Back to GetFilings.com

Table of Contents

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2005

OR

For the transition period from              to             

Commission File Number 0-14712

FOUNTAIN POWERBOAT INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

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

Table of Contents

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

INDEX

Page 2

Table of Contents

PART I. FINANCIAL INFORMATION.

ITEM 1: Financial Statements.

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

[Continued]

Page 3

Table of Contents

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

[Continued]

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

Page 4

Table of Contents

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

Page 5

Table of Contents

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

UNAUDITED CONDNSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Page 6

Table of Contents

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

UNUADITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Continued)

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

Page 7

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 only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows at March 31, 2005 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 annual report on Form 10-K for the year ended June 30, 2004. The results of operations for the three and nine month periods ended March 31, 2005 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 March 31, 2005 and June 30, 2004, the Company had $2,307,326 and $3,613,789, 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.

Page 8

Table of Contents

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION (continued)

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 except 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 6 month 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 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.

Page 9

Table of Contents

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 nine months ended March 31, 2005 and 2004 consistent with the provisions of SFAS No. 123, the Company’s net income and earnings per share would have been reduced to the pro forma amounts indicated below:

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION (continued)

NOTE 2 - ACCOUNTS RECEIVABLE

As of March 31, 2005, accounts receivable were $4,164,870 net of the allowance for bad debts of $82,841. Accounts Receivable, as of June 30, 2004, were $4,137,484 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.

NOTE 3 - INVENTORIES

Inventories at March 31, 2005 and June 30, 2004 consisted of the following:

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

Page 10

Table of Contents

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - LONG-TERM DEBT AND PLEDGED ASSETS

The following is a summary of long-term debt:

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:

The applicable margin is currently 2.50%.

Page 11

Table of Contents

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 $137,000.

The Company has agreed to observe certain covenants under the terms of its note agreements as amended, 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:

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

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

Page 12

Table of Contents

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The Company’s performance under the loan covenants for the current quarter ended March 31, 2005 was as follows:

As of March 31, 2005 the Company was in compliance with all required covenants.

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 from 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.

Page 13

Table of Contents

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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 option to purchase vests upon the earlier of the repayment 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 July 2003, the Company issued 273,146 options to purchase common stock to Brunswick Corporation as a condition of guarantying 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.

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 March 31, 2005, 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 $26,907,087. At March 31, 2005 the allowance for boat repurchases was $75,000.

Page 14

Table of Contents

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)

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 $502,402 and $839,895, respectively for the three and nine months ended March 31, 2005 and the estimated unpaid dealer interest included in accrued dealer incentives at March 31, 2005 amounted to $127,354.

Interest Rate Risk - At March 31, 2005 the Company owed $16,521,015 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 5.35% as of March 31, 2005 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 $41,000 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 March 31, 2005 the Company had receivables and advances from its employees amounting to $27,826.

During the three and nine month period ended March 31, 2005, the Company paid $54,464 and $151,934 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.

Page 15

Table of Contents

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

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:

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:

Page 16

Table of Contents

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:

Page 17

Table of Contents

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - INCOME TAXES (Continued)

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

The Company has unused federal operating loss carry forwards at March 31, 2005 and 2004 of approximately $4,149,764 and $5,770,406, respectively, which expire in various years through 2023. The Company has unused state operating loss carry forwards at March 31, 2005 and 2004 of approximately $7,249,493 and $8,8870,136, respectively, which expire in various years through 2023.

NOTE 9 - EARNINGS PER SHARE

The computations of earnings 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.

The weighted average common shares and common equivalent shares outstanding for the nine month periods ended March 31, 2005 and 2004 for purposes of calculating earnings per share was as follows:

Page 18

Table of Contents

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – VALUATION AND QUALIFYING ACCOUNTS

The balance in the following valuation and qualifying accounts at March 31, 2005 and change from the year ended June 30, 2004 are as follows:

Page 19

Table of Contents

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 March 31, 2005 were $16,564,276, an increase of $773,626 or 4.9%, as compared to net sales of $15,790,650 for the three months ended March 31, 2004. Net sales for the nine months ended March 31, 2005 were $50,820,178, an increase of $8,782,485 or 20.9%, as compared to net sales of $42,037,693 for the nine months ended March 31, 2004. 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 March 31, 2005 was $2,759,729 as compared to $3,119,068 for the three months ended March 31, 2004. Gross profit for the nine months ended March 31, 2005 was $7,587,303 as compared to $7,178,349 for the nine months ended March 31, 2004. The increase in gross profits is attributable to the increase in the number of units sold.

Our products require the use and/or consumption of petroleum based and metal products. The rise in petroleum prices and metal product prices during the nine months ending March 31, 2005 has negatively impacted our Gross Profit by increasing the Cost of Sales. Prices of our boats have now been adjusted to offset these increases in materials prices. During the nine months ending March 31, 2005 we have undertaken and/or completed capital projects which will ultimately result in improved efficiency of the manufacturing process. During the construction period, however, the disruption of the manufacturing process has adversely affected productivity with a commensurate increase in the Cost of Sales. Construction is now complete and the manufacturing operation is achieving productivity and efficiency improvements as expected.

Selling Expenses – Selling expenses for the three months ended March 31, 2005 were $1,418,760 as compared to $1,593,717 for the three months ended March 31, 2004. Selling expenses for the nine months ended March 31, 2005 were $3,957,570 as compared to $3,999,981 for the nine months ended March 31, 2004.

General and Administrative Expenses – General and administrative expenses for the three months ended March 31, 2005 were $824,396 as compared to $487,891 for the three months ended March 31, 2004. General and administrative expenses for the nine months ended March 31, 2005 were $2,353,473 as compared to $1,573,103 for the nine months ended March 31, 2004. The increase in general and administrative expenses is attributable to augmentation of the executive and finance staffs, increased expenditures for investor relations and professional service fees.

Operating Income – Operating income for the three months ended March 31, 2005 was $516,573 as compared to $1,034,460 for the three months ended March 31, 2004. Operating income for the nine months ended March 31, 2005 was $1,276,260 as compared to $1,605,265 for the nine months ended March 31, 2004.

Interest Expense – Interest expense for the three months ended March 31, 2005 was $290,948 as compared to $288,619 for the three months ended March 31, 2004. Interest expense for the nine months ended March 31, 2005 was $781,245 as compared to $974,809 for the nine months ended March 31, 2004. The $193,563 reduction in interest expense, for the nine months ended March 31, 2005, 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 – Net Income for the three months ended March 31, 2005 was $230,560 as compared to $754,365 for the three months ended March 31, 2004. Net income for the nine months ended March 31, 2005 was $500,742 as compared to a net income of $637,077 for the nine months ended March 31, 2004.

Page 20

Table of Contents

Income Tax - Current tax expense is a current income tax benefit of $969 for the three months ended March 31, 2005 and 2004, and is $0 for the nine months ended March 31, 2005 and 2004, respectively. Deferred tax expense is $0 for the three months ended March 31, 2005 and 2004, and is $0 for the nine months ended March 31, 2005 and 2004, 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 $4,149,764 for federal and $7,249,493 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 March 31, 2005.

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.

Liquidity and Capital Resources.

Cash decreased by $1,306,463 to $2,407,326 at March 31, 2005 from $3,713,789 at June 30, 2004. The decrease in cash is primarily attributable to paying off the outstanding loan against the life insurance policies.

During the three months ended March 31, 2005, $1,880,350.33 was transferred from the Bank of America savings account to Northwest Mutual Life Insurance to pay off loans on key man insurance policies and deposit additional funds in the cash value of the policies. This was done in order to earn 8% interest from Northwestern Mutual vs. 1.25% interest earned from the Bank of America savings account. The balance sheet reflects a decrease in Current Assets of $1,880,350.33 and an increase of the same amount in Other Assets. The cash value of the life insurance policies can be obtained within a few days and is effectively the same as a savings account, however, GAAP rules require that it be reported in other assets.

Cash provided by operations for the nine months ended March 31, 2005 was $3,941,003 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 nine months ended March 31, 2005 was $3,047,886 and was primarily attributable to boat mold and tooling expenditures ($1,432,576) 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 ($1,209,167) intended to increase manufacturing capacity and efficiency. An additional $431,778 was purchased on the key man life insurance policy, in this quarter.

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. The backlog of orders for our boats has increased from $31.7 million on March 31, 2004 to $45.6 million as of March 31, 2005.

Page 21

Table of Contents

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 as amended on August 14, 2005 are effective for the fiscal year 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 March 31, 2005 and 2004 would have been $226,329 and $749,172, respectively. Our net income (loss) for the nine months ended March 31, 2005 and 2004 would have been $488,079 and $623,293, 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 March 31, 2005, the Company owed $16,521,015 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 5.35% as of March 31, 2005, 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 $41,000 increase in interest expense, resulting in a negative impact on the Company’s liquidity and results of operations.

ITEM 4: Controls and Procedures

As of March 31, 2005, the Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the design and operation of these disclosure controls and procedures were effective as of the end of the period covered by this report. In connection with this evaluation, no change in the Company’s internal control over financial reporting was identified that occurred during the period covered by this report that has materially affected, or is reasonably likely to affect the Company’s internal control over financial reporting

Page 22

Table of Contents

PART II. OTHER INFORMATION.

ITEM 1: Legal Proceedings.

Not Applicable

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

Not Applicable

Item 3: Defaults Upon Senior Securities.

Not Applicable

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

Not Applicable

ITEM 5: Other Information.

On April 13, 2005, the Company’s Board of Directors passed a resolution to transfer the listing of the Company’s common stock from NASDAQ to the American Stock Exchange. The Company’s common stock became listed and began trading on the American Stock Exchange effective April 14, 2005.

ITEM 6: Exhibits.

Exhibits:

Exhibit 31.1, Certification pursuant to Rule 13a-14(a) by the Chief Executive Officer

Exhibit 31.2, Certification pursuant to Rule 13a-14(a) by the Chief Financial Officer

Exhibit 32, Certifications Pursuant to 18 U.S.C. Section 1350

Page 23

Table of Contents

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.

Page 24