SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended June 30, 2003
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 (IRS Employer
of incorporation) Identification No.)
Post Office Drawer 457, Whichard's Beach Road, Washington, NC 27889
(Address of principal executive offices) (Zip Code)
(252) 975-2000
Registrant's telephone number, including area code:
Securities registered pursuant to Section 12 (g) of the Act: Common Stock,
par value $ .01 per share
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 past 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been
subject to such filing requirement for the past 90 days.
[ X ]Yes [ ] No
Indicate by check mark if there is no disclosure of delinquent
filers in response to Item 405 of Regulation S-K contained in this form,
and no disclosure will be contained, to the best of Registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act): [ ] Yes [ X ] No
The aggregate market value of the Registrant's voting and non-voting
common equity held by affiliates computed by reference to the price at
which the common equity was last sold as of the last business day of the
Registrant's most recently completed second fiscal quarter was $7,650,394.
As of September 2, 2003, the number of outstanding shares of
Registrant's Common Stock was 4,757,608.
Portions of the Registrant's definitive proxy statement to be
distributed in connection with its next Annual Meeting of Shareholders are
incorporated by reference into Part III of this Report.
Explanatory Note
Fountain Powerboat Industries, Inc. is filing this Amendment to its
Annual Report on Form 10-K for the year ended June 30, 2003 to restate
earnings and earnings per share due to adjustments to its previously
reported allowance for deferred tax assets as required by SFAS 109.
Previous amounts did not reflect fully the effects of certain NOL
carryforwards and their affects on the net of deferred tax assets and
liabilities. See Note 7 to the financial statements for further
information related to this issue. Additional comments were also added to
the Managements' Discussion and Analysis, Results of Operations, to
further explain the Company's reasons for maintaining the deferred tax
asset allowance. In addition, comments were added to the Liquidity and
Capital Resources section to further explain current and future cash flows
that satisfy the liquidity demands of the Company.
With the exception of the foregoing corrections, no other
information in the Annual Report on Form 10-K for the year ended June 30,
2003 has been supplemented, updated or amended.
Part I
Item 1. Business.
Background.
Fountain Powerboat Industries, Inc. (the "Company"), through its
wholly-owned subsidiary, Fountain Powerboats, Inc. (the "Subsidiary"),
designs, manufactures, and sells offshore sport boats, sport fishing boats
and sport cruisers intended for that segment of the recreational power
boat market where speed, performance, and quality are the main criteria
for purchase. The Company also produces military support craft for
domestic and international government agencies, including the United
States Customs Service, the United States Navy and the United States Coast
Guard. The Company's strategy in concentrating on these segments of the
market is to maximize its use of the reputation of its Chairman and
President, Reginald M. Fountain, Jr., as an internationally recognized
designer and builder of high speed power boats.
The Company's products are sold through a network of authorized
dealers worldwide. The Company has targeted that segment of the market in
which purchase decisions are generally predicated to a relatively greater
degree on the product's image, style, speed, performance, quality, and
safety.
Products.
The majority of the company's recreational products are based upon a
deep V-shaped fiberglass hull with a V-shaped pad, a notched transom, and
a positive lift step hull. This design enables the boat to achieve
performance with standard reliable power which the Company believes are
greater than those offered by any of its competitors worldwide. As a
result, the Company maintains that its boats are among the fastest,
smoothest, safest, and best-handling boats of their kind.
The Company's sport boats, ranging from 27' to 47', are of
inboard/outboard design. These boats are propelled by single, twin, or
triple gasoline or diesel engines ranging from 300 HP to more than 900 HP
each. The Company builds outboard powered center consoles, and outboard
or stern drive cabin model offshore sport fishing boats ranging from 23'
through 38'. In addition the company also has a line of express cruisers
with 38' and 48' offerings. These boats are offered with gas or diesel
options. The 48' utilizes surface drives which are very efficient,
durable, and resist corrosion better than traditional stern drives. The
48' was named Boating Magazine's Boat of the Year award for 2002 in its
December 2002 issue, which is the boating industries highest accolade. In
addition, the Robb Report named the 48' the Best of the Best for 2003 in
their June 2003 issue. The Company also builds custom racing boats for
the APBA and SBI racing circuits.
In addition to Sportboats, Fishing boats, and the new Cruiser Lines,
the Company also produces a line of military/governmental boats of various
configurations. These boats are commercial versions of the large
sportboats and fishing boats, and along with the rigid inflatable boats
(RIB), form a separate military/commercial product line.
The Company's 47' Lightning Sport Boat operates at speeds of 75 to
100 mph and is very stable and suited for long range cruising in offshore
waters. Its sleek styling makes it particularly attractive. Depending
primarily upon the type of engines and options selected, this boat retails
at prices ranging from $431,000 to $658,000. This boat's standard
features include a custom windshield, integrated swim platform, flush deck
hatches, and an attractively appointed cockpit and cabin.
The Company's 42' Lightning, designed with the second-generation
positive lift hull, comes with a full wrap around windshield, as well as
an impressive range of speed, stability and ride comfort. This top
selling model equipped with special engines currently holds the world
speed record for V-bottom boats at 142.969 mph recorded by APBA/UIM on
October 13, 2000. The retail price ranges from $327,000 to $432,000.
The 38' Lightning operates at speeds of between 70 and 100 mph. The
retail price ranges from $269,000 to $344,000, depending primarily upon
the type of engines selected. This model was cited by Powerboat Magazine
in 2002 as "Offshore Performance Boat of the Year". In Fiscal 2002, the
38' Lightning incorporated a new superventilated hull that is the most
advanced superventilated hull produced by Fountain to date and it is based
on their successful design, enhancing performance and interior space.
The 35' Lightning Sport Boat was totally redesigned and introduced in
Fiscal 2000 to go with a higher freeboard, new twin-step design, and new
deck and interior. It operates at speeds between 70 and 100 mph. This
boat won the 2001 Offshore Boat of the Year by Powerboat Magazine and has
proven itself as the fastest boat in Factory II history, setting the kilo
record at 94.187 mph. This boat's retail price ranges from $230,000 to
$303,000, depending primarily upon the type of engines selected.
For Fiscal 2003 we reintroduced the 35' Executioner. Its retro
styling and competitive retail price of $149,995 made it our number one
seller.
The 32' Fever was also reintroduced in Fiscal 2003. Retail price
ranges from $154,000 to $168,000.
The 29' Fever is still one of the most popular boats. It operates at
speeds of 65 to 85 mph and retail price ranges from $112,000 to $153,000
depending on engine size. It has great balance and speed for a single
engine and operates in offshore sea conditions with superior safety and
handling. This boat is also offered with twin small block engines. This
model has been awarded the 2001 Outstanding Sport Boat Performance Award
by Powerboat Magazine and has set the 2000 APBA F-1 record at 89.873 mph.
The 27' Fever is a single engine model that incorporates the same
features, components and designs as our larger offshore performance boats.
Its retail price ranges from $101,000 and $131,000.
The Company also builds and markets a sport fishing line. Our new
generation of fishing boat is once again setting the standard for offshore
fishing. The 34' and 38' are heavily campaigned on the Southern Kingfish
Association (SKA) tournament trail.
The 38' sport fish model is a wide beam center console with T-Top and
cuddy cabin that was introduced in fiscal 2001. It features triple
outboards and retail price ranges from $226,000 to $245,000.
The 34' sport fish wide beam center console model was introduced in
fiscal 2002 and is offered with twin or triple outboard engines. Its
retail prices range from $194,000 to $224,000, depending upon engine
selection. The addition of this model has added greatly to our fish boat
volume and profitability.
The 31' sport fish model features a center console with T-Top design
and incorporates the same high performance, styling, and structural
integrity as the sport boat models. It has a deck configuration
engineered for the knowledgeable, experienced sport fisherman. Retail
price for this model ranges from $125,000 to $137,000.
The additional models include the 29' twin engine center console
model and 23' single engine center console model. The design,
construction, and performance of these models, together with the proven
features of the 31' center console model, makes a line that appeals to
many experienced sport fishermen, in addition to the weekend warrior.
To further enhance its sport fishing line, the Company has a 31' walk
around cabin model based upon the proven 31' center console hull design.
This model features a deck design that incorporates a cabin with standup
headroom, an enclosed head with shower, and a full galley. With twin
outboard engine power, this model is produced either as a fishing machine
or as a recreational cruiser.
The Company also produces both a 23' and a 29' walk around cabin
fishing boat with outboard engine power and a single stern drive 29' and a
32' walk around cabin fishing model with twin stern drive power.
The 38' sport fish cruiser was introduced at the Miami Boat Show in
February of 2003 and is offered with twin gas or diesel engines. The 38'
sport fish cruiser offers the customer the luxury and amenities of an
express fisher while maintaining the performance and handling of a
Fountain sport boat. Retail price for this boat ranges from $338,000 to
$371,000.
During the past two years the Company has made great strides in the
express cruiser market by developing the 38' and 48' express cruiser
models. These boats offer customers the speed and performance that you
would typically find in a sport boat with the amenities of a traditional
cruiser. We do it by integrating our positive lift bottom, notched
transom and pad keel design, which greatly enhances the performance.
The 38' express cruiser was introduced at the Miami Boat Show in
February of 2001. The 38' express cruiser offers the customer the luxury
and space of a full cruiser while maintaining the performance and handling
of a Fountain sport boat. This boat been extremely well received by the
market and retail price ranges from $323,000 to $367,000.
In Fiscal 2002, the Company introduced the latest in their express
cruiser and wide-beam lines. The 48' wide-beam express cruiser debuted
offering a whole new level of comfort and luxury. With speeds of up to 65
mph, the 48' Express Cruiser launched the Company into a new expanding
market segment with an edge in performance and class. This 48' retail
price ranges from $697,000 to $864,000, depending upon engine choice and
option configurations.
Following is a table showing the number of boats completed and
shipped in each of the last three fiscal years by product line:
Fiscal Fiscal Fiscal
2003 2002 2001
------ ------ ------
Sport boats 198 115 219
Wide Beam Fish 69 44 16
Wide Beam Cruisers 29 21 10
Sport fishing boats 89 48 84
Other 3 3 1
------ ------ ------
Total 388 231 330
==== ==== ====
As of June 30, 2003 the Company had a backlog of firm orders for 54
boats, totaling sales of $7,585,761, all of which will be completed during
Fiscal 2004.
The Company conducts research and development projects for the design
of its plugs and molds for hull, deck, and small parts production. The
design, engineering, and tooling departments currently employ
approximately 28 full-time employees. Amounts spent on design, research,
and development to build new plugs and molds in recent years were:
Design Construction
Research & of New Plugs
Development and Molds
Fiscal 2003 $552,072 $1,056,852
Fiscal 2002 $952,332 $1,370,526
Fiscal 2001 $813,710 $2,819,252
For Fiscal 2004, design, research and development planned expenses
are estimated to be $529,000 and plug and mold construction expenditures
are estimated to be $750,000. These expenditures will complete work
already in progress to complete new tooling for a 38' wide beam fish
express cruiser based on the hull design of the 38' center console, and to
update existing tooling to enhance current models.
Manufacturing capacity is sufficient to accommodate approximately 30
to 40 boats in various stages of construction at any one time.
Construction of a current model boat, depending on size, takes
approximately three to ten weeks. The Company, with additional personnel,
currently has the capacity to manufacture approximately 450 sport and
fishing boats, and 100 cruisers per year.
The manufacturing process for the hulls and decks consists primarily
of the hand "lay-up" of vinylester resins and high quality stitched, bi-
directional and quad-directional fiberglass over a foam core in the molds
designed and constructed by the Company's engineering and tooling
department. This creates a composite structure with strong outer and
inner skins with a thicker, light core in between. The "lay-up" of
fiberglass by hand rather than using chopped fiberglass and mechanical
blowers, results in superior strength and appearance. The resin used to
bind the composite structure together is vinylester, which is stronger,
better bonding, and more flexible than the polyester resins used by most
other fiberglass boat manufacturers. Decks are bonded to the hulls using
bonding agents, rivets, screws and fiberglass to achieve a strong,
unitized construction.
As one of the most highly integrated manufacturers in the marine
industry, the Company manufactures many metal, plexiglass, plastic, and
small parts (such as fuel tanks, seat frames, instrument panels, bow
rails, brackets, T-tops, and windscreens) to assure that its quality
standards are met. In addition, the Company also manufactures all of its
upholstery to its own custom specifications and benefits from receiving
these parts just in time for assembly. All other component parts and
materials used in the manufacture of the Company's boats are readily
available from a variety of suppliers at comparable prices exclusive of
discounts. However, the Company purchases certain supplies and materials
from a limited number of suppliers in order to obtain the benefit of
volume discounts.
Certain materials used in boat manufacturing, including the resins
used to make the decks and hulls, are toxic, flammable, corrosive, or
reactive and are classified by the federal and state governments as
"hazardous materials." Control of these substances is regulated by the
Environmental Protection Agency and state pollution control agencies which
require reports and inspect facilities to monitor compliance with their
regulations. The Company's cost of compliance with environmental
regulations has not been material. The Company's manufacturing facilities
are regularly inspected by the Occupational Safety and Health
Administration and by state and local inspection agencies and departments.
The Company believes that its facilities comply with substantially all
regulations. The Company, however, has been informed that it may incur or
may have incurred liability for re-mediation of ground water contamination
at a hazardous waste disposal site resulting from the disposal of a
hazardous substance at those sites by a third-party contractor of the
Subsidiary. (See Legal Proceedings.)
Recreational powerboats must be certified by the manufacturer to meet
U.S. Coast Guard specifications. Their safety is subject to federal
regulation under the Boat Safety Act of 1971, as amended, pursuant to
which boat manufacturers may be required to recall products for
replacement of parts or components that have demonstrated defects
affecting safety. The Company has never had to conduct a product recall.
In addition, boats manufactured for sale in the European Community must
meet CE Certification Standards.
Sales and Marketing.
Sales are made through approximately 44 dealer shipping locations
throughout the United States. The Company also has 3 international
dealers. Most of these dealers are not exclusive to the Company and carry
the boats of other companies, including some boats that may be competitive
with the Company's products. The territories served by any dealer are not
exclusive to the dealer. However, the Company uses discretion in locating
new dealers in an effort to protect the interests of the existing dealers.
Following is a table of sales by geographic area for the last three
fiscal years:
Fiscal 2003 Fiscal 2002 Fiscal 2001
United States ............. $50,816,277 $35,450,436 $42,238,206
Canada, Mexico, Central
and South America .......... $ 929,481 $ 1,500,145 $ 2,509,638
Europe and
the Middle East ......... $ 595,777 $ - $ 380,190
Asia ....................... $ 235,549 $ - $ -
----------- ----------- -----------
Total ....................... $52,557,084 $36,950,581 $45,128,034
=========== =========== ===========
The Company targets a portion of its advertising program into foreign
countries through various advertising media. It continues to seek new
dealers throughout Europe, South America, the Far East and the Middle
East. In general, the Company requires payment in full or an irrevocable
letter of credit from a domestic bank before it will ship a boat overseas.
Consequently, there is no credit risk associated with its foreign sales or
risk related to foreign currency fluctuation.
For Fiscal 2003, one dealer accounted for 10.3% of sales, one
accounted for 8.0% of sales and one accounted for 6.7% of sales. For
Fiscal 2002, one dealer accounted for 11.8% of sales, one for 11.7% of
sales and two each for 8.0% of sales. For Fiscal 2001 one dealer
accounted for 11.5% of sales, one for 10.5% of sales and one for 6% of
sales. The Company believes that the loss of any particular dealer could
have an adverse affect on sales, yet the Company believes they could find
other dealers within the same geographical area to replace any that are
lost. The Company is actively pursuing the addition of new, quality
dealers. As sales continue to grow through dealer additions, it is
reasonable to assume the Company will grow less dependent on any one
dealer.
Field sales representatives call upon existing dealers and develop
new dealers. The field sales force is headed by the National Director of
Sales who is responsible for developing a full dealer organization for
sport boats, sport fishing boats and express cruisers. The Company is
seeking to establish separate sport boat, fishing boat, and cruiser
dealers in most marketing areas due to the specialization of each type of
boat and the different sales programs required.
Although a sales order can be cancelled at any time, most boats are
pre-sold to a dealer before entering the production line. To date,
cancellations have not had a material effect on the Company. The Company
normally does not manufacture boats for its own inventory.
The Company ships boats to some dealers on a cash-on-delivery basis.
However, the majority of the Company's shipments are made pursuant to
commercial dealer "floor plan financing" programs in which the Company
participates on behalf of its dealers. Under these arrangements, a dealer
establishes lines of credit with one or more third-party lenders for the
purchase of showroom inventory. When a dealer purchases a boat pursuant
to a floor plan arrangement, it draws against its line of credit and the
lender pays the invoice cost of the boat directly to the Company.
Generally, payment is made to the Company within five business days. When
the dealer sells the boat to a retail customer, the dealer repays the
lender, thereby restoring its available credit line. The dealers make
curtailment payments (principal payments) on the boats when required by
their particular commercial lenders. As part of this sales promotion
program the Company agrees to pay interest on the floor plan for a certain
period of time. Similar sales promotion programs were in effect during
fiscal years 2002 and 2001.
Each dealer's floor plan credit facilities are secured by the
dealer's inventory, letters of credit, and perhaps other personal and real
property. In connection with the dealer's floor plan arrangements, the
Company (together with substantially all other major manufacturers) has
agreed to repurchase any of its boats which a lender repossesses from a
dealer and returns to the Company in a new or like new condition. In the
event that a dealer defaults under a credit line, the lender may then
invoke the manufacturers' repurchase agreements with respect to that
dealer. In that event, all repurchase agreements of all manufacturers
supplying a defaulting dealer are generally invoked regardless of the boat
or boats with respect to which the dealer has defaulted (See also
Management's Discussion and Analysis of Financial Condition and Results of
Operations). The Company participates in floor plan arrangements with
several major third-party lenders on behalf of its dealers, most of whom
have financing arrangements with more than one lender. Except as
described above, or where it has a direct repurchase agreement with a
dealer, the Company is under no material obligation to repurchase boats
from its dealers. From time to time the Company will voluntarily
repurchase a boat for the convenience of the dealer or for another dealer
who needs a particular model not readily available from the factory. The
marketing of boats to retail customers is primarily the responsibility of
the dealer, whose efforts are supplemented by the Company through
advertising in boating magazines, and by participation in boat shows.
Additionally, in order to further promote its products over the
years, the Company has developed racing programs to participate in the
major classes of offshore powerboat races, many of which are regularly
televised on networks such as Outdoor Channel. Additionally, Fountain
single, twin and triple engine racing boats continue to hold their
respective world speed records. The result of these racing programs and
world speed records has established the Company's products as the highest
performing and safest designed offshore boats. The Company believes that
the favorable publicity generated by these performance programs
contributes to its sales volume. The Company Founder and C.E.O., Reggie
Fountain, has won numerous races in both factory and customer boats; he
has also set numerous speed records in both factory and customer boats.
As part of the marketing program for its line of sport fishing
boats, the Company sponsors several outstanding sport fishermen. Fountain
fishermen have won the coveted SKA `Angler of the Year' title in 1991,
1992, 1994, 1995 and 1997, more than any other boat manufacturer. This
year Fountain developed a new eight member team comprised of world class
anglers who own Fountain boats. These fishermen can afford any boat but
they choose to run a Fountain. Fountain is also a dominant force in the
newly formed American Striper Association (ASA). ASA tournaments are held
throughout the northeast in areas ranging from Virginia to Maine. The
Fountain fishing teams winning records have given the sport fishing boats
favorable exposure to serious sport fishermen, in particular with respect
to the superior performance of Fountain's fishing boat line.
Domestic retail demand for pleasure boats is seasonal with sales
generally highest in the fourth quarter. A number of factors can influence
demand for the Company's products, including, but not limited to:
- - Economic conditions and consumer confidence in the United States and
certain international regions;
- - Adverse weather in key geographic areas, including excessive rain,
prolonged below average temperatures and severe heat or drought,
particularly during the key selling season;
- - The level of inventories maintained by the dealers;
- - The Company's ability to provide competitive products;
- - Availability of effective distribution;
- - Fuel costs;
- - Prevailing interest rates; and
- - Consumer interest in recreational boating.
Product Warranty.
The Company warrants its boat hull and deck structure against defects
in material and workmanship for a period of six years. Other boat
components are covered in accordance with the manufacturer's warranty
through the Company. The engine manufacturer warrants engines installed
in the boats. Warranty expenses of $1,152,573 or 2.2% of sales were
incurred in Fiscal 2003, and $1,936,600 of expense or 5.16% of sales were
incurred in Fiscal 2002 and charged against net income. A $900,000
reserve for warranty expenses estimated to be incurred in future years had
been established at June 30, 2003.
Competition.
Competition within the powerboat manufacturing industry is intense.
While the high performance sports boat market comprises only a small
segment of all boats manufactured, the higher prices commanded by these
boats make it a significant market in terms of total dollars spent. The
manufacturers that compete directly with the Company in its market segment
include:
Formula, a Division of Thunderbird Products Corporation
Baja Boats, a Division of Brunswick Corporation
Cigarette Racing Team, Inc.
Donzi, American Marine Holdings
Contender Boats
The Company believes that in its market segment, speed, performance,
quality, image, and safety are the main competitive factors, with style
and price also being a consideration.
Market demographics and industry experience indicate that the cruiser
market is the best potential growth market. Next in line are fishing
boats; however, there are more fishing boat manufacturers than there are
sport boat manufacturers.
The Company believes the current product owners, many of whom have
purchased multiple and increasingly larger boats from the Company, provide
a market ready for expansion into the cruiser segment.
Employees.
As of September 2003 the Company had 353 employees, of whom nine were
executive and management personnel. Sixteen were engaged primarily in
administrative positions including accounting, personnel, marketing and
sales activities. None of the Company's employees are party to a
collective bargaining agreement. The Company considers its employee
relations to be excellent. The Company is an affirmative action, equal
opportunity employer.
Item 2. Properties.
The Company's executive offices and manufacturing facilities are
located on 66 acres along the Pamlico River in Beaufort County, North
Carolina. All of the land, buildings and improvements are owned by the
Company and were held as collateral on notes and mortgages payable having
a balance of $8,723,636 at June 30, 2003. The property is now held as
collateral on a new loan of $18,000,000 obtained in July, 2003 (See Note
16). The operating facility contains buildings totaling 235,040 square
feet located on fifteen acres. The buildings consist of the following:
Approximate
Square Footage Principal Use
Building 1 ........ 13,200 Executive offices, shipping, receiving,
and paint shop.
Building 2 ........ 7,200 Final prep.
Building 3 ........ 75,800 Lamination, upholstery, assembly,
inventory, cafeteria.
Building 4 ........ 14,250 Woodworking.
Building 5 ........ 26,800 Mating, small parts lamination.
Building 6 ........ 23,800 Metal fabrication.
Building 7 ........ 15,720 Racing, service, and warranty.
Building 8 ........ 8,750 Lamination extension area.
Building 9 ........ 4,800 Mold storage.
Building 10........ 26,960 Fabrication, sportswear sales.
Building 11........ 12,000 Cruiser manufacturing.
Building 12........ 5,760 Maintenance and storage.
-------
Total ...........235,040
======
Over the last several years there have been significant expenditures
for property, plant and equipment, which include plant additions, a travel
lift bay, a boat ramp, and docking facilities along a 600-foot canal
leading to the Pamlico River. In addition, the Company has approximately
200,000 square feet of concrete paving surrounding the buildings and
providing guest or employee parking. The present plant site can
accommodate an addition of up to 300,000 square feet of manufacturing
space.
Item 3. Legal Proceedings.
As of June 30, 2003, the Company's chief operating subsidiary was a
defendant in 9 alleged breach of warranty suits. In the Company's opinion
these lawsuits are without merit and, therefore, the Company intends to
vigorously defend its interest in such suits. The Company carries
sufficient liability and product liability insurance to cover attorney's
fees and any losses that may occur from a product liability or breach of
contract suit, over and above applicable insurance deductibles. The
management of the Company believes that none of such current proceedings
will have a material adverse effect.
The Company's subsidiary was notified by the United States
Environmental Protection Agency ("EPA") that it had been identified as a
potentially responsible party ("PRP") in the remediation of contamination
at a clean up site. The Group administrator estimated the Company's share
of future remediation cost to be in the $40,000 to $60,000 range. The
Company is likely to be eligible for a de Minimus Settlement Agreement,
which is expected to be finalized in 2004.
Item 4. Submission of Matters to a Vote of Security Holders.
None applicable.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The Company's common stock, $.01 par value, trades on the NASDAQ
National Market System (under the symbol "FPWR"). The following table
lists the high and low prices for the Company's common stock as reported
on The NASDAQ National Market for each calendar quarter during our fiscal
years ended June 30, 2002 and 2003.
Quarter Ending High Low
September 2001 2.10 1.51
December 2001 1.83 1.16
March 2002 3.50 2.50
June 2002 2.95 1.41
September 2002 3.80 1.25
December 2002 4.05 3.12
March 2003 4.08 2.44
June 2003 4.77 3.12
The Company has not declared or paid any cash dividends on its common
stock since it first began operations. In the future, any declaration and
payment of cash dividends will be subject to the Board of Directors'
evaluation of the Company's operating results, financial condition, future
growth plans, general business and economic conditions, and other relevant
considerations. Management of the Company expects that, for the
foreseeable future, any profits generated by the Company will be retained
as additional capital to support the Company's operations and that the
Company will not pay any cash dividends.
On September 2, 2003, there were 219 holders of record for the
Company's common stock.
During Fiscal 2003, the Company sold an aggregate of 25,000 shares of
its common stock to its Director, David L. Woods, for cash at a price of
$1.344 per share (an aggregate of $16,800) pursuant to his exercise of
stock options previously granted to him. The shares were sold in two
transactions (12,500 shares each on September 30, 2002 and April 18, 2003)
without registration in reliance on the exemption from registration
provided by Section 4(2) of the Securities Act of 1933 and Rule 506 of
Regulation D promulgated thereunder
Item 6. Selected Financial Data
Fountain Powerboat Industries, Inc. and Subsidiary
Selected Financial Data
Fiscal Years 1999 through 2003
Year Ended June 30
Operations Statement Data:---------------------------------------------------
(Period Ended) 2003 2002 2001 2000 1999
----------- ----------- ----------- ----------- -----------
(Restated)
Sales $52,557,084 $36,950,581 $45,128,034 $56,367,899 $52,074,639
Net Income (loss) $ 879,996 $(7,031,593)$ (899,526) $ 1,258,342 $(1,255,791)
Income (loss) per
share $ .19 $ (1.49) $ (.19) $ .27 $ (.27)
Weighted
average shares
outstanding 4,744,457 4,732,608 4,732,608 4,732,608 4,711,896
Diluted earnings
per share $ .18 $ (1.49) $ (.19) $ .27 $ (.27)
Diluted weighted
average shares
outstanding 4,818,806 4,732,608 4,732,608 4,732,651 4,711,896
Balance Sheet Data
(At Period End)
- -----------------------------------
Current Assets $ 7,648,996 $ 7,885,047 $ 8,934,936 $13,621,499 $14,084,888
Total Assets $25,929,594 $26,534,696 $28,947,752 $33,431,084 $33,930,960
Current
Liabilities $11,646,433 $11,775,953 $10,567,139 $12,144,123 $12,183,630
Long-term debt $ 9,010,527 $ 9,827,161 $ 6,629,904 $ 8,215,486 $10,215,334
Stockholders'
equity (1) $ 4,968,811 $ 3,968,702 $10,991,132 $11,890,658 $10,632,316
(1) The Company has not paid any cash dividends since its inception
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
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 C.O.D. sale, or payments prior
to shipment sale or sale financed through third-party floor plan
arrangements are that the boat has been completed and shipped to a
customer, that title has passed to the customer, and that there is no
direct commitment to repurchase the boat or to pay floor plan interest
beyond the sales program terms. As described more fully below at "Business
Environment", most of the Company's shipments to dealers were financed
through floor plan arrangements with third-party lenders pursuant to which
the Company is subject to repurchase boats repossessed by the third-party
lenders if the dealer defaults under his credit arrangement. The Company
has no repurchase liability for the balance of shipments. This is the
method of sales recognition believed to be in use by most boat
manufacturers.
At June 30, 2003, 2002, and 2001, there were no commitments to
dealers to pay the interest on floor plan financed boats in excess of the
time period specified in the Company's written sales program and there
were no direct repurchase agreements. There were no deferred sales or
cost of sales estimated at June 30, 2003, 2002, and 2001.
The Company has a contingent liability to repurchase boats where it
participates in the floor plan financing made available to its dealers by
third-party finance companies. This liability amounted to approximately
$16,378,985, $16,066,953 and $23,747,900 at June 30, 2003, 2002 and 2001,
respectively. Sales to participating dealers are approved by the
respective finance companies. If a participating dealer does not satisfy
its obligation to the lender and the boat is subsequently repossessed by
the lender, then the Company may be required to repurchase the boat.
Business Environment.
Fiscal 2003 was a year of rebound for the Company with Gross sales
and unit sales volume increasing to more historical levels. The Company
continues to take steps to reduce manufacturing cost and other operating
expenses by improving efficiencies and other cost reduction efforts. As a
results, the Company achieved four quarters of operating profit during
2003.
Net sales were up from Fiscal 2002 by more than 42%, from $36,950,581
to $52,557,084 in Fiscal 2003. The significant reduction of dealer
inventory in Fiscal 2002 set the stage for new product sales in Fiscal
2003. Unit sales volume increased 68% from 231 to 388. The Company
attributes this increase to an improving economy and aggressive marketing
campaign. The Company experience net sales and unit sales growth within
all product segments with the greatest net sales dollar increase
experience by the Company's new model wide-beam fish boats and wide-beam
express cruisers.
The Company believes that they have effectively diversified their
sales by entering into the wide-beam express cruiser and fish boat
markets. Sales of the four new models of wide-beam fish boats and express
cruisers introduced in Fiscal 2001 and 2002 have been well accepted in the
market. During Fiscal 2003 the 34' and 38' fish boat models accounted for
approximately 18% of annual sales versus 15% in Fiscal 2002 and 6% in
Fiscal 2001. While the 38' and 48' express cruiser models accounted for
approximately 19% of annual Fiscal 2003 sales versus 15% in Fiscal 2002
and 4% in Fiscal 2001.
Gross margin on sales for Fiscal 2003 was $8,519,127, 16.2% of net
sales, as compared to $959,748, 2.6% of net sales, for Fiscal 2002.
Improvement in gross margin was a result of improved sales volume,
effectively allocating fixed costs over more units, improved product mix
of sport boats, and wide-beam fish boats, and efficiency improvements in
manufacturing.
No boats were repurchased in Fiscal 2003, 2002, and 2001 in
connection with floor plan arrangements. At June 30, 2003, 2002, and
2001, the Company had recorded a $200,000 reserve for losses which may be
reasonably expected to be incurred on boat repurchases in future years.
On July 17, 2003, subsequent to the closing of Fiscal 2003, the
Company obtained an $18,000,000 long-term loan from Bank of America that
was guaranteed by Brunswick, a division of which supplies marine engines
used in the Company's products. Proceeds from the loan were used to
refinance existing long-term debt, pay current liabilities, and provide
additional working capital funds.
For the coming year, Fiscal 2004, the Company's management team has
established a plan for continued improvement in cost savings and expense
reductions to support the sales strategy for the new year. The new
financing will allow the Company to do business on a cash basis, thus
eliminating interest on outstanding trade payables, obtaining more
favorable terms and discounts from vendors, and reducing freight charges.
Results of Operations.
Fiscal 2003 net profit for the Company was $879,996 or $.19 per
share. This compares to a net loss of ($7,031,593) or ($1.49) per share
for Fiscal 2002. This is a result of the improved sales volume, expense
and cost reduction efforts and the contribution of improved manufacturing
efficiencies .
Operating profit was $2,089,110 in 2003 as compared to a loss of
($6,420,458) in Fiscal 2002, which included a $1,182,320 charge for the
impairment of certain long-lived assets in 2002. The return to
profitability resulted from sales volume increase, more profitable product
mix, reduced costs and expenses and improved production efficiencies.
Overhead expenses decreased as a percent of sales, a result of the
increase in the sales volume level required to cover fixed factory
overhead. This volume increase is reflected in the improvement in gross
margins from 2.6% in 2002 to 16.2% in Fiscal 2003.
Depreciation expense was $2,112,051 for Fiscal 2003, $2,294,254 for
Fiscal 2002, and $2,293,284 for Fiscal 2001. The decrease in depreciation
for the year 2003, is attributable to the $1,182,320 impairment charge of
certain long-lived assets in Fiscal 2002 and the sale of certain
transportation equipment during 2003. Depreciation expense by asset
category was as follows:
Fiscal 2003 Fiscal 2002 Fiscal 2001
Land improvements $ 126,424 $ 126,035 $ 121,857
Buildings $ 295,922 $ 294,921 $ 294,354
Molds & plugs $ 1,197,669 $ 1,350,466 $ 1,184,807
Machinery & Equipment $ 394,998 $ 412,493 $ 473,496
Furniture & fixtures $ 51,405 $ 53,808 $ 57,663
Transportation equipment $ 45,633 $ 56,531 $ 161,107
Racing Equipment $ -0- $ -0- $ -0-
----------- ----------- -----------
Total $ 2,112,051 $ 2,294,254 $ 2,293,284
=========== =========== ===========
Following is a schedule of the net fixed asset additions (deletions)
during Fiscal 2003 and Fiscal 2002.
Fiscal 2003 Fiscal 2002
Buildings $ 78,986 $ -0-
Land and Improvements $ 20,245 $ 36,214
Molds and plugs $ 962,912 $ 2,099,710
Construction in Progress $ 93,940 $ (729,182)
Machinery & equipment $ 72,741 $ 154,286
Furniture & fixtures $ 19,385 $ 5,090
Transportation equipment $ (217,215) $ 35,490
Racing equipment $ (242,095) $ (65,960)
----------- -----------
Total $ 788,900 $ 1,535,648
=========== ===========
Overall selling and administrative expenses for Fiscal 2003 was
$6,430,017 a $950,189 decrease from $7,380,206 in Fiscal 2002.
Selling expenses were $4,609,253 for Fiscal 2003, $4,162,273 for
Fiscal 2002 and $5,001,503 for Fiscal 2001. The Company increased its
product promotions in Fiscal 2003, with focus on sport boats and the new
48' express cruiser and 34' wide-beam fish boat. The Company maintained a
presence in the offshore racing circuit and tournament fishing programs,
during Fiscal 2003 with overall fishing and racing promotion expenses
decreasing relative to the prior years as more customers are racing
Fountain boats under their own sponsorship.
Major selling expenses for the past three fiscal years were as
follows:
Fiscal 2003 Fiscal 2002 Fiscal 2001
Fishing & racing $ 828,741 $ 1,011,007 $ 1,508,162
Advertising $ 1,031,661 $ 775,524 $ 1,123,977
Salaries & commissions $ 910,090 $ 599,337 $ 705,249
Boat shows $ 508,811 $ 634,767 $ 568,806
Dealer incentives $ 66,438 $ 38,656 $ 217,467
Other selling expenses $ 1,263,512 $ 1,053,438 $ 877,842
----------- ----------- -----------
Total $ 4,609,253 $ 4,162,273 $ 5,001,503
=========== =========== ===========
General and administrative expenses include the executive, finance,
personnel, information technology, legal and administrative operating
expenses of the Company. These expenses were $1,820,764 for Fiscal 2003,
$2,035,613 for Fiscal 2002, and $2,691,826 for Fiscal 2001. The decrease
in general and administrative expenses for 2003 is partially attributable
to a decrease in executive compensation due to the decrease in the number
of executives after the retirement of an officer.
For Fiscal 2002, the Company recorded an impairment loss and wrote
down certain long-lived assets to realizable values for $1,182,320. For
Fiscal 2001, the Company received $118,503 in other income, had a gain of
$500,446 on the disposal of assets, and recorded a gain of $1,107,819 for
insurance claims related to final insurance settlement from the hurricane
damages.
Interest expense net of amounts capitalized was $1,037,002 for Fiscal
2003, $809,571 for Fiscal 2002, and $700,965 for Fiscal 2001. Interest
expense increased in Fiscal 2003 as a result of the Company obtaining
$3,955,644 in debt financing during 2002.
Current tax expense is $0 and a benefit of $(717,983) for the years
ended June 30, 2003 and 2002, respectively. Deferred tax expense is $0
and $541,059 at June 30, 2003 and 2002, respectively. Current tax expense
for the year ended June 30, 2003 results from the net operating loss
carryover from the year ended June 30, 2002. There remains $6,637,357 for
Federal and $9,737,087 for State tax purposes of net operating loss
carryovers available till the years 2022 and 2023, to offset current tax
expenses. The deferred tax charge for the year ended June 30, 2002
resulted from changes to the various temporary timing differences between
book and tax as outlined in Note 7 to the financial statements.
The ultimate realization of the benefits from the deferred tax assets
is dependent upon the Company's future earnings, the future tax laws in
effect, and other unknown factors; all of which are uncertain. For these
reasons and because the Company has generated operating tax losses in
recent years, the Company has elected to provide for a tax asset valuation
allowance of $2,342,912 at June 30, 2003 and $2,599,980 at June 30, 2002.
Management is of the opinion the tax asset valuation allowance will
not be required in its entirety in the coming years. Management
estimates, based on the Company's increased backlog of orders, that sales
volumes will continue to improve in the near future thus resulting in
improved earnings and partial absorption of the net operating tax loss
carryovers. However, at this time the Company has chosen not to reduce
the tax asset valuation allowance for the following reasons: 1.) with the
exception of order backlog, it is very difficult to predict future sales
volumes in an uncertain economy that exists at the present time; and 2.)
the Company's inconsistent earnings history in recent years, which
includes significant losses in fiscal 2001 and 2002. Currently, the tax
asset valuation allowance is adjusted to the extent that total deferred
tax assets exceed total deferred tax liabilities. As operating results
and the economy stabilize and future sales volumes increase, consideration
will be given to reducing or eliminating the valuation allowance.
Liquidity and Financial Resources.
On July 17, 2003, subsequent to the closing of Fiscal 2003, the
Company obtained an $18,000,000 long-term loan from Bank of America. The
proceeds were used to refinance the two loans with General Electric
Capital Corporation totaling $10,000,000 with total remaining balance of
$8,723,636 and a variable interest rate of prime plus 2% or 6.25% as of
June 30, 2003. Proceeds from the Bank of America loan were also used to
pay trade payables to current status and provide additional operating
funds. The new agreement with Bank of America has a $9,000,000 variable
interest note accruing at one month LIBOR plus 2.25% or 3.77% at July 17,
2003, and a $9,000,000 note under an interest rate swap to provide a fixed
rate of 6.02%. The interest rate swap is designated as a fair value hedge
and is deemed effective pursuant to SFAS 133. The Bank of America loan
has a fifteen year amortization with a five year balloon payment and is
secured by certain assets of the Company and President, Chief Executive
Officer and majority shareholder, Reginald M. Fountain, Jr. Obligations
are guaranteed by the Company and Mr. Fountain and by Brunswick
Corporation, a division of which supplies marine engines used in the
Company's products. Combined monthly payments to Bank of America will be
approximately $126,000.
At the year ended June 30, 2003 and 2002, the Company had negative
working capital of $3,493,945 and $3,890,906, respectively. As mentioned
in Note 15 to the Financial Statements the accompanying financial
statements this would have raised substantial doubt about the Company
ability to continue as a going concern had the Company not been successful
in closing the $18,000,000 in debt financing with Bank of America.
Subsequent to applying the proceeds of the loan on July 17, 2003, the
Company had positive working capital of approximately $6,500,000.
Net cash provided by operations in Fiscal 2003 amounted to $3,345,801
resulting from net income plus adjustments to reconcile net income to net
cash provided by operating activities including depreciation expense of
$2,112,051, changes in deferred taxes of $169,301 and loss on sales of
assets of $8,378 before changes in asset and liability accounts. $369,834
was used to fund an increasing inventories. The ending cash balance was
$1,224,935.
Net cash used by operations in Fiscal 2002 amounted to ($1,734,962).
Net loss plus adjustments to reconcile net loss to net cash used by
operating activities including depreciation expense of $2,294,254 and an
impairment on the long-lived assets of $1,182,320 and other non-cash
transactions used ($2,635,695) before other changes in assets and
liability accounts. $1,395,518 was provided by decrease in inventories.
The ending cash balance was $329,640.
Net cash provided by operations in Fiscal 2001 amounted to
$4,284,701. Net loss plus adjustments to reconcile net loss to net cash
provided by operating activities including depreciation expense of
$2,293,284 changes in deferred taxes and gain on sale of assets
contributed $500,446 and provided net cash of $483,801 before changes in
asset and liability accounts. However, relatively large amounts were
needed to continue investment activities in constructing property, plant,
equipment, and molds. The ending cash balance was $796,606.
Investing activities for Fiscal 2003 required $1,561,651, including
$268,410 for property, plant and equipment, $1,056,852 for additional
plugs and molds, $199,403 for payments increasing the cash surrender value
of certain key man life insurance policies, $190,796 for payments
increasing other assets and proceeds of $153,810 on sales of property.
Investing activities for Fiscal 2002 required $1,820,959, of which
$1,370,526 was used to complete construction of new molds and plugs,
$231,080 was used to purchase property, plant and equipment, and $219,536
was used for payments increasing the cash surrender value of certain key
man life insurance policies.
Investing activities for Fiscal 2001 required $1,875,972, including
$590,591 used for property, plant and equipment, $2,819,252 used for
construction of molds and plugs, $216,849 used for payments increasing the
cash surrender value of life insurance policies and proceeds of $1,750,720
generated from the sale of property and equipment.
Financing activities for Fiscal 2003 used $888,855. Included in this
amount are proceeds from issuance of notes payable from Northwestern
Mutual Life on key man life insurance policies for $343,074 and debt
repayment to General Electric Capital Corporation and others in the amount
of $1,014,001. Payments of deferred loan costs for the Bank of America
loan were $251,528 at June 30, 2003
Financing activities for Fiscal 2002 provided $3,088,955. During
November 2001, the Company refinanced the 7.02% fixed $10,000,000 General
Electric Capital Corporation credit agreement with a remaining balance of
$6,655,656 . The new agreement with General Electric Capital Corporation
involves $3,000,000 and $7,000,000 notes with a variable interest rate of
prime plus 2% or 6.75% as of June 30, 2002. Combined monthly payments on
these notes are approximately $128,005. The proceeds from the notes
payable and long term debt contributed $3,955,644. Payments on long-term
debt used $560,181, and payments of deferred loan costs were $306,508.
Financing activities for Fiscal 2001 used $3,595,562. Included in
this amount are proceeds from issuance of notes payable from Northwestern
Mutual Life for $150,000 and debt repayment to General Electric Capital
Corporation and others in the amount of $3,745,562.
Net increase in cash for Fiscal 2003 was $895,295, primarily from
operating profits and issuance of notes payable from Northwestern Mutual
Life Insurance. The net decrease in cash for Fiscal 2002 was $466,966,
primarily attributed to cash paid for the development of the new wide-beam
34' fish boat and 48' express cruiser and losses from operations due to
decreased sales volume. The net decrease in cash for Fiscal 2001 was
$1,186,833, primarily due to the repayment of long-term debt, and the
investment in equipment and molds.
Management is of the opinion that cash flows will be sufficient to
satisfy its current and future liquidity demands because of the increase
in sales volumes and sales backlogs at the date of this filing. Subsequent
events related to the senior debt placement strengthens the Company's
ability to pay off all the outstanding current debt and existing long-term
debts. Additionally the Company has maintained a historical sales backlog
through the date of this amended report.
Effects of Inflation.
The Company has not been materially affected by the moderate
inflation of recent years. Since most of the Company's plant and its
equipment are relatively new, expenditures for replacements are not
expected to be a factor in the near-term future.
When raw material costs increase because of inflation, the Company
attempts to minimize the effect of these increases by using alternative,
less costly materials, or by finding less costly sources for the materials
it uses. When the foregoing measures are not possible, selling prices are
increased to recover the cost increases.
The Company's products are targeted at the segment of the powerboat
market where retail purchasers are generally less significantly affected
by price or other economic conditions. Consequently, management believes
that the impact of inflation on sales and the results of operations will
not be material.
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, forecast, 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
dealers, 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk - At June 30, 2003, the Company owed $8,723,636 on
a $10,000,000 credit agreement with General Electric Capital Corporation.
The credit agreement involves two notes, both with an interest rate of
prime plus 2%, 6.25% as of June 30, 2003. A hypothetical 100 basis point
increase in interest rates would result in an approximately $90,000
increase in interest expense, resulting in a negative impact on the
Company's liquidity and results of operations.
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
Washington, North Carolina
We have audited the accompanying consolidated balance sheets of Fountain
Powerboat Industries, Inc. and Subsidiary as of June 30, 2003 and 2002,
and the related consolidated statements of operations, stockholders'
equity, cash flows and the Schedule of Valuation and Qualify Accounts for
the years ended June 30, 2003, 2002 and 2001. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements audited by us
present fairly, in all material respects, the consolidated financial
position of Fountain Powerboat Industries, Inc. and Subsidiary as of June
30, 2003 and 2002, and the consolidated results of their operations, their
cash flows and the Schedule of Valuation and Qualify Accounts for the
years ended June 30, 2003, 2002 and 2001 in conformity with generally
accepted accounting principles in the United States of America.
As described in Note 17, the financial statements as of and for the period
ended June 30, 2003 have been restated to reflect a decrease in the
deferred tax asset valuation allowance in the amount of $400,643. The
impact to the financial statements is also described in Note 17.
PRITCHETT, SILER & HARDY, P.C.
August 1, 2003, except for Note 17 as to which the
the date is July 26, 2004
Salt Lake City, Utah
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30,
__________________________
2003 2002
____________ ____________
(Restated)
CURRENT ASSETS:
Cash & cash equivalents $ 1,224,935 $ 329,640
Accounts receivable, less allowance for
doubtful accounts of $27,841 for 2003
and 2002 2,015,371 3,003,992
Inventories 3,460,286 3,090,451
Prepaid expenses 644,581 328,783
Current tax assets 303,823 1,132,181
____________ ____________
Total Current Assets 7,648,996 7,885,047
PROPERTY, PLANT AND EQUIPMENT, net 16,165,684 17,114,661
CASH SURRENDER VALUE OF LIFE INSURANCE 1,378,626 1,179,223
OTHER ASSETS 736,288 355,765
____________ ____________
$ 25,929,594 $ 26,534,696
____________ ____________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 1,060,444 $ 919,182
Current maturities of capital lease 20,118 15,674
Accounts payable 7,498,762 6,877,394
Accounts payable-related party 169,043 147,234
Accrued expenses 1,317,398 1,193,672
Dealer incentives 190,010 921,707
Customer deposits 290,658 631,090
Allowance for boat repurchases 200,000 200,000
Warranty reserve 900,000 870,000
____________ ____________
Total Current Liabilities 11,646,433 11,775,953
LONG-TERM DEBT, less current maturities 8,986,160 9,791,949
CAPITAL LEASE, less current maturities 24,367 35,212
DEFERRED TAX LIABILITY 303,823 962,880
COMMITMENTS AND CONTINGENCIES (See Note 9) - -
____________ ____________
Total Liabilities 20,960,783 22,565,994
____________ ____________
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 200,000,000
shares authorized, 4,757,608 shares
issued and outstanding 47,576 47,326
Additional paid-in capital 10,436,551 10,343,935
Retained earnings (deficit)
(5,400,683) (6,280,679)
____________ ____________
5,083,444 4,110,582
Less: Treasury Stock, at cost, 15,000 shares (110,748) (110,748)
Deferred compensation for stock
options issued (3,885) (31,132)
____________ ____________
4,968,811 3,968,702
____________ ____________
$ 25,929,594 $ 26,534,696
____________ ____________
The accompanying notes are an integral part of these consolidated financial
statements.
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended June 30,
________________________________________
2003 2002 2001
____________ ____________ ____________
(Restated)
NET SALES $ 52,557,084 $ 36,950,581 $ 45,128,034
COST OF SALES 44,037,957 35,990,833 39,878,136
____________ ____________ ____________
Gross Profit 8,519,127 959,748 5,249,848
____________ ____________ ____________
EXPENSES:
Selling expense 4,609,253 4,162,273 5,001,503
General and administrative 1,820,764 2,035,613 2,691,826
Impairment of long-lived assets - 1,182,320 -
____________ ____________ ____________
Total expenses 6,430,017 7,380,206 7,693,329
____________ ____________ ____________
OPERATING INCOME (LOSS) 2,089,110 (6,420,458) (2,443,431)
____________ ____________ ____________
NON-OPERATING INCOME (EXPENSE):
Other income (expense) 5,567 21,512 118,503
Interest expense (1,037,002) (809,571) (700,965)
Gain (loss) on disposal of
assets (8,378) - 500,446
Gain on insurance claims
from hurricane - - 1,107,819
____________ ____________ ____________
(1,039,813) (788,059) 1,025,803
____________ ____________ ____________
INCOME (LOSS) BEFORE INCOME
TAXES 1,049,297 (7,208,517) (1,417,628)
CURRENT TAX EXPENSE (BENEFIT) - (717,983) (108,590)
DEFERRED TAX EXPENSE (BENEFIT) 169,301 541,059 (409,512)
____________ ____________ ____________
NET INCOME (LOSS) $ 879,996 $ (7,031,593) $ (899,526)
____________ ____________ ____________
BASIC EARNINGS (LOSS) PER SHARE: $ .19 $ (1.49) $ (.19)
____________ ____________ ____________
WEIGHTED AVERAGE SHARES
OUTSTANDING 4,744,457 4,732,608 4,732,608
____________ ____________ ____________
DILUTED EARNINGS (LOSS) PER
SHARE: $ .18 $ (1.49) $ (.19)
____________ ____________ ____________
DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 4,818,806 4,732,608 4,732,608
____________ ____________ ____________
The accompanying notes are an integral part of these consolidated financial
statements.
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FROM JUNE 30, 2000 THROUGH JUNE 30, 2003
Common Stock Additional Retained Treasury Stock Total
____________________ Paid-in Earnings ____________________ Deferred Stockholders'
Shares Amount Capital (Deficit) Shares Amount Compensation Equity
__________ ________ ___________ ___________ ________ __________ ____________ ____________
(Restated) (Restated)
BALANCE, June 30, 2000 4,732,608 $ 47,326 $10,303,640 $ 1,650,440 (15,000) $(110,748) $ - $ 11,890,658
Net loss for the year
ended June 30, 2001 - - - (899,526) - - - (899,526)
__________ ________ ___________ ___________ ________ _________ ___________ ____________
BALANCE, June 30, 2001 4,732,608 $ 47,326 $10,303,640 $ 750,914 (15,000) $(110,748) $ - $ 10,991,132
Issuance of options to
purchase 30,000 shares
common stock at $1.45
to $1.67 per share for
consulting services
vesting through
December 2004 - - 40,295 - - - (31,132) 9,163
Net loss for the year
ended June 30, 2002 - - - (7,031,593) - - - (7,031,593)
__________ ________ ___________ ___________ ________ _________ ___________ ____________
BALANCE, June 30, 2002 4,732,608 $ 47,326 $10,343,935 $(6,280,679) (15,000) $(110,748) $ (31,132) $ 3,968,702
Issuance of common stock
upon exercise of
options 25,000 250 33,350 - - - - 33,600
Payroll obligations
forgiven by an officer
and shareholder - - 46,158 - - - - 46,158
Issuance of options to
purchase 10,000 shares
common stock at $1.60
per share for
consulting services
vesting through
December 2003 - - 13,108 - - - 27,247 40,355
Net profit for the year
ended June 30, 2003 - - - 879,996 - - - 879,996
__________ ________ ___________ ___________ ________ _________ ___________ ____________
BALANCE, June 30, 2003 4,757,608 $ 47,576 $10,436,551 $(5,400,683) (15,000) $(110,748) $ (3,885) $ 4,968,811
__________ ________ ___________ ___________ ________ _________ ___________ ____________
The accompanying notes are an integral part of these consolidated financial
statements.
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30,
________________________________________
2003 2002 2001
____________ ____________ ____________
(Restated)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 879,996 $ (7,031,593) $ (899,526)
Adjustments to reconcile net
income (loss) to net cash
provided (used) by operating
activities:
Non-cash expense 86,512 9,162 -
Amortization of deferred loan
costs 61,800 89,098 -
Depreciation expense 2,112,051 2,294,254 2,293,284
Impairment of long-lived assets - 1,182,320 -
(Gain) loss on disposal of
equipment 8,378 - (500,446)
Warranty reserve 30,000 280,000 -
(Increase) decrease in net tax
asset 169,301 541,059 (409,511)
Change in assets and
liabilities:
(Increase) decrease in
accounts receivable 988,621 (1,064,107) (238,243)
(Increase) decrease in
inventories (369,834) 1,395,518 3,324,167
(Increase) decrease in
prepaid expenses (315,798) (161,286) 402,077
Increase in accounts payable 643,152 1,341,929 689,012
Increase (decrease) in
accrued expenses 123,726 2,654 (261,314)
Increase (decrease) in dealer
incentives (731,672) (923,885) (113,935)
Increase (decrease) in
customer deposits (340,432) 309,915 (864)
____________ ____________ ____________
Net Cash Provided (Used)
by Operating Activities 3,345,801 (1,734,962) 4,284,701
____________ ____________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 153,810 - 1,750,720
Investment in molds and related
plugs (1,056,852) (1,370,526) (2,819,252)
Purchase of property, plant and
equipment (268,410) (231,080) (590,591)
Increase in cash surrender value
of life Insurance (199,403) (219,536) (216,849)
(Increase) decrease in other
assets (190,796) 183 -
____________ ____________ ____________
Net Cash (Used) by
Investing Activities (1,561,651) (1,820,959) (1,875,972)
____________ ____________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable
and long-term debt 343,074 3,955,644 150,000
Proceeds from issuance of
common stock 33,600 - -
Payments of long-term debt (1,008,836) (545,788) (3,732,563)
Payments on capital lease (5,165) (14,393) (12,999)
Payments of deferred loan cost (251,528) (306,508) -
____________ ____________ ____________
Net Cash Provided (Used) by
Financing Activities (888,855) 3,088,955 (3,595,562)
____________ ____________ ____________
Net increase (decrease) in cash
& cash equivalents $ 895,295 $ (466,966) $ (1,186,833)
Beginning cash & cash equivalents
balance 329,640 796,606 1,983,439
____________ ____________ ____________
Ending cash & cash equivalents
balance $ 1,224,935 $ 329,640 $ 796,606
____________ ____________ ____________
[Continued]
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
[CONTINUED]
Year Ended June 30,
________________________________________
2003 2002 2001
____________ ____________ ____________
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the period for:
Interest:
Unrelated parties, net of
amounts capitalized $ 1,035,553 $ 798,700 $ 709,585
Income taxes $ - $ 45,424 $ 12,016
Supplemental Schedule of Non-cash Investing and Financing Activities:
For the year ended June 30, 2003:
The Company recorded consulting expense of $40,355 as a result of
amortization of deferred compensation from 40,000 options issued to
purchase stock during Fiscal 2002, vesting through January 2004 and
expiring through January 2009.
The Company recorded a $46,158 contribution to additional paid in
capital as a result of payroll obligations forgiven by an officer and
shareholder of the Company.
For the year ended June 30, 2002:
The Company issued 20,000 options to purchase common stock to a
consultant for services to be rendered valued at $25,450. The options
are exercisable at $1.60 per share, vest through June 2003 and expire
June 2008. As of June 30, 2002, the Company has recorded consulting
expense of $2,313.
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. As of June 30, 2002, the Company has recorded
consulting expense of $6,850.
For the year ended June 30, 2001:
None.
The accompanying notes are an integral part of these consolidated financial
statements.
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of the Business and Significant Accounting Policies.
Nature of the Business: Fountain Powerboat Industries, Inc. and
Subsidiary (the Company) manufacture high-performance sport boats,
sport wide beam cruisers, wide beam fishing boats, sport fishing boats,
and custom offshore racing boats. These boats are sold worldwide to a
network of approximately 47 dealers. The Company's offices and
manufacturing facilities are located in Washington, North Carolina and
the Company has been in business since 1979. The Company employs
approximately 350 people and is an equal opportunity, affirmative
action employer.
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.
Fiscal Year: The Company's fiscal year-end is June 30th, which is its
natural business year-end.
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 purchased with
a maturity of three months or less to be cash equivalents. At June 30,
2003 and 2002, the Company had $1,124,935 and $229,640, respectively,
in excess of federally insured amounts held in cash.
Inventories: Inventories are stated at the lower of cost or market.
Cost is determined by the first-in, first-out method (See Note 2).
Property, Plant, and Equipment and Depreciation: Property, plant, and
equipment are carried at cost. Depreciation on property, plant, and
equipment is calculated using the straight-line method and is based
upon the estimated useful lives of the assets (See Note 3).
Fair Value of Financial Instruments: Management estimates the carrying
value of financial instruments on the consolidated financial statements
approximates their fair values.
Dealer Territory Service Accrual: The Company had, in prior periods,
established a sales program to pay a service award to dealers for boat
deliveries into their market territory for which they will perform
service. The service award is a dollar amount based on the model of the
boat sold, combined with a factor for the dealer's service performance
rating. The Company has accrued estimated dealer territory service
awards of $97,748 and $491,710 remaining at June 30, 2003 and 2002,
respectively.
Allowance for Boat Repurchases: The Company provides an allowance for
boats, financed by dealers under floor plan finance arrangements, that
may be repurchased from finance companies under certain circumstances
where the Company has a repurchase agreement with the lender. The
amount of the allowance is based upon probable future events which can
be reasonably estimated (See Note 9).
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of the Business and Significant Accounting Policies.
[Continued]
Internal Use Software: The Company accounts for internal use software
and development cost in accordance with the Statement of Position (SOP)
98-1, "Accounting for Computer Software Developed for or Obtained for
Internal Use". The SOP requires the capitalization of certain cost
incurred in connection with developing or obtaining software for
internal use.
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 (title passes at the point of shipment), 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 six months (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
(See Note 9). 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.
Income Taxes: The Company accounts for income taxes in accordance with
issued Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes "(See Note 7).
Advertising Cost: Cost incurred in connection with advertising and
promotion of the Company's products are expensed as incurred. Such
costs amounted to $1,031,661, $775,524 and $1,123,976 for the years
ended 2003, 2002 and 2001, respectively.
Earnings Per Share: The Company accounts for earnings per share in
accordance with the Statement of Financial Accounting Standards (SFAS)
No. 128 "Earnings Per Share," which requires the Company to present
basic and diluted earnings per share. The computation of basic earning
per share is based on the weighted average number of shares outstanding
during the periods presented. The computation of diluted earnings per
shares is based on the weighted average number of outstanding common
shares during the year plus, when their effect is dilutive, additional
shares assuming the exercise of certain vested and non-vested stock
options and warrants, reduced by the number of shares which could be
purchased from the proceeds (See Note 14).
Warranties: The Company warrants the entire deck and hull, including
its supporting bulkhead and stringer system, against defects in
materials and workmanship for a period of six years. The Company has
accrued a reserve for these anticipated future warranty costs.
Reclassifications: The financial statements for years prior to June
30, 2003 have been reclassified to conform with headings and
classifications used in the June 30, 2003 financial statements.
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of the Business and Significant Accounting Policies.
[Continued]
Cash Surrender Value of life insurance policies: - At June 30, 2003 and
2002, the Company owns six life insurance policies on Reginald M.
Fountain, Jr., the Company's Chairman, President and Chief Executive
Officer for a total of $6,161,287 and $5,381,070 in coverage and
$1,378,626 and $1,179,223 cash value. At June 30, 2003 and 2002 the
Company has borrowed $1,265,438 and $925,712 against the policies (See
Note 5).
Research and Development: The Company expenses the costs of research
and development for new products and components as the costs are
incurred. Research and development costs are included in the cost of
sales and amounted to $552,072 for Fiscal 2003, $952,332 for Fiscal
2002, and $813,710 for Fiscal 2001.
Recently Enacted Accounting Standards - Statement of Financial
Accounting Standards ("SFAS") No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities", SFAS No. 147, "Acquisitions of
Certain Financial Institutions - an Amendment of FASB Statements No. 72
and 144 and FASB Interpretation No. 9", SFAS No. 149, "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities", and
SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity", were recently issued.
SFAS No. 146, 147 149 and 150 have no current applicability to the
Company or their effect on the financial statements would not have been
significant.
Stock-based compensation -- In December 2002, the FASB issued SFAS No.
148, "Accounting for Stock-Based Compensation -- Transition and
Disclosure, an amendment of FASB Statement No. 123" ("SFAS 148"). This
Statement amends SFAS 123 to provide alternative methods of transition
for a voluntary change to the fair value method of accounting for stock-
based employee compensation. In addition, SFAS 148 amends the
disclosure requirements of SFAS 123 to require prominent disclosures in
both annual and interim financial statements. Certain of the disclosure
modifications are required for fiscal years ending after December 15,
2002 and are included in the notes to these consolidated financial
statements.
The Company has stock incentive plans that provides for stock-based
employee compensation, including the granting of stock options, to
certain key employees and other individuals. The plans are more fully
described in Note 6. The Company accounts for stock options issued to
employee, officer and directors under the stock incentive plan in
accordance with the recognition and measurement principles of APB
Opinion No. 25, "Accounting for Stock Issued to Employees", and related
Interpretations. Under this method, compensation expense is recorded on
the date of grant only if the current market price of the underlying
stock exceeded the exercise price. Under the Company's stock incentive
plan, stock options are granted at exercise prices that equal or exceed
the market value of the underlying common stock on the date of grant.
Therefore, no compensation expense related to stock options is recorded
in the Consolidated Statements of Income.
During the periods presented in the accompanying financial statements
the Company has granted options under the 1995 and 1999 Stock Options
Plans and executive and other employment agreements (SEE Note 6). The
Corporation has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, compensation cost under SFAS No. 123 has
been recognized for certain stock options issued under other agreements
to non-employee and recorded in the accompanying statement of
operations, but no compensation cost under SFAS No. 123 has been
recognized for stock options issued under plan and other agreement to
employees.
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of the Business and Significant Accounting Policies.
[Continued]
Had compensation cost for stock options issued to employees under the
Company's stock option plans and agreements been determined based on
the fair value at the grant date for awards in 2003, 2002 and 2001
consistent with the provisions of SFAS No. 123, the Company's net
earnings net of taxes and earnings per share would have been reduced to
the pro forma amounts indicated below:
Year Ended June 30,
________________________________________
2003 2002 2001
____________ ____________ ____________
(Restated)
Net Income (loss) As reported $ 879,996 $ (7,031,593) $ (899,526)
Pro forma $ 434,186 $ (7,115,697) $ (900,426)
Earnings (loss) per share
As reported $ .19 $ (1.49) $ (.19)
Pro forma $ .09 $ (1.50) $ (.19)
Note 2. Inventories.
Inventories consist of the following:
June 30,
__________________________
2003 2002
____________ ____________
Parts and supplies $ 1,593,057 $ 2,071,709
Work-in-process 1,702,533 1,047,154
Finished goods 214,696 278,981
____________ ____________
3,510,286 3,397,844
Reserve for obsolescence (50,000) (307,393)
____________ ____________
$ 3,460,286 $ 3,090,451
____________ ____________
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Property, Plant, and Equipment.
Property, plant, and equipment consists of the following:
Estimated June 30,
Useful Lives __________________________
in Years 2003 2002
____________ ____________ ____________
Land and related improvements 10-30 $ 4,564,523 $ 4,544,278
Buildings and related
improvements 10-30 8,827,731 8,748,746
Construction-in-progress N/A 486,966 117,673
Production molds and related
plugs 8-10 20,655,432 19,967,872
Machinery and equipment 3-5 6,030,902 5,958,160
Furniture and fixtures 5 790,518 771,133
Transportation equipment 5 320,711 537,926
Racing boats N/A - 242,095
____________ ____________
$ 41,676,783 $ 40,887,883
Accumulated depreciation (25,511,099) (23,773,222)
____________ ____________
$ 16,165,684 $ 17,114,661
____________ ____________
All of the land, buildings and improvements are owned by the Company
and are held as collateral on notes and mortgages payable having a
balance of $8,723,636 at June 30, 2003. Depreciation expense amounted
to $2,112,051, $2,294,254, and $2,293,284, for the years ended June 30,
2003, 2002 and 2001, respectively. During Fiscal 2002, the Company
recorded a loss on impairment of $1,112,320 in accordance with SFAS No.
121 "Accounting for Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of" on certain molds and racing boats to adjust
the respective assets to their net realizable value.
Construction costs of production molds for new and existing product
lines are capitalized and depreciated over an estimated useful life of
eight to ten years. Depreciation starts when the production mold is
placed in service to manufacture the product. The costs include the
direct materials, direct labor, and an overhead allocation based on a
percentage of direct labor.
Note 4. Capital Lease.
The Company is the lessee of equipment under capital leases expiring in
May 2004 and April 2006. The assets and liabilities under the capital
leases were recorded at the lower of the present value of the minimum
lease payments or the fair value of the assets at the time of purchase.
Equipment under capital lease obligation is as follows:
June 30,
__________________________
2003 2002
____________ ____________
Equipment $ 92,774 $ 83,067
Less: Accumulated amortization (63,179) (47,071)
____________ ____________
$ 29,595 $ 35,996
____________ ____________
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Capital Lease. [Continued]
Total future minimum lease payments, executory costs and current
portion of capital lease obligations are as follows:
Year ending June 30, Lease Payments
2004 43,582
2005 18,618
2006 3,358
______________
Total future minimum lease payments $ 65,558
Less: amounts representing maintenance and
usage fee, interest and executory costs (21,073)
______________
Present value of the future minimum
lease payments 44,485
Less: Lease current portion (20,118)
______________
Capital lease obligations - long term $ 24,367
______________
Note 5. Long-term Debt and Pledged Assets.
The following is a summary of long-term debt: June 30,
____________ ____________
2003 2002
____________ ____________
9.50% loan payable to a financial institution
for the purchase of a vehicle. - 26,291
9.99% loans payable to a financial institution
for the purchase of vehicles, monthly
payments totaling $1,383 through August 2002,
secured by the vehicles purchased. 32,224 44,337
6.30% loan payable to a financial institution
for the purchase of a vehicle - 4,435
7.15% loan payable to a financial institution
for the purchase of a vehicle. - 3,990
8.25% loan payable to a financial institution
for the purchase of a vehicle, monthly
payments of $726 through October 2004,
secured by the vehicle purchased. 25,306 31,735
7.50% loan payable to a financial institution
for the purchase of land. - 33,823
7.93% to 8% loans payable borrowed against the
cash surrender value of key-man life
insurance policies 1998, 2001, and 2002,
monthly payments of $25,004. 1,265,438 925,712
$10,000,000 credit agreement with a financial
Corporation (See Below). 8,723,636 9,640,808
____________ ____________
10,046,604 10,711,131
Less: Current maturities included in current
liabilities: (1,060,444) (919,182)
____________ ____________
$ 8,986,160 $ 9,791,949
____________ ____________
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Long-term Debt and Pledged Assets. [Continued]
The Company had a $10,000,000 credit agreement with General Electric
Capital Corporation. The credit agreement involved two notes, both
with an interest rate of prime plus 2%. Combined monthly payments are
$128,005. The $7,000,000 note had monthly payments of approximately
$85,000 and a ten year amortization with a five-year balloon payment
and is secured by a first lien on the Company's plant and property.
The second note of $3,000,000 had monthly payments of approximately
$45,000, a seven year amortization with a five-year balloon payment,
and is secured by a second lien on the Company's plant and property.
This second note was guaranteed by the United States Department of
Agriculture. These notes were further secured by an assignment of a
$1,000,000 key man life insurance policy to the lender and the personal
guarantee of the Company's President with real estate valued at
approximately $1,000,000.
On July 17, 2003, the Company obtained an $18,000,000 long-term loan
from Bank of America. Proceeds from the loan were used to refinance
existing long-term debt (See Note 16).
The estimated aggregate maturities required on long-term debt for each
of the individual years at June 30, 2003 are as follows:
2004 1,060,444
2005 1,172,877
2006 1,245,801
2007 5,084,179
Thereafter 1,483,303
$10,046,604
Note 6. Common Stock, Stock Options, and Treasury Stock.
Common Stock: The Company has authorized 200,000,000 shares of common
stock, $.01 par value. 4,757,608 shares were issued and outstanding at
June 30, 2002 and 4,732,608 shares were issued and outstanding at June
30, 2002 and 2001.
During 2003, a director of the Company exercised his options and
purchased 25,000 shares of Common stock at $1.34 per share. Also
during 2003, the Company recorded a capital contribution of 46,158 when
payroll obligations owed an officer and shareholder of the Company were
forgiven.
Stock Options: During 1999, the shareholders voted to adopt the 1999
Employee Stock Option Plan (the Plan), which expires January 11, 2009.
Under the Plan, the board is empowered to grant options to purchase up
to 120,000 shares of common stock to employees, officers, directors and
consultants of the Company. Additionally, the Board will determine at
the time of granting the vesting provisions and whether the options
will qualify as Incentive Stock Options under Section 422 of the
Internal Revenue Code (Section 422 provides certain tax advantages to
the employee recipients). During the Company's November 19, 2002
Annual Meeting the shareholders approved amendment of the 1999 Employee
Stock Option Plan to increase the number of shares available for
issuance under that plan from 120,000 to 175,000 shares. As of June 30,
2003, 95,000 options are available for grant under the plan.
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Common Stock, Stock Options, and Treasury Stock. [Continued]
During 2001, the Company granted options to purchase 35,000 shares of
common stock, on a non-qualified basis. The options are exercisable at
$1.34 per share and vest through December 31, 2002. The options expire
December 12, 2007. As of June 30, 2003 25,000 of the options have been
exercised.
During 2002, the Company granted options to purchase 40,000 shares of
common stock for consulting services. The options have been valued at
$53,403 and are being expensed ratably over the vesting period. As of
June 30, 2003, the Company has recorded deferred compensation of
$49,518 in consulting expense. The options are exercisable at $1.60 to
$1.67 per share and vest within two years from the date they were
granted. The options expire five years from vesting. At June 30,
2002, none of these options had been exercised.
On June 21, 1995, the shareholders voted to adopt the 1995 stock option
plan. The plan allowed up to 450,000 options to purchase the common
stock to be granted by the Board of Directors to employees or directors
of the Company. On August 4, 1995, the Board of Directors voted to
grant the 450,000 stock options to Mr. Reginald M. Fountain, Jr. at
$4.67 per share, exercisable for 10 years from the date granted, on a
non-qualified basis. As of June 30, 2002, none of these options have
been exercised.
Effective March 23, 1995, the Board of Directors authorized the
issuance of options to purchase up to 30,000 shares of common stock to
each of the Company's four outside directors at $3.58 per share on a
non-qualified basis, exercisable for 10 years. Through June 30, 2002,
84,000 of the options had been exercised and 30,000 options remain
outstanding.
A summary of the status of the options granted under the Company's 1995
and 1999 stock option plans and other agreements at June 30, 2003, 2002
and 2001, and changes during the periods then ended is presented in the
table below:
2003 2002 2001
________________________ ________________________ ________________________
Weighted Average Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
________ ______________ ________ ______________ ________ ______________
Outstanding at
beginning of
period 686,000 $ 3.85 551,000 $ 4.40 526,000 $ 4.61
Granted - - 135,000 1.42 35,000 1.34
Exercised 25,000 1.34 - - - -
Forfeited 51,000 3.79 - - (10,000) 4.59
Canceled - - - - - -
________ ______________ ________ ______________ ________ ______________
Outstanding at
end of period 610,000 $ 3.96 686,000 $ 3.85 551,000 $ 4.40
________ ______________ ________ ______________ ________ ______________
Exercisable at
end of period 573,334 $ 4.11 576,000 $ 4.29 516,000 $ 4.61
________ ______________ ________ ______________ ________ ______________
Weighted average
fair value of
options
granted - $ - 135,000 $ 1.29 35,000 $ .10
________ ______________ ________ ______________ ________ ______________
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Common Stock, Stock Options, and Treasury Stock. [Continued]
The fair value of each option granted is estimated on the date granted
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants during the year ended June
30 2002, and 2001; risk-free interest rates of 4.5%, and 5.3%,
respectively, expected dividend yields of zero for all periods,
expected lives of 6.25, and 7.5 years, respectively, and expected
volatility of 94% and 132%, respectively.
A summary of the status of the options outstanding under the Company's
stock option plans and other agreements at June 30, 2003 is presented
below:
Options Outstanding Options Exercisable
_______________________________________________ _____________________________
Weighted Average Weighted Average Weighted Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
_______________ ___________ ________________ ________________ ___________ ________________
$1.34 to 1.67 130,000 5 years 1.58 93,334 1.57
$3.58 30,000 2 years 3.58 30,000 3.58
$4.67 450,000 2 years 4.67 450,000 4.67
----------- -----------
610,000 573,334
Treasury Stock: The Company holds 15,000 shares of its common stock.
This common stock is accounted for as treasury stock at its acquisition
cost of $110,748 ($7.38 per share) in the accompanying financial
statements.
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Income Taxes.
The Company has provided for deferred income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes, whereby deferred income
taxes are determined based upon the enacted income tax rates for the
years in which these taxes are estimated to be payable or recoverable.
Deferred income taxes arise from temporary differences resulting from a
difference between the tax basis of an asset or liability and its
reported amount in the financial statements.
The components of federal income tax expense from continuing operations
consist of the following:
Year Ended June 30,
________________________________________
2003 2002 2001
____________ ____________ ____________
(Restated)
Current income tax expense:
Federal $ - $ (717,983) $ (108,590)
State - - -
____________ ____________ ____________
Net current tax (benefit) $ - $ (717,983) $ (108,590)
____________ ____________ ____________
Deferred tax expense (benefit)
resulted from:
Excess of tax over financial
accounting depreciation $ 245,079 $ (14,929) $ (81,110)
Donations (1,227) (2,374) (1,008)
Warranty reserves (11,700) (109,200) -
Reserve for obsolete
inventory 100,383 (61,383) -
Accrued vacation (14,563) 5,945 (2,184)
Dealer incentive reserves 97,944 230,631 (9,410)
Bad debt reserves - - -
Accrued dealer incentive
interest 32,454 9,046 66,312
Accrued executive
compensation (45,634) 6,352 39,777
Accrued dealer service
incentives 155,232 180,492 (120,708)
Inventory adjustment-
Sec.263A 7,296 (32,048) 123,579
Health insurance reserve 4,680 17,238 (12,168)
Decrease in NOL
carryforwards (143,576) (2,506,922) (72,461)
Alternative minimum tax
credits - 218,232 (253,837)
Investment tax credits - - (86,294)
Valuations allowance (257,067) 2,599,979 -
____________ ____________ ____________
Net deferred tax expense
(benefit) $ 169,301 $ 541,059 $ (409,512)
____________ ____________ ____________
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Income Taxes. [Continued]
The reconciliation of income tax from continuing operations computed
at the U.S. federal statutory tax rate to the Company's effective
rate is as follows:
Year Ended June 30,
________________________________________
2003 2002 2001
____________ ____________ ____________
(Restated)
Computed tax at the expected
federal statutory rate 34.00% 34.00% 34.00%
State income taxes, net of
federal benefit 5.00 5.00 5.00
Valuations allowance (24.50) (36.07) -
Compensation from stock
options (.69) - -
(Increase) decrease in NOL
carryforward - - (1.45)
Officer's life insurance .20 - .11
Net effect of alternative
minimum taxes - (.07) -
Other 2.13 (.41) (1.11)
____________ ____________ ____________
Effective income tax rates 16.14% 2.45% 36.55%
____________ ____________ ____________
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Income Taxes. [Continued]
Significant components of the Company's deferred tax assets and
liabilities are as follows:
Year Ended June 30,
__________________________
2003 2002
____________ ____________
(Restated)
Deferred tax assets:
Warranty reserve $ 351,000 $ 339,300
Obsolete inventory reserve 19,500 119,883
Accrued vacations 73,685 59,122
Allowance for boat repurchases 78,000 78,000
Dealer incentive reserves - 97,944
Bad debt reserve 10,858 10,858
Accrued Dealer incentive interest 25,378 57,832
Inventory adjustments - Sec. 253A 110,220 117,516
State NOL carryforwards 486,854 468,447
Federal NOL carryforwards 2,256,701 2,131,532
Alternative minimum tax credits 119,049 119,049
Accrued executive compensation 55,384 9,750
Donations carryforwards 4,608 3,382
Accrued dealer service incentives 38,122 193,354
Health insurance reserve 40,560 45,240
Investment tax credits 86,294 86,294
____________ ____________
Gross deferred assets $ 3,756,213 $ 3,937,503
Less: valuation allowance for
deferred tax assets (2,342,912) (2,599,980)
____________ ____________
Net deferred tax assets $ 1,413,301 $ 1,337,523
Deferred tax liabilities:
Excess of financial accounting
depreciation over tax $ (1,413,301) $ (1,168,222)
____________ ____________
Net deferred tax assets (liabilities) $ - $ 169,301
____________ ____________
Net deferred tax assets (liabilities)
are presented as follows:
Year Ended June 30,
__________________________
2003 2002
____________ ____________
(Restated)
Current deferred tax asset $ 303,823 $ 1,132,181
Deferred tax liabilities (303,823) (962,880)
____________ ____________
Net deferred tax assets (liabilities) $ - $ 169,301
____________ ____________
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Income Taxes. [Continued]
The Company has an unused federal operating loss carryforwards at June
30, 2003 and 2002 of approximately $6,637,357 and $6,269,213,
respectively, which expires in various years through 2022. The Company
has unused state operating loss carryforwards at June 30, 2003 and 2002
of approximately $9,737,087 and $9,368,943, respectively, which expires
in various years through 2023.
Note 8. Commitments and Contingencies.
Employment Agreement: The Company entered into a one-year employment
agreement in 1989 with its Chairman, Mr. Reginald M. Fountain, Jr. The
agreement provides for automatic one-year renewals at the end of each
year subject to Mr. Fountain's continued employment.
Dealer Interest: The Company regularly pays a portion of dealers'
interest charges for floor plan financing. These interest charges
amounted to $816,152 for Fiscal 2003, $596,111 for Fiscal 2002 and
$953,600 for Fiscal 2001. They are included in the accompanying
consolidated statements of operations as part of net sales. At June
30, 2003 and 2002 the estimated unpaid dealer incentive interest
included in accrued dealer incentives amounted to $92,262 and $178,857,
respectively.
Product Liability and Other Litigation: There were various warranty
lawsuits brought against the Company at June 30, 2003. The Company
intends to vigorously defend its interests in these matters. The
Company carries sufficient product liability insurance to cover
attorney's fees and any losses, which may occur from these lawsuits
over and above the insurance deductibles. The Company is also involved
from time to time in other litigation through the normal course of its
business. Management believes there are no such undisclosed claims
which would have a material effect on the financial position of the
Company.
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 June 30, 2003 and 2002, the Company
had a contingent liability to repurchase boats in the event of dealer
defaults and if repossessed by the commercial lenders amounting to
approximately $16,378,985 and $16,066,953, respectively. 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
reserve is based upon probable future events, which can be reasonably
estimated. At June 30, 2003 and 2002, the allowance for boat
repurchases was $200,000.
401 (k) Payroll Savings Plan: During Fiscal 1991, the Company initiated
a 401(k) Payroll Savings Plan (the 401(k) Plan) for all employees.
Eligible employees may elect to defer up to fifteen percent of their
salaries. The amounts deferred by the employees are fully vested at
all times. The Company currently matches fifty percent of the
employee's deferred salary amounts limited to a maximum of six percent
of their salaried amounts, or a maximum of three percent of their
salaries. Amounts contributed by the Company vest at a rate of twenty
percent per year of service. Mr. Fountain, by his own election, does
not participate in the 401(k) Plan. There are no post-retirement
benefit plans in effect. The Company's employer contribution to the
401(k) Plan was $93,650 for Fiscal year 2003, $86,958 for Fiscal 2002
and $160,768 for Fiscal 2001.
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Commitments and Contingencies. [Continued]
Environmental: The Company was notified in 1994 by the United States
Environmental Protection Agency ("EPA") that it has been identified as
a potential responsible party ("PRP") and may incur, or may have
incurred, liability for the remediation of contamination at the
Seaboard waste disposal site, located in High Point, North Carolina
(also referred to as the Jamestown, North Carolina site) resulting from
the disposal of hazardous substances at that site by a third party
contractor of the Company. The Company's share of the approximately
14.3 million gallons of waste is 19,245 gallons, a volumetric share of
.1387%. The Company's potential liability at this site is estimated by
the Group administrator to be in the range of $40,000 to $60,000. The
Company is likely to be eligible for a de Minimus Settlement Agreement,
which is expected to be finalized in 2004.
Note 9. Export Sales.
The Company had export sales to customers in the following geographic
areas:
Year Ended June 30,
________________________________________
2003 2002 2001
____________ ____________ ____________
Canada, Central and South
America $ 929,481 $ 1,500,145 $ 2,509,638
Middle East, and Europe 595,777 - 380,190
Asia 235,549 - -
____________ ____________ ____________
$ 1,760,807 $ 1,500,145 $ 2,889,828
____________ ____________ ____________
Note 10. Transactions with Related Parties.
The Company expensed the following amounts for apartment rentals owned
or controlled by Reginald M. Fountain, Jr., the Company's Chairman,
President, and Chief Executive Officer: for Fiscal 2003, $11,489; in
Fiscal 2002, $22,013; and in Fiscal 2001, $22,734. At June 30, 2003,
the Company owed Reginald M. Fountain, Jr. $0 for these rentals.
The Company paid $58,000, $41,361, and $199,442 for the year ended June
30, 2003, 2002 and 2001 for advertising and public relations services
from an entity owned by a director of the Company. At June 30, 2003,
the Company owed an entity owned by a director $15,029 for these
services.
A Director of the Company is an owner of a marine dealership, which
accounted for 8.0% of the Company's sales in Fiscal 2003.
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11. Concentration of Credit Risk.
Concentration of credit risk arises due to the Company operating in the
marine industry, particularly in the United States. In Fiscal 2003, one
dealer accounted for 10.3% of sales, one for 8.0% of sales, and one
dealer for 6.7%. In Fiscal 2002, one dealer accounted for 11.8% of
sales, one dealer for 11.7%, and two other dealers for 8% individually.
For Fiscal 2001 one dealer comprised 11.5% of sales, one dealer 10.5%
of sales, and four other dealers 4 to 6% of sales individually.
Note 12. Gain on Insurance Claims from Hurricanes.
During the years ended June 30, 2001 the Company recorded a $1,107,819
gain on insurance claims resulting from damages and loss revenues
sustained from hurricanes ."Dennis" and "Floyd" hitting Eastern North
Carolina during September 1999. The Company experienced damages to
inventory , property, plant and equipment and the temporary closure of
the production facility as a result of flooding caused by the
Hurricanes.
Note 13. - Earnings Per Share.
The following data show the amounts used in computing earnings per
share and the effect on income and the weighted average number of
shares of potential dilutive common stock for the years ended June 30,
2003, 2002 and 2001:
2003 2002 2001
____________ ____________ ____________
(Restated)
Income (loss) from continuing
operations available to common
stockholders $ 879,996 $ (7,031,593) $ (899,526)
____________ ____________ ____________
Weighted average number of common
shares outstanding used in
basic earnings (loss) per share 4,744,457 4,732,608 4,732,608
Effect of dilutive stock options 74,349 - -
Weighted number of common shares
and potential dilutive common
shares outstanding used in
dilutive earnings (loss) per
share 4,818,806 4,732,608 4,732,608
____________ ____________ ____________
The Company had at June 30, 2003 options to purchase 480,000 shares of
common stock at prices ranging from $3.58 to $4.67 per share that were
not included in the computation of gain(loss) per share because their
effect was anti-dilutive.
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 - Segment Reporting.
The Company's net sales resulted from the following product lines for
the years ended June 30, 2003, 2002 and 2001:
2003 2002 2001
____________ ____________ ____________
Sports Boats $ 26,612,517 $ 21,191,672 $ 30,337,763
Wide Beam Cruiser 9,923,547 5,387,449 1,691,414
Fish boats 5,302,763 3,181,585 7,260,627
Wide Beam Fish 9,291,260 5,404,056 2,665,460
Non-Boat Sales including
(Service, Parts, Trucking,
Sportswear) 1,426,997 1,785,819 3,172,770
____________ ____________ ____________
Net Sales $ 52,557,084 $ 36,950,581 $ 45,128,034
____________ ____________ ____________
Note 15. Going Concern
At June 30, 2003, the Company had a working capital deficiency of
$3,997,437 which would have raised substantial doubt about the
Company's ability to continue as a going concern, however the going
concern was alleviated due to, the Company successfully obtaining
$18,000,000 in debt financing, on July 17, 2003 (See Note 16). The
proceeds of the debt financing were used to repay a majority of
existing debt financing, pay current trade payables and other
liabilities and provide needed additional working capital. The
Company has further been successful in increasing sales sufficient to
generate net income and positive cash-flows from operating activities.
Note 16 - Subsequent Event.
On July 17, 2003, the Company obtained an $18,000,000 long-term loan
from Bank of America. The proceeds were used to refinance the two
loans with General Electric Capital Corporation totaling $10,000,000
with total remaining balance of $8,723,636 and a variable interest rate
of prime plus 2% or 6.25% as of June 30, 2003. Proceeds from the Bank
of America loan was also used to pay trade payables to current status
and provide additional operating funds. The new agreement with Bank of
America has $9,000,000 at one month LIBOR plus 2.25% or 3.77% at July
17, 2003, and $9,000,000 under an interest rate swap to provide a fixed
rate of 6.02%. The interest rate swap is designated as a fair value
hedge and is deemed effective pursuant to SFAS 133. The Bank of
America loan has a fifteen year amortization with a five year balloon
payment and is secured by certain assets of the Company and President,
Chief Executive Officer and majority shareholder, Reginald M. Fountain,
Jr. Obligations are guaranteed by the Company and Mr. Fountain and by
Brunswick Corporation, a division of which supplies marine engines used
in the Company's products. Combined monthly payments to Bank of
America will be approximately $126,000.
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17 - Restatement of Financial Statements
The accompanying financial statements have been restated to reflect a
decrease in the deferred tax asset valuation allowance. The valuation
allowance was reduced by $400,643 to compensate for deferred tax
liabilities that are available for offsetting against the tax assets, thus
reducing the amount of allowance needed. The impact to the financial
statements is as follows:
The Company's financial statements for the year ended June 30, 2003 have
been restated as follows :
Year Ended
June 30, 2003
----------------------------
As Reported As Restated
------------- -------------
Statement of Operations Data:
Deferred tax expense $ 569,944 $ 169,301
Net income (loss) $ 479,353 $ 879,996
Basic earnings (loss) per share $ .10 $ .19
Diluted earnings (loss) per share $ .10 $ .18
Balance Sheet Data:
Current tax assets $ 807,315 $ 303,823
Total current assets $ 8,152,488 $ 7,648,996
Total assets $ 26,433,086 $ 25,929,594
Deferred tax liability $ 1,207,958 $ 303,823
Retained earnings (deficit) $ (5,801,326) $ (5,400,683)
Stockholders' equity $ 4,568,168 $ 4,968,811
Total liabilities & stockholders'
Equity $ 26,433,086 $ 25,929,594
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
SCHEDULES TO THE FINANCIAL STATEMENTS
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Fiscal 2003
Valuation and Qualifying Balance Charge to Expense Payments/ Balance
Account Description June 30, 2002 Adjustments Deductions June 30, 2003
_______________________________ _____________ _______________ ___________ _____________
(Restated) (Restated)
Allowance for Doubtful accounts 27,841 - - 27,841
Inventory Valuation Reserve 307,393 - 257,393 50,000
Deferred Tax Valuation Allowance 2,599,979 257,067 - 2,342,912
Warranty Expense 870,000 1,182,573 1,152,573 900,000
Allowance for Boat Repurchases 200,000 - - 200,000
Fiscal 2002
Valuation and Qualifying Balance Charge to Expense Payments/ Balance
Account Description June 30, 2001 Adjustments Deductions June 30, 2002
_______________________________ _____________ _______________ ___________ _____________
Allowance for Doubtful accounts 27,841 - - 27,841
Inventory Valuation Reserve 150,000 157,393 - 307,393
Deferred Tax Valuation Allowance - 2,599,979 - 2,599,979
Warranty Expense 590,000 2,216,600 1,936,600 870,000
Allowance for Boat Repurchases 200,000 - - 200,000
Fiscal 2001
Valuation and Qualifying Balance Charge to Expense Payments/ Balance
Account Description June 30, 2000 Adjustments Deductions June 30, 2001
_______________________________ _____________ _______________ ___________ _____________
Allowance for Doubtful accounts 27,841 - - 27,841
Inventory Valuation Reserve 150,000 - - 150,000
Warranty Expense 590,000 1,380,800 1,380,800 590,000
Allowance for Boat Repurchases 200,000 - - 200,000
FOUNTAIN POWERBOATS INDUSTIRES, INC.
SUPPLEMENTARY DATA
UNAUDITED SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA
First Second Third Fourth
Quarter Quarter Quarter Quarter
(Restated)
Fiscal 2003
Revenue 12,002,119 12,941,227 12,783,311 14,830,427
Gross profit 1,905,951 2,370,374 1,911,352 2,331,450
Income (loss) before taxes 328,335 643,732 (91,338) 168,568
Net income (loss) 169,244 482,459 (177,402) 405,695
Net income (loss) per share:
Basic .04 .10 (.04) .09
Diluted .04 .10 N/A .04
Fiscal 2002
Revenue 8,238,779 6,456,208 10,626,380 11,629,215
Gross profit 475,472 (692,069) 2,035,420 (859,074)
Income (loss) before taxes (814,875) (2,315,742) (280,534) (3,797,366)
Net income (loss) (506,643) (1,417,651) (189,152) (4,918,147)
Net income (loss) per share:
Basic (.11) (.30) (.04) (1.04)
Diluted N/A N/A N/A N/A
Fiscal 2001
Revenue 13,313,669 8,658,397 9,682,556 13,473,413
Gross profit 1,522,452 841,858 1,722,453 1,153,136
Income (loss) before taxes (771,343) 258,147 54,020 (958,451)
Net loss (490,724) 156,363 (10,629) (554,535)
Net loss per share
Basic (.10) .03 (.00) (.12)
Diluted N/A .03 N/A N/A
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
An evaluation of the effectiveness of the Company's disclosure
controls and procedures as of the end of the period covered by this report
has been performed under the supervision and with the participation of the
Company's Chief Executive Officer and Chief Financial Officer. Based on
that evaluation, those officers concluded that the Company's disclosure
controls and procedures were effective as of the end of the period covered
by this report.
There has been no change in the Company's internal control over
financial reporting that occurred during the most recent fiscal quarter
that has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
Part III
Item 10. Directors and Executive Officers of Registrant.
Incorporated herein by reference from the Company's definitive Proxy
Statement to be filed with the Commission in connection with the Company's
annual meeting of shareholders (under the following captions: (a)
"Section 16(a) Beneficial Ownership Reporting Compliance," (b) "Proposal
1: Election of Directors," and (c) "Executive Officers").
Item 11. Executive Compensation.
Incorporated herein by reference from the Company's definitive Proxy
Statement to be filed with the Commission in connection with the Company's
annual meeting of shareholders (under the following captions: (a)
"Compensation Committee Interlocks and Insider Participation," (b) "Board
Report on Executive Compensation," (c) "Executive Compensation," (d)
"Employment Contracts and Termination of Employment and Change-in-Control
Arrangements," and (e) "Employee Stock Options."
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.
Information regarding the beneficial ownership of the Company's
equity securities appearing under the caption "Beneficial Ownership of
Securities" in the Company's definitive Proxy Statement filed with the
Commission in connection with the Company's annual meeting of shareholders
is incorporated herein by reference.
Securities Authorized for Issuance Under Equity Compensation Plans.
The following table summarizes all compensation plans and individual
compensation arrangements that were in effect on June 30, 2003, and under
which shares of the Company's common stock were authorized for issuance.
EQUITY COMPENSATION PLAN INFORMATION
(c)
Number of shares
remaining available
(a) for future issuance
Number of shares (b) under equity
to be issued Weighted-average compensation
upon excersice exercise price plans (excluding
of outstanding of outstanding shares reflected
Plan category options options in column (a))
___________________ ________________ ________________ ___________________
Equity compensation
plans approved by
security holders 530,000 $ 4.20 95,000
Equity compensation
plans not approved
by security holders 80,000 (1) 2.33 -0-
Total 610,000 3.96 -0-
(1) Includes individual options to purchase shares of the Company's
common stock held by current or former directors or independent
contractors as follows: (i) option for 30,000 shares at an exercise
price of $3.58 per share granted during 1995 and expiring during
2005; (ii) option for 10,000 shares at an exercise price of $1.34
per share granted during 2001 and expiring during 2007; (iii) option
for 20,000 shares at an exercise price of $1.67 per share granted
during 2002, becoming exercisable as to 10,000 shares during 2003 and
as to the remaining 10,000 shares during 2004, and expiring as to
10,000 during 2008 and as to the remaining 10,000 shares during 2009;
and (iv) option for 20,000 shares at an exercise price of $1.60 per
share granted during 2002 and expiring as to 10,000 shares during
2008 and as to the remaining 10,000 shares during 2009.
Item 13. Certain Relationships and Related Transactions.
Incorporated herein by reference from the Company's definitive Proxy
Statement to be filed with the Commission in connection with the Company's
annual meeting of shareholders (under the caption "Compensation Committee
Interlocks and Insider Participation").
Item 14. Principal Accountant Fees and Services
Incorporated herein by reference from the Company's definitive Proxy
Statement to be filed with the Commission in connection with the Company's
annual meeting of shareholders (under the caption "Ratification of
Appointment of Independent Accountants).
Part IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8
and Form 8-K.
(a) Documents filed with Report:
(1)Financial Statements. The following consolidated financial
statements of the Company are contained in Item 8 of this Report.
Independent auditor's report
Consolidated balance sheets at June 30, 2003 and 2002
Consolidated statements of operations for the years ended June 30,
2003, 2002 and 2001
Consolidated statements of stockholder's equity for the years ended
June 30, 2003, 2002 and 2001
Consolidated statements of cash flows for the years ended June 30,
2003, 2002 and 2001
Notes to consolidated financial statements
(2)Financial Statement Schedules.
Not applicable.
(3)Exhibits. An index of exhibits that are a part of this Form 10-K
appears following the signature page and is incorporated herein by
reference.
(b) Reports on Form 8-K. During the last quarter of the period covered
by this Report, the Company filed one Current Reports on Form 8-K dated
May 8, 2003, which reported (under Items 9 and 12) its results of
operations for the quarter ended March 31, 2003.
Signatures
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FOUNTAIN POWERBOAT INDUSTRIES, INC.
Reginald M. Fountain, Jr.
By:/S/_____________________________________________
August 09, 2004 Reginald M. Fountain, Jr.
Chairman, President, and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/S/ Chairman, President, and September 15, 2003
Reginald M. Fountain, Jr. Chief Executive Officer
(Principal Executive Officer)
/S/ Director September 15, 2003
A. Myles Cartrette
/S/ Director September 15, 2003
George L. Deichmann, III
/S/ Director September 15, 2003
Guy L. Hecker, Jr.
/S/ Director September 15, 2003
David C. Miller
/S/ Director September 15, 2003
Mark L. Spencer
/S/ Director September 15, 2003
David L. Woods
/S/ Chief Financial Officer September 15, 2003
Irving L. Smith
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
3.1 Registrant's Articles of Incorporation, as
amended (incorporated herein by reference to exhibits to
Registrant's Annual Report on Form 10-K for the fiscal year
ended June 30, 2001)
3.2 Registrant's Bylaws, as amended (incorporated herein by
reference to exhibits to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 2001)
4.1 Form of stock certificate (incorporated herein by
reference to exhibits to Registrant's Annual Report on Form
10-K for the fiscal year ended October 1, 1989)
10.1 * Employment Agreement dated March 31, 1989, between
Reginald M. Fountain, Jr. and Fountain Powerboats, Inc.
(incorporated herein by reference from Exhibits to
Registrant's Annual Report on Form 10-K for the fiscal year
ended October 1, 1989)
10.2 * Stock Option Agreement dated August 4, 1995, between
Registrant and Reginald M. Fountain, Jr. (incorporated herein
by reference to exhibits to Registrant's Annual Report on
Form 10-K for the fiscal year ended June 30, 2001)
10.3 * 1999 Employee Stock Option Plan (incorporated herein by
reference to exhibits to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1999)
10.4 * Stock Option Agreement dated March 17, 1995, between
Registrant and Mark L. Spencer (incorporated herein by
reference to exhibits to Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 2001)
10.5 Loan Agreement between Fountain Powerboats, Inc. and
Bank of America, N.A. (incorporated herein by reference to
exhibits to Registrant's Current Report on
Form 8-K dated July 17, 2003)
10.6 Promissory Note between Fountain Powerboats, Inc. and
Bank of America, N.A. (incorporated herein by reference to
exhibits to Registrant's Current Report on
Form 8-K dated July 17, 2003)
10.7 Continuing and Unconditional Guaranty between
Registrant and Bank of America, N.A. (incorporated herein by
reference to exhibits to Registrant's Current Report on
Form 8-K dated July 17, 2003)
10.8 Continuing and Unconditional Guaranty between Reginald
M. Fountain, Jr. and Bank of America, N.A. (incorporated
herein by reference to exhibits to Registrant's Current
Report on Form 8-K dated July 17, 2003)
10.9 Security Agreement between Fountain Powerboats, Inc.
and Bank of America, N.A. (incorporated herein by reference
to exhibits to Registrant's Current Report on
Form 8-K dated July 17, 2003)
10.10 Deed of Trust between Fountain Powerboats, Inc. and
Bank of America, N.A. (incorporated herein by reference to
exhibits to Registrant's Current Report on
Form 8-K dated July 17, 2003)
10.11 Master Agreement between Registrant, Fountain
Powerboats, Inc., Reginald M. Fountain, Jr. and Brunswick
Corporation (incorporated herein by reference to exhibits to
Registrant's Current Report on Form 8-K dated July 17, 2003)
10.12 Security Agreement between Fountain Powerboats, Inc.
and Brunswick Corporation (incorporated herein by reference
to exhibits to Registrant's Current Report on
Form 8-K dated July 17, 2003)
10.13 Deed of Trust between Fountain Powerboats, Inc. and
Brunswick Corporation (incorporated herein by reference to
exhibits to Registrant's Current Report on
Form 8-K dated July 17, 2003)
10.14 Engine Supply Agreement between Registrant Fountain
Powerboats, Inc. and Brunswick Corporation (incorporated
herein by reference to exhibits to Registrant's Current
Report on Form 8-K dated July 17, 2003)
31.1 Certification of Registrant's Chief Executive Officer
required by Rule 13a-14(a) (filed herewith)
31.2 Certification of Registrant's Chief Financial Officer
required by Rule 13a-14(a) (filed herewith)
32 Certifications of Registrant's Chief Executive Officer
and Chief Financial Officer pursuant to 18 U.S.C. 1350
(furnished herewith)
99 Registrant's definitive proxy statement to be filed
with the Commission
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* Denotes a management compensation plan or compensatory plan or
arrangement