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Fountain Powerboat Industries 10-Q 2005

Documents found in this filing:

  1. 10-Q/A
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32
  5.  
Form 10-Q Amendment
Table of Contents

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 10-Q/A

 


 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2004

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to             

 

Commission File Number 0-14712

 


 

FOUNTAIN POWERBOAT INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

 


 

Nevada   56-1774895

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. employer

identification No.)

 

Whichard’s Beach Road, P.O. Drawer 457, Washington, NC 27889

(Address of principal executive offices)

 

Registrant’s telephone no. including area code: (252) 975-2000

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act)    Yes  ¨    No  x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  ¨    No  x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

 

Class


 

Outstanding at December 31, 2004


Common Stock, $.01 par value

  4,814,275 shares

 



Table of Contents

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

 

INDEX

 

         Page No.

    Explanatory Note    3 - 4
Part I. Financial Information     
   

Item 1. Financial Statements

    
   

Unaudited Condensed Consolidated Balance Sheets, December 31, 2004 and June 30, 2004

   5 – 6
   

Unaudited Condensed Consolidated Statements of Operations, for the three months and six months ended December 31, 2004 and 2003

   7
   

Unaudited Condensed Consolidated Statements of Cash Flows, for the three months and six months ended December 31, 2004 and 2003

   8 – 9
   

Notes to Unaudited Condensed Consolidated Financial Statements

   10 – 23
   

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition

   24 – 25
   

Item 3. Quantitative and Qualitative Disclosures of Market Risk

   25
   

Item 4. Controls and Procedures

   26 – 27
Part II Other Information     
   

Items 1, 2, 3, 4, 5 & 6

   27
   

Signature

   28
   

Exhibits

   29 – 32

 

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Table of Contents

EXPLANATORY NOTE

 

RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

 

As previously announced, the Audit Committee of the Board of Directors of Fountain Powerboat Industries, Inc. (the “Company”), together with the management of the Company, have concluded that the Company should restate its consolidated financial statements for the year ended June 30, 2004 and the quarters ended September 30, 2004, December 31, 2004 and March 31, 2005. This Form 10-Q/A relates to the restatement for the quarter ended December 31, 2004.

 

As disclosed in Note 14 to the Company’s restated consolidated financial statements for the year ended June 30, 2004 included in the Company’s amended Annual Report on Form 10-K/A for the fiscal year ended June 30, 2004 filed with the SEC on October 12, 2005, the Company has restated its consolidated financial statements as of and for the year ended June 30, 2004 to correct certain financial statement errors reported in the Form 10-K for such fiscal year as originally filed. Also, as disclosed in the Company’s Quarterly Report on Form 10-Q/A for the quarter ended September 30, 2004 filed with the SEC on October 12, 2005, the Company has restated its consolidated financial statements as of and for the quarter ended September 30, 2004 to correct certain financial statement errors reported in the Form 10-Q for such quarter as originally filed. The corrections in these restatements (i.e., fiscal year ended June 30, 2004 and quarter ended September 30, 2004) have a carry forward impact on the Company’s consolidated financial statements as of and for the three and six months ended December 31, 2004. In addition, as previously disclosed, the Company, through an internal review process, has identified certain accounting errors made during the quarter ended December 31, 2004. The Company discovered that there were omissions and errors in the entry and reconciliation of certain items to the general ledger during these periods. The errors are the result of the following:

 

    The amount accrued for payroll costs at September 30, 2004 was understated by $281,679. This understatement was corrected when the accrual was properly stated at December 31, 2004. As a result, compensation costs were understated by this amount for the quarter ended September 30, 2004 and overstated by this amount for the quarter ended December 31, 2004.

 

    Other payables and accruals were understated by $147,424 at September 30, 2004 and by $242,207 at December 31, 2004. As a result, operating results were overstated by $94,783 for the three months and by $242,207 for the six months ended December 31, 2004.

 

    The amount accrued for dealer interest was incorrectly calculated causing the amount to be understated by $226,000 at December 31, 2004. This resulted in an overstatement of operating results in that amount for both the three months and six months ended December 31, 2004.

 

    An inventory disposal during the quarter ended September 30, 2004 resulted in a loss of $135,899. This loss was not recorded during that quarter, and remained unrecorded at December 31, 2004. As a result, operating results were overstated by that amount for the six months ended December 31, 2004.

 

    Interest costs incurred during the quarters ended September 30, 2004 and December 31, 2004 of $12,298 and $27,506, respectively, relating to self constructed fixed asset projects, were not properly capitalized during those quarters. This resulted in an overstatement of interest expense of $27,506 and $39,804, respectively, for the three months and six months ended December 31, 2004.

 

    Prepaid expenses (related to boat show expenses) at September 30, 2004 and December 31, 2004 were understated by $17,657 and $192,403, respectively, resulting in overstatements of expenses of $174,746 and $192,403, respectively, for the three months and six months ended December 31, 2004.

 

    A sales transaction was inadvertently recorded twice in the general ledger during the quarter ended September 30, 2004. This error remained uncorrected at December 31, 2004, which resulted in sales being overstated by $61,600 for the six months ended December 31, 2004.

 

    Certain costs associated with fixed asset additions were erroneously expensed during the quarter ended December 31, 2004, resulting in an overstatement of expense of $18,000 for both the three months and six months ended December 31, 2004.

 

3


Table of Contents
    Interest expense for the quarter ended September 30, 2004 was understated by $90,615 as a result of that amount being erroneously credited to interest expense rather than to the accrued interest liability account. This error remained uncorrected at December 31, 2004, resulting in an understatement of interest expense of that amount for the six months ended December 31, 2004.

 

As a result of these errors and the carry forward effects of restatements made at June 30, 2004, the Company’s consolidated financial statement as of and for the three months and six months ended December 31, 2004 were misstated. The consolidated financial statements as of and for the three and six months ended December 31, 2004 have been restated in this filing to properly reflect the carry forward effects of the June 30, 2004 restatements as well as to correct for the effects of errors that occurred during the three and six months ended December 31, 2004.

 

In addition, the Company’s management has determined that the accounting errors referenced above were the result of material weaknesses in the Company’s internal control over financial reporting related to (i) its system of entry of certain types of transactions into the general and subsidiary ledgers and (ii) the reconciliation of general ledger balance sheet accounts to the appropriate underlying subsidiary records. As described in Item 4. Controls and Procedures, the Company has taken steps to remediate the material weaknesses, including:

 

    an increase in the number of accounting and financial reporting personnel at the Company, which includes a new accounts receivable associate and a new accounting administrative associate;

 

    the removal of the Company’s former controller, who was principally responsible for ledger entries and oversight of all reconciliations, and the hiring of a replacement controller;

 

    the hiring of a full-time experienced accounting and financial reporting consultant to assist the accounting and finance staff of the Company in connection with the restatement, the Company’s ongoing financial reporting obligations and the improvement of its internal controls over financial reporting;

 

    the implementation of significantly enhanced record-keeping policies and procedures; and

 

    the implementation of new controls to verify and reconcile the entry of items to the general ledger, such as (i) the review by our chief financial officer of all journal entries and accrual schedules, (ii) new control processes for balancing accounts, such as revenue accounts, dealer discount accounts, accounts receivable, accounts payable, which will be reconciled every month (instead of at quarter end as the Company had previously done), and (iii) additional review process for accounts receivable and payable accounts by manager level personnel.

 

The Company believes that these remedial steps have corrected the material weaknesses described above and will help ensure that the previous types of errors to not recur. See “Item 4. Controls and Procedures.”

 

This Form 10-Q/A further amends the Company’s Quarterly Report on Form 10-Q/A for the quarter ended December 31, 2004 filed with the Securities and Exchange Commission (SEC) on October 12, 2005 (the “First 10-Q/A”). The First 10-Q/A amended the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2004, initially filed with the SEC on February 14, 2005 (the “Original Filing”) to reflect the restatement of the Company’s consolidated financial statements as of and for the quarter ended December 31, 2004 and the notes related thereto. This Form 10-Q/A provides further detail in note 11 to the consolidated financial statements as to the nature of the errors and the changes that were made from the information previously reported in the Original Filing. See notes 1,2,3,4,8 & 10 to the consolidated financial statements in this Form 10-Q/A for further information. Additional changes were also made in the First 10-Q/A to the Managements’ Discussion and Analysis of the Results of Operations and Financial Condition to further explain the Company’s reasons for these amendments. Except for the amended information, this Form 10-Q/A continues to describe conditions as of the date of the Original Filing and the Company has not modified or updated other disclosures presented in the Original Filing. This Form 10-Q/A does not reflect events occurring after the filing of the Original Filing or modify or update disclosures (including, except as otherwise provided herein, the exhibits to the Original Filing), affected by subsequent events. Accordingly, this Form 10-Q/A should be read in conjunction with the Company’s filings made with the SEC subsequent to the date of the Original Filing. In addition, this Form 10-Q/A includes certifications from the Company’s Chief Executive Officer and Chief Financial Officer at Exhibits 31.1, 31.2 and 32.

 

4


Table of Contents

PART I. FINANCIAL INFORMATION.

 

ITEM 1: Financial Statements.

 

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

    

December 31,

2004


   

June 30,

2004


 
     Restated     Restated  

ASSETS

                

CURRENT ASSETS:

                

Cash and cash equivalents

   $ 3,237,776     $ 3,622,258  

Accounts receivable, net

     4,345,133       3,507,246  

Inventories

     4,575,934       4,653,402  

Prepaid expenses

     385,853       429,657  

Deferred tax assets

     238,195       247,655  
    


 


Total Current Assets

     12,782,891       12,460,218  
    


 


PROPERTY, PLANT AND EQUIPMENT

     44,687,524       43,183,460  

Less: Accumulated depreciation

     (28,022,767 )     (27,269,666 )
    


 


       16,664,757       15,913,794  
    


 


CASH SURRENDER VALUE LIFE INSURANCE

     1,683,097       1,581,316  

OTHER ASSETS

     727,245       665,815  
    


 


TOTAL ASSETS

   $ 31,857,990     $ 30,621,143  
    


 


 

(Continued)

 

5


Table of Contents

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

 

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 

[Continued]

 

    

December 31,

2004


   

June 30,

2004


 
     Restated     Restated  

LIABILITIES AND STOCKHOLDERS’ EQUITY

                

CURRENT LIABILITIES:

                

Current maturities of long-term debt

   $ 775,691     $ 772,704  

Current maturities of capital lease

     17,709       17,710  

Accounts payable

     4,243,676       2,821,866  

Accounts payable – related party

     10,750       21,000  

Accrued expenses

     370,515       1,074,705  

Dealer incentives

     2,039,774       1,203,522  

Customer deposits

     708,715       86,077  

Allowance for boat repurchases

     75,000       75,000  

Warranty reserve

     710,000       710,000  
    


 


Total Current Liabilities

     8,951,830       6,782,584  

LONG-TERM DEBT, less current portion

     17,186,379       17,862,521  

CAPITAL LEASE, less current maturities

     1,843       6,657  

DEFERRED TAX LIABILITY

     238,195       247,655  

COMMITMENTS AND CONTINGENCIES [NOTE 6]

     —         —    
    


 


Total Liabilities

     26,378,247       24,899,417  
    


 


STOCKHOLDERS’ EQUITY:

                

Common stock, $.01 par value, 200,000,000 shares authorized, 4,814,275 shares issued and outstanding as of December 31, 2004 and 4,807,608 as of June 30, 2004

     48,142       48,076  

Additional paid-in capital

     10,527,053       10,517,451  

Accumulated deficit

     (5,028,234 )     (4,791,596 )
    


 


       5,546,961       5,773,931  

Less: Treasury stock, at cost, 15,000 shares

     (110,748 )     (110,748 )

Accumulated other comprehensive income from interest rate swap

     43,530       58,543  
    


 


Total Stockholders’ Equity

     5,479,743       5,721,726  
    


 


Total Liabilities and Stockholders’ Equity

   $ 31,857,990     $ 30,621,143  
    


 


 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

6


Table of Contents

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

     For the Three Months Ended

    For the Six Months Ended

 
    

December 31,

2004


   

December 31,

2003


   

December 31,

2004


   

December 31,

2003


 
     Restated           Restated        

NET SALES

   $ 17,256,520     $ 13,361,811     $ 33,998,827     $ 26,247,043  

COST OF SALES

     14,880,617       11,334,711       29,629,776       22,187,762  
    


 


 


 


Gross Profit

     2,375,903       2,027,100       4,369,051       4,059,281  

EXPENSES:

                                

Selling Expenses

     1,029,424       1,050,694       2,535,590       2,406,264  

General and Administrative Expenses

     942,288       519,353       1,529,076       1,085,212  
    


 


 


 


Total Expenses:

     1,971,712       1,570,047       4,064,666       3,491,476  
    


 


 


 


OPERATING INCOME

     404,191       457,053       304,385       567,805  
    


 


 


 


NON-OPERATING INCOME (EXPENSE):

                                

Other income (expense)

     94       (1,962 )     792       1,097  

Interest expense

     (266,880 )     (216,032 )     (541,109 )     (686,190 )
    


 


 


 


Total Non-operating Income (Expense)

     (266,786 )     (217,994 )     (540,317 )     (685,093 )
    


 


 


 


INCOME (LOSS) BEFORE INCOME TAXES

     137,405       239,059       (235,932 )     (117,288 )
    


 


 


 


INCOME TAX EXPENSE

     —         —         —         —    
    


 


 


 


NET INCOME (LOSS)

   $ 137,405     $ 239,059     $ (235,932 )   $ (117,288 )
    


 


 


 


BASIC EARNINGS (LOSS) PER SHARE

   $ .03     $ 0.05     $ (.05 )   $ (0.02 )
    


 


 


 


WEIGHTED AVERAGE SHARES OUTSTANDING

     4,814,275       4,757,608       4,811,268       4,757,608  
    


 


 


 


DILUTED EARNINGS (LOSS) PER SHARE

   $ .03     $ 0.05     $ (.05 )   $ (0.02 )
    


 


 


 


WEIGHTED AVERAGE SHARES OUTSTANDING ASSUMING DILUTION

     4,866,882       4,819,635       4,811,268       4,757,608  
    


 


 


 


 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

7


Table of Contents

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Increase (Decrease) in Cash and Cash Equivalents

 

     For the Six Months Ended

 
    

December 31,

2004


   

December 31,

2003


 
     Restated        

CASH FLOWS FROM OPERATING ACTIVITIES:

                

Net income (loss)

   $ (235,932 )   $ (117,288 )

Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:

                

Depreciation expense

     962,475       1,042,909  

Amortization of deferred loan cost

     39,969       246,980  

Non – cash expense

     —         9,085  

Change in assets and liabilities:

                

(Increase) in accounts receivable

     (837,886 )     (223,752 )

(Increase) in inventories

     77,468       (431,179 )

(Increase) decrease in prepaid expenses

     43,804       (193,816 )

Increase (decrease) in accounts payable

     1,411,560       (5,688,483 )

Decrease in accrued expenses

     (704,897 )     (447,814 )

Increase in dealer incentives

     836,252       427,658  

Increase (decrease) in customer deposits

     622,638       (60,721 )
    


 


Net Cash Provided (Used) by Operating Activities

     2,215,451       (5,436,421 )
    


 


CASH FLOWS FROM INVESTING ACTIVITIES:

                

Purchase of property, plant, and equipment

     (739,473 )     (110,857 )

Investment in molds and related plugs

     (1,003,658 )     (481,269 )

(Increase) in other assets

     (169,008 )     (222,468 )
    


 


Net Cash Used by Investing Activities

     (1,912,139 )     (814,594 )
    


 


CASH FLOWS FROM FINANCING ACTIVITIES:

                

Proceeds from long-term debt

     —         18,067,841  

Payments of long-term debt

     (697,462 )     (8,898,421 )

Payment of deferred loan cost

     —         (148,129 )

Proceeds from stock options exercised

     9,668       —    
    


 


Net Cash Provided (Used) by Financing Activities

     (687,794 )     9,021,291  
    


 


Net increase (decrease) in cash and cash equivalents

     (384,482 )     2,770,276  

Cash and cash equivalents at beginning of period

     3,622,258       1,224,935  
    


 


Cash and cash equivalents at end of period

   $ 3,237,776     $ 3,995,211  
    


 


 

(Continued)

 

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Table of Contents

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

 

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

Increase (Decrease) in Cash and Cash Equivalents

(Continued)

 

     For the Six Months Ended

    

December 31,

2004


  

December 31,

2003


     Restated     

Supplemental Disclosures of Cash Flow Information:

             

Cash paid during the period for:

             

Interest, net of amounts capitalized

   $ 513,604    $ 498,339

Income Taxes

   $ —      $ —  

 

Supplemental Disclosures of Noncash Investing and Financing Activities:

 

For the six month period ended December 31, 2003:

 

The Company recorded consulting expense of $1,795 as a result of amortization of deferred compensation from 40,000 options issued to purchase common stock during Fiscal 2002, vesting through January 2004 and expiring through January 2009.

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

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Table of Contents

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – BASIS OF PRESENTATION

 

The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at December 31, 2004 and for all periods presented have been made.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted for purposes of filing interim financial statements with the Securities and Exchange Commission. It is suggested that these condensed financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s audited financial statements for the year ended June 30, 2004. The results of operations for the three and six month periods ended December 31, 2004 are not necessarily indicative of the operating results for the full year.

 

Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Fountain Powerboats, Inc. All significant inter-company accounts and transactions have been eliminated in consolidation.

 

Accounting Estimates: The preparation of financial statements in conformity with accounting principles generally accepted 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 operating results could differ from those estimated by management.

 

Cash and Cash Equivalents: For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments with a maturity of three months or less to be cash equivalents. At December 31, 2004 and June 30, 2004, the Company had $3,137,776 and $3,522,258, respectively, in excess of federally insured amounts held in cash.

 

Derivative Financial Instruments: The Company uses derivative financial instruments for the purpose of reducing its exposure to adverse fluctuations in interest rates. While these hedging instruments are subject to fluctuations in value, such fluctuations are generally offset by the value of the underlying exposures being hedged. The Company accounts for these derivative financial instruments as an effective cash flow hedge under the provisions of Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities” and it has the effect of converting the interest rate paid on the notional amount of $9,000,000 of the Company’s variable debt to a fixed rate of 6.02%. The difference between the Company’s actual variable interest rate and 6.02% on the notional amount for the next twelve months is reclassified from other comprehensive income and recognized as interest expense. The Company is not a party to leveraged derivatives and does not hold or issue financial instruments for speculative purposes.

 

Revenue Recognition: The Company generally sells boats only to authorized dealers and to the U.S. Government. A sale is recorded when a boat is shipped to a dealer or to the Government, legal title and all other incidents of ownership have passed from the Company to the dealer or Government, and an accounts receivable is recorded or payment received from the dealer, the Government, or the dealer’s third-party commercial lender. This method of sales recognition is in use by most boat manufacturers.

 

The Company has developed criteria for determining whether a shipment should be recorded as a sale or as a deferred sale (a balance sheet liability). The criteria for recording a sale are that the boat has been completed and shipped to a dealer or to the Government, that title and incidents of ownership have passed to the dealer or to the Government, and that there is no direct or indirect commitment to the dealer or to the Government to repurchase the boat save those manufacturer’s repurchase agreements with lending institutions which are more fully discussed in Note 6 to these financial statements.

 

The sales incentive interest payment program for each boat sale is accrued for the entire interest period in the same fiscal accounting period that the related sale is recorded (see Note 6 to these financial statements). 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.

 

Stock Options: The Company has stock incentive plans that provide 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 5. The

 

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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – BASIS OF PRESENTATION (continued)

 

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 Operations.

 

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. The Corporation has adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.” Accordingly, compensation cost under SFAS No. 123 has been recognized for certain stock options issued under other agreements to non-employee and recorded in the accompanying statement of operations, but no compensation cost under SFAS No. 123 has been recognized for stock options issued under the plans and other agreements with employees.

 

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 the six months ended December 31, 2004 and 2003 consistent with the provisions of SFAS No. 123, the Company’s net income (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated below:

 

     For the Three Months Ended

    For the Six Months Ended

 
    

December 31,

2004


   

December 31,

2003


   

December 31,

2004


   

December 31,

2003


 
     Restated           Restated        

Net Income (Loss) as Reported

   $ 137,405     $ 239,059     $ (235,932 )   $ (117,288 )

Add: Stock-based non-employee Compensation expense included in Reported net income

                             1,795  

Deduct: Total stock-based employee Compensation expense determined Under fair value based method

     (4,221 )     (5,193 )     (8,442 )     (10,386 )
    


 


 


 


Net Income (Loss) Pro forma

   $ 133,184       233,866     $ (244,374 )   $ (125,879 )
    


 


 


 


Basic earnings (loss) per share:

                                

As reported

   $ .03     $ 0.05     $ (.05 )   $ (0.02 )
    


 


 


 


Pro forma

   $ .03     $ 0.05     $ (.05 )   $ (0.02 )
    


 


 


 


Diluted earnings (loss) per share:

                                

As reported

   $ .03     $ 0.05     $ (.05 )   $ (0.02 )
    


 


 


 


Pro forma

   $ .03     $ 0.05     $ (.05 )   $ (0.02 )
    


 


 


 


 

NOTE 2 - ACCOUNTS RECEIVABLE

 

As of December 31, 2004, accounts receivable were $4,345,133 net of the allowance for bad debts of $82,841. Accounts Receivable, as of June 30, 2004, were $3,507,247 net of the allowance for bad debts which amounted to $82,841. The Company reviews its receivables on a regular basis and adjusts its allowance for doubtful accounts based upon its best judgment. The Company believes these amounts (net of the allowance for doubtful accounts) to be fully realizable and has pledged its receivables as collateral for its promissory note with Bank of America.

 

Additionally, certain corrections were made to the beginning balances in accounts receivable for the quarter ended December 31, 2004, as a result of the adjustments previously made for the quarter ended September 30, 2004.

 

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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 - INVENTORIES

 

Inventories at December 31, 2004 and June 30, 2004 consisted of the following:

 

    

December 31,

2004


   

June 30,

2004


 
     Restated        

Parts and supplies

   $ 2,064,945     $ 1,920,860  

Work-in-process

     2,284,007       1,999,076  

Finished Goods

     276,982       783,466  
    


 


       4,625,934       4,703,402  

Obsolete inventory reserve

     (50,000 )     (50,000 )
    


 


Total Inventory

   $ 4,575,934     $ 4,653,402  
    


 


 

The Company has pledged its inventories as collateral for its promissory note with Bank of America.

 

Additionally, certain corrections were made to the beginning balances in work-in-process for the quarter ended December 31, 2004, as a result of the adjustments previously made for the quarter ended September 30, 2004.

 

NOTE 4 - LONG-TERM DEBT AND PLEDGED ASSETS

 

The following is a summary of long-term debt:

 

          December 31,
2004


   

June 30,

2004


 
          Restated     Restated  
9.99%    Loans payable to a financial institution for the purchase of vehicles, monthly payments totaling $1,383 through May 2005 secured by the vehicles purchased    $ 10,673     $ 18,216  
4.00%    Loan payable to a financial institution for the purchase of a vehicle, monthly payments of $726 through September 2006, secured by the vehicle purchased    $ 14,597     $ 18,522  
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    $ 1,355,577     $ 1,295,449  
     $18,000,000 credit agreement with a financial corporation (See below)    $ 16,581,223     $ 17,303,038  
         


 


            17,962,070       18,635,225  
Less:    Current portions included incurrent liabilities      (775,691 )     (772,704 )
         


 


          $ 17,186,379     $ 17,862,521  
         


 


 

On July 17, 2003, the Company obtained $18,000,000 of long-term borrowings, in the form of two $9,000,000 notes, from Bank of America which mature in five years. The agreement with Bank of America has a $9,000,000 note with a rate that is variable with the Wall Street LIBOR one month floating rate as the index plus the applicable margin. The applicable margin is based on funded debt to earnings before interest, taxes, depreciation and amortization (EBITDA). The applicable margin is as follows:

 

Funded Debt to EBITDA ratio


   Applicable Margin

 

Less than or equal to 1.74 to 1.00

   1.90 %

1.75 to 1.00, but less than 2.50 to 1.00

   2.10 %

2.50 to 1.00, but less than 3.76 to 1.00

   2.25 %

Greater than or equal to 3.76 to 1.00

   2.50 %

 

The applicable margin is currently 2.50%.

 

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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 4 - LONG-TERM DEBT AND PLEDGED ASSETS (Continued)

 

The agreement with Bank of America further has 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 cash flow hedge and is deemed effective pursuant to SFAS 133. These Bank of America loans have a fifteen year amortization with a five year balloon payment and are secured by certain assets of the Company and real estate of the Company’s President, Chief Executive Officer and majority shareholder, Reginald M. Fountain, Jr. Obligations are guaranteed by the Company, an unlimited unconditional guarantee of Mr. Fountain and by Brunswick Corporation, pursuant to a master funding agreement with the Company. Combined monthly payments to Bank of America currently are approximately $126,000.

 

The Company has agreed to observe certain covenants under the terms of its note agreements, the most restrictive of which relates to prepayment of excess earnings, the sale of assets securing the notes and key financial ratios. Chief among the covenants are:

 

  1. Maintenance of a tangible net worth floor which the Company’s tangible net worth may not fall below.

 

  2. A current maturity coverage ratio defined as the ratio of the current portion of long-term liabilities plus interest to “cash flow” which is defined as net income plus depreciation, amortization, interest and other non-cash expenditures which the Company’s ratio may not fall below.

 

  3. A funded debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio which is defined as the ratio of all outstanding debt both current and long-term to EBITDA which the Company’s ratio may not exceed.

 

  4. Maintenance of a gross margin (gross profit) percentage floor which the Company’s gross margin percentage may not fall below.

 

These covenants change and generally become more restrictive in future periods. The following matrix lists the required covenant levels for the periods then indicated:

 

    

March 31,

2004


   

June 30,

2004


    September 30,
2004


    December 31,
2004


   

March 31,

2005


   

June 30,

2005


 

Tangible Net Worth Floor

   $ 4.300 Million     $ 4.475 Million     $ 4.500 Million     $ 4.800 Million     $ 4.950 Million     $ 5.225 Million  

Current Maturity Coverage Ratio

     1.25 to 1.00       1.30 to 1.00       1.40 to 1.00       1.50 to 1.00       1.50 to 1.00       1.50 to 1.00  

Funded Debt To EBITDA

     6.25 to 1.00       6.00 to 1.00       5.25 to 1.00       5.00 to 1.00       4.35 to 1.00       3.75 to 1.00  

Gross Margin Floor %

     13.50 %     14.50 %     14.50 %     14.50 %     14.50 %     14.50 %

 

The Company is required to renegotiate these covenants prior to June 30, 2005.

 

The Company’s performance under the loan covenants for the current quarter ended December 31, 2004 was as follows:

 

  1. The applicable tangible net worth floor required by the Company’s lender for the current quarter ended December 31, 2004 was a tangible net worth not less than $4.80 million. The Company’s tangible net worth for purposes of determining compliance was $5.3 million.

 

  2. The current maturity coverage ratio required by the Company’s lender for the current quarter ended December 31, 2004 was a ratio not less than 1.50 to 1.00. The Company’s current maturity coverage ratio for purposes of determining compliance was 1.85 to 1.00.

 

  3. The funded debt to EBITDA ratio required by the Company’s lender for the current quarter ended December 31, 2004 was a ratio not more than 5.00 to 1.00. The Company’s funded debt to EBITDA ratio for purposes of determining compliance was 5.34 to 1.00.

 

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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 4 - LONG-TERM DEBT AND PLEDGED ASSETS (Continued)

 

  4. The gross margin percentage floor required by the Company’s lender for the current quarter ended December 31, 2004 was a gross margin percentage of not less than 14.5%. The Company’s gross margin percentage for purposes of determining compliance was 13.6%.

 

As of December 31, 2004 the Company was not in compliance with the funded debt to EBITDA ratio as well as the gross margin percentage floor. The Company has obtained a letter from Bank of America waiving compliance with the requirements of Section 4.A., of the Loan Agreement for the reporting period ending December 31, 2004.

 

In addition to the covenants listed above, the Company may not exceed its budgeted annual listing of fixed asset purchases approved by the loan’s guarantor, Brunswick Corporation and any non-listed fixed asset purchases greater than $50,000 per instance must have Brunswick Corporation’s express approval prior to acquisition. The Company expects this restriction to have no material effect upon its ability to maintain and improve its facilities and compete with other companies in the boating industry.

 

Prepayment - The Company is obligated to pay in addition to required monthly principal payments an additional 50% of the excess earnings after debt service within 120 days after the close of the Company’s fiscal year end.

 

If the Company prepays the balance of the note after one year of the date of the note, the Company must pay a half of a percent (.5%) of the unpaid balance on the date before the date the prepayment is made.

 

Should the Company default on the provision of timely payments, a delinquency charge of four percent (4%) of the unpaid portion of the payment that is more than fifteen days late will be applied. Should the Company remain in a default status, the interest rate charged to the Company shall be an additional two percent (2%) above the rates listed above.

 

Loan Guarantee – On July 17, 2003 the Company entered into an agreement with Brunswick Corporation, a division of which supplies marine engines used in the Company’s product, wherein Brunswick Corporation agreed to guarantee the $18,000,000 in debt financing, in return the Company President granted Brunswick the option to purchase his common shares and his options to purchase common shares of the Company. The Company’s President further agreed to indemnify Brunswick for all amounts in excess of $14,700,000. On July 17, 2003 the Company issued to Brunswick Corporation 273,146 options to acquire common shares at $.05 per share that are exercisable in the event of a default by the Company on its loan. In the event Brunswick Corporation exercises its option to purchase the Company President’s shares the Company has agreed to issue additional shares of common stock, which would result in Brunswick owning, together with the shares purchased from the Company President, 50.1% of the Company’s outstanding shares at the weighted average market closing price for the previous 30 days. The Company further entered into an exclusive supply agreement and agreed to restrictions on the Company issuing any equity securities that would dilute Brunswick’s potential equity interest in the Company upon exercise of their options with the Company and Company’s President without Brunswick’s prior approval. Brunswick Corporation’s options to purchase vest upon the earlier of the repayment or default of $18,000,000 notes payable, or July 1, 2007. Brunswick Corporation’s option expires no earlier than approximately 180 days after vesting.

 

NOTE 5 - COMMON STOCK

 

During January 2002, the Company issued 10,000 options to purchase common stock to a consultant for services to be rendered valued at $14,254. The options are exercisable at $1.67 per share, are fully vested and expire January 2009. During the six months ended December 31, 2004 and 2003, the Company recorded consulting expense of $0 and $1,795, respectively, related to these options.

 

During July 2003, the Company issued 273,146 options to purchase common stock to Brunswick Corporation as a condition of guaranteeing the Bank of America loan. The options are exercisable only under conditions of default by the Company of its loan and Brunswick having exercised its guarantee of the loan. Should Brunswick Corporation exercise its option to purchase the Company President’s stock, the Company has agreed to issue additional common shares which would result in Brunswick owning, together with the shares purchased from the Company President, 50.1% of the Company’s outstanding shares at the weighted average market closing price for the previous 30 days. The Company also agreed not to issue any equity instruments without prior approval of Brunswick Corporation.

 

If Brunswick Corporation exercised fully their options with the Company and Company President under the loan guarantee they would own 50.1 % of the outstanding stock of the Company.

 

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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 6 - COMMITMENTS AND CONTINGENCIES

 

Manufacturer Repurchase Agreements – The Company makes available through third-party finance companies floor plan financing for many of its dealers. Sales to participating dealers are approved by the respective finance companies. If a participating dealer does not satisfy its obligations under the floor plan financing agreement in effect with its commercial lender(s) and boats are subsequently repossessed by the lender(s), then under certain circumstances the Company may be required to repurchase the repossessed boats if it has executed a repurchase agreement with the lender(s). At December 31, 2004, the Company had a total contingent liability to repurchase boats in the event of dealer defaults and if repossessed by the commercial lenders amounting to approximately $17,922,653. At December 31, 2004, the allowance for boat repurchases was $75,000.

 

The Company vigilantly monitors all its dealers for solvency issues by examining dealer inventory levels and amounts carried under floor plan financing. At present the Company has no dealers that it believes to be at risk of default under their floor plan arrangements.

 

Dealer Interest – The Company regularly pays a portion of dealers’ interest charges for floor plan financing. These interest charges amounted to approximately $159,260 and $337,493, respectively for the three and six months ended December 31, 2004 and the estimated unpaid dealer interest included in accrued dealer incentives at December 31, 2004 amounted to $139,300.

 

Interest Rate Risk - At December 31, 2004, the Company owed $16,581,223 on an $18,000,000 credit agreement with Bank of America. The credit agreement has $9,000,000 at the one month LIBOR plus 2.50% or 3.95% as of December 31, 2004, and $9,000,000 under an interest rate swap to provide a fixed rate of 6.02%. An increase in the LIBOR rate would have a negative effect on the results of operations of the Company. A hypothetical 50 basis point increase in interest rates would result in an approximately $45,000 increase in interest expense.

 

Engine Supply Agreement – The Company entered into an Engine Supply agreement with Brunswick Corporation, as a condition for guaranteeing the Bank of America loan, to purchase all marine engines from Mercury Marine division of Brunswick except for products in categories in which Mercury does not manufacture or are unavailable from Mercury due to production shortages.

 

NOTE 7 - TRANSACTIONS WITH RELATED PARTIES

 

At December 31, 2004, the Company had receivables and advances from its employees amounting to $26,051.

 

During the three and six month period ended December 31, 2004, the Company paid $29,459 and $85,505 respectively, for services rendered to entities owned or controlled by the Company’s Chairman, President, and Chief Executive Officer.

 

The Company’s Chairman, President, and Chief Executive Officer has guaranteed and personally pledged certain of his assets as collateral in connection with the $18,000,000 loan with Bank of America and the Brunswick Corporation agreement to guarantee said loan. The president further agreed to sell certain of his common shares and options to purchase common shares to Brunswick Corporation in connection with their guarantee (See Note 4).

 

NOTE 8 - INCOME TAXES

 

The Company has provided for deferred income taxes in accordance with SAFS No. 109, Accounting for Income Taxes, whereby deferred income taxes are determined based upon the enacted income tax rates for the years in which these taxes are estimated to be payable or recoverable. Deferred income taxes arise from temporary differences resulting from a difference between the tax basis of an asset or liability and its reported amount in the financial statements.

 

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 8 - INCOME TAXES (Continued)

 

The components of federal income tax expense from continuing operations consist of the following:

 

     For the Six Months Ended

 
    

December 31,

2004


   

December 31,

2003


 
     Restated        

Current income tax expense:

                

Federal

   $ —       $ —    

State

     —         —    
    


 


Net current tax (benefit)

   $ —       $ —    
    


 


Deferred tax expense (benefit) resulted from:

                

Excess of tax over financial accounting depreciation

     (89,553 )     (31,946 )

Donations

     (1,282 )     (1,043 )

Accrued Vacation - Current

     19,812       —    

Accrued dealer incentive interest

     (29,255 )     (32,673 )

Accrued Profit Sharing - Executive

     20,800       51,620  

Accrued Dealer service incentive

     (61,010 )     5,460  

Health Insurance Reserve

     —         (4,680 )

Inventory adjustment-Sec.263A

     23,042       (13,734 )

Decrease (increase) in NOL carryforward

     (22,716 )     6,014  

Valuation allowance

     140,162       20,982  
    


 


Net deferred tax expense (benefit)

   $ —       $ —    
    


 


 

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:

 

     For the Six Months Ended

 
    

December 31,

2004


   

December 31,

2003


 
     Restated        

Computed tax at the expected federal statutory rate

   34.00 %   34.00 %

State income taxes, net of federal benefit

   5.00 %   5.00 %

Valuations allowance

   (59.41 )%   (19.06 )%

Depreciation provision

   25.19 %   0.00 %

Other

   (4.78 )%   (19.94 )%
    

 

Effective income tax rates

   0.00 %   0.00 %
    

 

 

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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 8 - INCOME TAXES (Continued)

 

Significant components of the Company’s deferred tax assets and liabilities are as follows:

 

     For the Six Months Ended

 
    

December 31,

2004


   

June 30,

2004


 
     Restated     Restated  

Deferred tax assets:

                

Warranty reserve

     276,900       276,900  

Obsolete inventory reserve

     19,500       19,500  

Allowance for boat repurchases

     29,250       29,250  

Bad Debt Reserve

     32,308       32,308  

Accrued Dealer incentive interest

     54,327       25,072  

Inventory adjustments – Sec.263A

     110,222       133,264  

State NOL Carryforward

     481,040       478,128  

Federal NOL Carryforward

     2,217,168       2,197,365  

Alternative minimum tax credits

     41,524       41,524  

Donations carryforward

     5,890       4,608  

Health insurance reserve

     49,140       49,140  

Investment tax credits

     86,294       86,294  

Accrued Vacation current

     (19,812 )     —    

Accrued Profit Sharing - Executive

     32,610       53,410  

Accrued Dealer Service Incentive

     61,010       —    
    


 


Total deferred assets

   $ 3,477,371     $ 3,426,763  

Less: Valuation allowance for deferred tax assets

     (2,205,702 )     (2,065,541 )
    


 


Net deferred tax assets

   $ 1,271,669     $ 1,361,222  

Deferred tax liabilities:

                

Excess of financial accounting depreciation over tax

     (1,271,669 )     (1,361,222 )
    


 


Net deferred tax asset (liabilities)

   $ —       $ —    
    


 


 

Net deferred tax assets (liabilities) are presented as follows:

 

    

December 31,

2004


   

June 30,

2004


 
     Restated     Restated  

Current deferred tax assets

   $ 238,195     $ 247,655  

Deferred tax liabilities

     (238,195 )     (247,655 )
    


 


Net deferred tax assets (liabilities)

   $ —       $ —    
    


 


 

NOTE 9 - EARNINGS (LOSS) PER SHARE

 

The computations of earnings (loss) per share and diluted earnings per share amounts are based upon the weighted average number of outstanding common shares during the periods, plus, when their effect is dilutive, additional shares assuming the exercise of certain vested stock options, reduced by the number of shares which could be purchased from the proceeds from the exercise of the stock options assuming they were exercised.

 

 

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 9 - EARNINGS (LOSS) PER SHARE (continued)

 

The weighted average common shares and common equivalent shares outstanding for the six month periods ended December 31, 2004 and 2003 for purposes of calculating earnings per share was as follows:

 

     For the Three Months Ended

   For the Six Months Ended

    

December 31,

2004


  

December 31,

2003


  

December 31,

2004


  

December 31,

2003


Weighted average common shares outstanding used in basic earnings per share for the three and six months ending

   4,814,275    4,757,608    4,811,268    4,757,608

Effect of dilutive stock options

   52,607    62,027    —      —  
    
  
  
  

Weighted average common shares and potential dilutive common equivalent shares outstanding used in dilutive earnings per share

   4,866,882    4,819,635    4,811,268    4,757,608
    
  
  
  

 

At December 31, 2004 there were 550,000 unexercised stock options, of which 450,000 were held by an officer and member of the board of directors of the Company at a strike price of $4.67 per share that were not included in the computation of earnings per share because the effect is anti-dilutive.

 

At December 31, 2003 there were 610,000 unexercised stock options, of which 480,000 were held by officers and directors of the Company at prices ranging from $3.58 to $4.67 per share that were not included in the computation of earnings per share because the effect is anti-dilutive.

 

NOTE 10 – VALUATION AND QUALIFYING ACCOUNTS

 

The balance in the following valuation and qualifying accounts at December 31, 2004 and change from the year ended June 30, 2004 are as follows:

 

Valuation and Qualifying

Account Description


  

June 30,

2004


  

Expense

Adjustment


  

And Other

Reductions


   

December 31,

2004


     Restated         Restated     Restated

Allowance for doubtful accounts

   $ 82,841               $ 82,841

Inventory valuation reserve

   $ 50,000               $ 50,000

Deferred tax valuation allowance

   $ 2,065,540         140,162     $ 2,205,702

Warranty reserve

   $ 710,000    877,690    (877,690 )   $ 710,000

Allowance for boat repurchases

   $ 75,000               $ 75,000

 

NOTE 11 – FINANCIAL STATEMENT RESTATEMENTS

 

As previously announced, the Audit Committee of the Board of the Company, together with the management of the Company, have concluded that the Company should restate its consolidated financial statements for the year ended June 30, 2004 and the three month periods ended September 30, 2004, December 31, 2004 and March 31, 2005.

 

As disclosed in Note 14 to the Company’s restated consolidated financial statements for the year ended June 30, 2004 included in the Company’s amended Annual Report on Form 10-K/A for the fiscal year ended June 30, 2004 filed with the SEC on October 12, 2005, the Company has restated its consolidated financial statements as of and for the year ended June 30, 2004 to correct certain financial statement errors reported in the Form 10-K for such fiscal year as originally filed. Also, as disclosed in the Company’s Quarterly Report on Form 10-Q/A for the three months ended September 30, 2004 filed with the SEC on October 12, 2005, the Company has restated its consolidated financial statements as of and for the three months ended September 30, 2004 to correct certain financial statement errors reported in the Form 10-Q for such three month period as originally filed. The corrections in these restatements (i.e., fiscal year ended June 30, 2004 and three months ended September 30, 2004) have a carry forward impact on the Company’s consolidated financial statements as of and for the three and six months ended December 31, 2004. In addition, certain financial reporting errors occurred during the three months

 

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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 11 – FINANCIAL STATEMENT RESTATEMENTS (continued)

 

ended December 31, 2004 that affected the Company’s consolidated financial statements as of and for the three months ended December 31, 2004. The errors are the result of the following:

 

    The amount accrued for payroll costs at September 30, 2004 was understated by $281,679. This understatement was corrected when the accrual was properly stated at December 31, 2004. As a result, compensation costs were understated by this amount for the quarter ended September 30, 2004 and overstated by this amount for the quarter ended December 31, 2004.

 

    Other payables and accruals were understated by $147,424 at September 30, 2004 and by $242,207 at December 31, 2004. As a result, operating results were overstated by $94,783 for the three months and by $242,207 for the six months ended December 31, 2004.

 

    The amount accrued for dealer interest was incorrectly calculated causing the amount to be understated by $226,000 at December 31, 2004. This resulted in an overstatement of operating results in that amount for both the three months and six months ended December 31, 2004.

 

    An inventory disposal during the quarter ended September 30, 2004 resulted in a loss of $135,899. This loss was not recorded during that quarter, and remained unrecorded at December 31, 2004. As a result, operating results were overstated by that amount for the six months ended December 31, 2004.

 

    Interest costs incurred during the quarters ended September 30, 2004 and December 31, 2004 of $12,298 and $27,506, respectively, relating to self constructed fixed asset projects, were not properly capitalized during those quarters. This resulted in an overstatement of interest expense of $27,506 and $39,804, respectively, for the three months and six months ended December 31, 2004.

 

    Prepaid expenses (related to boat show expenses) at September 30, 2004 and December 31, 2004 were understated by $17,657 and $192,403, respectively, resulting in overstatements of expenses of $174,746 and $192,403, respectively, for the three months and six months ended December 31, 2004.

 

    A sales transaction was inadvertently recorded twice in the general ledger during the quarter ended September 30, 2004. This error remained uncorrected at December 31, 2004, which resulted in sales being overstated by $61,600 for the six months ended December 31, 2004.

 

    Certain costs associated with fixed asset additions were erroneously expensed during the quarter ended December 31, 2004, resulting in an overstatement of expense of $18,000 for both the three months and six months ended December 31, 2004.

 

    Interest expense for the quarter ended September 30, 2004 was understated by $90,615 as a result of that amount being erroneously credited to interest expense rather than to the accrued interest liability account. This error remained uncorrected at December 31, 2004, resulting in an understatement of interest expense of that amount for the six months ended December 31, 2004.

 

As a result of these errors and the carry forward effects of restatements made at from June 30, 2004, the Company’s consolidated financial statement as of and for the three months and six months ended December 31, 2004 were misstated. The consolidated financial statements as of and for the three and six months ended December 31, 2004 have been restated in this filing to properly reflect the carry forward effects of the June 30, 2004 restatements as well as to correct for the effects of errors that occurred during the three and six months ended December 31, 2004.

 

 

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Table of Contents

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 11 – FINANCIAL STATEMENT RESTATEMENTS (continued)

 

A summary of the of the effects of correction of the errors that occurred during the three months and six months ended December 31, 2004 is as follows:

 

Error Giving Rise to Restatement


   Effect of Restatement on Results of Operations

 
  

Quarter


   

Year-to-date


 

Under-accrual of payroll costs

   $ 281,679     $ —    

Understatement of other accruals

     (94,783 )     (242,207 )

Under-accrual of dealer interest

     (226,000 )     (226,000 )

Unrecorded loss on disposal of inventory

     —         (135,899 )

Undercapitalized interest costs

     27,506       39,804  

Understatement of prepaid expenses

     174,746       192,403  

Overstatement of sales from duplicate transaction

     —         (61,600 )

Fixed Asset addition recorded as expense

     18,000       18,000  

Understatement of interest expense

     —         (90,615 )
    


 


Effect of Restatement on Results of Operations

   $ 181,148     $ (506,114 )
    


 


 

 

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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 11 – FINANCIAL STATEMENT RESTATEMENTS (continued)

 

A summary reconciling the consolidated financial statements as originally reported to the consolidated financial statements restated to reflect the carry forward effects of the prior year restatements and the correction of errors arising during the three months ended December 31, 2004 is as follows:

 

    

Dec. 31,

2004

Restated


   

Corrections

Of Current

Period Errors


   

Effects of

Prior Year

Restatements


   

Dec. 31,

2004

Originally Reported


 

ASSETS

                                

CURRENT ASSETS:

                                

Cash & Cash equivalents

   $ 3,237,776     $ (1 )   $ (91,531 )   $ 3,329,308  

Accounts Receivable, Net

     4,345,133       (61,598 )     (630,238 )     5,036,969  

Inventories

     4,575,934       (135,901 )     —         4,711,835  

Prepaid expenses

     385,853       192,403       —         193,450  

Current tax assets

     238,195       (20,433 )     (21,248 )     279,876  
    


 


 


 


Total Current Assets

     12,782,891       (25,530 )     (743,017 )     13,551,438  

Property, Plant & Equip., Net

     16,664,757       57,803       —         16,606,954  

Cash surrender value life insurance

     1,683,097       —         —         1,683,097  

Other Assets

     727,245       —         —         727,245  
    


 


 


 


TOTAL ASSETS

   $ 31,857,990     $ 32,273     $ (743,017 )   $ 32,568,734  
    


 


 


 


LIABILITIES

                                

CURRENT LIABILITIES:

                                

Current maturities: long-term debt

   $ 775,691     $ —       $ —       $ 775,691  

Current maturities: capital lease

     17,709       —         —         17,709  

Accounts payable

     4,243,676       220,941       —         4,022,735  

Accounts payable – related party

     10,750       —         —         10,750  

Accrued expenses

     370,515       144,606       (97,505 )     323,414  

Dealer incentives

     2,039,774       193,980       —         1,845,794  

Customer Deposits

     708,715       —         —         708,715  

Allowance for boat repurchases

     75,000       —         —         75,000  

Warranty reserve

     710,000       —         —         710,000  
    


 


 


 


Total Current Liabilities

     8,951,830       559,527       (97,505 )     8,489,808  

Long-term Debt, less current maturities

     17,186,379       1       (7,520 )     17,193,898  

Capital Lease, less current maturities

     1,843       —         —         1,843  

Deferred Tax Liability

     238,195       (20,433 )     (21,248 )     279,876  
    


 


 


 


Total Liabilities

     26,378,247       539,095       (126,273 )     25,965,425  

STOCKHOLDERS’ EQUITY:

                                

Common Stock

     48,142       —         —         48,142  

Additional paid-in capital

     10,527,053       —         —         10,527,053  

Retained earnings (deficit)

     (5,028,234 )     (506,821 )     (692,056 )     (3,829,357 )
    


 


 


 


       5,546,961       (506,821 )     (692,056 )     6,745,838  

Less: Treasury Stock

     (110,748 )     —         —         (110,748 )

Accumulated other comprehensive income from interest rate swap

     43,530       (1 )     75,312       (31,781 )
    


 


 


 


Total Stockholders’ Equity

     5,479,743       (506,822 )     (616,744 )     6,603,309  

TOTAL LIABILITIES & STOCKHOLDER’S EQUITY

   $ 31,857,990     $ 32,273     $ (743,017 )   $ 32,568,734  
    


 


 


 


 

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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 11 – FINANCIAL STATEMENT RESTATEMENTS (continued)

 

Three Months Ended December 31, 2004

 

  

Dec. 31,

2004

Restated


   

Corrections of

Current

Period Errors


   

Dec. 31,

2004
Originally Reported


 

CONSOLIDATED STATEMENT OF OPERATIONS

                        

NET SALES

   $ 17,256,520     $ (195,472 )   $ 17,451,992  

COST OF SALES

     14,880,617       (227,653 )     15,108,270  
    


 


 


Gross Profit

     2,375,903       32,181       2,343,722  

EXPENSES:

                        

Selling expense

     1,029,424       (121,462 )     1,150,886  

General and Administrative

     942,288       —         942,288  
    


 


 


Total expenses

     1,971,712       (121,462 )     2,093,174  
    


 


 


OPERATING INCOME (LOSS)

     404,191       153,643       250,548  

NON-OPERATING INCOME (EXPENSE)

                        

Other income (expense)

     94       —         94  

Interest expense

     (266,880 )     27,505       (294,385 )

Gain (loss) on disposal of assets

     —         —         —    
    


 


 


TOTAL NON-OPERATING INCOME (EXPENSE)

     (266,786 )     27,505       (294,291 )
    


 


 


INCOME (LOSS) BEFORE INCOME TAXES

     137,405       181,148       (43,743 )

CURRENT TAX EXPENSE (BENEFIT)

     —         —         —    

DEFERRED TAX EXPENSE (BENEFIT)

     —         —         —    
    


 


 


NET INCOME (LOSS)

   $ 137,405     $ 181,148     $ (43,743 )
    


 


 


BASIC EARNINGS (LOSS) PER SHARE

   $ 0.03     $ 0.04     $ (0.01 )
    


 


 


WEIGHTED AVERAGE SHARES OUTSTANDING

     4,814,275       4,814,275       4,814,275  
    


 


 


DILUTED EARNINGS (LOSS) PER SHARE

   $ 0.03     $ 0.04     $ (0.01 )
    


 


 


WEIGHTED AVERAGE SHARES OUTSTANDING ASSUMING DILUTION

     4,866,882       4,866,882       4,866,882  
    


 


 


 

 

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FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

 

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 11 – FINANCIAL STATEMENT RESTATEMENTS (continued)

 

Six Months Ended December 31, 2004

 

  

Dec. 31,

2004

Restated


   

Corrections of

Current
Period Errors


   

Dec. 31,

2004

Originally Reported


 

CONSOLIDATED STATEMENT OF OPERATIONS

                        

NET SALES

   $ 33,998,827     $ (257,072 )   $ 34,255,899  

COST OF SALES

     29,629,776       201,450       29,428,326  
    


 


 


Gross Profit

     4,369,051       (458,522 )     4,827,573  

EXPENSES:

                        

Selling expense

     2,535,590       (3,220 )     2,538,810  

General and Administrative

     1,529,076       —         1,529,076  
    


 


 


Total expenses

     4,064,666       (3,220 )     4,067,886  
    


 


 


OPERATING INCOME (LOSS)

     304,385       (455,302 )     759,687  

NON-OPERATING INCOME (EXPENSE)

                        

Other income (expense)

     792       —         792  

Interest expense

     (541,109 )     (50,812 )     (490,297 )

Gain (loss) on disposal of assets

     —         —         —    
    


 


 


TOTAL NON-OPERATING INCOME (EXPENSE)

     (540,317 )     (50,812 )     (489,505 )
    


 


 


INCOME (LOSS) BEFORE INCOME TAXES

     (235,932 )     (506,114 )     270,182  

CURRENT TAX EXPENSE (BENEFIT)

     —         —         —    

DEFERRED TAX EXPENSE (BENEFIT)

     —         —         —    
    


 


 


NET INCOME (LOSS)

   $ (235,932 )   $ (506,114 )   $ 270,182  
    


 


 


BASIC EARNINGS (LOSS) PER SHARE

   $ (0.05 )   $ (0.11 )   $ 0.06  
    


 


 


WEIGHTED AVERAGE SHARES OUTSTANDING

     4,811,268       4,811,268       4,811,268  
    


 


 


DILUTED EARNINGS (LOSS) PER SHARE

   $ (0.05 )   $ (0.11 )   $ 0.06  
    


 


 


WEIGHTED AVERAGE SHARES OUTSTANDING ASSUMING DILUTION

     4,811,268       4,811,268       4,863,514  
    


 


 


 

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ITEM 2: Management’s Discussion and Analysis of Results of Operations and Financial Condition

 

Results of Operations.

 

Net Sales – Net sales for the three months ended December 31, 2004 were $17,256,520, an increase of $3,894,709 or 29.2%, as compared to net sales of $13,361,811 for the three months ended December 31, 2003. Net sales for the six months ended December 31, 2004 were $33,998,827, an increase of $7,751,784 or 29.5%, as compared to net sales of $26,247,043 for the six months ended December 31, 2003. The increase in net sales is primarily attributable to increased unit sales of fish boats and express cruisers.

 

Gross Profit – Gross profit for the three months ended December 31, 2004 was $2,375,903 as compared to $2,027,100 for the three months ended December 31, 2003. Gross profit for the six months ended December 31, 2004 was $4,369,051 as compared to $4,059,281 for the six months ended December 31, 2003. The increase in gross profits is attributable to the increase in the number of units sold.

 

Selling Expenses – Selling expenses for the three months ended December 31, 2004 were $1,029,424 as compared to $1,050,694 for the three months ended December 31, 2003. Selling expenses for the six months ended December 31, 2004 were $2,535,590 as compared to $2,406,264 for the six months ended December 31, 2003. The increase in selling expenses is related to the increase in sales and represents normal expenditures for sales and marketing activities of the Company.

 

General and Administrative Expenses – General and administrative expenses for the three months ended December 31, 2004 were $942,288 as compared to $519,353 for the three months ended December 31, 2003. General and administrative expenses for the six months ended December 31, 2004 were $1,529,076 as compared to $1,085,212 for the six months ended December 31, 2003. The increase in general and administrative expenses is attributable to augmentation of the executive and finance staffs, increased expenditures for investor relations and primarily other non-recurring expenses.

 

Operating Income – Operating income for the three months ended December 31, 2004 was $404,191 as compared to $457,053 for the three months ended December 31, 2003. Operating income for the six months ended December 31, 2004 was $304,385 as compared to $567,805 for the six months ended December 31, 2003.

 

Interest Expense – Interest expense for the three months ended December 31, 2004 was $266,880 as compared to $216,032 for the three months ended December 31, 2003. Interest expense for the six months ended December 31, 2004 was $541,109 as compared to $686,190 for the six months ended December 31, 2003. The $145,081 reduction in interest expense, for the six months ended December 31, 2004, is attributable to the write-off of the unamortized closing costs of a loan with G. E. Capital that occurred during the quarter ended September 30, 2003 which was not duplicated in the current period.

 

Net Income (Loss) – Net (Loss) for the three months ended December 31, 2004 was $137,405 as compared to $239,059 for the three months ended December 31, 2003. Net (Loss) for the six months ended December 31, 2004 was $(235,932) as compared to a net loss of $(117,288) for the six months ended December 31,

 

Income Tax - Current tax expense is $0 for the three months ended December 31, 2004 and 2003, and is $0 for the six months ended December 31, 2004 and 2003, respectively. Deferred tax expense is $0 for the three months ended December 31, 2004 and 2003, and is $0 for the six months ended December 31, 2004 and 2003, respectively. The Company’s lack of income tax expense is a result of net operating loss carryovers from the year ended June 30, 2002. There remains $6,521,084 for federal and $9,620,814 for state tax purposes of net operating loss carryovers available until the years 2022 and 2023, to offset current tax expenses.

 

The ultimate realization of the benefits from the deferred tax assets is dependent upon the Company’s future earnings, the future tax laws in effect, and other unknown factors, all of which are uncertain. For these reasons and because the Company has generated operating tax losses in recent years, the Company has elected to provide for a tax asset valuation allowance to fully reserve its net deferred tax asset at December 31, 2004 and June 30, 2004.

 

Management estimates, based on the Company’s increased backlog of orders, that sales volumes will continue to improve in the near future thus resulting in improved earnings and partial or full absorption of the net operating tax loss carryovers. However, the Company has not reduced the tax asset valuation allowance since, with the exception of order backlog, it is very difficult to predict future sales volumes in an uncertain economy. Management regularly reviews the Company’s need for the valuation allowance and expects that it will not be required in its entirety in the coming years. As operating results and the economy stabilize and future sales volumes increase, management will give increasing consideration to reducing the valuation allowance or eliminating it altogether.

 

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Table of Contents

Liquidity and Capital Resources.

 

Cash decreased by $384,481 to $3,237,776 at December 31, 2004 from $3,622,258 at June 30, 2004. The decrease is primarily attributable to investments in molds and related tooling and improvements to the Company’s manufacturing line.

 

Cash provided by operations for the six months ended December 31, 2004 was $2,215,451 and was primarily attributable to the net income of the Company as adjusted by depreciation and an increase in customer deposits.

 

Cash used in investing activities for the six months ended December 31, 2004 was $1,912,139 and was primarily attributable to boat mold and tooling expenditures ($1,003,658) to support the Company’s new fish boat designs that are to be introduced in the current fiscal year and improvements to the Company’s manufacturing line and facilities ($739,473) intended to increase manufacturing capacity and efficiency.

 

Management is of the opinion that cash flows will be sufficient to satisfy its current and future liquidity demands because of the increase in sales volumes and sales backlogs at the date of this filing. The Company has maintained a record sales backlog through the date of this report and is currently enjoying an increasingly favorable business climate for its products.

 

Cautionary Statement for Purposes of “Safe Harbor” Under the Private Securities Reform Act of 1995.

 

The Company may from time to time make forward-looking statements, including statements projecting, forecasting, or estimating the Company’s performance and industry trends. The achievement of the projections, forecasts, or estimates contained in these statements is subject to certain risks and uncertainties, and actual results and events may differ materially from those projected, forecasted, or estimated.

 

The applicable risks and uncertainties include general economic and industry conditions that affect all businesses, as well as, matters that are specific to the Company and the markets it serves. For example, the achievement of projections, forecasts, or estimates contained in the Company’s forward-looking statements may be impacted by national and international economic conditions; compliance with governmental laws and regulations; accidents and acts of God; and all of the general risks associated with doing business.

 

Risks that are specific to the Company and its markets include but are not limited to compliance with increasingly stringent environmental laws and regulations; the cyclical nature of the industry; competition in pricing and new product development from larger companies with substantial resources; the concentration of a substantial percentage of the Company’s sales with a few major customers, the loss of, or change in demand from, any of which could have a material impact upon the Company; labor relations at the Company and at its customers and suppliers; and the Company’s single-source supply and just-in-time inventory strategies for some critical boat components, including high performance engines, which could adversely affect production if a single-source supplier is unable for any reason to meet the Company’s requirements on a timely basis.

 

Recent Accounting Pronouncements:

 

In December 2004, the FASB issued SFAS No. 123(R), Accounting for Stock-Based Compensation (SFAS No. 123(R)). SFAS No. 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services. The Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123(R) requires that the fair value of such equity instruments be recognized as an expense in the historical financial statements as services are performed. Prior to SFAS No. 123(R), only certain pro forma disclosures of fair value were required. The provisions of this Statement are effective for the first interim reporting period that begins after June 15, 2005. Accordingly, we will adopt SFAS No. 123(R) commencing with the quarter ending September 30, 2005. If we had included the cost of employee stock option compensation in our consolidated financial statements, our net income (loss) for the three months ended December 31, 2004 and 2003 would have been ($47,964) and $233,866, respectively. Our net income (loss) for the six months ended December 31, 2004 and 2003 would have been $261,740 and ($125,879), respectively. The adoption of SFAS No. 123(R) is not expected to have a material effect on our consolidated financial statements.

 

ITEM 3: Quantitative and Qualitative Disclosures about Market Risk.

 

Interest Rate Risk - At December 31, 2004, the Company owed $16,581,223 on a $18,000,000 credit agreement with Bank of America. The credit agreement has $9,000,000 at one month LIBOR plus 2.50% or 3.95% as of December 31, 2004, and $9,000,000 under an interest rate swap to provide a fixed rate of 6.02%. A hypothetical 50 basis point increase in interest rates would result in an approximately $45,000 increase in interest expense, resulting in a negative impact on the Company’s liquidity and results of operations.

 

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Table of Contents

ITEM 4. Controls and Procedures

 

In the Original Filing, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this report, our disclosure controls and procedures (as defined in Rules 13a-(e) and 15d-(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were effective in enabling the Company to record, process, summarize and report in a timely manner the information required to be disclosed in reports it files under the Exchange Act. However, in connection with the additional review done in connection with the restatement and the preparation of this Form 10-Q/A, our management, with the participation of our Chief Executive Officer and Chief Financial Officer carried out another evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, because of material weaknesses in internal controls over financial reporting discussed below, as of the end of the period covered by this report, our disclosure controls and procedures were not effective in ensuring that the information required to be disclosed by us in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

Internal Control over Financial Reporting

 

As described more fully elsewhere in this Form 10-Q/A, the Company, through an internal review process, identified certain accounting errors made during the quarter ended December 31, 2004. Please see “Explanatory Note” and footnote 11 to the Company’s consolidated financial statements for a detailed description of theses errors. The Company has corrected these errors in the restatement. See “Explanatory Note” and Notes 1,2,3,4, 8 & 10 to the Consolidated Financial Statements for further information and a detailed description of the corrections of the Company’s financial statements made in the restatement.

 

Based upon the results of our investigation, our Chief Executive Officer and Chief Financial Officer determined that the accounting errors referenced above were the result of material weaknesses in internal control over financial reporting related to (i) its system of entry of certain types of transactions into the general and subsidiary ledgers and (ii) the timely reconciliation of general ledger balance sheet accounts to the appropriate underlying subsidiary records. The Company has taken steps to remediate the material weaknesses as of the date of this report.

 

As a result of these material weaknesses, certain account balances and certain income and expense amounts being previously reported in an incorrect quarter. The Company’s reconciliation and review processes, which should had detected these errors, were not adequate to do so, with the result that the Company’s financial statements as of and for the quarter ended December 31, 2004 were materially misstated prior to restatement.

 

A material weakness in internal control is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements would not be prevented or detected on a timely basis by the company. We have taken steps to remediate the material weaknesses, including:

 

    an increase in the number of accounting and financial reporting personnel at the Company, which includes a new accounts receivable associate and a new accounting administrative associate;

 

    the removal of the Company’s former controller, who was principally responsible for ledger entries and oversight of all reconciliations, and the hiring of a replacement controller;

 

    the hiring of a full-time experienced accounting and financial reporting consultant to assist the accounting and finance staff of the Company in connection with the restatement, the Company’s ongoing financial reporting obligations and the improvement of its internal controls over financial reporting;

 

    the implementation of better record-keeping policies and procedures; and

 

    the implementation of new controls to verify and reconcile the entry of items to the general ledger, such as (i) the review by our chief financial officer of all journal entries and accrual schedules, (ii) new control processes for balancing accounts, such as revenue accounts, dealer discount accounts, accounts receivable, accounts payable, which will be reconciled every month (instead of at quarter end as the Company had previously done), and (iii) additional review process for accounts receivable and payable accounts by manager level personnel.

 

The Company believes that these remedial steps have corrected the material weaknesses described above.

 

In addition to the evaluation discussed above, we will continue to evaluate our internal control over financial reporting on a regular basis. If we identify a problem in our internal control over financial reporting during the course of our evaluations, we

 

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Table of Contents

will consider what revision, improvement and/or correction to make in order to ensure that our internal control over financial reporting is effective. Accordingly, we intend to continue to refine our internal control over financial reporting on an ongoing basis as we deem appropriate with a view towards making improvements.

 

PART II. OTHER INFORMATION.

 

ITEM 1: Legal Proceedings.

 

There were no legal proceedings of a material nature during the quarter ending December 31, 2004.

 

ITEM 2: Unregistered Sales of Equity Securities and Use of Proceeds.

 

The Company repurchased none of its own securities, nor issued or sold any unregistered securities during the quarter ending December 31, 2004.

 

Item 3: Defaults Upon Senior Securities.

 

There were no defaults upon senior securities during the quarter ending September 30, 2004.

 

ITEM 4: Submission of Matters to a vote of Security Holders.

 

The Company’s Annual Meeting of Shareholders was held on November 9, 2004. Each person who was then serving as a member of the Board of Directors was re-elected for another one year term. The votes for each nominee were cast as follows:

 

    

Shares Voting

For


   Against

   Withheld

Reginald M. Fountain, Jr.

   4,054,320    —      109,576

A. Myles Cartrette

   4,045,945    —      117,951

George L. Deichmann, III

   4,055,095    —      108,801

Guy L. Hecker, Jr.

   4,026,345    —      137,551

David C. Miller

   4,005,970    —      157,926

Mark L. Spencer

   4,043,145    —      120,751

Robert L. Stallings, III

   4,027,545    —      136,351

David L. Woods

   4,054,945    —      108,951

 

The shareholders ratified the Board of Directors Proposed amendments to the Company’s 1995 Stock Option Plan. A Form 8-K was filed with the Securities and Exchange Commission November 16, 2004. The amendments to the plan were ratified by a vote of 2,624,722 shares for and 172,242 shares against or withheld, with 31,868 abstentions or broker nonvotes.

 

The shareholders ratified the Board of Directors appointment of Dixon Hughes PLLC as independent certified public accountants for the Company. The appointment was ratified by a vote of 4,120,010 shares for and 16,945 shares against or withheld, with 26,941 abstentions or broker nonvotes.

 

ITEM 5: Other Information.

 

Not Applicable

 

ITEM 6: Exhibits.

 

(a) Exhibits. An index of exhibits that is a part of this Form 10-Q/A appears following the signature page and is incorporated herein by reference.

 

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SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

FOUNTAIN POWERBOAT INDUSTRIES, INC.

(Registrant)

   

By:

 

/s/ Irving L. Smith


  Date: November 15, 2005
   

Irving L. Smith

   
   

Chief Financial Officer

   

 

28


Table of Contents

EXHIBIT INDEX

 

Exhibit No.

 

Exhibit Description


31.1   Certification pursuant to Rule 13a-14(a) by the Chief Executive Officer
31.2   Certification pursuant to Rule 13a-14(a) by the Chief Financial Officer
32.   Certifications pursuant to 18 U.S.C. Section 1350

 

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