~~Table~~SECURITIES ofAND ~~Contents~~EXCHANGE COMMISSION

~~SECURITIES~~WASHINGTON, ~~AND~~DC ~~EXCHANGE~~20549 ~~COMMISSION~~

~~WASHINGTON,~~FORM DC10-K ~~20549~~

~~FORM~~ANNUAL ~~10-K~~REPORT PURSUANT TO SECTION 13 or 15(d)

~~ANNUAL~~OF ~~REPORT~~THE ~~PURSUANT~~SECURITIES TOEXCHANGE ~~SECTION~~ACT OF 131934 ~~or 15(d)~~

OFFor ~~THE~~fiscal ~~SECURITIES~~year ~~EXCHANGE~~ended ~~ACT OF~~June 30, ~~1934~~2008

~~For~~Commission ~~fiscal~~File ~~year~~Number: ~~ended~~0-14712 ~~June 30, 2004~~

~~Commission~~FOUNTAIN ~~File~~POWERBOAT INDUSTRIES, ~~Number:~~INC. ~~0-14712~~

~~FOUNTAIN~~(Exact ~~POWERBOAT~~name ~~INDUSTRIES,~~of ~~INC.~~registrant as specified in its charter)

(Exact name of registrant as specified in its charter)

NEVADA

56-1774895

(State or other jurisdiction

of incorporation)

(IRS Employer

Identification No.)

NEVADA		56-1774895
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

Post Office Drawer 457, Whichard’s Beach Road, Washington, NC 27889

~~Post~~(Address ~~Office~~of ~~Drawer 457,~~principal ~~Whichard’s~~executive ~~Beach~~offices) ~~Road,~~(Zip ~~Washington,~~Code) ~~NC 27889~~

(~~Address of principal executive offices~~252) ~~(Zip~~975-2000 ~~Code)~~

~~(252)~~Registrant’s ~~975-2000~~telephone number, including area code:

~~Registrant’s~~Securities ~~telephone~~registered ~~number,~~pursuant ~~including~~to ~~area~~Section 12 ~~code~~(b) of the Act:

Securities registered pursuant to Section 12 (g) of the Act:


Title of each class		Name of each exchange on which registered:
Common Stock, par value $ .01 per share		American Stock Exchange

~~Common~~Indicate ~~Stock,~~by check mark if the registrant is a ~~par~~well ~~value~~known, $seasoned ~~.01~~issuer, ~~per~~as ~~share~~defined in Rule 405 of the Securities Act.: ¨ Yes x No

Indicate by check mark ~~whether~~if the ~~Registrant~~registrant ~~(1)~~is ~~has~~not ~~filed all reports~~ required to befile ~~filed~~reports bypursuant ~~Section~~to Section 13 or Section 15(d) of the ~~Securities Exchange~~ Act ~~of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirement for the past 90 days~~. x¨ Yes ¨x No

Indicate by check mark ifwhether ~~there~~the Registrant is(1) has nofiled ~~disclosure~~all ofreports ~~delinquent~~required ~~filers in response~~ to ~~Item~~be ~~405~~filed ofby ~~Regulation~~Section 13 ~~S-K~~or ~~contained~~15(d) inof ~~this~~the ~~form,~~Securities ~~and~~Exchange noAct ~~disclosure~~of ~~will~~1934 beduring ~~contained,~~the topast ~~the~~12 ~~best~~months of(or ~~Registrant’s~~for ~~knowledge,~~such inshorter ~~definitive~~period ~~proxy~~that orthe ~~information~~registrant ~~statements~~was ~~incorporated~~required byto ~~reference~~file insuch ~~Part~~reports) ~~III~~and (2) has ofbeen ~~this~~subject ~~Form~~to ~~10-K~~such ~~or any~~filing ~~amendment~~requirement tofor ~~this~~the ~~Form~~past ~~10-K~~90 days. x Yes ¨ No

Indicate by check mark ~~whether~~if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of Registrant’s isknowledge, anin ~~accelerated~~definitive ~~filer~~proxy ~~(as~~or ~~defined~~information statements incorporated by reference in ~~Rule~~Part ~~12b-2~~III of ~~the~~this ~~Act): ¨~~Form 10-K or any amendment to this Form 10-K. ~~Yes x No~~¨

~~The~~Indicate ~~aggregate~~by ~~market~~check ~~value~~mark ofwhether the Registrant’s ~~voting~~is ~~and~~a ~~non-voting~~large ~~common~~accelerated ~~equity~~filer, ~~held~~an byaccelerated ~~affiliates~~filer, ~~computed~~a ~~by reference~~non-accelerated tofiler, ~~the~~or ~~price~~a atsmaller ~~which~~reporting ~~the~~company. ~~common~~See definitions ~~equity was last sold as~~ of ~~the~~“large ~~last~~accelerated ~~business~~filer”, ~~day~~“accelerated offiler” ~~the~~and ~~Registrant’s~~“smaller ~~most~~reporting ~~recently~~company” ~~completed~~in ~~second~~Rule ~~fiscal~~12b-2 ~~quarter~~of ~~was~~the ~~$7,857,930.~~Exchange:

AsLarge ofaccelerated ~~September~~filer ~~28,~~¨ ~~2004,~~Accelerated ~~the~~filer ~~number~~¨ ofNon-accelerated ~~outstanding~~filer ~~shares~~¨ ofSmaller ~~Registrant’s~~reporting ~~Common~~company ~~Stock was 4,814,275.~~ x

~~Portions~~Indicate ofby ~~the~~check ~~Registrant’s~~mark ~~definitive~~whether ~~proxy~~the ~~statement~~Registrant tois ~~be distributed~~a inshell ~~connection~~company ~~with~~(as ~~its~~defined ~~next~~in ~~Annual~~Rule ~~Meeting~~12b-2 of ~~Shareholders~~the ~~are incorporated by reference into Part III of this Report~~Exchange Act). ¨ Yes x No

~~Table~~The aggregate market value of ~~Contents~~Registrant’s voting common equity held by non-affiliates as of the last business day of Registrant’s most recently completed second fiscal quarter was $2,521,119.

~~Part~~As Iof September 29, 2008, the number of outstanding shares of Registrant’s Common Stock (excluding shares treated as treasury shares) was 4,361,184.

~~Item~~Portions 1.of ~~Business~~the Registrant’s definitive proxy statement to be distributed in connection with its next Annual Meeting of Shareholders are incorporated by reference into Part III of this Report.

~~Background.~~Part I

~~Fountain~~Item ~~Powerboat Industries, Inc~~1. ~~(the “Company”), through its wholly-owned subsidiary, Fountain Powerboats, Inc~~Business. (the “Subsidiary”), designs, manufactures, and sells offshore sport boats, sport fishing boats and sport cruisers intended for that segment of the recreational power boat market where speed, performance, and quality are the main criteria for purchase. The Company also produces military support craft for domestic and international government agencies, including the United States Customs Service, the United States Navy and the United States Coast Guard. The Company’s strategy in concentrating on these segments of the market is to maximize its use of the reputation of its Chairman and President, Reginald M. Fountain, Jr., as an internationally recognized designer and builder of high speed power boats.

~~The Company’s products are sold through a network of authorized dealers worldwide~~Background. The Company has targeted that segment of the market in which purchase decisions are generally predicated to a relatively greater degree on the product’s image, style, speed, performance, quality, and safety.

~~Products~~Fountain Powerboat Industries, Inc. (the “Company”), through its wholly owned subsidiary, Fountain Powerboats, Inc. (the “Subsidiary”), designs, manufactures and sells internationally recognized recreational offshore sport boats, sport fishing boats and sport cruisers that target a segment of the recreational powerboat market where speed, performance, quality and safety are the primary purchase criteria. The Company sells its boats and ancillary products through a worldwide network of 26 domestic and 21 international dealers.

~~The~~Fountain ~~majority~~Powerboats, ~~of the company’s recreational products are~~ based upon aan ~~deep~~innovative, Vaward-~~shaped~~winning ~~fiberglass hull with a V-shaped pad~~design, a ~~notched~~are ~~transom,~~well ~~and~~branded awithin ~~positive~~the ~~lift~~boating ~~step hull~~industry. ~~This~~The ~~design~~Company ~~enables~~markets the ~~boat~~celebrity toof its ~~achieve~~Chairman, ~~performance~~Chief ~~with~~Executive ~~standard~~Officer, ~~reliable~~President ~~power~~and ~~which~~founder, ~~the~~Reginald ~~Company~~M. ~~believes~~Fountain ~~are~~Jr., ~~greater~~an ~~than~~internationally ~~those~~recognized ~~offered~~designer, byengineer ~~any~~and builder of ~~its~~high ~~competitors~~speed ~~worldwide.~~powerboats Asand aholder ~~result,~~of ~~the Company~~three ~~maintains~~world ~~that~~titles ~~its boats are among the fastest, smoothest, safest,~~ and ~~best-handling~~seven ~~boats~~national ofracing ~~their kind~~championships.

~~The~~Fountain ~~Company’s~~Powerboat ~~sport boats~~Industries, ~~ranging~~Inc. ~~from~~formed ~~27’~~a towholly ~~47’~~owned subsidiary, ~~are~~“Fountain ofDealers’ ~~inboard/outboard~~Factory ~~design. These boats are propelled by single~~Superstore, ~~twin~~Inc.”, ~~or triple~~ ~~gasoline~~effective orJuly 1, ~~diesel~~2007 ~~engines~~for ~~ranging~~the ~~from~~principal ~~300~~purpose HPof toselling ~~more~~boats ~~than~~produced ~~1075~~by HPFountain ~~each~~Powerboats, Inc., ~~The~~the ~~Company~~manufacturing ~~builds outboard powered center consoles~~subsidiary, ~~and~~to ~~outboard~~retail orcustomers ~~stern~~who ~~drive~~reside ~~cabin~~in ~~model~~a ~~offshore~~territory ~~sport~~that ~~fishing~~can ~~boats~~be ~~ranging~~serviced from ~~23’~~the ~~through 38~~Company’.s InWashington, ~~addition~~North ~~the~~Carolina ~~company~~location. ~~also~~The ~~has~~manufacturing asubsidiary ~~line~~assigned ofeastern ~~express~~North ~~cruisers~~Carolina, ~~with~~Virginia ~~38’~~ and ~~48’~~South ~~offerings.~~Carolina ~~These~~to ~~boats~~the ~~are~~retail ~~offered~~subsidiary ~~with~~as ~~gas~~its orsales ~~diesel options~~territory. The ~~48’~~retail ~~utilizes~~operation ~~surface~~will ~~drives~~sell ~~which~~pre-owned ~~are~~boats ~~very~~taken ~~efficient,~~in ~~durable,~~trade ~~and~~on ~~resist~~sales ~~corrosion~~of ~~better~~new ~~than~~Fountain ~~traditional~~boats ~~stern~~and ~~drives.~~other ~~The~~services ~~48’~~to ~~was~~retail ~~named~~customers. ~~Boating~~A ~~Magazine’s Boat of the Year award for 2002 in its December 2002 issue~~secondary, ~~which~~but isvery ~~the boating industries highest accolade. In addition~~important, ~~the~~objective ~~Robb Report named the 48’ the Best~~ of the ~~Best~~ ~~for~~retail ~~2003~~operation inis ~~their~~to ~~June~~provide ~~2003~~retail ~~issue.~~sales ~~This~~support ~~boat~~and ~~also~~assistance ~~set the record from Key West, Florida~~ to ~~Cancun,~~all ~~Mexico~~dealers in ~~just~~the 8Fountain ~~hours~~Powerboats, ~~and~~Inc. 35distribution ~~minutes in August 2003~~network. The ~~Company~~retail operation ~~also~~will ~~builds~~operate ~~custom~~out ~~racing~~of ~~boats~~facilities ~~for~~owned by the ~~APBA and SBI racing circuits~~Company.

InFountain ~~addition~~Powerboat ~~to Sportboats~~Industries, ~~Fishing~~Inc. ~~boats,~~formed ~~and~~a ~~the~~wholly ~~new~~owned ~~Cruiser~~subsidiary, ~~Lines~~“Baja by Fountain, ~~the~~Inc.”, ~~Company~~effective ~~also~~May 21, ~~produces~~2008 afor ~~line~~the purpose of ~~military/governmental~~acquiring ~~boats~~certain assets of ~~various~~Baja ~~configurations~~Marine Corporation from Brunswick Corporation and the rights to produce some boat models previously built by Baja Marine Corporation. Baja ~~These~~produced high performance sport boats ~~are~~in ~~commercial~~lengths ~~versions~~from ofnineteen feet to forty feet with limited overlap with the ~~large~~size ~~sportboats~~of boats manufactured by Fountain Powerboats, Inc. and ~~fishing~~with ~~boats~~design, technology and ~~along~~amenities ~~with~~being very different. The Baja customer base has considerably different demographics than the ~~rigid~~Fountain ~~inflatable~~customer ~~boats~~base ~~(RIB),~~thus ~~form~~providing a ~~separate~~divergent market. Baja had an 87 dealer distribution network with approximately 15% of its Fiscal 2007 sales international. Management expects the ~~military/commercial~~Baja product line will complement the Fountain product line and allow the Company to add revenue for the Baja products with minimal additional overhead.

~~The Company’s 47’ Lightning Sport Boat operates at speeds of 75 to 100 mph and is very stable and suited for long range cruising in offshore waters~~Products. Its sleek styling makes it particularly attractive. Depending primarily upon the type of engines and options selected, this boat retails at prices ranging from $400,000 to $625,000. This boat’s standard features include a custom windshield, integrated swim platform, flush deck hatches, and an attractively appointed cockpit and cabin.

2Fountain Powerboats

~~Table~~Fountain ofcontinuously ~~Contents~~incorporates new and improved designs in its boats. The Company believes that the best boats come from combining an intuitive management team with hardcore experience gained by boat racing in offshore conditions. Each boat is tested in the Pamlico River, located alongside the factory, before it is shipped to its new owner. This testing is unique to Fountain Powerboats, as most boat manufacturers are not located on or near the water.

~~The~~Fountain ~~Company’s~~maintains ~~redesigned~~that ~~42’~~its ~~Lightning~~boats, ~~comes~~ with atheir ~~newly~~innovative ~~designed~~design ~~positive~~and ~~lift~~unitized ~~hull~~construction, aare ~~full wrap~~among ~~around~~the ~~windshield~~fastest, assmoothest, ~~well~~safest asand anbest-handling boats ~~impressive~~of ~~range~~their kind. The expansive product line of ~~speed~~sport cruisers, ~~stability~~sport fishing and ~~ride~~sport ~~comfort.~~boats ~~This~~is ~~top~~based ~~selling~~upon ~~model~~a ~~equipped~~deep ~~with~~V-shaped ~~special~~fiberglass ~~engines~~hull ~~currently~~for ~~holds~~speed ~~the~~and ~~world~~fuel ~~speed~~efficiency ~~record~~that ~~for~~uses ~~V-bottom~~less ~~boats~~horse ~~at 171~~power.~~883~~ ~~mph~~For ~~recorded~~superb byhandling ~~APBA/UIM~~and &performance, ~~SBI~~the boats onare ~~August~~designed 7,with ~~2004.~~a ~~The~~notched ~~retail~~transom ~~price~~and ofpad ~~the~~keel 42running ~~ranges~~surface ~~from~~and ~~$293,000~~engineered towith ~~$592,000~~an innovative step-bottom design.

The ~~42’~~Company ~~Executioner~~has twenty ~~was~~different ~~introduced~~models inthat ~~Fiscal~~fall ~~2004~~into ~~with~~three ~~retro~~categories ~~styling~~— express cruisers, sport fishing boats and ~~competitive~~sport ~~pricing~~boats. ~~for~~Initially ~~the~~known ~~40+~~for ~~foot~~its sport ~~boat~~boats, ~~market~~Fountain Powerboats has evolved into a company with a wide variety of boats for discriminating boaters.

~~The~~Fountain ~~38’~~Powerboats ~~Lightning~~has ~~operates~~a atsignificant ~~speeds~~share of ~~between~~the 70high ~~and~~performance ~~100~~sport ~~mph.~~boat ~~The~~market ~~retail~~and ~~price~~offers ~~ranges~~nine ~~from~~different ~~$269,000~~sport toboat ~~$344,000,~~models ~~depending~~ranging ~~primarily~~from ~~upon~~ the ~~type~~29’ ofFever ~~engines~~to ~~selected. This model was cited by Powerboat Magazine in 2002 as “Offshore Performance Boat of~~ the ~~Year”. In Fiscal 2002, the 38~~47’ Lightning. ~~incorporated~~These aV-bottom ~~new~~boats ~~superventilated~~carve ~~hull~~turns ~~that~~at ~~is the~~all ~~most~~speeds, ~~advanced~~even ~~superventilated~~when ~~hull~~being ~~produced~~propelled byat ~~Fountain~~over to100 ~~date~~MPH ~~and~~by ittwin isor ~~based~~triple onMercury ~~their~~525 ~~successful design, enhancing performance and interior space~~engines.

~~The~~Fountain ~~35’~~Powerboats ~~Lightning~~has ~~Sport~~become ~~Boat~~well ~~was~~known ~~totally~~for ~~redesigned~~its ~~and introduced in Fiscal 2000 to go with a higher freeboard~~upscale, ~~new~~high ~~twin-step~~performance ~~design,~~ and ~~new~~elegant ~~deck and~~Express ~~interior~~Cruisers. ItThe ~~operates~~cruiser atmarket ~~speeds~~had ~~between~~been 70growing ~~and~~as ~~100 mph. This boat won~~ the populace ~~2001~~ages ~~Offshore~~and ~~Boat~~begins ofto ~~the~~look ~~Year~~not byonly ~~Powerboat~~for ~~Magazine~~speed ~~and~~but ~~has~~also ~~proven~~for ~~itself~~luxurious asamenities for the ~~fastest~~entire ~~boat~~family. inFountain ~~Factory II history~~Powerboats, ~~setting~~with ~~the~~its ~~kilo~~38’ ~~record~~and ~~at 94.187 mph. This boat~~48’s ~~retail~~Express ~~price~~Cruisers, ~~ranges~~is ~~from~~poised ~~$230,000~~with products to ~~$303,000,~~capitalize ~~depending~~on ~~primarily upon~~ the ~~type~~niche of ~~engines~~this ~~selected~~market that desires high performance.

~~For~~2 ~~Fiscal 2003 we reintroduced the 35’ Executioner. Its retro styling and a competitive offshore entry level price has made it our number one seller.~~

~~The~~A ~~32’~~long ~~Fever~~established ~~was~~water ~~also~~sport ~~reintroduced~~is continuing to grow in ~~Fiscal 2003~~popularity – tournament fishing. ~~Retail~~With ~~price~~the advent ~~ranges~~of ~~from~~popular ~~$154~~sport fishing television shows and two quality sport fishing competition programs,~~000~~ tothe ~~$168~~American Striper Association Tournaments and the Southern Kingfish Association Tournaments,~~000~~ the Company has significantly expanded its line of sport fishing boats, building a competitive edge in this fast growing market.

~~The 29~~Fountain’s ~~Fever~~fish isboats ~~still~~are ~~one~~designed offor the ~~most~~fishing aficionado ~~popular~~who ~~boats.~~demands Itspeed ~~operates~~and atsuperb ~~speeds~~amenities offor 65his tofamily ~~85 mph~~ and ~~retail price ranges from $112,000 to $153,000 depending on engine size~~friends. ItEntering ~~has~~the ~~great~~tournament ~~balance~~fishing ~~and~~market ~~speed~~in ~~for~~the alate ~~single~~1980’s, ~~engine~~ and ~~operates~~now inconsidered ~~offshore~~“the ~~sea conditions~~boat ~~with~~to ~~superior~~beat”, ~~safety~~the ~~and~~Company’s ~~handling.~~fish ~~This~~ boat isproduct ~~also~~line ~~offered~~includes ~~with~~nine different ~~twin~~models ~~small~~ranging ~~block~~from ~~engines.~~the ~~This~~23’ ~~model~~Center ~~has~~Console ~~been~~(“CC”) ~~awarded~~to the ~~2001~~38’ ~~Outstanding~~ Sport ~~Boat~~Fish ~~Performance~~Cruiser ~~Award by Powerboat Magazine and has set the 2000 APBA F-1 record at 89~~outboard.~~873 mph.~~

~~The~~Fountain participates ~~27’~~in ~~Fever~~Poker Run events, which is aan ~~single~~increasingly ~~engine~~popular ~~model~~sporting event that ~~incorporates~~ ~~the~~involves ~~same~~large ~~features,~~numbers ~~components~~of ~~and~~recreational ~~designs~~boat asowners. ~~our~~These ~~larger~~events ~~offshore~~are ~~performance~~sponsored ~~boats.~~by ~~Its~~local ~~retail~~organizations, ~~price~~generally ~~ranges~~including ~~from~~one ~~$101~~of the Company’s dealers,~~000~~ and present ~~$131,000~~a great opportunity to showcase the Company’s boats to an affluent audience.

~~The~~During ~~Company~~Fiscal ~~also~~2008 ~~builds~~the ~~and~~Company ~~markets~~introduced athe ~~sport~~following ~~fishing line. Our~~ new ~~generation~~and upgraded ~~of fishing~~ boat ismodels: ~~once again setting the standard for offshore fishing. The 34’ and 38’ are heavily campaigned on the Southern Kingfish Association (SKA) tournament trail.~~

~~The~~• 38A new 33’ sport ~~fish~~boat model iswas aintroduced ~~wide~~as ~~beam~~the ~~center~~newest ~~console~~and smallest boat of the Lightning Series complete with ~~T-Top~~the ~~and~~redesigned ~~cuddy~~Lightning ~~cabin~~series ~~that~~interior ~~was~~and ~~introduced~~Mercury in425HP ~~fiscal~~stern ~~2001~~drives engines. It ~~features~~will ~~triple~~perform ~~outboards and~~at ~~retail~~speeds ~~price~~in ~~ranges~~excess ~~from~~of ~~$218,000~~82 ~~to $245,000.~~ MPH;

• The 34 33’ sport fish ~~wide~~cruiser ~~beam~~outboard ~~center~~hull ~~console~~was ~~model~~redesigned ~~was~~to ~~introduced~~provide inthat ~~fiscal~~model ~~2002~~an ~~and~~even issmoother ~~offered~~and ~~with~~more ~~twin~~stable orride ~~triple~~in ~~outboard~~all ~~engines.~~types ~~Its~~of ~~retail~~water ~~prices~~conditions, ~~range~~at ~~from~~all ~~$194~~speeds,~~000~~ toand ~~$224,000,~~with ~~depending~~twin ~~upon~~outboard ~~engine~~Mercury ~~selection.~~Verado ~~The~~engines ~~addition~~to ofmatch ~~this~~the ~~model~~performance ~~has added~~of ~~greatly~~the to38’ ~~our~~sport fish ~~boat~~cruiser ~~volume and profitability.~~ outboard;

• The 31 38’ express and sport fish ~~model~~cruiser ~~features~~models awere ~~center~~adapted ~~console~~to ~~with~~accommodate ~~T-Top design and incorporates~~ the ~~same~~newest ~~high~~38’ ~~performance,~~hull ~~styling,~~design ~~and~~that ~~structural~~was ~~integrity~~developed asfor the 38’ sport ~~boat~~fish ~~models.~~cruiser Itoutboard ~~has~~to aprovide ~~deck~~those ~~configuration~~models ~~engineered~~with ~~for~~ the ~~knowledgeable,~~superior ~~experienced sport~~performance ~~fisherman.~~and ~~Retail~~handling ~~price~~that ~~for~~customers ~~this~~are ~~model~~experiencing ~~ranges~~with ~~from~~this ~~$125,000~~popular tooutboard ~~$137,000.~~ boat;

• The ~~additional~~48’ ~~models~~express ~~include~~cruiser ~~the~~was ~~29’~~made ~~twin~~available ~~engine~~with ~~center~~a ~~console~~twin ~~model~~Cummins ~~and~~diesel ~~23’ single~~ engine ~~center console model~~configuration. ~~The~~This ~~design,~~option ~~construction,~~reduces ~~and~~the ~~performance~~overall cost of ~~these~~the ~~models,~~boat ~~together~~and ~~with~~operating ~~the~~costs ~~proven~~while ~~features of~~maintaining ~~the~~high ~~31’~~performance ~~center~~operating ~~console~~speeds. ~~model,~~This ~~makes~~option awas ~~line~~introduced ~~that~~in ~~appeals~~answer to ~~many~~demand ~~experienced~~from ~~sport~~the ~~fishermen,~~international inmarket ~~addition~~but tohas ~~the~~been ~~weekend~~popular ~~warrior.~~domestically as well.

3The chart below shows the number of boats completed and shipped during the last three fiscal years by product line.


	Fiscal 2008	Fiscal 2007	Fiscal 2006
Sport boats	98	127	167
Express cruisers	32	31	42
Sport fishing boats	153	168	190
Other	2	3	1

Total	285	329	400

ToAs ~~further~~of ~~enhance its sport fishing line~~June 30, ~~the~~2008 ~~Company~~Fountain ~~has~~Powerboats had a ~~31’~~backlog ~~walk~~of ~~around~~firm ~~cabin~~orders ~~model~~for ~~based~~21 ~~upon~~boats, totaling ~~the~~sales ~~proven~~of ~~31’ center console hull design~~$3.4 ~~This~~million, ~~model~~all ~~features~~of awhich ~~deck~~are ~~design~~expected ~~that~~to ~~incorporates~~be acompleted ~~cabin~~during ~~with~~Fiscal ~~standup~~2009. ~~headroom~~At June 30, ~~an enclosed head with shower~~2007, ~~and~~the asales ~~full~~backlog ~~galley.~~was ~~With~~76 ~~twin outboard engine power~~boats, ~~this~~totaling ~~model~~$16.8 ~~is produced either as a fishing machine or as a recreational cruiser~~million.

~~The~~Baja ~~Company also produces a 29’ walk around cabin fishing boat with outboard engine power and a single stern drive 29’ and a 32’ walk around cabin fishing model with twin stern drive power.~~

~~The~~Baja ~~38’~~boat ~~sport~~models ~~fish~~include ~~cruiser~~three ~~was~~product ~~introduced~~series ~~at the Miami Boat Show in February~~ of ~~2003~~high ~~and~~performance issport ~~offered~~boats, ~~with~~ranging ~~twin~~from ~~gas~~19’ ~~or diesel~~to ~~engines~~40’. ~~The~~All Baja ~~38’~~models ~~sport~~are ~~fish~~built ~~cruiser~~on ~~offers~~a ~~the~~V-bottom ~~customer~~design ~~the luxury~~ and ~~amenities~~are ofpowered anwith ~~express~~either ~~fisher~~single ~~while~~or ~~maintaining~~twin ~~the~~Mercruiser ~~performance~~stern ~~and~~drive ~~handling~~inboard ofengines. aThe ~~Fountain~~suggested ~~sport~~retail ~~boat. Retail~~ price ~~for~~of ~~this~~Baja ~~boat~~boats ~~ranges~~have ranged from $~~338~~25,~~000~~500 to $~~371~~300,000.

~~Our~~Baja ~~newest~~customers ~~boat,~~started ~~the~~an ~~38LX~~owners isclub ~~the~~as ~~perfect~~“Team ~~combination~~Baja” ~~for fishing,~~several ~~performance,~~years ~~entertaining~~ago. ~~and~~They ~~over~~hold ~~-nighting.~~many ~~Powered~~events bythroughout ~~triple~~the ~~Mercury~~year ~~outboards,~~at different locations in the US. 38These isare ~~extremely~~very ~~efficient~~proud and ~~runs~~loyal inowners; ~~excess~~they are one of 60the ~~MPH.~~reasons ~~The~~that ~~price~~Baja ~~ranges~~has ~~from~~been ~~$285,000~~able to ~~$300,000~~build as many as 1200 boats in a single year.

~~During~~Baja ~~the~~and ~~past~~its ~~three~~customers ~~years~~have ~~the~~been ~~Company~~very ~~has~~active ~~made~~in ~~great~~Poker ~~strides~~Run inevents, ~~the~~with ~~express cruiser~~Baja ~~market~~maintaining bya ~~developing~~company ~~the~~sponsored ~~38’~~boat configured and ~~48’~~designed ~~express~~specifically ~~cruiser~~for ~~models.~~the ~~These~~Poker ~~boats~~Run ~~offer~~tour. ~~customers~~Baja ~~the~~facilitated ~~speed~~ and ~~performance~~supported ~~that~~the ~~you~~Baja ~~would~~Team ~~typically~~owners ~~find~~club inas awell as ~~sport~~other ~~boat~~customers ~~with~~on the ~~amenities~~tour ofto apromote ~~traditional cruiser~~camaraderie. WeParticipation doin itthese byevents ~~integrating our~~boosted ~~positive~~the ~~lift~~popularity ~~bottom, notched transom~~ and ~~pad~~sales ~~keel~~of ~~design,~~Baja ~~which greatly enhances the performance~~boats.

~~The~~Baja by ~~38’~~Fountain, ~~express~~Inc. ~~cruiser~~acquired ~~was~~the ~~introduced~~molds atand ~~the~~tooling ~~Miami~~for ~~Boat~~fifteen ~~Show~~Baja inmodels; ~~February~~six models of ~~2001.~~the ~~The~~“Outlaw” ~~38’~~Series”, ~~express~~four ~~cruiser~~models ~~offers~~of the ~~customer~~“Islander ~~the~~Series”, ~~luxury~~ and ~~space~~ five models of athe ~~full~~“Performance ~~cruiser~~Series”. ~~while~~The ~~maintaining~~Company will produce Baja boats for the ~~performance~~2009 model year, with production and ~~handling~~delivery of anine ~~Fountain~~of ~~sport~~the ~~boat.~~models ~~This~~in ~~boat~~September/October, ~~been~~2008. ~~extremely~~Baja ~~well~~boats ~~received~~will bybe built using the ~~market~~same ~~and~~production ~~retail~~processes ~~price~~as ~~ranges~~are ~~from~~used ~~$323,000~~for toFountain ~~$367,000~~boats.

In3 Fiscal 2002, the Company introduced the latest in their express cruiser and wide-beam lines. The 48’ wide-beam express cruiser debuted offering a whole new level of comfort and luxury. With speeds of up to 65 mph, the 48’ Express Cruiser launched the Company into a new expanding market segment with an edge in performance and class. This 48’ retail price ranges from $697,000 to $864,000, depending upon engine choice and option configurations.

InFountain ~~Fiscal~~Dealers’ ~~2005,~~Factory ~~the~~Superstore ~~Company will introduce new and redesigned fish boat and sport boat models, to include:~~

23The Fountain Dealers’ ~~Fish~~Factory ~~Boat~~Superstore, –Inc. ~~Built~~(Superstore) was formed to ~~succeed~~establish ~~our~~a ~~23’~~factory ~~fish~~associated ~~boat,~~dealership for the exclusive sales of boats ~~features~~produced aby ~~wide~~Fountain Powerboats, ~~deep~~Inc. ~~hull~~It ~~for~~provides ~~smooth~~Fountain’s ~~ride~~retail nocustomers ~~matter~~a ~~what~~close relationship with the ~~condition~~support and service of ~~the~~Fountain ~~seas.~~Powerboats’ ~~Plus,~~factory ~~the~~staffs ~~hull’s~~and ~~double~~facilities. ~~stepped,~~It performs dealership sales and ~~available~~services ~~with~~in ~~twin~~a ~~Mercury~~territory that ~~engines,~~encompasses ~~for~~the ~~added~~eastern ~~performance~~region of North Carolina, Virginia and ~~safety~~South Carolina. ~~There~~This is ~~also~~a ~~plenty~~territory ofthat ~~fishing~~can ~~room~~be sufficiently served by a dealership located centrally in Washington, soNorth ~~the~~Carolina. The Superstore also provides sales support and ~~fisherman~~assistance ~~can~~to ~~easily~~all ~~maneuver~~dealers ~~about~~in Fountain Powerboats, Inc. distribution network.

~~33’~~The ~~Sport~~mission ~~Fish Cruiser~~of –the SoSuperstore ~~versatile~~is itto ~~appeals~~increase tothe ~~serious~~number ~~fishermen~~of boats asproduced ~~well~~and assold ~~fun-loving~~by ~~families~~Fountain Powerboats, ~~this~~provide ~~new~~a ~~boat~~quality isexperience ~~sure~~for toFountain’s ~~make~~customers when selecting and purchasing a ~~big~~Fountain ~~splash~~boat, ~~next~~maintain ~~year.~~a ~~Powered~~professional byretail ~~twin~~sales ~~275~~organization HPthat ~~Mercury~~is ~~Verado~~focused ~~outboards,~~on itselling ~~races~~Fountain boats as a model sales program to ~~the~~increase ~~fish~~sales ~~and~~of ~~features~~the ~~every~~existing ~~amenity anglers~~dealer ~~demand.~~network, ~~With~~and ~~large~~provide ~~areas~~a ~~for~~perpetual, ~~entertaining~~qualified, ~~fishing~~specialized and ~~overnight~~proficient ~~capabilities~~retail outlet for ~~six,~~the ~~families~~viable ~~will~~Central beAtlantic ~~just~~Coast asmarket ~~impressed~~for Fountain boats.

~~42’~~The ~~Poker~~chart ~~Run~~below –shows ~~Speed rules in~~ the ~~world~~sales of ~~sport~~the ~~boats,~~Superstore ~~which~~for isits ~~why~~first ~~we expect next~~ year’s ~~42’ Poker Run Edition to be a superstar. It’s a highly customized specialty boat aimed at the ever-growing poker-run market. Participants in these wildly popular events love to flaunt the speed~~ of ~~their~~operation: ~~boats, and nothing will leave a more lasting impression than our new Poker Run Edition.~~


		Fiscal 2008
Fountain Powerboats boats purchased	43 boats	$	9,138,276
New Fountain Powerboats sold at retail	33 boats	$	7,781,455
Trade-in boats sold at retail	8 boats		791,567
New trailers sold at retail			150,322
Other sales (e.g. electronics, service, non-boat trades)			31,116

Total sales of Superstore		$	9,754,460
(Intercompany sales are eliminated in consolidation.)

~~Table~~Research ofand ~~Contents~~Development.

~~Following~~Staying isahead aof ~~table~~its ~~showing~~competition, Fountain’s employees conduct ongoing research and development pertaining to the ~~number~~design of its boats’ ~~completed~~hulls and ~~shipped~~decks inand ~~each~~its small parts production. The Company invested approximately $800,000 on the development of new plugs and molds during Fiscal 2008. Over the ~~last~~past three fiscal years, bythe investments into product ~~line~~development were as follows:

	Fiscal2004		Fiscal2003		Fiscal2002
	Fiscal2008			Fiscal2007		Fiscal2006
Sport boats	244		198		115
Design, Research & Development	$	749,136		$	757,186	$	780,520
Wide beam fish boats	70		69		44
Construction of New Plugs and Molds		799,918			1,034,366		1,092,994
Wide beam cruisers	31		29		21
Sport fishing boats	66		89		48
Other	0		3		3
Total	411		388		231

AsFor offiscal ~~June 30~~2009, ~~2004 the~~planned ~~Company~~expenses ~~had~~for adesign, ~~backlog~~research ofand ~~firm~~development ~~orders~~are ~~for~~estimated ~~206~~to ~~boats~~be $762,000, ~~totaling~~and ~~sales~~plug ofand mold construction expenditures are estimated to be $39900,~~087~~000. Primarily,~~752,~~ ~~all~~these ofexpenditures ~~which~~ will bego ~~completed~~to ~~during~~upgrading ~~Fiscal~~and ~~2005.~~expanding Atthe ~~June~~Baja 30product line, ~~2003~~expanding ~~the~~Fountain ~~sales~~express ~~backlog~~cruisers ~~was~~line 54and enhancing the Fountain sport fish boats, ~~totaling~~line ~~$7,585,761~~to continue to expand the Company’s presence in that profitable and more stable market.

~~The Company conducts research and development projects for the design of its plugs and molds for hull, deck, and small parts production~~Manufacturing. The design, engineering, and tooling departments currently employ approximately 32 full-time employees. Amounts spent on design, research, and development to build new plugs and molds in recent years were:

	DesignResearch &Development		Constructionof New Plugsand Molds
Fiscal 2004	$	871,386	$	1,060,533
Fiscal 2003	$	552,072	$	1,056,852
Fiscal 2002	$	952,332	$	1,370,526

Manufacturing capacity of the Company’s facility can accommodate 40 to 45 boats in various stages of construction at any one time. Construction time is approximately three to eight weeks, dependent on the product mix.

~~For~~At ~~Fiscal 2005~~June 30, ~~design,~~ ~~research~~2008 ~~and~~the ~~development~~Company ~~planned~~had ~~expenses~~322 ~~are estimated to be $958~~employees,~~000~~ ~~and~~of ~~plug~~which ~~and~~294 employees ~~mold~~were ~~construction~~direct ~~expenditures~~production ~~are~~or ~~estimated~~production ~~to be $1,507,000~~support. ~~These~~The ~~expenditures~~Company ~~will~~currently behas ~~used~~the ~~primarily~~capacity to ~~enhance~~manufacture ~~and~~approximately ~~upgrade~~300 ~~our~~Fountain ~~line~~Powerboats ~~of fish~~ boats ~~to give~~and us500 aBaja ~~more~~boats ~~predominant~~per ~~presence in the very active fish boat market~~year.

~~Manufacturing~~The ~~capacity~~manufacturing process is ~~sufficient~~labor tointensive ~~accommodate~~and ~~approximately~~requires 30seasoned tocraftsmen. 40The ~~boats~~process infor ~~various~~manufacturing ~~stages~~the hull and deck of ~~construction~~a atFountain ~~any~~Powerboat ~~one~~is done ~~time~~by hand. ~~Construction~~Vinylester ofresins aand ~~current~~high ~~model~~quality ~~boat~~stitched, ~~depending~~bi-directional onand ~~size,~~quad-directional ~~takes~~fiberglass ~~approximately~~is ~~three~~hand ~~to ten~~laid ~~weeks.~~over ~~The~~a ~~Company,~~foam ~~with~~core ~~additional~~in ~~personnel,~~molds ~~currently~~designed ~~has~~and constructed by the ~~capacity~~Company’s toengineers ~~manufacture~~and ~~approximately~~tooling ~~500~~department. ~~sport~~This artisan method creates a composite structure with strong outer and ~~fishing~~inner ~~boats~~skins and a thicker, lighter core in between, resulting in superior strength and 75a ~~cruisers~~finer ~~per~~appearance, ~~year.~~compared to mechanically blown, chopped fiberglass used by other manufacturers.

~~The~~4 manufacturing process for the hulls and decks consists primarily of the hand “lay-up” of vinylester resins and high quality stitched, bi-directional and quad-directional fiberglass over a foam core in the molds designed and constructed by the Company’s engineering and tooling department. This creates a composite structure with strong outer and inner skins with a thicker, light core in between. The “lay-up” of fiberglass by

5The resin used to bind the composite structure is vinylester, which is stronger, better bonding, blister resistent and more flexible than the polyester resins used by most fiberglass boat manufacturers. Decks are bonded to the hull using a combination of bonding agents, rivets, screws and fiberglass to achieve a strong unitized construction. This manufacturing process was developed and improved upon as a result of the Company’s many years of racing experience. When a Fountain Powerboat is traveling at 177 MPH through the water, this manufacturing process provides the speed and safety the Company’s boats are known for.

~~Table~~As one of ~~Contents~~the most highly integrated manufacturers in the marine industry, Fountain manufactures many metal, plexiglass, plastic, and small parts (such as fuel tanks, seat frames, instrument panels, bow rails, brackets, T-tops and windscreens) to assure that its rigid quality standards are met and, if a design change is needed to improve a boat, it can be made immediately.

~~hand~~The ~~rather~~Company ~~than~~also ~~using~~manufactures ~~chopped~~all ~~fiberglass~~of ~~and~~its ~~mechanical~~upholstery ~~blowers,~~to ~~results~~its inown ~~superior~~custom ~~strength~~specifications and ~~appearance.~~benefits ~~The resin~~from ~~used~~receiving tothese ~~bind~~parts ~~the~~just ~~composite~~in ~~structure~~time ~~together~~for isassembly. ~~vinylester,~~All ~~which~~other iscomponent ~~stronger,~~parts ~~better bonding,~~ and ~~more~~materials ~~flexible~~used ~~than~~in the ~~polyester~~manufacture ~~resins~~of ~~used~~the byCompany’s ~~most~~boats ~~other~~are ~~fiberglass~~readily ~~boat~~available ~~manufacturers.~~from ~~Decks~~a ~~are~~variety ~~bonded~~of tosuppliers ~~the~~at ~~hulls~~comparable ~~using~~prices ~~bonding~~exclusive ~~agents,~~of ~~rivets,~~discounts. The Company ~~screws~~purchases certain supplies and ~~fiberglass~~materials from a limited number of suppliers in order to ~~achieve~~obtain athe ~~strong,~~benefit ~~unitized~~of ~~construction~~volume discounts.

AsRecreational ~~one~~powerboats ofmust ~~the~~be ~~most~~certified ~~highly~~by ~~integrated manufacturers in~~ the ~~marine~~manufacturer ~~industry,~~to ~~the~~meet ~~Company~~U.S. ~~manufactures~~Coast ~~many~~Guard ~~metal,~~specifications. ~~plexiglass,~~Their ~~plastic,~~safety ~~and~~is ~~small~~subject ~~parts~~to ~~(such~~federal asregulation ~~fuel~~under ~~tanks,~~the ~~seat~~Boat ~~frames,~~Safety ~~instrument~~Act ~~panels,~~of ~~bow rails~~1971, ~~brackets,~~as ~~T-tops~~amended, ~~and windscreens)~~pursuant to ~~assure~~which ~~that~~boat ~~its~~manufacturers ~~quality~~may ~~standards~~be required ~~are met. In addition, the Company also manufactures all of its upholstery~~ to ~~its~~recall ~~own~~products ~~custom specifications and benefits from receiving these parts just in time~~ for ~~assembly.~~replacement ~~All~~of ~~other component~~ parts ~~and~~ ~~materials~~or ~~used~~components inthat ~~the~~have ~~manufacture~~demonstrated ofdefects ~~the~~affecting ~~Company’s boats are readily available from a variety of suppliers at comparable prices exclusive of discounts~~safety. ~~However,~~Boats ~~the~~manufactured ~~Company~~for ~~purchases~~sale ~~certain supplies and materials from a limited number of suppliers~~ in ~~order~~the toEuropean ~~obtain~~Community ~~the~~must ~~benefit~~meet ofCE ~~volume~~Certification ~~discounts~~Standards.

~~Certain~~Product materials used in boat manufacturing, including the resins used to make the decks and hulls, are toxic, flammable, corrosive, or reactive and are classified by the federal and state governments as “hazardous materialsWarranty.~~” Control~~ of these substances is regulated by the Environmental Protection Agency and state pollution control agencies which require reports and inspect facilities to monitor compliance with their regulations. The Company’s cost of compliance with environmental regulations has not been material. The Company’s manufacturing facilities are regularly inspected by the Occupational Safety and Health Administration and by state and local inspection agencies and departments. The Company believes that its facilities comply with substantially all regulations. The Company, however, has been informed that it may incur or may have incurred liability for re-mediation of ground water contamination at a hazardous waste disposal site resulting from the disposal of a hazardous substance at those sites by a third-party contractor of the Subsidiary. (See Legal Proceedings.)

~~Recreational~~The ~~powerboats~~Company ~~must~~warrants bethe ~~certified~~boat byhull and ~~the~~deck ~~manufacturer~~structure toagainst ~~meet~~defects ~~U.S.~~in ~~Coast~~material ~~Guard~~and ~~specifications~~workmanship for a period of six years. ~~Their~~Warranty ~~safety~~costs, isif ~~subject~~any, toon ~~federal~~other ~~regulation~~components ~~under~~of the boats are generally absorbed by the original component manufacturer. Warranty costs can vary depending on the ~~Boat~~size ~~Safety~~and ~~Act~~number of ~~1971,~~components asin ~~amended,~~the ~~pursuant~~boats tosold. ~~which~~The ~~boat~~Company ~~manufacturers~~focuses ~~may~~on behigh ~~required~~quality tomanufacturing ~~recall~~programs ~~products~~and ~~for~~processes, ~~replacement~~including active monitoring of ~~parts~~the orquality of components ~~that~~obtained ~~have~~from ~~demonstrated~~suppliers ~~defects~~and ~~affecting~~managing ~~safety~~the dealer and customer warranty experience and reimbursements. ~~The~~Our ~~Company~~estimated ~~has~~warranty ~~never~~obligation ~~had~~is tobased ~~conduct~~upon athe ~~product recall.~~warranty Interms, ~~addition~~the enforcement of those terms over time, defects, repair costs, and the volume and mix of boats ~~manufactured~~sold. ~~for~~The ~~sale~~estimate inof warranty costs is regularly analyzed and is adjusted based on several factors including the ~~European~~actual ~~Community~~claims ~~must~~that ~~meet~~occur CEby ~~Certification~~model ~~Standards~~and model year. The following is a table of the Company warranty expense for fiscal years 2008 and 2007:

Sales and Marketing.


	Fiscal 2008			Fiscal 2007
Net Sales	$	68,202,620		$	68,829,987
Warranty Expense	$	1,037,405		$	1,347,511
Warranty Expense as a % of Sales		1.5	%		2.0	%

Sales ~~are made through approximately 55 dealer shipping locations throughout the United States. Most of these dealers are not exclusive to the Company~~ and ~~carry~~ ~~the boats of other companies, including some boats that may be competitive with the Company’s products~~Marketing. ~~The territories served by any dealer are not exclusive to the dealer. However, the Company uses discretion in locating new dealers in an effort to protect the interests of the existing dealers.~~

~~Following~~The isCompany sells its Fountain products through a ~~table~~worldwide network of ~~sales~~26 bydomestic ~~geographic~~dealers ~~area~~and ~~for~~21 international dealers. While most of these dealers are not exclusive, the ~~last~~Company ~~three~~uses ~~fiscal~~discretion ~~years:~~in locating new dealers in an effort to protect the interests of its existing dealer network. Baja had a worldwide network of 87 dealers, and the Company is in the process of establishing a relationship with dealers from that network who potentially will purchase Baja and potentially Fountain boats.

	Fiscal 2004		Fiscal 2003		Fiscal 2002
United States	$	57,580,728	$	50,796,277	$	35,450,436
Canada, Mexico, Central and South America	$	1,441,308	$	929,481	$	1,500,145
Europe and the Middle East	$	819,724	$	595,777	$	—
Asia	$	—	$	235,549	$	—
Total	$	59,841,760	$	52,557,084	$	36,950,581

The Company employs Sales Representatives who are assigned regional territories. The Sales Representatives manage the Company’s relationship with dealers in their assigned territories. They support and assist dealers with features and benefits sales training, retail sales opportunities, inventory selection and stocking, accounts reconciliation and general communications and support.

6The Company engages an agent for sales to international markets. The agent manages the relationship with international dealers, markets and sells products to dealers, coordinates all international shipments, handles all currency exchanges, and administers warranty claims with international customers.

~~Table~~5 ~~of Contents~~

The ~~Company~~following ~~targets~~is a ~~portion~~table of ~~its~~sales ~~advertising~~by ~~program~~geographic ~~into~~area ~~foreign~~for ~~countries through various advertising media. It continues to seek new dealers throughout Europe, South America,~~ the ~~Far~~last ~~East~~three ~~and~~fiscal ~~the Middle East~~years. In general, the Company requires payment in full or an irrevocable letter of credit from a domestic bank before it will ship a boat overseas. Consequently, there is no credit risk associated with its foreign sales or risk related to foreign currency fluctuation.

For Fiscal 2004, one dealer accounted for 10.5% of sales, one accounted for 10.2% of sales and two each accounted for 5% of sales. For Fiscal 2003, one dealer accounted for 10.3% of sales, one for 8.0% of sales and one accounted for 6.7% of sales. For Fiscal 2002 one dealer accounted for 11.8% of sales, one for 11.7% of sales and two each for 8% of sales. The Company believes that the loss of any particular dealer could have an adverse affect on sales, yet the Company believes they could find other dealers within the same geographical area to replace any that are lost. The Company is actively pursuing the addition of new, quality dealers. As sales continue to grow through dealer additions, it is reasonable to assume the Company will grow less dependent on any one dealer.


	Fiscal 2008		Fiscal 2007		Fiscal 2006
United States	$	56,911,647	$	60,011,000	$	70,934,584
Canada, Mexico, Central/South America		4,176,865		3,689,071		1,849,529
Europe		5,310,545		4,059,120		2,722,920
Middle East		1,378,907		455,687		2,753,281
Africa		—		—		965,910
Asia		189,162		300,691		—
Australia		235,494		314,418		—

Total	$	68,202,620	$	68,829,987	$	79,226,224

~~Field~~Fountain ~~sales~~Powerboats ~~representatives~~targets ~~call~~a ~~upon~~significant ~~existing~~portion ~~dealers~~of ~~and~~revenue ~~develop~~for ~~new~~its ~~dealers.~~branding ~~The~~and ~~field~~advertising programs ~~sales~~in ~~force is headed by~~ the ~~Vice~~United ~~President~~States of ~~Sales~~America ~~who~~and ~~is responsible~~internationally. ~~for~~The ~~developing~~Company acontinues ~~full~~to ~~dealer~~expand ~~organization~~its ~~for~~dealer ~~sport~~network ~~boats~~into Europe, ~~sport~~South ~~fishing~~America ~~boats~~ and ~~express~~the ~~cruisers~~Middle East. The Company’s isInternational ~~seeking~~sales towere ~~establish~~$11,290,973 ~~separate~~for ~~sport~~fiscal ~~boat,~~2008 ~~fishing~~and ~~boat~~$8,818,987 for ~~and~~fiscal ~~cruiser~~2007. ~~dealers~~The inCompany ~~most~~requires ~~marketing~~payment ~~areas~~in ~~due~~full toor ~~the specialization~~an irrevocable letter of ~~each~~credit ~~type~~from ofa domestic bank before it will ship a boat ~~and~~out of the ~~different~~United ~~sales~~States ~~programs~~of ~~required~~America.

~~Although~~In aFiscal 2008, one dealer accounted for 12.5 percent of sales, ~~order~~one ~~can~~dealer beaccounted ~~cancelled~~for at8.5 ~~any~~percent, ~~time~~one dealer accounted for 6.9 percent, ~~most~~one ~~boats~~dealer accounted ~~are~~for ~~pre-sold~~5.1 topercent aand one dealer ~~before~~accounted ~~entering~~for ~~the~~5.0 ~~production~~percent. ~~line~~In Fiscal 2007, one dealer accounted for 13.6 Topercent ~~date~~of sales, ~~cancellations~~one ~~have~~accounted ~~not~~for ~~had~~9 apercent ~~material~~and ~~effect~~four oneach ~~the~~accounted ~~Company~~for 5.0 ~~The~~to ~~Company~~5.5 ~~normally~~percent. In fiscal 2006, one dealer accounted for ~~does~~10.9 ~~not~~percent ~~manufacture~~of ~~boats~~sales, one accounted for ~~its~~8.5 ~~own~~percent ~~inventory~~and four each accounted for 5.8 to 6.3 percent.

~~The~~While ~~Company ships boats to some dealers on a cash-on-delivery basis. However,~~ the ~~majority~~loss of ~~the~~any ~~Company’s shipments are made pursuant to commercial~~ particular dealer ~~“floor~~could ~~plan~~have ~~financing”~~an ~~programs~~adverse inaffect ~~which the Company participates~~ on ~~behalf of its dealers. Under these arrangements~~sales, ~~a dealer establishes lines of credit with one or more third-party lenders for~~ the ~~purchase~~Company ofbelieves ~~showroom inventory. When a dealer purchases a boat pursuant to a floor plan arrangement,~~ it ~~draws~~could ~~against~~find ~~its~~other ~~line~~dealers ~~of credit and the lender pays the invoice cost of the boat directly to the Company. Generally, payment is made to the Company~~ within ~~five business days. When~~ the ~~dealer~~same ~~sells~~geographical ~~the~~area ~~boat~~ to replace a ~~retail~~lost ~~customer, the~~ dealer ~~repays the lender, thereby restoring its available credit line~~. The ~~dealers~~Company ~~make~~continues ~~curtailment~~to ~~payments~~add ~~(principal~~new ~~payments)~~dealers onwith the ~~boats~~goal ~~when required by their particular commercial lenders. As part~~ of ~~this~~reducing ~~sales promotion program~~ the ~~Company~~concentration ~~agrees~~risk ~~to pay interest on the~~in ~~floor~~its ~~plan~~distribution ~~for a certain period of time~~channel. ~~Similar sales promotion programs were in effect during fiscal years 2004, 2003 and 2002.~~

~~Each~~The dealer’s floor plan credit facilities are secured by the dealer’s inventory, letters of credit, and perhaps other personal and real property. In connection with the dealer’s floor plan arrangements, the Company ~~(together with substantially all other major manufacturers)~~ has ~~agreed~~a tostrategically ~~repurchase~~located ~~any~~team of ~~its~~sales ~~boats~~representatives ~~which~~supporting aexisting ~~lender repossesses from a~~ dealer ~~and~~locations ~~returns to the~~and ~~Company~~developing ~~in a~~ new ordealers ~~like~~in ~~new~~targeted ~~condition~~locations. InThe ~~the~~sales ~~event that a dealer defaults under a credit line~~team, ~~the~~headed ~~lender~~up ~~may~~by ~~then invoke~~ the ~~manufacturers’ repurchase agreements with respect to that dealer. In that event~~President, ~~all~~is ~~repurchase~~responsible ~~agreements~~for ofdeveloping ~~all manufacturers supplying~~ a ~~defaulting~~ dealer ~~are~~organization ~~generally~~for ~~invoked~~sport ~~regardless~~boats, ofsport ~~the~~fishing ~~boat or~~ boats ~~with~~and ~~respect~~express tocruisers. ~~which~~The ~~the~~product ~~dealer~~line ~~has~~is ~~defaulted~~extremely ~~(See~~diverse ~~also Management’s Discussion~~ and requires ~~Analysis~~specialized ofsales ~~Financial~~training ~~Condition~~ and ~~Results~~service ofand ~~Operations). The Company participates in floor plan arrangements with several major third-party lenders on behalf of its dealers~~support, ~~most~~so ~~of whom have financing arrangements with more than one lender. Except as described above, or where it has a direct repurchase agreement with a dealer,~~ the Company’s strategy is ~~under no material obligation~~ to ~~repurchase~~develop ~~boats~~individual ~~from its~~ dealers. ~~From time to time the Company will voluntarily repurchase a boat~~ for ~~the~~each ~~convenience~~ of ~~the~~its ~~dealer~~product ~~or for another dealer who needs a particular model not readily available from the factory~~lines. The marketing of boats to retail customers is primarily the responsibility of the dealer, whose efforts are supplemented by the Company through advertising in boating magazines, and by participation in boat shows.

7Fountain Powerboats does not manufacture to inventory, as its boats are pre-sold to dealers before entering the production line. The Company can ship to dealers on a cash-on-delivery basis or through floor plan financing programs in which the Company participates on behalf of its dealers. For Fiscal years 2008, 2007 and 2006, the Company has paid the interest on the floor plan, for a certain period of time, as a sales promotion program.

~~Table~~The dealer’s responsibility is to establish a line of ~~Contents~~credit with one or more third-party lenders for the purchase of its showroom inventory. When a dealer purchases a boat utilizing the floor plan arrangement, it draws against its line of credit and the lender pays the invoice for the boat directly to Fountain Powerboats, typically within five business days. When the boat is sold to the retail customer, the dealer repays the lender, restoring his credit line. The Company, along with most major boat manufacturers, will repurchase its boats from a lender who has repossessed them from a dealer, if the lender returns the boats to Fountain Powerboats in a new or like-new condition. The Company has no material obligation to repurchase boats from its dealers.

~~Additionally,~~The inmarketing ~~order~~of boats to ~~further~~retail ~~promote~~customers ~~its~~is ~~products over~~ the ~~years,~~responsibility ~~the~~of ~~Company has developed racing programs to participate in~~ the ~~major classes of offshore powerboat races~~dealer, ~~many~~whose ofefforts ~~which~~ are ~~regularly~~complemented ~~televised~~by onFountain ~~networks~~Powerboats’ ~~such~~advertising asin ~~Outdoor~~boating ~~Channel. Additionally~~magazines, ~~Fountain~~participating ~~single,~~in ~~twin~~boat shows and ~~triple~~its ~~engine~~Sales ~~racing~~staff ~~boats~~responding ~~continue~~ to ~~hold~~and ~~their~~tracking ~~respective~~leads from ~~world~~advertisements, ~~speed~~boat ~~records.~~shows ~~The~~and ~~result~~internet ofinquiries. ~~these~~To ~~racing~~assist ~~programs~~in ~~and~~brand ~~world~~recognition, ~~speed~~the ~~records~~Company has ~~established~~developed ~~the~~racing ~~Company’s~~programs ~~products~~to asparticipate in the ~~highest~~major ~~performing~~classes ~~and~~of ~~safest designed~~ offshore ~~boats.~~powerboat ~~The~~races ~~Company~~in ~~believes~~which ~~that~~many ~~the~~of ~~favorable~~Fountain’s ~~publicity~~single ~~generated~~and bytwin engine ~~these~~racing ~~performance~~boats ~~programs~~continue ~~contributes~~ to ~~its~~hold ~~sales~~their ~~volume~~respective ~~and~~world ~~brand~~speed ~~recognition~~records. ~~The~~Fountain ~~Company~~Powerboats ~~Founder~~founder and ~~C.E.O.,~~CEO Reggie Fountain, who has won numerous races in both factory and customer owned boats; heand has ~~also~~ set numerous world speed records in both, in August ~~factory~~2004 ~~and~~set ~~customer~~a ~~owned~~V-bottom ~~boats~~World Speed Record with a speed of 171.883 MPH in a Fountain 42’ Lightning.

AsTo ~~part~~enhance ofbrand ~~the marketing~~recognition, ~~program~~Fountain ~~for~~Powerboats ~~its line of sport fishing boats, the Company~~ sponsors ~~several~~ outstanding sport fishermen. ~~Fountain~~who ~~fishermen~~own ~~have~~Fountain ~~won~~boats ~~the~~and ~~coveted~~fish ~~SKA~~in ~~‘Angler~~tournaments oforganized by the ~~Year’~~Southern ~~title~~Kingfish inAssociation ~~1991,~~(SKA) ~~1992, 1994, 1995~~ and ~~1997,~~the ~~which~~American isStriper ~~more~~Association ~~than any other boat manufacturer~~(ASA). ~~Currently,~~The ~~Fountain~~Company’s ~~has~~SKA anand ~~eleven~~ASA ~~(11)~~fishing ~~member~~teams ~~team~~are captained ~~comprised~~by of world class anglers who ~~own Fountain boats. These fishermen~~ can afford to purchase any boat, but ~~they~~who choose to ~~run~~own a Fountain Powerboat. ~~Fountain~~The isCompany ~~also~~supports ~~a dominant force in~~ the ~~newly formed American Striper Association (~~ASA). ~~ASA~~ tournaments ~~are~~ held throughout the ~~northeast~~Northeast in ~~areas ranging from Virginia to Maine. The Fountain fishing teams winning records have given the sport fishing boats favorable exposure to serious sport~~ ~~fishermen, in particular with respect to the superior performance of Fountain’s fishing boat line.~~

~~Domestic~~6 ~~retail demand for pleasure boats is seasonal with sales generally highest in the fourth quarter. A number of factors can influence demand for the Company’s products, including, but not limited to:~~

• areas ~~Economic~~ranging ~~conditions~~from ~~and~~Virginia ~~consumer~~to ~~confidence~~Maine, inand the ~~United~~SKA ~~States~~tournaments held throughout the South and ~~certain~~Southwest, ~~international~~from ~~regions;~~North Carolina to Texas. The Fountain team’s winning records have given its sport fishing boats favorable exposure to serious sport fishermen looking for superior performance.

•Competition. ~~Adverse weather in key geographic areas, including excessive rain, prolonged below average temperatures and severe heat or drought, particularly during the key selling season;~~

•Competition within the powerboat manufacturing industry is intense. The ~~level~~high performance sports, fish and cruiser boat markets, which comprises only a small segment of ~~inventories~~all ~~maintained~~boats bymanufactured, are significant markets in terms of total dollars spent. The manufacturers who compete with the ~~dealers;~~Company in these market segments include:

•Sport ~~The~~Boats ~~Company’s ability to provide competitive products;~~

• ~~Availability~~Formula, a Division of ~~effective~~Thunderbird ~~distribution;~~Products Corporation

• ~~Fuel~~Cigarette ~~costs;~~Racing Team, Inc.

• ~~Prevailing~~Donzi, ~~interest~~American ~~rates~~Marine ~~and the availability of retail financing;~~Holdings

• ~~Consumer~~Outer ~~interest in recreational boating.~~Limits

~~Product~~• ~~Warranty.~~ Nordic

~~The~~• Company warrants its boat hull and deck structure against defects in material and workmanship for a period of six years. Other boat components are covered in accordance with the manufacturer’s warranty through the Company. The engine manufacturer warrants engines installed in the boats. Warranty expenses of $547,507 or .9% of sales were incurred in Fiscal 2004, and $645,344 of expense or 1.2% of sales were incurred in Fiscal 2003 and charged against net income. These amounts exclude expenses for new models that are attributable to research and development and model revision costs. A $710,000 reserve for warranty expenses net of the research and development costs estimated to be incurred in future years had been established at June 30, 2004. Hustler

8Fish Boats

~~Table~~• ofContender ~~Contents~~Boats

~~Competition.~~• Donzi, American Marine Holdings

~~Competition~~• within the powerboat manufacturing industry is intense. While the high performance sports boat market comprises only a small segment of all boats manufactured, the higher prices commanded by these boats make it a significant market in terms of total dollars spent. The manufacturers that compete directly with the Company in its market segment include: Wellcraft

~~Formula,~~• ~~a Division of Thunderbird Products Corporation~~ Hydrasports

~~Baja~~• ~~Boats,~~Grady ~~a Division of Brunswick Corporation~~ White

~~Cigarette~~• ~~Racing Team, Inc.~~ Triton

~~Donzi,~~• ~~American Marine Holdings~~ Jupiter

~~Contender~~• ~~Boats~~ Yellowfin

~~Wellcraft~~• Boston Whaler, a Division of Brunswick Corporation

~~Hydra~~Cruisers ~~Sports~~

~~Grady~~• ~~White~~Formula, a Division of Thunderbird Products Corporation

~~The~~• ~~Company believes that in its market segment~~Donzi, ~~speed,~~American ~~performance,~~Marine ~~quality, image, and safety are the main competitive factors, with style and price also being a consideration.~~ Holdings

~~Market~~• ~~demographics~~SeaRay, ~~and~~a ~~industry~~Division ~~experience~~of ~~indicate~~Brunswick ~~that the fishing boat market is the best potential growth market. We are expanding our fishing boat offerings to met the rising demand in this market.~~ Corporation

In• addition, the Company believes the current product owners, many of whom have purchased multiple and increasingly larger boats from the Company, provide a market ready for expansion into the cruiser segment. Sunseeker

~~Employees.~~Baja

As• of September 2004 the Company had 413 employees, of whom nine were executive and management personnel. Fifteen were engaged primarily in administrative positions including accounting, personnel, marketing and sales activities. None of the Company’s employees are party to a collective bargaining agreement. The Company considers its employee relations to be excellent. The Company is an affirmative action, equal opportunity employer. Checkmate

~~Item~~• ~~2. Properties.~~ Challenger

~~The~~• ~~Company’s executive offices and manufacturing facilities are located on 66 acres along the Pamlico River in Beaufort County~~Donzi, ~~North~~American ~~Carolina.~~Marine All of the land, buildings and improvements are owned by the Company and were held as collateral on notes and mortgages payable having a balance of $17,310,558 at June 30, 2004. (See Note 5). The operating facility contains buildings totaling 235,040 square feet located on fifteen acres. The buildings consist of the following: Holdings

	ApproximateSquare Footage	Principal Use
Building 1	13,200	Executive offices, shipping, receiving, and paint shop.
Building 2	7,200	Final prep.
Building 3	75,800	Lamination, upholstery, assembly, inventory, cafeteria.
Building 4	14,250	Woodworking.
Building 5	26,800	Mating, small parts lamination.
Building 6	23,800	Metal fabrication.
Building 7	15,720	Racing, service, and warranty.
Building 8	8,750	Lamination extension area.
Building 9	4,800	Mold storage.
Building 10	26,960	Fabrication, sportswear sales.
Building 11	12,000	Cruiser manufacturing.
Building 12	5,760	Maintenance and storage.
Total	235,040

•

Sonic

9• Sunsation

~~Table~~• ~~of Contents~~Velocity

~~Over~~The ~~the~~Company ~~last~~believes ~~several~~that in ~~years~~its ~~there~~market ~~have~~segments ~~been~~buyers ~~significant~~select ~~expenditures~~boats ~~for~~based ~~property,~~on ~~plant and equipment~~speed, ~~which~~ ~~include plant additions~~performance, ~~a travel lift bay~~quality, aimage ~~boat ramp,~~ and ~~docking facilities along a 600-foot canal leading to the Pamlico River. In addition~~safety, ~~the~~with ~~Company~~style ~~has approximately 200,000 square feet of concrete paving surrounding the buildings~~ and ~~providing~~price ~~guest~~being orsecondary ~~employee parking~~considerations. ~~The present plant site can accommodate an addition of up to 300,000 square feet of manufacturing space.~~

~~Item~~Market 3demographics and industry experts indicate the fish boat market offers the best growth potential within the boating industry. ~~Legal~~Fountain ~~Proceedings~~Powerboats continues to expand its family of fish boats to meet the rising demand in this significant high-growth market. The Company introduced performance improvements to fish boat models in 2008 and plans to upgrade one of its existing models in 2009.

AsThe ofCompany ~~June~~has ~~30,~~experienced ~~2004,~~strong ~~the~~demand ~~Company’s~~for ~~chief~~its ~~operating~~higher ~~subsidiary~~priced ~~was~~cruisers. aThis ~~defendant~~is due in 8part ~~alleged~~to ~~breach~~a ofpopulace ~~warranty~~that ~~suits.~~not Inonly ~~the~~wants ~~Company’s~~speed ~~opinion these~~but ~~lawsuits~~requires ~~are~~the additional ~~without~~space ~~merit~~to ~~and,~~bring ~~therefore,~~along the ~~Company~~family. ~~intends~~The toCompany ~~vigorously~~believes ~~defend~~that ~~its~~a ~~interest~~large innumber ~~such~~of ~~suits.~~current ~~The~~product ~~Company~~owners, ~~carries~~many ~~sufficient~~of ~~liability~~whom ~~and~~have ~~product~~purchased ~~liability~~multiple ~~insurance~~and toincreasingly ~~cover~~larger ~~attorney’s~~boats ~~fees~~from ~~and~~the ~~any~~Company, ~~losses~~provide ~~that~~a ~~may occur~~target ~~from~~market afor ~~product~~the ~~liability~~fast-growing orcruiser segment. ~~breach~~Sales of ~~contract~~this ~~suit,~~product ~~over~~line ~~and~~strengthened ~~above~~in ~~applicable~~2008, ~~insurance~~as ~~deductibles.~~compared ~~The~~to ~~management~~2007, ofparticularly for the ~~Company~~top ~~believes that none~~ of ~~such~~the ~~current~~line ~~proceedings~~model, ~~will~~the ~~have~~48’ aExpress ~~material adverse effect~~Cruiser.

The Company’s subsidiary was notified by the United States Environmental Protection Agency (“EPA”) that it had been identified as a potentially responsible party (“PRP”) in the remediation of contamination at a clean up siteEmployees. The Group administrator estimated the Company’s share of future remediation cost to be in the $40,000 to $60,000 range. The Company is likely to be eligible for a de Minimus Settlement Agreement, which is expected to be finalized in the spring of 2005.

~~Item~~As 4of June 30, 2008, the Company had 322 employees, of which eight were executive and management personnel. Twenty ~~Submission~~were engaged primarily in administrative positions, such as accounting, human resources, marketing and sales. None of ~~Matters~~the Company’s employees are party to a ~~Vote~~collective ofbargaining ~~Security~~agreement. ~~Holders~~The Company considers its employee relations to be excellent. The Company is an equal opportunity employer.

~~None~~7 ~~applicable~~

10Item 1A. Risk Factors.

~~Table~~Not ofapplicable. ~~Contents~~

~~Part~~Item II1B. Unresolved Staff Comments.

~~Item~~Not 5applicable. ~~Market for Registrant’s Common Equity and Related Stockholder Matters.~~

~~The~~Item ~~Company’s common stock, $~~2.01 ~~par value, trades on the NASDAQ National Market System (under the symbol “FPWR”)~~Properties. The following table lists the high and low prices for the Company’s common stock as reported on The NASDAQ National Market for each calendar quarter during our fiscal years ended June 30, 2003 and 2004.

Quarter Ending	High	Low
September 2002	3.79	1.15
December 2002	4.15	2.80
March 2003	4.08	2.09
June 2003	4.80	2.96
September 2003	4.55	2.85
December 2003	3.94	2.50
March 2004	3.65	2.85
June 2004	6.33	3.15

The Company’s executive offices and manufacturing facilities are located on 65 acres along the Pamlico River in Beaufort County, North Carolina. All of the land, buildings and improvements are owned by the Company and were held as collateral on notes and mortgages payable outstanding at June 30, 2008. (See Note 5 to the Company’s consolidated financial statements contained in Item 8 of this Report). The operating facility contains buildings totaling 237,360 square feet located on fifteen acres. The buildings consist of the following:

The Company has not declared or paid any cash dividends on its common stock since it first began operations. In the future, any declaration and payment of cash dividends will be subject to the Board of Directors’ evaluation of the Company’s operating results, financial condition, future growth plans, general business and economic conditions, and other relevant considerations. Management of the Company expects that, for the foreseeable future, any profits generated by the Company will be retained as additional capital to support the Company’s operations and that the Company will not pay any cash dividends.


	Approximate Square Footage	Principal Use
Building 1	14,020	Executive offices, shipping, receiving, and paint shops.
Building 2	6,400	Final prep.
Building 3	106,070	Lamination, mating, small parts, upholstery, assembly, inventory, cafeteria.
Building 4	14,270	Wood shop, consoles rigging.
Building 5	24,080	Metal fabrication.
Building 6	48,420	Tooling, service and warranty, mold maintenance, sportswear.
Building 7	11,500	Powder coating, storage, maintenance shop.
Building 8	12,600	Cruiser manufacturing.

Total	237,360

OnOver ~~August~~the 27last several years there have been significant expenditures for property, ~~2004~~plant and equipment, ~~there~~which ~~were~~include ~~207~~plant ~~holders~~additions, ofa ~~record~~travel ~~for~~lift bay, a boat ramp, and docking facilities along a 600-foot canal leading to the Pamlico River. In addition, the Company’s ~~common~~has ~~stock~~approximately 200,000 square feet of concrete paving surrounding the buildings and providing guest or employee parking. The present plant site can accommodate an addition of up to 300,000 square feet of manufacturing space.

~~During~~Item Fiscal 2004, the Company sold an aggregate of 50,000 shares of its common stock to five officers, employees or consultants of the Company and its subsidiary upon their exercise of stock options and without registration in reliance upon the exemption from registration under Section 4(2) of the Securities Act of 19333. ~~The~~Legal ~~shares sold and consideration received was as follows:~~ Proceedings.

Date	Number of Shares	Aggregate Consideration
May 2004	20,000	$	33,400
June 2004	30,000	$	48,000

As of June 30, 2008, the Company’s manufacturing operating subsidiary was a defendant in lawsuits arising in the ordinary course of its business, including eight alleged breach of warranty or product liability suits. In the Company’s opinion these lawsuits are without merit and, therefore, the Company intends to vigorously defend its interest in such suits. The Company carries sufficient liability and product liability insurance to cover attorney’s fees and any losses that may occur from a product liability or breach of contract suit, over and above applicable insurance deductibles. The management of the Company believes that none of such current proceedings will have a material adverse effect.

11The Company’s subsidiary was notified by the United States Environmental Protection Agency (“EPA”) that it had been identified as a potentially responsible party (“PRP”) in the remediation of contamination at a clean up site. The Group administrator estimated the Company’s share of future remediation cost to be $28,105. The Company is eligible for a de Minimus Settlement Agreement, which is expected to be finalized in 2009.

~~Table~~Item 4. Submission of ~~Contents~~Matters to a Vote of Security Holders.

~~Item 6~~None. ~~Selected Financial Data~~

~~Fountain~~8 ~~Powerboat Industries, Inc. and Subsidiary~~

~~Selected~~Part ~~Financial~~II ~~Data~~

~~Fiscal~~Item ~~Years~~5. ~~2000~~Market ~~through~~for ~~2004~~Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

	Years Ended June 30
	2004		2003		2002			2001			2000
Operations Statement Data:
Sales	$	59,841,760	$	52,557,084	$	36,950,581		$	45,128,034		$	56,367,899
Net Income (loss)	$	1,301,142	$	879,996	$	(7,031,593	)	$	(899,526	)	$	1,258,342
Income (loss) per share	$	.27	$	.19	$	(1.49	)	$	(.19	)	$	.27
Weighted average shares outstanding		4,761,460		4,744,457		4,732,608			4,732,608			4,732,608
Diluted earnings per share	$	.27	$	.18	$	(1.49	)	$	(.19	)	$	.27
Diluted weighted average shares outstanding		4,825,179		4,818,806		4,732,608			4,732,608			4,732,651
Balance Sheet Data
(At Period End)
Current Assets	$	13,203,235	$	7,648,996	$	7,885,047		$	8,934,936		$	13,621,499
Total Assets	$	31,364,160	$	25,929,594	$	26,534,696		$	28,947,752		$	33,431,084
Current Liabilities	$	6,880,089	$	11,646,433	$	11,775,953		$	10,567,139		$	12,144,123
Long-term debt	$	17,876,698	$	9,010,527	$	9,827,161		$	6,629,904		$	8,215,486
Stockholders’ equity (1)	$	6,338,470	$	4,968,811	$	3,968,702		$	10,991,132		$	11,890,658

The Company’s common stock, $.01 par value, is listed on the American Stock Exchange (under the symbol “FPB”). The following table lists the high and low closing prices for the Company’s common stock as reported on the American Stock Exchange for each calendar quarter during its fiscal years ended June 30, 2007 and 2008.

(1) The Company has not paid any cash dividends since its inception


Quarter Ending	High	Low
September 30, 2006	4.55	4.00
December 31, 2006	4.99	3.63
March 31, 2007	4.38	3.75
June 30, 2007	3.75	2.51

September 30, 2007	2.88	1.80
December 31, 2007	2.28	1.10
March 31, 2008	1.93	1.12
June 30, 2008	1.89	0.85

12The Company has not declared or paid any cash dividends on its common stock since it first began operations. In the future, any declaration and payment of cash dividends will be subject to the Board of Directors’ evaluation of the Company’s operating results, financial condition, future growth plans, general business and economic conditions, and other relevant considerations. Management of the Company expects that, for the foreseeable future, profits generated by the Company will be retained as additional capital to support the Company’s operations and that the Company will not pay any cash dividends.

~~Table~~On June 30, 2008 there were approximately 208 holders of ~~Contents~~record for the Company’s common stock.

~~Item~~On 7June 11, 2008, the Company received notice from the American Stock Exchange (“Amex”) that it was not in compliance with one of Amex’s standards for the continued listing of the Company’s common stock. ~~Management~~Specifically, the notice stated that the Company was not in compliance with Section 1003(a)(iv) of Amex’s ~~Discussion~~Company ~~and~~Guide ~~Analysis~~because it had “…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 ~~Financial~~the ~~Condition~~Exchange, as to whether such company will be able to continue operations and/or ~~Results~~meet ofits ~~Operations~~obligations as they mature.” As a result, the notice stated that the Company had become subject to Amex’s suspension and delisting procedures.

~~The~~Amex ~~Company~~permitted ~~has~~the ~~developed~~Company ~~criteria~~to ~~for~~submit ~~determining whether~~ a ~~shipment~~plan ~~should be~~addressing ~~recorded~~how asit aintended ~~sale~~to orregain ascompliance awith ~~deferred~~Amex’s ~~sale~~listing standards (a ~~balance sheet liability~~“Plan”). ~~The criteria for recording a C.O.D. sale~~On July 18, ~~or payments prior to shipment sale or sale financed through third-party floor plan arrangements~~2008, ~~are that~~ the ~~boat~~Company ~~has~~submitted ~~been completed and shipped to~~ a ~~dealer~~Plan or to ~~the~~Amex ~~Government,~~ that ~~title~~summarized ~~has~~its ~~passed~~plans ~~to the dealer or to the Government,~~ and ~~that~~strategies ~~there~~for isdealing nowith ~~direct commitment to repurchase~~ the ~~boat~~issues orraised toin ~~pay floor plan interest beyond the sales program terms. As described more fully below at “Business Environment”, most of the Company~~Amex’s shipments to dealers were financed through floor plan arrangements with third-party lenders pursuant to which the Company is subject to repurchase boats repossessed by the third-party lenders if the dealer defaults under his credit arrangementnotice. ~~The Company has no repurchase liability for the balance of shipments. This is the method of sales recognition believed to be in use by most boat manufacturers.~~

AtOn ~~June 30~~August 25, ~~2004~~2008, ~~2003,~~Amex ~~and~~notified ~~2002,~~the ~~there~~Company ~~were~~that noit ~~commitments~~had tomade ~~dealers~~a reasonable demonstration of its ability to ~~pay~~ regain compliance and that Amex has accepted the ~~interest~~Company’s onPlan ~~floor~~and ~~plan~~granted ~~financed~~it ~~boats~~an inextension ~~excess~~until December 11, of2008, to regain compliance with Amex’s continued listing standards. During the ~~time~~extension period, ~~specified~~the inlisting of the Company’s ~~written~~common ~~sales~~stock ~~program~~will be continued and ~~there~~the ~~were~~Amex noStaff ~~direct~~periodically ~~repurchase~~will ~~agreements~~review our implementation of the strategies described in the Plan. ~~There~~Failure ~~were~~to nomake ~~deferred~~progress ~~sales~~consistent with the Plan or ~~cost~~to regain compliance with Amex’s continued listing standards by the end of ~~sales~~the ~~estimated~~extension atperiod ~~June~~could ~~30,~~result ~~2004,~~in the initiation of proceedings to ~~2003,~~delist ~~and~~the ~~2002~~Company’s common stock from the American Stock Exchange.

~~The~~9 Company has a contingent liability to repurchase boats where it participates in the floor plan financing made available to its dealers by third-party finance companies. This liability amounted to approximately $18,177,586, $16,378,985 and $16,066,953 at June 30, 2004, 2003, and 2002, respectively. Sales to participating dealers are approved by the respective finance companies. If a participating dealer does not satisfy its obligation to the lender and the boat is subsequently repossessed by the lender, then the Company may be required to repurchase the boat.

~~Business~~Item ~~Environment~~6. Selected Financial Data.

Fiscal ~~2004~~Years ~~was a year of continued growth in sales and profits, with the highest net sales in the history of the Company. Firm order backlog was at an all time high at June 30,~~ 2004~~. With the exception of the quarter ended September 30, 2003, the Company achieved positive net earnings from the remaining quarters during~~ ~~Fiscal~~through ~~2004~~2008 ~~at or near quarterly records for the Company.~~

~~Net Sales~~Years ~~for~~ended ~~Fiscal~~June 30 2004 of $59,841,760 were up 13.9% from Fiscal 2003 sales of $52,557,084. Sales for Fiscal 2002 were $36,950,581. The Company attributes the sales increase to an improving economy, strong sales at retail, introduction of new boat models and strengthening of the dealer network. The Company experienced increased sales in its wide-body fish boat and sport boat product segments.

~~Net~~Operations ~~Sales~~Statement byData ~~product segment for the Fiscal years of 2004, 2003 and 2002 are:~~

Product Segment	Fiscal 2004 Net Sales			% ofSales			Fiscal 2003 Net Sales			% ofSales			Fiscal 2002 Net Sales			% ofSales
	2008				2007				2006			2005			2004
Sport Boats	$	33,054,460		55	%		$	26,612,517		51	%		$	21,191,672		57	%
Net Sales	$	68,202,620			$	68,829,98 7			$	79,226,224		$	71,182,069		$	59,296,964
Wide Beam Cruiser		9,508,545		16	%			9,923,547		19	%			5,387,449		15	%
Net Income (loss)		(2,199,828	)			(5,046,286	)			2,404,912			756,212			609,087
Fish Boats		4,770,596		8	%			5,302,763		10	%			3,181,585		8	%
Basic earnings (loss) per share		(.48	)			(1.05	)			.50			.16			.13
Wide Beam Fish		11,034,642		18	%			9,291,260		17	%			5,404,056		15	%
Weighted average shares outstanding		4,587,193				4,821,987				4,819,275			4,815,188			4,761,460
Service, Parts, Sportswear, Trucking		1,473,517		3	%			1,426,997		3	%			1,785,819		5	%
Diluted earnings (loss) per share		(.48	)			(1.05	)			.49			.15			.13
Net Sales Total	$	59,841,760					$	52,557,084					$	36,950,581
Diluted weighted average shares outstanding		4,587,193				4,821,987				4,903,949			4,890,124			4,825,179
Balance Sheet Data
	2008				2007				2006			2005			2004
Current assets	$	14,302,553			$	13,381,8199			$	17,134,786		$	13,023,588		$	12,460,218
Total assets		37,324,660				33,416,945				37,860,360			33,034,252			30,621,143
Current liabilities		16,804,027				13,725,455				13,232,828			11,062,016			6,782,584
Long term debt		20,428,948				15,969,407				15,228,700			15,433,446			17,869,178
Stockholder’s equity (1)		86,857				3,636,359				9,093,699			6,538,790			5,721,726

~~Gross~~(1) ~~margin~~The onCompany ~~sales for~~has ~~Fiscal~~not ~~2004~~paid ~~was~~any ~~$10,674,190,~~cash ~~17.8%~~dividends ofsince ~~net~~its ~~sales, as compared to $8,519,127, 16.2% of net sales, for Fiscal 2003. Gross margin for Fiscal 2002 was $959,748, 2.6% of net sales.~~ inception

~~Two~~Item ~~boats~~7. ~~were~~Management’s ~~repurchased~~Discussion ~~on floor plan arrangements during Fiscal 2004~~ and ~~are~~Analysis ~~being~~of ~~re-sold~~Financial toCondition ~~other dealers; no discounts have been given at June 30, 2004. No boats were repurchased in Fiscal 2003~~ and ~~2002~~Results inof Operations.

13Certain statements in Management’s Discussion and Analysis are forward-looking as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations that are subject to risks and uncertainties. Actual results may differ materially from expectations as of the date of this filing.

~~Table~~The Company’s criteria for recording a C.O.D. sale, or payments prior to shipment sale or sale financed through third-party floor plan arrangements, are that the boat has been completed and that title has passed to the dealer or to the Government, and that there is no direct commitment to repurchase the boat or to pay floor plan interest beyond the sales program terms. As described more fully below at “Business Environment”, most of ~~Contents~~the Company’s shipments to dealers were financed through floor plan arrangements with third-party lenders pursuant to which the Company is subject, for a limited time, to repurchase boats repossessed by the third-party lenders if the dealer defaults under his credit arrangement. The Company has no repurchase liability for the balance of shipments. This is the method of sales recognition believed to be in use by most boat manufacturers.

~~connection~~At ~~with~~June 30, ~~floor~~2008, ~~plan~~2007, ~~arrangements.~~and At2006, ~~June~~there ~~30,~~were ~~2004,~~no ~~the~~commitments ~~Company~~to ~~had~~dealers ~~recorded~~to apay ~~$75,000~~the ~~reserve~~interest ~~for~~on ~~losses~~floor ~~which~~plan financed ~~may~~boats bein ~~reasonably~~excess ~~expected~~of tothe betime ~~incurred~~period onspecified ~~boat~~in ~~repurchases~~the inCompany’s ~~future~~written ~~years~~sales program and there were no direct repurchase agreements. AtThere ~~June~~were ~~30,~~no ~~2003~~deferred ~~and~~sales ~~2002~~or ~~the~~cost ~~reserve~~of ~~was~~sales ~~$200~~estimated at June 30,~~000~~ 2008, 2007, and 2006.

OnThe ~~July~~Company ~~17,~~has ~~2003~~a contingent liability to repurchase boats where it participates in the ~~Company~~floor ~~obtained~~plan anfinancing ~~$18,000,000~~made ~~long~~available to its dealers by third-~~term~~party finance ~~loan~~companies, ~~from~~aggregating ~~Bank~~to of$22,869,162 ~~America~~and ~~that~~$24,375,708 ~~was~~at ~~guaranteed~~June 30, by2008 ~~Brunswick~~and 2007, arespectively. ~~division~~Sales ofto ~~which~~participating ~~supplies marine~~dealers ~~engines~~are ~~used~~approved inby the ~~Company’s~~respective ~~products~~finance companies. ~~Proceeds~~If ~~from~~a ~~the~~participating ~~loan~~dealer ~~were~~does ~~used~~not satisfy its obligation to the ~~refinance~~lender ~~existing~~and ~~long-term~~the ~~debt,~~boat ~~pay~~is ~~current~~subsequently ~~liabilities~~repossessed by the lender, ~~and~~then ~~provide~~the ~~additional~~Company ~~working~~may ~~capital~~be ~~funds~~required to repurchase the boat.

~~The~~Business ~~Company is developing new wide beam fish boat models to be introduced in Fiscal 2005 to provide a full range of models in that product segment that has experienced significant growth in sales~~Environment.

~~The~~Recreational ~~Company~~boating ~~has~~is ~~begun~~ a ~~project~~discretionary toexpenditure ~~enhance the process flow~~ and ~~efficiency~~many ofpurchasing ~~the~~decisions ~~factory.~~are Ainfluenced ~~new~~by ~~state~~interest ofrates, ~~the~~fuel ~~art~~prices, ~~ventilation and dust collection system is being~~insurance ~~installed~~rates, ~~that~~weather, ~~meets~~general ~~the~~economic ~~“best~~factors, ~~engineering controls” criteria of the Air Quality MACT standard~~ and ~~OSHA~~other ~~work~~socioeconomic ~~place environment regulations. This project will be completed~~ and ~~operational~~environmental ~~in Fiscal 2005 and will facilitate cost reduction and increased production~~factors.

~~Results~~Consumer confidence has been negatively affected by a number of ~~Operations~~factors; rising fuel prices, rising cost of goods and services, home mortgage failures, decline of housing starts, interest rate increases, bank and lending institution failures, and unemployment increase.

~~Operating~~10 profit was $2,455,049 for Fiscal 2004, as compared to $2,089,110 in 2003 and an operating loss of ($6,420,458) in Fiscal 2002, which included a $1,182,320 charge for the impairment of certain long-lived assets in 2002. Fiscal 2004 improvement is a result of increased sales volume, improved manufacturing efficiencies and reduced reserves. In Fiscal 2004 reserves were reduced by a net of $448,935 due to improvements in product warranty costs as a percentage of sales and an improving dealer network (see Note 1).

~~Fiscal~~The ~~2004~~overall ~~net~~marine ~~profit~~industry began to soften in 2005 for ~~the~~small ~~Company~~fiberglass ~~was~~boats ~~$1,301,142~~(30 orfeet ~~$.27~~and ~~per~~less) ~~share.~~and ~~This~~the ~~compares~~downturn toexpanded ainto ~~net~~the ~~profit~~larger offiberglass ~~$879,996~~boat orsegment $in 2006.19 ~~per~~Demand ~~share~~ for ~~Fiscal~~sport ~~2003,~~fishing boats and ~~net~~cruisers ~~loss~~weakened in 2007. Sales of ~~($7,031,593)~~all orsegments ~~($1~~of the fiberglass recreational boating market have continued to decline through the second calendar quarter of 2008.~~49)~~ ~~per~~Market ~~share~~analysts ~~for~~are ~~Fiscal~~projecting ~~2002~~that the industry will not see a significant improvement through 2009.

~~Depreciation expense was $2,052,314 for Fiscal 2004, $2,112,051 for Fiscal 2003, and $2,294,254 for Fiscal 2002. The decrease in depreciation for the year~~Overview 2003, is attributable to the $1,182,320 impairment charge of certain long-lived assets in Fiscal 2002 and the sale of certain transportation equipment during 2003. Depreciation expense by asset category was as follows:

Fiscal Year:	2004		2003		2002
Land improvements	$	127,464	$	126,424	$	126,035
Buildings	$	301,885	$	295,922	$	294,921
Molds & plugs	$	1,188,614	$	1,197,669	$	1,350,466
Machinery & Equipment	$	310,835	$	356,333	$	378,225
Furniture & fixtures	$	13,862	$	37,414	$	41,408
Transportation equipment	$	32,880	$	45,633	$	56,531
Computer equipment	$	76,774	$	52,656	$	46,668
Total	$	2,052,314	$	2,112,051	$	2,294,254

The Company’s revenue declined for Fiscal 2007 to approximately $68.8 million from approximately $79.2 million for Fiscal 2006. This was the result of the general decline in the marine industry that affected the segments of the market in which the Company’s boats are sold.

14The Company’s revenue for Fiscal 2008, at approximately $68.2 million, was essentially the same as for Fiscal 2007. Given the continued decline of the overall recreational fiberglass market during the period of the Company’s Fiscal 2008, maintaining the same level of revenue was a remarkable achievement.

~~Table~~Overall attendance of ~~Contents~~the 2008 season boat shows was lower than in 2007, which was lower than in 2006. The Company increased its participation with its dealers at regional and national boat shows with good success. Even though advertising expenses for Fiscal 2008 were reduced from the 2007 level, advertising was more focused into targeted campaigns of promotion. Promotional brochures and event schedules were mailed to thousands of potential customers to coincide with dealers’ special events. Sales activities and promotions with specific goals and objectives were instrumental in the Company maintaining a constant level of revenue in a declining market.

~~Net~~The Company ~~fixed~~implemented ~~asset~~cost ~~additions~~and ~~(deletions)~~expense ~~are~~reduction asprograms ~~follows~~in Fiscal 2008 that had positive effects on the results for Fiscal 2008, such as:.

Fiscal Year:	2004			2003
Buildings	$	(64,675	)	$	78,986
Land and Improvements	$	46,541		$	20,245
Molds and plugs	$	830,718		$	962,912
Construction in Progress	$	448,126		$	93,940
Machinery & equipment	$	100,542		$	43,188
Furniture & fixtures	$	31,217		$	10,274
Transportation equipment	$	29,000		$	(217,215	)
Computer Equipment	$	85,208		$	38,665
Racing equipment	$	—		$	(242,095	)
Total	$	1,506,677		$	788,900

•

Utilities conservation program

~~Overall~~• ~~selling~~General ~~and administrative~~insurance ~~expenses for Fiscal 2004 was $8,219,141 a $1,789,124 increase from $6,430,017 in Fiscal 2003.~~ expense

~~Selling~~• ~~expenses~~Advertising were $5,558,709 for Fiscal 2004, $4,609,253 for Fiscal 2003 and $4,162,273 for Fiscal 2002. The Company increased its product promotions in Fiscal 2004, with an increased focus on fish boats and the new 38’ Sport Fish LX triple engine fish boat, and increased its presence in the tournament fishing programs during 2004. expense

~~Major~~• ~~selling~~Fish ~~expenses~~tournament ~~for~~support ~~the past three fiscal years were as follows:~~ expense

Fiscal Year:	2004		2003		2002
Fishing & racing	$	1,053,134	$	828,741	$	1,011,007
Advertising	$	1,508,773	$	1,031,661	$	775,524
Salaries & commissions	$	1,091,174	$	910,090	$	599,337
Boat shows	$	477,407	$	508,811	$	634,767
Dealer incentives	$	139,838	$	66,438	$	88,200
Other selling expenses	$	1,288,383	$	1,263,512	$	1,053,438
Total	$	5,558,709	$	4,609,253	$	4,162,273

•

Offshore racing promotional program and related expenses

~~General~~The ~~and administrative~~Company’s ~~expenses~~revenue ~~include~~was ~~the executive~~$68, ~~finance~~202,620 ~~human~~for ~~resources~~Fiscal 2008, ~~information~~approximately ~~technology~~the same as revenue of $68,829,987 ~~legal~~for ~~and~~Fiscal ~~administrative~~2007. ~~operating~~Net ~~expenses~~sales offor the ~~Company.~~sport ~~These~~boat ~~expenses~~product ~~were~~line ~~$2,660,432~~declined ~~for~~by ~~Fiscal~~10 ~~2004~~percent, ~~$1,820,764~~fish ~~for~~boat ~~Fiscal~~product ~~2003~~line sales declined by 5 percent, and ~~$2,035,613 for~~the ~~Fiscal~~cruiser ~~2002~~product line sales increased by 22 percent.

~~For~~Revenue for the fourth quarter of Fiscal ~~2002~~2008, ended June 30, 2008, was $20,734,514, as compared to $19,907,661 for the ~~Company~~fourth ~~recorded~~quarter of Fiscal 2007, an ~~impairment~~ ~~loss~~increase ~~and~~of ~~wrote~~4 ~~down~~percent. ~~certain~~Operating ~~long-lived~~profit ~~assets~~for the fourth quarter was $399,619, as compared to ~~realizable~~$568,004 ~~values~~operating profit for $1the fourth quarter of Fiscal 2007. The lower profit for 2008 was primarily attributable to an adjustment made to net sales in the fourth quarter of 2007 to remedy the over accrual of a newly established year end dealer incentive award. This new dealer incentive award was over accrued because the rate of accrual,~~182~~ established at the beginning of the year,~~320~~ was based upon projected annual dealer sales, the actual volume of which was not known until the fourth quarter of Fiscal 2007.

~~Interest~~No ~~expense~~boats ~~net~~were ofrepurchased ~~amounts~~in ~~capitalized~~Fiscal ~~was $1~~2008,~~142,685~~ from finance companies under contingent repurchase obligations for dealers failing to meet obligations to those finance companies. Five boats were repurchased in Fiscal ~~2004~~2007, ~~$1,037,002~~from finance companies under contingent repurchase obligations for ~~Fiscal~~a ~~2003~~dealer that failed to meet its obligations to those finance companies, ~~and~~for a total repurchase amount of $809,~~571~~347. ~~for~~All five ~~Fiscal~~boats ~~2002~~were re-sold to other dealers with a total reduction in profit of $51,394. ~~Interest~~No ~~expense~~boats ~~increased~~were repurchased in Fiscal ~~2004~~2006 asin aconnection ~~result~~with offloor plan arrangements. At June 30, 2008, the Company ~~expensing~~ had recorded a $~~210~~78,~~354~~787 ofreserve ~~capitalized~~for ~~loan~~losses which ~~costs~~may ~~from~~be ~~the~~reasonably ~~previous~~expected ~~General~~to ~~Electric~~be ~~financing~~incurred ~~when~~on itboat ~~was~~repurchases ~~refinanced~~in byfuture years. At June 30, 2007 the ~~new~~reserve was $1864,~~000~~124 and at June 30,~~000~~ ~~loan~~2006 ~~from~~the ~~Bank~~reserve ofwas ~~America~~$15,459.

~~Current~~Outlook tax expense is $706 and $0 for the years ended June 30, 2004 and 2003 and a benefit of $(717,983) for the year ended June 30, 2002. Deferred tax expense is $0 for the year ended June 30, 2004 and $169,301, and $541,059 at June 30, 2003 and 2002. Current tax expense for the year ended June 30, 2004 results

15The fiberglass recreational boat market decline has continued through the retail buying season of 2008. Generally, marine dealer inventories remain high and retail sales are low, thus dealers may be cautious about increasing their inventories during the off season months. Market analysts are forecasting that the industry may not see a significant improvement through 2009.

~~Table~~The ofCompany’s ~~Contents~~Sales and Marketing staffs will continue a targeted boat show, advertising and promotion campaign and increase its internet marketing program for the Fountain and Baja product lines.

~~from~~11 the net operating loss carryover from the year ended June 30, 2002. There remains approximately $5,755,533 for Federal and $8,855,263 for State tax purposes of net operating loss carryovers available till the years 2022 and 2023, respectively, to offset current tax expenses. The deferred tax charge for the year ended June 30, 2002 resulted from changes to the various temporary timing differences between book and tax as outlined in Note 7 to the financial statements.

The ~~ultimate~~Company ~~realization~~is ofdeveloping ~~the~~production ~~benefits~~processes ~~from~~for the ~~deferred~~Baja ~~tax~~boat ~~assets~~models isto ~~dependent~~be ~~upon~~compatible ~~the~~with ~~Company’s future earnings,~~ the Fountain ~~future~~production ~~tax laws in effect~~processes, and ~~other~~it ~~unknown~~expects ~~factors;~~to ~~all~~have most of ~~which are uncertain. For these reasons and because~~ the ~~Company~~models ~~has~~in ~~generated~~full ~~operating~~production ~~tax losses~~ in ~~recent years,~~ the ~~Company~~second ~~has~~quarter ~~elected~~of toFiscal ~~provide~~2009. ~~for~~Baja adealer ~~tax~~inventories ~~asset~~are ~~valuation~~being ~~allowance~~depleted ofand ~~$1,788,441~~they atare ~~June~~ready ~~30, 2004~~to ~~and~~receive ~~$2,342,912~~the atBaja ~~June~~by ~~30,~~Fountain ~~2003~~products.

~~Management~~The ~~is of the opinion the tax asset valuation allowance will not be required in its entirety in the coming years. Management estimates, based on the~~ Company’s ~~increased~~retail ~~backlog of orders~~subsidiary, ~~that~~Fountain ~~sales~~Dealers’ ~~volumes~~Factory ~~will continue to improve in the near future thus resulting in improved earnings and partial absorption of the net operating tax loss carryovers. However~~Superstore, ~~at this time the Company has chosen not to reduce the tax asset valuation allowance for the following reasons: 1~~Inc.~~) with the exception of order backlog~~, ithad isa very ~~difficult~~successful tofirst ~~predict~~year ~~future~~of ~~sales~~operation ~~volumes~~ in anFiscal ~~uncertain~~2008 ~~economy~~with approximately ~~that~~$9 ~~exists~~million ~~at the present time; and 2.) the Company’s inconsistent earnings history~~ in ~~recent years~~sales, ~~which includes significant losses in fiscal 2001~~ and ~~2002.~~ ~~Currently, the tax asset valuation allowance~~ is ~~adjusted~~expected to ~~the extent that total deferred tax assets exceed total deferred tax liabilities. As operating results and the economy stabilize and future sales volumes increase, consideration will~~ be ~~given~~a topositive ~~reducing~~contributor orof ~~eliminating~~revenue ~~the~~in ~~valuation allowance~~2009.

~~Liquidity~~International ~~and~~sales grew in Fiscal ~~Financial~~2008 ~~Resources~~by 28% and was 17% of total sales for the Company. The international market has continued to grow while the domestic market has been in a decline. The Company expects international sales to be a positive source of revenue in 2009.

OnThe ~~July 17, 2003, the~~ Company ~~obtained~~’s anfiscal ~~$18,000,000~~plan ~~long-term~~for ~~loan~~2009 ~~from~~is ~~Bank~~based ofon ~~America.~~revenue ~~The proceeds were used to refinance the two loans with General Electric Capital Corporation at origination totaling $10,000,000 with a total remaining balance~~ of $~~8,648,341~~62 ~~and~~million ~~a variable interest rate of prime plus 2% or 6.25% as of June 30, 2003. Proceeds from the Bank of America loan were also used~~ to ~~pay trade payables to current status and provide additional operating funds. The new agreement with Bank of America has a~~ $~~9,000,000~~65 ~~variable interest note accruing at one month LIBOR plus 2~~million.~~25%~~ orCost ~~3.77% at July 17, 2003,~~ and aexpense ~~$9,000,000~~reduction ~~note~~programs ~~under~~have anbeen ~~interest rate swap to provide a fixed rate of 6.02%. The interest rate swap is designated as a cash flow hedge and is~~implemented ~~deemed effective pursuant~~ to ~~SFAS~~produce ~~133.~~positive ~~The~~results ~~Bank~~at ofthat ~~America~~level ~~loan has a fifteen year amortization with a five year balloon payment and is secured by certain assets~~ of ~~the Company and President, Chief Executive Officer and majority shareholder, Reginald M~~revenue. Fountain, Jr. Obligations are guaranteed by the Company and Mr. Fountain and by Brunswick Corporation, a division of which supplies marine engines used in the Company’s products. Combined monthly payments to Bank of America are approximately $126,000.

AtResults ~~the year ended June 30, 2003 and 2002, the Company had negative working capital~~ of ~~$3,997,437 and $3,890,906, respectively~~Operations. Subsequent to applying the proceeds of the loan on July 17, 2003, the Company had positive working capital of approximately $6,500,000 and at June 30, 2004 the Company had positive working capital of $6,323,146.

Net ~~cash~~ ~~used~~sales byfor ~~operations in~~ Fiscal ~~2004~~2008 ~~amounted~~were to $368,~~975~~202,~~058~~620, ~~was~~approximately ~~primarily~~ the ~~result~~same ofrevenue ~~using~~as acompared ~~portion~~to ofnet ~~the~~sales ~~proceeds~~ of ~~the~~$68,829,987 ~~Bank~~for ofFiscal ~~America~~2007. ~~loan~~Maintaining tothe ~~reduce~~same revenue ~~accounts~~level ~~payable~~during bya ~~$4,676,896~~declining ~~partially~~market ~~offset~~was byprimarily ~~net~~the ~~income~~result ~~plus~~of ~~other~~focused ~~adjustments~~sales ~~to reconcile~~activities ~~net~~and ~~income~~promotions toguided ~~cash~~by ~~used~~specific bygoals ~~operations~~and objectives.

Net ~~cash provided~~Sales by ~~operations~~product inline ~~Fiscal~~for ~~2003~~the ~~amounted~~Fiscal toyears ~~$3,345,801 resulting from net income plus adjustments to reconcile net income to net cash provided by operating activities including depreciation expense~~ of $22008,~~112,051,~~ ~~changes~~2007 ~~in deferred taxes of $169,301~~ and ~~loss~~2006 onare: ~~sales of assets of $8,378 before changes in asset and liability accounts. $369,834 was used to fund an increase in inventories. The ending cash balance was $1,224,935.~~

Net cash used by operations in Fiscal 2002 amounted to $1,734,962. Net loss plus adjustments to reconcile net loss to net cash used by operating activities including depreciation expense of $2,294,254 and an


	Fiscal 2008 Net Sales		% of Sales		Fiscal 2007 Net Sales		% of Sales		Fiscal 2006 Net Sales		% of Sales
Product Line
Sport boats	$	25,086,667	37	%	$	28,055,276	40	%	$	31,799,204	40	%
Express cruisers		11,457,756	17	%		9,399,064	14	%		15,760,240	20	%
Sport fishing boats		28,169,615	41	%		29,629,864	43	%		29,194,785	37	%
Other		3,488,582	5	%		1,745,783	3	%		2,471,995	3	%

Net sales total	$	68,202,620			$	68,829,987			$	79,226,224

Gross profit on sales for Fiscal 2008 was $9,402,572, 13.8 % of net sales, as compared to $9,108,088, 13.2 % of net sales, for Fiscal 2007. Gross profit for Fiscal 2006 was $13,073,800, 16.5 % of net sales. Production efficiency improvements in Fiscal 2008 were partially offset by increased material costs and low fixed cost absorption. The decrease of 3.3 percentage points from 2006 to 2007 was primarily attributable to production inefficiencies due to lower production volumes, reduced fixed cost absorption from production cuts and promotional program pricing in the first half of the year.

~~Table~~Operating loss was ($1,101,310) for Fiscal 2008, as compared to a loss of ~~Contents~~($2,745,878) in Fiscal 2007 and a profit of $2,275,355 in Fiscal 2006. The operating loss for Fiscal 2008 was an improvement of ($1,644,568), or 60 percent, as compared to Fiscal 2007, and the improvement was primarily the result of reduced selling expense. Operating loss for Fiscal 2007 was affected by the circumstances outlined above in the gross margin discussion of this report and increased selling expenses, detailed below.

~~impairment~~Net onloss in Fiscal 2008 for the ~~long-lived~~Company ~~assets~~was ($2,199,828), or ($.48) per share as compared to a net loss of ($15,~~182~~046,~~320~~286) ~~and~~or ~~other~~($1.05) ~~non-cash~~per ~~transactions~~share ~~provided~~for Fiscal 2007, of which ($21,~~635~~283,~~695~~728) ~~before~~or ~~other changes~~($.27) inper ~~assets~~share ~~and~~was ~~liability~~a ~~accounts~~tax adjustment. This compares to a net income of $12,~~395~~404,~~518~~912 ~~was~~or ~~provided~~$.49 byper ~~decrease~~diluted inshare ~~inventories~~for Fiscal 2006. The ~~ending~~tax ~~cash~~adjustment ~~balance~~for Fiscal 2007 arose from the establishment of a valuation allowance to completely offset the Company’s Deferred Tax Assets which was ~~$329,640~~established in Fiscal 2006 (see Note 7 to the consolidated financial statements).

~~Investing~~Depreciation ~~activities~~expense inwas ~~Fiscal 2004 required cash of~~ $2,~~300~~406,~~586~~502 ~~and~~for ~~primarily~~Fiscal ~~consisted of purchases of property~~2008, ~~plant and equipment of~~ $~~776~~2,~~787~~313,807 ~~and~~ for Fiscal ~~additional~~2007, ~~plugs~~ and ~~molds of~~ $12,~~060~~020,~~533~~860 ~~and~~for ~~increasing~~Fiscal ~~the cash surrender value of an officer’s life insurance by $202,690~~2006.

~~Investing~~Overall ~~activities~~selling and general and administrative expense for Fiscal ~~2003~~2008 ~~required~~was $110,~~561~~503,~~651~~882, ~~including~~a $~~268~~1,~~410 for property~~350,084 reduction ~~plant~~when ~~and~~compared ~~equipment,~~to $111,~~056~~853,~~852~~966 for ~~additional~~Fiscal ~~plugs~~2007. ~~and~~Fiscal ~~molds, $199,403~~2007 ~~for~~was ~~payments~~a ~~increasing the cash surrender value of certain key man life insurance policies,~~ $~~190~~1,~~796~~055,520 ~~for~~increase ~~payments~~from ~~increasing other assets and proceeds of~~ $~~153~~10,~~810~~798,445 onin ~~sales~~Fiscal ~~of property~~2006.

~~Investing~~Selling expenses ~~activities~~were $6,704,422 for Fiscal ~~2002~~2008, ~~required~~ $18,~~820~~040,~~959~~083 for Fiscal 2007 and $6,765,871 offor ~~which~~Fiscal 2006. The reduction of $1,~~370~~335,~~526 was~~661 ~~used~~in selling expense for Fiscal 2008, as compared to ~~complete~~Fiscal ~~construction~~2007, ofresulted ~~new~~from ~~molds~~reductions ~~and~~in ~~plugs~~all selling expense categories, ~~$231~~except boat shows,~~080~~ ~~was~~with ~~used~~reduction in offshore racing expenses being the most significant. The increase in selling expense in Fiscal 2007, as compared to ~~purchase~~Fiscal ~~property~~2006, ~~plant~~was ~~and~~primarily ~~equipment~~from an increase in advertising expenses, ~~and~~including ~~$219~~an expanded international advertising program,~~536~~ ~~was~~increased ~~used~~salaries ~~for~~and ~~payments~~commissions ~~increasing~~and ~~the~~increased ~~cash~~expenses ~~surrender~~for ~~value~~the Company’s support of ~~certain~~offshore ~~key~~racing ~~man~~and ~~life~~fishing ~~insurance~~tournament ~~policies~~programs.

~~Net~~12 cash provided by financing activities in Fiscal 2004 of $8,509,301 primarily resulted from the Bank of America loan of $18,000,000 partially offset by repayments of the existing indebtedness due to GE Capital of $8,648,341 and repayments of loan principal of $755,511.

~~Financing~~Major ~~activities~~selling ~~for~~expenses ~~Fiscal 2003 used $888,855. Included in this amount are proceeds from issuance of notes payable from Northwestern Mutual Life on key man life insurance policies~~ for ~~$343,074 and debt repayment to General Electric Capital Corporation and others in~~ the ~~amount~~past ofthree ~~$1,014,001.~~fiscal ~~Payments~~years ~~of deferred loan costs for the Bank of America loan~~ were ~~$251,528~~as atfollows: ~~June 30, 2003~~

Financing activities for Fiscal 2002 provided $3,088,955. During November 2001, the Company refinanced the 7.02% fixed $10,000,000 General Electric Capital Corporation credit agreement with a remaining balance of $6,655,656. The agreement with General Electric Capital Corporation involved $3,000,000 and $7,000,000 notes with a variable interest rate of prime plus 2% or 6.75% as of June 30, 2002. Combined monthly payments on these notes were approximately $128,005. The proceeds from the notes payable and long term debt contributed $3,955,644. Payments on long-term debt used $560,181, and payments of deferred loan costs were $306,508.


	2008		2007		2006
Fishing	$	479,233	$	548,693	$	444,328
Racing		1,007,269		1,776,198		1,474,270
Advertising		1,854,660		2,013,740		1,412,435
Salaries & commissions		1,168,435		1,345,709		1,098,662
Boat shows		888,511		691,633		526,381
Dealer support		166,950		456,802		550,138
Other selling expenses		1,139,364		1,207,308		1,259,657

Total	$	6,704,422	$	8,040,083	$	6,765,871

~~The~~General ~~net~~and ~~increase~~administrative inexpenses ~~cash~~include inthe ~~Fiscal~~executive, ~~2004~~finance, ofhuman $2resources,~~233~~ information technology,~~657~~ ~~was~~legal ~~primarily~~and ~~the~~administrative ~~result~~operating ~~the~~expenses ~~Bank~~ of ~~America~~the ~~loan~~Company. ~~The~~These ~~net~~expenses ~~increase~~were in$3,799,460 ~~cash~~ for Fiscal ~~2003~~2008, ~~was~~ $~~895~~3,~~295~~813,883 ~~primarily~~for ~~from~~Fiscal ~~operating~~2007, ~~profits~~ and ~~issuance~~$4,032,574 offor ~~notes~~Fiscal ~~payable from Northwestern Mutual Life Insurance~~2006. The ~~net~~ decrease in ~~cash~~administrative expenses for ~~Fiscal~~2007 ~~2002~~ was ~~$466,966,~~ primarily ~~attributed to cash paid for the development of the new wide-beam~~ ~~34’~~attributable ~~fish boat and 48’ express cruiser and losses from operations due~~ to ~~decreased~~reduced ~~sales~~legal ~~volume~~expenses.

~~Management~~Interest isexpense net of ~~the~~amounts ~~opinion~~capitalized ~~that~~was ~~cash~~$976,853 ~~flows~~for ~~will~~Fiscal be2008, ~~sufficient~~$966,784 tofor ~~satisfy~~Fiscal 2007, ~~its current~~ and ~~future~~$1,132,584 ~~liquidity~~for ~~demands~~Fiscal ~~because~~2006. ofInterest ~~the~~expense ~~increase~~decreased in ~~sales volumes~~Fiscal ~~and~~2007 ~~sales~~due ~~backlogs~~to atFiscal ~~the~~2006 ~~date~~having an expense of ~~this~~$229,801 ~~filing.~~of ~~Additionally~~capitalized loan costs from the ~~Company~~previous ~~has~~Bank ~~maintained~~of aAmerica ~~historical~~loan ~~sales~~when ~~backlog~~it ~~through~~was refinanced by the ~~date~~new of$16,500,000 ~~this~~loan ~~report~~from Regions Bank.

~~Effects~~Current tax provision is $0 for the year ending June 30, 2008, 1,283,728 for the year ending June 30, 2007, and ($1,283,746) for the year ending June 30, 2006. The current tax provision of ~~Inflation~~$0 for Fiscal 2008 is the natural consequence of the net loss incurred by the Company. Deferred tax (benefit)/provision is ($790,589) for the year ended June 30, 2008, ($1,417,122) for the year ended June 30, 2007 and $460,258 for the year ended June 30, 2006. Deferred taxes arise from temporary differences between financial and income tax reporting regarding the recognition of certain items.

~~The~~As of June 30, 2008 the Company ~~has~~had ~~not~~net ~~been~~deferred ~~materially~~tax ~~affected~~assets of $3,491,439 that were fully offset by ~~the~~a ~~moderate~~valuation ~~inflation~~allowance because, as of ~~recent~~that ~~years~~date, it was management’s conclusion that there continued to be doubt as to whether those deferred tax assets were more likely than not to be realized in the future. ~~Since~~The deferred tax assets principally relate to the potential future benefits of tax net operating loss carryforwards, most of which had been generated during the ~~Company’s~~years ~~plant~~ended June 30, 2002, 2007 and ~~its~~2008 ~~equipment~~when ~~are~~the Company generated substantial net losses. During the year ended June 30, 2008 the Company ~~relatively~~performed ~~new~~an evaluation, ~~expenditures~~in accordance with Statement of Financial Accounting Standard No. 109, Accounting for ~~replacements~~Income ~~are~~Taxes, ~~not~~of ~~expected~~the tolikelihood beof arealization ~~factor~~of its deferred tax assets. The evaluation resulted in the ~~near-term~~continued application ~~future~~of a valuation allowance.

~~When~~The ~~raw~~Company ~~material~~has ~~costs~~available ~~increase~~federal ~~because~~and ofstate ~~inflation,~~operating ~~the~~loss ~~Company~~carry ~~attempts~~forwards toat ~~minimize~~June 30, ~~the~~2008 ~~effect~~and June 30, 2007 of ~~these~~approximately ~~increases~~$9,616,438 byand ~~using~~$9,085,379, ~~alternative~~respectively, ~~less~~which ~~costly materials,~~expire orat byvarious ~~finding~~dates ~~less~~through ~~costly~~2028. The ~~sources~~ultimate ~~for~~realization of the ~~materials~~benefits itfrom ~~uses.~~the ~~When~~deferred tax assets is dependent upon the ~~foregoing~~Company’s ~~measures~~future ~~are~~earnings, the ~~not~~future ~~possible~~tax laws in effect, ~~selling~~and ~~prices~~other unknown factors; all of which are ~~increased~~uncertain. toIn ~~recover~~recent years the ~~cost~~Company ~~increases~~elected to provide for a tax asset valuation allowance of $3,491,439 at June 30, 2008, $2,700,850 at June 30, 2007, and $0 at June 30, 2006.

17Liquidity and Financial Resources.

~~Table~~As disclosed in the Condensed Consolidated Statement of ~~Contents~~Cash Flows, the cash balance decreased by $934,113 during the Fiscal Year ended June 30, 2008. By comparison, during the previous Fiscal Year the cash balance decreased $2,095,169.

~~The~~Cash ~~Company’s~~used ~~products are targeted at the segment of the powerboat market where retail purchasers are generally less significantly affected~~ by ~~price~~operations orwas ~~other economic conditions. Consequently~~$1,158,962 ~~management~~in ~~believes~~Fiscal ~~that~~2008 ~~the impact of inflation on sales~~ and ~~the~~resulted ~~results~~primarily offrom: ~~operations will not be material.~~

~~Cautionary~~• ~~Statement~~The ~~for~~net ~~Purposes~~loss of ~~“Safe~~$2,199,828 ~~Harbor”~~incurred ~~Under~~is the ~~Private~~most ~~Securities Reform~~significant ~~Act~~use of ~~1995.~~cash and is discussed elsewhere in this document.

~~The~~• ~~Company may from time to time make forward~~Non-~~looking~~cash ~~statements~~provisions adjustments, including ~~statements~~depreciation ~~projecting,~~expense ~~forecasting, or estimating the Company’s performance and industry trends. The achievement~~ of ~~the projections~~$2, ~~forecasts~~406, ~~or estimates contained in these statements is subject to certain risks and uncertainties~~502, ~~and~~added ~~actual~~back ~~results and events may differ materially from those projected~~$1, ~~forecast~~971, ~~or estimated~~132.

~~The~~• ~~applicable~~Decreases ~~risks~~in ~~and~~Prepaid ~~uncertainties~~Expenses ~~include general economic~~ and ~~industry~~Other ~~conditions~~Assets ~~that~~provided ~~affect all businesses~~$161, ~~as well as matters that are specific to the Company and the markets it serves~~257. ~~For~~Increases ~~example, the achievement of projections, forecasts, or estimates contained~~ in ~~the~~Accounts ~~Company’s~~Payable ~~forward-looking statements may be impacted by national~~ and ~~international~~Accrued ~~economic~~Expenses ~~conditions;~~provided ~~compliance with governmental laws and regulations; accidents and acts of God; and all of the general risks associated with doing business~~$2,116,721.

~~Risks~~• ~~that~~Increases ~~are~~in ~~specific to~~ the ~~Company~~asset ~~and~~accounts ~~its markets include but are not limited to compliance with increasingly stringent environmental laws and regulations; the cyclical nature~~ of ~~the~~Accounts ~~industry;~~Receivable ~~competition in pricing~~ and ~~new~~Inventories ~~product~~used ~~development from larger companies with substantial resources; the concentration of a substantial percentage of the Company’s sales with a few major customers~~$1, ~~the loss of~~910,440. orDecreases ~~change~~ in ~~demand~~the ~~from~~liability ~~dealers,~~accounts ~~any~~ of ~~which~~Dealer ~~could~~Incentives ~~have a material impact upon the Company; labor relations at the Company~~ and atCustomer ~~its~~Deposits ~~customers~~used ~~and suppliers; and the Company’s single-source supply and just-in-time inventory strategies for some critical boat components~~$1, ~~including high performance engines~~297, ~~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~~804.

~~Item~~13 ~~7A. Quantitative and Qualitative Disclosures About Market Risk~~

~~Interest~~Cash ~~Rate~~used ~~Risk~~for -investing Atactivities ~~June~~during ~~30,~~Fiscal ~~2004,~~2008 ~~the~~was ~~Company owed~~ $175,~~310~~295,~~558~~527 ~~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 3.87% as of June 30, 2004,~~ and ~~$9,000,000~~resulted ~~under~~primarily ~~an interest rate swap to provide a fixed rate of 6.02%. A~~from: hypothetical 100 basis point increase in interest rates would result in an approximately $90,000 increase in interest expense, resulting in a negative impact on the Company’s liquidity and results of operations.

18• As is typically the case, the largest investment made was in creation of plugs and molds. Plugs are wooden forms constructed for the purpose of creating molds. Molds are used to replicate hulls, decks and various other fiberglass parts for boats. $799,198 was invested in plugs and molds for Fountain boats during Fiscal 2008. The Company also acquired molds and tooling for certain models of Baja boats at a total value of $4,000,000.

~~Table~~• of$501,309 ~~Contents~~was spent on property, plant and equipment.

~~Item~~Financing 8.activities ~~Financial~~provided ~~Statements~~$5,295,527 ~~and~~during ~~Supplementary~~Fiscal ~~Data~~2008.

~~REPORT~~• OFBoats ~~INDEPENDENT~~in ~~REGISTERED~~inventory ~~PUBLIC~~for ~~ACCOUNTING~~the ~~FIRM~~retail subsidiary were financed on the “Floor Plan” for $3,075,606. (See Note 5, in the Notes to Consolidated Financial Statements).

To• ~~the~~The ~~Board~~Company borrowed $4,000,000 from Brunswick Corporation under a promissory note to acquire certain assets of ~~Directors~~Baja Marine Corporation.

~~FOUNTAIN~~• ~~POWERBOAT~~The ~~INDUSTRIES~~Company repaid $799,333 ~~INC.~~that ~~AND~~had ~~SUBSIDIARY~~been borrowed under the “Credit Facility” (See Note 5, in the Notes to Consolidated Financial Statements).

~~Washington~~• The Company borrowed $1,400,000 ~~North~~of ~~Carolina~~the Cash Surrender Value of the Key Man Life Insurance Policies it owns on the life of the Company’s founder, Chairman and CEO.

We• ~~have~~The ~~audited~~Company ~~the~~repaid ~~accompanying consolidated balance sheets of Fountain Powerboat Industries~~$1,240,297 ~~Inc. and Subsidiary as~~ of ~~June 30, 2004 and 2003 and~~ the ~~related~~principal ~~consolidated statements~~ of ~~operations,~~the ~~stockholders’ equity~~“Loan” ~~and~~as ~~cash~~per ~~flows and~~ the ~~schedule~~terms of ~~valuation~~that ~~and~~loan ~~qualifying~~(see ~~accounts~~Note ~~for the years ended June 30~~5, ~~2004,~~in ~~2003 and 2002. These financial statements and schedule are~~ the ~~responsibility~~Notes ~~of the Company’s management. Our responsibility is~~ to ~~express~~ anConsolidated ~~opinion~~Financial ~~on these financial statements and schedule based on our audits~~Statements).

We• ~~conducted~~The ~~our audits in accordance with the standards of the Public~~ Company ~~Accounting~~purchased ~~Oversight~~453,091 ~~Board~~shares ~~(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free~~ of ~~material~~its ~~misstatement.~~stock Anfor ~~audit includes examining~~$870,475 on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as ~~well~~Treasury ~~as evaluating the overall financial statement presentation~~Stock. ~~We believe that our audits provide a reasonable basis for our opinion.~~

InManagement ~~our~~is ~~opinion,~~of the ~~financial~~opinion ~~statements~~that ~~referred~~cash toflows ~~above~~will ~~present~~be ~~fairly,~~sufficient into ~~all~~satisfy ~~material~~its ~~respects,~~current ~~the consolidated financial position of Fountain Powerboat Industries, Inc.~~ and ~~Subsidiary~~future asliquidity ofdemands ~~June~~because ~~30,~~Management ~~2004~~has ~~and~~realigned operating ~~2003~~costs and ~~the~~expenses ~~consolidated results of their operations and their cash flows~~ for the ~~years~~reduced ~~ended~~level ~~June~~of ~~30,~~production ~~2004, 2003~~ and ~~2002,~~returned ~~in conformity with accounting principles generally accepted in~~ the ~~United~~Company ~~States~~to ofprofitability ~~America. Also,~~ in ~~our opinion,~~ the ~~related~~fourth ~~schedule~~quarter of ~~valuation~~Fiscal 2008 and ~~qualifying~~is ~~accounts,~~expecting ~~when~~to ~~considered~~continue ~~in relation~~ to ~~the~~operate ~~basic~~profitably ~~financial~~through ~~statements~~Fiscal ~~taken as a whole, presents fairly in all material respects the information set forth therein~~2009.

~~PRITCHETT,~~Effects ~~SILER~~of ~~& HARDY, P~~Inflation.C.

~~Salt~~The ~~Lake~~Company ~~City~~has not been materially affected by the inflation of recent years. Materials that are petroleum-based (e.g. resin, ~~Utah~~gel coat, foam) have been subject to price increases, and fuel surcharges have increased freight costs. The Company has been able to minimize the effect of material price increases by negotiating favorable purchase agreements with suppliers, using alternative, less costly materials, by finding less costly sources for materials and increasing selling prices of its products to recover the cost increases.

~~July~~The 29Company’s products are targeted at the segment of the powerboat market where retail purchasers are generally less significantly affected by price or other economic conditions. Consequently, ~~2004~~management believes that the impact of inflation on sales and the results of operations will not be material.

19Contractual Obligations.

~~Table~~The following table sets forth a summary of ~~Contents~~the Company’s contractual cash obligations as of June 30, 2008:

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY


	Payments due by period
	Total		Less than 1 year		2-3 years		4-5 years		Over 5 years
			(In thousands)
Contractual Obligations:
Long-term debt, including current maturities	$	13,125	$	810	$	12,315		—		—
Interest payments on long-term debt		1,076		879		197		—		—
Floor Plan financing agreement		3,076		3,076		—		—		—
Operating lease obligations		376		145		207		24		—

Total contractual obligations	$	17,653	$	4,910	$	12,719	$	24	$	—

~~CONSOLIDATED~~The ~~BALANCE~~Company ~~SHEETS~~has agreements with Mercury Marine, a division of Brunswick Corporation, that the Company will purchase from Mercury all of the Company’s requirements for marine engines and other power components that Mercury manufactures for Fountain and Baja boat production. The term of this agreement is through June 30, 2020.

	June 30,
	2004			2003
ASSETS
CURRENT ASSETS:
Cash & cash equivalents	$	3,458,592		$	1,224,935
Certificate of deposit		255,197			—
Accounts receivable, less allowance for doubtful accounts of $82,841 for 2004 and $27,841 for 2003		4,137,484			2,015,371
Inventories		4,653,402			3,460,286
Prepaid expenses		429,657			644,581
Current tax assets		268,903			303,823
Total Current Assets		13,203,235			7,648,996
PROPERTY, PLANT AND EQUIPMENT, net		15,913,794			16,165,684
CASH SURRENDER VALUE OF LIFE INSURANCE		1,581,316			1,378,626
OTHER ASSETS		665,815			736,288
	$	31,364,160		$	25,929,594
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	772,704		$	1,060,444
Current maturities of capital lease		17,710			20,118
Accounts payable		2,821,866			7,498,762
Accounts payable-related party		21,000			169,043
Accrued expenses		1,172,210			1,317,398
Dealer incentives		1,203,522			190,010
Customer deposits		86,077			290,658
Allowance for boat repurchases		75,000			200,000
Warranty reserve		710,000			900,000
Total Current Liabilities		6,880,089			11,646,433
LONG-TERM DEBT, less current maturities		17,870,041			8,986,160
CAPITAL LEASE, less current maturities		6,657			24,367
DEFERRED TAX LIABILITY		268,903			303,823
COMMITMENTS AND CONTINGENCIES (See Note 8)		—			—
Total Liabilities		25,025,690			20,960,783
STOCKHOLDERS’ EQUITY
Common stock, $.01 par value, 200,000,000 shares authorized, 4,807,608 shares for 2004 and 4,757,608 for 2003 issued and outstanding		48,076			47,576
Additional paid-in capital		10,517,451			10,436,551
Retained earnings (deficit)		(4,099,540	)		(5,400,683	)
		6,465,987			5,083,444
Less: Treasury Stock, at cost, 15,000 shares		(110,748	)		(110,748	)
Deferred compensation for stock options issued		—			(3,885	)
Accumulated other comprehensive income from interest rate swap		(16,769	)		—
		6,338,470			4,968,811
	$	31,364,160		$	25,929,594

Off-Balance Sheet Arrangements.

~~The~~Guarantees. ~~accompanying~~Based ~~notes~~on historical experience and current facts and circumstances, and in accordance with Financial Accounting Standards Board (FASB) Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure ~~are~~Requirements anfor ~~integral~~Guarantees, ~~part~~Including Indirect Guarantees of ~~these~~Indebtedness ~~consolidated~~of ~~financial~~Others ~~statements~~— An Interpretation of FASB Statements No. 5, 57,

2014

~~Table~~ and 107 and Rescission of ~~Contents~~FASB Interpretation No. 34,” the Company has reserves to cover potential losses associated with guarantees and repurchase obligations. Historical cash requirements and losses associated with these obligations have not been significant. See Note 8, Commitments and Contingencies, in the Notes to Consolidated Financial Statements, for a description of these arrangements.

~~FOUNTAIN~~Environmental ~~POWERBOAT INDUSTRIES, INC~~Regulation. ~~AND SUBSIDIARY~~

~~CONSOLIDATED~~The ~~STATEMENTS~~Company does OFnot ~~OPERATIONS~~believe that compliance with federal, state, and local environmental laws will have a material adverse effect on the Company’s competitive position.

	Year Ended June 30,
	2004			2003			2002
NET SALES	$	59,841,760		$	52,557,084		$	36,950,581
COST OF SALES		49,167,570			44,037,957			35,990,833
Gross Profit		10,674,190			8,519,127			959,748
EXPENSES:
Selling expense		5,558,709			4,609,253			4,162,273
General and administrative		2,660,432			1,820,764			2,035,613
Impairment of long-lived assets		—			—			1,182,320
Total expenses		8,219,141			6,430,017			7,380,206
OPERATING INCOME (LOSS)		2,455,049			2,089,110			(6,420,458	)
NON-OPERATING INCOME (EXPENSE):
Other income (expense)		1,380			5,567			21,512
Interest expense		(1,142,685	)		(1,037,002	)		(809,571	)
Gain (loss) on disposal of assets		(11,896	)		(8,378	)		—
TOTAL NON-OPERATING INCOME (EXPENSE)		(1,153,201	)		(1,039,813	)		(788,059	)
INCOME (LOSS) BEFORE INCOME TAXES		1,301,848			1,049,297			(7,208,517	)
CURRENT TAX EXPENSE (BENEFIT)		706			—			(717,983	)
DEFERRED TAX EXPENSE (BENEFIT)		—			169,301			541,059
NET INCOME (LOSS)	$	1,301,142		$	879,996		$	(7,031,593	)
BASIC EARNINGS (LOSS) PER SHARE:	$	.27		$	.19		$	(1.49	)
WEIGHTED AVERAGE SHARES OUTSTANDING		4,761,460			4,744,457			4,732,608
DILUTED EARNINGS (LOSS) PER SHARE:	$	.27		$	.18		$	(1.49	)
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING		4,825,179			4,818,806			4,732,608

Critical Accounting Policies.

The ~~accompanying~~preparation ~~notes~~of the consolidated financial statements in accordance with accounting ~~are~~principles angenerally ~~integral~~accepted ~~part~~in the United States requires management to make certain estimates and assumptions that affect the amount of ~~these~~reported assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results may differ from those estimates. The Company discussed the development and selection of the critical accounting policies with the Audit Committee of the Board of Directors and believes the following are the most critical accounting policies that could have an effect on the Company’s reported results.

21Revenue Recognition and Sales Incentives. The Company’s revenue is derived primarily from the sale of boats. Revenue is recognized in accordance with the contracted terms of the sale, upon completion and when legal title and all other incidents of ownership have passed to dealers or the Government, and the ability to collect is assured. Revenue is also derived from the sale of boats to retail customers through the Fountain Dealers’ Factory Superstore, Inc. subsidiary; revenue is recognized when the Company has a signed contract with the customer and has received payment. The Company offers discounts and sales incentives. The estimated liability for sales incentives is recorded at the later of the time of program communication to the customer or at the time of sale in accordance with Emerging Issues Task Force (EITF) No. 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of a Vendor’s Products)” and EITF No. 00-22, “Accounting for Points and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to be Delivered in the Future.” The liability is estimated based on the costs for the incentive program, the planned duration of the program and historical experience. If actual costs are different from estimated costs, the recorded value of the liability would be adjusted.

~~Table~~Allowances for Doubtful Accounts. The Company records an allowance for uncollectible trade receivables based upon currently known bad debt risks and provides reserves based on past loss history, customer payment practices and economic conditions. Actual collection experience may differ from the current estimate of ~~Contents~~reserves. Changes to the allowance for doubtful accounts may be required if a future event or other circumstance results in a change in the estimate of the ultimate ability to collect a specific account or invoice.

Reserve for Obsolete Inventories. The Company records a reserve for obsolete inventories in order to ensure inventories are carried at the lower of cost or fair market value. Fair market value can be affected by assumptions about market ~~FOUNTAIN~~demand ~~POWERBOAT~~and ~~INDUSTRIES~~conditions, ~~INC~~historical usage rates, model changes and new product introductions. ~~AND~~If ~~SUBSIDIARY~~model changes or new product introductions create more or less than favorable market conditions, the reserve for obsolete inventories may need to be adjusted. Refer to Note 1, Nature of the Business and Significant Accounting Policies, in the Notes to Consolidated Financial Statements for further discussion on the basis of accounting for inventories.

~~CONSOLIDATED~~Warranty ~~STATEMENT~~Reserves. OFThe ~~STOCKHOLDERS~~Company records a liability for standard product warranties. The liability is recorded using historical warranty experience to estimate projected warranty costs. If necessary, the Company adjusts its liability for specific warranty matters when they become known and are reasonably estimable. The Company’s ~~EQUITY~~warranty reserves are affected by product failure rates and material usage and labor costs incurred in correcting a product failure. If these estimated costs differ from actual product failure rates, and actual material usage and labor costs, a revision to the warranty reserve would be required.

~~FROM~~Income ~~JUNE~~Taxes. Deferred taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse. The Company estimates its probable tax obligations based on historical experience and current tax laws and litigation. The judgments made at any point in time may change based on the outcome of tax audits and settlements of tax litigation, as well as changes due to new tax laws and regulations and the Company’s interpretations of those laws and regulations. These factors may cause the tax rate for the Company to increase or decrease. As of June 30, ~~2001~~2008 ~~THROUGH~~the ~~JUNE~~Company had net deferred tax assets of $3,491,439 that were fully offset by a valuation allowance because, as of that date, it was management’s conclusion that there continued to be doubt as to whether those deferred tax assets were more likely than not to be realized in the future. The deferred tax assets principally related to the potential future benefits of tax net operating loss carryforwards, most of which had been generated during the years ended June 30, ~~2004~~2002, June 30, 2007 and June 30, 2008 when the Company generated substantial

	Common Stock			AdditionalPaid-in Capital		RetainedEarnings (Deficit)			Other Comprehensive Income			Treasury Stock					Deferred Compensation			TotalStockholders’ Equity
	Shares	Amount										Shares		Amount
BALANCE, June 30, 2001	4,732,608	$	47,326	$	10,303,640	$	750,913		$	—		(15,000	)	$	(110,748	)	$	—		$	10,991,131
Issuance of options to purchase 30,000 shares common stock at $1.67 per share for consulting services vesting through December 2004	—		—		40,295		—			—		—			—			(31,132	)		9,163
Net Income for the year ended June 30, 2002	—		—		—		(7,031,593	)		—		—			—			—			(7,031,593	)
BALANCE, June 30, 2002	4,732,608	$	47,326	$	10,343,935	$	(6,280,678	)	$	—		(15,000	)	$	(110,748	)	$	(31,132	)	$	3,968,703
Issuance of common stock upon exercise of options	25,000		250		33,350		—			—		—			—			—			33,600
Payroll obligations forgiven by an officer and shareholder	—		—		46,158		—			—		—			—			—			46,158
Issuance of options to purchase 10,000 shares common stock at $1.60 per share for consulting services vesting through December 2003	—		—		13,108		—			—		—			—			27,247			40,355
Net Income for the year ended June 30, 2003	—		—		—		879,996			—		—			—			—			879,996
BALANCE, June 30, 2003	4,757,608	$	47,576	$	10,436,551	$	(5,400,682	)	$	—		(15,000	)	$	(110,748	)	$	(3,885	)	$	4,968,812
Issuance of common stock upon exercise of options	50,000		500		80,900		—			—		—			—			—			81,400
Vesting of options to purchase 10,000 shares common stock at $1.60 per share for consulting services vesting through December 2003	—		—		—		—			—		—			—			3,885			3,885
Other comprehensive income as a result of a cash flow hedge of $9,000,000 of the Bank of America note payable	—		—		—		—			(16,769	)	—			—			—			(16,769	)
Net Income for the year ended June 30, 2004	—		—		—		1,301,142			—		—			—			—			1,301,142
BALANCE, June 30, 2004	4,807,608	$	48,076	$	10,517,451	$	(4,099,540	)	$	(16,769	)	(15,000	)	$	(110,748	)	$	—		$	6,338,470

~~The~~ net ~~accompanying~~losses. ~~notes are~~During the year ended June 30, 2007 the Company performed an ~~integral~~evaluation, ~~part~~in accordance with Statement of ~~these~~Financial ~~consolidated~~Accounting ~~financial~~Standard No. 109, ~~statements~~Accounting for Income Taxes, of the likelihood of realization of its deferred tax assets. The evaluation resulted in the application of a valuation allowance.

22The Company has available federal and state operating loss carry forwards at June 30, 2008 of approximately $9,782,000 and $9,252,451, respectively, which expire at various dates through 2028.

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

This Annual Report contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. ~~FOUNTAIN~~Forward-looking ~~POWERBOAT~~statements ~~INDUSTRIES~~are statements concerning our plans, ~~INC~~strategies, economic performance and trends, projections of results of specific activities or investments, expectations or beliefs about future events or results, and other statements that are not descriptions of historical facts, and they may include words such as “expect”, “anticipate”, “plan”, “intend”, “believe”, “may”, “should”, “could” or “estimate”, or similar terms or the negative of these terms, or other statements concerning opinions or judgments of our management about future events. ~~AND~~These ~~SUBSIDIARY~~statements involve certain risks and uncertainties that may cause actual results to differ materially from our historical results or expectations expressed or implied by the statements as of the date of this filing.

~~CONSOLIDATED~~The potential ~~STATEMENTS~~risks OFand ~~CASH~~uncertainties ~~FLOWS~~include, but are not limited to: our ability to fully implement plans and strategies to restore the Company’s profitable operations or in the Plan that, as previously reported, we submitted to the American Stock Exchange to regain compliance with requirements for the continued listing of the Company’s common stock; delays and unexpected costs for beginning construction of Baja boats; higher than expected costs to build boats; defects in acquired assets; lower than expected future market demand for Baja and Fountain boats; the volatile and competitive nature of the industry; the level of market interest rates; changes in general economic conditions and in the marine industry; and changes in domestic and international market conditions, foreign exchange rates and pressures on lenders related to current and future problems in credit markets. Although we believe that the expectations reflected in the forward-looking statements in this report are reasonable, they represent management’s judgment only as of the date they are made. Caution should be taken not to place undue reliance on the Company’s forward-looking statements, because we cannot guarantee future results, events, levels of activity, performance or achievements. The Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All forward-looking statements attributable to us are expressly qualified in their entirety by the cautionary statements in this paragraph. Further information on the factors and risks that could affect our business, financial condition and results of operations are discussed in reports we file with the Securities and Exchange Commission which are available at (http://www.sec.gov).

	Year Ended June 30,
	2004			2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	1,301,142		$	879,996		$	(7,031,593	)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Non-cash expense		3,885			86,512			9,162
Amortization of deferred loan costs		286,946			61,800			89,098
Depreciation expense		2,052,314			2,112,051			2,294,254
Impairment of long-lived assets		—			—			1,182,320
Loss on disposal of equipment		11,896			8,378			—
Warranty reserve		(190,000	)		30,000			280,000
Allowance for boat repurchases		(125,000	)		—			—
Allowance for doubtful accounts		55,000			—			—
Decrease in net tax asset		—			169,301			541,059
Change in assets and liabilities:
(Increase) decrease in accounts receivable		(2,177,113	)		988,621			(1,064,107	)
(Increase) decrease in inventories		(1,193,116	)		(369,834	)		1,395,518
(Increase) decrease in prepaid expenses		160,190			(315,798	)		(161,286	)
Increase (decrease) in accounts payable		(4,824,939	)		643,152			1,341,929
Increase (decrease) in accrued expenses		(146,587	)		123,726			2,654
Increase (decrease) in dealer incentives		1,014,905			(731,672	)		(923,885	)
Increase (decrease) in customer deposits		(204,581	)		(340,432	)		309,915
Net Cash Provided (Used) by Operating Activities		(3,975,058	)		3,345,801			(1,734,962	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment		25,000			153,810			—
Investment in molds and related plugs		(1,060,533	)		(1,056,852	)		(1,370,526	)
Purchase of property, plant and equipment		(776,787	)		(268,410	)		(231,080	)
Increase in cash surrender value of life Insurance		(202,690	)		(199,403	)		(219,536	)
Purchase of certificate of deposit		(255,197	)		—			—
(Increase) decrease in other assets		(30,379	)		(190,796	)		183
Net Cash (Used) by Investing Activities		(2,300,586	)		(1,561,651	)		(1,820,959	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable & long-term debt		18,000,000			343,074			3,955,644
Proceeds from issuance of common stock		81,400			33,600			—
Payments of long-term debt		(9,403,852	)		(1,008,836	)		(545,788	)
Payments on capital lease		(20,118	)		(5,165	)		(14,393	)
Payments of deferred loan cost		(148,129	)		(251,528	)		(306,508	)
Net Cash Provided (Used) by Financing Activities		8,509,301			(888,855	)		3,088,955
Net increase (decrease) in cash & cash equivalents		2,233,657			895,295			(466,966	)
Beginning cash & cash equivalents balance		1,224,935			329,640			796,606
Ending cash & cash equivalents balance	$	3,458,592		$	1,224,935		$	329,640

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

~~[Continued]~~ Not applicable.

23Item 8. Financial Statements and Supplementary Data.

~~Table~~16 ~~of Contents~~

LOGO

~~FOUNTAIN~~REPORT ~~POWERBOAT~~OF ~~INDUSTRIES,~~INDEPENDENT ~~INC.~~REGISTERED ~~AND~~PUBLIC ~~SUBSIDIARY~~ACCOUNTING FIRM

~~CONSOLIDATED~~Board ~~STATEMENTS~~of OFDirectors ~~CASH FLOWS~~

~~[CONTINUED]~~Fountain Powerboats Industries, Inc. and Subsidiaries

	Year Ended June 30,
	2004		2003		2002
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest:
Unrelated parties, net of amounts capitalized	$	855,739	$	1,035,553	$	798,700
Income taxes	$	—	$	—	$	45,424

Washington, NC 27889

~~Supplemental~~We ~~Schedule~~have audited the accompanying consolidated balance sheet of ~~Non-~~Fountain Powerboats Industries, Inc. and Subsidiaries as of June 30, 2008, and the related consolidated statements of operations, stockholders’ equity and cash flows for the year ended June 30, 2008. Our ~~Investing~~audits also included the financial statement schedule II valuation and ~~Financing~~qualifying ~~Activities:~~accounts as of and for the year ended June 30, 2008. These financial statements and schedule II are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule II based on our audit.

~~For~~We conducted our audit in accordance with the standards ~~year~~of ~~ended~~the Public Company Accounting Oversight Board in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material ~~June~~misstatement. 30The company is not required to have, ~~2004:~~nor were we engaged to perform, an audit of its internal controls over financial reporting. Our audit included consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal controls over financial reporting. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

~~The~~In ~~Company~~our ~~recorded~~opinion, ~~consulting~~based ~~expense~~on our audit, the consolidated financial statements audited by us present fairly, in all material respects, the financial position of $3Fountain Powerboats Industries,~~885~~ Inc. and subsidiaries as aof ~~result~~June 30, 2008 and the results of their operations and their cash flows for the year ended June 30, 2008, in conformity with generally accepted accounting principles in the United States of ~~amortization~~America. Also, in our opinion, the related financial statement schedule II as of ~~deferred~~and ~~compensation~~for ~~from~~the 40year ended June 30,~~000~~ ~~options~~2008, ~~issued~~when considered in relation to ~~purchase~~the ~~stock~~basic ~~during~~financial ~~Fiscal~~statements ~~2002~~taken as a whole, ~~vesting~~presents ~~through~~fairly ~~January~~in ~~2004~~all ~~and~~material ~~expiring~~respects ~~through~~the ~~January~~information ~~2009~~set forth therein.

~~For~~The accompanying consolidated financial statements have been prepared assuming the ~~year~~Company ~~ended~~will ~~June~~continue 30as a going concern. As discussed in Note 15 to the consolidated financial statements, ~~2003:~~the Company has current liabilities in excess of current assets, recent losses from operations, negative cash flows from operating activities, and has significant debt compared to the underlying equity. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 15. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

~~The~~/S/ ~~Company~~Gregory & ~~recorded consulting expense of $40~~Associates,~~355~~ asLLC ~~a result of amortization of deferred compensation from 40,000 options issued to purchase stock during Fiscal 2002, vesting through January 2004 and expiring through January 2009.~~

~~The Company recorded a $46~~September 26,~~158~~ ~~contribution~~2008 ~~to additional paid in capital as a result of payroll obligations forgiven by an officer and shareholder of the Company.~~

~~For~~Salt ~~the~~Lake ~~year ended June 30~~City, ~~2002:~~Utah

~~The~~17 Company issued 20,000 options to purchase common stock to a consultant for services to be rendered valued at $25,450. The options are exercisable at $1.60 per share, vest through June 2003 and expire June 2008. As of June 30, 2002, the Company has recorded consulting expense of $2,313.

~~The~~REPORT ~~Company~~OF ~~issued~~INDEPENDENT ~~20,000~~REGISTERED ~~options~~PUBLIC toACCOUNTING ~~purchase~~FIRM common stock to a consultant for services to be rendered valued at $27,953. The options are exercisable at $1.67 per share, vest through January 2004 and expire January 2009. As of June 30, 2002, the Company has recorded consulting expense of $6,850.

~~The~~To ~~accompanying~~the ~~notes~~Stockholders ~~are~~and anthe ~~integral~~Board ~~part~~ of ~~these~~Directors ~~consolidated financial statements.~~

24Fountain Powerboat Industries, Inc.

~~Table~~Washington, ofNorth ~~Contents~~Carolina

We have audited ~~FOUNTAIN~~the ~~POWERBOAT~~accompanying ~~INDUSTRIES~~consolidated balance sheet of Fountain Powerboat Industries, ~~INC~~Inc. ~~AND~~and ~~SUBSIDIARY~~subsidiary (the “Company”) as of June 30, 2007, and the related consolidated statements of operations, stockholders’ equity, cash flows and the schedule of valuation and qualifying accounts for each of the years in the two-year period ended June 30, 2007. These consolidated financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

~~NOTES~~We TOconducted ~~CONSOLIDATED~~our ~~FINANCIAL~~audits ~~STATEMENTS~~in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

~~Note~~In 1our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fountain Powerboat Industries, Inc. ~~Nature~~and subsidiary at June 30, 2007 and the results of their operations and their cash flows for each of the ~~Business~~years in the two-year period ended June 30, 2007 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedules, when considered in relation to the 2007 and ~~Significant~~2006 ~~Accounting~~basic ~~Policies~~consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

LOGO

~~Nature of the Business: Fountain Powerboat Industries~~Greenville, Inc. and Subsidiary (the Company) manufacture high-performance sport boats, sport wide beam cruisers, wide beam fishing boats, sport fishing boats, and custom offshore racing boats. These boats are sold worldwide to a network of approximately 55 dealers. The Company’s offices and manufacturing facilities are located in Washington, North Carolina ~~and the Company has been in business since 1979. The Company employs approximately 400 people and is an equal opportunity, affirmative action employer.~~

~~Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary~~September 26, ~~Fountain~~ ~~Powerboats,~~2007 ~~Inc. All significant inter-company accounts and transactions have been eliminated in consolidation.~~

~~Fiscal~~18 ~~Year: The Company’s fiscal year-end is June 30th, which is its natural business year-end.~~

~~Accounting~~FOUNTAIN ~~Estimates:~~POWERBOAT The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilitiesINDUSTRIES, ~~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~~INC. ~~Actual~~AND ~~results~~SUBSIDIARY ~~could differ from those estimated by management.~~

~~Cash~~CONSOLIDATED ~~and~~BALANCE ~~Cash~~SHEETS Equivalents: For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. At June 30, 2004 and 2003, the Company had $3,358,592 and $1,124,935, respectively, in excess of federally insured amounts held in cash.

~~Inventories: Inventories~~JUNE ~~are stated at the lower of cost or market. Cost is determined by the first-in~~30, 2008 ~~first-out~~AND ~~method~~2007 ~~(See Note 2).~~

Property, Plant, and Equipment and Depreciation: Property, plant, and equipment are carried at cost. Depreciation on property, plant, and equipment is calculated using the straight-line method and is based upon the estimated useful lives of the assets (See Note 3).


ASSETS
	2008			2007
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,445,270		$	2,379,383
Accounts receivable, net		4,283,791			3,688,986
Inventories, net		7,942,384			6,645,213
Prepaid expenses		631,108			668,237
Deferred tax assets		—			—

Total Current Assets		14,302,553			13,381,819

PROPERTY, PLANT AND EQUIPMENT		54,777,765			49,533,443
Less: Accumulated depreciation		(35,455,637	)		(33,104,217	)

		19,322,128			16,429,226

CASH SURRENDER VALUE LIFE INSURANCE, NET		3,374,413			2,951,010

OTHER ASSETS		325,566			654,890

TOTAL ASSETS	$	37,324,660		$	33,416,945


LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	809,738		$	759,290
Notes payable – floor plan		3,075,606			799,333
Accounts payable		4,791,853			2,846,303
Accrued expenses		1,264,079			1,092,908
Dealer incentives		5,618,766			6,342,467
Customer deposits		304,999			879,102
Allowance for floor plan boat repurchases		78,787			64,124
Warranty reserve		860,199			941,928

Total Current Liabilities		16,804,027			13,725,455
OTHER LONG TERM LIABILITIES		4,828			4,828
LONG-TERM DEBT, less current portion		20,428,948			15,969,407
DEFERRED TAX LIABILITY		—			80,896

Total Liabilities		37,237,803			29,780,586

COMMITMENTS AND CONTINGENCIES [NOTE 8]

STOCKHOLDERS’ EQUITY
Common stock, $.01 par value, 200,000,000 shares authorized, 4,844,275 shares issued and outstanding as of June 30, 2008 and 4,844,275 as of June 30, 2007		48,442			48,442
Additional paid-in capital		10,574,753			10,574,753
Accumulated deficit		(9,204,829	)		(7,005,001	)
Less: Treasury stock, at cost, 483,091 and 15,000 shares as of June 30, 2008 and 2007 respectively		(981,223	)		(110,748	)
Accumulated other comprehensive income from interest rate swap		(350,286	)		128,913

Total Stockholders’ Equity		86,857			3,636,359

Total Liabilities and Stockholders’ Equity	$	37,324,660		$	33,416,945

~~Fair~~The ~~Value~~accompanying ofnotes ~~Financial~~are ~~Instruments:~~an ~~Management~~integral ~~estimates~~part ~~the carrying value~~ of ~~financial~~these ~~instruments on the~~ consolidated financial ~~statements~~ ~~approximates their fair values~~statements.

~~Dealer Incentive~~19 Accruals: The Company has in the current and prior periods established sales programs to pay service and/or other awards to dealers for boat deliveries into their market territory for which they will perform service or based upon sales of boats from their locations. These programs are based in part on the model of the boat sold, a factor for the dealer’s service performance rating, the dollar value of the sale and other factors. The Company has accrued dealer incentives of $1,203,522 and $190,010 at June 30, 2004 and 2003, respectively. These amounts also include an accrual for dealer interest as discussed in Note 8, “Commitments and Contingencies”.

~~Allowance~~FOUNTAIN ~~for~~POWERBOAT ~~Boat Repurchases: The Company provides an allowance for boats~~INDUSTRIES, ~~financed by dealers under floor plan finance arrangements, that may be repurchased from finance companies under certain circumstances where the Company has a repurchase agreement with the lender~~INC. ~~The~~AND ~~amount~~SUBSIDIARY ~~of the allowance is based upon the highest number of repurchase events it has experienced in the last five years at an assumed discount of $15,000 per event.~~

25CONSOLIDATED STATEMENTS OF OPERATIONS

~~Table~~YEARS ofENDED ~~Contents~~JUNE 30, 2008, 2007 AND 2006

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY


	2008			2007			2006
NET SALES	$	68,202,620		$	68,829,987		$	79,226,224
COST OF SALES		58,800,048			59,721,899			66,152,424

Gross Profit		9,402,572			9,108,088			13,073,800

EXPENSES
Selling Expense		6,704,422			8,040,083			6,765,871
General and Administrative		3,799,460			3,813,883			4,032,574

Total Expense		10,503,882			11,853,966			10,798,445

OPERATING (LOSS) INCOME		(1,101,310	)		(2,745,878	)		2,275,355

Other (Income) Expense		125,593			49,855			9,944
Interest Expense		976,853			966,784			1,132,584
(Gain) loss on disposal of assets		(3,928	)		41			11,661

TOTAL NON-OPERATING EXPENSE		1,098,518			1,016,680			1,154,189

(LOSS) INCOME BEFORE INCOME TAXES		(2,199,828	)		(3,762,558	)		1,121,166
TAX PROVISION (BENEFIT)		—			1,283,728			(1,283,746	)

NET (LOSS) INCOME	$	(2,199,828	)	$	(5,046,286	)	$	2,404,912

BASIC (LOSS) EARNINGS PER SHARE	$	(.48	)	$	(1.05	)	$	.50

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING		4,587,193			4,821,987			4,819,275

DILUTED (LOSS) EARNINGS PER SHARE	$	(.48	)	$	(1.05	)	$	.49

DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING		4,587,193			4,821,987			4,903,949

COMPREHENSIVE INCOME
Net (loss) Income	$	(2,199,828	)	$	(5,046,286	)	$	2,404,912
Unrealized gain (loss) on derivative instruments		(479,199	)		(98,811	)		149,997

COMPREHENSIVE (LOSS) INCOME	$	(2,679,027	)	$	(5,145,097	)	$	2,554,909

~~NOTES~~The TOaccompanying ~~CONSOLIDATED~~notes ~~FINANCIAL~~are ~~STATEMENTS~~an integral part of these consolidated financial statements.

~~Note~~20 ~~1. Nature of the Business and Significant Accounting Policies. [Continued]~~

~~Internal~~FOUNTAIN ~~Use~~POWERBOAT ~~Software: The Company accounts for internal use software and development cost in accordance with the Statement of Position (SOP) 98-1~~INDUSTRIES, ~~“Accounting for Computer Software Developed for or Obtained for Internal Use”~~INC. ~~The~~AND ~~SOP~~SUBSIDIARY ~~requires the capitalization of certain cost incurred in connection with developing or obtaining software for internal use.~~

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

~~The~~FROM ~~Company~~JUNE 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 Government30, ~~that~~2005 ~~title~~THROUGH ~~and~~JUNE ~~all other incidents of ownership have passed to the dealer or to the Government (title passes at the point of shipment)~~30, ~~and~~2008 ~~that there is no direct or indirect commitment to the dealer or to the Government to repurchase the boat or to pay floor plan interest for the dealer beyond the normal, published sales program terms.~~

The sales incentive floor plan interest expense for each individual boat sale is accrued for the six months (180 days) interest payment period in the same fiscal accounting period that the related boat sale is recorded. The entire six months’ interest expense is accrued at the time of the sale because the Company considers it a selling expense (See Note 8). 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.


	Common Stock			Additional Paid in Capital		Accumulated (Deficit)			Accumulated Other Comprehensive Income			Treasury Stock					Total Stockholders’ Equity
	Shares	Amount		Additional Paid in Capital		Accumulated (Deficit)			Accumulated Other Comprehensive Income			Shares		Amount			Total Stockholders’ Equity
BALANCE, June 30, 2005	4,834,275	$	48,342	$	10,558,853	$	(4,035,384	)	$	77,727		(15,000	)	$	(110,748	)		6,538,790
Other comprehensive income, net of taxes of $142,861	—		—		—		—			149,997		—			—			149,997
Net income for the year ended June 30, 2006	—		—		—		2,404,912			—		—			—			2,404,912

BALANCE, June 30 2006	4,834,275		48,342		10,558,853		(1,630,472	)		227,724		(15,000	)		(110,748	)		9,093,699

Issuance of common stock upon exercise of options	10,000		100		15,900		—			—		—			—			16,000
Other comprehensive loss, net of taxes of $(61,965)	—		—		—		—			(98,811	)	—			—			(98,811	)
Net loss for the year ended June 30, 2007	—		—		—		(5,046,286	)		—		—			—			(5,046,286	)
Adjustment from adoption of SAB 108	—		—		—		(328,243	)		—		—			—			(328,243	)

BALANCE, June 30 2007	4,844,275		48,442		10,574,753		(7,005,001	)		128,913		(15,000	)		(110,748	)		3,636,359

Purchased common stock as Treasury Shares	—		—		—		—			—		(468,091	)		(870,475	)		(870,475	)
Other comprehensive loss, net of taxes of $80,896	—		—		—		—			(479,199	)	—			—			(479,199	)
Net loss for the year ended June 30, 2008	—		—		—		(2,199,828	)		—		—			—			(2,199,828	)

BALANCE, June 30 2008	4,844,275	$	48,442	$	10,574,753	$	(9,204,829	)	$	(350,286	)	(483,091	)	$	(981,223	)	$	86,857

~~During~~The ~~the~~accompanying ~~year~~notes ~~ended~~are ~~June~~an ~~30, 2004,~~integral ~~the~~part ~~Company~~of entered into arrangements that license other foreign companies to manufacture boats utilizing the Company’s concepts and designs in exchange for royalties received for each boat manufactured. The Company accounts for these ~~royalties~~ asconsolidated ~~sales~~financial ~~revenue in the period when earned~~statements. ~~Royalties for the year ended June 30, 2004 were less than 10% of total revenues.~~

~~Income~~21 ~~Taxes: The Company accounts for income taxes in accordance with issued Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes (See Note 7).~~

~~Advertising Cost:~~FOUNTAIN ~~Cost~~POWERBOAT ~~incurred~~INDUSTRIES, ~~in connection with advertising and promotion of the Company’s products is expensed as incurred~~INC. ~~Such~~AND ~~costs~~SUBSIDIARY ~~amounted to $1,508,773, $1,031,661 and $775,524 for the years ended 2004, 2003 and 2002, respectively.~~

~~Earnings~~CONSOLIDATED ~~Per~~STATEMENTS ~~Share:~~OF ~~The~~CASH ~~Company~~FLOWS accounts for earnings per share in accordance with the Statement of Financial Accounting Standards (SFAS) No. 128 “Earnings Per Share,” which requires the Company to present basic and diluted earnings per share. The computation of basic earning per share is based on the weighted average number of shares outstanding during the periods presented. The computation of diluted earnings per shares is based on the weighted average number of outstanding common shares during the year plus, when their effect is dilutive, additional shares assuming the exercise of certain vested and non-vested stock options and warrants, reduced by the number of shares which could be purchased from the proceeds (See Note 12).

~~Warranties:~~YEARS ~~The~~ENDED ~~Company~~JUNE ~~warrants the entire deck and hull~~30, ~~including~~ ~~its supporting bulkhead and stringer system~~2008, ~~against~~2007 ~~defects~~AND in2006 ~~materials and workmanship for a period of six years. The Company has accrued a reserve for these anticipated future warranty costs.~~

Reclassifications: The financial statements and notes for years prior to June 30, 2004 have been reclassified to conform with headings and classifications used in the June 30, 2004 financial statements.


	2008			2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) Income	$	(2,199,828	)	$	(5,046,286	)	$	2,404,912
Adjustments to reconcile net (loss) income to net cash provided (used) by operating activities:
Inventory valuation adjustment		72,117			68,071			42,060
Depreciation expense		2,406,502			2,313,807			2,020,860
Net increase in cash surrender value of life insurance		(423,403	)		(398,328	)		(373,064	)
Deferred loan costs expensed		—			—			229,801
Gain on termination of interest rate swap		—			—			(84,524	)
(Gain) loss on disposal of equipment		(3,878	)		41			11,661
Bad debt expense		18,463			19,825			83,546
Amortization of deferred loan costs		40,514			36,002			43,323
Deferred income tax expense (benefit)		—			1,283,728			(1,283,746	)
Change in assets and liabilities:
Accounts receivable		(613,268	)		(302,943	)		(1,294,057	)
Inventories, net		(1,369,289	)		245,904			(528,231	)
Prepaid expenses		37,129			180,922			(507,171	)
Other assets		124,128			213,369			(212,617	)
Accounts payable		1,945,550			(1,014,758	)		16,959
Accrued expenses		171,171			(160,806	)		174,156
Dealer incentives		(723,701	)		(24,762	)		2,664,491
Customer deposits		(574,103	)		488,078			(468,855	)
Warranty reserve		(81,729	)		(18,672	)		(107,643	)
Allowance for boat repurchases		14,663			48,665			(59,541	)
Other long-term liabilities		—			4,828			—

Net Cash Provided (Used) by Operating Activities		(1,158,962	)		(2,063,315	)		2,772,320

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment		5,700			3,375			3,883
Investment in molds and related plugs		(4,799,918	)		(1,045,057	)		(1,092,994	)
Purchase of property, plant and equipment		(501,309	)		(593,518	)		(872,897	)

Net Cash Used by Investing Activities		(5,295,527	)		(1,635,200	)		(1,962,008	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable		3,075,606			4,045,863			—
Proceeds from long term debt		5,400,000			1,500,000			16,545,878
Payments of notes payable		(799,333	)		(3,246,530	)		—
Payments of long term debt		(1,240,297	)		(711,987	)		(16,799,378	)
Proceeds from termination of interest rate swap		—			—			84,524
Payments of deferred loan costs		(45,125	)		—			(180,009	)
Proceeds from exercise of stock options		—			16,000			—
Payments to purchase Treasury Stock		(870,475	)		—			—

Net Cash Provided (Used) by Financing Activities		5,520,376			1,603,346			(348,985	)

Net (decrease) increase in cash and cash equivalents		(934,113	)		(2,095,169	)		461,327
Beginning cash and cash equivalents balance		2,379,383			4,474,552			4,013,225

Ending cash and cash equivalents balance	$	1,445,270		$	2,379,383		$	4,474,552

26[continued]

~~Table~~The accompanying notes are an integral part of ~~Contents~~these consolidated financial statements.

~~FOUNTAIN~~22 ~~POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY~~

~~NOTES~~FOUNTAIN TOPOWERBOAT ~~CONSOLIDATED~~INDUSTRIES, ~~FINANCIAL~~INC. ~~STATEMENTS~~AND SUBSIDIARY

~~Note~~CONSOLIDATED 1.STATEMENTS ~~Nature~~OF ofCASH ~~the~~FLOWS ~~Business and Significant Accounting Policies.~~ [~~Continued~~CONTINUED]

~~Cash~~YEARS ~~Surrender~~ENDED ~~Value~~JUNE ~~of life insurance policies: - At June~~ 30, ~~2004 and 2003~~2008, ~~the~~2007 ~~Company~~AND ~~owns~~2006 six life insurance policies on Reginald M. Fountain, Jr., the Company’s Chairman, President and Chief Executive Officer for a total of $6,083,363 and $6,161,287 in coverage and $1,581,316 and $1,378,626 cash value. At June 30, 2004 and 2003 the Company has borrowed $1,295,449 and $1,265,438 against the policies (See Note 5).

Research and Development: The Company expenses the costs of research and development for new products and components as the costs are incurred. Research and development costs are included in the cost of sales and amounted to $871,386 for Fiscal 2004, $552,072 for Fiscal 2003, and $952,332 for Fiscal 2002.


	2008			2007			2006
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest to unrelated parties, net of amounts capitalized	$	1,018,686		$	1,340,969		$	1,417,874
Income taxes		—			—			—
Supplemental Schedule of Non-cash Investing and Financing Activities:
Unrealized gain (loss) on interest rate swap, net of tax	$	(479,199	)	$	(98,811	)	$	149,997

~~Derivative Financial Instruments:~~ The ~~Company uses~~accompanying ~~derivative~~notes ~~financial instruments for the purpose of reducing its exposure to adverse fluctuations in interest rates. While these hedging instruments~~ are ~~subject~~an tointegral ~~fluctuations~~part ~~in value, such fluctuations are generally offset by the value~~ of ~~the~~ ~~underlying exposures being hedged. The Company accounts for~~ these ~~derivative~~consolidated financial ~~instruments as an effective cash flow hedge under the provisions of Statement of Financial Accounting Standards (SFAS) No~~statements. 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.

~~Recently~~23 Enacted Accounting Standards - Statement of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”, and SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, were recently issued. SFAS No. 146 and 150 have no current applicability to the Company or their effect on the financial statements would not have been significant. SFAS No. 149 has become applicable (as well as SFAS No. 133 as discussed above) and has been adopted by the Company as discussed above as a result of its use of a cash flow hedge related to its loan from Bank of America (See Note 5).

~~Stock-based~~FOUNTAIN ~~compensation~~POWERBOAT ~~— In December 2002~~INDUSTRIES, ~~the FASB issued SFAS No~~INC. ~~148,~~AND ~~“Accounting~~SUBSIDIARY for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123” (“SFAS 148”). This Statement amends SFAS 123 to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements. Certain of the disclosure modifications are required for fiscal years ending after December 15, 2002 and are included in the notes to these consolidated financial statements.

~~The~~NOTES ~~Company~~TO ~~has~~CONSOLIDATED ~~stock~~FINANCIAL ~~incentive~~STATEMENTS plans that provides for stock-based employee compensation, including the granting of stock options, to certain key employees and other individuals. The plans are more fully described in Note 6. The Company accounts for stock options issued to employee, officer and directors under the stock incentive plan in accordance with the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and related Interpretations. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Under the Company’s stock incentive plan, stock options are granted at exercise prices that equal or exceed the market value of the underlying common stock on the date of grant. Therefore, no compensation expense related to stock options is recorded in the Consolidated Statements of Income.

~~During~~YEARS ~~the~~ENDED ~~periods~~JUNE presented in the accompanying financial statements the Company has granted options under the 1995 and 1999 Stock Options Plans and executive and other employment agreements (See Note 6). The Corporation has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 12330, ~~“Accounting for Stock-Based Compensation.” Accordingly~~2008, ~~compensation~~2007 ~~cost~~AND ~~under~~2006 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 plan and other agreement to employees.

27Note 1. Nature of the Business and Significant Accounting Policies.

~~Table~~Nature of ~~Contents~~the Business: Fountain Powerboat Industries, Inc. and Subsidiaries (the Company) manufacture and sell high-performance sport boats, sport cruisers, sport fishing boats, and custom offshore racing boats. These boats are sold worldwide to a network of 26 domestic and 21 international dealers. The Company’s offices and manufacturing facilities are located in Washington, North Carolina, and the Company has been in business since 1979. The Company employs 322 people.

~~FOUNTAIN~~Principles ~~POWERBOAT~~of Consolidation: ~~INDUSTRIES~~The consolidated financial statements include the accounts of Fountain Powerboat Industries, ~~INC~~Inc. ~~AND~~and ~~SUBSIDIARY~~its wholly owned subsidiaries, Fountain Powerboats, Inc., Fountain Dealers’ Factory Superstore, Inc. and Baja by Fountain, Inc. All significant inter-company accounts and transactions have been eliminated in consolidation.

~~NOTES~~Fiscal TOYear: The ~~CONSOLIDATED~~Company’s ~~FINANCIAL~~fiscal ~~STATEMENTS~~year-end is June 30th, which is its natural business year-end.

~~Note~~Accounting 1.Estimates: ~~Nature~~The preparation of financial statements in conformity with accounting principles generally accepted in the ~~Business~~United States of America requires management to make estimates and ~~Significant~~assumptions ~~Accounting~~that ~~Policies~~affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimated by management. These estimates ~~[Continued]~~affect:

~~Had~~• ~~compensation~~The ~~cost~~reported ~~for~~amounts 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 2004, 2003 and 2002 consistent with the provisions of ~~SFAS~~assets ~~No. 123, the Company’s net earnings net of taxes~~ and ~~earnings per share would have been reduced to the pro forma amounts indicated below:~~ liabilities,

		Year Ended June 30,
		2004		2003		2002
Net Income (loss)	As reported	$	1,301,142	$	879,996	$	(7,031,593	)
	Pro forma	$	1,284,257	$	434,186	$	(7,115,697	)
Earnings (loss) per share	As reported	$	.27	$	.19	$	(1.49	)
	Pro forma	$	.27	$	.09	$	(1.50	)

•

The disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and

~~Note~~• 2.The ~~Inventories~~reported amounts of revenues and expenses during the reporting periods.

~~Inventories~~Estimates ~~consist~~in ofthese ~~the~~consolidated ~~following~~financial statements include, but are not limited to:

	June 30,
	2004			2003
Parts and supplies	$	1,920,860		$	1,593,057
Work-in-process		1,999,076			1,702,533
Finished goods		783,466			214,696
		4,703,402			3,510,286
Reserve for obsolescence		(50,000	)		(50,000	)
	$	4,653,402		$	3,460,286

•

Allowances for doubtful accounts;

~~All~~• ofInventory ~~the~~obsolescence ~~inventory are owned by the Company and are held as collateral on notes and mortgages payable having a balance of $17,310,558 at June 30, 2004.~~ reserves;

28• Reserves for dealer incentives and allowances;

~~Table~~• ofWarranty ~~Contents~~related reserves;

~~FOUNTAIN~~• ~~POWERBOAT~~Reserve ~~INDUSTRIES,~~for ~~INC.~~allowances ~~AND~~for ~~SUBSIDIARY~~floor plan boat repurchases;

~~NOTES~~• TOLosses ~~CONSOLIDATED~~on ~~FINANCIAL~~litigation ~~STATEMENTS~~and other contingencies;

~~Note~~• 3.Environmental ~~Property,~~liability ~~Plant, and Equipment.~~ reserves;

~~Property,~~• ~~plant,~~Insurance ~~and equipment consists of the following:~~ reserves;

	EstimatedUseful Lives in Years	June 30,
		2004			2003
Land and related improvements	10-30	$	4,611,064		$	4,564,523
Buildings and related improvements	10-30		8,763,057			8,827,731
Construction-in-progress	N/A		935,092			486,966
Production molds and related plugs	8-10		21,486,150			20,655,432
Machinery and equipment	3-5		5,492,864			5,384,323
Furniture and fixtures	5		587,744			556,527
Computer Equipment	5		965,778			880,570
Transportation equipment	5		341,711			320,711
		$	43,183,460		$	41,676,783
Accumulated depreciation			(27,269,666	)		(25,511,099	)
		$	15,913,794		$	16,165,684

•

Income tax reserves.

~~All~~Cash ~~of the land,~~and ~~buildings~~Cash ~~and~~Equivalents: ~~improvements~~For ~~are~~purposes ~~owned~~of by the ~~Company~~statement ~~and~~of ~~are~~cash ~~held~~flows, asthe ~~collateral~~Company onconsiders ~~notes~~all ~~and~~highly ~~mortgages~~liquid ~~payable~~debt ~~having~~instruments purchased with a ~~balance~~maturity of ~~$17,310,558~~three atmonths ~~June~~or ~~30,~~less ~~2004.~~to ~~Depreciation~~be ~~expense~~cash ~~was~~equivalents. ~~$2,052,314,~~At $2June 30,~~112,051,~~ 2008 and $22007,~~294,254,~~ ~~for~~ the ~~years~~Company ~~ended June~~had 30$1, ~~2004~~445,270 ~~2003~~ and ~~2002~~$2,379,383 respectively~~. During Fiscal 2002~~, ~~the~~held ~~Company recorded a loss on impairment of $1,112,320~~ in ~~accordance with SFAS No~~cash. ~~121~~The ~~“Accounting~~portion ~~for Impairment~~ of ~~Long-Lived~~those ~~Assets~~balances ~~and~~in ~~Long-Lived~~excess ~~Assets to be Disposed~~ of” ~~on certain~~the ~~molds~~amount ~~and~~insured ~~racing~~by ~~boats~~the toFederal ~~adjust~~Deposit ~~the~~Insurance ~~respective~~Corporation ~~assets~~at toJune 30, ~~their~~2008 ~~net~~was ~~realizable value~~$1,345,270.

~~Construction~~Accounts ~~costs~~Receivable: ofAccounts ~~production~~Receivable ~~molds~~are ~~for~~customer ~~new~~obligations ~~and~~due ~~existing~~under ~~product~~normal ~~lines~~trade ~~are~~terms ~~capitalized~~requiring ~~and~~payment ~~depreciated~~within ~~over~~7 andays ~~estimated~~from ~~useful~~the invoice ~~life~~date offor ~~eight~~boat tosales ~~ten~~and ~~years~~within 30 days for all other sales. ~~Depreciation~~The ~~starts~~carrying ~~when~~amount ~~the~~of ~~production~~accounts ~~mold~~receivable is ~~placed~~reduced ~~in service~~by toan ~~manufacture~~allowance that reflects management’s best estimate of the ~~product~~amounts that will not be collected. ~~The~~Management ~~costs~~reviews each ~~include~~accounts ~~the~~receivable ~~direct~~balance ~~materials,~~that ~~direct~~exceeds ~~labor,~~90 ~~and~~days anfrom ~~overhead~~the ~~allocation~~invoice date and based on aan ~~percentage~~assessment of ~~direct~~the ~~labor~~current creditworthiness, estimates the portion, if any, of the balance that will not be collected.

~~Note~~24 ~~4. Capital Lease.~~

~~The~~Inventories: ~~Company~~Inventories isare stated at the ~~lessee~~lower of ~~equipment~~cost ~~under~~or ~~capital~~market. ~~leases~~Cost ~~expiring~~is determined by the first-in, ~~May~~first-out ~~2004~~method ~~and~~(See ~~April~~Note ~~2006~~3). The ~~assets~~Company ~~and~~records ~~liabilities~~a ~~under~~reserve ~~the~~for ~~capital~~obsolete ~~leases~~inventories ~~were recorded~~in order to ensure inventories are carried at the lower of ~~the~~cost ~~present~~or fair market value. ofFair ~~the~~market ~~minimum~~value ~~lease~~can ~~payments~~be oraffected ~~the~~by ~~fair~~assumptions ~~value~~about ofmarket demand ~~the~~and ~~assets~~conditions, athistorical ~~the~~usage ~~time~~rates, ofmodel ~~purchase~~changes and new product introductions. ~~Equipment~~If ~~under~~model ~~capital~~changes ~~lease~~or ~~obligation~~new isproduct asintroductions ~~follows:~~create more or less than favorable market conditions, the reserve for obsolete inventories may need to be adjusted.

	June 30,
	2004			2003
Equipment	$	118,556		$	92,774
Less: Accumulated amortization		(99,817	)		(63,179	)
	$	18,739		$	29,595

Property, Plant, and Equipment and Depreciation: Property, plant, and equipment are carried at cost. Depreciation on property, plant, and equipment is calculated using the straight-line method and is based upon the estimated useful lives of the assets. The Company periodically evaluates whether events and circumstances have occurred that indicate the remaining estimated useful lives of its long-lived assets may warrant revision or that the remaining balance of such assets may not be recoverable and need to be impaired. (See Note 4)

29Fair Value of Financial Instruments: Management estimates of the carrying value of financial instruments on the consolidated financial statements approximate fair values. The carrying values of the Company’s short term financial instruments, including cash and cash equivalents, accounts receivable, and debt approximate their fair values because of the short maturity of these instruments and the variability of the associated interest rates.

~~Table~~Dealer Incentive Accruals: The Company has established sales programs to pay service and/or other awards to dealers for boat deliveries into their market territory for which they will perform service or based upon sales of ~~Contents~~boats from their locations. These programs are based in part on the model of the boat sold, a factor for the dealer’s service performance rating, the dollar value of the sale and other factors, including total sales volume to dealers. The Company has accrued dealer incentives of $5,618,766 and $6,342,467 at June 30, 2008 and 2007, respectively. Dealer incentive accruals are recorded as a reduction to net sales. These amounts also include an accrual for dealer interest as discussed in Note 8, “Commitments and Contingencies”.

~~FOUNTAIN~~Allowance ~~POWERBOAT~~for ~~INDUSTRIES,~~Floor ~~INC~~Plan Boat Repurchases: The Company provides an allowance for boats financed by dealers under floor plan finance arrangements that may be repurchased from finance companies under certain circumstances where the Company has a repurchase agreement with the lender. ~~AND~~The ~~SUBSIDIARY~~amount of the allowance is determined based upon the current financial status of the Company’s dealers. The Company has accrued allowance for boat repurchases of $78,787 and $64,124 at June 30, 2008 and June 30, 2007 respectively.

~~NOTES~~Revenue TORecognition: ~~CONSOLIDATED~~The ~~FINANCIAL~~Company ~~STATEMENTS~~generally sells boats only to authorized dealers and to the U.S. Government. A sale is recorded when legal title and all other incidents of ownership have passed to the dealer or to the Government. Prior to the sale to the dealer or the Government, the Company must have received a signed Sales Order Acknowledgement from the dealer or the Government specifying the terms of the sale, including the sales price. All boat sales are Cash on Delivery basis, or with prior approval of the buyer’s third party commercial lender, thus assuring the ability to collect. Revenue is also derived from the sale of boats to retail customers through the Fountain Dealers’ Factory Superstore, Inc. subsidiary; revenue is recognized when the Company has a signed contract with the customer and has received payment.

~~Note~~In 4addition to other dealer incentives, the Company offers a sales incentive plan whereby floor plan interest is paid by the Company up to six months (180 days) or until the boat is sold by the dealer. ~~Capital~~Each ~~Lease~~month the Company calculates an amount equal to the estimated potential floor plan interest payment for the remainder of the 180 day period beginning on the invoice date for each boat still in floor plan inventory. The sum of these individual calculations ~~[Continued]~~is accrued as a liability and recorded as a selling expense. (See Note 8) As the number of boats and the time remaining in the free floor plan interest period varies from month to month, the variation is reflected in floor plan interest expense.

~~Total~~Income ~~future~~Taxes: ~~minimum~~The ~~lease~~Company ~~payments,~~accounts ~~executory~~for ~~costs~~income ~~and~~taxes ~~current~~in ~~portion~~accordance with issued Statement of ~~capital~~Financial ~~lease~~Accounting ~~obligations~~Standards (SFAS) ~~are~~No. 109, as“Accounting ~~follows:~~for Income Taxes” (See Note 7).

Year ending June 30,	Lease Payments
2005	$	22,884
2006		3,358
Total future minimum lease payments	$	26,242
Less: amounts representing maintenance and usage fee, interest and executory costs		(1,875	)
Present value of the future minimum lease payments		24,367
Less: Lease current portion		(17,710	)
Capital lease obligations - long term	$	6,657

Advertising Cost: Cost incurred in connection with advertising and promotion of the Company’s products is expensed as incurred. Such costs amounted to $1,854,660, $2,013,740 and $1,412,435 for the years ended 2008, 2007 and 2006, respectively.

~~Note~~Earnings(Loss) 5Per Share: The Company accounts for earnings(loss) per share in accordance with the Statement of Financial Accounting Standards (SFAS) No. 128 ~~Long-term~~“Earnings ~~Debt~~Per Share,” which requires the Company to present basic and ~~Pledged~~diluted earnings per share. The computation of basic earnings(loss) per share is based on the weighted average number of shares outstanding ~~Assets~~during the periods presented. The computation of diluted earnings per shares is based on the weighted average number of outstanding common shares during the year plus, when their effect is dilutive, additional shares assuming the exercise of certain vested and non-vested stock options and warrants, reduced by the number of shares which could be purchased from the proceeds (See Note 12).

~~The~~25 ~~following is a summary of long-term debt:~~

	June 30,
	2004			2003
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.	$	18,216		$	32,224
4.00% loan payable to a financial institution (8.25% for 2003) for the purchase of a vehicle, monthly payments of $726 through September 2006, secured by the vehicle purchased.		18,522			25,306
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.		1,295,449			1,265,438
$10,000,000 credit agreement with a financial corporation (See Below).		—			8,723,636
$18,000,000 credit agreement with a financial corporation (See Below).		17,310,558			—
		18,642,745			10,046,604
Less: Current maturities included in current liabilities:		(772,704	)		(1,060,444	)
	$	17,870,041		$	8,986,160

Warranties: The Company warrants the entire deck and hull, including its supporting bulkhead and stringer system, against defects in materials and workmanship for a period of six years. The Company has accrued a reserve for these anticipated future warranty costs.

Cash Surrender Value of life insurance policies: – At June 30, 2008 and 2007, the Company owns six life insurance policies on Reginald M. Fountain, Jr., the Company’s Chairman and Chief Executive Officer for a total of $8,429,910 and $8,091,411 in coverage and $3,374,413 and $2,951,010 in cash value, respectively. At June 30, 2008 and 2007 the Company has borrowed $2,900,000 and $1,500,000 respectively against the policies, which is shown in long term debt on the consolidated balance sheet.

~~Table~~Research and Development: The Company expenses the costs of ~~Contents~~research and development for new products and components as the costs are incurred. Research and development costs are included in the cost of sales and amounted to $749,136 for Fiscal 2008, $757,186 for Fiscal 2007, and $780,520 for Fiscal 2006.

~~FOUNTAIN~~Derivative ~~POWERBOAT~~Financial ~~INDUSTRIES~~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, ~~INC~~such fluctuations are generally offset by the value of the underlying exposures being hedged. ~~AND~~The ~~SUBSIDIARY~~Company has determined that the hedges’ ineffectiveness is not material and 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.” The Company is not a party to leveraged derivatives and does not hold or issue financial instruments for speculative purposes.

~~NOTES~~The TOCompany ~~CONSOLIDATED~~utilizes ~~FINANCIAL~~an ~~STATEMENTS~~interest rate swap agreement to hedge exposure to fluctuations in market interest rates. Under United States GAAP, an interest rate swap agreement is considered a derivative financial instrument. Due to the nature of the derivative and the intended use by the Company, the derivative qualifies as a Cash Flow Hedge. As such, SFAS No. 133 requires that the value of the derivative be “marked-to-market” periodically and any change in the market value of the swap be reflected in the financial statements of the Company. The market value of the derivative is calculated as of the last day of the period and any change since the end of the previous period is reflected, net of tax, as an adjustment to Stockholders’ Equity in the Consolidated Balance Sheet.

~~Note~~Recently 5Enacted Accounting Standards: In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair ~~Long~~Value Measurements” (SFAS 157). FAS 157 enhances existing guidance for measuring assets and liabilities using fair value. Prior to the issuance of FAS 157, guidance for applying fair value was incorporated in several accounting pronouncements. FAS 157 provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. FAS 157 also emphasizes that fair value is a market-~~term~~based ~~Debt~~measurement, not an entity-specific measurement, and ~~Pledged~~sets ~~Assets~~out a fair value hierarchy with the highest priority being quoted prices in active markets. ~~[Continued]~~Under FAS 157, fair value measurements are disclosed by level within that hierarchy. While FAS 157 does not add any new fair value measurements, it does change current practice. Changes to practice include: (1) a requirement for an entity to include its own credit standing in the measurement of its liabilities; (2) a modification of the transaction price presumption; (3) a prohibition on the use of block discounts when valuing large blocks of securities for broker-dealers and investment companies; and (4) a requirement to adjust the value of restricted stock for the effect of the restriction even if the restriction lapses within one year. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company has not determined the impact of adopting FAS 157 on its consolidated financial statements.

~~The~~In ~~Company~~February ~~had a $10~~2007,~~000,000~~ ~~credit~~the ~~agreement with~~FASB ~~General~~issued ~~Electric~~SFAS ~~Capital Corporation~~No. 159, “The ~~credit~~Fair ~~agreement~~Value ~~involved~~Option ~~two~~for ~~notes,~~Financial ~~both~~Assets ~~with~~and anFinancial ~~interest~~Liabilities”, ~~rate~~(SFAS of159). ~~prime~~SFAS ~~plus~~159 ~~2%.~~allows ~~Combined~~entities ~~monthly~~to ~~payments~~measure ~~are~~financial ~~$128,005.~~instruments ~~The~~and ~~$7,000,000~~certain ~~note~~other ~~had~~items ~~monthly~~at ~~payments~~fair ofvalue ~~approximately~~that ~~$85,000~~are ~~and~~not acurrently ~~ten year~~required ~~amortization~~to ~~with~~be ameasured ~~five-year~~at ~~balloon~~fair ~~payment~~value. ~~and~~Unrealized isgains ~~secured~~and bylosses aon ~~first~~items ~~lien~~for onwhich the ~~Company’s~~fair ~~plant~~value ~~and~~option ~~property.~~has ~~The~~been ~~second~~elected ~~note~~must ofbe ~~$3,000,000~~reported ~~had~~in ~~monthly~~earnings ~~payments~~at ofeach ~~approximately~~subsequent ~~$45,000,~~reporting adate. ~~seven~~The ~~year~~fair ~~amortization~~value ~~with~~option acan ~~five-year~~be ~~balloon payment,~~applied ~~and~~instrument ~~is secured~~ by ainstrument, however ~~second lien on~~ the ~~Company’s~~election ~~plant~~is ~~and property~~irrevocable. ~~This~~SFAS ~~second~~No. 159 ~~note~~is ~~was~~effective ~~guaranteed~~for byfiscal ~~the~~years ~~United~~beginning ~~States~~after ~~Department~~November 15, ~~of Agriculture~~2007. ~~These~~The ~~notes~~Company ~~were~~does ~~further~~not ~~secured~~expect bythe anstatement ~~assignment~~to ofhave aan ~~$1,000,000~~effect ~~key~~on ~~man~~its ~~life insurance~~financial ~~policy~~position, toresults ~~the lender and the personal guarantee~~ of ~~the~~operations ~~Company’s~~or ~~President~~cash ~~with real estate valued at approximately $1,000,000~~flows.

OnIn ~~July~~December 172007, ~~2003,~~ the ~~Company~~FASB ~~obtained~~issued anSFAS ~~$18~~No. 160,~~000,000~~ ~~long~~“Non-~~term~~controlling ~~loan~~Interests ~~from Bank of America which matures~~ in ~~five~~Consolidated ~~years~~Financial Statements”. ~~The~~This Statement ~~proceeds~~amends ~~were~~ARB ~~used~~51 to ~~refinance the~~establish ~~two~~accounting ~~loans~~and ~~with~~reporting ~~General~~standards ~~Electric~~for ~~Capital~~the ~~Corporation~~non-controlling ~~totaling~~interest ~~$10,000,000~~in ~~with~~a ~~total~~subsidiary ~~remaining balance of $8,648,341~~ and afor ~~variable~~the ~~interest~~deconsolidation ~~rate~~ of ~~prime~~a ~~plus 2% or 6~~subsidiary.~~25%~~ asThis ofStatement ~~June~~requires ~~30,~~consolidated ~~2003.~~net ~~Proceeds~~income ~~from the Bank of America loan were also used~~ to ~~pay~~be ~~trade~~reported ~~payables~~at toamounts ~~current status and provide additional operating funds. The new agreement with Bank of America has a $9,000,000 note with a rate~~ that include ~~is variable with~~ the ~~Wall~~amounts ~~Street~~attributable ~~LIBOR~~to ~~one~~both ~~month floating rate as~~ the ~~index~~parent ~~plus~~and the ~~applicable~~ ~~margin.~~non-controlling ~~The applicable margin is based on funded debt to earnings before income taxes and depreciation adjustment (EBITDA)~~interest. ~~The~~It ~~applicable~~also ~~margin~~requires isdisclosure, ~~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%

on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. This Statement requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. If a parent retains a non-controlling equity investment in the former subsidiary, that investment is measured at its fair value. The ~~applicable~~gain ~~margin~~or loss on the deconsolidation of the subsidiary is measured using the fair value of the non-controlling equity investment. This Statement requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent’s owners and the interests of the non-controlling owners of a subsidiary. Those expanded disclosures include a reconciliation of the beginning and ending balances of the equity attributable to the parent and the non-controlling owners and a schedule showing the effects of changes in a parent’s ownership interest in a subsidiary on the equity attributable to the parent. This Statement does not change ARB 51’s provisions related to consolidation purpose or consolidation policy or the requirement that a parent consolidate all entities in which it has a controlling financial interest. This Statement does, however, amend certain of ARB 51’s consolidation procedures to make them consistent with the requirements of Statement 141(R). It also amends ARB 51 to provide definitions for certain terms and to clarify some terminology. In addition to the ~~first~~amendments ~~year~~to isARB ~~deemed~~51, this Statement amends FASB Statement No. 128, Earnings per Share, so that earnings-per-share data will continue to be 2calculated the same way those data were calculated before this Statement was issued.~~25%~~ (2That is, the calculation of earnings-per-share amounts in consolidated financial statements will continue to be based on amounts attributable to the parent.~~50%~~ This statement is effective for ~~seven~~fiscal ~~months~~years asand ~~amended~~interim periods within those fiscal years, beginning on ~~February~~or 10after December 15, ~~2004)~~2008. The Company does not expect the statement to have an effect on its consolidated financial statements.

~~The~~In ~~agreement~~March ~~with~~2008, ~~Bank~~the ofFASB ~~America~~issued ~~further~~SFAS ~~has~~No. 161, “Disclosures aabout ~~$9,000,000~~Derivative ~~note~~Instruments ~~under~~and Hedging Activities” This Statement requires enhanced disclosures about an ~~interest~~entity’s ~~rate~~derivative ~~swap~~and hedging activities and thereby improves the transparency of financial reporting. Entities are required to provide enhanced disclosures about (a) how ~~fixed~~and ~~rate~~why ofan ~~6.02%.~~entity ~~The~~uses ~~interest~~derivative ~~rate~~instruments, ~~swap~~(b) how isderivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and ~~designated~~(c) how asderivative ainstruments ~~cash~~and ~~flow~~related ~~hedge~~hedged items affect an entity’s financial position, financial performance, and iscash ~~deemed~~flows. ~~effective~~This ~~pursuant~~Statement is intended to ~~SFAS~~enhance the current disclosure framework in Statement 133. ~~These~~The ~~Bank~~Statement requires ofthat ~~America~~objectives ~~loans~~for ~~have~~using aderivative ~~fifteen~~instruments ~~year~~be ~~amortization~~disclosed ~~with~~in aterms ~~five~~of ~~year~~underlying ~~balloon~~risk ~~payment~~ and ~~are~~accounting ~~secured~~designation. byThis ~~certain~~disclosure ~~assets~~better conveys the purpose of derivative use in terms of the ~~Company~~risks that the entity is intending to manage. Disclosing the fair values of derivative instruments and ~~real~~their ~~estate~~gains and losses in a tabular format should provide a more complete picture of the ~~Company~~ location in an entity’s ~~President,~~financial ~~Chief~~statements ~~Executive~~of ~~Officer~~both the derivative positions existing at period end and ~~majority~~the ~~shareholder,~~effect ~~Reginald~~of M.using ~~Fountain,~~derivatives Jrduring the reporting period. ~~Obligations~~Disclosing ~~are~~information ~~guaranteed~~about bycredit-risk-related contingent features should provide information on the ~~Company,~~potential effect on an ~~unlimited~~entity’s ~~unconditional~~liquidity ~~guarantee~~from ofusing Mrderivatives. Finally, ~~Fountain~~this ~~and~~Statement byrequires ~~Brunswick~~cross-referencing ~~Corporation~~within the footnotes, ~~pursuant~~which toshould ahelp ~~master~~users of financial statements locate important information about derivative instruments effective for financial statements issued for fiscal years and interim ~~funding~~periods ~~agreement~~beginning ~~with~~after ~~the~~November 15, ~~Company~~2008. ~~Combined~~The ~~monthly~~Company ~~payments~~has tonot ~~Bank~~yet determined the impact of ~~America~~adopting ~~will~~FAS be161 ~~approximately~~on ~~$126,000~~its consolidated financial statements.

~~The~~In ~~Company~~September ~~has~~2006, ~~agreed~~the toSEC ~~observe~~issued ~~certain~~Staff ~~covenants~~Accounting ~~under~~Bulletin No. 108 (“SAB 108”), “Considering the ~~terms~~Effects of ~~its~~Prior ~~note~~Year ~~agreements~~Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 was issued in order to eliminate the diversity of practice surrounding how public companies quantify financial statement misstatements. Traditionally, there have been two widely-recognized methods for quantifying the effects ~~most~~of ~~restrictive~~financial statement misstatements: the “roll-over” method and the “iron curtain” method. The roll-over method focuses primarily on the impact of ~~which~~a ~~relates~~misstatement on the income statement—including the reversing effect of prior year misstatements—but its use can lead to ~~prepayment~~the accumulation of ~~excess earnings,~~misstatements in the ~~sale~~balance sheet. The iron curtain method focuses primarily on the effect of ~~assets~~correcting ~~securing~~the period-end balance sheet with less emphasis on the reversing ~~notes~~effects ~~and~~of ~~key~~prior ~~financial~~year’s ~~ratios~~errors on the income statement. ~~Chief~~We ~~among~~have previously used the ~~covenants~~roll-over ~~are:~~method for quantifying identified financial statement misstatements.

1.SAB ~~Maintenance~~108 establishes an approach that requires quantification of afinancial ~~tangible~~statement ~~net~~misstatements ~~worth~~based ~~floor~~on ~~which~~the effects of the misstatements on each of the Company’s ~~tangible~~consolidated ~~net~~financial ~~worth~~statements ~~may~~and ~~not~~the ~~fall~~related ~~below~~financial statement disclosures. This model is commonly referred to as a “dual approach” because it requires quantification of errors under both the iron curtain and the roll-over methods. SAB 108 permits public companies to initially apply its provisions either by (i) restating prior financial statements as if the “dual approach” had always been applied or (ii) recording the cumulative effect of initially applying the “dual approach” as adjustments to the carrying values of assets and liabilities as of July 1, 2006 with an offsetting adjustment recorded to the opening balance of retained earnings.

2.27 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.We Aadopted ~~funded~~SAB ~~debt~~108 toduring ~~earnings~~the ~~before~~quarter ~~interest,~~ended ~~taxes~~June 30, ~~depreciation~~2007 and ~~amortization~~elected ~~(EBITDA)~~to ~~ratio~~use ~~which~~the iscumulative ~~defined~~effect transition asmethod in connection with the ~~ratio~~preparation of ~~all~~our ~~outstanding~~financial ~~debt~~statements. ~~both~~The ~~current~~following ~~and~~table ~~long-term~~summarizes tothe ~~EBITDA~~effects ~~which~~of applying the ~~Company’s~~guidance ~~ratio~~in ~~may~~SAB ~~not~~108: ~~exceed.~~

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


	Cumulative Prior to July 1, 2005			Year ended June 30, 2006			Adjustment Recorded as of June 30, 2006
Warranty reserve adjustment (2)	$	297,718		$	30,525		$	328,243

Impact on net income (loss) (3)	$	(297,718	)	$	(30,525	)

Accumulated deficit (4)							$	(328,243	)

31(1) The Company quantified these errors under the roll-over method and concluded that they were immaterial both individually and in the aggregate.

~~Table~~(2) The Company’s calculation of ~~Contents~~warranty reserve, and the resulting warranty expense, had inappropriately always excluded boats remaining in dealer inventory. As a result of this error, our warranty reserve liability and warranty expense was understated by $297,718 in fiscal years beginning prior to July 1, 2005, understated by $30,525 in the fiscal year ended June 30, 2006. Due to our assessment as to the recoverability of deferred tax assets, we have determined that there is no related tax impact resulting from these understatements.

~~FOUNTAIN~~(3) ~~POWERBOAT~~Represents ~~INDUSTRIES,~~the ~~INC.~~net ~~AND~~over/(under)statement ~~SUBSIDIARY~~of net income for the indicated periods resulting from these misstatements.

~~NOTES~~(4) TORepresents ~~CONSOLIDATED~~the ~~FINANCIAL~~net ~~STATEMENTS~~reduction to retained earnings recorded as of July 1, 2006 to record the initial application of SAB 108.

~~Note~~Comprehensive 5Income (Loss) – The Company reports as comprehensive income changes in stockholders’ equity during the year from sources other than shareholders. ~~Long-term~~Other ~~Debt~~comprehensive income (loss) refers to all components (revenues, expenses, gains, and ~~Pledged~~losses) ~~Assets~~of comprehensive income (loss) that are excluded from net income (loss). ~~[Continued]~~The Company’s only component of other comprehensive income (loss) is unrealized gains and losses related to interest rate swap agreements. For the years ended June 30, 2008, 2007 and 2006, the Company’s other comprehensive income (loss), net of taxes, was ($479,199), ($98,811), and $149,997, respectively, resulting in total comprehensive income (loss) of ($2,679,027), ($5,145,097), and $2,554,909 respectively for those years.

~~These~~Stock ~~covenants~~Based ~~change~~Compensation – The Company has stock incentive plans that provide for stock-based employee compensation, including the granting of stock options, to certain key employees and ~~generally~~other individuals. ~~become~~The plans are more ~~restrictive~~ fully described in ~~future~~Note ~~periods~~6. ~~The~~Under ~~following~~the ~~matrix~~Company’s ~~lists~~stock incentive plan, stock options are granted at exercise prices that equal or exceed the ~~required~~market ~~covenant~~value ~~levels~~of ~~for~~the underlying common stock on the ~~periods~~date ~~indicated:~~of grant.

	June 30, 2004	September 30,2004	December 31,2004	March 31, 2005	June 30, 2005
Tangible Net Worth Floor	$4.475 Million	$4.500 Million	$4.800 Million	$4.950 Million	$5.225 Million
Current Maturity Coverage Ratio	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	6.00 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 %	14.50%	14.50%	14.50%	14.50%	14.50%

The Company accounts for these plans in accordance with SFAS No. 123(R), “Accounting for Stock-Based Compensation” which 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.

AsNote of2. ~~June~~Accounts ~~30,~~Receivable ~~2004 the Company was in compliance with its mandated covenants.~~

InAccounts Receivable ~~addition~~consists ~~to the covenants listed above, the Company may not exceed its budgeted annual listing~~ of ~~fixed asset purchases approved by~~ the ~~loan’s~~following: 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.

The estimated aggregate maturities required on long-term debt for each of the individual years at June 30, 2004 are as follows:


	Year Ended June 30,
	2008			2007
Trade receivables	$	3,967,567		$	3,567,893
Other receivables		338,109			138,845

Subtotal	$	4,305,676		$	3,706,738
Less Allowance for doubtful accounts		(21,885	)		(17,752	)

Net accounts receivable	$	4,283,791		$	3,688,986

2004	$	887,481
2005		930,003
2006		865,072
2007		935,425
Thereafter		15,024,764
	$	18,642,745

Note 63. ~~Common Stock, Stock Options, and Treasury Stock~~Inventories.

~~Common~~Inventories ~~Stock: The~~consist ~~Company has authorized 200,000,000 shares~~ of ~~common~~the ~~stock,~~following: $.01 par value. 4,807,608 shares were issued and outstanding at June 30, 2004, 4,757,608 shares were issued and outstanding at June 30, 2003 and 4,732,608 shares were issued and outstanding at June 30, 2002.

During Fiscal 2004, several individuals including Company officers exercised their options and purchased 50,000 shares of Common Stock at exercise prices of $1.60 to $1.67 per share. Subsequent to the balance sheet date an employee exercised his options and purchased 6,667 shares of Common Stock at an exercise price of $1.45 per share.


	Year Ended June 30,
	2008		2007
Parts and supplies	$	2,522,375	$	3,021,355
Work-in-process		3,248,855		3,431,664
Finished goods		2,641,806		246,666

		8,012,387		6,699,685
Reserve for obsolescence		470,652		(54,472	)

	$	7,942,384	$	6,645,213

~~During~~All ~~Fiscal 2003, a director~~ of the ~~Company~~inventory ~~exercised~~is ~~his~~owned ~~options~~by ~~and purchased 25,000 shares of Common stock at $1.34 per share. Also during 2003,~~ the Company ~~recorded~~and apledged ~~capital~~as ~~contribution~~collateral ofon ~~46,158~~notes ~~when~~and ~~payroll obligations owed an~~mortgages ~~officer~~payable ~~and~~at ~~shareholder~~June 30, ~~of the Company were forgiven~~2008.

32Note 4. Property, Plant and Equipment.

~~Table~~Property, plant and equipment consists of ~~Contents~~the following:

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY


	Estimated Useful Lives in Years	June 30,
	Estimated Useful Lives in Years	2008			2007
Land and related improvements	10-30	$	4,746,710		$	4,746,710
Buildings and related improvements	10-30		10,255,358			10,191,770
Construction-in-progress	N/A		415,734			322,219
Production molds and related plugs	8		30,537,211			25,736,699
Machinery and equipment	3-5		6,425,306			6,325,792
Furniture and fixtures	5		798,456			768,985
Computer equipment	3-5		1,317,490			1,152,731
Transportation equipment	5		281,500			288,537

			54,777,765			49,533,443
Accumulated depreciation			(35,455,637	)		(33,104,217	)

		$	19,322,128		$	16,429,226

~~NOTES~~Depreciation TOexpense ~~CONSOLIDATED~~by ~~FINANCIAL~~asset ~~STATEMENTS~~category was as follows:

Note 6. Common Stock, Stock Options, and Treasury Stock. [Continued]


	2008		2007		2006
Land improvements	$	136,027	$	135,374	$	132,009
Buildings		290,796		326,567		309,695
Molds & plugs		1,501,315		1,392,333		1,214,869
Machinery & equipment		294,465		283,781		219,210
Furniture & fixtures		55,501		52,553		30,597
Transportation equipment		17,998		17,208		23,580
Computer equipment		110,400		105,991		90,900

Total	$	2,406,502	$	2,313,807	$	2,020,860

~~Stock~~All ~~Options:~~of ~~During 1999,~~ the ~~shareholders voted to adopt the 1999 Employee Stock Option Plan (the Plan)~~land, ~~which~~buildings ~~expires~~and ~~January~~improvements ~~11,~~are ~~2009.~~owned ~~Under~~by the ~~Plan, the board is empowered to grant options to purchase up to 120,000 shares of common stock to employees, officers, directors and consultants of the~~ Company. ~~Additionally, the Board will determine at the time of granting the vesting provisions~~ and ~~whether~~are ~~the~~held ~~options will qualify~~ as ~~Incentive~~collateral ~~Stock Options under~~on ~~Section~~notes ~~422~~payable ofand ~~the~~long ~~Internal~~term ~~Revenue~~debt ~~Code~~at (Section 422 provides certain tax advantages to the employee recipients). During the Company’s November 19, 2002 Annual Meeting the shareholders approved amendment of the 1999 Employee Stock Option Plan to increase the number of shares available for issuance under that plan from 120,000 to 175,000 shares. As of June 30, 2004, 95,000 options are available for grant under the plan subject to the approval of Brunswick Corporation’s approval of any option grants as a condition for the guarantee of the Bank of America loan (See Note 5)2008.

~~During~~Construction ~~2001,~~costs ~~the~~of ~~Company~~production ~~granted~~molds ~~options~~for tonew ~~purchase~~and ~~35,000~~existing ~~shares~~product oflines ~~common~~are capitalized ~~stock,~~and ondepreciated aover ~~non-qualified~~an ~~basis.~~estimated ~~The~~useful ~~options~~life ~~are~~of ~~exercisable~~eight ~~at $1~~years.34 ~~per~~Depreciation ~~share~~starts ~~and~~when ~~vest~~the ~~through~~production ~~December~~mold ~~31,~~is ~~2002.~~placed ~~The~~in ~~options~~service ~~expire December~~to ~~12,~~manufacture ~~2007~~the product. AsThe ofcosts ~~June~~include ~~30,~~the ~~2003~~direct materials, 25direct labor,~~000~~ ofand ~~the~~an ~~options~~overhead ~~have~~allocation based ~~been~~on ~~exercised~~a percentage of direct labor.

~~During~~In ~~2002,~~accordance ~~the~~with ~~Company~~SFAS ~~granted options to purchase 40~~No. 144,~~000~~ ~~shares~~“Accounting ~~of common stock~~ for ~~consulting services. The options have been valued at $53,403 and are being expensed ratably over~~ the ~~vesting~~Impairment ~~period.~~or AsDisposal of ~~June~~Long-Lived 30Assets,” ~~2004,~~ the Company ~~has~~periodically ~~recorded~~evaluates ~~deferred~~whether ~~compensation~~events ~~of $53,403 in consulting expense. The options are exercisable at $1.60 to $1.67 per share~~ and ~~vest~~circumstances ~~within~~have ~~two~~occurred ~~years~~that ~~from~~indicate the ~~date~~remaining ~~they~~estimated ~~were~~useful ~~granted. The options expire five years from vesting.~~ ~~During the year ended June 30, 2004, 20,000 of these options were exercised.~~

On29 June 21, 1995, the shareholders voted to adopt the 1995 stock option plan. The plan allowed up to 450,000 options to purchase the common stock to be granted by the Board of Directors to employees or directors of the Company. On August 4, 1995, the Board of Directors voted to grant the 450,000 stock options to Mr. Reginald M. Fountain, Jr. at $4.67 per share, exercisable for 10 years from the date granted, on a non-qualified basis. As of June 30, 2004, none of these options have been exercised.

~~Effective March 23,~~ ~~1995,~~lives ~~the Board~~ of ~~Directors~~its ~~authorized~~long-lived ~~the~~assets ~~issuance~~may ofwarrant ~~options~~revision toor ~~purchase~~that upthe toremaining ~~30,000~~balance ~~shares~~ of ~~common~~such ~~stock~~assets tomay ~~each~~not ofbe ~~the~~recoverable. ~~Company’s~~During ~~four~~2008, ~~outside~~2007 ~~directors~~and at2006, ~~$3.58~~the Company ~~per~~reviewed ~~share~~its ~~on a non~~long-~~qualified~~lived ~~basis,~~asset ~~exercisable~~balances for 10impairment ~~years.~~and ~~Through~~no ~~June 30,~~adjustments ~~2004,~~were ~~84,000~~recorded ofas ~~the~~a ~~options~~result ~~had~~of ~~been~~those ~~exercised and 30,000 options remain outstanding~~reviews.

33Note 5. Long-term Debt and Pledged Assets.

~~Table~~On September 19, 2005, the Company entered into a $16,500,000 term loan agreement (the “Loan”) with Regions Bank. The proceeds from the Loan were used to repay, and concurrently cancel, the long-term loan with Bank of ~~Contents~~America. Upon cancellation of the Bank of America loan, the Company expensed that portion of the deferred costs paid to acquire the loan which had not been amortized during the term of the loan. The amount of the deferred loan costs expensed in Fiscal 2006 is $229,801. The Loan with Regions Bank matures September 19, 2010 and is secured by accounts receivable, inventories, property, plant and equipment, death proceeds under certain life insurance policies, and common stock. Principal payments, beginning at approximately $55,000 and escalating over time, are due monthly, commencing September 30, 2005, with a final principal payment of $12,646,733 due September 19, 2010. Interest is payable monthly.

~~FOUNTAIN~~On ~~POWERBOAT~~November 16, ~~INDUSTRIES~~2007, ~~INC~~the Company restructured its long-term debt. ~~AND~~On ~~SUBSIDIARY~~that date the Company entered into an Amended & Restated Loan Agreement with Regions Bank consisting of 1) a $14,500,000 term loan (the “Term Loan”) and 2) a $2,000,000 revolving line of credit (the “Revolver”). This agreement amends and restates in its entirety the original $16,500,000 term loan the Company entered into with Regions Bank on September 19, 2005. The Amended & Restated Loan Agreement matures September 19, 2010 and is secured by accounts receivable, inventories, property, plant and equipment, death proceeds under certain life insurance policies, and common stock.

~~NOTES~~Principal TOpayments ~~CONSOLIDATED~~on ~~FINANCIAL~~the ~~STATEMENTS~~Term Loan continue on the same schedule as under the original loan agreement at approximately $64,000 per month at June 30, 2008, escalating over time with a final principal payment of $12,286,254 due September 19, 2010. Interest is payable monthly. The Term Loan includes an original principal amount of $2,125,000 that bears interest, at the Company’s option, under one of two available methods. The first available interest computation method provides for interest at the higher of the Prime Rate or the Federal Funds rate plus 1/2 percent. The second available interest computation method bears interest at the sum of (i) the one month LIBOR rate divided by 1.0 minus the Eurodollar Reserve Percentage, and (ii) 1.75 percent. The Company may select either of the two interest rate methodologies by providing written notification to Regions Bank. The balance of the Term Loan, $12,375,000, bears interest that has been set at a fixed annual rate of 6.45 percent through the use of an interest rate swap. The fixed annual rate of 6.45 percent is a blended rate that combines the 1.75 percent premium over one month LIBOR referenced above with a fixed interest rate of 4.70 percent paid by the Company to the counterparty under the terms of our interest rate swap agreement, described below.

~~Note~~Loans 6.under ~~Common~~the ~~Stock,~~Revolver ~~Stock~~must ~~Options~~be in a principal amount of at least $500,000 and ~~Treasury~~will ~~Stock~~accrue interest at a rate equal to the higher of i) Regions Bank’s prime rate plus one half of one percent per annum plus the applicable margin or ii) the Fed Funds Rate plus one half of one percent per annum plus the applicable margin. The applicable margin for loans under the revolver is one percent per annum. Principal repayment of any loans under the Revolver will be ~~[Continued]~~accomplished by releasing the receipts of the Company’s lockbox to Regions Bank until any loans under the Revolver, plus accrued interest, is repaid.

AThe ~~summary~~Company utilizes interest rate swap agreements to hedge exposure to fluctuations in market interest rates. Under United States GAAP, an interest rate swap agreement is considered a derivative financial instrument. Due to the nature of the ~~status~~derivative and the intended use by the Company, the derivative qualifies as a Cash Flow Hedge. As such, SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, requires that the value of the ~~options~~derivative ~~granted~~be ~~under~~“marked-to-market” periodically and any change in the market value of the swap be reflected in the financial statements of the Company’s. ~~1995~~The market value of the derivative is calculated as of the last day of the period and ~~1999~~any ~~stock~~change ~~option~~since ~~plans~~the end of the previous period is reflected in an adjustment to Stockholders’ Equity in the Consolidated Balance Sheet. The Company entered into an interest rate swap agreement (the “Swap”) with Regions Bank related to the original Regions Bank loan and ~~other~~maintains ~~agreements~~the atSwap ~~June~~as 30a hedge related to the Term Loan of the Amended & Restated Loan Agreement dated November 16, ~~2003~~2007. The Swap with Regions Banks has a notional amount of $12,375,000, ~~2002~~a term of five years and ~~2001~~a fixed annual rate of 4.70% due to Regions Bank. The Swap has a floating interest rate due to the Company which is based on LIBOR and is reset monthly. As of June 30, 2008 and ~~changes~~2007 ~~during~~the market value adjustment for the ~~periods~~Swap ~~then~~results ~~ended~~in an unrealized loss totaling approximately $350,286 and an unrealized gain totaling $209,809 respectively. SFAS No. 133 also requires periodic assessment of the effectiveness of any instrument designated as a hedge. If the assessment indicates the hedge is ~~presented~~less than highly effective in offsetting the ~~table~~gains ~~below:~~or losses incurred by the hedged transaction, the ineffective portion of the hedge must be reported currently in the Company’s Consolidated Statement of Operations. The results of the assessment as of June 30, 2008 indicate that the hedge is highly effective, and we have determined that the ineffective portion is immaterial.

	2004			2003			2002
	Shares	Weighted AverageExercise Price		Shares	Weighted AverageExercise Price		Shares	Weighted AverageExercise Price
Outstanding at beginning of period	610,000	$	3.96	686,000	$	3.85	551,000	$	4.40
Granted	—		—	—		—	135,000		1.42
Exercised	50,000		1.63	25,000		1.34	—		—
Forfeited	—		—	51,000		3.79	—		—
Canceled	—		—	—		—	—		—
Outstanding at end of period	560,000	$	4.16	610,000	$	3.96	686,000	$	3.85
Exercisable at end of period	546,667	$	4.23	576,000	$	4.11	576,000	$	4.29
Weighted average fair value of options granted	—		—	—		—	135,000	$	1.29

The ~~fair~~Amended & ~~value~~Restated Loan Agreement contains restrictive covenants setting forth minimum earnings before interest, taxes, depreciation and amortization (EBITDA) and maximum allowable capital expenditures. Other covenants include a number of ~~each~~other limitations, including restrictions on mergers or consolidations, disposal of assets, investments, ~~option~~incurrence ~~granted~~of isother ~~estimated~~indebtedness and payment of dividends. The Company believes that these restrictions will not have a material effect on the ~~date~~Company’s ~~granted~~ability ~~using~~to ~~the~~maintain ~~Black-Scholes~~and ~~option~~improve ~~pricing~~its ~~model~~facilities and compete with other companies in the boating ~~following~~industry. ~~weighted-average~~As ~~assumptions~~of ~~used~~June 30, ~~for~~2008 ~~grants~~the ~~during~~Company was not in compliance with the ~~year~~covenant ~~ended~~setting ~~June~~forth 30minimum ~~2002,~~EBITDA ~~and~~for ~~2001;~~the ~~risk-free~~three ~~interest~~months ~~rates~~ending ofJune 30, 42008.~~5%,~~ ~~and~~The ~~5.3%~~minimum EBITDA required for the three months is $1, ~~respectively~~603,894. ~~expected~~The ~~dividend~~actual EBITDA ~~yields~~reported ofby ~~zero~~the Company for ~~all~~that ~~periods~~period is $1,014,118. ~~expected~~Regions ~~lives~~Bank ofhas ~~6.25,~~temporarily ~~and~~waived ~~7.5~~the ~~years,~~covenant ~~respectively~~default for the three months ended June 30, 2008 and ~~expected~~restructured ~~volatility~~the ofminimum ~~94%~~EBITDA ~~and~~covenants ~~132%~~for Fiscal 2009 in an amendment to the Loan Agreement on September 24, ~~respectively~~2008.

AOn ~~summary~~July 12, of2006, the ~~status~~Company ofentered into an Agreement (the ~~options~~“Credit ~~outstanding~~Facility”), referenced in the consolidated balance sheet as notes payable, with Regions Bank that provides for a secured, non-revolving line of credit under which the Company’s ~~stock~~may ~~option~~obtain ~~plans~~up to an aggregate of $5 million in loans from the lender during the one-year term of the agreement. This agreement was terminated and ~~other~~replaced ~~agreements~~by atthe Floor Plan agreement described below. At June 30, ~~2004~~2007 isthere ~~presented~~was ~~below:~~one loan outstanding under the Credit Facility in the amount of $799,333 that was repaid in Fiscal 2008.

	Options Outstanding			Options Exercisable
Range of Exercise Prices	NumberOutstanding	Weighted AverageRemainingContractual Life	Weighted AverageExercise Price	NumberExercisable	Weighted AverageExercise Price
$1.34 to 1.60	80,000	4 years	1.55	66,667	1.58
$3.58	30,000	1 year	3.58	30,000	3.58
$4.67	450,000	1 year	4.67	450,000	4.67
	560,000			546,667

On September 28, 2007, the Company entered into a Dealer Floor Plan and Security Agreement (the “Floor Plan”) with Regions Bank (the “Lender”) which provides for a secured, revolving line of credit under which the Company may obtain up to an aggregate of $5 million in loans from the lender. Each loan constitutes a separate note and is to be secured by a new or used boat, acquired by Fountain Dealers’ Factory Superstore, Inc. with the proceeds of the loan, with the intent to sell the boat to a retail customer. Upon executing the retail sale, the entire loan amount is to be immediately repaid to the Lender.

~~Treasury Stock:~~ The Company ~~holds~~must ~~15,000~~pay ~~shares~~interest monthly on the entire unpaid principal balance of ~~its~~the ~~common~~amounts ~~stock.~~borrowed under ~~This~~all ~~common~~outstanding ~~stock~~notes. Interest is ~~accounted~~computed ~~for~~at the Lender’s Prime Rate + 1 percent, as ~~treasury~~determined ~~stock~~on atthe ~~its~~date ~~acquisition~~of ~~cost~~each note. Each loan under the Floor Plan must be repaid in full within 9 months of ~~$110~~the date of the note. At June 30,~~748~~ 2008, (the outstanding amount of all loans was $73,075,606.38 ~~per~~The ~~share)~~Floor Plan contains certain restrictive covenants, applicable to the performance of the Fountain Dealers Factory Superstore, Inc. subsidiary alone, setting forth minimum EBITDA and minimum Debt Service Coverage Ratio allowable. The Company believes that these restrictions will not have a material effect on the Company’s ability to compete effectively in the ~~accompanying~~boating ~~financial~~industry. ~~statements~~At June 30, 2008, the Company was in compliance with the Floor Plan covenants.

34On May 28, 2008 the Company borrowed $4 million from the Baja Marine Corporation (“Baja”) to finance the acquisition of certain assets from Baja. This indebtedness is evidenced by a promissory note (the “ Baja Note”) issued to Baja Marine Corporation pursuant to the Asset Purchase Agreement and in connection with the Engine Supply Agreement between the Company and the Brunswick Corporation. The Baja Note is guaranteed by Fountain Powerboat Industries, Inc. and is secured by the assets purchased from Baja and certain replacement assets Baja By Fountain, Inc. acquires or develops in the future, if the assets are used solely to manufacture and sell boats under the Baja name. The Baja Note bears 7% annual interest. No principal or interest is due under the Note until June 30, 2020. At that time, the Note will be cancelled without payment by the Company, if the Company has not defaulted on its obligations to the Brunswick Corporation. In addition to normal cross default provisions common in promissory notes, breach by the Company of either of the two Engine Supply Agreements described in Item 1.01 of this Report would cause all principal and interest under the Note to become due.

~~Table~~At June 30, 2008, the Company had outstanding loans totaling $2,900,000 from the Cash Surrender Value of ~~Contents~~key man life insurance policies it owns on the life of founder, Chairman and CEO Reginald M. Fountain, Jr. This amount consists of ten individual loans, against each of six policies, taken between September 2006 and December 2007. Each loan accrues interest at a fixed rate. The interest rates are specific to each individual policy and range from 5.77 percent per annum to 8.00 percent per annum. Interest accrues each month and is due annually on the anniversary date of the loan. Failure to pay interest when due results in accrued interest being added to the outstanding principal balance. Repayment of principal and interest is not required, however, failure to do so results in a decrease in the death benefit and, under certain conditions, may result in termination of policies.

~~FOUNTAIN~~31 ~~POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY~~

~~NOTES~~Following TOis ~~CONSOLIDATED~~a ~~FINANCIAL~~summary ~~STATEMENTS~~of long-term debt at June 30, 2008:

Note 7. Income Taxes.


	2008			2007
Regions Bank term loan (the “Loan”)	$	14,338,686		$	15,228,697
Note Payable to the Brunswick Corporation related to the acquisition of certain assets (the “Baja assets acquisition)		4,000,000			—
Borrowings against the Cash Surrender Value of key man life insurance policies owned by the Company.		2,900,000			1,500,000

Total long term debt		21,238,686			16,728,697
Less: Current maturities included in current liabilities:		(809,738	)		(759,290	)

	$	20,428,948		$	15,969,407

The ~~Company~~estimated ~~has~~aggregate ~~provided~~maturities ~~for~~required ~~deferred~~on ~~income~~the ~~taxes~~long-term indebt ~~accordance with SFAS No. 109, Accounting~~ for ~~Income~~each ~~Taxes, whereby~~of ~~deferred income taxes are determined based upon~~ the ~~enacted income tax rates for the~~ years inending June 30 ~~which these taxes~~ are ~~estimated~~as tofollows: 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.

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


2009		809,738
2010		863,538
2011		12,665,411
No contractual maturity		6,900,000

	$	21,238,686

	Year Ended June 30,
	2004			2003			2002
Current income tax expense:
Federal	$	706		$	—		$	(717,983	)
State		—			—			—
Net current tax (benefit)	$	706		$	—		$	(717,983	)
Deferred tax expense (benefit) resulted from:
Excess of tax over financial accounting depreciation	$	(52,079	)	$	245,079		$	(14,929	)
Donations		—			(1,227	)		(2,374	)
Warranty reserves		74,100			(11,700	)		(109,200	)
Reserve for obsolete inventory		—			100,383			(61,383	)
Accrued vacation		73,685			(14,563	)		5,945
Dealer incentive reserves		—			97,944			230,631
Reserve for boat repurchases		48,750			—			—
Bad debt reserves		(21,450	)		—			—
Accrued dealer incentive interest		305			32,454			9,046
Accrued executive compensation		1,975			(45,634	)		6,352
Accrued dealer service incentives		38,122			155,232			180,492
Inventory adjustment-Sec.263A		(21,793	)		7,296			(32,048	)
Health insurance reserve		(8,580	)		4,680			17,238
Decrease(increase) in NOL carryforwards		343,911			(143,576	)		(2,506,922	)
Alternative minimum tax credits		77,525			—			218,232
Investment tax credits		—			—			—
Valuations allowance		(554,471	)		(257,067	)		2,599,979
Net deferred tax expense (benefit)	$	—		$	169,301		$	541,059

Note 6. Stock Options.

35The Company accounts for stock options in accordance with SFAS No. 123(R) “Accounting for Stock Based Compensation” which requires recognition of the cost of employee services received in exchange for an award of equity instruments in the financial statements over the period the employee is required to perform the services in exchange for the award (presumptively the vesting period). SFAS No. 123(R) also requires measurement of the cost of employee services received in exchange for an award based on the grant-date fair value of the award. SFAS No. 123(R) also amends SFAS No. 95 “Statement of Cash Flows” to require that excess tax benefits be reported as financing cash inflows, rather than as a reduction of taxes paid, which is included within operating cash flows.

~~Table~~The Company adopted SFAS No. 123(R) using the modified prospective application as permitted under SFAS No. 123(R). Accordingly, prior period amounts have not been restated. Under this application, the Company is required to record compensation expense for all awards granted after July 1, 2005 and for the unvested portion of ~~Contents~~previously granted awards that remain outstanding at the date of adoption.

~~FOUNTAIN~~The ~~POWERBOAT~~Company ~~INDUSTRIES~~has two stock option plans in effect at June 30, ~~INC~~2008. ~~AND~~All ~~SUBSIDIARY~~options outstanding as of June 30, 2007 were fully vested and no new options were issued during the year ended June 30, 2008, therefore no option related compensation cost has been charged against income for the years ended June 30, 2008 and 2007.

~~NOTES~~On TOJune 21, ~~CONSOLIDATED~~1995, ~~FINANCIAL~~the ~~STATEMENTS~~shareholders voted to adopt the 1995 stock option plan. The plan provided 450,000 options to purchase the common stock to be granted by the Board of Directors to employees or directors of the Company. On August 4, 1995, the Board of Directors voted to grant the 450,000 stock options to Mr. Reginald M. Fountain, Jr. at $4.67 per share, exercisable for 10 years from the date granted, on a non-qualified basis. On November 9, 2004, the shareholders of Fountain Powerboats, Inc. approved an amendment to this plan to permit the Board of Directors to extend the term of Mr. Fountain’s options to August 4, 2008. As of June 30, 2008, none of these options have been exercised. These options have subsequently all expired.

~~Note~~During 71999, the shareholders voted to adopt the 1999 Employee Stock Option Plan (the Plan), which expires January 11, 2009. ~~Income~~Under the ~~Taxes~~Plan, the board is empowered to grant options to purchase up to 120,000 shares of common stock to employees, officers, directors and consultants of the Company. ~~[Continued]~~Additionally, the Board will determine at the time of granting the vesting provisions and whether the options will qualify as Incentive Stock Options under Section 422 of the Internal Revenue Code (Section 422 provides certain tax advantages to the employee recipients). During the Company’s November 19, 2002 Annual Meeting the shareholders approved amendment of the 1999 Employee Stock Option Plan to increase the number of shares available for issuance under that plan from 120,000 to 175,000 shares. As of June 30, 2008, 128,333 options are available for grant under the plan.

~~The~~32 ~~reconciliation of income tax from continuing operations computed at the U.S. federal statutory tax rate to the Company’s effective rate is as follows:~~

	Year Ended June 30,
	2004		2003		2002
Computed tax at the expected federal statutory rate	34.00	%	34.00	%	34.00	%
State income taxes, net of federal benefit	5.00		5.00		5.00
Valuations allowance	(42.59	)	(24.50	)	(36.07	)
Compensation from stock options	—		(.69	)	—
(Increase) decrease in NOL carryforward	—		—		—
Officer’s life insurance	.32		.20		—
Net effect of alternative minimum taxes	6.00		—		(.07	)
Other	(2.68	)	2.13		(.41	)
Effective income tax rates	.05	%	16.14	%	2.45	%

The fair market value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. No options were granted during the years ended June 30, 2008, 2007 and 2006.

36The risk free rate is based upon a U.S. Treasury instrument with a life that is similar to the expected life of the option grant. Expected volatility is based upon the historical volatility of the price of the Company’s common stock for a period consistent with the anticipated life of the option granted. The expected term of the options is based upon the average life of previously issued stock options. The expected dividend yield is based upon current yield on date of grant. No post-vesting restrictions exist for these options.

~~Table~~A summary of ~~Contents~~the status of the options granted under the Company’s 1995 and 1999 stock option plans and other agreements at June 30, 2008, 2007 and 2006, and changes during the periods then ended is presented in the table below:

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY


	2008			2007			2006
	Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price		Shares	Weighted Average Exercise Price
Outstanding at beginning of period	460,000	$	4.59	470,000	$	4.36	500,000	$	4.36
Exercised	—		—	10,000	$	1.60	—		—
Forfeited	10,000	$	1.344	—		—	30,000	$	1.60

Outstanding at end of period	450,000	$	4.67	460,000	$	4.59	470,000	$	4.53

Exercisable at end of period	450,000	$	4.67	460,000	$	4.59	470,000	$	4.53

~~NOTES~~A TOsummary ~~CONSOLIDATED~~of ~~FINANCIAL~~the ~~STATEMENTS~~status of the options outstanding under the Company’s stock option plans and other agreements at June 30, 2008 is presented below:

Note 7. Income Taxes. [Continued]


		Options Outstanding			Options Exercisable
Range of Exercise Prices		Number Outstanding	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price	Number Exercisable	Weighted Average Exercise Price
$	4.67	450,000	.10 years	4.67	450,000	4.67

~~Significant~~The ~~components~~Company ofhad no options exercised during the ~~Company’s~~year ~~deferred~~ended ~~tax~~June 30, ~~assets~~2008. ~~and~~Of the outstanding ~~liabilities~~options ~~are~~on asJune 30, ~~follows:~~2008, none had intrinsic value. Of the options outstanding on June 30, 2007, only 10,000 had intrinsic value, totaling $15,400

	Year Ended June 30,
	2004			2003
Deferred tax assets:
Warranty reserve	$	276,900		$	351,000
Obsolete inventory reserve		19,500			19,500
Accrued vacations		—			73,685
Allowance for boat repurchases		29,250			78,000
Dealer incentive reserves		—			—
Bad debt reserve		32,308			10,858
Accrued Dealer incentive interest		25,072			25,378
Inventory adjustments - Sec. 253A		132,013			110,220
State NOL carryforwards		442,763			486,854
Federal NOL carryforwards		1,956,881			2,256,701
Alternative minimum tax credits		41,524			119,049
Accrued executive compensation		53,410			55,384
Donations carryforwards		4,608			4,608
Accrued dealer incentives		—			38,122
Health insurance reserve		49,140			40,560
Investment tax credits		86,294			86,294
Gross deferred assets	$	3,149,663		$	3,756,213
Less: valuation allowance for deferred tax assets		(1,788,441	)		(2,342,912	)
Net deferred tax assets	$	1,361,222		$	1,413,301
Deferred tax liabilities:
Excess of financial accounting depreciation over tax	$	(1,361,222	)	$	(1,413,301	)
Net deferred tax assets (liabilities)	$	—		$	—

Note 7. Income Taxes.

Net deferred tax assets (liabilities) are presented as follows:
	Year Ended June 30,
	2004			2003
Current deferred tax assets	$	268,903		$	303,823
Deferred tax liabilities		(268,903	)		(303,823	)
Net deferred tax assets (liabilities)	$	—		$	—

The Company has provided for deferred income taxes in accordance with SFAS 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.

37The significant components of the provision for income taxes for the years ended June 30, 2008, 2007 and 2006 are as follows:


	2008			2007			2006
Current tax provision
Federal	$	—		$	—		$	—
State		—			—			—

Total current tax provision		—			—			—

Deferred tax provision
Federal		(643,749	)		(1,158,091	)		383,221
State		(146,840	)		(259,031	)		77,037

Total deferred tax provision		(790,589	)		(1,417,122	)		460,258

Provision for income tax expense before adjustment to deferred tax asset valuation allowance		(790,589	)		(1,417,122	)		460,258
Increase (decrease) in valuation allowance		790,589			2,700,850			(1,744,004	)

Net provision (benefit) for income taxes	$	—		$	1,283,728		$	(1,283,746	)

~~FOUNTAIN~~33 ~~POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY~~

~~NOTES~~The TOdifference ~~CONSOLIDATED~~between ~~FINANCIAL~~the ~~STATEMENTS~~provision (benefit) for income taxes and the amounts computed by applying the statutory federal income tax rate of 34% to income before income taxes is summarized below:

Note 7. Income Taxes. [Continued]


	2008			2007			2006
Expected income tax expense (benefit)	$	(747,942	)	$	(1,279,269	)	$	381,197
Increase (decrease) resulting from:
State income taxes, net of federal tax effect		(100,180	)		(171,347	)		51,058
Nondeductible expenses		57,533			37,215			28,004
Adjustment to deferred tax asset valuation allowance		790,589			2,700,850			(1,744,004	)
Other permanent differences		—			(3,721	)		—

Provision (benefit) for income taxes	$	—		$	1,283,728		$	(1,283,746	)

~~The~~Deferred ~~Company~~income ~~has~~taxes anreflect ~~unused~~the ~~federal~~net ~~operating~~tax ~~loss~~effects ~~carryforwards~~of attemporary ~~June~~differences ~~30, 2004~~between ~~and~~the ~~2003~~carrying amounts of ~~approximately $5,755,553~~ assets and ~~$6,637,357,~~liabilities ~~respectively,~~for ~~which~~financial ~~expires~~reporting inpurposes ~~various~~and ~~years~~the ~~through~~amounts ~~2023.~~used ~~The~~for ~~Company~~income ~~has~~tax ~~unused~~purposes. ~~state~~Significant ~~operating~~components ~~loss~~of ~~carryforwards~~deferred taxes at June 30, ~~2004~~2008 and ~~2003~~2007 ofare ~~approximately~~as ~~$8,855,263~~follows: ~~and $9,737,087, respectively, which expires in various years through 2023.~~

Note 8. Commitments and Contingencies.


	2008			2007
Deferred tax assets relating to:
Inventory capitalization difference	$	223,030		$	191,136
Bad debt allowance		8,437			6,843
Reserve for obsolete inventory		181,437			20,999
Reserve for buy backs		30,372			24,719
Warranty reserve		205,069			236,576
Accrued dealer incentives		96,842			234,063
Reserve for health insurance		58,982			55,898
Accrued executive compensation		—			—
Net operating loss carryforward		3,683,336			3,130,059
Charitable contributions carryforward		2,128			2,713
Alternative minimum tax credit carryforward		41,524			41,524
Investment tax credits		86,294			86,294

Total deferred tax assets		4,617,450			4,030,826
Less valuation allowance		3,491,439			2,700,850

Deferred tax assets net of valuation allowance		1,126,011			1,329,976

Deferred tax liabilities relating to:
Property and equipment		(1,126,011	)		(1,329,976	)
Unrealized gain on swap		—			(80,896	)

Total deferred tax liability		(1,126,011	)		(1,410,872	)

Net recorded deferred tax asset (liability)	$	—		$	(80,896	)

~~Employment Agreement:~~Deferred ~~The~~income ~~Company~~taxes ~~entered~~are ~~into~~presented ~~a one-year employment agreement~~ in ~~1989~~the ~~with~~accompanying ~~its~~consolidated ~~Chairman,~~balance ~~Mr.~~sheets ~~Reginald~~as M.follows ~~Fountain~~at June 30, ~~Jr.~~2008 ~~The~~and ~~agreement~~2007: ~~provides for automatic one-year renewals at the end of each year subject to Mr. Fountain’s continued employment.~~

Dealer Interest: The Company regularly pays a portion of dealers’ interest charges for floor plan financing. These interest charges amounted to $756,336 for Fiscal 2004, $816,152 for Fiscal 2003 and $596,111 for Fiscal 2002. They are included in the accompanying consolidated statements of operations as part of net sales. At June 30, 2004 and 2003 the estimated unpaid dealer incentive interest included in accrued dealer incentives amounted to $62,894 and $92,262, respectively.


	2008		2007
Current deferred tax asset.	$	—	$	—
Noncurrent deferred tax liability.		—		(80,896	)

	$	—	$	(80,896	)

~~Product~~34 Liability and Other Litigation: There were various warranty lawsuits brought against the Company at June 30, 2004. The Company intends to vigorously defend its interests in these matters. The Company carries sufficient product liability insurance to cover attorney’s fees and any losses, which may occur from these lawsuits over and above the insurance deductibles. The Company is also involved from time to time in other litigation through the normal course of its business. Management believes there are no such undisclosed claims which would have a material effect on the financial position of the Company.

~~Manufacturer~~As ~~Repurchase~~of ~~Agreements:~~June 30, ~~The~~2008 the Company ~~makes~~had ~~available~~net ~~through~~deferred ~~third-party~~tax ~~finance~~assets ~~companies floor plan financing for many~~ of ~~its~~$3,491,439 ~~dealers.~~that ~~Sales~~were tofully ~~participating~~offset ~~dealers~~by a ~~are~~valuation ~~approved~~allowance bybecause, ~~the~~as ~~respective~~of ~~finance companies.~~that Ifdate, ait ~~participating~~was ~~dealer~~Management’s ~~does~~conclusion ~~not~~that ~~satisfy~~there ~~its~~continued ~~obligations~~to ~~under~~be ~~the~~doubt ~~floor~~as ~~plan~~to ~~financing~~whether ~~agreement~~those indeferred ~~effect~~tax ~~with~~assets ~~its~~were ~~commercial~~more ~~lender(s)~~likely ~~and~~than ~~boats~~not ~~are~~to ~~subsequently~~be ~~repossessed~~realized byin the ~~lender(s),~~future. ~~then~~The ~~under~~deferred ~~certain~~tax ~~circumstances~~assets ~~the~~principally ~~Company~~related ~~may~~to bethe ~~required~~potential tofuture ~~repurchase~~benefits ~~the~~of ~~repossessed~~tax ~~boats~~net ifoperating itloss ~~has~~carryforwards, ~~executed~~most aof ~~repurchase~~which ~~agreement~~had ~~with~~been generated during the ~~lender(s).~~years Atended June 30, ~~2004~~2002 2007 and ~~2003,~~2008 when the Company ~~had~~generated asubstantial ~~contingent~~net ~~liability~~losses. toDuring ~~repurchase boats in~~ the ~~event~~year ~~of dealer defaults and if~~ended ~~repossessed~~June 30, by2007 the ~~commercial~~Company ~~lenders~~performed ~~amounting~~an ~~to approximately $18~~evaluation,~~177,586~~ ~~and~~in ~~$16,378,985,~~accordance ~~respectively.~~with ~~The~~Statement ~~Company~~of ~~has~~Financial ~~reserved~~Accounting ~~for~~Standard ~~the~~No. 109, ~~future~~Accounting ~~losses~~for itIncome ~~might~~Taxes, ~~incur~~of ~~upon~~ the ~~repossession~~likelihood ~~and~~of ~~repurchase~~realization of ~~boats~~its ~~from~~deferred ~~commercial~~tax ~~lenders~~assets. The evaluation ~~amount~~resulted ofin the ~~reserve~~application isof ~~based~~a ~~upon~~valuation ~~probable future events~~allowance, which ~~can~~is bestill ~~reasonably~~in ~~estimated.~~effect Atat June 30, ~~2004 and 2003, the allowance for boat repurchases was $75,000 and $200,000, respectively~~2008.

~~401~~The ~~(k)~~Company ~~Payroll~~has ~~Savings~~available ~~Plan: During Fiscal 1991, the Company~~federal ~~initiated~~and astate ~~401(k)~~operating ~~Payroll~~loss ~~Savings~~carry ~~Plan~~forwards ~~(the 401(k) Plan) for all employees. Eligible employees may elect to defer up to twenty-five percent of their salaries. The amounts deferred by the employees are fully vested~~ at ~~all times. The Company currently matches fifty percent of the employee’s deferred salary amounts limited to a maximum of six percent of their salaried amounts~~June 30, or2008 ~~effectively a maximum~~ of ~~three~~approximately ~~percent of their salaries. Amounts contributed by the Company vest at a rate of twenty percent per year of service. Mr. Fountain~~$9, ~~by his own election~~616,438 ~~does~~and ~~not participate in the 401(k) Plan. There are no post-retirement benefit plans in effect. The Company’s employer contribution to the 401(k) Plan was~~ $869,~~825 for Fiscal year 2004~~085,379, ~~$93~~respectively,~~650~~ ~~for~~which ~~Fiscal~~expire ~~2003~~at ~~and~~various ~~$86,958~~dates ~~for~~through ~~Fiscal 2002~~2028.

38Note 8. Commitments and Contingencies.

~~Table~~Employment Agreement: The Company entered into a one-year employment agreement in 1989 with it’s Chairman, Reginald M. Fountain, Jr. The agreement provides for automatic one-year renewals at the end of ~~Contents~~each year subject to Mr. Fountain’s continued employment.

~~FOUNTAIN~~Dealer ~~POWERBOAT~~Interest: ~~INDUSTRIES~~The Company regularly pays a portion of dealers’ interest charges for floor plan financing. These interest charges amounted to $1,712,347 ~~INC~~for Fiscal 2008, $1,534,302 for Fiscal 2007 and $1,462,821 for Fiscal 2006. ~~AND~~They ~~SUBSIDIARY~~are included in the accompanying consolidated statements of operations as part of net sales. At June 30, 2008, 2007 and 2006 the estimated dealer incentive interest included in accrued dealer incentives amounted to $246,898, $202,791 and $257,050, respectively.

~~NOTES~~Product TOLiability ~~CONSOLIDATED~~and ~~FINANCIAL~~Other ~~STATEMENTS~~Litigation: There were various warranty lawsuits against the Company extant at June 30, 2008. The Company intends to vigorously defend its interests in these matters. The Company carries sufficient product liability insurance to cover attorney’s fees and any losses, which may occur from these lawsuits over and above the insurance deductibles. The Company is also involved from time to time in other litigation through the normal course of its business. Management believes there are no such undisclosed claims which would have a material effect on the financial position of the Company.

~~Note~~Manufacturer 8Repurchase Agreements: The Company makes available through third-party finance companies floor plan financing for many of its dealers. ~~Commitments~~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 ~~Contingencies~~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). ~~[Continued]~~At June 30, 2008 and 2007, the Company had a contingent liability to repurchase boats in the event of dealer defaults and if repossessed by the commercial lenders amounting to $22,869,162 and $24,375,708, respectively. The Company has reserved for the future losses it might incur upon the repossession and repurchase of boats from commercial lenders. The amount of the reserve is based upon probable future events, which can be reasonably estimated. At June 30, 2008 and 2007, the allowance for boat repurchases was $78,787 and $64,124, respectively.

~~Environmental:~~401 ~~The~~(k) ~~Company~~Payroll ~~was~~Savings ~~notified~~Plan: inDuring ~~1994 by~~Fiscal 1991, the ~~United~~Company ~~States~~initiated ~~Environmental~~a ~~Protection Agency~~ 401(~~“EPA”~~k) ~~that~~Payroll itSavings ~~has~~Plan ~~been~~(the ~~identified~~401(k) asPlan) afor ~~potential~~all ~~responsible~~employees. Eligible ~~party~~employees ~~(“PRP”)~~may ~~and~~elect ~~may~~to ~~incur,~~defer orup ~~may~~to ~~have~~twenty-five ~~incurred,~~percent ~~liability~~of ~~for~~their ~~the~~salaries. ~~remediation~~The ofamounts ~~contamination~~deferred atby the ~~Seaboard waste~~employees ~~disposal~~are ~~site,~~fully ~~located~~vested inat ~~High~~all ~~Point,~~times. ~~North~~The ~~Carolina~~Company ~~(also~~currently ~~referred~~matches tofifty aspercent of the ~~Jamestown,~~employee’s ~~North~~deferred ~~Carolina~~salary ~~site)~~amounts limited ~~resulting~~to ~~from~~a ~~the~~maximum ~~disposal~~ of ~~hazardous~~six ~~substances~~percent atof ~~that~~their ~~site~~salaried byamounts, or effectively a ~~third~~maximum ~~party~~of ~~contractor~~three percent of ~~the~~their ~~Company~~salaries. ~~The~~Amounts ~~Company’s~~contributed ~~share of~~by the ~~approximately~~Company ~~14.3~~vest ~~million~~at ~~gallons~~a rate of ~~waste~~twenty ispercent ~~19,245~~per ~~gallons,~~year ~~a volumetric share~~ of service.~~1387%~~ Mr. Fountain, ~~The~~by ~~Company’s~~his ~~potential~~own election, ~~liability~~does atnot ~~this~~participate ~~site~~in ~~is estimated by~~ the ~~Group~~401(k) ~~administrator~~Plan. toThere beare inno ~~the~~post-retirement ~~range~~benefit ofplans ~~$40,000~~in ~~to $60,000~~effect. The Company’s ~~is likely~~employer contribution to bethe ~~eligible~~401(k) ~~for~~Plan awas de$79,434 ~~Minimus~~for ~~Settlement~~Fiscal ~~Agreement~~year 2008, ~~which~~$125,429 isfor ~~expected~~Fiscal to2007 beand ~~finalized~~$131,626 infor ~~2005~~Fiscal 2006.

~~Note~~Environmental: 9The Company was notified in 1994 by the United States Environmental Protection Agency (“EPA”) that it has been identified as a potential responsible party (“PRP”) and may incur, or may have incurred, liability for the remediation of contamination at the Seaboard waste disposal site, located in High Point, North Carolina (also referred to as the Jamestown, North Carolina site) resulting from the disposal of hazardous substances at that site by a third party contractor of the Company. ~~Export~~The ~~Sales~~Company’s share of the approximately 14.3 million gallons of waste is 19,245 gallons, a volumetric share of .1387%. The Company’s liability at this site was defined by the Group administrator to be $28,105. The Company has entered into a de Minimus Settlement Agreement, which is expected to be executed in 2009. The entire $28,105 liability has been accrued and is reflected in the consolidated balance sheet.

~~The~~35 ~~Company had export sales to customers in the following geographic areas:~~

	Year Ended June 30,
	2004		2003		2002
Canada, Central and South America	$	1,441,308	$	929,481	$	1,500,145
Middle East, and Europe		819,724		595,777		—
Asia		—		235,549		—
	$	2,261,032	$	1,760,807	$	1,500,145

Note 9. Export Sales.

~~Note~~The ~~10.~~Company ~~Transactions~~had ~~with~~export ~~Related Parties.~~sales to customers in the following geographic areas:

The Company expensed the following amounts for apartment rentals owned or controlled by Reginald M. Fountain, Jr., the Company’s Chairman, President, and Chief Executive Officer: for Fiscal 2004, $18,592; in Fiscal 2003, $11,489; and in Fiscal 2002, $22,013. At June 30, 2004, the Company owed Reginald M. Fountain, Jr. $0 for these rentals.


	Year Ended June 30,
	2008		2007		2006
Canada, Central and South America	$	4,176,865	$	3,689,071	$	1,849,529
Europe		5,310,545		4,059,120		2,722,920
Middle East		1,378,907		455,687		2,753,281
Africa		—		—		965,910
Asia		189,162		300,691		—
Australia		235,494		314,418		—

	$	11,290,973	$	8,818,987	$	8,291,640

~~The Company~~Note ~~paid $259,189 during Fiscal 2004 to an entity controlled by Reginald M~~10. ~~Fountain,~~Transactions ~~Jr.~~with ~~for~~Related ~~aircraft services and rentals~~Parties. ~~At June 30, 2004 the Company owed $21,000 in unpaid services to this entity.~~

~~For~~The Company expensed the ~~year~~following ~~ended~~amounts ~~June~~for 30apartment rentals owned or controlled by Reginald M. Fountain, ~~2004~~Jr., the Company’s ~~paid~~Chairman anand ~~entity~~Chief Executive ~~controlled~~Officer: byin ~~a director~~Fiscal 2008, $204,~~500~~985; ~~for~~in ~~consulting~~Fiscal ~~services~~2007, $3,576; and in Fiscal 2006, $25,435.

The Company ~~paid $15,029,~~expensed ~~$58,000,~~the ~~and~~following ~~$41,361~~ amounts for ~~the~~aircraft ~~year~~services ~~ended June 30, 2004, 2003~~ and ~~2002~~rentals ~~for~~to ~~advertising and public relations services from~~ an entity ~~owned~~controlled by aReginald ~~director~~M. ofFountain, ~~the Company~~Jr.: Atin ~~June~~Fiscal 302008, ~~2004~~$312,330; ~~the~~in ~~Company~~Fiscal ~~had~~2007, no$297,785; ~~payable~~and ~~due~~in toFiscal ~~the~~2006, ~~entity for these services~~$255,339.

A Director of the Company ispurchased ana ~~owner~~single ofboat ain ~~marine dealership~~Fiscal 2008 for $270,000, which ~~accounted~~was ~~for~~at ~~10.2%~~standard ofwholesale price for the ~~Company’s~~boat ~~sales~~model inand ~~Fiscal~~optional ~~2004~~features.

39Note 11. Concentration of Credit Risk.

~~Table~~Concentration of credit risk arises due to the Company operating in the marine industry, particularly in the United States. In Fiscal 2008, one dealer accounted for 12.5 percent of ~~Contents~~sales, one dealer accounted for 8.5 percent of sales, one dealer accounted for 6.9 percent of sales, one dealer accounted for 5.1 percent of sales and one dealer accounted for 5% of sales. In Fiscal 2007 one dealer accounted for 13.6 percent of sales, one accounted for 9 percent of sales and four each accounted for 5.0 to 5.5 percent of sales. In Fiscal 2006 one dealer accounted for 10.9 percent of sales, one accounted for 8.5 percent of sales and four each accounted for 5.8 to 6.3 percent of sales.

~~FOUNTAIN~~Note ~~POWERBOAT~~12. ~~INDUSTRIES,~~Earnings(Loss) per ~~INC~~Share. ~~AND SUBSIDIARY~~

~~NOTES~~Basic TOearnings(loss) ~~CONSOLIDATED~~per ~~FINANCIAL~~share ~~STATEMENTS~~represent income available to common shareholders divided by the weighted- average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate to outstanding stock options and is determined using the treasury stock method.

Note 11. Concentration of Credit Risk.


	2008	2007	2006
Weighted average number of common shares outstanding used in basic earnings per share	4,587,193	4,821,987	4,819,275
Effect of dilutive stock options	—	—	84,674

Weighted number of common shares and potential dilutive common shares outstanding used in dilutive earnings per share	4,587,193	4,821,987	4,903,949

~~Concentration~~For ~~of credit risk arises due to~~ the ~~Company~~years ~~operating~~ended ~~in the marine industry~~June 30, ~~particularly~~2008 inand ~~the~~2007, ~~United~~there ~~States.~~were ~~In Fiscal 2004~~450,000 ~~one~~options ~~dealer~~that ~~accounted~~were ~~for~~antidilutive due ~~10.5%~~to ofthe ~~sales,~~net ~~one~~loss ~~for~~generated ~~10.2%~~by ofthe ~~sales, and two dealers for 5~~Company.0% ~~individually.~~These Inantidilutive ~~Fiscal~~options ~~2003,~~have ~~one~~been ~~dealer~~omitted ~~accounted~~from ~~for~~the ~~10.3%~~calculation of ~~sales,~~diluted ~~one~~earnings ~~for~~per ~~8.0%~~share ~~of sales, and one dealer~~ for 6those years.~~7%.~~ For ~~Fiscal~~the ~~2002~~year ~~one dealer comprised 11.8% of sales~~June 30, ~~one dealer 11.7% of sales~~2006, ~~and~~there ~~two~~were ~~dealers~~no ~~for~~antidilutive 8%options ~~individually~~outstanding.

~~Note~~36 ~~12. - Earnings Per Share.~~

~~The~~Note ~~following~~13 ~~data~~– ~~show~~Sales ~~the~~by ~~amounts~~Product ~~used~~Line. ~~in computing earnings per share and the effect on income and the weighted average number of shares of potential dilutive common stock for the years ended June 30, 2004, 2003 and 2002:~~

	2004		2003		2002
Income (loss) from continuing operations available to common stockholders	$	1,301,142	$	879,996	$	(7,031,593	)
Weighted average number of common shares outstanding used in basic earnings (loss) per share		4,761,460		4,744,457		4,732,608
Effect of dilutive stock options		63,719		74,349		—
Weighted number of common shares and potential dilutive common shares outstanding used in dilutive earnings (loss) per share		4,825,179		4,818,806		4,732,608

The Company’s net sales resulted from the following product lines for the years ended June 30, 2008, 2007 and 2006:

The Company had at June 30, 2004 outstanding options to purchase 450,000 shares of common stock at $4.67 per share that were not included in the computation of gain(loss) per share because their effect was anti-dilutive.


	2008		2007		2006
Sports boats	$	25,086,667	$	28,055,275	$	31,799,204
Express cruisers		11,457,756		9,399,064		15,760,240
Sport fishing boats		28,169,615		29,629,864		29,194,785
Other		3,488,582		1,745,784		2,471,995

Net sales	$	68,202,620	$	68,829,987	$	79,226,224

Note 1314 – ~~Segment Reporting~~Leases.

The Company’s ~~net~~leases, ~~sales~~under ~~resulted~~separate ~~from~~non-cancelable ~~the~~operating ~~following~~lease ~~product~~agreements, ~~lines~~certain ~~for the~~machinery ~~years~~and ~~ended~~equipment. ~~June~~These ~~30,~~leases ~~2004,~~expire ~~2003~~at ~~and~~various ~~2002~~dates through October 2013. Future rentals under these leases are as follows:

	2004		2003		2002
2009		144,736
Sports boats	$	33,054,460	$	26,612,517	$	21,191,672
2010		115,581
Wide beam cruiser		9,508,545		9,923,547		5,387,449
2011		91,762
Fish boats		4,770,596		5,302,763		3,181,585
2012		21,914
Wide beam fish boats		11,034,642		9,291,260		5,404,056
2013		1,648
Non-boat sales including (Service, Parts, Trucking, Sportswear)		1,473,517		1,426,997		1,785,819
	$	375,641
Net sales	$	59,841,760	$	52,557,084	$	36,950,581

40Rental expense amounted to $168,184, $106,115 and $39,767 during the years ended June 30, 2008, 2007 and 2006, respectively.

~~Table~~Note of15 ~~Contents~~– Ability to Continue as a Going Concern

~~FOUNTAIN~~While ~~POWERBOAT~~significant ~~INDUSTRIES~~losses, ~~INC~~covenant violations, negative cash flow from operations and the weak economy may raise substantial doubt about the Company’s ability to return to sustained profitability and positive cash flow from operations, management believes such a concern may be alleviated by the steps taken to improve performance. ~~AND~~Management’s ~~SUBSIDIARY~~current plans and initiatives are directed towards returning the Company to profitability in Fiscal 2009. Among those plans are stabilizing revenue and increasing prices of some boat models to compensate for increases in material and production costs, improving manufacturing efficiency by lowering production labor costs and reducing advertising and offshore racing expenses. Furthermore, management believes that dealer inventory is lower than it has been for the past five years, thus providing a positive situation for sustained sales. The uncertainty of the fiberglass recreational boating market, volatile material prices, effects of fuel and oil prices on transportation costs and the economy in general, and the effects of the weakened housing market and mortgage crisis on consumer confidence and availability of discretionary spending, may cause actual results to differ materially from those planned.

~~SCHEDULES~~37 ~~TO THE FINANCIAL STATEMENTS~~

~~SCHEDULE~~FOUNTAIN IIPOWERBOAT -INDUSTRIES, ~~VALUATION~~INC. AND ~~QUALIFYING~~SUBSIDIARY ~~ACCOUNTS~~

Fiscal 2004 Valuation and Qualifying Account Description	BalanceJune 30, 2003	Charge to ExpenseAdjustments		Payments/Deductions	BalanceJune 30, 2004
Allowance for Doubtful accounts	27,841	55,000		—	82,841
Inventory Valuation Reserve	50,000	—		—	50,000
Deferred Tax Valuation Allowance	2,342,912	(554,471	)	—	1,788,441
Warranty Expense	900,000	357,507		547,507	710,000
Allowance for Boat Repurchases	200,000	—		125,000	75,000
Fiscal 2003 Valuation and Qualifying Account Description	Balance June 30, 2002	Charge to ExpenseAdjustments		Payments/Deductions	Balance June 30, 2003
Allowance for Doubtful accounts	27,841	—		—	27,841
Inventory Valuation Reserve	307,393	—		257,393	50,000
Deferred Tax Valuation Allowance	2,599,979	(257,067	)	—	2,342,912
Warranty Expense	870,000	675,344		645,344	900,000
Allowance for Boat Repurchases	200,000	—		—	200,000
Fiscal 2002 Valuation and Qualifying Account Description	Balance June 30, 2001	Charge to ExpenseAdjustments		Payments/Deductions	Balance June 30, 2002
Allowance for Doubtful accounts	27,841	—		—	27,841
Inventory Valuation Reserve	150,000	157,393		—	307,393
Deferred Tax Valuation Allowance	—	2,599,979		—	2,599,979
Warranty Expense	590,000	1,346,873		1,066,873	870,000
Allowance for Boat Repurchases	200,000	—		—	200,000

SCHEDULES TO THE FINANCIAL STATEMENTS

41 SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS


Fiscal 2008 Valuation and Qualifying Account Description	Balance June 30, 2007		Additions Charged to Costs and Expenses			Additions Charged to Other Accounts		Payments/ Deductions		Balance June 30, 2008
Allowance for doubtful accounts	$	17,752	$	18,463		$	—	$	14,330	$	21,885
Inventory Obsolescence Reserve		54,472		472,766			—		56,586		470,652
Deferred Tax Valuation Allowance		2,700,850		790,589			—		—		3,491,439
Warranty Expense Reserve		941,928		1,037,405			—		1,119,134		860,199
Allowance for Boat Repurchases		64,124		14,663			—		—		78,787

Fiscal 2007 Valuation and Qualifying Account Description	Balance June 30, 2006		Additions Charged to Costs and Expenses			Additions Charged to Other Accounts		Payments/ Deductions		Balance June 30, 2007
Allowance for doubtful accounts	$	37,331	$	19,825		$	—	$	39,404	$	17,752
Inventory Obsolescence Reserve		32,051		68,071			—		45,650		54,472
Deferred Tax Valuation Allowance		—		2,700,850			—		—		2,700,850
Warranty Expense Reserve		632,357		1,325,133			328,243		1,343,805		941,928
Allowance for Boat Repurchases		15,459		117,879			—		69,214		64,124

Fiscal 2006 Valuation and Qualifying Account Description	Balance June 30, 2005		Additions Charged to Costs and Expenses			Additions Charged to Other Accounts		Payments/ Deductions		Balance June 30, 2006
Allowance for doubtful accounts	$	221,572	$	83,546		$	—	$	267,787	$	37,331
Inventory Obsolescence Reserve		72,682		42,060			—		82,691		32,051
Deferred Tax Valuation Allowance		1,744,004		(1,744,004	)		—		—		—
Warranty Expense Reserve		740,000		26,579			—		134,222		632,357
Allowance for Boat Repurchases		75,000		61,719			—		121,260		15,459

~~FOUNTAIN~~Detailed ~~POWERBOATS~~disclosure ~~INDUSTRIES,~~of ~~INC.~~activity in Schedule II accounts during Fiscal 2008

~~SUPPLEMENTARY~~Allowance ~~DATA~~for Doubtful Accounts—Deductions during Fiscal 2008 to the Allowance for Doubtful Accounts totaled $14,330. That amount consists of accounts actually written off as bad debt totaling $23,263, which is partially offset by $8,933 from reversing allowances for accounts, previously determined to be uncollectible, which were properly settled.

~~UNAUDITED~~Inventory ~~SELECTED~~Obsolescence ~~CONSOLIDATED~~Reserve ~~QUARTERLY~~– ~~FINANCIAL~~During ~~DATA~~Fiscal 2008, $56,586 of inventory was disposed of and deducted from the reserve.

	FirstQuarter		SecondQuarter		ThirdQuarter		FourthQuarter
Fiscal 2004
Revenue	12,885,232		13,361,811		15,790,650		17,804,067
Gross profit	2,032,181		2,027,100		3,119,068		3,495,841
Income (loss) before taxes	(356,347	)	239,059		754,365		664,771
Net income (loss)	(356,347	)	239,059		754,365		664,065
Net income (loss) per share:
Basic	(.08	)	.05		.16		.14
Diluted	(.07	)	.05		.16		.14
Fiscal 2003
Revenue	12,002,119		12,941,227		12,783,311		14,830,427
Gross profit	1,905,951		2,370,374		1,911,352		2,331,450
Income (loss) before taxes	328,335		643,732		(91,338	)	168,568
Net income (loss)	169,244		482,459		(177,402	)	405,695
Net income (loss) per share:
Basic 0410	.04		.10		(.04	)	.09
Diluted	.04		.10		N/A		.04
Fiscal 2002
Revenue	8,238,779		6,456,208		10,626,380		11,629,214
Gross profit	475,472		(692,069	)	2,035,420		(859,075	)
Income (loss) before taxes	(814,875	)	(2,315,742	)	(280,534	)	(3,797,366	)
Net income (loss)	(506,643	)	(1,417,651	)	(189,152	)	(4,918,147	)
Net income (loss) per share:
Basic	(.11	)	(.30	)	(.04	)	(1.04	)
Diluted	N/A		N/A		N/A		N/A

Deferred Tax Valuation Allowance – As of June 30, 2008 the Company had net deferred tax assets of $3,491,439 that were fully offset by a valuation allowance because, as of that date, it was Management’s conclusion that there is doubt as to whether those deferred tax assets were more likely than not to be realized in the future. The deferred tax assets principally related to the potential future benefits of tax net operating loss carryforwards, most of which had been generated during the years ended June 30, 2002, 2007 and 2008 when the Company generated substantial net losses.

42Warranty Expense Reserve – The Company records a liability for standard product warranties. The liability is recorded using historical warranty experience to estimate projected warranty costs. If necessary, the Company adjusts its liability for specific warranty matters when they become known and are reasonably estimable. The estimate of future warranty liability is calculated at least once during each quarter and appropriate adjustments are made to this liability account. During Fiscal 2008 $1,037,405 was expensed as warranty expense and added to the reserve, and $1,119,134 was relieved from the reserve to account for warranty repairs. The adoption of SAB 108 during Fiscal 2007 resulted in a $328,243 Addition to the Warranty Reserve, and, therefore, Warranty Expense.

~~Table~~38 ~~of Contents~~

~~Item~~Allowance 9.for ~~Changes~~Boat inRepurchases ~~and~~– ~~Disagreements~~Deductions ~~with~~during ~~Accountants~~Fiscal on2008 ~~Accounting~~and 2007 totaled $0 and ~~Financial~~$69,214 respectively, ~~Disclosure~~reflecting the amount previously reserved for boats which were sold, subsequent to repurchase, during Fiscal 2008 and 2007.

~~Not~~39 ~~applicable.~~

~~Part~~FOUNTAIN ~~III~~POWERBOATS INDUSTRIES, INC.

~~Item~~SUPPLEMENTARY ~~10.~~DATA ~~Directors and Executive Officers of Registrant.~~

~~Directors~~UNAUDITED ~~and~~SELECTED ~~Executive~~CONSOLIDATED ~~Officers. Information~~QUARTERLY ~~regarding~~FINANCIAL the Company’s directors and executive officers that appears under the captions (1) “Proposal 1: Election of Directors,” and (2) ”Executive Officers,” in the Company’s definitive Proxy StatementDATA ~~to be filed with the Commission in connection with the Company’s next Annual Meeting of Shareholders is incorporated herein by reference.~~

Audit Committee. Information regarding the Audit Committee of the Company’s Board of Directors that appears under the captions (1) “Audit Committee - Function” and (2) ”Audit Committee - Members,” of the Company’s definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Company’s next Annual Meeting of Shareholders if incorporated herein by reference.


	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Fiscal 2008
Net sales	$	18,049,430		$	15,196,038		$	14,222,639		$	20,734,513
Gross profit		2,704,586			2,216,271			1,101,194			3,380,523
(Loss) Income before taxes		273,380			(765,055	)		(1,966,473	)		258,305
Net (loss) income		273,340			(765,055	)		(1,966,473	)		258,305
Net (loss) income per share:
Basic		.06			(.16	)		(.45	)		.07
Diluted		.06			(.16	)		(.45	)		.07

Fiscal 2007 *
Net sales	$	19,413,852		$	13,032,786		$	16,475,688		$	19,907,661
Gross profit		2,875,917			1,123,938			1,374,322			3,749,583
Income before taxes		(277,670	)		(2,363,585	)		(1,640,690	)		535,059
Net income		(196,670	)		(1,495,479	)		(3,873,524	)		535,059
Net income per share:
Basic		(.04	)		(.31	)		(.80	)		.11
Diluted		(.04	)		(.31	)		(.80	)		.11

Fiscal 2006
Net sales	$	19,157,736		$	18,210,092		$	18,526,332		$	23,332,064
Gross profit		3,676,114			2,897,702			2,764,533			3,735,452
Income (loss) before taxes		697,058			319,296			22,410			82,402
Net income (loss)		697,058			319,296			22,410			1,366,148
Net income (loss) per share:
Basic		.14			.07			.00			.29
Diluted		.14			.07			.00			.28

~~Audit~~* ~~Committee~~Quarterly ~~Financial~~data ~~Expert.~~for ~~Information~~Fiscal ~~appearing~~2007 ~~under~~is presented after giving the ~~caption~~effect ~~“Audit~~of ~~Committee~~the -adoption ~~Members”~~of inSAB 108 as of the ~~Company’s~~first ~~definitive~~quarter ~~Proxy~~of ~~Statement~~Fiscal to2007. beThe ~~filed~~sum ~~with~~of ~~the Commission~~quarterly earnings data in ~~connection~~this ~~with~~presentation ~~the~~may ~~Company’s~~differ ~~next~~from ~~Annual~~the ~~Meeting~~Consolidated Statement of ~~Shareholders~~Operations isdue ~~incorporated~~to ~~herein~~the byadoption ~~reference~~of SAB 108. See Note 1 of “Notes to Consolidated Financial Statements” for further discussion of SAB 108.

~~Compliance~~Item ~~with Section 16(a) of the Securities Exchange Act of 1934~~9. ~~Information~~Changes ~~regarding~~in ~~compliance by the Company’s directors, executive officers~~ and ~~principal~~Disagreements ~~shareholders~~ with ~~the~~Independent ~~reporting~~Registered ~~requirements~~Public ofAccounting ~~Section~~firms ~~16(a)~~on ofAccounting the Securities Exchange Act of 1934 that appears under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” of the Company’s definitive Proxy Statement to be filed with the Securities and ~~Exchange~~Financial ~~Commission in connection with the Company’s next Annual Meeting of Shareholders is incorporated herein by reference~~Disclosure.

~~Code of Ethics~~None. The Company’s Board of Directors has adopted a Code of Ethics that applies to its directors and to its principal executive officer and principal financial officer. A copy of the Code of Ethics is posted on the Company’s Internet website at www.fountainpowerboats.com.

Item 119A(T). ~~Executive Compensation.~~Controls and Procedures.

~~Information~~As ~~appearing~~of ~~under~~ the ~~captions~~end of the ~~(1)~~period ~~“Director~~covered ~~Compensation~~by this report,” ~~(2)~~the ~~“Corporate~~Company ~~Governance~~carried ~~Committee~~out -an ~~Compensation~~evaluation, ~~Committee~~under ~~Interlocks~~the supervision and ~~Insider~~with ~~Participation~~the participation of the Company’s management,” ~~(3)~~including ”the Company’s Chief Executive ~~Compensation~~Officer -and ~~Cash~~Chief ~~Compensation~~Financial Officer,” of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (4)as ~~“Executive~~defined ~~Compensation~~in Rules 13a- ~~Employment~~15(e) and ~~Agreement,”~~ 15d-15(5e) ~~“Executive~~under ~~Compensation~~the -Securities ~~Employee~~Exchange ~~Stock~~Act ~~Options~~of 1934,” ~~and~~as amended (6)the “~~Proposal~~Exchange 2:Act”)). ~~Amendment~~Based ofon ~~1995~~that evaluation, ~~Stock~~the ~~Option~~Chief ~~Plan~~Executive Officer and the Chief Financial Officer concluded that,” inas of the end of the period covered by this report, the Company’s ~~definitive~~disclosure ~~Proxy~~controls ~~Statement~~and procedures were effective to beprovide ~~filed~~reasonable ~~with~~assurance that the Company ~~Commission~~is able to record, process, summarize and report in ~~connection~~ ~~with~~a timely manner the information required to be disclosed by the Company’s ~~next~~in ~~Annual~~the ~~Meeting~~reports that it files or submits under the Exchange Act. There are inherent limitations to the effectiveness of ~~Shareholders~~any issystem ~~incorporated~~of ~~herein~~disclosure bycontrols ~~reference~~and procedures. Even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

43The Company’s disclosure controls and procedures, including its internal control over financial reporting, are reviewed on an ongoing basis and from time to time may be changed in order to enhance their effectiveness. In connection with the above evaluation of the Company’s disclosure controls and procedures, no change in internal control over financial reporting was identified that occurred during the quarterly period ended June 30, 2008, and that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~Table~~40 ~~of Contents~~

~~Item~~MANAGEMENT’S ~~12.~~ANNUAL ~~Security~~REPORT ~~Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.~~

~~Beneficial~~ON ~~Ownership~~INTERNAL ~~of securities.~~CONTROL ~~Information~~OVER ~~regarding~~FINANCIAL ~~the~~REPORTING beneficial ownership of the Company’s equity securities appearing under the caption “Beneficial Ownership of Securities” in the Company’s definitive Proxy Statement filed with the Commission in connection with the Company’s annual meeting of shareholders is incorporated herein by reference.

~~Securities~~The ~~Authorized~~management ~~for~~of ~~Issuance~~Fountain Powerboat ~~Under~~Industries, ~~Equity Compensation Plans~~Inc. ~~The~~(the ~~following~~“Company”) ~~table~~is ~~summarizes~~responsible ~~all~~for ~~compensation~~establishing ~~plans~~ and ~~individual~~maintaining ~~compensation~~adequate ~~arrangements~~internal ~~that~~control ~~were~~over infinancial ~~effect~~reporting. onThe ~~June~~Company’s ~~30,~~internal ~~2004,~~control ~~and~~system ~~under~~was ~~which~~designed ~~shares~~to ofprovide ~~the~~reasonable assurance to the Company’s ~~common~~management ~~stock~~and ~~were~~Board ~~authorized~~of ~~for~~Directors ~~issuance~~regarding the preparation and fair presentation of published financial statements.

~~EQUITY~~All internal ~~COMPENSATION~~control ~~PLAN~~systems, ~~INFORMATION~~no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Plan category	(a) Number of shares to be issued uponexercise of outstanding options		(b) Weighted-average exercise price of outstanding options		(c) Number of shares remaining available for future issuance underequity compensation plans (excluding shares reflected in column (a))
Equity compensation plans approved by security holders	500,000		$	4.36	95,000
Equity compensation plans not approved by security holders	60,000	(1)		2.55	-0-
Total	560,000			4.17	95,000

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2008. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on that assessment, we believe that, as of June 30, 2008, the Company’s internal control over financial reporting is effective based on those criteria.

~~(1)~~This annual ~~Includes~~report ~~individual~~does ~~options~~not toinclude ~~purchase~~an ~~shares~~attestation report of the Company’s ~~common~~registered ~~stock~~public ~~held~~accounting byfirm ~~current~~regarding orinternal ~~former~~control ~~directors~~over orfinancial ~~independent contractors as follows: (i) option for 30,000 shares at an exercise price of $3~~reporting.58 ~~per~~Management’s ~~share~~report ~~granted~~was ~~during~~not ~~1995~~subject ~~and~~to ~~expiring~~attestation ~~during~~by ~~2005;~~the ~~(ii)~~Company’s registered ~~option~~public ~~for~~accounting ~~10,000~~firm ~~shares~~pursuant atto antemporary ~~exercise~~rules ~~price~~ of ~~$1.34~~the ~~per~~Securities ~~share granted during 2001~~ and ~~expiring~~Exchange ~~during~~Commission ~~2007;~~that ~~and~~permit ~~(iii)~~the ~~option~~Company ~~for 20,000 shares at an exercise price of $1.60 per share granted during 2002 and expiring as~~ to ~~10,000~~provide ~~shares~~only ~~during~~management’s ~~2008~~report ~~and~~in asthis toannual ~~the remaining 10,000 shares during 2009~~report.

~~Item~~/S/ 13Reginald M. ~~Certain~~Fountain, ~~Relationships~~Jr. ~~and~~/S/ ~~Related~~Irving ~~Transactions~~L. Smith Reginald M. Fountain, Jr. Irving L. Smith Chief Executive Officer Chief Financial Officer

~~Information~~Item ~~appearing~~9B. ~~under~~Other the caption “Compensation Interlocks and Insider Participation” in the Company’s definitive Proxy Statement to be filed with the Commission in connection with the Company’s next Annual Meeting of Shareholders is incorporated herein by referenceInformation.

~~Item 14~~None. ~~Controls and Procedures.~~

~~The~~Part ~~Company’s~~III management, with the participation of its Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures in accordance with Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures 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.

NoItem ~~change~~10. ~~in the Company’s internal control over financial reporting occurred during the fourth quarter of the fiscal year ended June 30~~Directors, ~~2004,~~Executive ~~that~~Officers ~~has~~and ~~materially~~Corporate ~~affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting~~Governance.

44Directors and Executive Officers. Information regarding the Company’s directors and executive officers that appears under the captions (1) “Proposal 1: Election of Directors,” and (2) “Executive Officers,” in the Company’s definitive Proxy Statement to be filed with the Commission in connection with the Company’s next Annual Meeting of Shareholders is incorporated herein by reference.

~~Table~~Audit Committee. Information regarding the Audit Committee of ~~Contents~~the Company’s Board of Directors that appears under the captions “Committees of our Board – General” and “Audit Committee,” of the Company’s definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Company’s next Annual Meeting of Shareholders is incorporated herein by reference.

~~Item~~Audit 15Committee Financial Expert. ~~Principal~~Information ~~Accountant~~appearing ~~Fees~~under ~~and~~the ~~Services~~caption “Audit Committee Financial Expert” in the Company’s definitive Proxy Statement to be filed with the Commission in connection with the Company’s next Annual Meeting of Shareholders is incorporated herein by reference.

~~Information~~Compliance ~~appearing~~with ~~under~~Section 16(a) of the ~~caption~~Securities ~~“Proposal~~Exchange 3Act of 1934. ~~Ratification~~Information regarding compliance by the Company’s directors, executive officers and principal shareholders with the reporting requirements of ~~Appointment~~Section 16(a) of ~~Independent~~the ~~Accountants~~Securities -Exchange ~~Services and~~Act ~~Fees~~of ~~During~~1934 ~~Fiscal~~that ~~2004~~appears ~~and~~under ~~2003”~~the incaption “Section 16(a) Beneficial Ownership Reporting Compliance” of the Company’s definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Company’s next Annual Meeting of Shareholders is incorporated herein by reference.

Code of Ethics. Information appearing under the caption “Code of Ethics” in the Company’s definitive Proxy Statement ~~Part~~to IVbe filed with the Commission in connection with the Company’s next Annual Meeting of Shareholders is incorporated herein by reference.

~~Item~~41 ~~16. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.~~

~~(a)~~Item ~~Documents~~11. ~~filed~~Executive ~~with Report:~~Compensation.

~~(1)Financial~~Information ~~Statements.~~appearing under ~~The~~the ~~following~~headings ~~consolidated~~“Executive ~~financial~~Compensation” ~~statements~~and ofDirector Compensation” in the Company’s ~~are~~definitive ~~contained~~Proxy Statement to be filed with the Commission in ~~Item~~connection 8with the Company’s next Annual Meeting of ~~this~~Shareholders ~~Report~~is incorporated herein by reference.

~~Report~~Item 12. Security Ownership of ~~Independent~~Certain ~~Registered~~Beneficial ~~Public~~Owners ~~Accounting~~and ~~Firm~~ Management and Related Stockholder Matters.

Beneficial Ownership of Securities and Certain Change in Control Arrangements. Information regarding the beneficial ownership of the ~~Consolidated~~Company’s ~~balance~~equity ~~sheets~~securities atappearing ~~June~~under ~~30,~~the ~~2004~~caption ~~and~~“Beneficial ~~2003~~ Ownership of Common Stock” in the Company’s definitive Proxy Statement filed with the Commission in connection with the Company’s annual meeting of shareholders is incorporated herein by reference.

Securities Authorized for Issuance Under Equity Compensation Plans. The ~~Consolidated~~following ~~statements~~table ofsummarizes ~~operations~~all ~~for~~compensation ~~the~~plans ~~years~~and ~~ended~~individual ~~June~~compensation arrangements that were in effect on June 30, ~~2004~~2008, ~~2003~~ and ~~2002~~ under which shares of the Company’s common stock were authorized for issuance.

~~Consolidated~~EQUITY ~~statements~~COMPENSATION ofPLAN ~~stockholder’s~~INFORMATION ~~equity for the years ended June 30, 2004, 2003 and 2002~~

Consolidated statements of cash flows for the years ended June 30, 2004, 2003 and 2002


Plan category	(a) Number of shares to be issued upon exercise of outstanding options		(b) Weighted-average exercise price of outstanding options		(c) Number of shares remaining available for future issuance under equity compensation plans (excluding shares reflected in column (a))
Equity compensation plans approved by security holders	450,000	(1)	$	4.67	128,333	(2)
Equity compensation plans not approved by security holders	-0-			—	—
Total	450,000		$	4.67	128,333

~~Notes~~(1) toConsists ~~consolidated~~of ~~financial~~one ~~statements~~ option granted under the Company’s 1995 Stock Option Plan which expired unexercised on August 4, 2008. No further options may be granted under this plan.

(2)~~Financial~~ ~~Statement~~Consists ~~Schedules.~~of shares available for the grant of options under the Company’s 1999 Employee Stock Option Plan.

~~Not applicable~~Item 13. Certain Relationships and Related Transactions, and Director Independence.

~~(3)Exhibits~~Related Person Transactions. AnInformation ~~index~~appearing ofunder ~~exhibits~~the ~~that~~caption ~~are a~~“Transactions ~~part~~with ofRelated ~~this~~Persons” ~~Form~~in ~~10-K~~the ~~appears~~Company’s ~~following~~definitive Proxy Statement to be filed with the ~~signature~~Commission ~~page~~in ~~and~~connection with the Company’s next Annual Meeting of Shareholders is incorporated herein by reference.

~~(b)~~Director ~~Reports~~Independence. onInformation appearing ~~Form~~under ~~8-K.~~the ~~During~~caption ~~the~~“Corporate ~~last~~Governance ~~quarter~~– ofDirector Independence” in the ~~period~~Company’s ~~covered~~definitive byProxy ~~this~~Statement ~~Report,~~to be filed with the Commission in connection with the Company’s ~~filed~~next orAnnual ~~furnished~~Meeting ~~Current~~of ~~Reports~~Shareholders onis incorporate ~~Form~~herein ~~8-K~~by asreference. ~~follows:~~

Date of Report		Matter Reported
04-27-04		Announcement of the Company’s results of operations for the three and nine months ended March 31, 2004
05-04-04		Adoption of a code of ethics for the company’s executive officers and directors
06-11-04		Announcement that an additional investment advisory firm had begun covering the Company

Item 14.

Principal Accountant Fees and Services.

45Information appearing under the caption “Services and Fees During Fiscal 2008” in the Company’s definitive Proxy Statement to be filed with the Commission in connection with the Company’s next Annual Meeting of Shareholders is incorporated herein by reference.

~~Table~~Part ofIV ~~Contents~~

~~Signatures~~Item 15. Exhibits and Financial Statement Schedules.

~~Pursuant to the requirements of Section 13 or 15~~ (da) ofDocuments ~~the~~filed ~~Securities~~with ~~Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.~~ Report:

	FOUNTAIN POWERBOAT INDUSTRIES, INC.
(1) Financial Statements. The following consolidated financial statements of the Company are contained in Item 8 of this Report.
	By:	/S/ Reginald M. Fountain, Jr.
	Page
September 28, 2004		Reginald M. Fountain, Jr.
Report of Gregory & Associates, LLC	17
		Chairman, President, and Chief Executive Officer
Report of Dixon Hughes PLLC	18
Consolidated balance sheets at June 30, 2008 and 2007	19

~~Pursuant~~42 ~~to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.~~

Signature	Title	Date
Consolidated statements of operations for the years ended June 30, 2008, 2007 and 2006	20
/S/ Reginald M. Fountain, Jr. Reginald M. Fountain, Jr.	Chairman, President, and Chief Executive Officer (Principal Executive Officer)	September 28, 2004
Consolidated statements of stockholder’s equity for the years ended June 30, 2008, 2007 and 2006	21
/S/ A. Myles Cartrette	Director	September 28, 2004
Consolidated statements of cash flows for the years ended June 30, 2008, 2007 and 2006	22
A. Myles Cartrette
Notes to consolidated financial statements	24
/S/ George L. Deichmann, III	Director	September 28, 2004
(2) Financial Statement Schedules.
George L. Deichmann, III
Schedule II – Valuation and Qualifying Accounts	38
/S/ Guy L. Hecker, Jr.	Director	September 28, 2004
(3) Exhibits. An index of exhibits that are a part of this Form 10-K appears following the signature page and is incorporated herein by reference.
Guy L. Hecker, Jr.
/S/ David C. Miller	Director	September 28, 2004
David C. Miller
/S/ Mark L. Spencer	Director	September 28, 2004
Mark L. Spencer
/S/ Robert L. Stallings	Director	September 28, 2004
Robert L. Stallings
/S/ David L. Woods	Director	September 28, 2004
David L. Woods
/S/ Irving L. Smith	Chief Financial Officer	September 28, 2004
Irving L. Smith

4643

~~Table~~Signatures ~~of Contents~~

~~EXHIBIT~~Pursuant ~~INDEX~~to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ExhibitNumber	Description of Exhibit
	FOUNTAIN POWERBOAT INDUSTRIES, INC.
3.1	Registrant’s Articles of Incorporation, as amended (incorporated herein by reference to exhibits to Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2001)
	By:	/S/ Reginald M. Fountain, Jr.
3.2	Registrant’s Bylaws, as amended (incorporated herein by reference to exhibits to Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2001)
September 29, 2008		Reginald M. Fountain, Jr.
4.1	Form of stock certificate (incorporated herein by reference to exhibits to Registrant’s Annual Report on Form 10-K for the fiscal year ended October 1, 1989)
		Chairman, Chief Executive Officer and President
10.1 *	Employment Agreement dated March 31, 1989, between Reginald M. Fountain, Jr. and Fountain Powerboats, Inc. (incorporated herein by reference from Exhibits to Registrant’s Annual Report on Form 10-K for the fiscal year ended October 1, 1989)
10.2 *	Stock Option Agreement dated August 4, 1995, between Registrant and Reginald M. Fountain, Jr. (incorporated herein by reference to exhibits to Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2001)
10.3 *	1999 Employee Stock Option Plan (incorporated herein by reference to exhibits to Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 1999)
10.4 *	Stock Option Agreement dated March 17, 1995, between Registrant and Mark L. Spencer (incorporated herein by reference to exhibits to Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2001)
10.5	Loan Agreement between Fountain Powerboats, Inc. and Bank of America, N.A. (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated July 17, 2003)
10.6	Promissory Note between Fountain Powerboats, Inc. and Bank of America, N.A. (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated July 17, 2003)
10.7	Continuing and Unconditional Guaranty between Registrant and Bank of America, N.A. (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated July 17, 2003)
10.8	Continuing and Unconditional Guaranty between Reginald M. Fountain, Jr. and Bank of America, N.A. (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated July 17, 2003)
10.9	Security Agreement between Fountain Powerboats, Inc. and Bank of America, N.A. (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated July 17, 2003)
10.10	Deed of Trust between Fountain Powerboats, Inc. and Bank of America, N.A. (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated July 17, 2003)

47Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


Signature	Title	Date
/S/ Reginald M. Fountain, Jr.	Chairman, Chief Executive Officer and President (Principal Executive Officer)	September 29, 2008
Reginald M. Fountain, Jr.

/S/ Craig F. Goess	Director	September 29, 2008
Craig F. Goess

/S/ Guy L. Hecker, Jr.	Director	September 29, 2008
Guy L. Hecker, Jr.

/S/ David C. Miller	Director	September 29, 2008
David C. Miller

/S/ Anthony J. Romersa	Director	September 29, 2008
Anthony J. Romersa

/S/ Anthony A. Sarandes	Director	September 29, 2008
Anthony A. Sarandes

/S/ Mark L. Spencer	Director	September 29, 2008
Mark L. Spencer

/S/ Irving L. Smith	Chief Financial Officer (Principal Financial Officer)	September 29, 2008
Irving L. Smith	Chief Financial Officer (Principal Financial Officer)

/S/ Roger F. Scott	Principal Accounting Officer	September 29, 2008
Roger F. Scott

10.11		Master Agreement between Registrant, Fountain Powerboats, Inc., Reginald M. Fountain, Jr. and Brunswick Corporation (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated July 17, 2003)
10.12		Security Agreement between Fountain Powerboats, Inc. and Brunswick Corporation (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated July 17, 2003)
10.13		Deed of Trust between Fountain Powerboats, Inc. and Brunswick Corporation (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated July 17, 2003)
10.14		Engine Supply Agreement between Registrant Fountain Powerboats, Inc. and Brunswick Corporation (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated July 17, 2003)
31.1		Certification of Registrant’s Chief Executive Officer required by Rule 13a-14(a) (filed herewith)
31.2		Certification of Registrant’s Chief Financial Officer required by Rule 13a-14(a) (filed herewith)
32		Certifications of Registrant’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350 (furnished herewith)
99		Registrant’s definitive proxy statement to be filed with the Commission

*EXHIBIT ~~Denotes~~INDEX ~~a management compensation plan or compensatory plan or arrangement~~


Exhibit No.		Exhibit Description
2.01		Asset Purchase Agreement dated as of May 28, 2008, between and among Baja Marine Corporation, Brunswick Corporation, Baja by Fountain, Inc., and Fountain Powerboat Industries, Inc. (incorporated herein by reference to exhibits to Registrant’s Annual Report on Form 10-K for the fiscal year ended May 28, 2008)

3.01		Registrant’s Articles of Incorporation, as amended (incorporated herein by reference to exhibits to Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2000)

3.02		Registrant’s Bylaws, as amended (incorporated herein by reference to exhibits to Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2000)

4.01		Form of stock certificate (incorporated herein by reference to exhibits to Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2005)

10.01 *		Employment Agreement dated March 31, 1989, between Reginald M. Fountain, Jr. and Fountain Powerboats, Inc. (incorporated herein by reference to exhibits to Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2005)

10.02 *		Employment Agreement dated September 1, 2004, as amended on October 18, 2004, between R. David Knight and Fountain Powerboats, Inc. (incorporated herein by reference to exhibits to Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2005)

10.03 *		Stock Option Agreement dated August 4, 1995, as amended, between Registrant and Reginald M. Fountain, Jr. (incorporated herein by reference to exhibits to Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 2001)

10.04 *		1999 Employee Stock Option Plan (incorporated herein by reference to exhibits to Registrant’s Annual Report on Form 10-K for the fiscal year ended June 30, 1999)

10.05 *		1995 Stock Option Plan, as amended (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated November 9, 2004)

10.06		Master Agreement between Registrant, Fountain Powerboats, Inc., Reginald M. Fountain, Jr. and Brunswick Corporation (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated July 17, 2003)

10.07		Engine Supply Agreement between Registrant Fountain Powerboats, Inc. and Brunswick Corporation (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated July 17, 2003)

10.08		Omnibus Amendment and Agreement dated September 13, 2005, between Brunswick Corporation, Fountain Powerboat Industries, Inc., Fountain Powerboats, Inc., and Reginald M. Fountain, Jr. (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated September 19, 2005)

10.09		Second Omnibus Amendment and Agreement dated June 21, 2007, between Brunswick Corporation, Fountain Powerboat Industries, Inc., Fountain Powerboats, Inc., and Reginald M. Fountain, Jr. (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated June 25, 2007)

10.10		Third Omnibus Amendment and Agreement dated as of May 28, 2008, between Brunswick Corporation, Fountain Powerboat Industries, Inc., Fountain Powerboats, Inc., and Reginald M. Fountain, Jr. (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K May 28, 2008)

10.11		First Amended and Restated Loan Agreement dated November 16, 2007, between Fountain Powerboats, Inc., Fountain Powerboat Industries, Inc., Fountain Dealers’ Factory Superstore, Inc., and Regions Bank (filed herewith)

10.12		First Amendment dated September 24, 2008 to First Amended and Restated Loan Agreement dated November 16, 2007, between Fountain Powerboats, Inc., Fountain Powerboat Industries, Inc., Fountain Dealers’ Factory Superstore, Inc. and Regions Bank (filed herewith)

10.13		Dealer Floor Plan and Security Agreement dated September 28, 2007, between Fountain Powerboats, Inc., Fountain Powerboat Industries, Inc., Fountain Dealers’ Factory Superstore, Inc., and Regions Bank (filed herewith)

10.14		Deed of Trust, Assignment of Rents, Security Agreement and Financing Statement dated September 19, 2005, between Fountain Powerboats, Inc., and Regions Bank (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated September 19, 2005)



10.15		First Amendment dated July 12, 2006 to Deed of Trust, Assignment of Rents, Security Agreement and Financing Statement dated September 19, 2005, between Fountain Powerboats, Inc., and Regions Bank (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated August 23, 2006)

10.16		Second Amendment dated September 28, 2007 to Deed of Trust, Assignment of Rents, Security Agreement and Financing Statement dated September 19, 2005, between Fountain Powerboats, Inc., and Regions Bank (filed herewith)

10.17		Third Amendment dated November 16, 2007 to Deed of Trust, Assignment of Rents, Security Agreement and Financing Statement dated September 19, 2005, between Fountain Powerboats, Inc., and Regions Bank (filed herewith)

10.18		Amended and Restated Security Agreement dated November 16, 2007, between Fountain Powerboats, Inc., Fountain Powerboat Industries, Inc., Fountain Dealers’ Factory Super Store, Inc., and Regions Bank (filed herewith)

10.19		Pledge Agreement dated September 19, 2005, between Fountain Powerboat Industries, Inc., and Regions Bank (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated September 19, 2005)

10.20		First Amendment dated July 12, 2006, to Pledge Agreement dated September 19, 2005, between Fountain Powerboat Industries, Inc., and Regions Bank (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated August 23, 2006)

10.21		Second Amendment dated September 28, 2007, to Pledge Agreement dated September 19, 2005, between Fountain Powerboat Industries, Inc., and Regions Bank (filed herewith)

10.22		Third Amendment dated November 16, 2007, to Pledge Agreement dated September 19, 2005, between Fountain Powerboat Industries, Inc., and Regions Bank (filed herewith)

10.23		Secured Subordinated Promissory Note dated as of May 28, 2008, of Baja by Fountain, Inc., to Baja Marine Corporation, and guaranteed by Fountain Powerboat Industries, Inc. (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated May 28, 2008)

10.24		Security Agreement dated as of May 28, 2008, between Baja by Fountain, Inc. and Baja Marine Corporation, (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated May 28, 2008)

10.25		Engine Supply Agreement dated as of May 28, 2008, between Baja by Fountain, Inc. and the Mercury Marine Division of Brunswick Corporation (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated May 28, 2008)

10.26		Security Agreement dated as of May 28, 2008, by Baja by Fountain, Inc., to Regions Bank (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated May 28, 2008)

10.27		Guaranty Agreement dated as of May 28, 2008, by Baja by Fountain, Inc., to Regions Bank (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated May 28, 2008)

10.28		Subordination Agreement dated as of May 28, 2008, by and between Baja Marine Corporation and Regions Bank, and consented to by Fountain Powerboat Industries, Inc., Baja by Fountain, Inc., and Fountain Powerboats, Inc. (incorporated herein by reference to exhibits to Registrant’s Current Report on Form 8-K dated May 28, 2008)

31.01		Certification of Registrant’s Chief Executive Officer required by Rule 13a-14(a) (filed herewith)

31.02		Certification of Registrant’s Chief Financial Officer required by Rule 13a-14(a) (filed herewith)

32		Certifications of Registrant’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350 (furnished herewith)

99.01		Registrant’s definitive proxy statement to be filed with the Commission

*	Denotes a management compensation plan or compensatory plan or arrangement.

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