FOUNTAIN POWERBOAT INDUSTRIES, INC.
FORM 10-Q/A
QUARTERLY REPORT
FOR THE QUARTER ENDED DECEMBER 31, 2002
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
For the Quarter Ended Commission File Number
___________________ 0-14712
FOUNTAIN POWERBOAT INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Nevada 56-1774895
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
Whichard's Beach Road, P.O. Drawer 457, Washington, NC 27889
(Address of principal executive offices)
Registrant's telephone no. including area code: (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 December 31, 2002
____________________________ ________________________________
Common Stock, $.01 par value 4,745,108 shares
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
INDEX
Page No.
Part I Financial Information
Unaudited Condensed Consolidated Balance Sheets,
December 31, 2002 and June 30, 2002 1 - 2
Unaudited Condensed Consolidated Statements of Operations,
for the three and six months ended December 31, 2002 and 2001 3
Unaudited Condensed Consolidated Statements of Cash Flows,
for the six months ended December 31, 2002 and 2001 4 - 5
Notes to Unaudited Condensed Consolidated Financial Statements 6 - 9
Management's Discussion and Analysis of Results
of Operations and Financial Condition 10 - 12
Part II Other Information
Item 2, 4, & 6 12
Signatures 13
Management Certification 14 - 16
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, June 30,
2002 2002
______________ ______________
CURRENT ASSETS:
Cash and cash equivalents $ 1,176,384 $ 329,640
Accounts receivable, net 710,595 3,003,992
Inventories 3,567,563 3,090,451
Prepaid expenses 566,872 328,783
Current tax assets 931,345 1,132,181
______________ ______________
Total Current Assets 6,952,759 7,885,047
______________ ______________
PROPERTY, PLANT AND EQUIPMENT 41,199,870 40,887,882
Less: Accumulated depreciation (24,459,738) (23,773,221)
______________ ______________
16,740,132 17,114,661
______________ ______________
CASH SURRENDER VALUE LIFE INSURANCE 1,280,047 1,179,223
OTHER ASSETS 324,864 355,765
______________ ______________
Total Assets $ 25,297,802 $ 26,534,696
______________ ______________
[Continued]
1
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
[Continued]
December 31, June 30,
2002 2002
______________ ______________
CURRENT LIABILITIES:
Current maturities - long-term debt $ 900,610 $ 919,182
Current maturities - capital lease 16,462 15,674
Accounts payable 6,367,018 6,877,394
Accounts payable - related party 142,895 147,234
Accrued expenses 948,100 1,193,672
Dealer incentives 431,770 921,707
Customer deposits 249,985 631,090
Allowance for boat repurchases 200,000 200,000
Warranty Reserve 870,000 870,000
______________ ______________
Total Current Liabilities 10,126,840 11,775,953
LONG-TERM DEBT, less current maturities 9,415,718 9,791,949
CAPITAL LEASE, less current maturities 26,785 35,212
DEFERRED TAX LIABILITY 1,082,409 962,880
COMMITMENTS AND CONTINGENCIES [NOTE 5] - -
______________ ______________
Total Liabilities 20,651,752 22,565,994
______________ ______________
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 200,000,000
shares authorized, 4,745,108 and 4,732,608
shares issued and outstanding, respectively 47,451 47,326
Additional paid-in capital 10,343,936 10,343,935
Accumulated earnings (5,628,977) (6,280,679)
______________ ______________
4,762,410 4,110,582
Less: Treasury stock, at cost, 15,000 shares (110,748) (110,748)
Deferred compensation for stock options issued (5,612) (31,132)
______________ ______________
Total Stockholders' Equity 4,646,056 3,968,702
______________ ______________
Total Liabilities and Stockholders' Equity $ 25,297,802 $ 26,534,696
______________ ______________
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
2
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three Months Ended For The Six Months Ended
December 31, December 31,
__________________________ __________________________
2002 2001 2002 2001
____________ ____________ ____________ ____________
NET SALES $ 12,941,227 $ 6,553,076 $ 25,016,213 $ 14,930,387
COST OF SALES 10,570,853 7,256,987 20,739,887 15,146,984
____________ ____________ ____________ ____________
Gross Profit 2,370,374 (595,201) 4,276,326 (216,597)
EXPENSES
Selling Expense 1,082,315 987,379 1,915,293 1,550,432
Selling Expense -
related parties - - - -
General & Administrative 431,241 475,781 898,254 963,506
____________ ____________ ____________ ____________
Total Expenses 1,513,556 1,463,160 2,813,547 2,513,938
____________ ____________ ____________ ____________
OPERATING INCOME (LOSS) 856,818 (2,058,361) 1,462,779 (2,730,535)
NON-OPERATING INCOME
(EXPENSE)
Other Income 1,389 5,135 29,965 4,283
Interest Expense (214,475) (262,516) (520,676) (404,365)
____________ ____________ ____________ ____________
INCOME (LOSS) BEFORE TAX 643,732 (2,315,742) 972,068 (3,130,617)
CURRENT TAX EXPENSE - - - -
DEFERRED TAXES (BENEFIT) 161,273 (898,091) 320,364 (1,206,323)
____________ ____________ ____________ ____________
NET INCOME (LOSS) 482,459 (1,417,651) 651,704 (1,924,293)
EARNINGS (LOSS) PER SHARE .10 (.30) .14 (.41)
____________ ____________ ____________ ____________
WEIGHTED AVERAGE
SHARES OUTSTANDING 4,745,108 4,732,608 4,745,108 4,732,608
____________ ____________ ____________ ____________
DILUTED EARNINGS PER
SHARE .10 N/A .14 N/A
____________ ____________ ____________ ____________
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING
ASSUMING DILUTION 4,825,399 N/A 4,803,886 N/A
____________ ____________ ____________ ____________
3
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
For the Six Months Ended
December 31,
__________________________
2002 2001
____________ ____________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 651,704 $ (1,924,293)
____________ ____________
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation expense 1,028,308 1,126,268
Net deferred taxes 320,365 (1,206,323)
Gain on sale of fixed asset 29,613 -
Amortization of deferred loan cost 30,900 (500,446)
Non-cash expense 8,846 -
Change in assets and liabilities:
(Increase) decrease in accounts receivable 2,293,396 1,370,303
(Increase) decrease in inventories (477,112) 546,938
(Increase) decrease in prepaid expenses (238,089) (201,275)
Increase (decrease) in accounts payable (514,714) (1,486,903)
Increase (decrease) in accrued expenses (245,572) (111,216)
Increase (decrease) in dealer incentives (489,937) (1,175,510)
Increase (decrease) in customer deposits (381,106) 149,371
____________ ____________
Net Cash Provided (Used) by
Operating Activities $ 2,016,601 $ (2,912,640)
____________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment (793,891) (905,504)
Proceeds from sale of fixed assets 110,500 -
(Increase) in other assets (100,824) 172,801
____________ ____________
Net Cash Provided (Used) by Investing
Activities $ (784,215) $ (732,703)
____________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt $ 95,000 $ 3,344,344
Payments of long-term debt (497,442) (50,270)
Proceeds from common stock issuances 16,800 -
____________ ____________
Net Cash Provided (Used) by Financing
Activities $ (385,642) $ 3,294,074
____________ ____________
Net increase (decrease) in cash and cash equivalents $ 846,744 $ (351,269)
Cash and cash equivalents at beginning of year $ 329,640 $ 796,606
____________ ____________
Cash and cash equivalents at end of period $ 1,176,384 $ 445,337
____________ ____________
[Continued]
4
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
[Continued]
For the Six Months Ended
December 31,
__________________________
2002 2001
____________ ____________
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 520,677 $ 404,365
Income Taxes $ - $ -
Supplemental Disclosures of Noncash Investing and Financing Activities:
For the six month period ended December 31, 2002:
The Company recorded consulting expense of $8,846 as a result of
amortization of deferred compensation from 30,000 options issued to
purchase common stock during fiscal 2002 vesting through December
2004.
For the six month period ended December 31, 2001:
None
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
5
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared by the Company
without audit. 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, 2002 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 in the United States of America 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, 2002 audited financial statements. The results
of operations for the period ended December 31, 2002 is not necessarily
indicative of the operating results for the full year.
Principles of Consolidation: The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiary,
Fountain Powerboats, Inc. All significant inter-company accounts and
transactions have been eliminated in consolidation.
Accounting Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the
disclosures of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimated by management.
Cash and Cash Equivalents: For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments with a
maturity of three months or less to be cash equivalents. At December
31, 2002 and June 30, 2002, the Company had $1,076,384 and $229,640,
respectively, in excess of federally insured amounts held in cash.
Recently Enacted Accounting Standards: During quarter ended September
30, 2002, the Company adopted Emerging Issue Task Force 01-9
"Accounting for Consideration Given by a Vendor to a Customer
(including a Reseller of the Vendor's Products)", requiring the Company
to reclassify dealer incentive interest paid to resellers from Selling
Expense to Net Sales. Prior year financial statements have been
reclassified to reflect the change in accounting principle.
Reclassifications: The financial statements for years prior to
December 31, 2002 have been reclassified to conform with headings and
classifications used in the December 31, 2002 financial statements.
Fair Value of Financial Instruments: Management estimates the carrying
value of financial instruments on the consolidated financial statements
approximates their fair values.
6
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION [Continued]
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 Government, and an accounts receivable is recorded or payment
received from the dealer, the Government, or 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 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.
The sales incentive interest payment program for each boat sale is
accrued for the entire interest period in the same fiscal accounting
period that the related sale is recorded. 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.
NOTE 2 - ACCOUNTS RECEIVABLE
As of December 31, 2002, accounts receivable were $710,595 net of the
allowance for bad debts of $27,841. This is a decrease from the
$3,003,992 in net accounts receivable recorded at June 30, 2002. Of
the balance at December 31, 2002, $8,352 subsequently has been
collected as of January 22, 2003, and the remaining $702,243 is
believed to be fully collectible.
NOTE 3 - INVENTORIES
Inventories at December 31, 2002 and June 30, 2002 consisted of the
following:
December 31, June 30,
2002 2002
______________ ______________
Parts and supplies $ 2,106,588 $ 2,071,709
Work-in-process 1,500,222 1,047,154
Finished goods 136,146 278,981
Obsolete inventory reserve (175,393) (307,393)
______________ ______________
Total $ 3,567,563 $ 3,090,451
______________ ______________
7
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4- COMMON STOCK
During September 2002, a director of the Company exercised his option
to purchase 12,500 shares of the Company's common stock at $1.344 per
share.
During December 2001, the Company issued 10,000 options to purchase
common stock to a consultant for services to be rendered valued at
$12,342. The options are exercisable at $1.45 per share, vest through
December 2004 and expire December 2009. During the six months ended
December 31, 2002, the Company recorded consulting expense of $1,996.
During January 2002, the Company issued 20,000 options to purchase
common stock to a consultant for services to be rendered valued at
$27,953. The options are exercisable at $1.67 per share, vest through
January 2004 and expire January 2009. During the six months ended
December 31, 2002, the Company recorded consulting expense of $6,850.
NOTE 5 - 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,
2002, 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 $22,760,059. The Company has
reserved for the future losses it might incur upon the repossession and
repurchase of boats from commercial lenders. The amount of the
allowance is based upon probable future events which can be reasonably
estimated. At December 31, 2002, the allowance for boat repurchases
was $200,000.
Dealer Interest - The Company regularly pays a portion of dealers'
interest charges for floor plan financing. These interest charges
amounted to approximately $443,942 and the estimated unpaid dealer
interest included in accrued expenses amounted to $221,013 for the
first six months ended December 31, 2002.
NOTE 6 - TRANSACTIONS WITH RELATED PARTIES
At December 31, 2002, the Company had receivables and advances from its
employees amounting to $11,874.
During the six month period ended December 31, 2002, the Company paid
$6,400 for services rendered to entities owned or controlled by the
Company's Chairman, President, and Chief Executive Officer.
The Company paid $28,000 during the six month period ended December 31,
2002 for advertising services received from an entity owned by a
Company director.
During September 2002, a director of the Company exercised options to
purchase 12,500 shares of common stock at $1.344 per share.
8
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7- INCOME TAXES
For the six month period ended December 31, 2002 and 2001, the Company
paid $0 and $0 for current income taxes and incurred a tax
expense/(benefit) for deferred income taxes of $320,364 and
$(1,206,323), respectively.
NOTE 8 - EARNINGS (LOSS) PER SHARE
The computations of earnings (loss) per share and diluted earnings per
share amounts are based upon the weighted average number of outstanding
common shares during the periods, plus, when their effect is dilutive,
additional shares assuming the exercise of certain vested stock
options, reduced by the number of shares which could be purchased from
the proceeds from the exercise of the stock options assuming they were
exercised. Diluted earnings per share for the six month period ended
December 31, 2001, was not presented as its effect was anti-dilutive.
The weighted average common shares and common equivalent shares
outstanding for the six month period ended December 31, 2002 and 2001
for purposes of calculating earnings per share was as follows:
December 31, December 31,
2002 2001
____________ ____________
Weighted average common shares outstanding used in
basic earnings per share for the six months ending 4,738,858 4,732,608
Effect of dilutive stock options 65,028 -
____________ ____________
Weighted average common shares and potential
dilutive common equivalent shares outstanding
used in dilutive earnings per share 4,803,886 4,732,608
____________ ____________
At December 31, 2002 there were 480,000 unexercised stock options, of
which 480,000 were held by officers and directors of the Company at
prices ranging from $3.94 to $5.00 per share that were not included in
the computation of earnings per share because the effect is anti-
dilutive.
NOTE 9 - GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles in the United States of
America which contemplate continuation of the Company as a going
concern. As shown in the financial statements at December 31, 2002 and
June 30, 2002 the Company and had negative working capital of
$3,174,081 and $3,890,906, respectively. These factors raise
substantial doubt about the ability of the Company to continue as a
going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
The Company's operations will require significant increases in cash
flows from operations or additional financing or capital to continue.
In order to generate positive cash flows, the Company will need to
return to profitability through increasing sales of their sporting and
fishing boats and wide beam cruisers, reducing expenses and capital
expenditures and successfully refinancing current liabilities to long-
term obligations.
9
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - GOING CONCERN [Continued]
Management plans to improve cash flows from current operations by
maintaining an aggressive budget for fiscal 2003 which management
believes has resulted in positive cashflows from operations of
$2,016,601 for the six months ended December 31, 2002 and will result
in continual improvement in sales and improved yield in the remaining
quarters of fiscal 2003. The budget has focused the Company's
resources on existing sales order backlogs for the new higher margin
wide beam cruisers and The Company is further seeking to obtain
additional debt financing, which will enable the Company to reduce
material cost by taking favorable cash discounts on material purchases.
The statements in the above paragraphs regarding the Company's plans,
intentions and beliefs, and the expected results of its budgetary and
other actions, are "forward-looking" statements and are subject to risks
and uncertainties and should be read considering the cautionary
statement for purposes of "Safe Harbor" under the Private Securities
Reform Act of 1995. Various factors could affect the Company's ability
to successfully implement its plans or actions or could cause the actual
outcome or results of the Company's plans and actions to differ
materially from those that the statements indicate or imply that the
Company believes or expects to occur. Examples of those factors
include: sales falls significantly short of forecast, production
efficiency improvements are not accomplished, and company does not
obtain additional debt funding.
NOTE 10 - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The financial statements for the three and six months ended December
31, 2002, have been restated to accrue $25,000 and $82,308 in
previously forgone management compensation net of the income tax
benefit of $9,751 and $32,101, respectively
December 31, December 31,
2002 2001
____________ ____________
Net income as previously reported $ 497,708 $ 701,911
Effect of adjustments (15,249) (50,207)
____________ ____________
Restated Net Income $ 482,459 $ 651,604
Earning per common share as previously reported $ .10 $ .15
Effect of adjustments $ (.00) $ (.01)
____________ ____________
Restated Earning per common share $ .10 $ .14
____________ ____________
10
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations.
The operating income for the three months ended December 31, 2002 was
$856,818 or $.18 per share and compares to the operating loss of
$(2,058,361) or $(.43) per share for the three months ended December 31,
2001. The net income for the three months ended December 31, 2002 was
$482,459 or $.10 per share as compared to a net loss for the three months
ended December 31, 2001 of $(1,417,651) or $(.30) per share. The net
income for the six months ended December 31,2002 was $651,704 or $.14 per
share as compared to a net loss for the six months ended December 31, 2001
of $(1,924,293) or $(.41) per share.
Net sales were $12,941,227 for the second quarter of Fiscal 2003. Net
sales were $6,553,076 for the second quarter of Fiscal 2002. During the
second quarter of Fiscal 2003, unit volumes doubled from the same period
of the prior year, with sales volume for three months ended December 31,
2002 at 101 units compared to 50 units for the prior year. Fiscal 2003
net sales for the six months ended December 31, 2002 were $25,016,213,
compared to net sales of $14,930,387 for the same six months period of the
prior year.
Unit sales volume increase was the result of an improving economy,
aggressive marketing campaign that provided an increase in sport boat
sales, increased fish boat sales and sales of the new models, 34' wide-
beam fish boat and 48' wide-beam cruiser.
Gross margin on sales for the three months ended December 31, 2002 was
$2,370,374 as compared to the gross margin of $(595,201) for the three
months ended December 31, 2001. Gross margin for the six months ended
December 31, 2002 was $4,276,326 compared to the gross margin of
$(216,597) for the same period of the previous year. The improvement in
margin resulted from improved unit sales for the period, effectively
allocating the fixed cost over more units and improved product sales mix
of sport boats and wide-beam fish boats.
Selling expenses were $1,082,315 for the three months ended December 31,
2002 as compared to $987,379 for the three months ended December 31, 2001.
Increased selling expense resulted from higher sales salaries and
commissions, directly associated with the improvement in net sales from
the same period for the previous year.
General and administrative expenses were $431,241 for the three months
ended December 31, 2002 compared to $475,781 for the three months ended
December 31, 2001. A decrease in executive salaries during Fiscal 2003,
with the resignation of the Company's Executive Vice President and Chief
Operating Officer for medical reasons. created the savings as compared to
the same period for the prior year.
Interest expense for the three months ended December 31, 2002 was $214,475
as compared to $262,516 for the three months ended December 31, 2001. This
results from the Company refinancing the credit agreement with G.E.
Capital Corporation during November of 2001 and borrowing an additional
3.6 million.
11
Other non-operating (income)/expense for the three months December 31,
2002 was $(1,389) as compared to $(5,135) for the three months ended
December 31, 2001.
Liquidity and Capital Resources.
At December 31, 2002, the Company had a working capital deficit of
$3,174,081 an improvement of $716,825 over the $3,890,906 working capital
deficit at June 30, 2002, As mentioned in Note 9 to the Unaudited
Financial Statements the accompanying unaudited financial statements have
been prepared in conformity with generally accepted accounting principles
in the United States of America which contemplate continuation of the
Company as a going concern. The Company's operations will require
continued increases in cash flows from operations or additional financing
or capital to continue.
Cash increased to $1,176,384 at December 31, 2002 compared to the $329,640
at June 30, 2002. The increase in cash can be generally attributed to the
$2,016,601 generated from operating activities less $784,215 used by
investing primarily attributed to additional capital expenditures and
$385,642 used by financing activities to pay current long-term debt
obligations offset against proceeds received to exercise stock options and
an additional $95,000 in borrowing against certain cash value in key life
insurance policies owned by the Company.
Cashflows from operations for the six months ended December 31, 2002 was
$2,016,601 an increase of $4,929,241 over the $2,912,640 of cash used in
operations for the six months ended December 31, 2001. This change is
primarily attributable to the increase in sales resulting in a return to
profitability and elimination of certain dealer incentive programs.
The Company's principal sources of liquidity for the six months ended
December 31, 2002 includes significant decreases in accounts receivable
due to the timing of collections from third party dealer financiers, a 68%
increase in sales over the same six month period in the previous year.
The Company's liquidity needs are principally for financing of raw
materials and work in process inventory as a result of increase sales,
paying down certain vendors to more current terms, and meeting the current
payments of long term obligations.
For the next fiscal quarter and for the remainder of the year ending June
30, 2003 the Company believes that it will continue to improve upon prior
years operating results. Management has developed and instigated a plan
that budgets expenses and clearly outlines certain sales goals and
expectations for the remainder of the fiscal year. After surpassing this
plan in the first six months of Fiscal 2003, management anticipates that
continued operations under this plan will result in a profitable and
successful year. Managememt believes they can generate sufficient cash
flows from operations to meet current critical liquidity demands. The
Company is further seeking to obtain additional debt financing, which will
enable the Company to satify all current obligations while reducing
material cost by taking favorable cash discounts on material purchases.
12
Cash used in the six months ended December 31, 2002 to acquire additional
property, plant, and equipment (investing activity) amounted to $793,891
which was invested in tooling changes to the new 48' Express Cruiser, a
new style 38' fish boat deck, and other miscellaneous tooling projects.
The statements in the above paragraphs regarding the Company's plans,
intentions and beliefs, and the expected results of its budgetary and
other actions, are "forward-looking" statements and are subject to risks
and uncertainties. As should be read considering the cautionary statement
for purposes of "Safe Harbor" under the Private Securities Reform Act of
1995. Various factors could affect the Company's ability to successfully
implement its plans or actions or could cause the actual outcome or
results of the Company's plans and actions to differ materially from those
that the statements indicate or imply that the Company believes or expects
to occur. Examples of those factors include: sales falls significantly
short of forecast, production efficiency improvements are not
accomplished, and company does not obtain additional debt funding.
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
13
Cautionary Statement for Purposes of "Safe Harbor" Under the Private
Securities Reform Act of 1995. (continued)
companies with substantial resources; the concentration of a substantial
percentage of he 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 was no change in securities during the quarter ending December 31,
2002
ITEM 4: Controls and Procedures
Within the 90-day period prior to the filing of this quarterly
report, an evaluation was performed under the supervision and with the
participation of the Company's management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the company's disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the design and operation of these disclosure controls and
procedures were effective. There have been no significant changes
in the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their
evaluation.
ITEM 6: Exhibits and Reports on Form 8 and Form 8-K.
(1) Exhibits: None.
(a) No Amendments on Form 8 were filed by the Registrant during the
second three months of Fiscal 2002.
(b) No Current Reports on Form 8-K were filed by the Registrant
during the first six months of Fiscal 2002.
14
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/ Reginald M. Fountain, Jr. Date: March 18, 2003
_______________________________ __________________
Principal Financial Officer
15
CERTIFICATION
I, Reginald M. Fountain, Jr., certify that:
1. I have reviewed this quarterly report on Form 10Q of Fountain
Powerboat Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosures
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 18, 2003 /s/ Reginald M. Foutain, Jr.
__________________ _____________________________________
Reginald M. Fountain, Jr.
President/CEO/Principal Financial Officer
16
(Certification Pursuant to 18 U.S.C. Section 1350)
The undersigned hereby certifies that (i) the foregoing quarterly
report on Form 10-Q filed by Fountain Powerboat Industries, Inc. (the
"Company") for the quarter ended December 31, 2002, fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, and (ii) the information contained in that Report fairly
presents, in all material respects, the financial condition and results of
operations of the Company.
Date: March 18, 2003 /s/ Reginald M. Foutain, Jr.
_____________________________________
Reginald M. Fountain, Jr.
President and Chief Executive Officer
Date: March 18, 2003 /s/ Reginald M. Foutain, Jr.
_____________________________________
Reginald M. Fountain, Jr.
Principal Financial Officer
17