,982
Finished goods..................... 843,363 922,664
Sportswear......................... 146,836 -
Obsolete inventory reserve......... (120,000) (120,000)
Total..............................$ 8,628,767 $ 7,307,890
____________ _____________
NOTE 5 - REVENUE RECOGNITION
The Company generally 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.
11
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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited - See Accountants' Review Report)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - REVENUE RECOGNITION [Continued]
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.
NOTE 6 - ALLOWANCE AND QUALIFYING ACCOUNTS
For the six months ended December 31, 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 590,000 362,326 (362,326) 590,000
Allowance for
inventory values 120,000 - - 120,000
_________ __________ ___________ _________
Total $937,841 $362,326 $(362,326) $937,841
_________ __________ ___________ _________
In management's opinion, the balances of the allowance and qualifying
accounts are adequate to provide for all reasonably anticipated future losses.
12
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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited - See Accountants' Review Report)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 December 31, 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
$24,900,000. The Company has reserved for future losses it might incur upon the
repossession and repurchase of boats from commercial lenders. The amount of the
allowance is based upon probable future events, which can be reasonably
estimated. At December 31, 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 $671,000 for the first six months of Fiscal 2000 and
are included in the accompanying consolidated statements of operations as part
of selling expense. At December 31, 1999, the estimated unpaid dealer incentive
interest included in accrued expenses amounted to $601,358.
NOTE 8 - TRANSACTIONS WITH RELATED PARTIES
The Company paid or accrued the following amounts for services rendered or for
interest on indebtedness to related parties:
For the Six Months Ended
December 31,
________________________
1999 1998
__________ __________
Apartments - Rentals $ - $ 1,902
R.M. Fountain, Jr. - Interest - -
- Aircraft
Rental - 71,951
__________ __________
$ - $ 73,853
__________ __________
13
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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited - See Accountants' Review Report)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - TRANSACTIONS WITH RELATED PARTIES [Continued]
At December 31, 1999 the Company had travel advances and other receivables due
from employees in the amount of $21,891.
The Company paid $165,028 during the six month period ended December 31, 1999
for advertising and public relations services from an entity owned by a director
of the Company.
NOTE 9 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes". SFAS 109
requires the Company to provide a net deferred tax asset/liability equal to the
expected future tax benefit/expense of temporary reporting differences between
book and tax accounting methods and any available operating loss or tax credit
carryforwards. The Company has available at December 31, 1999, an operating
loss carryforward of approximately $2,027,000, which may be applied against
future taxable income and which expires in various years through 2018. The
deferred tax asset is approximately $2,192,000 as of December 31, 1999 and the
deferred liablility is approximately $912,000. The net change in deferred tax
assets and liabilities of $41,800 for the six months ended December 31, 1999 has
been recorded as a deferred tax expense on the statement of operations.
NOTE 10 - EARNINGS (LOSS) PER SHARE
The computation of earnings (loss) per share and diluted earnings (loss) 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 (loss) per
share for the six-month period ended December 31, 1999 and 1998, was not
presented, as its effect was anti-dilutive. At December 31, 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 their effect
is anti-dilutive.
NOTE 11 - STRATEGIC CHARGE
During December 1998, the Company designed and implemented a restructuring
plan to aggressively improve the Company's cost structure, refocus sales and
marketing expenditures and divest the Company of certain non-realizable assets.
In connection with the restructuring plan the Company reviewed components of its
business for possible improvement of future profitability through reengineering
or restructuring. As part of this plan the Company decided to eliminate its
racing program and write off the balance of excess yacht tooling cost along with
14
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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
(Unaudited - See Accountants' Review Report)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - STRATEGIC CHARGE [Continued]
other discontinued unused tooling. The Company completed the majority of these
actions during the third and fourth quarter of Fiscal 1999. The carrying value
of the assets held was reduced to fair value based on estimated realizable value
based on future cash flows from use of the asset or sale of the related assets.
The resulting pretax adjustment of $2,440,000 was recorded as a strategic charge
in the statement of operations of the Company.
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations.
The operating income for the second quarter ended December 31, 1999 was
$974,024 or $.21 per share versus operating income of $184,649 or $.04 per share
(before the provision for strategic charge of $2,440,000) for the corresponding
period of the previous year. Operating income as a percent of sales for the
second quarter of Fiscal 1999 was 6.3% versus (17%) for the same period the
previous Fiscal year. The net profit for the second quarter of Fiscal 2000 was
$381,413 or $.081 per share. This compares to net loss amounting to
$(1,182,717), or $(.252) per share for the second quarter of Fiscal 1999
(including the strategic charge). During the second quarter of Fiscal 1999, it
was determined that the Company make a strategic redirection to focus its
efforts on profitable growth (See Note 11).
Net sales increased by 16.1% to $15,374,022 for the second quarter of
Fiscal 2000 as compared to $13,254,267 for the second quarter of the prior
Fiscal year. Unit sales volume for the second quarter of Fiscal 2000 increased
by 13.2% to 129 boats as compared to 114 boats for the second quarter of Fiscal
1999. Revenue increased faster than units due to sales of a smaller number of
larger, higher priced boats than the second quarter of the previous Fiscal year.
For the second quarter of Fiscal 2000, the gross margin on sales was
$3,170,859 (20.6%) as compared to $3,015,346 (22.8%) for the second quarter of
Fiscal 1999.
Selling expenses were $1,502,305 for the second quarter of Fiscal 2000 as
compared to $2,151,203 for the second quarter of last Fiscal year. Most of the
decrease for Fiscal 2000 was in reduced promotional racing expense.
General and administrative expenses were $694,530 for the second
quarter of Fiscal 2000 as compared to $676,984 for the second quarter of last
Fiscal year. Most of the increase was in employment taxes.
Interest expense for the second quarter of Fiscal 2000 was $244,095 as
compared to $264,474 for the second quarter of last Fiscal year. Interest
expense is down due to an overall reduction in long-term debt.
Other non-operating (income)/expense for the second quarter of Fiscal 2000
was $22,413 as compared to $(59,088) for the second quarter of last Fiscal year.
15
<PAGE>
Financial Condition.
The Company's cash flows for the second six months of Fiscal 2000 are
summarized as follows:
Net cash provided by operating activities......$ 106,198
" " used by investing activities ..... (630,184)
" " provided by financing activities .... (850,447)
Net decrease in cash...................$(1,374,433)
===========
This net decrease compared to a $1,360,346 net increase for the second six
months of the prior fiscal year.
Cash used in the first six months of Fiscal 2000 to acquire additional
property, plant, and equipment (investing activity) amounted to $630,184 of
which $83,033 was for plugs, molds, and other product tooling.
For the remainder of Fiscal 2000 and beyond, the Company expects to
generate sufficient cash through operations to meet its needs and obligations.
Management believes that the Company's sales and production volume will continue
to grow with a return to net earnings and positive cash flow. Most of the
Company's cash resources will be used to maintain its plant and equipment, for
new product tooling and for work in process inventory in the new yacht/cruiser
facility.
The Year 2000.
A concern, known as the "Year 2000" or "Y2K" Bug was expected to effect a
large number of computer systems and software during or after the year 1999.
The concern was that any computer function that requires a date calculation may
produce errors. The Year 2000 issue could have virtually affected all companies
computer systems. The Company planned and put into effect an updated computer
system with new hardware and software, which allowed it to become compliant with
the year 2000 dates and avoid any of the previously anticipated "Y2K" errors
from occurring. With respect to third party providers whose services are
critical to the Company, the Company monitored the efforts of such vendors, as
they become Year 2000 compliant. Management is not presently aware of any Year
2000 issues that have been encountered by any such third party, and has not seen
any effects in the deliveries of materials since the year 2000 began.
16
<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 2: Change in Securities.
There were no changes in securities during the second quarter of Fiscal
2000.
ITEM 6: Exhibits and Reports on Form 8 and Form 8-K.
(a) No Amendments on Form 8 were filed by the Registrant during the
first six months of Fiscal 2000.
(b) No Current Reports on Form 8-K were filed by the Registrant
during the first six months of Fiscal 1999.
17
<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: Joseph F. Schemenauer Date:
Joseph F. Schemenauer February 11, 2000
Vice President, Chief Financial
Officer, and Designated Principal
Accounting Officer
18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
financial statements for the six months ended December 31, 1999 and
is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 843
<SECURITIES> 0
<RECEIVABLES> 2,107
<ALLOWANCES> 22
<INVENTORY> 8,629
<CURRENT-ASSETS> 14,552
<PP&E> 36,775
<DEPRECIATION> 18,198
<TOTAL-ASSETS> 33,975
<CURRENT-LIABILITIES> 13,054
<BONDS> 0
0
0
<COMMON> 47
<OTHER-SE> 10,708
<TOTAL-LIABILITY-AND-EQUITY> 33,975
<SALES> 26,179
<TOTAL-REVENUES> 26,179
<CGS> 20,973
<TOTAL-COSTS> 20,973
<OTHER-EXPENSES> 4,632
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 527
<INCOME-PRETAX> 53
<INCOME-TAX> 42
<INCOME-CONTINUING> 12
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12
<EPS-BASIC> .002
<EPS-DILUTED> .002
</TABLE>
