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FOUNTAIN POWERBOAT INDUSTRIES, INC.
FORM 10-Q
QUARTERLY REPORT
FOR THE QUARTER ENDED MARCH 31, 2003
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
For the Quarter Ended Commission File Number
___________________ 0-14712
FOUNTAIN POWERBOAT INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Nevada 56-1774895
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
Whichard's Beach Road, P.O. Drawer 457, Washington, NC 27889
(Address of principal executive offices)
Registrant's telephone no. including area code: (252) 975-2000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class Outstanding at March 31, 2003
Common Stock, $.01 par value 4,745,108 shares
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
INDEX
Page No.
Part I Financial Information
Unaudited Condensed Consolidated Balance Sheets,
March 31, 2003 and June 30, 2002 1 - 2
Unaudited Condensed Consolidated Statements of Operations,
for the three and nine months ended March 31, 2003 and 2002 3
Unaudited Condensed Consolidated Statements of Cash Flows,
for the nine months ended March 31, 2003 and 2002 4 - 5
Notes to Unaudited Condensed Consolidated Financial Statements 6 - 10
Management's Discussion and Analysis of Results
of Operations and Financial Condition 11-13
Part II Other Information
Item 2, 3, 4, & 6 14
Signatures 15
Management Certification 16-18
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, June 30,
2003 2002
____________ ____________
CURRENT ASSETS:
Cash and cash equivalents $ 51,902 $ 329,640
Accounts receivable, net 2,565,191 3,003,992
Inventories 3,203,671 3,090,451
Prepaid expenses 729,547 328,783
Current tax assets 892,838 1,132,181
____________ ____________
Total Current Assets 7,443,149 7,885,047
____________ ____________
PROPERTY, PLANT AND EQUIPMENT 41,426,337 40,887,882
Less: Accumulated depreciation (24,973,898) (23,773,221)
____________ ____________
16,452,439 17,114,661
____________ ____________
CASH SURRENDER VALUE LIFE INSURANCE 1,333,431 1,179,223
OTHER ASSETS 432,232 355,765
____________ ____________
Total Assets $ 25,661,251 $ 26,534,696
____________ ____________
[Continued]
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
[Continued]
March 31, June 30,
2003 2002
____________ ____________
CURRENT LIABILITIES:
Current maturities - long-term debt $ 943,388 $ 919,182
Current maturities - capital lease 16,855 15,674
Accounts payable 6,858,200 6,877,394
Accounts payable - related party 174,179 147,234
Accrued expenses 1,100,760 1,193,672
Dealer incentives 337,771 921,707
Customer deposits 138,864 631,090
Allowance for boat repurchases 200,000 200,000
Warranty reserve 900,000 870,000
____________ ____________
Total Current Liabilities 10,670,017 11,775,953
LONG-TERM DEBT, less current maturities 9,365,454 9,791,949
CAPITAL LEASE, less current maturities 22,571 35,212
DEFERRED TAX LIABILITY 1,129,965 962,880
COMMITMENTS AND CONTINGENCIES [NOTE 5] - -
____________ ____________
Total Liabilities 21,188,007 22,565,994
____________ ____________
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value,
200,000,000 shares authorized,
4,745,108 and 4,732,608 shares
issued and outstanding, respectively 47,451 47,326
Additional paid-in capital 10,360,611 10,343,935
Accumulated earnings (5,806,377) (6,280,679)
____________ ____________
4,601,685 4,110,582
Less: Treasury stock, at cost,
15,000 shares (110,748) (110,748)
Deferred compensation for
stock options issued (17,693) (31,132)
____________ ____________
Total Stockholders' Equity 4,473,244 3,968,702
____________ ____________
Total Liabilities and
Stockholders' Equity $ 25,661,251 $ 26,534,696
____________ ____________
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For The Three For The Nine
Months Ended Months Ended
March 31 March 31
__________________________ ________________________
2003 2002 2003 2002
____________ ____________ ___________ ___________
NET SALES $ 12,783,311 $ 10,739,593 $ 37,799,524 $ 25,669,980
COST OF SALES 10,871,979 8,704,173 31,611,866 23,851,157
____________ ____________ ___________ ___________
Gross Profit 1,911,332 2,035,420 6,187,658 1,818,823
____________ ____________ ___________ ___________
EXPENSES:
Selling Expense 1,396,465 1,432,495 3,311,758 2,982,927
Selling Expense
-related parties - - - -
General & Administrative 330,467 564,133 1,228,721 1,527,639
____________ ____________ ___________ ___________
Total Expenses 1,726,932 1,996,628 4,540,479 4,510,566
____________ ____________ ___________ ___________
OPERATING INCOME (LOSS) 184,400 38,792 1,647,179 (2,691,743)
____________ ____________ ___________ ___________
NON-OPERATING INCOME
(EXPENSE):
Other Income (Expense) (29,799) (2,121) 166 2,162
Interest Expense (245,939) (317,205) (766,615) (721,570)
____________ ____________ ___________ ___________
INCOME (LOSS) BEFORE TAX (91,338) (280,534) 880,730 (3,411,151)
CURRENT TAX EXPENSE - - - -
DEFERRED TAXES (BENEFIT) 86,064 (91,382) 406,428 (1,297,705)
____________ ____________ ___________ ___________
NET INCOME (LOSS) $ (177,402) $ (189,152) $ 474,302 $(2,113,446)
____________ ____________ ___________ ___________
EARNINGS (LOSS) PER SHARE (.04) (.04) .10 (.45)
____________ ____________ ___________ ___________
WEIGHTED AVERAGE
SHARES OUTSTANDING 4,745,108 4,732,608 4,745,108 4,732,608
____________ ____________ ___________ ___________
DILUTED EARNINGS PER SHARE N/A N/A .10 N/A
____________ ____________ ___________ ___________
WEIGHTED AVERAGE SHARES
OUTSTANDING ASSUMING
DILUTION N/A N/A 4,811,619 N/A
____________ ____________ ___________ ___________
The Accompanying notes are an integral part of these unaudited
condensed consolidated financial statements
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
For the Nine Months Ended
March 31,
__________________________
2003 2002
___________ ____________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 474,302 $ (2,113,446)
___________ ____________
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation expense 1,574,814 1,692,879
Net deferred taxes 406,428 (1,297,705)
Gain on sale of fixed asset 9,890 -
Amortization of deferred loan cost 46,350 -
Non-cash expense 13,440 -
Increase in warranty reserve 30,000 -
Change in assets and liabilities:
(Increase) decrease in
accounts receivable 438,802 1,136,419
(Increase) decrease in
inventories (113,219) (340,455)
(Increase) decrease in
prepaid expenses (400,765) (68,622)
Increase (decrease) in
accounts payable 7,726 341,051
Increase (decrease) in
accrued expenses (92,886) 211,282
Increase (decrease) in
dealer incentives (583,936) (1,246,505)
Increase (decrease) in
customer deposits (492,227) 43,272
___________ ____________
Net Cash Provided (Used) by
Operating Activities $1,318,719 $ (1,641,830)
___________ ____________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant,
and equipment (1,088,427) (1,458,443)
Proceeds from sale of fixed assets 165,945 -
(Increase) in other assets (277,026) (362,745)
___________ ____________
Net Cash Provided (Used) by
Investing Activities $(1,199,508) $(1,821,188)
___________ ____________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt $ 343,029 $ 3,848,537
Payments of long-term debt (756,778) (188,085)
Proceeds from common stock issuances 16,800 -
___________ ____________
Net Cash Provided (Used) by
Financing Activities $ (396,949) $ 3,660,452
___________ ____________
Net increase (decrease) in cash
and cash equivalents $ (277,738) $ 197,434
Cash and cash equivalents at
beginning of year $ 329,640 $ 796,606
___________ ____________
Cash and cash equivalents at
end of period $ 51,902 $ 994,040
___________ ____________
[Continued]
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
[Continued]
For the Nine Months Ended
March 31,
__________________________
2003 2002
___________ ____________
Supplemental Disclosures of
Cash Flow Information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 771,831 $ 596,423
Income Taxes $ - $ -
Supplemental Disclosures of Noncash Investing and Financing Activities:
For the nine month period ended March 31, 2003:
The Company recorded consulting expense of $13,440 as a result of
amortization of deferred compensation from 30,000 options issued to
purchase common stock during fiscal 2002 vesting through December
2004.
For the nine month period ended March 31, 2002:
None
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared by the Company
without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows at March
31, 2003 and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles in the United States of America have been
condensed or omitted for purposes of filing interim financial
statements with the Securities and Exchange Commission. It is
suggested that these condensed financial statements be read in
conjunction with the financial statements and notes thereto included in
the Company's June 30, 2002 audited financial statements. The results
of operations for the period ended March 31, 2003 is not necessarily
indicative of the operating results for the full year.
Principles of Consolidation: The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiary,
Fountain Powerboats, Inc. All significant inter-company accounts and
transactions have been eliminated in consolidation.
Accounting Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the
disclosures of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimated by management.
Cash and Cash Equivalents: For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments with a
maturity of three months or less to be cash equivalents. At March 31,
2003 and June 30, 2002, the Company had $0 and $229,640, respectively,
in excess of federally insured amounts held in cash.
Recently Enacted Accounting Standards: During quarter ended September
30, 2002, the Company adopted Emerging Issue Task Force 01-9
"Accounting for Consideration Given by a Vendor to a Customer
(including a Reseller of the Vendor's Products)", requiring the Company
to reclassify dealer incentive interest paid to resellers from Selling
Expense to Net Sales. Prior year financial statements have been
reclassified to reflect the change in accounting principle.
Fair Value of Financial Instruments: Management estimates the carrying
value of financial instruments on the consolidated financial statements
approximates their fair values.
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION [Continued]
Revenue Recognition: The Company generally sells boats only to
authorized dealers and to the U.S. Government. A sale is recorded when
a boat is shipped to a dealer or to the Government, legal title and all
other incidents of ownership have passed from the Company to the dealer
or Government, and an accounts receivable is recorded or payment
received from the dealer, the Government, or the dealer's third-party
commercial lender. This is the method of sales recognition in use by
most boat manufacturers.
The Company has developed criteria for determining whether a shipment
should be recorded as a sale or as a deferred sale (a balance sheet
liability). The criteria for recording a sale are that the boat has
been completed and shipped to a dealer or to the Government, that title
and incidents of ownership have passed to the dealer or to the
Government, and that there is no direct or indirect commitment to the
dealer or to the Government to repurchase the boat.
The sales incentive interest payment program for each boat sale is
accrued for the entire interest period in the same fiscal accounting
period that the related sale is recorded. The amount of interest
accrued is subsequently adjusted to reflect the actual number of days
of remaining liability for floor plan interest for each individual boat
remaining in the dealer's inventory and on floor plan.
Reclassifications: The financial statements for years prior to March
31, 2003 have been reclassified to conform with headings and
classifications used in the March 31, 2003 financial statements.
NOTE 2 - ACCOUNTS RECEIVABLE
As of March 31, 2003, accounts receivable were $2,565,191 net of the
allowance for bad debts of $54,102. This is a decrease from the
$3,003,992 in net accounts receivable recorded at June 30, 2002. Of
the balance at March 31, 2003, $1,531,440 subsequently has been
collected as of April 22, 2003, and the remaining $1,033,751 is
believed to be fully collectible.
NOTE 3 - INVENTORIES
Inventories at March 31, 2003 and June 30, 2002 consisted of the
following:
March 31, June 30,
2003 2002
___________ ____________
Parts and supplies $ 1,868,334 $ 2,071,709
Work-in-process 1,348,518 1,047,154
Finished goods 136,819 278,981
Obsolete inventory reserve (150,000) (307,393)
___________ ____________
Total $ 3,203,671 $ 3,090,451
___________ ____________
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4- COMMON STOCK
During December 2001, the Company issued 10,000 options to purchase
common stock to a consultant for services to be rendered valued at
$12,342. The options are exercisable at $1.45 per share, vest through
December 2004 and expire December 2009. During the nine months ended
March 31, 2003, the Company recorded consulting expense of $3,027.
During January 2002, the Company issued 20,000 options to purchase
common stock to a consultant for services to be rendered valued at
$27,953. The options are exercisable at $1.67 per share, vest through
January 2004 and expire January 2009. During the nine months ended
March 31, 2003, the Company recorded consulting expense of $10,419.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Manufacturer Repurchase Agreements - The Company makes available
through third-party finance companies floor plan financing for many of
its dealers. Sales to participating dealers are approved by the
respective finance companies. If a participating dealer does not
satisfy its obligations under the floor plan financing agreement in
effect with its commercial lender(s) and boats are subsequently
repossessed by the lender(s), then under certain circumstances the
Company may be required to repurchase the repossessed boats if it has
executed a repurchase agreement with the lender(s). At March 31, 2003,
the Company had a total contingent liability to repurchase boats in the
event of dealer defaults and if repossessed by the commercial lenders
amounting to approximately $14,529,997. The Company has reserved for
the future losses it might incur upon the repossession and repurchase
of boats from commercial lenders. The amount of the allowance is based
upon probable future events which can be reasonably estimated. At
March 31, 2003, the allowance for boat repurchases was $200,000.
Dealer Interest - The Company regularly pays a portion of dealers'
interest charges for floor plan financing. These interest charges
amounted to approximately $615,006 for the first nine months ended
March 31, 2003 and the estimated unpaid dealer interest included in
accrued dealer incentives at March 31, 2003 amounted to $147,327.
Interest Rate Risk - At March 31, 2003, the Company owed $8,963,244 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 March 31, 2003. An
increase in the prime rate would have a negative effect on the results
of operations of the Company. A hypothetical 50 basis point increase
in interest rates would result in an approximately $45,000 increase in
interest expense.
NOTE 6 - TRANSACTIONS WITH RELATED PARTIES
At March 31, 2003, the Company had receivables and advances from its
employees amounting to $12,282.
During the nine month period ended March 31, 2003, the Company paid
$7,189 for services rendered to entities owned or controlled by the
Company's Chairman, President, and Chief Executive Officer.
The Company paid $42,000 during the nine month period ended March 31,
2003 for advertising services received from an entity owned by a
Company director.
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7- INCOME TAXES
For the nine month period ended March 31, 2003 and 2002, the Company
paid $0 and $0 for current income taxes and incurred a tax
expense/(benefit) for deferred income taxes of $406,428 and
$(1,297,705), respectively.
NOTE 8 - EARNINGS (LOSS) PER SHARE
The computations of earnings (loss) per share and diluted earnings per
share amounts are based upon the weighted average number of outstanding
common shares during the periods, plus, when their effect is dilutive,
additional shares assuming the exercise of certain vested stock
options, reduced by the number of shares which could be purchased from
the proceeds from the exercise of the stock options assuming they were
exercised. Diluted earnings per share for the nine month period ended
March 31, 2002, was not presented as its effect was anti-dilutive.
The weighted average common shares and common equivalent shares
outstanding for the nine month period ended March 31, 2003 and 2002 for
purposes of calculating earnings per share was as follows:
March 31, March 31,
2003 2002
_________ _________
Weighted average common shares
outstanding used in basic
earnings per share for the
nine months ending 4,745,108 4,732,608
Effect of dilutive stock options 66,511 -
_________ _________
Weighted average common shares
and potential dilutive common
equivalent shares outstanding
used in dilutive earnings
per share 4,811,619 4,732,608
_________ _________
At March 31, 2003 there were 622,500 unexercised stock options, of
which 480,000 were held by officers and directors of the Company at
prices ranging from $3.58 to $4.67 per share that were not included in
the computation of earnings per share because the effect is anti-
dilutive. On April 18, 2003, a director of the Company exercised
options to purchase 12,500 shares of common stock at $1.34 per share.
NOTE 9 - VALUATION AND QUALIFYING ACCOUNTS
The balance in the following valuation and qualifying accounts at March
31, 2003 and change from the year ended June 30, 2002 are as follows:
Charge
To
Balance Expense Balance
Valuation and Qualifying June 30, Adjust- Payments/ March 31,
Account Description 2002 ments Deductions 2003
___________________________ _________ _______ _________ _________
Allowance for Doubtful accounts 27,841 26,261 - 54,102
Inventory Valuation Reserve 307,393 - (157,393) 150,000
Deferred Tax Valuation Allowance 2,599,979 53,691 - 2,653,670
Warranty Expense 870,000 962,800 (932,800) 900,000
Allowance for Boat Repurchases 200,000 - - 200,000
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - GOING CONCERN
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles in the United States of
America which contemplate continuation of the Company as a going
concern. As shown in the financial statements at March 31, 2003 and
June 30, 2002 the Company had negative working capital of $3,226,868
and $3,890,906, respectively. These factors raise substantial doubt
about the ability of the Company to continue as a going concern. The
consolidated financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
The Company's operations will require significant increases in cash
flows from operations or additional financing or capital to continue.
In order to generate positive cash flows, the Company will need to
return to profitability through increasing sales of their sport and
fish boats and wide beam cruisers, reducing expenses and capital
expenditures and successfully refinancing current liabilities to long-
term obligations.
Management plans to improve cash flows from current operations by
maintaining an aggressive budget for fiscal 2003 which management
believes has resulted in positive cashflows from operations of
$1,318,719 for the nine months ended March 31, 2003 and will result in
continual improvement in sales and improved yield in the remaining
quarter of fiscal 2003. The budget has focused the Company's resources
on existing sales order backlogs for the new higher margin wide beam
cruisers and The Company is further seeking to obtain additional debt
financing, which will enable the Company to reduce material cost by
taking favorable cash discounts on material purchases.
The statements in the above paragraphs regarding the Company's plans,
intentions and beliefs, and the expected results of its budgetary and
other actions, are "forward-looking" statements and are subject to
risks and uncertainties. As should be read considering the cautionary
statement for purposes of "Safe Harbor" under the Private Securities
Reform Act of 1995. Various factors could affect the Company's ability
to successfully implement its plans or actions or could cause the
actual outcome or results of the Company's plans and actions to differ
materially from those that the statements indicate or imply that the
Company believes or expects to occur. Examples of those factors
include: sales falls significantly short of forecast, production
efficiency improvements are not accomplished, and company does not
obtain additional debt funding.
NOTE 11 - SUBSEQUENT EVENT
On April 18, 2003, a director of the Company exercised options to
purchase 12,500 shares of common stock at $1.34 per share.
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations.
The operating income for the three months ended March 31, 2003 was
$184,400 or $.04 per share and compares to the operating income of 38,792
or $.01 per share for the three months ended March 31, 2002. The net loss
for the three months ended March 31, 2003 was $(177,402) or $(.04) per
share as compared to a net loss for the three months ended March 31, 2002
of $(189,152) or $(.04) per share. The net income for the nine months
ended March 31, 2003 was $474,302 or $.10 per share as compared to a net
loss for the nine months ended March 31, 2002 of $(2,113,446) or $(.45)
per share.
Net sales were $12,783,311 for the third quarter of Fiscal 2003. Net
sales were $10,739,593 for the third quarter of Fiscal 2002. During the
third quarter of Fiscal 2003, unit volumes increased significantly over
the same period of the prior year, with sales volume for three months
ended March 31, 2003 at 99 units compared to 55 units for the prior year.
Fiscal 2003 net sales for the nine months ended March 31, 2003 were
$37,799,524, compared to net sales of $25,669,980 for the same nine months
period of the prior year.
Unit sales volume increase was the result of an improving economy,
aggressive marketing campaign that provided an increase in sport boat
sales, increased fish boat sales and sales of the new models, 34' wide-
beam fish boat and 48' wide-beam cruiser.
Gross profits on sales for the three months ended March 31, 2003 was
$1,911,332 as compared to the gross profits of $2,035,420 for the three
months ended March 31, 2002. Gross profits for the nine months ended
March 31, 2003 was $6,187,658 compared to the gross profit of $1,818,823
for the same period of the previous year. The decline in margin for the
three months resulted from an increase in sales of lower margin fish boats
and a decrease in sales of higher margin sport boats.
Selling expenses were $1,396,465 for the three months ended March 31, 2003
as compared to $1,432,495 for the three months ended March 31, 2002.
Decreased selling expense resulted from lower boat show expense and racing
expense than for the same period of the previous year.
General and administrative expenses were $330,467 for the three months
ended March 31, 2003 compared to $564,133 for the three months ended March
31, 2002. Expense reduction in the areas of consulting, executive
salaries, investor relations and legal fees, and a refund for franchise
taxes produced savings compared to the same period for the prior year.
Interest expense for the three months ended March 31, 2003 was $245,939 as
compared to $317,205 for the three months ended March 31, 2002. This
results from lower interest charges on the G.E. Capital Corporation loan
and reduction in interest payments on funds borrowed from cash value of
key man life insurance policies.
Other non-operating (income)/expense for the three months March 31, 2003
was $29,799 as compared to $2,121 for the three months ended March 31,
2002.
Liquidity and Capital Resources.
At March 31, 2003, the Company had a working capital deficit of $3,226,868
an improvement of $664,038 over the $3,890,906 working capital deficit at
June 30, 2002, As mentioned in Note 9 to the Unaudited Financial
Statements the accompanying unaudited financial statements have been
prepared in conformity with generally accepted accounting principles in
the United States of America which contemplate continuation of the Company
as a going concern. The Company's operations will require continued
increases in cash flows from operations or additional financing or capital
to continue.
Cash decreased to $51,902 at March 31, 2003 compared to the $329,640 at
June 30, 2002. The decrease in cash can be generally attributed to the
$1,318,719 generated from operating activities less $1,199,508 used by
investing primarily attributed to additional capital expenditures and
$396,948 used by financing activities to pay current long-term debt
obligations offset against proceeds received to exercise stock options and
an additional $343,029 in borrowing against certain cash value in key life
insurance policies owned by the Company.
Cashflows from operations for the nine months ended March 31, 2003 was
$1,318,719, an increase of $2,960,549 over the $1,641,830 of cash used in
operations for the nine months ended March 31, 2002. This change is
primarily attributable to the increase in sales resulting in a return to
profitability.
The Company's principal sources of liquidity for the nine months ended
March 31, 2003 includes a 47% increase in sales over the same nine month
period in the previous year $165,945 in proceeds from the sale of certain
fixed assets and $343,029 in additional borrowing against cash surrender
value of life insurance policies.
The Company's liquidity needs are principally for financing of raw
materials and work in process inventory as a result of increase sales,
paying down certain vendors to more current terms, and meeting the current
payments of long term obligations.
For the remainder of the year ending June 30, 2003 the Company believes
that it will continue to improve upon prior years operating results.
Management has developed and instigated a plan that budgets expenses and
clearly outlines certain sales goals and expectations for the remainder of
the fiscal year. After surpassing this plan in the first nine months of
Fiscal 2003, management anticipates that continued operations under this
plan will result in a profitable and successful year. Managememt believes
they can generate sufficient cash flows from operations to meet current
critical liquidity demands. The Company is further seeking to obtain
additional debt financing, which will enable the Company to satify all
current obligations while reducing material cost by taking favorable cash
discounts on material purchases.
Cash used in the nine months ended March 31, 2003 to acquire additional
property, plant, and equipment (investing activity) amounted to $1,088,427
which was invested in tooling changes to the new 48' Express Cruiser, a
new style 38' fish boat deck, and other miscellaneous tooling projects.
Cautionary Statement for Purposes of "Safe Harbor" Under the Private
Securities Reform Act of 1995.
The Company may from time to time make forward-looking statements,
including statements projecting, forecasting, or estimating the Company's
performance and industry trends. The achievement of the projections,
forecasts, or estimates contained in these statements is subject to
certain risks and uncertainties, and actual results and events may differ
materially from those projected, forecasted, or estimated.
The applicable risks and uncertainties include general economic and
industry conditions that affect all businesses, as well as, matters that
are specific to the Company and the markets it serves. For example, the
achievement of projections, forecasts, or estimates contained in the
Company's forward-looking statements may be impacted by national and
international economic conditions; compliance with governmental laws and
regulations; accidents and acts of God; and all of the general risks
associated with doing business.
Risks that are specific to the Company and its markets include but are not
limited to compliance with increasingly stringent environmental laws and
regulations; the cyclical nature of the industry; competition in pricing
and new product development from larger
companies with substantial resources; the concentration of a substantial
percentage of the Company's sales with a few major customers, the loss of,
or change in demand from, any of which could have a material impact upon
the Company; labor relations at the Company and at its customers and
suppliers; and the Company's single-source supply and just-in-time
inventory strategies for some critical boat components, including high
performance engines, which could adversely affect production if a single-
source supplier is unable for any reason to meet the Company's
requirements on a timely basis.
PART II. Other Information.
ITEM 2: Change in Securities.
There was no change in securities during the quarter ending March 31, 2003
ITEM 3:QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Risk - At March 31, 2003, the Company owed $8,963,244 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 March 31, 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 4: Controls and Procedures
Within the 90-day period prior to the filing of this quarterly
report, an evaluation was performed under the supervision and with the
participation of the Company's management, including the Chief Executive
Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the company's disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the design and operation of these disclosure controls and
procedures were effective. There have been no significant changes
in the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their
evaluation.
ITEM 6: Exhibits and Reports on Form 8 and Form 8-K.
(1) Exhibits: None.
(a) No Amendments on Form 8 were filed by the Registrant during the
third three months of Fiscal 2002.
(b) No Current Reports on Form 8-K were filed by the Registrant
during the first nine months of Fiscal 2002.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOUNTAIN POWERBOAT INDUSTRIES, INC.
(Registrant)
By: /s/ Irving L. Smith Date: May 6, 2003
Irving L. Smith
Chief Financial Officer
CERTIFICATION
I, Reginald M. Fountain, Jr., certify that:
1. I have reviewed this quarterly report on Form 10Q of Fountain
Powerboat Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosures
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 6, 2003 /s/Reginald M. Fountain, Jr.
Reginald M. Fountain, Jr.
President and Chief Executive Officer
CERTIFICATION
I, Irving L. Smith, certify that:
1. I have reviewed this quarterly report on Form 10Q of Fountain
Powerboat Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosures
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 6, 2003 /s/Irving L. Smith
Irving L. Smith
Chief Financial Officer
(Certification Pursuant to 18 U.S.C. Section 1350)
The undersigned hereby certifies that (i) the foregoing quarterly
report on Form 10-Q filed by Fountain Powerboat Industries, Inc. (the
"Company") for the quarter ended March 31, 2003, fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934, and (ii) the information contained in that Report fairly presents,
in all material respects, the financial condition and results of
operations of the Company.
Date: May 6, 2003 /s/Reginald M. Fountain, Jr.
Reginald M. Fountain, Jr.
President and Chief Executive Officer
Date: May 6, 2003 /s/Irving L. Smith
Irving L. Smith
Chief Financial Officer