~~Table~~UNITED ~~of Contents~~STATES

~~U.S.~~ SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

~~FORM 10-Q~~ ———————

xFORM ~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~10-Q

~~For the quarterly period ended December 31, 2004~~ ———————


ü	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
	ACT OF 1934
For the quarterly period ended: December 31, 2008
or

	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
	ACT OF 1934
For the transition period from: _____________ to _____________

¨Commission ~~TRANSITION~~File ~~REPORT~~Number ~~PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~0-14712

~~For the transition period from to~~ ———————

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

~~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	~~56-1774895~~
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification No.)	~~(I.R.S. employer identification No.)~~

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

(Address of principal executive offices)

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

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

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

Indicate by check mark whether the ~~number~~registrant ofis ~~shares~~a ~~outstanding~~large ofaccelerated ~~each~~filer, ofan ~~the~~accelerated ~~issuer’s~~filer, ~~classes~~or a non-accelerated filer. See definition of ~~common stock~~“accelerated asfiler and large accelerated filer” in Rule 12b-2 of the ~~latest~~Exchange ~~practicable date~~Act.

Class		Outstanding at December 31, 2004
Common Stock, $.01 par value		4,814,275 shares

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer þ

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

~~FOUNTAIN~~Indicate ~~POWERBOAT~~the ~~INDUSTRIES,~~number ~~INC.~~of ~~AND~~shares ~~SUBSIDIARY~~outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

INDEX



Class				Outstanding at February 2, 2009
Common Stock, $.01 par value				4,361,184 shares

		Page No.
Part I	Financial Information
	Item 1. Financial Statements
	Unaudited Condensed Consolidated Balance Sheets, December 31, 2004 and June 30, 2004	3 - 4
	Unaudited Condensed Consolidated Statements of Operations, for the three months and six months ended December 31, 2004 and 2003	5
	Unaudited Condensed Consolidated Statements of Cash Flows, for the three months and six months ended December 31, 2004 and 2003	6 - 7
	Notes to Unaudited Condensed Consolidated Financial Statements	8 - 19
	Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition	20 - 21
	Item 3. Quantitative and Qualitative Disclosures of Market Risk	22
	Item 4. Controls and Procedures	22
Part II	Other Information
	Items 1, 2, 3, 4, 5 & 6	22 - 23
	Signature	24
	Exhibits

INDEX

~~Page~~PAGE NO. PART I FINANCIAL INFORMATION Item 1. Financial Statements. 3 Unaudited Condensed Consolidated Balance Sheets, as of December 31, 2008 and June 30, 2008 3 Unaudited Condensed Consolidated Statements of Operations, for the three months ended December 31, 2008 and 2007 4 Unaudited Condensed Consolidated Statements of Operations, for the six months ended December 31, 2008 and 2007 5 Unaudited Condensed Consolidated Statements of Cash Flows, for the six months ended December 31, 2008 and 2007 6 Notes to Unaudited Condensed Consolidated Financial Statements 7 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation 14 Item 3. Quantitative and Qualitative Disclosures about Market Risk. 17 Item 4T. Controls and Procedures 18 PART II OTHER INFORMATION Item 1. Legal Proceedings. 19 Item 1A. Risk Factors 19 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 19 Item 3. Defaults Upon Senior Securities. 19 Item 4. Submission of Matters to a vote of Security Holders. 19 Item 5. Other Information. 19 Item 6. Exhibits. 19 Signature 20

~~Table~~PART ofI. ~~Contents~~FINANCIAL INFORMATION

~~PART~~Item I1. ~~FINANCIAL INFORMATION.~~

~~ITEM 1:~~ Financial Statements.

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

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

	December 31,2004				June 30, 2004
	December 31, 2008			June 30, 2008*
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	31,~~329~~125,~~308~~010		$	$1,445,270	~~3,713,789~~
Accounts receivable, net		52,~~036~~913,~~969~~457			4,283,791	~~4,137,484~~
Inventories		48,~~711~~398,~~835~~152			7,942,384	~~4,653,402~~
Prepaid expenses		~~193~~535,~~450~~363			631,108	~~429,657~~
Current tax assets		279,876				268,903
Total Current Assets		12,971,982			14,302,553
Total Current Assets		13,551,438				13,203,235
Property, Plant & Equipment		53,628,438			54,777,765
PROPERTY, PLANT AND EQUIPMENT		44,629,721				43,183,460
Less: Accumulated Depreciation		(34,995,456	)		(35,455,637	)
Less: Accumulated depreciation		(28,022,767	)			(27,269,666	)
		18,632,982			19,322,128
		16,606,954				15,913,794
CASH SURRENDER VALUE LIFE INSURANCE		3,489,062			3,374,413
CASH SURRENDER VALUE LIFE INSURANCE		1,683,097				1,581,316
OTHER ASSETS		362,601			325,566
OTHER ASSETS		727,245				665,815
TOTAL ASSETS	$	35,456,627		$	37,324,660
TOTAL ASSETS	$	32,568,734			$	31,364,160
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Current maturities – long-term debt	$	16,362,009		$	809,738
Notes payable		3,804,419			3,075,606
Accounts payable		3,892,427			4,791,853
Accrued expenses and other liabilities		642,981			1,264,079
Dealer incentives		5,122,351			5,618,766
Customer deposits		834,500			304,999
Allowance for boat repurchases		171,235			78,787
Warranty reserve		827,158			860,199
Total Current Liabilities		31,667,080			16,804,027
OTHER LONG-TERM LIABILITIES		4,828			4,828
LONG-TERM DEBT, less current maturities		7,226,000			20,428,948
DEFERRED TAX LIABILITY		—			—
Total Liabilities		38,887,908			37,237,803
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS’ EQUITY (DEFICIT)
Common stock, $.01 par value, 200,000,000 shares authorized, 4,844,275 shares issued and outstanding as of December 31, 2008 and as of June 30, 2008		48,442			48,442
Additional paid-in capital		10,574,753			10,574,753
Accumulated deficit		(12,301,645	)		(9,204,829	)
Less: Treasury stock, at cost , 483,091 shares as of December 31, 2008 and as of June 30, 2008		(981,223	)		(981,223	)
Accumulated other comprehensive loss		(771,608	)		(350,286	)
Total Stockholders’ Equity (Deficit)		(3,431,281	)		86,857
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	35,456,627		$	37,324,660

~~(Continued)~~ ———————

~~Page 3~~ *

~~Table~~Derived offrom ~~Contents~~audited consolidated financial statements

~~FOUNTAIN~~The ~~POWERBOAT~~accompanying ~~INDUSTRIES,~~notes ~~INC.~~are ~~AND~~an ~~SUBSIDIARY~~integral part of these unaudited condensed consolidated financial statements.

~~UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS~~ 3

~~[Continued]~~FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARIES

	December 31,2004			June 30, 2004
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	775,691		$	772,704
Current maturities of capital lease		17,709			17,710
Accounts payable		4,022,735			2,821,866
Accounts payable – related party		10,750			21,000
Accrued expenses		323,414			1,172,210
Dealer incentives		1,845,794			1,203,522
Customer deposits		708,715			86,077
Allowance for boat repurchases		75,000			75,000
Warranty reserve		710,000			710,000
Total Current Liabilities		8,489,808			6,880,089
LONG-TERM DEBT, less current portion		17,193,898			17,870,041
CAPITAL LEASE, less current maturities		1,843			6,657
DEFERRED TAX LIABILITY		279,876			268,903
COMMITMENTS AND CONTINGENCIES [NOTE 6]		—			—
Total Liabilities		25,965,425			25,025,690
STOCKHOLDERS’ EQUITY:
Common stock, $.01 par value, 200,000,000 shares authorized, 4,814,275 shares issued and outstanding as of December 31,2004 and 4,807,608 as of June 30, 2004		48,142			48,076
Additional paid-in capital		10,527,053			10,517,451
Accumulated deficit		(3,829,357	)		(4,099,540	)
		6,745,838			6,465,987
Less: Treasury stock, at cost, 15,000 shares		(110,748	)		(110,748	)
Accumulated other comprehensive loss from interest rate swap		(31,781	)		(16,769	)
Total Stockholders’ Equity		6,603,309			6,338,470
Total Liabilities and Stockholders’ Equity	$	32,568,734		$	31,364,160

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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


	For the Three Months Ended
	December 31, 2008			December 31, 2007
NET SALES	$	5,839,908		$	15,196,038
COST OF SALES		6,871,000			12,979,767

Gross Profit (Loss)		(1,031,092	)		2,216,271

EXPENSES:
Selling		973,620			1,665,104
General and administrative		855,979			998,243

Total Expenses		1,829,599			2,663,347

OPERATING LOSS		(2,860,691	)		(447,076	)

NON-OPERATING INCOME (EXPENSE):
Other		2,829			(15,708	)
Interest		(320,723	)		(302,271	)

Total Non-operating Expense		(317,894	)		(317,979	)

LOSS BEFORE INCOME TAXES		(3,178,585	)		(765,055	)

NET LOSS	$	(3,178,585	)	$	(765,055	)

BASIC LOSS PER SHARE	$	(.73	)	$	(.16	)

WEIGHTED AVERAGE SHARES OUTSTANDING		4,361,184			4,791,974

DILUTED LOSS PER SHARE	$	(.73	)	$	(.16	)

WEIGHTED AVERAGE SHARES OUTSTANDING ASSUMING DILUTION		4,361,184			4,791,974


UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

COMPREHENSIVE INCOME
Net loss	$	(3,178,585	)	$	(765,055	)
Unrealized loss on derivative instruments		(412,678	)		(161,044	)

COMPREHENSIVE LOSS	$	(3,591,263	)	$	(926,099	)

~~Page~~The 4accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

~~Table of Contents~~4

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

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Three Months Ended							For the Six Months Ended
	For the Six Months Ended
	December 31,2004				December 31,2003			December 31,2004			December 31,2003
	December 31, 2008			December 31, 2007
NET SALES	$	1723,~~451~~427,~~992~~947		$	$33,245,468	~~13,361,811~~		$	~~34,255,901~~		$	~~26,247,043~~
COST OF SALES		1522,~~108~~240,~~270~~721			28,324,611	~~11,334,711~~			~~29,428,327~~			~~22,187,762~~
Gross Profit		21,~~343~~187,~~722~~226			4,920,857	~~2,027,100~~			~~4,827,574~~			~~4,059,281~~
EXPENSES:
Selling Expense		1,150,886				1,050,694			2,538,810			2,406,264
Selling		2,027,578			2,895,272
General and Administrative		942,288				519,353			1,529,076			1,085,212
General and administrative		1,670,796			1,834,192
Total Expenses:		2,093,174				1,570,047			4,067,886			3,491,476
Total Expenses		3,698,374			4,729,464
OPERATING INCOME		250,548				457,053			759,688			567,805
OPERATING INCOME (LOSS)		(2,511,148	)		191,393
NON-OPERATING INCOME (EXPENSE):
Other income (expense)		94				(1,962	)		792			1,097
Other		24,287			(117,430	)
Interest expense		(294,385	)			(216,032	)		(490,298	)		(686,190	)
Interest		(609,955	)		(565,639	)
Total Non-operating Income (Expense)		(294,291	)			(217,994	)		(489,506	)		(685,093	)
Total Non-operating Expense		(585,668	)		(683,069	)
INCOME (LOSS) BEFORE INCOME TAXES		(43,743	)			239,059			270,182			(117,288	)
LOSS BEFORE INCOME TAXES		(3,096,816	)		(491,676	)
INCOME TAX EXPENSE		—				—			—			—
NET LOSS	$	(3,096,816	)	$	(491,676	)
NET INCOME (LOSS)	$	(43,743	)		$	239,059		$	270,182		$	(117,288	)
BASIC LOSS PER SHARE	$	(.71	)	$	(.10	)
BASIC EARNINGS (LOSS) PER SHARE	$	(0.01	)		$	0.05		$	0.06		$	(0.02	)
WEIGHTED AVERAGE SHARES OUTSTANDING		4,361,184			4,810,624
WEIGHTED AVERAGE SHARES OUTSTANDING		4,814,275				4,757,608			4,811,268			4,757,608
DILUTED LOSS PER SHARE	$	(.71	)	$	(.10	)
DILUTED EARNINGS (LOSS) PER SHARE	$	(0.01	)		$	0.05		$	0.06		$	(0.02	)
WEIGHTED AVERAGE SHARES OUTSTANDING ASSUMING DILUTION		4,361,184			4,810,624
WEIGHTED AVERAGE SHARES OUTSTANDING ASSUMING DILUTION		4,866,882				4,819,635			4,863,514			4,821,862
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
COMPREHENSIVE INCOME
Net loss	$	(3,096,816	)	$	(494,676	)
Unrealized loss on derivative instruments		(421,322	)		(318,910	)
COMPREHENSIVE LOSS	$	(3,518,138	)	$	(813,586	)

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

~~consolidated financial statements~~ 5

~~Page~~FOUNTAIN 5POWERBOAT INDUSTRIES, INC. AND SUBSIDIARIES

~~Table~~UNAUDITED ofCONDENSED ~~Contents~~CONSOLIDATED STATEMENTS OF CASH FLOWS

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY


	For the Six Months Ended
	December 31, 2008			December 31, 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(3,096,816	)	$	(491,676	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation		1,323,618			1,200,077
Inventory valuation adjustment		79,227			—
Earnings on cash surrender value of life insurance		(114,649	)		(110,337	)
(Gain) loss on disposal of assets		264			(1,798	)
Bad debt expense		24,210			11,108
Amortization		21,869			53,453
Deferred taxes		—			—
Change in assets and liabilities:
Accounts receivable		1,346,124			182,777
Inventories, net		(534,995	)		(448,802	)
Prepaid expenses		95,745			(82,788	)
Other assets		(58,904	)		18,950
Accounts payable		(899,426	)		(69,863	)
Accrued expenses		(621,098	)		127,372
Dealer incentives		(496,415	)		(605,412	)
Customer deposits		529,501			(601,002	)
Warranty reserve		(33,041	)		(88,943	)
Buyback allowance		92,448			20,335

Net Cash Used by Operating Activities		(2,342,338	)		(886,549	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment		—			3,600
Purchase of property, plant and equipment		(151,472	)		(271,676	)
Investment in molds and related plugs		(483,264	)		(406,907	)

Net Cash Used by Investing Activities		(634,736	)		(674,983	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable		2,728,813			1,818,772
Payments of notes payable		—			(799,333)
Proceeds from long-term debt		326,000			1,400,000
Payment of loan origination fees		—			(120,857	)
Payments of long-term debt		(397,999	)		(854,547	)
Payments to re-purchase common stock		—			(848,878	)

Net Cash Provided by Financing Activities		2,656,814			595,157

Net decrease in cash and cash equivalents		(320,260	)		(966,375	)
Cash and cash equivalents at the beginning of period		1,445,270			2,379,383

Cash and cash equivalents at the end of period	$	1,125,010		$	1,413,008

~~UNAUDITED~~The ~~CONDENSED~~accompanying ~~CONSOLIDATED~~notes ~~STATEMENTS~~are OFan ~~CASH~~integral ~~FLOWS~~ part of these unaudited condensed consolidated financial statements.

~~Increase (Decrease) in Cash and Cash Equivalents~~ 6

	For the Six Months Ended
	December 31, 2004			December 31, 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	270,182		$	(117,288	)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Depreciation expense		962,475			1,042,909
Amortization of deferred loan cost		39,969			246,980
Non – cash expense		—			9,085
Change in assets and liabilities:
(Increase) in accounts receivable		(899,485	)		(223,752	)
(Increase) in inventories		(58,433	)		(431,179	)
(Increase) decrease in prepaid expenses		236,207			(193,816	)
Increase (decrease) in accounts payable		1,190,619			(5,688,483	)
Decrease in accrued expenses		(852,003	)		(447,814	)
Increase in dealer incentives		642,272			427,658
Increase (decrease) in customer deposits		622,638			(60,721	)
Net Cash Provided (Used) by Operating Activities		2,154,441			(5,436,421	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant, and equipment		(726,884	)		(110,857	)
Investment in molds and related plugs		(958,445	)		(481,269	)
(Increase) in other assets		(169,008	)		(222,468	)
Net Cash Used by Investing Activities		(1,854,337	)		(814,594	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt		—			18,067,841
Payments of long-term debt		(694,253	)		(8,898,421	)
Payment of deferred loan cost		—			(148,129	)
Proceeds from stock options exercised		9,668			—
Net Cash Provided (Used) by Financing Activities		(684,585	)		9,021,291
Net increase (decrease) in cash and cash equivalents		(384,481	)		2,770,276
Cash and cash equivalents at beginning of period		3,713,789			1,224,935
Cash and cash equivalents at end of period	$	3,329,308		$	3,995,211

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARIES

~~(Continued)~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Page~~NOTE 61. – BASIS OF PRESENTATION

~~Table~~The accompanying unaudited consolidated financial statements have been prepared by Fountain Powerboat Industries, Inc. (the “Company”) in accordance with accounting principles generally accepted in the United States of ~~Contents~~America for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (which include normal recurring adjustments) considered necessary to present fairly the financial position, results of operations and cash flows at December 31, 2008 and for all periods presented have been made.

~~FOUNTAIN~~Certain ~~POWERBOAT~~information ~~INDUSTRIES~~and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted for purposes of filing interim financial statements with the Securities and Exchange Commission. It is suggested that these condensed financial statements be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, ~~INC~~2008. ~~AND~~The ~~SUBSIDIARY~~results of operations for the three and six month periods ended December 31, 2008 are not necessarily indicative of the operating results for the full year.

~~UNUAUDITED~~The ~~CONDENSED~~Company ~~CONSOLIDATED~~generally ~~STATEMENTS~~sells OFboats ~~CASH~~only ~~FLOWS~~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.

~~Increase~~The ~~(Decrease)~~Company, inthrough ~~Cash~~its wholly owned subsidiary, Fountain Dealers’ Factory Superstore, Inc., sells new Fountain boats, used boats and ~~Cash~~other ~~Equivalents~~assets acquired from trades, trailers, services and accessories to retail customers. Revenue is recognized when the Company has a signed contract with the customer or has received payment.

~~(Continued)~~NOTE 2. – INVENTORIES

	For the Six Months Ended
	December 31, 2004		December 31, 2003
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest, net of amounts capitalized	$	453,395	$	498,339
Income Taxes	$	—	$	—

Inventories consist of the following:

Supplemental Disclosures of Noncash Investing and Financing Activities:


	December 31, 2008			June 30, 2008
Parts and supplies	$	2,626,044		$	2,522,375
Work-in-process		2,121,460			2,848,206
Finished goods		3,741,609			2,641,806

		8,489,113			8,012,387
Reserve for obsolescence		(90,961	)		(70,003	)

	$	8,398,152		$	7,942,384

~~For~~All of the ~~six~~inventories ~~month period~~are ~~ended~~owned ~~December~~by the Company and pledged as collateral on notes and mortgages payable at December 31, ~~2003:~~ 2008.

The Company recorded consulting expense of $1,795 as a result of amortization of deferred compensation from 40,000 options issued to purchase common stock during Fiscal 2002, vesting through January 2004 and expiring through January 2009. 7

~~The~~FOUNTAIN ~~accompanying~~POWERBOAT ~~notes~~INDUSTRIES, ~~are~~INC. anAND ~~integral part of these unaudited condensed~~ SUBSIDIARIES

~~consolidated~~NOTES ~~financial~~TO ~~statements~~THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~Page~~NOTE 73. – RECENT ACCOUNTING PRONOUNCEMENTS

~~Table~~In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements”. This Statement amends ARB 51 to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of ~~Contents~~a subsidiary. This Statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, 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 gain 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 amendments to ARB 51, this Statement amends FASB Statement No. 128, Earnings per Share, so that earnings-per-share data will continue to be calculated the same way those data were calculated before this Statement was issued. That is, the calculation of earnings-per-share amounts in consolidated financial statements will continue to be based on amounts attributable to the parent. This statement is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company does not expect the statement to have an effect on its consolidated financial statements.

~~FOUNTAIN~~In ~~POWERBOAT~~March 2008, ~~INDUSTRIES~~the FASB issued SFAS No. 161, ~~INC~~“Disclosures about Derivative Instruments and Hedging Activities” This Statement requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. ~~AND~~Entities ~~SUBSIDIARY~~are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This Statement is intended to enhance the current disclosure framework in Statement 133. The Statement requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. This disclosure better conveys the purpose of derivative use in terms of the risks that the entity is intending to manage. Disclosing the fair values of derivative instruments and their gains and losses in a tabular format should provide a more complete picture of the location in an entity’s financial statements of both the derivative positions existing at period end and the effect of using derivatives during the reporting period. Disclosing information about credit-risk-related contingent features should provide information on the potential effect on an entity’s liquidity from using derivatives. Finally, this Statement requires cross-referencing within the footnotes, which should help users of financial statements locate important information about derivative instruments effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company has not yet determined the impact of adopting FAS 161 on its consolidated financial statements.

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ 8

~~NOTE~~FOUNTAIN 1POWERBOAT –INDUSTRIES, ~~BASIS~~INC. OFAND ~~PRESENTATION~~ SUBSIDIARIES

~~The~~NOTES ~~accompanying~~TO ~~financial~~THE ~~statements~~UNAUDITED ~~have~~CONDENSED ~~been~~CONSOLIDATED ~~prepared~~FINANCIAL bySTATEMENTS ~~the Company without audit. In the opinion of management, all adjustments~~ (~~which include only normal recurring adjustments~~CONTINUED) ~~necessary to present fairly the financial position, results of operations and cash flows at December 31, 2004 and for all periods presented have been made.~~

~~Certain~~NOTE information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted for purposes of filing interim financial statements with the Securities and Exchange Commission4. It– isDEBT ~~suggested~~AND ~~that~~PLEDGED ~~these~~ASSETS condensed financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended June 30, 2004. The results of operations for the three and six month periods ended December 31, 2004 are not necessarily indicative of the operating results for the full year.

~~Principles~~On November 16, 2007, the Company restructured its long-term debt. On that date the Company entered into an Amended & Restated Loan Agreement with Regions Bank consisting of ~~Consolidation:~~1) ~~The~~a ~~consolidated~~$14,500,000 ~~financial statements~~term ~~include~~loan (the ~~accounts~~“Term Loan”) and 2) a $2,000,000 revolving line of credit (the ~~Company~~“Revolver”). This agreement amends and restates in its ~~wholly~~entirety ~~owned~~the ~~subsidiary~~original $16,500,000 ~~Fountain~~term ~~Powerboats~~loan the Company entered into with Regions Bank on September 19, ~~Inc~~2005. ~~All~~The ~~significant~~Amended ~~inter-company~~& Restated Loan Agreement matures September 19, 2010 and is secured by accounts receivable, inventories, property, plant and ~~transactions~~equipment, ~~have~~death ~~been~~proceeds ~~eliminated~~under incertain ~~consolidation.~~life insurance policies, and common stock.

~~Accounting~~Principal ~~Estimates:~~payments ~~The~~on ~~preparation~~the ofTerm ~~financial~~Loan ~~statements~~continue inon ~~conformity~~the ~~with accounting~~same ~~principles~~schedule ~~generally~~as ~~accepted~~under inthe original loan agreement at approximately $67,000 per month during the ~~United~~three ~~States~~months ended December 31, 2008, escalating over time with a final principal payment of ~~America~~$12,286,254 ~~requires~~due ~~management~~September 19, to2010. ~~make~~Interest ~~estimates~~is ~~and~~payable ~~assumptions~~monthly. The Term Loan includes $2,125,000 that ~~affect~~bears interest, at the ~~reported~~Company’s ~~amounts~~option, under one of ~~assets~~two ~~and~~available ~~liabilities,~~methods. The first available interest computation method provides for interest at the ~~disclosures~~higher of ~~contingent~~the ~~assets~~Prime ~~and~~Rate ~~liabilities~~or the Federal Funds rate plus 1/2%. The second available interest computation method bears interest at the ~~date~~ sum of (i) the ~~financial~~one ~~statements~~month LIBOR rate divided by 1.0 minus the Eurodollar Reserve Percentage, and (ii) 1.75%. The Company may select either of the ~~reported~~two ~~amounts~~interest rate methodologies by providing written notification to Regions Bank. The balance of ~~revenues~~the ~~and~~Term ~~expenses~~Loan, ~~during~~$12,375,000, bears interest that has been set at a fixed annual rate of 6.45% through the ~~reporting~~use ~~period~~of an interest rate swap. ~~Actual~~The ~~operating~~fixed ~~results~~annual ~~could~~rate ~~differ~~of ~~from~~6.45% ~~those~~is ~~estimated~~a byblended ~~management~~rate that combines the 1.75% premium over one month LIBOR referenced above with a fixed interest rate of 4.70% paid by the Company to the counterparty under the terms of our interest rate swap agreement, described below.

~~Cash~~Loans ~~and~~under ~~Cash~~the ~~Equivalents:~~Revolver ~~For~~must ~~purposes~~be ofin ~~the~~a ~~statement~~principal amount of ~~cash~~at ~~flows~~least $500,000 and will accrue interest at a rate equal to the ~~Company~~higher ~~considers~~of ~~all~~i) ~~highly~~Regions ~~liquid~~Bank’s ~~debt~~prime ~~instruments~~rate ~~with~~ plus a ~~maturity~~½% ofper ~~three~~annum ~~months~~plus the applicable margin or ~~less~~ii) tothe beFed ~~cash~~Funds ~~equivalents~~Rate plus a ½% per annum plus the applicable margin. AtThe ~~December~~applicable ~~31,~~margin ~~2004~~for ~~and~~loans ~~June~~under ~~30,~~the ~~2004,~~revolver is 1% per annum. Principal repayment of any loans under the Revolver will be accomplished by releasing the receipts of the Company’s ~~had~~lockbox $3to Regions Bank until any loans under the Revolver,~~229,308~~ ~~and~~plus $3accrued interest,~~613,789,~~ ~~respectively~~is repaid. At December 31, in2008 ~~excess~~the ofoutstanding ~~federally~~amount ~~insured~~of ~~amounts~~the ~~held~~Revolver inwas ~~cash~~$2,000,000.

~~Derivative~~The ~~Financial~~Amended ~~Instruments:~~& ~~The~~Restated ~~Company~~Loan ~~uses~~Agreement ~~derivative~~contains ~~financial~~restrictive ~~instruments for~~covenants ~~the~~setting ~~purpose~~forth ofminimum ~~reducing~~earnings ~~its~~before ~~exposure~~interest, totaxes, ~~adverse~~depreciation ~~fluctuations~~and inamortization ~~interest~~(EBITDA) ~~rates.~~and ~~While~~maximum ~~these~~allowable ~~hedging~~capital ~~instruments~~expenditures ~~are~~which ~~subject~~were torestructured ~~fluctuations~~by inRegions ~~value~~Bank on September 24, ~~such~~2008. ~~fluctuations~~Other ~~are~~covenants ~~generally~~include ~~offset~~a bynumber ~~the~~of ~~value~~other limitations, including restrictions on mergers or consolidations, disposal of ~~the~~assets, ~~underlying~~investments, ~~exposures~~incurrence ~~being~~of ~~hedged~~other indebtedness and payment of dividends. The Company ~~accounts~~believes ~~for~~that these ~~derivative~~restrictions ~~financial~~will ~~instruments~~not ashave ana ~~effective~~material ~~cash~~effect ~~flow~~on ~~hedge~~the ~~under~~Company’s ~~the~~ability ~~provisions~~to ofmaintain ~~Statement~~and ofimprove ~~Financial~~its ~~Accounting~~facilities ~~Standards~~and ~~(SFAS)~~compete Nowith other companies in the boating industry. As ~~133~~of December 31, ~~“Accounting~~2008 ~~for~~the ~~Derivative~~Company ~~Instruments~~was ~~and~~not ~~Hedging Activities”~~in ~~and~~compliance itwith ~~has~~ the ~~effect~~covenant ofsetting ~~converting~~forth ~~the~~minimum ~~interest~~EBITDA. ~~rate~~The ~~paid~~minimum onEBITDA required for the ~~notional~~three ~~amount~~months ofended December 31, 2008 is $9915,000~~,000~~. ofThe actual EBITDA reported by the Company’s ~~variable~~for ~~debt~~that period is ($2,194,271). Regions Bank has not yet issued to athe ~~fixed~~Company ~~rate~~a waiver of ~~6.02%.~~their ~~The~~right ~~difference~~to ~~between~~remedy the technical default resulting from the Company’s ~~actual~~breach ~~variable~~of ~~interest~~this ~~rate and 6~~covenant.~~02%~~ onThe ~~the~~remedy ~~notional~~for ~~amount~~an ~~for~~event of default prescribed in the ~~next~~Amended ~~twelve~~& ~~months~~Restated Loan Agreement is ~~reclassified~~for ~~from~~Regions ~~other~~Bank ~~comprehensive~~to ~~income~~declare ~~and~~all ~~recognized~~or asany ~~interest~~part ~~expense.~~of ~~The~~any obligation of the Company isto ~~not~~Regions Bank due and payable immediately. As a ~~party~~consequence toof ~~leveraged~~violating ~~derivatives~~this ~~and~~covenant, ~~does~~the ~~not~~entire ~~hold~~balance oroutstanding ~~issue~~on ~~financial~~the ~~instruments~~Term ~~for speculative~~Loan ~~purposes.~~has been reclassed from Long-Term Debt to Current Liabilities on the Company’s Unaudited Condensed Consolidated Balance Sheets.

~~Revenue Recognition:~~ The Company ~~generally~~utilizes ~~sells boats~~an ~~only~~interest torate ~~authorized~~swap ~~dealers~~agreement ~~and~~to hedge exposure to ~~the~~fluctuations ~~U.S.~~in ~~Government~~market interest rates. AUnder ~~sale~~United isStates ~~recorded~~GAAP, ~~when~~an ainterest ~~boat~~rate isswap ~~shipped~~agreement tois considered a ~~dealer~~derivative orfinancial instrument. Due to the ~~Government~~nature of the derivative and the intended use by the Company, ~~legal~~the ~~title~~derivative qualifies as a Cash Flow Hedge. SFAS No. 133, “Accounting for Derivative Instruments and ~~all~~Hedging ~~other~~Activities”, ~~incidents~~requires that the value of ~~ownership~~the ~~have~~derivative ~~passed~~be ~~from~~“marked-to-market” periodically and any change in the ~~Company~~market tovalue of the ~~dealer~~swap orbe ~~Government,~~reflected ~~and~~ in the financial statements of the Company as an ~~accounts~~adjustment ~~receivable~~to isOther ~~recorded~~Comprehensive orIncome. ~~payment~~The ~~received~~market ~~from~~value of the ~~dealer,~~derivative is calculated as of the ~~Government,~~last orday of the ~~dealer’s~~period ~~third-party~~and ~~commercial~~any ~~lender.~~change ~~This~~since ~~method~~the end of ~~sales~~the ~~recognition~~previous period is reflected in ~~use~~an byadjustment ~~most~~to ~~boat~~Stockholders’ ~~manufacturers~~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 dated September 19, 2005 and maintains the Swap as a hedge related to the Term Loan of the Amended & Restated Loan

~~Page 8~~ 9

~~Table~~FOUNTAIN ofPOWERBOAT ~~Contents~~INDUSTRIES, INC. AND SUBSIDIARIES

~~FOUNTAIN~~NOTES ~~POWERBOAT~~TO ~~INDUSTRIES,~~THE ~~INC.~~UNAUDITED ~~AND~~CONDENSED ~~SUBSIDIARY~~CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~NOTES~~NOTE TO4. ~~THE~~– ~~UNAUDITED~~DEBT ~~CONDENSED~~AND ~~CONSOLIDATED~~PLEDGED ~~FINANCIAL~~ASSETS ~~STATEMENTS~~ (Continued)

~~NOTE~~Agreement 1dated –November 16, ~~BASIS~~2007. OFThe ~~PRESENTATION~~Swap ~~(continued)~~has a notional amount of $12,375,000, a term of five years and 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 December 31, 2008 the market value adjustment for this swap results in an unrealized loss totaling $771,608, net of tax. SFAS No. 133 also requires periodic assessment of the effectiveness of any instrument designated as a hedge. If the assessment indicates the hedge is less than highly effective in offsetting the gains or losses incurred by the hedged transaction, the ineffective portion of the hedge must be reported currently in the Statement of Operations. The assessment results as of December 31, 2008 indicate that the hedge is highly effective, and we have determined that the impact to the Company’s Consolidated Statement of Operations is immaterial.

~~The~~On ~~Company~~September 28, ~~has~~2007, ~~developed~~the ~~criteria~~Company ~~for~~entered ~~determining~~into ~~whether~~ a ~~shipment~~Dealer ~~should~~Floor bePlan ~~recorded~~and ~~as a~~Security ~~sale~~Agreement or(the as“Floor aPlan”) ~~deferred~~with ~~sale~~Regions Bank (athe ~~balance sheet liability~~“Lender”). ~~The~~which ~~criteria~~provides for ~~recording~~ a ~~sale~~secured, ~~are~~revolving ~~that~~line ~~the~~of ~~boat~~credit ~~has~~under ~~been~~which ~~completed~~the ~~and~~Company ~~shipped~~may obtain up to aan ~~dealer~~aggregate orof to$5 million in loans from the ~~Government,~~lender. ~~that~~Each ~~title~~loan ~~and~~constitutes ~~incidents~~a ofseparate ~~ownership~~note ~~have~~and ~~passed~~is to ~~the~~be ~~dealer~~secured by a new or toused ~~the Government~~boat, ~~and~~acquired ~~that~~by ~~there~~Fountain isDealers’ noFactory ~~direct~~Super orStore, ~~indirect~~Inc. ~~commitment~~with to the ~~dealer~~proceeds orof tothe loan, with the ~~Government~~intent to ~~repurchase~~sell the boat ~~save~~to ~~those~~a ~~manufacturer’s~~retail ~~repurchase~~customer. ~~agreements~~Upon ~~with~~executing ~~lending~~the ~~institutions~~retail ~~which~~sale, ~~are~~the ~~more~~entire ~~fully~~loan ~~discussed~~amount inis ~~Note~~to 6be immediately repaid to ~~these financial~~the ~~statements~~Lender.

The ~~sales~~Company ~~incentive~~must pay interest ~~payment~~monthly ~~program~~on ~~for~~the ~~each boat~~entire ~~sale~~unpaid principal balance of the amounts borrowed under all outstanding notes. Interest is ~~accrued~~computed ~~for~~at the ~~entire~~Lender’s ~~interest~~Prime ~~period~~Rate inplus 1%, as determined on the ~~same~~date ~~fiscal~~of ~~accounting~~each ~~period~~note. ~~that~~Each loan under the ~~related~~Floor ~~sale~~Plan ismust ~~recorded~~be ~~(see~~repaid ~~Note~~in 6full towithin ~~these~~9 ~~financial~~months ~~statements)~~of the date of the note. ~~The~~At December 31, 2008, the outstanding amount of ~~interest~~all ~~accrued~~loans iswas ~~subsequently~~$3,804,419. ~~adjusted~~The Floor Plan contains certain restrictive covenants 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 ~~reflect~~compete effectively in the ~~actual number~~boating ofindustry. ~~days~~At ofDecember 31, ~~remaining~~2008, ~~liability~~the Company was not in compliance with the covenant setting forth minimum EBITDA. The minimum EBITDA required for ~~floor~~the ~~plan~~three ~~interest~~months ended December 31, 2008 is $190,000. The actual EBITDA reported by the Company for ~~each~~that ~~individual~~period ~~boat~~is ~~remaining~~$41,144. inRegions Bank has not yet issued to the ~~dealer~~Company a waiver of their right to remedy the technical default resulting from the Company’s ~~inventory~~breach of this covenant. The remedy for an event of default prescribed in the Dealer Floor Plan and onSecurity ~~floor~~Agreement ~~plan.~~is that Regions Bank has the right to terminate the agreement.

~~Stock~~On ~~Options:~~May 28, ~~The~~2008 ~~Company~~the ~~has~~Baja ~~stock~~by ~~incentive~~Fountain, ~~plans~~Inc. ~~that~~subsidiary ~~provide~~borrowed ~~for~~$4 million ~~stock-based~~from ~~employee~~the ~~compensation,~~Baja ~~including~~Marine Corporation (“Baja”) to finance the ~~granting~~acquisition of ~~stock~~certain ~~options,~~assets from Baja. This indebtedness is evidenced by a promissory note (the “ Baja Note”) issued to ~~certain~~Baja ~~key employees~~Marine Corporation pursuant to the Asset Purchase Agreement and ~~other~~in ~~individuals.~~connection ~~The~~with ~~plans~~the ~~are~~Engine ~~more~~Supply ~~fully~~Agreement ~~described~~between inthe ~~Note~~Company 5and the Brunswick Corporation. The ~~Company~~Baja ~~accounts~~Note ~~for~~is ~~stock~~guaranteed ~~options~~by ~~issued~~Fountain toPowerboat ~~employee~~Industries, ~~officer~~Inc. and ~~directors~~is ~~under~~secured by the ~~stock~~assets ~~incentive~~purchased ~~plan~~from inBaja ~~accordance~~and ~~with~~certain ~~the~~replacement ~~recognition~~assets ~~and~~Baja ~~measurement principles~~By ofFountain, ~~APB~~Inc. ~~Opinion~~acquires ~~No.~~or 25develops in the future, ~~“Accounting~~if ~~for~~the ~~Stock~~assets ~~Issued~~are used solely to ~~Employees”,~~manufacture and ~~related~~sell ~~Interpretations~~boats under the Baja name. ~~Under~~The ~~this~~Baja ~~method,~~Note ~~compensation~~bears ~~expense~~7% annual interest. No principal or interest is ~~recorded~~due onunder the ~~date~~Note ofuntil ~~grant~~June 30, ~~only~~2020. ifAt that time, the ~~current~~Note ~~market~~will ~~price~~be ofcancelled without payment by the ~~underlying~~Company, ~~stock exceeded~~if the ~~exercise~~Company ~~price.~~has ~~Under~~not defaulted on its obligations to the ~~Company’s~~Brunswick ~~stock~~Corporation. ~~incentive~~In ~~plan,~~addition ~~stock~~to ~~options~~normal ~~are~~cross ~~granted~~default atprovisions ~~exercise~~common ~~prices~~in ~~that~~promissory ~~equal~~notes, orbreach ~~exceed~~by the ~~market~~Company ~~value~~of either of the ~~underlying~~two ~~common~~Engine ~~stock~~Supply onAgreements ~~the~~described ~~date~~in ofNote ~~grant.~~4 ~~Therefore,~~of nothis ~~compensation~~Report ~~expense related~~would tocause ~~stock~~all ~~options~~principal isand ~~recorded~~interest inunder the ~~Consolidated~~Note ~~Statements~~to ofbecome ~~Operations~~due.

~~During~~At December 31, 2008, the ~~periods~~Company ~~presented~~had inoutstanding ~~the~~loans ~~accompanying~~totaling ~~financial~~$3,226,000 ~~statements~~from the ~~Company~~Cash ~~has~~Surrender ~~granted~~Value ~~options~~of ~~under~~key ~~the~~man ~~1995~~life ~~and~~insurance ~~1999~~policies ~~Stock~~it ~~Options~~owns ~~Plans~~on ~~and~~the ~~executive~~life of founder, Chairman and ~~other~~CEO ~~employment~~Reginald ~~agreements~~M. ~~The~~Fountain, ~~Corporation~~Jr. ~~has~~This ~~adopted~~amount ~~the~~consists ~~disclosure-only provisions~~ of ~~SFAS~~individual ~~No.~~loans ~~123~~against each of six policies, ~~“Accounting~~taken ~~for~~between ~~Stock-Based~~September 2006 ~~Compensation~~and December 2008.” ~~Accordingly,~~Each ~~compensation~~loan ~~cost~~accrues ~~under~~interest ~~SFAS~~at Noa fixed rate. ~~123~~The ~~has~~interest ~~been~~rates ~~recognized~~are ~~for~~specific ~~certain~~to ~~stock~~each ~~options~~individual ~~issued~~policy ~~under~~and ~~other~~range ~~agreements~~from 5.77% per annum to ~~non-employee~~8.00% per annum. Interest accrues each month and ~~recorded~~is indue annually on the ~~accompanying~~ ~~statement~~anniversary date of ~~operations,~~the ~~but~~loan. noFailure ~~compensation~~to ~~cost~~pay ~~under~~interest ~~SFAS~~when Nodue results in accrued interest being added to the outstanding principal balance. ~~123~~Repayment ~~has~~of ~~been~~principal ~~recognized~~and ~~for~~interest ~~stock~~is ~~options~~not ~~issued~~required, ~~under~~however, failure to do so results in a decrease in the ~~plans~~death benefit and, ~~other~~under ~~agreements~~certain ~~with~~conditions, ~~employees.~~may result in termination of policies.

~~Page 9~~ 10

~~Table~~FOUNTAIN ofPOWERBOAT ~~Contents~~INDUSTRIES, INC. AND SUBSIDIARIES

~~FOUNTAIN~~NOTES ~~POWERBOAT~~TO ~~INDUSTRIES,~~THE ~~INC.~~UNAUDITED ~~AND~~CONDENSED ~~SUBSIDIARY~~CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~NOTES~~NOTE TO5. ~~THE~~– ~~UNAUDITED~~COMMITMENTS ~~CONDENSED~~AND ~~CONSOLIDATED~~CONTINGENCIES ~~FINANCIAL STATEMENTS~~

~~NOTE~~Manufacturer 1Repurchase Agreements – ~~BASIS~~The OFCompany ~~PRESENTATION~~makes available through third-party finance companies floor plan financing for many of its dealers. Sales to participating dealers are approved by the respective finance companies. If a participating dealer does not satisfy its obligations under the floor plan financing agreement in effect with its commercial lender(~~continued~~s) and boats are subsequently repossessed by the lender(s), under certain circumstances the Company may be required to repurchase the repossessed boats if it has executed a repurchase agreement with the lender(s). At December 31, 2008, the Company had a total contingent liability to repurchase boats in the event of dealer defaults and if repossessed by the commercial lenders amounting to approximately $40,661,000. At December 31, 2008, the allowance for boat repurchases was $171,235.

~~Had~~Baja ~~compensation~~Note ~~cost~~- ~~for~~The ~~stock~~Baja ~~options~~note ~~issued~~described toin ~~employees~~Note 3 of this report bears 7% annual interest but no principal or interest is due under the Note until June 30, 2020. At that time the Note will be cancelled, by Brunswick Corporation, without payment by the Company’s ~~stock option~~provided ~~plans~~the ~~and~~Company ~~agreements~~has ~~been~~not ~~determined~~defaulted ~~based~~on its obligations to the Brunswick Corporation on either of the ~~fair~~two ~~value~~Engine atSupply Agreements. Should the ~~grant~~Company ~~date~~breach ~~for~~either ~~awards~~of inthe two Engine Supply Agreements or use the ~~six~~acquired ~~months~~assets ~~ended~~for ~~December~~purposes 31other than to manufacture Baja boats, ~~2004~~the principal and ~~2003~~accrued ~~consistent~~interest would be payable. It is management’s opinion there is a “less than remote” possibility the Company will be in default of either of these stipulations with the ~~provisions~~Brunswick Corporation, now or on the maturity date of ~~SFAS~~June 30, No2020. ~~123~~At December 31, 2008 the ~~Company’s~~amount ~~net~~payable ~~income~~would ~~and~~be ~~earnings~~$4,000,000 ~~per~~principle ~~share would~~plus ~~have~~$163,333 ~~been~~accrued ~~reduced~~interest toshould the ~~pro~~Company ~~forma~~violate ~~amounts~~either ~~indicated~~of ~~below:~~the two Engine Supply Agreements.

	For the Three Months Ended						For the Six Months Ended
	December 31, 2004			December 31, 2003			December 31, 2004			December 31, 2003
Net Income (Loss) as Reported	$	(43,743	)	$	239,059		$	270,182		$	(117,288	)
Add: Stock-based non-employee
Compensation expense included in Reported net income											1,795
Deduct: Total stock-based employee
Compensation expense determined Under fair value based method		(4,221	)		(5,193	)		(8,442	)		(10,386	)
Net Income (Loss) Pro forma	$	(47,964	)		233,866		$	261,740		$	(125,879	)
Basic earnings (loss) per share:
As reported	$	(.01	)	$	0.05		$	.06		$	(0.02	)
Pro forma	$	(.01	)	$	0.05		$	.05		$	(0.02	)
Diluted earnings (loss) per share:
As reported	$	(.01	)	$	0.05		$	.06		$	(0.02	)
Pro forma	$	(.01	)	$	0.05		$	.05		$	(0.02	)

Dealer Interest – The Company regularly pays a portion of dealers’ interest charges for floor plan financing. These interest charges amounted to approximately $367,120 and $618,291 for the three and six months ended December 31, 2008, respectively. These interest charges amounted to approximately $488,000 and $763,000 for the three and six months ended December 31, 2007, respectively. The estimated unpaid dealer interest included in accrued dealer incentives amounted to approximately $288,732 at December 31, 2008 and $475,381 at December 31, 2007.

~~NOTE~~Interest 2Rate Risk - ~~ACCOUNTS~~At ~~RECEIVABLE~~ December 31, 2008, the Company owed $13,590,401 on the $14,500,000 Term Loan from Regions Bank. The loan agreement has $1,215,401 at the one month LIBOR plus 1.75% and $12,375,000 under an interest rate swap to provide a fixed rate of 6.45%. At December 31, 2008, the Company had an outstanding balance of $2,000,000 on the $2,000,000 Revolver at the lender’s Prime Rate plus a ½% plus a margin of 1%. In addition, the outstanding balance on the Dealer Floor Plan and Security agreement, $3,804,419 as of December 31, 2008, accrues interest at the lender’s Prime Rate plus 1%. A hypothetical 50 basis point increase in interest rates would result in an approximately $35,100 increase in annual interest expense.

AsEngine ofSupply ~~December~~Agreements ~~31,~~– ~~2004,~~The ~~accounts~~Company ~~receivable~~has ~~were~~two ~~$5,036,969~~Engine ~~net~~Supply ofagreements ~~the allowance~~with ~~for~~Brunswick ~~bad~~Corporation ~~debts~~to ofpurchase ~~$82,841.~~all ~~Accounts~~marine ~~Receivable,~~engines ~~as of June 30, 2004, were $4,137,484 net of the allowance~~ for ~~bad debts which amounted to $82,841. The Company reviews~~ its ~~receivables~~Fountain onPowerboats aproduct ~~regular~~line ~~basis~~ and ~~adjusts~~Baja ~~its~~product ~~allowance~~line ~~for~~from ~~doubtful accounts~~Mercury ~~based~~Marine, ~~upon~~a ~~its~~division ~~best judgment. The Company believes these amounts (net~~ of ~~the~~Brunswick, ~~allowance~~except for ~~doubtful~~products ~~accounts)~~in tocategories bein ~~fully~~which ~~realizable~~Mercury ~~and~~does ~~has~~not ~~pledged~~manufacture ~~its~~or ~~receivables~~are asunavailable ~~collateral~~from ~~for~~Mercury ~~its~~due ~~promissory~~to ~~note~~production ~~with Bank of America~~shortages.

NOTE 36. -– ~~INVENTORIES~~TRANSACTIONS WITH RELATED PARTIES

~~Inventories~~At at December 31, ~~2004~~2008, ~~and~~the ~~June~~Company ~~30,~~had ~~2004~~receivables ~~consisted~~from ofits ~~the~~employees ~~following:~~amounting to $46,611.

	December 31, 2004			June 30, 2004
Parts and supplies	$	2,064,945		$	1,920,860
Work-in-process		2,419,908			1,999,076
Finished Goods		276,982			783,466
		4,761,835			4,703,402
Obsolete inventory reserve		(50,000	)		(50,000	)
Total Inventory	$	4,711,835		$	4,653,402

During the three and six months ended December 31, 2008, the Company paid $35,416 and $103,809, respectively to entities owned or controlled by the Company’s Chairman and Chief Executive Officer.

~~The Company has pledged its inventories as collateral for its promissory note with Bank of America.~~ 11

~~Page~~FOUNTAIN 10POWERBOAT INDUSTRIES, INC. AND SUBSIDIARIES

~~Table~~NOTES ofTO ~~Contents~~THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~FOUNTAIN~~NOTE ~~POWERBOAT~~7. ~~INDUSTRIES,~~– ~~INC.~~EARNINGS ~~AND~~(LOSS) ~~SUBSIDIARY~~PER SHARE

~~NOTES~~Statement TOof ~~THE~~Financial ~~UNAUDITED~~Accounting ~~CONDENSED~~Standard ~~CONSOLIDATED~~(“SFAS”) ~~FINANCIAL~~128 ~~STATEMENTS~~ Earnings per Share requires disclosure of basic earnings per share and diluted earnings per share. This presentation is located on the face of the Statements of Operations for the three and six months ended December 31, 2008. The computations of basic earnings (loss) per share and diluted earnings (loss) per share amounts are based upon the weighted average number of outstanding common shares during the periods, plus, when their effect is dilutive, additional shares assuming the exercise of certain vested stock options, reduced by the number of shares which could be purchased from the proceeds from the exercise of the stock options assuming they were exercised.

~~NOTE~~The 4weighted -average ~~LONG-TERM~~common ~~DEBT~~shares ~~AND~~and ~~PLEDGED~~common ~~ASSETS~~equivalent shares outstanding for the three month periods ended December 31, 2008 and 2007 for purposes of calculating earnings per share was as follows:

The following is a summary of long-term debt:


	For the Three Months Ended
	December 31, 2008		December 31, 2007
Weighted average common shares outstanding used in basic earnings per share for the three months ending		4,361,184		4,791,974

Effect of dilutive stock options		—		—

Weighted average common shares and potential dilutive common equivalent shares outstanding used in dilutive earnings per share		4,361,184		4,791,974


	For the Six Months Ended
	December 31, 2008		December 31, 2007

Weighted average common shares outstanding used in basic earnings per share for the six months ending		4,361,184		4,810,624

Effect of dilutive stock options		—		—

Weighted average common shares and potential dilutive common equivalent shares outstanding used in dilutive earnings per share		4,361,184		4,810,624

		December 31, 2004			June 30, 2004
9.99%	Loans payable to a financial institution for the purchase of vehicles, monthly payments totaling $1,383 through May 2005 secured By the vehicles purchased	$	10,673		$	18,216
4.00%	Loan payable to a financial institution for the purchase of a vehicle, monthly payments of $726 through September 2006, secured by the vehicle purchased	$	14,597		$	18,522
7.93%	to 8% loans payable borrowed against the cash surrender value of key-man life insurance policies 1998, 2001, and 2002, monthly payments of $25,004	$	1,355,577		$	1,295,449
	$18,000,000 credit agreement with a financial corporation (See below)	$	16,588,742		$	17,310,558
			17,969,589			18,642,745
Less:	Current portions included in current liabilities		(775,691	)		(772,704	)
		$	17,193,898		$	17,870,041

For the three and six months ended December 31, 2008 there were no outstanding options. For the three and six months ended December 31, 2007, options to purchase 450,000 shares were considered anti-dilutive due to the net loss incurred by the Company.

OnNOTE ~~July 17, 2003, the Company obtained $18,000,000 of long-term borrowings, in the form of two $9,000,000 notes, from Bank of America which mature in five years~~8. ~~The~~– ~~agreement~~COMPREHENSIVE with Bank of America has a $9,000,000 note with a rate that is variable with the Wall Street LIBOR one month floating rate as the index plus the applicable margin. The applicable margin is based on funded debt to earnings before interest, taxes, depreciation and amortization INCOME/(~~EBITDA~~LOSS)~~. The applicable margin is as follows:~~

Funded Debt to EBITDA ratio	Applicable Margin
Less than or equal to 1.74 to 1.00	1.90	%
1.75 to 1.00, but less than 2.50 to 1.00	2.10	%
2.50 to 1.00, but less than 3.76 to 1.00	2.25	%
Greater than or equal to 3.76 to 1.00	2.50	%

The Company reports as comprehensive income all changes in stockholders’ equity during the year from sources other than shareholders. Other comprehensive income refers to all components (revenues, expenses, gains, and losses) of comprehensive income that are excluded from net income. The Company’s only component of other comprehensive income is unrealized gains and losses related to the interest rate swap agreement. For the three and six months ended December 31, 2008, the Company’s other comprehensive losses were $412,678 and $421,322, respectively. These amounts, together with net income or loss during the three and six months ended December 31, 2008 result in total comprehensive losses of $3,591,263 and $3,518,138, respectively. For the three and six months ended December 31, 2007, the Company’s other comprehensive losses were $161,045 and $318,910, respectively. These amounts, together with net income or loss during the three and six months ended December 31, 2007 result in total comprehensive losses of $926,100 and $810,586, respectively.

~~The applicable margin is currently 2.50%.~~ 12

~~Page~~FOUNTAIN 11POWERBOAT INDUSTRIES, INC. AND SUBSIDIARIES

~~Table~~NOTES ofTO ~~Contents~~THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

~~FOUNTAIN~~NOTE ~~POWERBOAT INDUSTRIES, INC~~9. ~~AND~~– ~~SUBSIDIARY~~STOCK BASED COMPENSATION

~~NOTES~~The TOCompany ~~THE~~had ~~UNAUDITED~~no ~~CONDENSED~~outstanding ~~CONSOLIDATED~~stock ~~FINANCIAL~~options ~~STATEMENTS~~ at December 31, 2008. There were no options issued during the six months ended December 31, 2008. Furthermore, the compensation expense for all options issued and outstanding under the plan at December 31, 2008 had been charged against income in prior periods. Thus, no compensation expense was recorded during the six months ended December 31, 2008 and none was recorded for the six months ended December 31, 2007.

~~NOTE~~A 4summary -of ~~LONG-TERM~~stock ~~DEBT~~option ~~AND~~activity ~~PLEDGED~~during ~~ASSETS~~the ~~(Continued)~~six months ended December 31, 2008 and the status of the remaining stock options under the plan at December 31, 2008 is presented below:

The agreement with Bank of America further has a $9,000,000 note under an interest rate swap to provide a fixed rate of 6.02%. The interest rate swap is designated as a cash flow hedge and is deemed effective pursuant to SFAS 133. These Bank of America loans have a fifteen year amortization with a five year balloon payment and are secured by certain assets of the Company and real estate of the Company’s President, Chief Executive Officer and majority shareholder, Reginald M. Fountain, Jr. Obligations are guaranteed by the Company, an unlimited unconditional guarantee of Mr. Fountain and by Brunswick Corporation, pursuant to a master funding agreement with the Company. Combined monthly payments to Bank of America currently are approximately $126,000.


	Options	Weighted Average Exercise Price		Weighted Average Remaining Term	Aggregate Intrinsic Value
Outstanding at June 30, 2008	450,000	$	4.67
Exercised	—		—
Authorized	—		—
Forfeited	450,000	$	4.67
Granted	—		—

Outstanding at December 31, 2008	—		—

~~The~~NOTE ~~Company~~10 ~~has~~– ~~agreed~~ABILITY toTO ~~observe~~CONTINUE ~~certain~~AS ~~covenants~~A ~~under~~GOING ~~the terms of its note agreements, the most restrictive of which relates to prepayment of excess earnings, the sale of assets securing the notes and key financial ratios. Chief among the covenants are:~~ CONCERN

1.While ~~Maintenance~~negative working capital, significant historical losses, historical covenant violations, historical negative cash flow from operations, the weak economy, the diminished availability of acredit ~~tangible~~and ~~net~~the ~~worth~~uncertainty ~~floor~~of ~~which~~the fiberglass recreational boating market raises substantial doubt about the Company’s ~~tangible~~ability ~~net~~to ~~worth~~continue as a going concern, management believes such a concern may ~~not~~be ~~fall~~alleviated ~~below~~by current plans and initiatives which are directed towards stabilizing the operation until the economy and marine market recover to a more stable level. Among those plans are reductions in marketing, sales and administrative staffs, curtailing production schedules, reduction in production work force and significant reduction of operating expenses. The uncertainty of the fiberglass recreational boating market, volatile material prices, retail finance and dealer floor plan credit availability uncertainty, effects of 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.

2.NOTE A11 ~~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.CONCENTRATIONS

3.In Athe ~~funded~~six ~~debt~~months toended ~~earnings~~December 31, ~~before~~2008 ~~interest,~~one ~~taxes,~~dealer ~~depreciation~~accounted ~~and~~for ~~amortization~~18% ~~(EBITDA)~~of ~~ratio~~the ~~which~~Company’s issales, ~~defined~~one asdealer ~~the~~accounted ~~ratio~~for of13.9%, ~~all~~one ~~outstanding~~dealer ~~debt~~account ~~both~~for ~~current~~12%, ~~and~~one ~~long-term~~dealer toaccounted ~~EBITDA~~for ~~which~~9.5% ~~the~~and ~~Company’s~~one ~~ratio~~dealer ~~may~~accounted ~~not~~for ~~exceed~~5.8%.

4.NOTE ~~Maintenance~~12 of– aSUBSEQUENT ~~gross margin (gross profit) percentage floor which the Company’s gross margin percentage may not fall below.~~EVENT

~~These~~On ~~covenants~~January 26, ~~change~~2009, ~~and~~the ~~generally~~Company ~~become~~received ~~more~~notice ~~restrictive~~from the NYSE Alternext US (successor to the American Stock Exchange), that, based on its review of information we submitted in ~~future~~response ~~periods~~to the November notice, its Staff has determined that we will not be able to regain compliance with Section 1003(i) of the Company Guide within the allotted amount of time. ~~The~~Additionally, ~~following matrix~~the ~~lists~~notice stated that we also are not in compliance with Section 1003(a)(i)(C) of the ~~required~~Company ~~covenant~~Guide ~~levels~~because the aggregate market value of our publicly held shares has been less than $1,000,000 for more than 90 consecutive days. As a result, the ~~periods~~Staff ~~then~~has ~~indicated:~~determined that we are subject to immediate delisting proceedings and that, unless we appeal the Staff's determination by February 2, 2009, the Exchange will suspend trading in our common stock and file an application with the Securities and Exchange Commission to strike our common stock from listing and registration on the Exchange. Based on current economic conditions in general and, in particular, current conditions in the marine industry, we do not believe we can regain compliance with the Exchange's continued listing standards in the near-term. As a result, our Board of Directors have elected not to appeal the Staff's determination.

March 31, 2004

June 30, 2004

September 30,2004

December 31,2004

March 31, 2005

June 30, 2005

Tangible Net Worth Floor

4.300 Million

4.475 Million

4.500 Million

4.800 Million

4.950 Million

5.225 Million

Current Maturity Coverage Ratio

1.25 to 1.00

1.30 to 1.00

1.40 to 1.00

1.50 to 1.00

Funded Debt To EBITDA

6.25 to 1.00

6.00 to 1.00

5.25 to 1.00

5.00 to 1.00

4.35 to 1.00

3.75 to 1.00

Gross Margin Floor %

13.50

14.50

~~The~~FOUNTAIN ~~Company~~POWERBOAT ~~is required to renegotiate these covenants prior to June 30~~INDUSTRIES, ~~2005~~INC. AND SUBSIDIARIES

~~Page~~Item 12 2.

~~Table~~Management’s Discussion and Analysis of ~~Contents~~Financial Condition and Results of Operation.

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

~~NOTES~~Fountain TOPowerboat ~~THE~~Industries, ~~UNAUDITED~~Inc., ~~CONDENSED~~through ~~CONSOLIDATED~~its ~~FINANCIAL~~wholly ~~STATEMENTS~~ owned subsidiary Fountain Powerboats, Inc., is a leading manufacturer of high performance sport boats, sport fishing boats and express cruisers. The manufacturer’s sales are generated from selling the boats that are manufactured through a domestic and international network of independent dealers who market boats to retail customers. A majority of these dealers finance their inventory through third-party floor plan finance companies, which pay Fountain Powerboats, Inc. generally within seven to ten days after delivery of the boats to the dealers.

~~NOTE~~Fountain 4Powerboat -Industries, ~~LONG~~Inc., through its wholly owned subsidiary Fountain Dealers’ Factory Super Store, Inc., sells boats produced by Fountain Powerboats, Inc., the manufacturing subsidiary, to retail customers who reside in a territory that has been assigned by the manufacturer to the retail subsidiary. The retail operation also sells pre-~~TERM~~owned ~~DEBT~~boats ~~AND~~taken ~~PLEDGED~~in ~~ASSETS~~trade ~~(Continued)~~on the sales of new Fountain boats and other services to retail customers.

The discussion on business and financial strategies and directions set forth in the Company’s ~~performance~~annual ~~under~~report ~~the~~on ~~loan~~Form 10-K ~~covenants~~ for the ~~current~~fiscal ~~quarter~~year ended ~~December~~ 31June 30, ~~2004~~2008 ~~was~~is asincorporated ~~follows:~~herein by reference.

1.Fountain ~~The~~Powerboats, ~~applicable~~Inc. ~~tangible~~introduced ~~net~~the ~~worth~~“Baja ~~floor required~~ by ~~the~~Fountain” ~~Company’s~~product ~~lender~~line ~~for~~to ~~the~~Baja ~~current~~dealers ~~quarter~~and ~~ended~~Fountain ~~December~~dealers ~~31,~~at ~~2004~~dealer ~~was~~meetings ain ~~tangible~~October. ~~net~~The ~~worth~~dealers ~~not~~had ~~less~~favorable ~~than~~responses ~~$4.80~~to ~~million.~~the ~~The~~quality ~~Company’s~~and ~~tangible~~performance ~~net~~of ~~worth~~the ~~for~~Baja ~~purposes~~boats ofbuilt ~~determining~~by ~~compliance was $6~~Fountain.~~6 million.~~

2. The ~~current~~recreational ~~maturity~~fiberglass ~~coverage~~boating ~~ratio~~market ~~required~~has bybeen ~~the~~in ~~Company’s~~a ~~lender~~downturn for the ~~current~~past ~~quarter~~four ~~ended~~buying ~~December~~seasons ~~31,~~and ~~2004~~experienced ~~was~~ a ~~ratio~~further ~~not~~weakening ~~less~~in ~~than~~the ~~1.50~~quarter toended ~~1.00.~~in ~~The~~September 30, ~~Company’s~~2008 ~~current~~with ~~maturity~~retail ~~coverage~~demand ~~ratio~~being ~~for~~down ~~purposes~~40%. ofThe ~~determining~~decline ~~compliance~~deepened ~~was~~in ~~2.64~~the toquarter 1ended December 31, 2008.~~00.~~

3. The ~~funded~~global ~~debt~~economic todownturn ~~EBITDA~~had ~~ratio~~a ~~required~~significant bydetrimental ~~the~~effect ~~Company’s~~on ~~lender~~recreational ~~for~~marine ~~the~~markets ~~current~~during the quarter ended December 31, ~~2004~~2008. ~~was~~Retail afinancing ~~ratio~~for ~~not~~boats ~~more~~tightened ~~than~~and ~~5.00~~floor toplan 1financing for boat dealers became very difficult.~~00.~~ ~~The~~With ~~Company’s~~dealer ~~funded~~inventories ~~debt~~being tohigh ~~EBITDA~~and ~~ratio~~retail ~~for~~sales ~~purposes~~stymied, oforders ~~determining~~for ~~compliance~~the ~~was~~off ~~3.91~~season toproduction 1period became scarce.~~00.~~

4. The ~~gross margin percentage floor required by the Company’s lender for the current~~ quarter ended December 31, ~~2004~~2008 was achallenging ~~gross~~for ~~margin~~the ~~percentage of not less than 14~~Company.~~5%.~~ ~~The~~It ~~Company’s~~curtailed ~~gross~~production ~~margin~~four ~~percentage~~weeks ~~for~~during ~~purposes~~this ~~of determining compliance was 13~~period.~~4%.~~

As of December 31, 2004 the Company was in compliance with all required covenants except the gross margin percentage floor. The covenant calls for a gross margin percentage to be not less than 14.5%, the company’s gross margin percentage floor as determined for compliance was 13.4%. The company has obtained a letter from Bank of America waiving compliance with the requirements of Section 4.A., of the Loan Agreement for the reporting period ending December 31, 2004. Outlook

InThe ~~addition~~global toeconomic ~~the~~downturn ~~covenants~~continues. ~~listed~~Congress’ ~~above,~~economic ~~the Company~~stimulus ~~may~~package has not ~~exceed~~been ~~its~~effective. ~~budgeted~~Financial ~~annual~~institutions ~~listing~~are ofstill ~~fixed~~in ~~asset~~a ~~purchases~~crisis ~~approved~~situation ~~by the loan’s guarantor, Brunswick Corporation~~ and ~~any~~expect ~~non-listed~~2009 ~~fixed~~to ~~asset~~be ~~purchases~~extremely ~~greater than $50,000 per instance must have Brunswick Corporation’s express approval prior to acquisition~~difficult. The ~~Company~~retail ~~expects~~and ~~this~~floor ~~restriction~~plan tocredit ~~have~~perturbations noexperienced ~~material~~in ~~effect~~the ~~upon~~quarter ~~its~~ended ~~ability~~December 31, to2008 ~~maintain~~will ~~and~~continue ~~improve~~into ~~its facilities and compete with other companies in the boating industry~~2009.

~~Prepayment -~~ The Company ishas ~~obligated~~reduced toits ~~pay~~work inforce, ~~addition~~production toand ~~required~~expenses ~~monthly principal~~to ~~payments~~position anitself ~~additional~~for ~~50% of~~ the ~~excess~~economic ~~earnings~~and ~~after~~market ~~debt~~conditions ~~service~~it ~~within~~is ~~120 days after the close of the Company’s fiscal year end~~facing.

~~Should~~Results ~~the Company prepay the balance~~ of the note within one year of the date of the note, the Company must pay one percent (1%) of the unpaid balance on the date before the date the prepayment is made. If the Company prepays the balance of the note after one year of the date of the note, the Company must pay a half of a percent (.5%) of the unpaid balance on the date before the date the prepayment is made. Operations

~~Should~~Three ~~the~~months ~~Company~~ended ~~default on the provision of timely payments~~December 31, a2008 ~~delinquency charge~~compared ofto ~~four~~Three ~~percent~~months ~~(4%)~~ended ~~of the unpaid portion of the payment that is more than fifteen days late will be applied. Should the Company remain in a default status~~December 31, ~~the interest rate charged to the Company shall be an additional two percent (2%) above the rates listed above.~~ 2007

~~Page~~Key 13operating and financial statistics for the three months ended December 31, 2008 and 2007 are:


	Three Months Ended December 31,
	2008			2007
Consolidated Operations
Total number of boats sold		28			68
Net sales	$	5,839,908		$	15,196,038
Gross margin percent		(17.7	%)		14.6	%
SG&A expense	$	1,829,599		$	2,663,347
Operating loss	$	(2,860,691	)	$	(765,055	)

~~FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY~~ 14

~~NOTES~~FOUNTAIN TOPOWERBOAT ~~THE~~INDUSTRIES, ~~UNAUDITED~~INC. ~~CONDENSED~~AND ~~CONSOLIDATED FINANCIAL STATEMENTS~~ SUBSIDIARIES

~~NOTE~~Net 4sales -– ~~LONG-TERM~~Net ~~DEBT~~sales ~~AND~~for ~~PLEDGED~~the ~~ASSETS~~three ~~(Continued)~~months ended December 31, 2008 were $5,839,908, as compared to $15,196,038 for the three months ended December 31, 2007. The decrease in sales is attributable to the effect of the global economic downturn on the recreational fiberglass boating market.

~~Loan~~Net ~~Guarantee~~sales – On July 17, 2003 the Company entered into an agreement with Brunswick Corporation, a division of which supplies marine engines used in the Company’s product, wherein Brunswick Corporation agreed to guarantee the $18,000,000 in debt financing, in return the Company President granted Brunswick the option to purchase his common shares and his options to purchase common shares of the Company. The Company’s President further agreed to indemnify Brunswick for all amounts in excess of $14,700,000. On July 17, 2003 the Company issued to Brunswick Corporation 273,146 options to acquire common shares at $.05 per share that are exercisable in the event of a default by ~~the~~Product ~~Company~~Line on its loan. In the event Brunswick Corporation exercises its option to purchase the Company President’s shares the Company has agreed to issue additional shares of common stock, which would result in Brunswick owning, together with the shares purchased from the Company President, 50.1% of the Company’s outstanding shares at the weighted average market closing price for the ~~previous~~three 30months ~~days.~~ending The Company further entered into an exclusive supply agreement and agreed to restrictions on the Company issuing any equity securities that would dilute Brunswick’s potential equity interest in the Company upon exercise of their options with the Company and Company’s President without Brunswick’s prior approval. Brunswick Corporation’s options to purchase vest upon the earlier of the repayment or default of $18,000,000 notes payable, or July 1, 2007. Brunswick Corporation’s option expires no earlier than approximately 180 days after vesting. December 31:

NOTE 5 - COMMON STOCK


	2008		Percentage	2007		Percentage
Sport boats	$	303,886	5.2%	$	4,393,416	28.9%
Express cruisers		1,847,690	31.6%		3,433,056	22.6%
Sport fishing boats		957504	16.4%		6,623,466	43.6%
Baja sport boats		1,807,788	31.0%		—	—
Other		923,040	15.8%		746,100	4.9%

Total	$	5,839,908		$	15,196,038

~~During~~Gross ~~January~~loss ~~2002,~~– ~~the~~Gross ~~Company~~loss ~~issued~~for ~~10,000~~the ~~options~~three tomonths ~~purchase~~ended ~~common~~December 31, ~~stock~~2008 towas a$(1,031,092), ~~consultant~~as ~~for~~compared ~~services~~ to bea ~~rendered~~gross ~~valued~~profit atof $142,~~254.~~216,271, ~~The options are exercisable at $1~~14.676% ~~per~~of ~~share~~net sales, ~~are~~for ~~fully vested and expire January 2009. During~~ the ~~six~~three months ended December 31, ~~2004~~2007. ~~and~~The ~~2003,~~gross ~~the~~loss ~~Company~~is ~~recorded~~primarily ~~consulting~~attributable ~~expense~~to ofreduced $0fixed ~~and~~cost ~~$1,795,~~absorption ~~respectively,~~because ~~related~~of tolower ~~these~~volume ~~options.~~of sales.

~~During~~Selling ~~July~~expense ~~2003,~~– ~~the~~Selling ~~Company~~related ~~issued~~expenses ~~273~~were $973,~~146~~620 ~~options~~for tothe ~~purchase~~three ~~common~~months ~~stock~~ended toDecember 31, ~~Brunswick~~2008, ~~Corporation~~ as acompared ~~condition~~to of$1,665,104 ~~guarantying~~for the ~~Bank~~ ofthree ~~America~~months ~~loan.~~ended ~~The~~December 31, ~~options~~2007, ~~are~~a ~~exercisable~~reduction ~~only~~of ~~under~~$691,484 ~~conditions~~or of41.5%. ~~default~~The bydecrease ~~the~~was ~~Company~~primarily ofattributable ~~its~~to ~~loan~~marketing and ~~Brunswick~~sales ~~having~~staff ~~exercised~~reductions ~~its~~and ~~guarantee of~~ the ~~loan.~~reduction ~~Should~~of ~~Brunswick~~expenses ~~Corporation~~related ~~exercise its option~~ to ~~purchase~~ the Company ~~President~~’s ~~stock,~~support ~~the~~of ~~Company~~offshore ~~has~~racing ~~agreed~~and tofishing ~~issue additional common shares which would result in Brunswick owning~~programs, ~~together~~advertising ~~with~~and ~~the~~promotion ~~shares~~expenses ~~purchased~~and ~~from~~sales ~~the~~force ~~Company President, 50~~expenses.1% of the Company’s outstanding shares at the weighted average market closing price for the previous 30 days. The Company also agreed not to issue any equity instruments without prior approval of Brunswick Corporation.

IfGeneral ~~Brunswick~~and ~~Corporation~~administrative ~~exercised~~expenses ~~fully~~– ~~their~~General ~~options~~and ~~with~~administrative ~~the~~expenses ~~Company~~were ~~and~~$855,979 ~~Company~~for ~~President~~the ~~under~~three ~~the~~months ~~loan~~ended ~~guarantee~~December 31, ~~they~~2008, ~~would~~as ~~own~~compared ~~50.1~~to ~~% of~~$998,243 for the ~~outstanding~~three ~~stock~~months ofended ~~the~~December 31, ~~Company~~2007. The decrease was primarily attributable to salary and staff reductions.

~~NOTE~~Interest 6expense -– ~~COMMITMENTS~~Interest ~~AND CONTINGENCIES~~expense for the three months ended December 31, 2008 was $320,723, as compared to $302,271for the three months ended December 31, 2007.

~~Manufacturer~~Net ~~Repurchase~~loss ~~Agreements~~ – ~~The Company~~Net ~~makes~~loss ~~available through third-party finance companies floor plan financing~~ for ~~many of its dealers. Sales to participating dealers are approved by~~ the ~~respective~~three ~~finance~~months ~~companies.~~ended IfDecember 31, a2008 ~~participating~~was ~~dealer does not satisfy its obligations under the floor plan financing agreement in effect with its commercial lender(s) and boats are subsequently repossessed by the lender(s)~~$3,178,585 ~~then~~as ~~under~~compared ~~certain circumstances the Company may be required~~ to ~~repurchase the repossessed boats if it has executed~~ a ~~repurchase~~loss ~~agreement~~of ~~with~~$765,055 for the ~~lender(s).~~three Atmonths ~~December~~ended December 31, ~~2004,~~2007. ~~the~~The ~~Company~~loss ~~had~~is aprimarily ~~total~~attributable ~~contingent liability~~ to ~~repurchase boats in~~ the ~~event~~low volume of ~~dealer defaults and if repossessed by the commercial lenders amounting to approximately $17,922,653~~sales. ~~At December 31, 2004, the allowance for boat repurchases was $75,000.~~

~~Page~~Income 14tax – The Deferred Tax Benefit for the three months ended December 31, 2008 is $0 and the Income Tax Expense for the three months ended December 31, 2007 was $0.

~~Table~~Six ofmonths ~~Contents~~ended December 31, 2008 compared to Six months ended December 31, 2007

~~FOUNTAIN~~Key ~~POWERBOAT~~operating ~~INDUSTRIES~~and financial statistics for the six months ended December 31, ~~INC.~~2008 ~~AND~~and ~~SUBSIDIARY~~2007 are:

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	Six Months Ended
	2008			2007
Consolidated Operations December 31,
Total number of boats sold		103			148
Net sales	$	23,427,947		$	33,245,468
Gross margin percent		5.1	%		14.8	%
SG&A expense	$	3,698,374		$	4,729,464
Operating income(loss)	$	(2,511,148	)	$	191,393

~~NOTE~~Net 6sales -– ~~COMMITMENTS~~Net ~~AND~~sales ~~CONTINGENCIES~~for ~~(Continued)~~the six months ended December 31, 2008 were $23,427,947, as compared to $33,245,468 for the six months ended December 31, 2007. The decrease in sales is attributable to the effect of the global economic downturn on the recreational fiberglass boating market.

The Company vigilantly monitors all its dealers for solvency issues by examining dealer inventory levels and amounts carried under floor plan financing. At present the Company has no dealers that it believes to be at risk of default under their floor plan arrangements. 15

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

~~Interest~~Net ~~Rate~~sales ~~Risk~~by -Product AtLine ~~December~~for ~~31, 2004,~~ the ~~Company~~six ~~owed $16,588,742~~months onending ~~an $18,000,000 credit agreement with Bank of America. The credit agreement has $9,000,000 at the one month LIBOR plus 2.50% or 3.95% as of~~ December 31, 2004, and $9,000,000 under an interest rate swap to provide a fixed rate of 6.02%. An increase in the LIBOR rate would have a negative effect on the results of operations of the Company. A hypothetical 50 basis point increase in interest rates would result in an approximately $45,000 increase in interest expense. :

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


	2008		Percentage	2007		Percentage
Sport boats	$	5,925,662	25.3%	$	11,997,847	36.1%
Express cruisers		4,742,035	20.2%		5,998,262	18.1%
Sport fishing boats		7,928,285	33.9%		14,075,642	42.3%
Baja sport boats		2,614,204	11.2%		—	—
Other		2,207,761	9.4%		1,173,717	3.5%

Total	$	23,427,947		$	33,245,468

~~NOTE~~Gross 7profit ~~- TRANSACTIONS~~– ~~WITH~~Gross ~~RELATED~~profit ~~PARTIES~~for the six months ended December 31, 2008 was $1,187,226, 5.1% of net sales, as compared to $4,920,857, 14.8% of net sales, for the six months ended December 31, 2007. The decrease in gross profit is primarily attributable to reduced fixed cost absorption because of lower volume of sales.

AtSelling ~~December~~expense – Selling related expenses were $2,027,578 for the six months ended December 31, ~~2004~~2008, as compared to $2,895,272 for the ~~Company~~six ~~had receivables~~months ended December 31, 2007, a reduction of $867,694 or 30%. The decrease was primarily attributable to marketing and ~~advances~~sales ~~from~~staff ~~its~~reductions ~~employees~~and ~~amounting~~the reduction of expenses related to ~~$26~~the Company’s support of off-shore racing and fishing programs,~~051.~~ advertising and promotion expenses and sales force expenses.

~~During~~General ~~the three~~and administrative expenses – General and ~~six~~administrative ~~month~~expenses ~~period~~were $1,670,796 for the six months ended December 31, ~~2004~~2008, ~~the~~as ~~Company~~compared ~~paid~~to $291,~~459 and $85~~834,~~505~~192 ~~respectively,~~ for ~~services~~the ~~rendered~~six tomonths ~~entities~~ended ~~owned~~December 31, or2007. ~~controlled~~The bydecrease ~~the~~was ~~Company’s~~primarily ~~Chairman,~~attributable ~~President,~~to salary and ~~Chief~~staff ~~Executive Officer~~reductions.

~~The~~Interest ~~Company’s~~expense ~~Chairman,~~– ~~President,~~Interest ~~and~~expense ~~Chief~~for ~~Executive~~the ~~Officer~~six ~~has~~months ~~guaranteed~~ended ~~and personally~~December 31, ~~pledged~~2008 ~~certain~~was of$609,955, ~~his assets~~ as ~~collateral~~compared into ~~connection with the~~ $18565,~~000,000~~639 ~~loan~~for ~~with Bank of America and~~ the ~~Brunswick~~six ~~Corporation~~months ~~agreement~~ended toDecember 31, ~~guarantee said loan~~2007. ~~The president further agreed to sell certain of his common shares and options to purchase common shares to Brunswick Corporation in connection with their guarantee (See Note 4).~~

~~NOTE~~Net 8loss -– ~~INCOME~~Net ~~TAXES~~loss for the six months ended December 31, 2008 was $(3,096,816) as compared to a loss of $(491,676) for the six months ended December 31, 2007. The loss is primarily attributable to the low volume of sales.

~~The~~Income ~~Company~~tax ~~has provided~~– ~~for~~The ~~deferred~~Deferred ~~income~~Tax ~~taxes~~Benefit infor ~~accordance~~the ~~with~~six ~~SAFS~~months ~~No.~~ended ~~109~~December 31, ~~Accounting~~2008 ~~for~~is ~~Income~~$0 ~~Taxes,~~and ~~whereby deferred income taxes are determined based upon~~ the ~~enacted~~Income ~~income~~Tax ~~tax~~Expense ~~rates~~ for the ~~years~~six inmonths ~~which~~ended ~~these~~December 31, ~~taxes~~2007 ~~are~~was ~~estimated to be payable or recoverable~~$0. ~~Deferred income taxes arise from temporary differences resulting from a difference between the tax basis of an asset or liability and its reported amount in the financial statements.~~

~~Page~~Liquidity 15and Capital Resources

~~Table~~Liquidity and capital resources – As disclosed on the Unaudited Condensed Consolidated Statements of ~~Contents~~Cash Flows, the cash balance decreased by $320,260 during the six months ended December 31, 2008 as compared to a decrease in cash balance of $966,375 during the six months ended December 31, 2007. The use of cash during the current period is primarily attributable to Operating and Investing activities.

~~FOUNTAIN~~The ~~POWERBOAT~~use ~~INDUSTRIES~~of cash attributable to Operating activities in the current period, ~~INC.~~$2,342,338, ~~AND~~is ~~SUBSIDIARY~~primarily attributable to:

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ·

~~NOTE~~Net 8loss of $3,096,816, generated by the ongoing operations of the Company. Net loss reflects non-cash ~~INCOME~~depreciation ~~TAXES~~expense ~~(Continued)~~of $1,323,618 during the period.

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

	For the Six Months Ended
	December 31,2004			December 31,2003
Current income tax expense:
Federal	$	—		$	—
State		—			—
Net current tax (benefit)	$	—		$	—
Deferred tax expense (benefit) resulted from:
Excess of tax over financial accounting depreciation		(89,554	)		(31,946	)
Donations		(1,282	)		(1,043	)
Accrued Vacation - Current		19,812			—
Accrued dealer incentive interest		(29,255	)		(32,673	)
Accrued Profit Sharing - Executive		20,800			51,620
Accrued Dealer service incentive		(61,010	)		5,460
Health Insurance Reserve		—			(4,680	)
Inventory adjustment-Sec.263A		16,483			(13,734	)
Decrease (increase) in NOL carryforwards		258,783			6,014
Valuations allowance		(134,777	)		20,982
Net deferred tax expense (benefit)	$	—		$	—

Inventories increased $534,995. This use of cash is due, in part, to building a stock of boats at the Company’s retail subsidiary, Fountain Dealers’ Factory Super Store.

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

	For the Six Months Ended
	December 31,2004		December 31,2003
Computed tax at the expected federal statutory rate	34.00	%	34.00	%
State income taxes, net of federal benefit	5.00	%	5.00	%
Valuations allowance	(29.61	)%	(19.06	)%
Compensation from stock options	0.00	%	0.00	%
Officer’s life insurance	0.00	%	0.00	%
Other	(9.39	)%	(19.94	)%
Effective income tax rates	0.00	%	0.00	%

Accounts payable decreased by $899,426, a use of cash as the Company reduced its purchase of production materials due to lower sales volume.

~~Page 16~~ ·

~~Table~~Dealer incentives decreased by $496,415, a use of ~~Contents~~cash as the inventory of boats of the Company’s dealers was decreased.

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

~~NOTES~~Customer TODeposits ~~THE~~increased ~~UNAUDITED~~by ~~CONDENSED~~$529,501 ~~CONSOLIDATED~~during ~~FINANCIAL~~the ~~STATEMENTS~~ current period.

~~NOTE 8 - INCOME TAXES (Continued)~~ 16

~~Significant~~FOUNTAIN ~~components~~POWERBOAT ofINDUSTRIES, ~~the~~INC. ~~Company’s~~AND ~~deferred tax assets and liabilities are as follows:~~ SUBSIDIARIES

	For the Six Months Ended
	December 31,2004			December 31,2003
Deferred tax assets:
Warranty reserve		276,900			351,000
Obsolete inventory reserve		19,500			19,500
Allowance for boat repurchases		29,250			78,000
Bad Debt Reserve		32,308			10,858
Accrued Dealer incentive interest		54,327			58,051
Inventory adjustments – Sec.263A		115,529			123,954
State NOL Carryforwards		409,586			486,083
Federal NOL Carryforwards		1,731,277			2,251,459
Alternative minimum tax credits		41,524			119,049
Donations carryforwards		5,890			5,651
Health insurance reserve		49,140			45,240
Investment tax credits		86,294			86,294
Accrued Vacation current		(19,812	)		73,685
Accrued Profit Sharing - Executive		32,609			3,764
Accrued Dealer Service Incentive		61,010			32,663
Total deferred assets	$	2,925,332		$	3,745,251
Less: Valuation allowance for deferred tax assets		(1,653,663	)		(2,363,896	)
Net deferred tax assets	$	1,271,669		$	1,381,355
Deferred tax liabilities:
Excess of financial accounting depreciation over tax		(1,271,669	)		(1,381,355	)
Net deferred tax asset (liabilities)	$	—		$	—

The use of cash during the six months ended December 31, 2008 attributable to investing is $634,736. Cash spent on the development of new molds and plugs was $483,264, as compared to $406,907 used for new molds and plugs in the six months ended December 31, 2007. Cash spent on other fixed assets was $151,472, less than the $271,676 spent for other fixed assets during the six months ended December 31, 2007.

~~Page~~The 17cash provided by financing activities during the six months ended December 31, 2008 was $2,656,814, which is primarily attributable to:

~~Table of Contents~~·

~~FOUNTAIN~~Financing ~~POWERBOAT~~the ~~INDUSTRIES~~inventory of boats at the Company’s retail subsidiary in the amount of $3,804,419 ~~INC.~~under ~~AND~~the ~~SUBSIDIARY~~Regions Bank Dealer Floor Plan and Security Agreement.

~~NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~ ·

~~NOTE~~Borrowing 8$326,000 -against ~~INCOME~~the ~~TAXES~~Cash ~~(Continued)~~Surrender Value of key man life insurance policies owned by the Company.

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

	December 31,2004			June 30,2004
Current deferred tax assets	$	279,876		$	268,903
Deferred tax liabilities		(279,876	)		(268,903	)
Net deferred tax assets (liabilities)	$	—		$	—

These sources of cash were partially offset by the repayment of a Note Payable of $397,999 to Regions Bank during the period.

~~The~~As ~~Company~~of ~~has unused federal operating loss carryforwards at~~ December 31, ~~2004~~2008 ~~and~~the ~~2003~~confirmed ofsales ~~approximately~~order ~~$5,755,533~~backlog ~~and~~was ~~$6,854,148, respectively, which expire in various years through 2023. The Company has unused state operating loss carryforwards at December 31, 2004 and 2003 of~~ approximately $~~8,855,263 and $9,953,878, respectively, which expire in various years through 2023~~5. 4 million.

~~NOTE~~Cautionary 9Statement -for ~~EARNINGS~~Purposes ~~(LOSS)~~of ~~PER~~“Safe ~~SHARE~~Harbor” Under the Private Securities Reform Act of 1995.

The ~~computations~~ ofCompany ~~earnings~~may ~~(loss)~~from ~~per~~time ~~share~~to ~~and~~time ~~diluted~~make ~~earnings~~forward-looking ~~per~~statements, ~~share~~including ~~amounts~~statements ~~are~~projecting, ~~based~~forecasting, ~~upon~~or estimating the ~~weighted~~Company’s ~~average~~performance ~~number~~and ofindustry ~~outstanding~~trends. ~~common~~The ~~shares~~achievement ~~during~~of the ~~periods~~projections, ~~plus~~forecasts, ~~when~~or ~~their~~estimates ~~effect~~contained isin ~~dilutive,~~these ~~additional~~statements ~~shares~~is ~~assuming~~subject ~~the~~to ~~exercise of~~ certain ~~vested~~risks ~~stock~~and ~~options~~uncertainties, ~~reduced~~and byactual ~~the~~results ~~number~~and ofevents ~~shares~~may ~~which~~differ ~~could~~materially ~~be purchased~~ from ~~the~~those ~~proceeds~~projected, ~~from~~forecasted, ~~the~~or ~~exercise of the stock options assuming they were exercised~~estimated.

The ~~weighted~~applicable ~~average~~risks ~~common~~and ~~shares~~uncertainties include general economic and ~~common~~industry ~~equivalent~~conditions ~~shares~~that ~~outstanding~~affect ~~for~~all businesses, as well as, matters that are specific to the ~~six~~Company ~~month~~and ~~periods~~the ~~ended~~markets ~~December~~it 31serves. For example, ~~2004~~the achievement of projections, forecasts, or estimates contained in the Company’s forward-looking statements may be impacted by national and ~~2003~~international ~~for purposes~~economic conditions; compliance with governmental laws and regulations; accidents and acts of ~~calculating~~God; ~~earnings~~and ~~per~~all ~~share~~of ~~was~~the asgeneral ~~follows:~~risks associated with doing business.

	For the Three Months Ended		For the Six Months Ended
	December 31,2004	December 31,2003	December 31,2004	December 31,2003
Weighted average common shares outstanding used in basic earnings per share for the three and six months ending	4,814,275	4,757,608	4,811,268	4,757,608
Effect of dilutive stock options	52,607	62,027	52,246	64,254
Weighted average common shares and potential
Dilutive common equivalent shares outstanding used in dilutive earnings per share	4,866,882	4,819,635	4,863,514	4,821,862

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

~~Page~~The 18Cautionary Statement for Purposes of “Safe Harbor” that is included in the Company’s annual report in Form 10-K for the fiscal year ended June 30, 2008 is incorporated by reference.

~~Table~~Item ~~of Contents~~3.

~~FOUNTAIN~~Quantitative ~~POWERBOAT~~and ~~INDUSTRIES,~~Qualitative ~~INC.~~Disclosures ~~AND~~about ~~SUBSIDIARY~~Market Risk.

~~NOTES~~Interest TORate ~~THE~~Risk ~~UNAUDITED~~- ~~CONDENSED~~At ~~CONSOLIDATED~~December 31, ~~FINANCIAL~~2008, ~~STATEMENTS~~ the Company owed $13,590,401 on the $14,500,000 Term Loan from Regions Bank. The loan agreement has $1,215,401 at the one month LIBOR plus 1.75% and $12,375,000 under an interest rate swap to provide a fixed rate of 6.45%. At December 31, 2008, the Company had an outstanding balance of $2,000,000 on the $2,000,000 Revolver at the lender’s Prime Rate plus a ½% plus a margin of 1%. In addition, the outstanding balance on the Dealer Floor Plan and Security agreement, $3,804,419 as of December 31, 2008, accrues interest at the lender’s Prime Rate plus 1%. A hypothetical 50 basis point increase in interest rates would result in an approximately $35,100 increase in annual interest expense.

~~NOTE 9 - EARNINGS (LOSS) PER SHARE (Continued)~~ 17

AtFOUNTAIN ~~December~~POWERBOAT 31INDUSTRIES, ~~2004 there were 550,000 unexercised stock options, of which 450,000 were held by an officer and member of the board of directors of the Company at a strike price of $4~~INC.67 ~~per~~AND ~~share that were not included in the computation of earnings per share because the effect is anti-dilutive.~~ SUBSIDIARIES

AtItem ~~December 31, 2003 there were 610,000 unexercised stock options, of which 480,000 were held by officers and directors of the Company at prices ranging from $3~~4T.~~58 to $4.67 per share that were not included in the computation of earnings per share because the effect is anti-dilutive.~~

~~NOTE~~Controls 10and –Procedures. ~~VALUATION AND QUALIFYING ACCOUNTS~~

~~The~~As ~~balance~~of inDecember 31, 2008, the ~~following~~Company’s ~~valuation~~management, with the participation of the Chief Executive Officer and ~~qualifying~~the ~~accounts~~Chief atFinancial ~~December~~Officer, 31performed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based on that evaluation, ~~2004~~the Chief Executive Officer and ~~change~~ ~~from~~the Chief Financial Officer have concluded that the ~~year~~Company’s ~~ended~~disclosure ~~June~~controls 30and procedures were effective to provide reasonable assurance that it is able to record, ~~2004~~process, summarize and report in a timely manner the information required to be disclosed in reports it files under the Exchange Act. There are asinherent ~~follows:~~limitations to the effectiveness of any system of disclosure controls and procedures. Even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Valuation and Qualifying Account Description	June 30,2004		ExpenseAdjustment	And OtherReductions		December 31,2004
Allowance for doubtful accounts	$	82,841				$	82,841
Inventory valuation reserve	$	50,000				$	50,000
Deferred tax valuation allowance	$	1,788,441		(134,778	)	$	1,653,663
Warranty reserve	$	710,000	877,690	(877,690	)	$	710,000
Allowance for boat repurchases	$	75,000				$	75,000

In connection with the above evaluation of the effectiveness of the Company’s disclosure controls and procedures, no change in the Company’s internal control over financial reporting was identified that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~Page 19~~ 18

~~Table~~FOUNTAIN ofPOWERBOAT ~~Contents~~INDUSTRIES, INC. AND SUBSIDIARIES

~~ITEM~~PART 2:II. ~~Management’s~~OTHER ~~Discussion and Analysis of Results of Operations and Financial Condition~~ INFORMATION.

~~Results of Operations~~Item 1.

~~Net~~Legal ~~Sales – Net sales for the three months ended December 31, 2004 were $17,451,992, an increase of $4,090,181 or 30~~Proceedings.~~6%,~~ as compared to net sales of $13,361,811 for the three months ended December 31, 2003. Net sales for the six months ended December 31, 2004 were $34,255,901, an increase of $8,008,858 or 30.5%, as compared to net sales of $26,247,043 for the six months ended December 31, 2003. The increase in net sales is primarily attributable to increased unit sales of fish boats and express cruisers.

~~Gross~~There ~~Profit~~were ~~– Gross~~no ~~profit~~legal ~~for~~proceedings ~~the~~of ~~three~~a ~~months~~material ~~ended~~nature ~~December~~during ~~31, 2004 was $2,343,722 as compared to $2,027,100 for~~ the ~~three~~quarter ~~months~~ending ~~ended~~ December 31, ~~2003~~2008. Gross profit for the six months ended December 31, 2004 was $4,827,574 as compared to $4,059,281 for the six months ended December 31, 2003. The increase in gross profits is attributable to the increase in the number of units sold.

~~Selling~~Item ~~Expenses – Selling expenses for the three months ended December 31, 2004 were $1,150,886 as compared to $1,050,694 for the three months ended December 31, 2003~~1A. Selling expenses for the six months ended December 31, 2004 were $2,538,810 as compared to $2,406,264 for the six months ended December 31, 2003. The increase in selling expenses is related to the increase in sales and represents normal expenditures for sales and marketing activities of the Company.

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

~~Operating~~Not ~~Income – Operating income for the three months ended December 31, 2004 was $250,548 as compared to $457,053 for the three months ended December 31, 2003~~applicable. ~~Operating income for the six months ended December 31, 2004 was $759,688 as compared to $567,805 for the six months ended December 31, 2003.~~

~~Interest Expense – Interest expense for the three months ended December 31, 2004 was $294,385 as compared to $216,032 for the three months ended December 31, 2003~~Item 2. Interest expense for the six months ended December 31, 2004 was $490,298 as compared to $686,190 for the six months ended December 31, 2003. The $195,892 reduction in interest expense, for the six months ended December 31, 2004, is attributable to the write-off of the unamortized closing costs of a loan with G. E. Capital that occurred during the quarter ended September 30, 2003 which was not duplicated in the current period.

~~Net~~Unregistered ~~Income~~Sales ~~(Loss)~~of –Equity ~~Net~~Securities ~~(Loss)~~and ~~for~~Use the three months ended December 31, 2004 was ($43,743) as compared to $239,059 for the three months ended December 31, 2003. Net income for the six months ended December 31, 2004 was $270,182 as compared to a net loss of ~~($117,288) for the six months ended December 31, 2003~~Proceeds.

~~Income~~There ~~Tax~~were -no ~~Current~~sales ~~tax~~of ~~expense~~equity issecurities $0during ~~for~~ the three ~~months ended December 31, 2004~~ and ~~2003, and is $0 for the~~ six ~~months~~month ~~ended~~periods ~~December 31, 2004 and 2003, respectively. Deferred tax expense is $0 for the three months~~ ended December 31, ~~2004 and 2003, and is $0 for the six months ended December 31, 2004 and 2003, respectively~~2008. The Company’s lack of income tax expense is a result of net operating loss carryovers from the year ended June 30, 2002. There remains $5,091,991 for federal and $8,191,721 for state tax purposes of net operating loss carryovers available until the years 2022 and 2023, to offset current tax expenses.

The ultimate realization of the benefits from the deferred tax assets is dependent upon the Company’s future earnings, the future tax laws in effect, and other unknown factors, all of which are uncertainItem 3. For these reasons and because the Company has generated operating tax losses in recent years, the Company has elected to provide for a tax asset valuation allowance to fully reserve its net deferred tax asset at December 31, 2004 and June 30, 2004.

~~Page~~Defaults 20Upon Senior Securities.

~~Table~~None. ~~of Contents~~

~~Management~~Item estimates, based on the Company’s increased backlog of orders, that sales volumes will continue to improve in the near future thus resulting in improved earnings and partial or full absorption of the net operating tax loss carryovers4. However, the Company has not reduced the tax asset valuation allowance since, with the exception of order backlog, it is very difficult to predict future sales volumes in an uncertain economy. Management regularly reviews the Company’s need for the valuation allowance and expects that it will not be required in its entirety in the coming years. As operating results and the economy stabilize and future sales volumes increase, management will give increasing consideration to reducing the valuation allowance or eliminating it altogether.

~~Liquidity~~Submission ~~and~~of ~~Capital~~Matters ~~Resources~~to a vote of Security Holders.

~~Cash~~The ~~decreased~~Company’s byAnnual ~~$384,481~~Meeting toof ~~$3,329,308~~Shareholders atwas ~~December~~held 31on November 18, ~~2004~~2008. ~~from~~Six ~~$3,713,789~~persons atwere ~~June~~elected ~~30, 2004.~~as ~~The~~members ~~decrease~~of isthe ~~primarily~~Board ~~attributable~~of toDirectors, ~~investments~~all inincumbents, ~~molds~~for ~~and~~one ~~related~~year ~~tooling~~terms. ~~and~~The ~~improvements~~votes tofor ~~the~~each ~~Company’s~~nominee ~~manufacturing~~were ~~line.~~cast as follows:

Cash provided by operations for the six months ended December 31, 2004 was $2,154,441 and was primarily attributable to the net income of the Company as adjusted by depreciation and an increase in customer deposits.


	Shares Voting For	Withheld	Abstentions and Non-votes
Reginald M. Fountain, Jr.	3,878,020	43,944	—
Craig F. Goess	3,847,207	74,757	—
Guy L. Hecker, Jr.	3,850,904	71,060	—
David C. Miller	3,863,704	58,260	—
Anthony J. Romersa	3,831,779	90,185	—
Mark L. Spencer	3,878,254	43,810	—

~~Cash~~The ~~used~~shareholders inratified ~~investing activities for~~ the ~~six~~Board ~~months~~of ~~ended~~Directors ~~December~~appointment ~~31,~~of ~~2004~~Gregory ~~was~~and $1Associates,~~854,337~~ ~~and~~LLC ~~was~~as ~~primarily~~independent ~~attributable~~certified topublic ~~boat~~accountants ~~mold~~for ~~and tooling expenditures ($958,445) to support~~ the Company’s. ~~new~~The ~~fish~~appointment ~~boat~~was ~~designs~~ratified ~~that~~by ~~are~~a tovote beof ~~introduced~~3,900,544 inshares ~~the~~for ~~current fiscal year~~ and ~~improvements~~13,890 toshares ~~the~~against ~~Company’s~~or ~~manufacturing~~withheld, ~~line~~with ~~and facilities ($726~~7,~~884)~~531 ~~intended~~abstentions toand ~~increase~~no ~~manufacturing~~broker ~~capacity and efficiency~~non-votes.

~~Management~~Item ~~is of the opinion that cash flows will be sufficient to satisfy its current and future liquidity demands because of the increase in sales volumes and sales backlogs at the date of this filing~~5. ~~The Company has maintained a record sales backlog through the date of this report and is currently enjoying an increasingly favorable business climate for its products.~~

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

~~The Company may from time to time make forward-looking statements, including statements projecting, forecasting, or estimating the Company’s performance and industry trends~~None. The achievement of the projections, forecasts, or estimates contained in these statements is subject to certain risks and uncertainties, and actual results and events may differ materially from those projected, forecasted, or estimated.

~~The~~Item ~~applicable risks and uncertainties include general economic and industry conditions that affect all businesses, as well as, matters that are specific to the Company and the markets it serves~~6. For example, the achievement of projections, forecasts, or estimates contained in the Company’s forward-looking statements may be impacted by national and international economic conditions; compliance with governmental laws and regulations; accidents and acts of God; and all of the general risks associated with doing business.

~~Recent~~An ~~Accounting~~index ~~Pronouncements:~~of exhibits that is a part of this Form 10-Q appears following the signature page and is incorporated herein by reference.

In December 2004, the FASB issued SFAS No. 123(R), Accounting for Stock-Based Compensation (SFAS No. 123(R)). SFAS No. 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods and services. The Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS No. 123(R) requires that the fair value of such equity instruments be recognized as an expense in the historical financial statements as services are performed. Prior to SFAS No. 123(R), only certain pro forma disclosures of fair value were required. 19

~~Page~~FOUNTAIN 21POWERBOAT INDUSTRIES, INC. AND SUBSIDIARIES

~~Table of Contents~~SIGNATURE

~~The~~Pursuant ~~provisions~~to ~~of this Statement are effective for~~ the ~~first~~requirements ~~interim~~of ~~reporting period that begins after June 15, 2005. Accordingly, we will adopt SFAS No. 123(R) commencing with~~ the ~~quarter~~Securities ~~ending~~Exchange ~~September~~Act ~~30, 2005. If we had included the cost~~ of ~~employee stock option compensation in our consolidated financial statements~~1934, ~~our~~Registrant ~~net~~has ~~income~~duly ~~(loss)~~caused ~~for~~this ~~the~~report ~~three~~to ~~months ended~~be ~~December~~signed ~~31,~~on ~~2004~~its ~~and~~behalf ~~2003~~by ~~would have been ($47,964) and $233,866, respectively. Our net income (loss) for~~ the ~~six~~undersigned ~~months~~thereunto ~~ended~~duly ~~December 31, 2004 and 2003 would have been $261,740 and ($125,879), respectively~~authorized. ~~The adoption of SFAS No. 123(R) is not expected to have a material effect on our consolidated financial statements.~~

~~ITEM~~FOUNTAIN 3:POWERBOAT ~~Quantitative~~INDUSTRIES, ~~and~~INC. ~~Qualitative~~(Registrant) ~~Disclosures~~By: ~~about~~/s/ ~~Market~~IRVING ~~Risk~~L. SMITH Irving L. Smith Chief Financial Officer

~~Interest Rate Risk - At December 31, 2004, the Company owed $16,588,742 on a $18,000,000 credit agreement with Bank of America. The credit agreement has $9,000,000 at one month LIBOR plus~~ Date: February 2~~.50% or 3.95% as of December 31~~, 2004, and $9,000,000 under an interest rate swap to provide a fixed rate of 6.02%. A hypothetical 50 basis point increase in interest rates would result in an approximately $45,000 increase in interest expense, resulting in a negative impact on the Company’s liquidity and results of operations. 2009

~~ITEM 4: Controls and Procedures.~~ 20

AsFOUNTAIN ~~of December~~POWERBOAT 31INDUSTRIES, 2004 an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15INC. ~~Based~~AND on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of these disclosure controls and procedures were effective as of the end of the period covered by this report. Management’s review and evaluation of disclosure and internal controls and procedures is an ongoing and continual process. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls during the period covered by this report. SUBSIDIARIES

~~PART~~EXHIBIT ~~II. OTHER INFORMATION.~~ INDEX

ITEM 1: Legal Proceedings.


Exhibit No.		Exhibit Description
31.1		Certification pursuant to Rule 13a-14(a) by the Chief Executive Officer

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

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

~~There were no legal proceedings of a material nature during the quarter ending December 31, 2004.~~ 21

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

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

Item 3: Defaults Upon Senior Securities.

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

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

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

	Shares VotingFor	Against	Withheld
Reginald M. Fountain, Jr.	4,054,320	—	109,576
A. Myles Cartrette	4,045,945	—	117,951
George L. Deichmann, III	4,055,095	—	108,801
Guy L. Hecker, Jr.	4,026,345	—	137,551
David C. Miller	4,005,970	—	157,926
Mark L. Spencer	4,043,145	—	120,751
Robert L. Stallings, III	4,027,545	—	136,351
David L. Woods	4,054,945	—	108,951

Page 22

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

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

ITEM 5: Other Information.

Not Applicable

ITEM 6: Exhibits.

(1). Exhibits:

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

Page 23

SIGNATURE

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

FOUNTAIN POWERBOAT INDUSTRIES, INC.
(Registrant)
By:	/s/ Irving L. Smith	Date: February 14, 2005
	Irving L. Smith
	Chief Financial Officer

Page 24

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