10-Q 1 str10q_0214.txt STARCRAFT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter ended January 2, 2005 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number: 0-22048 STARCRAFT CORPORATION (Exact name of registrant as specified in its charter) Indiana 35-1817634 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Post Office Box 1903 1123 South Indiana Avenue Goshen, Indiana 46526 (Address of principal executive offices/zip code) Registrant's telephone number, including area code: 574/534-7827 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 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: February 6, 2005 - 8,968,691 shares of Common Stock, without par value. STARCRAFT CORPORATION January 2, 2005 Form 10-Q - INDEX - PART I. FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheets - January 2, 2005 (unaudited) and October 3, 2004 (Audited) 1-2 Consolidated Statements of Operations (Unaudited) for the three month periods ended January 2, 2005 and December 28, 2003 3 Consolidated Statements of Cash Flow (Unaudited) for the three month periods ended January 2, 2005 and December 28, 2003 4 Notes to Consolidated Financial Statements 5-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-15 Item 3. Quantitative and Qualitative Disclosures about Market Risks 16 Item 4. Controls and Procedures 17 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 19 CERTIFICATIONS 20-28 PART I FINANCIAL INFORMATION Item 1. Financial Statements

STARCRAFT CORPORATION AND SUBSIDIARIES (Unaudited) (Audited) CONSOLIDATED BALANCE SHEETS ~~June~~January 272, ~~2004~~2005 ~~September~~October 283, ~~2003~~2004 ------------- -- ---------------- (Dollars in Thousands) ASSETS Current Assets Cash and cash equivalents....................... $ ~~672~~686 $ ~~836~~1,173 Accounts receivable, trade, less allowance for doubtful accounts: $~~256~~277 at ~~June~~January 272, ~~2004~~2005 and $~~200~~327 at ~~September~~October 283, ~~2003~~2004................ 2829,~~211~~887 2821,~~606~~195 Other receivables............................... 32,~~689~~045 ~~576~~2,188 Inventories ................................... 1514,~~218~~693 1013,~~060~~547 Tooling and engineering ~~projects~~services................ 32,~~772~~890 62,~~593~~609 Refundable income taxes......................... 2,163 1,696 Deferred income taxes........................... 1,~~585~~401 1,~~702~~949 Other current assets............................ ~~596~~860 ~~707~~678 ------------- --------------- Total current assets........................ 5354,~~743~~625 4945,~~080~~035 Property and Equipment Land, buildings, and improvements............... 5,~~558~~734 35,~~761~~812 Machinery, ~~equipment~~ and ~~fixtures~~equipment......................... 1314,~~630~~912 914,~~565~~442 ------------- --------------- 1920,~~188~~646 1320,~~326~~254 Less:, ~~Accumulated~~accumulated depreciation.................. 56,~~772~~519 45,~~190~~737 ------------- --------------- 1314,~~416~~127 914,~~136~~517 Goodwill~~, net~~ ............................................. 77,443 --77,443 Intangible assets, net ............................... 1312,~~400~~320 --12,860 Other assets ....................................... 1,~~441~~446 ~~514~~1,506 ------------- --------------- $ 159,~~443~~961 $ 58151,~~730~~361 ============= =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Current maturities of long-term debt............ ~~390~~$ --321 $ 310 Accounts payable, trade......................... $19,409 20,~~597~~860 ~~$ 19,549~~ Accrued expenses: Compensation and related expenses........... 911 1,~~613~~742 ~~2,668~~ Warranty .................................... ~~582~~192 ~~698~~248 ~~Income~~Taxes ~~taxes~~- other................................ --67 ~~3,378~~185 ~~Taxes~~Medical -self ~~other~~insurance......................~~.........~~ ~~170~~317 ~~434~~412 ~~Other~~Interest....................................~~...~~ ~~736~~651 ~~394~~262 ~~------------- --------------- Total current liabilities~~Other.............. ~~24,088 27,121 Long-term debt, net of current maturities~~............ ~~29,594 9,148 Deferred income taxes~~.............~~...................~~ ~~5,092~~468 569 -- ~~Minority interest in subsidiary......................~~ -- ~~9,821 Commitments and contingencies........................~~ ------- ------------- ~~Shareholders'~~Total ~~Equity~~current ~~Preferred Stock, no par value; 2,000,000 shares authorized, none issued~~liabilities................... ~~-- -- Common Stock~~22,336 ~~no par value; 20~~24,~~000,000~~588 ~~shares~~Long ~~authorized~~-term, ~~issued~~net ~~and outstanding 8,853,191 shares as~~ of ~~June~~current ~~27, 2004 and 5,044,307 shares as of September 28, 2003~~ maturities........... ~~149,144 15,203 Additional paid-in capital~~.....~~................~~ 329,~~420~~700 318,~~420~~854 ~~Accumulated~~Deferred ~~deficit~~income taxes................................ ~~(52~~4,~~108)~~733 (64,~~151)~~938 ~~Accumulated~~Commitments ~~other~~and ~~comprehensive income~~contingencies.......... ~~213 168 ------------- --------------- Total shareholders' equity~~..............~~...~~ ~~100,669 12,640~~ --~~-----------~~ --~~------------- $ 159,443 $ 58,730 ============= ===============~~

(Continued) See Notes to Consolidated Financial Statements 1 PART I FINANCIAL INFORMATION - Continued Item 1. Financial Statements

3STARCRAFT ~~Months~~CORPORATION ~~Ended~~AND 9SUBSIDIARIES ~~Months~~(Unaudited) ~~Ended~~(Audited) ~~------------------------------------~~CONSOLIDATED ~~---------------------------------~~BALANCE ~~June~~SHEETS ~~27,~~January ~~2004 June 29~~2, ~~2003~~2005 ~~June~~October 273, 2004 ~~June 29, 2003~~ ------------- --~~-----------~~ ------------- --~~-----------~~ (Dollars in ~~thousands, except per share amounts~~Thousands) ~~Net~~Shareholders' ~~Sales~~Equity $Preferred 45stock,~~099~~ $no ~~62,117~~par $value: ~~128~~authorized 2,~~053~~000,000 ~~$ 149~~shares,~~170~~ ~~Cost~~none ~~of goods sold~~ issued...............~~..........~~ ~~39,971 46,910 109,616 114,625~~ --~~-----------~~ --~~-----------~~ ~~--------------~~Common ~~-------------~~stock, ~~Gross~~no ~~profit~~par ~~......................~~value: ~~5,128~~authorized 1520,~~207 18~~000,~~437~~000 34shares,~~545~~ ~~Operating~~issued ~~Expenses Selling~~ and ~~promotion~~outstanding ~~.................~~8,968,691 ~~764~~shares ~~526~~at January 2,~~112~~ ~~1,377~~2005 ~~General~~ and ~~administrative~~October ~~............~~ 3,~~689~~ ~~3,695~~2004 12$ 149,~~372~~831 12$ 149,~~206~~831 ~~Goodwill~~Additional ~~impairment~~paid-in capital..................... --9,665 ~~-- 47~~9,~~900~~665 --Accumulated ~~Amortization of intangibles~~ deficit........... ~~540 -- 900 -- ------------- ------------- -------------- ------------- Operating Income (Loss) 135 10,986 (44,847) 20,962 Nonoperating (Expense) Income Interest, net~~ ..................~~.......~~ (~~240~~56,652) (9156,794) ~~(454)~~Accumulated ~~(307)~~other ~~Other,~~comprehensive ~~net~~ income..........~~................~~ --348 ~~(1)~~279 -- 18 ----------~~---~~ ------------- ~~--------------~~Total ~~-------------~~shareholders' ~~(240)~~equity ~~(92) (454) (289) ------------- ------------- -------------- ------------- Income (Loss) Before Minority Interest and Income Taxes~~................ ~~(105) 10~~103,~~894~~192 ~~(45~~102,~~301)~~981 ~~20,673 Minority Interest in Income of Subsidiary~~ -- ~~4,161 610 8,641~~ ----------~~---~~ ------------- -------------- ------------- Income (Loss) Before Income Taxes (105) 6,733 (45,911) 12,032 Income taxes (benefit) (179) 2,680 42 3,121 ------------- ------------- -------------- ------------- Net Income (Loss) $ ~~74 $ 4~~159,~~053~~961 $ ~~(45~~151,~~953)~~361 ~~$ 8,911~~ ============= ============= ============== ============= Comprehensive income (loss) $ 76 $ 4,230 $ (45,908) $ 9,088 ============= ============= ============== ============= Basic earnings (loss) per share $ 0.01 $ 0.81 $ (6.25) $ 1.80 ============= ============= ============== ============= Dilutive earnings (loss) per share $ 0.01 $ 0.74 $ ** $ 1.65 ============= ============= ============== =============

See Notes to Consolidated Financial Statements 2 PART I FINANCIAL INFORMATION Item 1. Financial Statements STARCRAFT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED

93 Months Ended ------------------------------------------~~-----~~ ~~June~~January 272, ~~2004~~2005 ~~June~~December 2928, 2003 --------------- ----------------- (Dollars in ~~Thousands)~~thousands, ~~Operating~~except ~~Activities~~per ~~Net~~share ~~income (loss~~amounts) ~~.....................~~Net sales $ ~~(45~~46,~~953)~~256 $ 843,~~911~~798 ~~Adjustments~~Cost ~~to reconcile net income (loss) to net cash from operations: Depreciation and amortization ......... 2,721 889 Loss on disposal~~ of ~~equipment..........~~goods 9sold ~~-- Recovery of bad debt~~................... ~~(197) -- Minority interest~~......~~................~~ (640,~~890)~~344 636,~~142~~152 ~~Goodwill impairment.................... 47,900~~ ----------- ~~Change in deferred taxes............... (342)~~ ----------- ~~Change~~Gross inprofit ~~operating assets and liabilities: Receivables~~ ...................... (15,~~110)~~912 ~~(14~~7,~~009)~~646 ~~Inventories~~Operating ~~......................~~expenses ~~(3,929)~~Selling ~~(1,112)~~and ~~Other~~promotion ~~current assets~~ ............. ~~3,298 (1,434) Accounts payable~~ ....~~..............~~ ~~(2,824)~~643 ~~8,782~~629 ~~Accrued~~General ~~expenses~~and administrative.............~~......~~ (53,~~355)~~956 24,~~668~~017 ~~Other~~Amortization of intangibles............~~..............~~ ~~271~~540 -- ------------ ------------- ~~Net~~Operating ~~cash from operating activities~~ income.... ~~(12,401) 10,837 ------------ ------------- Investing Activities Purchase of property and equipment (3,810) (4,207) Proceeds from sale of equipment~~........ ~~33 -- Acquisitions, net of cash acquired~~........... (1773 3,~~200)~~000 --Nonoperating ~~Other~~expense ~~assets~~Interest expense.......................~~....~~ (~~275~~512) (~~287~~73) ------------ ------------- ~~Net~~Income ~~cash~~before ~~from~~minority ~~investing~~interest ~~activities~~and ~~(5,252)~~income ~~(4,494)~~taxes ~~------------ ------------- Financing Activities Net proceeds (payments) on revolving credit agreements~~........~~..........~~ ~~17,247~~261 (12,~~065)~~927 ~~Payments~~Minority oninterest ~~notes~~in toincome ~~related~~of ~~parties...~~subsidiary -- (1,~~474)~~407 ~~Proceeds from exercise of stock options 242 233 Other..................................~~ -- -- -------~~-----~~ ------------- ~~Net~~Income ~~cash~~before ~~from~~income ~~financing~~taxes ~~activities~~261 171,~~489~~520 ~~(2,306)~~Income taxes 119 197 ------------ ------------- ~~Increase~~Net ~~(Decrease)~~income in$ ~~Cash~~142 ~~and~~$ ~~Cash~~1,323 ~~Equivalents~~=========== ~~...........................~~=========== ~~(164)~~Comprehensive ~~4,199~~income ~~Cash~~$ ~~and~~211 ~~cash~~$ ~~equivalents~~1,456 at=========== ~~beginning~~=========== ofBasic ~~period.................~~earnings ~~836~~per ~~284~~share ~~------------~~$ ~~-------------~~0.02 ~~Cash~~$ ~~and~~0.26 ~~cash~~=========== ~~equivalents~~=========== atDilutive ~~end~~earnings ofper ~~period.......................~~share $ ~~672~~0.02 $ ~~4,483~~0.24 ============ =============

See Notes to Consolidated Financial Statements 3 PART I FINANCIAL INFORMATION Item 1. Financial Statements STARCRAFT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW - UNAUDITED

93 Months Ended ~~June~~------------------------------------------ 27January 2, ~~2004~~2005 ~~June~~December 2928, 2003 --------------- ----------------- (Dollars in ~~Thousands~~thousands, except per share amounts) ~~Non-~~Operating Activities Net income ......................... $ 142 $ 1,323 Adjustments to reconcile net income to net cash ~~Investing~~from ~~and~~operating ~~Financing~~activities: ~~Activities~~Depreciation In...................... ~~conjunction~~876 ~~with~~441 ~~the~~Amortization....................... ~~acquisition~~540 -- Gain on sale of ~~businesses~~equipment.......... ~~liabilities~~(119) ~~were~~-- ~~assumed~~Minority asinterest.................. ~~follows~~-- (1,407) Change in deferred income taxes.... 343 -- Change in operating assets and liabilities: ~~Fair~~Receivables ~~value~~...................... of(8,877) 2,568 Inventories ...................... (1,055) (4,253) Other current assets ~~acquired~~............. ~~$147~~(461) 59 Accounts payable .................. (1,~~286~~632) 2,~~853~~321 Accrued expenses................... (774) (5,005) Other .......................... (185) 160 ----------- ~~============~~----------- ~~=============~~Net ~~Liabilities~~cash ~~assumed~~from operating activities. (11,202) (3,793) ----------- ----------- Investing Activities Purchase of property and equipment (524) (1,675) Proceeds from sale of equipment ... 308 -- Acquisitions ............................ $-- 13(1,~~592~~200) Other assets ......................... 82 (593) ----------- ----------- Net cash from investing activities (134) (3,~~653~~468) ----------- ~~============~~----------- ~~=============~~Financing ~~Issuance~~Activities ofNet ~~common~~proceeds ~~stock~~on revolving credit agreements......................... ~~$133~~10,~~693~~892 7,~~000~~514 Payments on long-term debt............. (63) -- Distributions to minority shareholder.. -- (186) Proceeds from exercise of stock options -- 242 ----------- ----------- Net cash from financing activities 10,829 7,570 Effect of exchange rate changes on cash 20 -- Increase (decrease) in Cash and Cash Equivalents ........................... (487) 309 Cash and cash equivalents at beginning of period................. 1,173 836 ----------- ----------- Cash and cash equivalents at end of period....................... $ 686 $ 1,145 ============ =============

4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STARCRAFT CORPORATION AND SUBSIDIARIES January 2, 2005 Note 1. Basis of Presentation The accompanying unaudited consolidated financial statements of Starcraft Corporation and subsidiaries (collectively referred to as the "Company") have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to those rules and regulations. Reference is made to the Company's audited consolidated financial statements set forth in its Annual Report on Form 10-K for its fiscal year ended October 3, 2004. In the opinion of the management of the Company, the unaudited consolidated financial statements contain all adjustments (which include only normally recurring adjustments) necessary for a fair presentation of the financial statements of the interim periods reported. The results of operations for the three month period ended January 2, 2005 are not necessarily indicative of the results which may be expected for the year ending October 2, 2005. The Company has adopted a 52 or 53 week fiscal year ending the last Sunday nearest to September 30. The results of operations for the quarter ended January 2, 2005 and December 28, 2003 are for 13 weeks. Certain amounts in the December 28, 2003 consolidated financial statements have been reclassified to conform with the current presentation. These reclassifications had no effect on total assets, total shareholders' equity or net income as previously reported. Note 2. Acquisition On January 16, 2004, the Company through Wheel to Wheel Acquisition Company, LLC an Indiana limited liability company and a wholly owned subsidiary of the Company (the "Acquisition Subsidiary"), acquired all the issued and outstanding shares of common stock of Wheel to Wheel, Inc., a Michigan corporation ("Wheel to Wheel") in a merger transaction. Wheel to Wheel had a 50% ownership in each of Tecstar, LLC and Tecstar Manufacturing Canada Limited (collectively "Tecstar"). Prior to January 16, 2004, the Company owned 50% of Tecstar and consolidated the accounts due to management representation on the Tecstar Board of Directors and control of its affairs. The Company accounted for the Wheel to Wheel 50% ownership as minority interest. With the acquisition of Wheel to Wheel, Tecstar became a wholly-owned subsidiary of the Company. 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS STARCRAFT CORPORATION AND SUBSIDIARIES January 2, 2005 Note 2. Acquisition - (Continued) The following table illustrates the effect on revenues, net income and earnings per share if Wheel to Wheel had been acquired at the beginning of the year ended October 3, 2004. The proforma results of the Tarxien Automotive and Classic Design Concepts, Inc. acquisitions were insignificant. Unaudited December 28, 2003 ----------------- Net sales $ 44,908 Net income 1,026 Basic earnings per share $ .20 Diluted earnings per share .18 Note 3. Inventories Inventories consist of the following (dollars in thousands):

(Unaudited) (Audited) ~~June~~January 272, ~~2004~~2005 ~~September~~October 283, ~~2003~~2004 --------------- --------------- Raw materials $ 14,~~835~~276 $ 912,~~583~~917 Finished goods ~~788~~489 ~~877~~700 ----------~~----~~ ----------~~-----~~ 1514,~~623~~765 1013,~~460~~617 Allowance for slow-moving and obsolete inventories ~~(405)~~72 ~~(400)~~70 ----------~~----~~ ----------~~-----~~ Total $ 1514,~~218~~693 $ 1013,~~060~~547 ==========~~====~~ ==========~~======~~

Note 4. Goodwill Goodwill represents the excess of the Wheel to Wheel purchase price over the fair value of the assets acquired. Under SFAS No. 142 goodwill is not amortized and is assessed annually for impairment. The Company's accounting policy is to test goodwill for impairment annually as of the end of the Company's second fiscal quarter. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) STARCRAFT CORPORATION AND SUBSIDIARIES January 2, 2005 Note 5. Intangible Assets Intangible assets subject to amortization consist of a customer relationship and business contracts acquired through the acquisition of Wheel to Wheel. The customer relationship (cost of $10,000 and accumulated amortization of $480) is being amortized using the straight-line method over 20 years. The contracts (cost of $4,300 and accumulated amortization of $1,500) are being amortized over the life of the respective contract, ranging from two to four years. Amortization expense was $540 thousand for the quarter ended January 2, 2005. Note 6. Long-Term Debt Long-term debt consists of the following:

3Unaudited ~~Months~~Audited ~~Ended~~January ~~(Unaudited)~~2, 92005 ~~Months~~October ~~Ended~~3, ~~(Unaudited)~~2004 ---------------~~------------------~~ ---------------~~-------------~~ ~~June~~Domestic ~~27,~~bank ~~2004~~revolving ~~June~~lines ~~29,~~of ~~2003~~credit ~~June~~$ 2711,770 ~~2004~~$ ~~June 29, 2003~~ --~~-----------~~ ~~-------------~~Canadian ~~-------------~~revolving ~~-------------~~line ~~Basic~~of ~~earnings~~credit ~~(loss)~~125 ~~per~~975 ~~share~~Mortgage ~~Net~~note ~~income~~payable ~~(loss)~~to ~~available~~bank, todue ~~common~~in ~~stockholders~~monthly $installments 74of $15 ~~4,053~~including $interest ~~(45,953)~~at $.5% ~~8,911~~above ~~=============~~the ~~============~~bank's ~~=============~~prime ~~=============~~rate ~~Weighted~~due ~~average~~September ~~common~~2006, ~~shares~~collateralized ~~outstanding~~by ~~8,853~~related ~~4,991~~building. 71,~~357~~290 41,~~961~~309 ~~=============~~Promissory ~~============~~note ~~=============~~payable ~~=============~~to ~~Basic~~a ~~earnings~~former ~~(loss)~~shareholder ~~per~~of ~~share~~Wheel $to ~~0.01~~Wheel $related ~~0.81~~to $the ~~(6.25)~~stock $redemption ~~1.80~~agreement, ~~=============~~payable ~~============~~in ~~=============~~monthly ~~=============~~installments ~~Dilutive~~of ~~earnings~~$22 ~~(loss)~~including ~~per~~interest ~~share~~at ~~Net~~5%, ~~income~~due ~~(loss)~~May ~~available~~1, to2013, ~~common~~unsecured. ~~stockholders~~1,793 $1,821 74Various $capital ~~4,053~~lease $obligations ~~(45,953)~~due $in ~~8,911~~total ~~=============~~monthly ~~============~~installments ~~=============~~of ~~=============~~$7 ~~Weighted~~including ~~average~~interest ~~common~~ranging ~~shares~~from ~~outstanding~~12% ~~8,853~~to 419%,~~991~~ ~~7,357~~with ~~4,961~~maturities ~~Add:~~through ~~Potential~~June ~~dilutive~~2006. ~~effects~~43 of59 ~~incentive~~Senior ~~stock~~subordinated ~~options~~convertible ~~405~~notes ~~506~~15,000 ~~516~~15,000 ~~453~~ ----------~~---~~ ---------~~---~~ 30,021 19,164 Less, current maturities 321 310 ------------ --------- Long-~~---~~term ~~453~~debt ~~Weighted~~$ ~~average potential dilutive common shares outstanding 9~~29,~~258~~700 ~~5,497~~$ 718,~~873~~854 ~~5,414~~ ==========~~===~~ =========~~=== ============= ============= Dilutive earnings (loss) per share $ 0.01 $ 0.74 $ (**) $ 1.65 ============= ============ ============= =============~~

7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) STARCRAFT CORPORATION AND SUBSIDIARIES January 2, 2005 Note 7. Earnings Per Share The computation of basic and diluted earnings per share follows (in thousands, except share and per share amounts):

3Three Months Ended ~~9 Months Ended~~ ------------------------------------- ---~~-----------------------------~~ ~~June~~(Unaudited) ~~27,~~(Unaudited) ~~2004~~January ~~June 29~~2, ~~2003~~2005 ~~June~~December 2728, ~~2004 June 29,~~ 2003 ------------- --~~-----------~~ ------------- ----~~---------~~ ~~(Dollars~~Basic inearnings ~~thousands, except~~ per share ~~amounts)~~ Net income ~~(loss)~~available -to ascommon ~~reported~~stockholders $ 74142 $ 41,~~053~~323 $ (45,953) $ 8,911 Deduct: total stock-based employee compensation expense determined under fair value based methods for all awards 536 17 2,182 112 ------------- ------------- ------------ ------------- Net income (loss) - pro forma $ (462) $ 4,036 $ (48,135) $ 8,799 ========~~======~~ =========~~====~~ Weighted average common shares outstanding 8,969 5,103 ========~~======~~ =========~~====~~ ~~Earnings (loss) per share - as reported~~ Basic earnings ~~(loss)~~ per share $ 0.0102 $ 0.8126 ~~$ (6.25) $ 1.80~~ ========~~======~~ =========~~====~~ ~~==============~~Diluted ~~============= Dilutive~~ earnings ~~(loss)~~ per share $Net ~~0.01~~income $available ~~0.74~~to common stockholders $ ~~(**)~~142 $ 1~~.65~~,323 ========~~======~~ =========~~====~~ ~~==============~~Weighted ~~=============~~average ~~Earnings~~common ~~(loss)~~shares ~~per~~outstanding ~~share~~8,969 -5,103 ~~pro~~Add: ~~forma~~Potential ~~Basic~~dilutive ~~earnings~~effects ~~(loss)~~of ~~per~~incentive ~~share~~stock $options ~~(0.05)~~330 $563 ~~0.81~~-------- $--------- ~~(6.54)~~Weighted $average ~~1.77~~potential ~~==============~~diluted ~~=============~~common shares outstanding 9,299 5,666 ========~~======~~ =========~~====~~ ~~Dilutive~~Diluted earnings ~~(loss)~~ per share $ ~~(**) $~~ 0.7402 $ ~~(**) $ 1~~0.6224 ========~~======~~ =========~~==== ============== =============~~

Prior year information restated for effect of the 5% stock dividend distributed in March 2004. The effects of the convertible debt on earnings per share were not presented as they were antidilutive. 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) STARCRAFT CORPORATION AND SUBSIDIARIES January 2, 2005 Note 8. Stock-Based Compensation The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock Based Compensation - Transition and Disclosure." Stock options are granted for a fixed number of shares to employees with an exercise price equal to the fair market value of the shares at the date of grant. The Company accounts for the stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. Accordingly, the Company recognizes no compensation expense for the stock options. The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS No. 123.

~~Payments~~Three ~~due~~Months byEnded ~~period (in thousands)~~ ------------------------------------------------~~-------------------~~ ~~Total~~January ~~Less~~2, ~~than~~2005 ~~1-3~~December ~~3-5~~28, ~~More~~2003 ~~than~~(Dollars 1in ~~Year~~thousands, ~~Years~~except ~~Years~~per 5share ~~Years~~amounts) ~~Long-Term~~Net ~~Debt~~income ~~Obligations~~- ~~$29,984~~as $reported ~~390~~ $ ~~27,287~~142 ~~$ 693 $~~ 1,~~614~~323 ~~Operating~~Deduct: ~~Lease~~total ~~Obligations~~stock-based ~~$12,700~~employee $compensation ~~3,091~~expense $determined ~~5,004~~under $fair ~~2,212~~value $based ~~2,393~~methods ~~Employment~~for ~~Agreement~~all ~~Obligations~~awards ~~$ 6~~1,~~510~~842 $986 ~~2,610 $ 3,000 $ 900 $~~ -- -------- ------- -~~-------~~ ~~--------~~Net (loss) income -~~------~~ ~~Total~~pro forma $49 (1,~~194~~700) $ ~~6,091~~337 ======== ======== Earnings per share - as reported Basic earnings per share $ ~~35,291~~0.02 $ ~~3,805~~0.26 ======== ======== Diluted earnings per share $ ~~4,007~~0.02 $ 0.24 ======== ======== Earnings per share - pro forma Basic earnings per share $ (.19) $ 0.07 ======== ======== Diluted earnings per share $ * $ 0.06 ======== ========

*Not presented herein since effect is antidilutive 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) STARCRAFT CORPORATION AND SUBSIDIARIES January 2, 2005 Note 9. Warranty Expense The Company provides products to Original Equipment Manufacturers ("OEM") under warranty terms similar to terms offered by the OEM to its customers, which are generally 3 years or 36,000 miles. The Company accrues an estimated liability for potential warranties at the time products are sold, based on past experience. Note 10. Merger On November 23, 2004, the Company entered into an Agreement and Plan of Merger whereby Quantum Fuel Systems Technologies Worldwide, Inc. ("Quantum") will acquire all of the issued and outstanding shares of common stock of Starcraft Corporation in a tax-free stock-for-stock exchange valued at approximately $185 million at announcement date, including the assumption of debt and other consideration. Under the terms of the definitive Agreement and Plan of Merger, each Starcraft shareholder will receive 2.341 shares of Quantum common stock for every share of Starcraft common stock. The merger agreement was unanimously approved by the Company's Board of Directors and recommended to the shareholders for approval. Four of Starcraft's largest shareholders, who collectively represent 51.3% of Starcraft's issued and outstanding shares of common stock have entered into a voting agreement with Quantum pursuant to which they have agreed to vote their Starcraft shares in favor of the merger. General Motors, Quantum's largest stockholder, owning 14.2% of the issued and outstanding common shares of Quantum and 11.4% of the voting power of Quantum's common stock, has entered into a voting agreement with Starcraft agreeing to vote in favor of the transaction. The transaction will be submitted to the shareholders of both companies on February 28, 2005 at separate special meetings of shareholders of each company for approval. The transaction is also subject to customary closing conditions, and is expected to close in the first quarter of calendar year 2005. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS STARCRAFT CORPORATION -------------------------------------------------------------------------------- RESULTS OF OPERATIONS Comparison of the three months ended January 2, 2005 (First Quarter Fiscal Year 2005) to the three months ended December 28, 2003 (First Quarter Fiscal Year 2004) Net sales for the quarter ended January 2, 2005 increased $2.5 million to $46.3 million from $43.8 million for the quarter ended December 28, 2003. The Shreveport facility contributed $4.5 million of sales during the first quarter, which exceeded prior year first quarter sales by $4.2 million, as this facility was in a start-up mode in the prior year. H2 and wheel distribution sales were $7.8 million and exceeded prior year first quarter sales by $2.4 million due solely to increases in the wheel distribution program. Sales associated with Wheel to Wheel, which was acquired during the second quarter of fiscal 2004 were $2.1 million and were all incremental compared to prior year. Our paint facility in Canada contributed sales of $2.3 million, which exceeded prior year first quarter sales of $1.3 million. Partially offsetting these favorable variances, was a decline in sales from our New Jersey facility of $3.8 million, as this facility was recently shutdown due to the planned expiration of a second stage program. Sales volume in our Texas facility was $27.2 million during the first quarter of 2005, which was down slightly compared to prior year first quarter sales of $28.1 million. Sales at the Canadian facility were $1.9 million compared to sales during the first quarter of the prior year of $4.3 million. This facility continues to be affected by lower vehicle sales at the OEM level. Gross profit was $5.9 million or 12.8% of sales for the first quarter of fiscal 2005 compared to $7.6 million or 17.5% of sales for the 2004 first quarter. Gross margin dollars and gross margin as a percent of sales declined in the 2005 quarter due to product mix shift from higher margin second stage manufacturing business to distribution and support company business that carry lower margins. Second stage gross margin as percent of sales increased to 19.6% in the 2005 quarter compared to 19.1% in 2004. Because second stage revenue declined from $36.6 million to $29.1 million, gross margin attributable to the second stage business declined $1.3 million in the 2005 quarter compared to 2004. Gross margin on H2 and wheel distribution sales increased 26% due to higher sales in the 2005 quarter. Revenue from businesses acquired in 2004 and support company businesses was $4.9 million in the 2005 first fiscal quarter, but generated negative gross margin of ($.9 million). Selling and promotion expenses were $.6 million during the first quarter of 2005, which approximated prior year levels. General and administrative expenses also approximated prior year levels at $4.0 million. Expenses associated with the proposed merger were $.4 million in the current quarter. Currency transaction gains from our Canadian operations amounted to $.3 million during the first quarter of fiscal 2005, which was $.2 million higher than prior year. Interest expense was $.5 million during the first quarter of 2005 compared to $.1 million during the first quarter of fiscal 2004. The increase was due to higher revolving debt levels, long-term debt assumed in the merger with Wheel to Wheel, and higher interest rates associated with the unsecured convertible debt when compared to revolving credit interest rates. Income tax expense was minimal and relative to low profit levels during the quarter. The effective tax rate of 46% is due to a lower impact of Canadian losses on the effective rate when compared to the effective rate on domestic profits. Net income prior to merger related expenses and amortization of intangible assets was $1.1 million. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) STARCRAFT CORPORATION -------------------------------------------------------------------------------- SEASONALITY AND TRENDS The Company's sales and profits are dependent on the automotive markets in the United States. The business is influenced by a number of factors including OEM plant shutdowns, model year changeovers, atypical weather for any sales region, interest rates, gasoline prices, and OEM programs affecting price and supply. The business is also dependent upon long-term contracts. The Company provided updates on the status of our OEM programs in the Company's annual report on Form 10-K for the year ended October 3, 2004. There has been no material change in the status of these programs. LIQUIDITY AND CAPITAL RESOURCES Funds available from operations and under the Company's revolving credit agreements were adequate to finance operations and provide for capital expenditures during the three months ended January 2, 2005. Long-term debt was $29.7 million at January 2, 2005 compared to $18.9 million at October 3, 2004. Long-term debt at October 3, 2004 was lower than normal due to a receipt of payment from our customer on October 1, 2004. Payments are collected the first week of the accounting period, but due to timing of year end, we received an additional payment in the fourth quarter of fiscal 2004 that typically would have been received during the first quarter of fiscal 2005. Operations utilized $11.2 million of cash during the first quarter of fiscal 2005, compared to $3.8 million in the fiscal 2004 period. Trade receivables at January 2, 2005 were $8.8 million higher than October 3, 2004 due to the customer payment timing issue discussed above. Inventory at January 2, 2005 was $1.1 million higher than October 3, 2004 due to engineering contracts in process and increased volume at our paint facility. Other receivables and tooling/engineering development were essentially unchanged at $4.9 million at January 2, 2005 and $4.8 million at October 3, 2004. Trade payables were $19.4 million at January 2, 2005 compared to $20.9 million at October 3, 2004. Accrued expenses were $2.6 million at January 2, 2005, down from October 3, 2004 levels of $3.4 million. This decrease is due mostly to incentive compensation paid in December and a one week reduction in accrued payroll due to timing of month ends. The Company believes that future cash flows from operations and funds available under its revolving credit agreement will be sufficient to satisfy its anticipated operating needs and capital and liquidity requirements for 2005. The Company also believes that its objectives for growth over the next few years can be accomplished with capital investment levels consistent with prior years, and that its internal resources and existing or refinanced credit facilities will provide sufficient liquidity for such purposes. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) STARCRAFT CORPORATION -------------------------------------------------------------------------------- INCOME TAXES The Company recorded minimal tax expense during the first quarter of fiscal 2005 due to low profit levels. MANUFACTURING AND OPERATING TRENDS The Supply Program in the New Jersey facility has ended and the plant was closed in December 2004. The Canadian facility operated at a loss during the first quarter due to a continued slowdown in sales of this vehicle. A previously announced 2 wheel drive derivative should improve volume during the second quarter and return the facility to profitability. The Canadian paint facility operated a loss during the first quarter. Improvement in efficiencies, quality and volume is expected during the second quarter and should improve results. A previously announced joint venture (AMSTAR) was recently launched in Fort Wayne, Indiana. Losses, although not significant, will be incurred in the second quarter due to start-up expenses. Wheel to Wheel generated losses during fiscal year 2004 due to softness in the engineering and tooling development side of the business. It is expected that this trend will continue through the second quarter of fiscal 2005. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) STARCRAFT CORPORATION -------------------------------------------------------------------------------- APPLICATION OF CRITICAL ACCOUNTING POLICIES In the course of normal business and in the preparation of its consolidated financial statements in accordance with accounting principles generally accepted in the United States, Management is required to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates. Some of the more significant policies include: Revenue Recognition: The Company generally manufactures products based on specific orders from customers. Shipments are generally made by common carrier after receiving authorization from the customer, and revenue is recognized upon shipment under FOB factory terms. Warranties: The Company follows the policy of accruing an estimated liability for warranties at the time the warranted products are sold. The estimate is generally based on past claims experience. Property and Equipment: Property and equipment are stated at cost. Depreciation is computed principally by the straight-line method over the estimated useful lives of the assets. The Company is depreciating buildings over periods of 15 to 50 years, building improvements over periods of 5 to 20 years, and equipment over periods of 3 to 12 years. Identifiable Intangible Asset and Goodwill: The identifiable intangible assets generated by the Wheel to Wheel merger will be amortized to expense over the expected lives of the assets ranging from two to twenty years. Goodwill will not be amortized to expense, but rather will be evaluated annually at the end of the Company's second fiscal quarter for any impairment in the carrying value, and adjusted accordingly through the income statement. Forward Looking Statements The foregoing discussion contains forward-looking statements regarding economic conditions and trends, adequacy of capital resources, seasonality and supply of, and demand for, the Company's products, and the prospects of Management's operating strategies, revenues and profits, all of which are subject to a number of important factors which may cause the Company's projections to be materially inaccurate. Some of such factors are described in the Company's Form 10-K for the year ended October 3, 2004, under the subsection entitled "Discussion of Forward-Looking Information" which is incorporated herein by reference. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) STARCRAFT CORPORATION -------------------------------------------------------------------------------- LONG-TERM CONTRACTUAL OBLIGATIONS: Long-term contractual obligations as of January 2, 2005 are as follows:

Payments due by period (in thousands) --------------------------------------------------------------------- Total Less than 1-3 3-5 More than 1 Year Years Years 5 Years Long-Term Debt Obligations $2930,~~984~~021 $ ~~390~~321 $ 1213,~~287~~456 $15,418 ~~693~~ $~~16,614~~ Operating Lease Obligations $1215,~~700~~892 $ 3,~~091~~069 $ 5,~~004~~017 $ 23,~~212~~781 2$ 4,~~393~~025 Employment Agreement Obligations $ 67,~~510~~090 $ 2,~~610~~940 $ 3,~~000~~250 $ 900 $ -- -------- ------- -------- -------- ------- Total $4953,~~194~~003 $ 6,~~091~~330 $21,723 $20,~~291~~099 $ 34,~~805~~851 ~~19,007~~ ======= ======== ======== ======== =======

15 ITEM 3. QUANTATIVE AND QUALITATIVE DISCUSSIONS ABOUT MARKET RISKS STARCRAFT CORPORATION -------------------------------------------------------------------------------- There have been no material changes from the information provided in the Company's annual report on Form 10-K for the year ended October 3, 2004. 16 ITEM 4. CONTROLS AND PROCEDURES STARCRAFT CORPORATION -------------------------------------------------------------------------------- Starcraft carried out an evaluation, under the supervision and with the participation of Starcraft's management, including Starcraft's Co-Chief Executive Officers and Chief Financial Officer, of the effectiveness of the design and operation of Starcraft's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Co-Chief Executive Officers and Chief Financial Officer concluded that, at January 2, 2005, Starcraft's disclosure controls and procedures are effective in accumulating and communicating to management (including such officers) the information relating to Starcraft (including its consolidated subsidiaries) required to be included in Starcraft's periodic SEC filings. There were no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's disclosure controls and procedures during the Company's last fiscal quarter, nor any significant deficiencies or material weaknesses in such disclosure controls and procedures requiring corrective actions. As a result, no corrective actions were taken. 17 PART II OTHER INFORMATION Item 6. Exhibits 31.1 Certification by Co-Chief Executive Officer required by Rule 31a-14(a) or 15d-14(a) 31.2 Certification by Co-Chief Executive Officer required by Rule 31a-14(a) or 15d-14(a) 31.3 Certification by Chief Financial Officer required by Rule 31a-14(a) or 15d-14(a) 32 Certification required under Section 1350 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STARCRAFT CORPORATION (Registrant) February 15, 2005 By: /s/ Joseph E. Katona, III ---------------------------------- Joseph E. Katona, III Chief Financial Officer (Signing on behalf of the registrant as Principal Financial Officer) 19

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