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 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.
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.
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.
Item 4. Submission of Matters to a Vote of Security Holders.
None applicable. Part II
Item 5.
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.
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 ----------- ----------- ----------- ----------- ------------ Sales $52,557,084 $36,950,581 $45,128,034 $56,367,899 $52,074,639
Net Income (loss) $ 479,353 $(7,031,593) $ (899,526) $ 1,258,342 $(1,255,791)
Income(loss) per share $ .10 $ (1.49) $ (.19) $ .27 $ (.27)
Weighted average shares 4,744,457 4,732,608 4,732,608 4,732,608 4,711,896 outstanding
Diluted earnings per share $ .10 $ (1.49) $ (.19) $ .27 $ (.27)
Diluted weighted average 4,818,806 4,732,608 4,732,608 4,732,651 4,711,896 shares outstanding
Balance Sheet Data (At Period End) - -----------------------
Current Assets $ 8,152,488 $ 7,885,048 $ 8,934,936 $13,621,499 $14,084,888
Total Assets $26,433,086 $26,534,696 $28,947,752 $33,431,084 $33,930,960
Current Liabilities $11,640,753 $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) $ 4,568,168 $ 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.
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 $479,353 or $.10 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.
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 $569,944 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.
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.
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.
Item 8. Financial Statements and Supplementary Data.
INDEPENDENT AUDITORS' REPORT
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 Qualifying 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 generally accepted auditing standards in the United States of America. 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 Qualifying Accounts for the years ended June 30, 2003, 2002 and 2001 in conformity with generally accepted accounting principles in the United States of America.
/s/ Pritchett, Siler & Hardy, P.C.
August 1, 2003 Salt Lake City, Utah
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, ___________________________ 2003 2002 ____________ ____________ 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 807,315 1,132,181 ____________ _____________ Total Current Assets 8,152,488 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 ____________ _____________ $ 26,433,086 $ 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 1,207,958 962,880 COMMITMENTS AND CONTINGENCIES (See Note 9) - - ____________ ____________ Total Liabilities 21,864,918 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) (5,801,326) (6,280,679) ____________ ____________ 4,682,801 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) ____________ ____________ 4,568,168 3,968,702 ____________ ____________ $ 26,433,086 $ 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 ____________ ____________ ____________ 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) 569,944 541,059 (409,512) ____________ _____________ _____________
NET INCOME (LOSS) $ 479,353 $ (7,031,593) $ (899,526) ____________ _____________ _____________
BASIC EARNINGS (LOSS) PER SHARE:$ .10 $ (1.49) $ (.19) ____________ _____________ _____________ WEIGHTED AVERAGE SHARES OUTSTANDING 4,744,457 4,732,608 4,732,608 ____________ _____________ _____________
DILUTED EARNINGS (LOSS) PER SHARE: $ .10 $ (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 STATEMENTS OF CASH FLOWS
Year Ended June 30, ___________________________________________ 2003 2002 2001 ____________ _____________ ______________ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 479,353 $ (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 569,944 541,059 (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 operationsm, 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 ____________ ___________ _____________
Net Income (loss) As reported $ 479,355 $(7,031,593) $ (899,526) Pro forma $ 434,186 $(7,115,697) $ (900,426) Earnings (loss) per share As reported $ .10 $ (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 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 $ 3.855 51,000 $ 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 $ 3.966 86,000 $ 3.855 51,000 $ 4.40 ________ ______________ ________ ______________ ________ _____________ Exercisable at end of period 573,334 $ 4.115 76,000 $ 4.295 16,000 $ 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.
Note 7. Income Taxes.
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109. SFAS 109 requires the Company to provide a net deferred tax asset or liability equal to the expected future tax benefit or expense of temporary reporting differences between book and tax accounting and any available operating loss or tax credit carryforwards.
At June 30, 2003 and 2002, the total current deferred tax assets were $3,550,871 and $3,732,160, respectively. The totals net deferred tax liabilities were $1,207,958 and $962,879, respectively. The amount of and ultimate realization of the benefits from the deferred tax assets for income tax purposes is dependent, in part, upon the tax laws in effect, the Company's future earnings, and other future events, the effects of which cannot be determined. Because of the uncertainty surrounding the realization of the deferred tax assets the Company has established a valuation allowance of $2,743,556 and $2,599,979 at June 30, 2003 and 2002, respectively. The change in the valuation allowance for the year ended June 30, 2003 is approximately $143,576.
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 an 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.
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Income Taxes. [Continued]
The components of federal income tax expense from continuing operations consist of the following:
Year Ended June 30, ___________________________________________ 2003 2002 2001 ____________ _____________ ______________ 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 143,576 2,599,979 - ___________ ______________ _____________ Net deferred tax expense (benefit) $ 569,944 $ 541,059 $ (409,512) ___________ ______________ ______________
Deferred income tax expense results primarily from the reversal of temporary timing differences between tax and financial statement income.
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 _______________________________________ 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 13.68 (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 54.32% 2.45% 36.55% _______________________________________
The temporary differences gave rise to the following deferred tax asset (liability):
June 30, ___________________________ 2003 2002 ________________________ Excess of tax over financial accounting depreciation $(1,413,301) $(1,168,222) 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
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 ______________________________________ Income (loss) from continuing operations available to common stockholders $479,353 $(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.
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 ______________________________________
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15. Going Concern
At June 30, 2003, the Company had a working capital deficiency of $3,493,945 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
SCHEDULES TO THE FINANCIAL STATEMENTS
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Fiscal 2003 Valuation and Qualifying Balance Charge to Payments/ Balance Account Description June 30, Expense Deductions June 30, 2002 Adjustments 2003 ___________________________ _______________________________________
Allowance for Doubtful accounts 27,841 - - 27,841 Inventory Valuation Reserve 307,393 - 257,393 50,000 Deferred Tax Valuation Allowance 2,599,979 130,287 - 2,730,266 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 Payments Balance Account Description June 30, Adjustments Deductions June 30, 2001 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 Payments/ Balance Account Description June 30, Adjustments Deductions June 30, 					2000 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
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) 5,052
Net income (loss) per share: Basic .04 .10 (.04) .00 Diluted .04 .10 N/A .00
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.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A.
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.
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.
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.
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 (a) (c) Number of (b) Number of shares shares Weighted- remaining to be average available for future issued exercise issuance under equity Plan upon price of compensation plans category exercise outstanding (excluding of options shares outstanding reflected in column options (a)
Equity compensation plans approved 530,000 $4.20 95,000 by security holders
Equity compensation plans not 80,000 (1) 2.33 -0- approved by security holders
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.
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.
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.
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.
By: /S/ Reginald M. Fountain, Jr. September 15, 2003 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/ Reginald M. Fountain, Jr. Chairman,President,and September 15, 2003 Reginald M. Fountain, Jr. Chief Executive Officer (Principal Executive Officer)
/S/ A. Myles Cartrette Director September 15, 2003 A. Myles Cartrette
/S/ George L. Deichmann, III Director September 15, 2003 George L. Deichmann, III
/S/ Guy L. Hecker, Jr. Director September 15, 2003 Guy L. Hecker, Jr.
/S/ David C. Miller Director September 15, 2003 David C. Miller
/S/ Mark L. Spencer Director September 15, 2003 Mark L. Spencer
/S/ David L. Woods Director September 15, 2003 David L. Woods
/S/ Irving L. Smith 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 ______________________________
* Denotes a management compensation plan or compensatory plan or arrangement