Fountain forming a plan to avoid delisting

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Company CEO says purchase of Baja line will help product demand and avoid stock penalty

Fountain Powerboat Industries, in its efforts to keep from being delisted on the American Stock Exchange, submitted a plan to Amex July 18 that summarizes management’s strategies for dealing with the issues raised in a delisting notice.

The Washington, N.C., boatbuilder received notice in June that it is not in compliance with one of Amex’s standards for the continued listing of the company’s common stock. The decision was based on Amex’s review of the company’s quarterly report for the period ending March 31.

Specifically, the notice stated Fountain “… has sustained losses which are so substantial in relation to its overall operations or its existing financial resources, or its financial condition has become so impaired that it appears questionable, in the opinion of the exchange, whether such company will be able to continue operations and/or meet its obligations as they mature.”

For its third quarter, Fountain’s net sales fell to $14.2 million, compared to $16.5 million in the same 2007 period. Net loss for the traditionally slow quarter was $1.96 million, compared to a net loss of $3.87 million in the year-ago comparable period.

Amex also noted Fountain is not in compliance with covenants contained in its $14.5 million term loan, which sets forth minimum earnings before interest, taxes, depreciation and amortization, and that the company has been operating under a waiver that expired June 30.

The boatbuilder reclassified the loan as current liability for the quarters ending Dec. 31, 2007 and March 31, 2008. This resulted in a significant working capital deficit at the end of each of those periods, according to the company.

Fountain’s plan, according to the synopsis the company filed with the Securities and Exchange Commission, describes discussions with the boatbuilder’s primary lender, Regions Bank, regarding the term loan. Fountain noted it has not defaulted on any loan payments to its lender and the boatbuilder has a $2 million unused line of credit.

The company also said it expects the bank will grant a waiver of the violation of the loan covenants and redefine them for fiscal 2009, which would permit the term loan to be classified again as long-term debt.
If Amex does not accept Fountain’s plan, the company will be subject to delisting proceedings.

Even if the plan is accepted by Amex, but the company does not make progress consistent with the plan during the plan period, or it is not in compliance with all continued listing standards of the company guide by Dec. 11, Amex may initiate delisting proceedings.

Officials at Amex would not release details of the plan or whether it was accepted, directing all questions to the company. Fountain executives did not return calls for comment.

However, before the plan was submitted, CEO Reginald Fountain Jr., expressed confidence the issue would be resolved.

“We will be responding to them in a very positive way,” he sold Soundings Trade Only in early July. “We will detail our situation, which is not nearly as bad as they seem to think it is.”

Fountain said he expects the company to report positive results for fiscal 2008. He said sales in the fourth quarter will be up compared to the 2007 fourth quarter, and will make up for the sales deficit reported in the 2008 third quarter. Overall, he said, the fiscal 2008 sales volume will be about the same as the previous year.

And, he added, “operating profit has improved dramatically this year over last year.”

Fountain was also upbeat as he discussed expectations for the Baja brand that the company recently purchased from Brunswick Corp.

“There is a lot of pent-up demand for Baja because nobody has been building them for the last six months,” Fountain said. “Dealer inventory is down. We have received hundreds of orders for Baja from all over the world.

“Baja merging with Fountain gives us hope for the coming year,” he added.

Fountain Powerboats plans to add 250 jobs and invest $12 million during the next five years to expand its Beaufort County, N.C., operation. The company says the expansion will enable it to move production of the Baja line from Brunswick’s Bucyrus, Ohio, plant.

Fountain Powerboats employs 333 people at its 65-acre campus along the Pamlico River in North Carolina.

Fountain expects to begin manufacturing the Baja by Fountain boat line for the 2009 model year. Fountain paid $4 million for the assets, according to documents filed with the SEC.

Fountain’s expansion was made possible, in part, by a Job Development Investment Grant. The company’s CEO said the grant “played strongly” in its decision to relocate Baja boats to its existing North Carolina plant.

This article originally appeared in the September 2008 issue.

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