<PAGE>                              
                              
                              
                              
                              
             FOUNTAIN POWERBOAT INDUSTRIES, INC.
                              
                              
                          FORM 10-K
                              
                              
                        ANNUAL REPORT
                              
                              
              FOR THE YEAR ENDED JUNE 30, 1997
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
             SECURITIES AND EXCHANGE COMMISSION
                    WASHINGTON, DC  20549
                              
<PAGE>


             SECURITIES AND EXCHANGE COMMISSION
                    WASHINGTON, DC  20549
                          FORM 10-K
                              
(Mark One)
        X          ANNUAL REPORT PURSUANT TO SECTION 13 or
                   15 (D)OF THE SECURITIES EXCHANGE ACT OF 1934
                  [FEE REQUIRED]

               For fiscal year ended June 30, 1997

          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
          OF THE SECURITIES EXCHANGE ACT OF 1934  [NO FEE
             REQUIRED]

__________For the transition period from _____ to _____.

               Commission File Number: 0-14712
                              
             FOUNTAIN POWERBOAT INDUSTRIES, INC.
   (Exact name of registrant as specified in its charter)
                              
NEVADA                                  88-0160250
(State or other jurisdiction            (IRS Employer
of incorporation)                      Identification
No.)

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

Registrant's telephone number, 
   including area code:  (919) 975-2000

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

     Common Stock, par value $ .01 per share

      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 requirement for the past 90 day.
                            [  X   ]Yes            [    ] No
                                                            
       Indicate  by  check mark if disclosure of  delinquent
filers  pursuant  to  Item  405 of  Regulation  S-K  is  not
contained herein, and will not be contained, to the best  of
registrant's  knowledge, in definitive proxy or  information
statements  incorporated by reference in Part  III  of  this
Form 10-K or any amendment to this Form 10-K.  [X ]Yes [ ]No

                                    -2-
<PAGE>
      The aggregate market value of the voting stock held by
non-affiliates of the registrant was $ 30,981,540 at October
7,  1997  based upon a closing price of $15.00 per share  on
such date for the Company's Common Stock.

      As  of October 7, 1997 there were 4,725,108 shares  of
the Company's Common Stock issued of which 15,000 shares are
owned by the Company's subsidiary Fountain Powerboats,  Inc.
and are regarded as treasury shares.

          Documents incorporated by reference:   None.

                           Part I
                              
Item 1.  Business.

     Background

      Fountain  Powerboat Industries, Inc. (the  "Company"),
through  its  wholly-owned subsidiary, Fountain  Powerboats,
Inc.  (the  "Subsidiary"), designs, manufactures, and  sells
offshore  sport  boats, sport cruisers,  and  sport  fishing
boats  intended  for that segment of the recreational  power
boat  market where speed, performance, and quality  are  the
main  criteria  for  purchase.  The  Company's  strategy  in
concentrating on that segment of the market is  to  maximize
its  use  of  the reputation of its Chairman and  President,
Reginald  M. Fountain, Jr., as an internationally recognized
power  boat racer and designer.  The Company also  has  made
specialized  high  performance boats for the  United  States
Government.

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

Products.

      Each of the Company's products is based upon a deep V-
shaped  fiberglass hull with a V-shaped pad  and  a  notched
transom.   This  design enables the boat to move  along  the
water  at high speed on its pad and achieve performance  and
stability  standards which the Company believes are  greater
than  those  offered by its competitors.  As a  result,  the
Company maintains that its boats are among the fastest, best-
handling, and safest boats of their kind.

      In  Fiscal  1994, the Company developed  a  new,  high
performance hull design for its boats.  These new "positive-
lift"  designs  increase  speed significantly  and  gives  a
softer ride by incorporating radically different keel  lines
with  steps in the hull bottoms.  Handling and fuel  economy
are  also substantially improved with the new designs.   The
Company  is  seeking patent protection for  these  new  hull
designs.

                              -3-
<PAGE>

      All of the Company's sport boats, ranging from 25'  to
51'  are of inboard/outdrive or surface drive design.   They
are  propelled  by  single, twin,  or  triple  gasoline  (or
diesel)  engines ranging from 415 HP to more than  1,000  HP
each.   Fountain  also builds custom racing  boats  designed
specifically  for  competition.  The Company  also  produces
outboard powered center consoles and outboard or stern drive
cabin  model offshore sport fishing boats ranging  from  25'
through 32'.  Furthermore, the Company builds 29', 32',  38'
and 47' sport cruisers.  By February, 1998, the company will
introduce  a  Super Cruiser, 65 foot in length  with  a  16'
beam.

      Introduced early in Fiscal 1992, the 47' Sport Cruiser
is  the flagship of the Fountain fleet.  Its hull design  is
based  upon  that of the Company's 47' Super  boat  and  42'
manufacturer's Super-Vee boats which won 8 out of  10  races
in a recent twelve month period.  The model features a walk-
in  cabin,  enclosed head with shower, complete galley  with
refrigerator and microwave among it's very extensive list of
standard equipment.

      With  most of the amenities of a traditional  cruising
yacht,  the Fountain 47' Sport Cruiser is capable of  speeds
in  excess of 70 mph with standard triple MerCruiser 502 EFI
engines.   A  high  performance  diesel  engine  version  is
available  for international use.  This boat was named  "The
Outstanding Offshore Performance Boat" for 1992 and 1993  by
Powerboat  Magazine  and "Best of  the  Best"  for  1992  by
Boating  Magazine. Depending primarily upon  the  customer's
choice  of  engines, the retail price of this boat  is  from
$348,000 to $603,000.

     The Company's new 47' Lightning Sport Boat is available
with a wide range of engine options and amenities which make
it  suitable  for  long range cruising  at  high  speeds  in
relatively  rough offshore waters.  Its sleek styling  makes
it  particularly attractive.  Depending primarily  upon  the
type  of  engines  selected, this  boat  retails  at  prices
ranging from $364,000 to $618,000.

      As  of August, 1997, the 42' Lightning Sport Boat  has
been redesigned and restyled and operates at  maximum speeds
of 75 to 100 mph and is very stable even in relatively rough
offshore  waters.  This boat's standard features include  an
integrated  swim  platform,  flush  deck  hatches,  and   an
attractively  appointed cockpit and cabin.   This  boat  was
cited  by  Powerboat  Magazine as "The Outstanding  Offshore
Performance Boat" for 1988 and 1990.  It retails  at  prices
ranging form $222,000 to $386,000, depending primarily  upon
the  type of engines selected.  Equipped with special racing
engines,  this  model set a new world speed  record  for  V-
hulled boats in February, 1996 at 131.941 mph.

     Introduced in Fiscal 1991, the 38' Sport Cruiser offers
a scaled down version of the many amenities found on the 47'
Sport Cruiser.  This model has successfully incorporated the
performance  type sport boat's features without compromising
the  comforts found in a cruiser.  Depending primarily  upon
the  customer's choice of engines, the retail price  of  the
boat is from $221,000 to $375,000.

                                -4-
<PAGE>
      The 38' Fever Sport Boat operates at maximum speeds of
between  70  and  100  mph.  Its retail  price  ranges  from
$201,000 to $354,000, depending primarily upon the  type  of
engines   selected.   This  model  was  cited  by  Powerboat
Magazine as "Offshore Performance Boat of the Year" for 1989
and,  again, for 1991.  It also captured an award  from  The
Hot Boat Magazine for "Boat of the Year" for 1991.

      The  35' Lightning Sport Boat is similar in design  to
the 38' Fever, but operates at maximum speeds between 70 and
100  mph.   Because of its smaller size and lighter  weight,
this  model can achieve greater speeds than a 38' Fever when
equipped with the same size engines.  The 25' Lightning  was
named by Powerboat Magazine "Offshore Boat of the Year"  for
1981  and 1995.  It has also captured that magazine's  title
"Outstanding     Offshore     Performance     Boat"      for
1980,1981,1982,1983,1984, and 1987.  This  boat  retails  at
prices   ranging   from  $163,000  to  $202,000,   depending
primarily upon the type of engines selected.

      Fountain's 32' Fever Sport Boat was introduced  during
Fiscal  1991 to satisfy the market's demand for  a  mid-size
sport  boat  between  the 29' Fever and the  35'  Lightning.
This  model combines many of the advantages of both the  29'
model   the  35'  model.   Depending  primarily   upon   the
customer's choice of engines, the retail price of this  boat
is from $132,000 to $163,000.

      The 29' Fever single engine is one of the most popular
boats in our line.  It operates at a maximum speed of 54  to
73 mph and retails between $85,000 and $106,000 depending on
engine  size.  It has great balance and speed for  a  single
engine and for its size really handles the big waters.

      Fountain's  27' Fever sport boat has a single  engine.
It  was added to the line in order to enable the first  time
offshore performance boat buyer to acquire a Fountain  power
boat  at  a very affordable price.  This model won an  award
from Powerboat Magazine for "The Full Size Boat of the Year"
for  1991 and 1992.  It also captured that magazine's  award
for "Outstanding full-size Workmanship" for 1995.  Depending
primarily upon the type of engine selected the retail  price
of this boat is from $73,000 to $94,000.


     In 1990, the Company's sole offshore sport fishing boat
was  a 31' model which featured a center console design  and
incorporated   the  same  high  performance,  styling,   and
structural  integrity as its sport boat models.   It  has  a
deck   configuration   engineered  for  the   knowledgeable,
experienced sport fisherman.  This boat has won the Southern
Kingfish  Association's World Championship for five  of  the
last  seven years and has won more than 50% of the  top  ten
positions over the same period.

      In  Fiscal 1992, Fountain added substantially  to  its
sport  fishing boat line.  An all new 29' twin engine center
console  model  and  an  all new 25'  single  engine  center
console  model  were introduced to extend the product  line.
The  design,  construction, and  performance  of  these  new
models, together with the proven features of the 31'  center
console  model, make a line which in management's view  will
appeal to many experienced sport fishermen.

                              -5-
<PAGE>

      To  further enhance its sport fishing boat  line,  the
Company  introduced a new 31' walk around cabin model  based
upon  the proven 31' center console hull design.  This model
features  a deck design which incorporates a walk-in  cabin,
enclosed  head  with shower, and a full galley.   With  twin
outboard  engine power, this model is produced either  as  a
fishing  boat  for  the  serious  angler  or  as  a   purely
recreational sport boat type cruiser.

     During Fiscal 1993, the Company introduced both 25' and
29'  walk  around  cabin fishing boats with outboard  engine
power  and  a  new 32' walk around cabin model fishing  boat
with  inboard  power.  Other new product  introductions  for
Fiscal  1994 are 25' and 29' walk around cabin model fishing
boats with inboard power.

     For Fiscal 1998, the Company plans to introduce two all
new  surface drive sport boats,  the 46' and 51'  Lightning.
These   boats  will  come  with  the  Company's  new  second
generation positive lift hulls.  The 42' Lightning  is  also
new  for 1998.  This will have the new style deck with  full
wrap  around  windshield and canvas top.  These  boats  also
have  an  all  new  positive lift hull which  will  increase
speed,  stability  and  ride comfort.   Fountain  will  also
launch  into the yacht market with the introduction  of  the
all  new  65' Supercruiser.  This performance yacht will  be
much faster than the competition, while still providing  all
the comforts of a luxury yacht through the use of Fountain's
all  new  super ventilated positive lift hull equipped  with
Fountain's all new Surface Drive System.

      During  the  last quarter of Fiscal 1997, the  Company
introduced  the  Fountain Drive System.  Fountain  developed
this  state of the art drive system which will revolutionize
performance boating.  This new technology matches Fountain's
Super  Ventilated Positive Lift Hull with a highly efficient
surface  drive  system.   Born from  the  Fountain's  racing
heritage,  this  revolutionary system offers increased  speed
and efficiency, better rough water handling, stainless steel
components   to   minimize  corrosion,  greater   horsepower
capacity, less component parts and gears and better transfer
of horsepower to the water.  Fountain continues to strive to
offer the latest in performance technology in each and every
boat  we  build.  Never before has a production boat company
offered such technology to its customers.

      Following  is  a  table showing the  number  of  boats
completed and shipped in each of the last three fiscal years
by product line:

                    Fiscal         Fiscal    Fiscal
                     1997           1996      1995
Sport boats .......  336           295         293

Sport cruisers ....  14             20         15

Sport fishing boats  128            109        93
                    ------         ------    -----
Total                478            424       401
                     ====          ====      ====

                                -6-
<PAGE>

      The Company conducts research and development projects
for  the  design of its plugs and molds for hull, deck,  and
small  parts  production.   The  design,  engineering,   and
tooling departments currently employ approximately 29  full-
time  employees.   Amounts  spent  on  design  research  and
development and to build new plugs and molds in recent years
were:

                          Design           Construction
                          Research &       of  New Plugs
                         Development       and Molds

Fiscal 1997               $635,652         $1,684,274

Fiscal 1996                234,425            878,513

Fiscal  1995               134,828            767,102

       For   Fiscal   1998,  planned  design  research   and
development  expenses  are  $  750,000  and  plug  and  mold
construction  expenditures  are approximately  $  3,000,000.
These expenditures will be primarily to complete the tooling
needed  to  produce  three  luxury  high  performance  sport
yachts,  a  51' model, a 58' model and a 65'  model.   Also,
work  will be started on a 35' wide beam surface drive cabin
sport fishing boat.  Tooling expenditures will also be  made
for other modifications to existing models.

      Manufacturing  capacity is sufficient  to  accommodate
approximately   40  to  50  boats  in  various   stages   of
construction at any one time.  The Company shipped 478 boats
in  Fiscal 1997, 424 boats in Fiscal 1996 and 401  boats  in
Fiscal 1995.

      Construction  of a boat currently made,  depending  on
size, takes approximately three to five weeks.  Construction
of  the  all  new  wide  beam Super Cruisers  should  be  as
follows:  A 51' by December, 1997, the 65' by February, 1998
and  the 58' by April, 1998.  The Company currently has  the
ability to manufacture approximately 600 boats per year with
additional  personnel.  The Company can further  expand  its
manufacturing  capacity  by  adding  additional   personnel,
plant, equipment, and tooling.

      The  manufacturing  process for the  hulls  and  decks
consists  primarily of the "laying-up" by hand of vinylester
resins  and high quality stitched, bi-directional and  quad-
directional  fiberglass  over  a  foam  core  in  the  molds
designed  and  constructed by the Company's engineering  and
tooling department.  This creates a composite structure with
strong  outer and inner skins with a thicker, light core  in
between.  The "laying-up" of fiberglass by hand rather  than
using chopped fiberglass and mechanical blowers, results  in
superior  strength and appearance.  The resin used  to  bind
the  composite  structure together is  vinylester  which  is
stronger,  better  bonding,  and  more  flexible  than   the
polyester  used by most other fiberglass boat manufacturers.
Decks  are bonded to the hulls using bonding agents, rivets,
screw,   and  fiberglass  to  achieve  a  strong,   unitized
construction.

                                 -7-
<PAGE>

      As one of the most highly integrated manufacturers  in
the  marine  industry, the Company manufactures many  metal,
plexiglass,  plastic, and small parts (such  as  gas  tanks,
seat frames, steering systems, instrument panels, bow rails,
brackets,  T-tops,  and  windscreens)  to  assure  that  its
quality  standards are met.  In addition, the  company  also
manufacturers  all  of  its upholstery  to  its  own  custom
specifications and benefits from lower cost, receives  parts
just  in  time for assembly and achieves savings of  several
million  dollars.  All other component parts  and  materials
used  in  the manufacture of the Company's boats are readily
available  from a variety of suppliers at comparable  prices
exclusive  of  discounts.  However, where  practicable,  the
Company  purchases  certain supplies and  materials  from  a
limited  number of suppliers in order to obtain the  benefit
of volume discount.

     Certain materials used in boat manufacturing, including
the  resins  used  to make the decks and hulls,  are  toxic,
flammable, corrosive, or reactive and are classified by  the
federal  and  state  governments as  "hazardous  materials."
Control   of   these   substances  is   regulated   by   the
Environmental Protection Agency and state pollution  control
agencies  which  require reports and inspect  facilities  to
monitor  compliance with their regulations.   The  Company's
cost  of  compliance with environmental regulations has  not
been  material.  The Company's manufacturing facilities  are
regularly  inspected by the Occupational Safety  and  Health
Administration  and  by state and local inspection  agencies
and  departments.  The Company believes that its  facilities
comply  with  substantially all regulations.   The  Company,
however,  has been informed that it may incur  or  may  have
incurred   liability  for  remediation   of   ground   water
contamination   at  two  hazardous  waste   disposal   sites
resulting  from  the  disposal of a hazardous  substance  at
those  sites  by a third-party contractor of the Subsidiary.
(See item 3. Legal Proceedings.)

Recreational   power  boats  must  be   certified   by   the
manufacturer  to  meet U.S. Coast Guard specifications.   In
addition,  their  safety is subject  to  federal  regulation
under  the Boat Safety Act of 1971, as amended, pursuant  to
which  boat manufacturers may be required to recall products
for   replacement   of   parts  or  components   that   have
demonstrated  defects  affection safety.   The  Company  has
never had to conduct a product recall.







Sales and Marketing.

       Sales  are  made  through  approximately  50  dealers
throughout  the  United States.  The  Company  also  has  14
additional dealers throughout the world.  These dealers  are
not  exclusive to the Company and carry the boats  of  other
companies including some which may be competitive  with  the
Company's  products.  The territories served by  any  dealer
are  not exclusive to the dealer.  However, the Company uses
discretion  in locating new dealers in an effort to  protect
the interests of the existing dealers.

                                   -8-
<PAGE>

      Following is a table of sales by geographic  area  for
the last three fiscal years:

                       Fiscal`97     Fiscal '96   Fiscal `95

United  States  ..    $48,346,485   $40,545,235  $38,220,232

Canada, Mexico, Central
and South America ....$1,047,913     $658,738     $   -0-

Europe and
the Middle East ....  $752,801       $394,078     $309,165

Asia ...............  $ 367,126       $  -0-      $  197,932
                       --------      --------      --------

Total   ........    $50,514,325    $41,598,051   $38,727,329
                     ========       ========         =======


      The  Company  has a growing international  advertising
program  and  is  seeking additional  distribution  for  its
products   in   foreign  markets  through  its   own   sales
representative who is establishing new dealers  at  a  rapid
pace.   In general, the Company requires payment in full  or
an  irrevocable letter of credit from a domestic bank before
it  will  ship a boat overseas.  Consequently, there  is  no
credit  risk  associated  with its foreign  sales  nor  risk
related   to  foreign  currency  fluctuation.   The  Company
believes  that  within several years,  foreign  sales  could
account for up to 25% of its total sales.

      For Fiscal 1997 one dealer accounted for 6.6% of sales
and  two  other dealers each accounted for more than  5%  of
sales.   For Fiscal 1996 one dealer accounted for  10.2%  of
sales  and three other dealers each accounted for more  than
5%  of sales.  For Fiscal 1995 one dealer accounted for 9.8%
of sales and four other dealers each accounted for more than
5%  of  sales.  The Company believes that the  loss  of  any
particular dealer would not have a materially adverse effect
on  sales.  As sales continue to grow through more  dealers,
it  is  reasonable  to  assume the Company  will  grow  less
dependent on any one dealer.

      Field sales representatives call upon existing dealers
and develop new dealers.  The field sales force is headed by
the Fountain's National Director of Sales who is responsible
for  developing a full dealer organization for sport  boats,
sport  cruisers,  sport fishing boats and now  yachts.   The
Company  is  seeking to establish separate  sport  boat  and
fishing  boat  dealers in most marketing areas  due  to  the
specialization of each type of boat and the different  sales
programs required.

                                -9-
<PAGE>

      Although  a sales order can be cancelled at any  time,
most  boats  are  pre-sold to a dealer before  entering  the
production  line.  The Company generally has  been  able  to
sell to another dealer any boat for which the order has been
cancelled.  To date, cancellations have not had any material
effect  on  the  Company.   The Company  normally  does  not
manufacture boats for inventory.

      The  Company ships boats to its dealers on a  cash  on
delivery  basis.   However, approximately  one-half  of  the
Company's  shipments are made pursuant to commercial  dealer
"floor   plan  financing"  programs  in  which  the  Company
participates  on  behalf  of  its  dealers.    Under   these
arrangements, a dealer establishes lines of credit with  one
or  more  third-party lenders for the purchase  of  showroom
inventory.

     When a dealer purchases a boat pursuant to a floor plan
arrangement,  it draws against its line of  credit  and  the
lender  pays  the invoice cost of the boat, net of  shipping
charges,  directly  to the Company.  Generally,  payment  is
made  to  the Company within seven business days.  When  the
dealer  in  turn  sells the boat to a retail  customer,  the
dealer  repays  the lender, thereby restoring its  available
credit line.


     For the 1998 model year (which commenced July 1, 1997),
the  Company  had  made arrangements  to  pay  all  interest
charged to dealers by certain floor plan lenders for as long
as  six  months.  This and other incentives to  the  dealers
have  resulted in relatively level month to month production
and sales.  After six months, the free interest program ends
and  interest will be charged to the dealer at the rates set
by  the  lender.  The dealers will make curtailment payments
(principal  payments)  in the boats  as  required  by  their
particular  commercial  lenders.   Similar  sales  promotion
programs were in effect during Fiscal 1997, 1996, and 1995.

      Each dealer's floor plan credit facilities are secured
by  the  dealer's inventory, letters of credit, and perhaps,
other  personal and real property.  In connection  with  the
dealer's floor plan arrangements, the Company (together with
substantially all other major manufacturers) has  agreed  to
repurchase any of its boats which a lender repossesses  from
a  dealer and returns to the Company.  In the event  that  a
dealer  defaults  under a credit line, the lender  may  then
invoke the manufacturers' repurchase agreements with respect
to that dealer.  In that event, all repurchase agreements of
all   manufacturers  supplying  a  defaulting   dealer   are
generally  invoked  regardless of the  boat  or  boats  with
respect to which the dealer has defaulted (See also Item  7,
Management's Discussion and Analysis of Financial  Condition
and Results of Operations).

      The  Company  participates in floor plan  arrangements
with  several  major third-party lenders on  behalf  of  its
dealers, most of whom have financing arrangements with  more
than one lender.

      Except  as  described above or where it has  a  direct
repurchase agreement with a dealer, the Company is under  no
material  obligation to repurchase boats from  its  dealers.
From time to time the Company will voluntarily repurchase  a
boat for the convenience of the dealer or for another dealer
who  needs a particular model not readily available from the
factory.

                               -10-
<PAGE>

     The marketing of boats to retail customers is primarily
the   responsibility  of  the  dealer,  whose  efforts   are
supplemented by the Company through advertising  in  boating
magazines  and  participation  in  regional,  national,  and
international boat shows.

     Additionally, in order to further promote its products,
the  Company developed a racing program.  This entailed  the
construction  of  specially designed race boats  which  have
been   entered  in  major  national  offshore  boat   races.
Fountain  race  boats  won many major races.   Additionally,
Fountain  single,  twin  and  triple  engine  racing   boats
currently  own  world speed records.   The  result  of  this
record   of   victories  and  speed  records  by   a   major
manufacturer is that the Company's products won a reputation
for  very  fast  and safe hull design, durable construction,
and mechanical reliability.

      The  Company  believes  that the  favorable  publicity
generated  by its record setting and winning race boats  has
contributed significantly to its sales volume.  Although the
Company  curtailed its racing program for  Fiscal  1992  and
sold all of its race boats, the fact that its racing program
was  so  successful in Fiscal 1990 and Fiscal 1991 has,  the
Company  believes, significantly benefited its sales  volume
in  subsequent years.  From fiscal 1992 through fiscal 1996,
the  Company  had  limited its participation  in  racing  to
partial  support of customer owned and driven Fountain  race
boats.    Also,  the  Company  Founder  and  C.E.O.,  Reggie
Fountain, has raced a limited schedule since 1992,  and  won
numerous  races in both factory and customer boats;  he  has
also set numerous speed records in both factory and customer
boats.   These  Fountain race boats were, in  general,  very
successful  in  the various racing circuits  in  which  they
competed.   The Company commenced construction of  two  race
boats  during Fiscal 1997 and intends to again  implement  a
racing program during Fiscal 1998.

      As  part of the marketing program for its new line  of
sport   fishing   boats,  the  Company   sponsored   several
outstanding   sport  fishermen  in  the  Southern   Kingfish
Association's  King Mackerel Tournaments.  This  competitive
circuit  is held throughout the Southeast.  In Fiscal  1992,
the  Company's  boats and sponsored fishermen dominated  the
tournaments  by  winning four of the top  five  spots.   One
Fountain fisherman, Clayton Kirby, was named "Angler of  the
Year"  and finished in first place.  Again, in Fiscal  1993,
first  place  was  taken by a Fountain fisherman.   Fountain
fishermen also won second place and 11 of the top  15  spots
in  Fiscal  1993.   Since Fiscal 1993, the Fountain  fishing
team  has  continued  to place high in the  final  standings
winning  five  of the last seven S.K.A. world championships.
The  Southern  Kingfish Association's tournaments  are  held
weekly and attract from one hundred to one thousand entrants
with   prizes   ranging   up  to  $350,000.    The   winning
participation by Fountain sport fishing boats has given them
favorable exposure to serious sport fishermen, in particular
with  respect  to  the  superior performance  of  Fountain's
fishing boat line.


                               -11-
<PAGE>


Sales Order Backlog.

     The sales order backlog as of the end of September 1997
was  for approximately 200 boats having  an estimated  sales
value  of  $20,000,000.   This  compares  to  an  equivalent
backlog at this time in September, 1996 and September, 1995.
During the last two years the Company's lower priced fishing
boat lines have led sales increases holding down the average
unit  price.   Later this year, with the formal introduction
of  the  new  46', 51' and 65' models which  have  not  been
included  in backlog numbers, the Company believes that  its
average  unit price and margins will increase significantly.
The Company's Fall Dealer Allocation Program is designed  to
promote   early  replenishment  of  the  stock   in   Dealer
inventories depleted throughout the spring and summer.


Product Warranty.

      The  Company warrants the deck and hull of  its  boats
against defects in material and workmanship for a period  of
three  years.  Engines included in the boats are  warrantied
by  the  engine manufacturer.  Warranty expenses of $707,202
were  incurred  in Fiscal 1997 and were charged-off  against
net income.  A reserve for warranty expenses estimated to be
incurred  in future years had been recorded and amounted  to
$500,000  at June 30, 1997.  For 1996, warranty  costs  were
only  six-tenths  of one (1) percent.  Warranty  cost  as  a
percentage  of  sales  are among the lowest  in  the  marine
industry   thereby   reflecting   the   Company's   superior
construction of its boats.


Competition.

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

        Wellcraft Division of Genmar Industries, Inc.
   Formula, a Division of Thunderbird Products Corporation
                 Cigarette Racing Team, Inc.
                      Baja Boats, Inc.
                              
                              
     The Company believes that in its market segment, speed,
performance,  quality,  image,  and  safety  are  the   main
competitive  factors, with styling and price being  somewhat
lesser considerations.

      Their market for fishing boats is much larger than the
one  for  sport boats, but there are many more fishing  boat
manufacturers than there are sport boat manufacturers.  With
its  winning image, Fountain will always sell its  projected
budget.

                                     -12-
<PAGE>

      For  High  Performance Surface Drive Super  Ventilated
Positive  Lift  wide beam cruisers, we believe  there  is  a
ready  market  waiting for our products.  It is  our  belief
that  there  are no competitors that can match  us  in  this
highly profitable area.


Employees.

     As of September 30, 1997 the Company had 331 employees,
of  whom  seven  were  executive and  management  personnel.
Sixteen  were engaged primarily in administrative  positions
including   accounting,  personnel,  marketing   and   sales
activities.    Twenty-nine  were  employed  in  engineering,
tooling, and design.  About one dozen are employed to expand
and  maintain our facilities.  The balance were  engaged  in
manufacturing  operation.  None of the  Company's  employees
are party to a collective bargaining agreement.  The Company
considers  its  employee relations to be  satisfactory.  The
Company   is   an  affirmative  action,  equal   opportunity
employer.


Item 2.  Properties.


      The  Company's  executive  offices  and  manufacturing
facilities  are located on 62 acres along the Pamlico  River
in  Beaufort  County,  North Carolina.   All  of  the  land,
buildings and improvements are owned by the Company and  are
held  as collateral on notes and mortgages payable having  a
balance of $8,273,378 at June 30, 1997

       The   operating  facility  contains  seven  buildings
totaling 167,250 square feet located on fifteen acres.   The
buildings consist of the following:

                    Approximate
                    Square Footage      Principal Use

Building 1 ..........      13,200     Executive offices,
                                      shipping and
                                      receiving, and paint
                                      shop.

Building 2 ..........        7,200    Final prep shop.

Building 3 ..........      63,800     Lamination, woodworking,
                                      upholstery, final
                                      assembly,
                                      inventory, and
                                      cafeteria.

Building 4 ..........      14,250     Metal fabrication shop.

Building 5 ..........      26,300    Lamination, Assembly
                                      & Engineering Offices.

Building 6 ..........      18,500     Mold storage.

Building 7 ..........      12,000     Tooling, Racing, service,
                                       and warranty.

Building 8 ..........      8,750     Lamination extension
                                      area.

Building 9                 4,500     Mold Storage

Building 10               25,200     Mold Storage, Mold Prep
                                      and Service

Building 11                10,500     Manufacturing and Tooling

                          ======
Total .................  204,200

                                     -13-
<PAGE>

     Site improvements include a boat ramp and docking
facilities along a 600 foot canal leading to the Pamlico
River.  In addition, approximately 200,000 square feet of
concrete paving surrounds the buildings and provides for
employee parking.  Thirty-five unimproved acres are owned
and available for future expansion.


Item 3.  Legal Proceedings.

     The Company has been notified by the United States
Environmental Protection Agency (the "EPA") and the North
Carolina Department of Environment, Health and Natural
Resources ("NCSEHNR") that it has been identified as a
potentially responsible party (a "PRP")  and may incur, or
may have incurred, liability for the remediation of ground
water contamination at the Spectron/Galaxy Waste Disposal
Site located in Elkton, Maryland (notice from the EPA dated
June 7, 1989) and the Seaboard Disposal Site, located in
High Point, North Carolina, also referred to as the
Jamestown, North Carolina site (notice form the EPA dated
July 10, 1991), resulting from the disposal of hazardous
substance at those sites by a third-party contractor of the
Company.  The Company has been informed that the EPA and
NCDEHNR ultimately may identify a total of between 1,000 and
2,000, or more PRP's with respect to each site.  The amounts
of the hazardous substances generated by the Company, which
are disposed of at both sites, are believed to be minimal in
relation to the total amount of hazardous substances
disposed of by all PRP's at the sites.  At present, the
environmental conditions at the sites, to the Company's
knowledge, have not been fully determined by the EPA and
NCDEHNR, respectively, and the Company is not able to
determine at this time the amount of any potential liability
it may have in connection with remediation at either site.
Without any acknowledgment of liability, approximately $3,279
has been paid by the Company to date
as a non-performing cash-out participant in an EPA-
supervised response and removal program at the Elkton,
Maryland site, and in a NCSEHNR-supervised removal and
preliminary assessment program at the Jamestown, North
Carolina site.  A cash-out proposal for the next phase of
the project is expected to be forthcoming from the PRP Group
for the Elkton, Maryland site within the near future.
According to the PRP Group, The Company's full cash-out
amount is estimated to be approximately $10,000 for the
Elkton, Maryland site based upon an estimated 3,304 gallons
of waste disposed of  at that site by the Company's third
party contractor.  A cash-out proposal in the approximate
amount of $66,000 based upon an estimated 19,245 gallons of
water is anticipated from the PRP Group for the Jamestown,
North Carolina site following completion of a remedial
investigation and feasibility study in early 1998,
according to the PRP Group administrator.  Any such cash-out
agreement will be subject to approval by EPA and NCDEHNR,
respectively.  The Company has accrued the estimated $76,000
liability related to these matters in the accompanying
financial statements.

                                -14-
<PAGE>

     The Company received a demand letter dated February 22,
1996,  from  the  representative  and  agent  for  a  famous
professional  basketball player, for damages  in  connection
with  an  advertisement  for  the  Company  which  used  the
basketball  player's  name.   The  monetary  demand  was  for
$1,000,000 if the claim was resolved prior to the institution
of  a  lawsuit, which also has been threatened.  The Company
put its primary and umbrella liability insurance carriers on
notice after receiving the demand.  On January 2, 1997,  the
Company  filed suit in U.S. District Court for  the  Eastern
District  of  North Carolina against the basketball  player,
his  affiliates and Spencer Communications (a company  owned
by a director of the Company) claiming it did not know of or
approve  of the ad using the basketball player's name.   The
Company  withdrew  the  ad  after  being  contacted  by  the
basketball player's attorney.  The Company further  contends
that  it  did  not state that the player was  endorsing  the
product and that the player has no legal claim to the  usage
of  a  certain  word within the advertisment.   The  Company
further  claims that the player's counsel used  coercion  by
threatening suit and that the Company should be awarded  the
costs  of suit.  On May 8, 1997, the player and his  company
filed  a  response with counterclaim and crossclaim claiming
trademark   infringement  and  unfair  competition   seeking
damages  for  $10,000,000.  The Company filed  a  reply  and
seeks  dismissal.  Shortly after the Company filed  suit  in
North Carolina, the player and an affiliated company filed suit
in the Northern District of Illinois.  This matter was later
transferred to North Carolina and the Company has  moved  to
dismiss  this suit with prejudice because it is  repetitious
of  the  counterclaims in the Company's declaratory judgment
suit.  (See Note 10)



      There  were  seven product liability lawsuits  brought
against  the  Company at June 30, 1997.   In  the  Company's
opinion, these lawsuits are without merit.  Therefore, these
lawsuits are being defended vigorously.  The Company carries
sufficient  product liability insurance to cover  attorney's
fees and any losses which may occur from these lawsuits over
and above the insurance deductibles.

     The Company was audited during Fiscal 1997 by the State
of  North  Carolina under the Escheat and Unclaimed Property
Statute.   The  State Treasurer's audit report was  received
and  a  small amount of escheated funds were paid.  However,
the  Company  disputed  approximately $65,000  of  remaining
escheated property by appealing to the Administrative office
of  the  State  of  North Carolina.  The  dispute  has  been
resolved by the Company's payment of $3,090 to the State.

                                -15-
<PAGE>

      The Company filed suit on July 21, 1997 against Marcia
K.  Garbrecht,  Gary  D. Garbrecht,  Mach,  Inc.,  and  Mach
performance, Inc.  Gary D. Garbrecht is a former director of
the  Company and together with his wife owned Mach, Inc. and
Mach   Performance,   Inc.   The   Company   acquired   Mach
Performance, Inc. which manufactured propellers in order  to
effectuate  the Company's goals of vertical integration  and
because the directors were convinced by Gary Garbrecht  that
Mach   Performance,  Inc.'s  propeller  sales   would   grow
significantly.  As a director of the Company, Gary Garbrecht
represented that Mach Performance, Inc.'s sales would exceed
$3(three)million  per year. He and his  wife  also   made
representations directly to the Company and  to  independent
auditors and appraisers hired to determine the value of Mach
Performance,   Inc.    Among  those   representations   were
representations   that  Mach  Performance   did   not   have
agreements  to  repurchase  assets  previously  sold,  That
inventory was currently valued according to GAAP, that
warranty  claims  were  not significant  enough  to  require
accounting  contingencies, and that the product manufactured
by  mach  Performance, Inc. was of high quality.  After  the
acquisition  and the move of production to Washington,  N.C.
during  the  spring of 1997, the Company learned  that  Mach
Performance, Inc. did have repurchase agreements,  that  its
warranty  claims were significant, and that  the  propellers
manufactured by its equipment and processes were not of high
quality.   Gary  Garbrecht resigned as an  employee  of  the
Company  in April and resigned as a director in May.   After
investigating  the warranty claims and the  quality  of  the
propellers built through Mach Performance, Inc.'s  equipment
and  processes, the Company notified the Garbrechts that the
contracts  involved  in and resulting from  the  acquisition
were rescinded.  Because the Garbrechts refused to recognize
the   rescission  and  to  return  the  consideration   they
received,  the Company filed suit.This suit seeks rescission
of an Agreement and Plan of Reorganization entered into with
the Garbrechts in 1996 for the Company's acquisition of Mach
Performance,  Inc.  The  Company  seeks  rescission  of  the
acquisition  and  merger  agreement  and  voidance  of   the
resulting  transaction  on grounds  of  fraud  and  material
breach  of  contract.  Federal securities fraud  claims  are
based on the Garbrechts' alleged deceptive acts in violation
of  Section  10(b) of the Securities Exchange Act  of  1934,
arising  from  the  sale of Mach Performance,  Inc.  capital
stock  to the Company in exchange for the Company's issuance
to them of 127,500 new restricted shares of its common stock
valued  at  $1,041,250.   Other  claims  include  breach  of
fiduciary  duty, based on North Carolina law,  arising  from
Mr.  Garbrecht's  alleged  material  misrepresentations  and
omissions while serving as a director of the Company  during
the  time  when  the  acquisition and merger  agreement  was
reached.  The Company is seeking a preliminary and permanent
injunction  against the sale or transfer of its 127,500  new
restricted common shares acquired by the Garbrechts  in  the
transaction,  and  is  seeking monetary  damages,  including
trebled  and punitive damages in an unspecified amount,  for
the  claims stated above, as well as for a number of alleged
actions  by  Mr. Garbrecht after the acquisition,  including
usurpation  of corporate opportunities and conversion.   The
Garbrechts and Mach, Inc. have filed counterclaims  alleging
breach of Gary D. Garbrecht's employment contract, breach of
the  merger contract, and requesting a declaratory  judgment
regarding the parties' rights and responsibilities under all
the  contracts  involved in this transaction.   The  company
intends   to  vigorously  pursue  its  claims  against   the
Garbrechts  and  their co-defendants in this  suit,  and  to
defend  vigorously against the counterclaims brought by  the
Garbrechts and their affiliates.

                              -16-
<PAGE>

On  September  3,  1997,  the  company  filed  suit  against
P.R.O.P.  Tour,  Inc., an affiliate of Gary Gary  Garbrecht.
P.R.O.P.  tour Inc. runs a Formula One racing tour of  which
the  Company is the major sponsor.  This sponsorship had two
components,  a  sponsorship of a Formula One  race  held  in
Washington,  N.C. and a separate sponsorship of  the  entire
series   of  races  which  made  the  Company's  subsidiary,
Fountain Powerboats, Inc., the title sponsor of the  series.
The  suit results from P.R.O.P. Tour Inc.'s repeated  claims
that  it  was damaged by alleged breaches of the sponsorship
agreement   for  the  Washington,  N.C.  race  by   Fountain
Powerboats,  Inc.  The Company decided to seek a declaratory
judgment  regarding  its obligations under  the  Washington,
N.C.  race contract.  The suit also includes claims  by  the
Company involving the series sponsorship agreement based  on
P.R.O.P.  Tour,  Inc.'s repudiation of  its  obligations  to
provide the Company primary media exposure according to  the
terms of that agreement.

Item  4.   Submission  of  Matters to  a  Vote  of  Security
Holders.

No  matters  were submitted to the Shareholders for  a  vote
during the last quarter of Fiscal 1997.

                           Part II

Item  5.   Market for Registrant's Common Equity and Related
Stockholder Matters.

      The Company's common stock, $.01 per value, was listed
and  began  trading  on  the NASDAQ National  Market  System
(under the symbol "FPWR") on August 28,1996.  Prior to  that
time  the  Company's common stock was traded on the American
Stock Exchange (under the symbol "FPI").


      The  following table contains certain historical  high
and  low price information relation to the common stock  for
the  past quarter indicated.  Amounts shown reflect high and
low  sales prices of the common stock on the Nasdaq National
Market  System since August 28, 1996 and the American  Stock
Exchange prior to such date:


          Quarter Ended                 High           Low


          September 30, 1994   ...     $2.92  $1.50
          December 31, 1994    ..       4.42  1.83
          March 31, 1995                4.83  3.50
          June 30, 1995       ...       4.17  3.00

          September 30, 1995   ...      5.50  3.59
          December 31, 1995    ...      4.09  3.50
          March 31, 1996         .      4.00  3.50
          June 30, 1996           ....  7.92  3.79

          September 30, 1996  ........  8.08  5.69
          December 31, 1996    .    ...12.33  7.75
          March 31, 1997         ..    16.08  10.65
          June 30, 1997           ...  13.16   9.50

                                        -17-
<PAGE>

     The Company has not declared or paid any cash dividends
since  its inception.  Any decision as to the future payment
of dividends will depend on the Company's earning, financial
position,  and such other factors as the Board of  Directors
deems relevant.

      The number of shareholders of record for the Company's
common  stock  as  of September 30, 1997  was  approximately
1500.



                                     -18-
<PAGE>



Item 6.  Selected Financial Data

               Fountain Powerboat Industries, Inc. and Subsidiary
                             Selected Financial Data
                         Fiscal Years 1993 through 1997
                                        

                                   Year Ended June 30,
Operations Statement Data: ------------------------------------------
----------------------
(Period Ended)       1997         1996          1995        1994         1993
-----------------    ------       -----        ------       ------    ------
Sales    $50,514,325   $41,598,051   $38,727,329     $22,240,212   $27,232,360

Income from continuing
operations        $4,069,832  $3,680,034  $2,047,876 $ (2,993,344)  $ 146,433
  
Loss from discontinued
operations       $2,829,951         -             -            -         -

Net Income
 (loss)   $ 1,239,951   $ 3,680,034   $ 2,047,876  $(2,993,344)   $ 146,433

Income (loss) per share   $.25   $ .81     $ .45    $( .67)    $.03

Weight average shares
  outstanding ..   4,995,154   4,528,608   4,528,608   4,452,856   4,398,750

Fully diluted earnings (loss)
  per share ...     $   N/A       $ .77   $ .45         $ N/A       $N/A

Fully diluted weighted average
  shares outstanding     N/A        4,800,238      4,539,694     N/A   N/A

Balance Sheet Data
(At Period End)
-----------------------------------
Current assets.. $10,997,133   $8,378,341 $6,185,727  $5,365,619 $5,011,591

Total Assets .  $23,713,896  $18,498,104 $16,334,757 $16,266,787  $16,211,026

Current Liabilities  $6,305,212  $6,180,476  $6,081,298 $14,976,570  $5,920,743

Long-term debt..  $8,047,039   $5,433,184   $7,049,049  $133,683   $6,440,403

Stockholders'
  equity (1) ..   $ 9,361,645  $6,884,444   $3,204,410  $1,156,534  $3,849,880
-------------------
(1) The Company has not paid any dividends since its inception.

                               -19-
<PAGE>

Item     7.     Management's    Discussion    and 
   Analysis    of    Financial
Condition and Results of                Operations.

          As      described      more     fully    
 below      at      "Business
Environment",     approximately    half    of    the  
   Company's     shipments
to    dealers    were    financed   through   so-called 
  "100%    floor    plan
arrangements"      with     third-party    lenders     
pursuant     to     which
the    Company    may    be   required   to   repurchase
   boats     repossessed
by    the    lenders    if    the   dealers   defaults 
   under    his    credit
arrangement.     The    other    half    of    shipments
    were    C.O.D.    or
payment prior to shipment.

       Generally,   the   Company   recognizes   a   sale
   when   a   boat   is
shipped    to    a    customer,   legal   title   and   
all   other    incidents
of    ownership    have   passed   from   the   Company  
 to    the    customer,
and     payment     is     received    from    the    
customers'     third-party
commercial    lender   or   from   the   customer.    
This   is    the    method
of    sales    recognition   believed   to   be   in   
use    by    most    boat
manufacturers.

         The     Company     has    developed    criteria 
   for     determining
whether    a   shipment   should   be   recorded   as  
 a   sale   or    as    a
deferred    sale    (a   balance   sheet   liability).  
  The    criteria    for
recording    a    sale   are   that   the   boat   has  
 been   completed    and
shipped   to   a   customer,   that   title   and   all 
  other   incidents   of
ownership   have   passed   to   the   customer,   and
   that   there   is    no
direct    commitment    to   repurchase   the   boat 
   or    to    pay    floor
plan interest beyond the normal sales program terms.

       At   June   30,   1995,   the   Company   estimated  
 the   balances   in
deferred   sales   to   be   $197,541   and   in   deferred 
  cost   of    sales
to   be   $183,393.    At   June   30,   1994,   the  
 Company   estimated   the
balances    in    deferred   sales   to   be   $1,100,000  
 and   in    deferred
cost    of    sales   to   be   $850,000.    The   
differences    between    the
estimates    for   deferred   sales   and   deferred 
  cost    of    sales    at
June   30,   1994   and   June   30,  1995  had   the  
 effect   of   increasing
the   gross   margin   on   sales   and  net  income   
after   taxes   for   the
year by $235,852 ($.05 per share).

       At   June   30,   1997   and   1996,  there  
were   no   commitments   to
dealers   to   pay   the   interest   on   floor   
plan   financed   boats    in
excess    of   the   time   period   specified   in 
  the   Company's    written
sales      program      and     there     were    
 no     direct      repurchase
agreements.      This     was     because    of    
 much     improved     market
conditions     and    strong    ongoing    consumer 
   demand     for     boats.
Therefore,    there    were   no   deferred   sales 
   or    cost    of    sales
estimated     at    June    30,    1997,    and   
 1996.     The     differences
between    the    estimates    for   deferred   sales 
   and    deferred    cost
of   sales   at   June   30,   1995  and  June   30,
   1996   had   the   effect
of   increasing   the   gross   margin   on   sales
   and   net   income   after
taxes   for   the   year   by   $14,148.   There  
was   no   such   effect   on
Fiscal 1997.

        The    Company    has    a    contingent
   liability    to    repurchase
boats    where   it   participates   in   the  
 floor   plan   financing    made
available     to    its    dealers    by    third-party
   finance    companies.
Sales      to     participating     dealers     are
     approved     by      the
respective     finance     companies.      If     a
     participating     dealer
does    not   satisfy   its   obligation   to   the 
  lender   and   the    boat
is    subsequently    repossessed   by   the   lender,
   then    the    Company
can    be   required   to   repurchase   the   boat.
    The   Company   had    a
contingent    liability    of   approximately   
 $8,600,000    at    June    30,
1997,   $7,200,000   at   June   30,   1996   and 
  $7,700,000   at   June   30,
1995    for   the   shipment   of   boats   which
   remained   uncollected    by
the    finance    companies   at   those   dates.
   The    lesser    contingent
liability   at   June   30,   1996   is  due  to  
 fewer   boats   being   floor
planned    by    dealers    with    finance  
companies.     Additionally,    at
June   30,   1997   and   June   30,   1996   
the   Company   had   recorded   a
$200,000,    and    $207,359    reserve    for 
   losses    which     may     be
reasonably    expected    to    be   incurred   
 on    boat    repurchases    in
future years.

                                -20-
<PAGE>

Business Environment.

        The    company's    Sales    have    continued
    to    increase    each
year.     Sales    for   1997   were   $50,514,325,  
 a   21%   increase    from
Sales    for    Fiscal    1996.     Improved    sales 
   volume    for    Fiscal
1997    was   in   line   with   a   general   
improvements   is   the   overall
recreational    boating    industry    and    the 
   result    of     additional
production    capacity.     Also,    the   Company 
  continued    its    highly
effective      advertising      and      marketing 
     programs      throughout
Fiscal 1997.

        Sales    for    Fiscal   1996   were  
$41,598,051,   a   7%    increase
from    sales    for    Fiscal   1995.    Sales  
  for    Fiscal    1995    were
$38,727,329.

        In    Fiscal   1997,   the   Company   
continued   to   advertise    and
market     aggressively.     Management    believes 
   that    the     Company's
advertising,      marketing,      racing,      and 
     tournament       fishing
programs,   as   well   as,   its   reputation   as 
  the   builder    of    the
highest      quality,      best      performing,  
    and      safest       high
performance     boats     in     the    industry, 
    all     contributed     in
increased sales for Fiscal 1997.

         Typically,    each    dealer's    floor 
   plan    credit    facilities
are    secured    by    the    dealer's   inventory,
   and,    perhaps, the dealers letter of credit or other
personal    and    real   property.    In   connection 
  with    the    dealers'
floor      plan      arrangements,     the     Company 
    (as      well      as
substantially    all    other    major    manufacturers)
    has    agreed     in
most     instances     to    repurchases,    under 
   certain     circumstances,
any    of    its   boats   which   a   lender  
 repossesses   from   a    dealer
and    returns    to   the   Company.    In   the 
  event    that    a    dealer
defaults     under    credit    line,    the    
lender    may     invoke     the
manufacturers'     repurchase    agreements    
 with     respect     to     that
dealer.     In    that    event,    all    repurchase
    agreements    of    all
manufacturers     supplying     a    defaulting
     dealer     are     generally
invoked    regardless    of    the   boat   or 
   boats    with    respect    to
which the dealer has defaulted.

        Except    where    there    is    a  
  direct    repurchase    agreement
with    the    customer,    the   Company   is 
  under    no    obligation    to
repurchase    boats    from    its    dealers,
    although    it     will     on
occasion    voluntarily   assist   a   dealer 
  in    selling    a    boat    or
repurchase a boat for the convenience of a dealer.

        No    boats    were    repurchased  
 in   Fiscal    1997,    1996    and
Fiscal     1994     in     connection    with  
  floor    plan     arrangements.
Five    boats    were   repurchased   during  
 Fiscal   1995    in    connection
with    floor    plan   arrangements.    At   
June   30,    1997    and    1996,
the    Company    had    recorded    a   $200,000,
   and    $207,359    reserve
for    losses    which   may   be   reasonably 
  expected   to    be    incurred
on boat repurchases in future years.

Results of Operations.

        Net   income   for   Fiscal   1997 
  was   $1,239,951   or   $.25    per
share    outstanding.     This   compares  
 to    net    income    for    Fiscal
1996    of   $3,680,034,   or   $.81   per  
 share.    The   change    in    net
income    was   due   to   a   discontinued  
 operations    loss   and    write-
down    of    assets    of   a   Subsidiary,  
 Fountain    Power,    Inc.    for
$2,829,881.(See Note #10 and Note #15).

                                 -21-
<PAGE>

        Income    from    continuing   operations  
 (before   the    loss    and
writedown    due    to    Fountain   Power,   Inc,) 
   increased    in    Fiscal
1997    to    $4,069,832    or   10%   over   fiscal  
  1996.     Income    from
continuing    operations    for    Fiscal    1996  
  was    $3,680,034.      The
improvement    in    income    from    continuing  
 operations    for    Fiscal
1997     was     the     result     of    greater  
  sales     volume,     price
increases,     production     efficiencies,    and 
    a     favorable     sales
mix.     The   mix   of   sales   continued   to  
 be   weighted   with    sales
of the Company's larger, higher margin sport boats.

       Net   income   for   Fiscal   1996  was  up
  due   to   an   improvement
in     sales     volume,    production    efficiencies
    and    a     favorable
sales   mix.    Also,   income   was  bolstered 
  by   inclusion   of   a   non-
recurring    $800,000    discount    earned    

for    the    early    retirement
of    indebtedness    to    a    vendor.     
Sales    were    $41,598,051    for
Fiscal 1996, or up by 7% from the previous year.


        Net   income   for   Fiscal   1995   was 
  up   primarily   because   of
substantially      improved     sales     volume. 
     Sales      were      $38,
727,329,    or    up   by   74%   from   the   
previous   year.     Sales    for
Fiscal    1994   were   $22,240,212.    The   
sales   mix   for   Fiscal    1994
was     unfavorable    and    overall    sales 
   volume    through    February,
1994    was    less   than   anticipated.   
 Fewer   boats   were    sold    and
they    were    generally   smaller   and   
less   profitable    resulting    in
a loss for the year.

       In   Fiscal   1994,   at   the   Miami  
 boat   show   in   mid-February,
the     new    "positive-lift"    hull   
 design    was    introduced.      This
new      hull     design     significantly   
  increases     speed,     improves
handling,      and     results     in     much 
    better     fuel      economy.
Subsequent     to    the    introduction    of 
   this    new    design,     the
Company     received     many    orders    for 
   large,    profitable     sport
boats having the new "positive-lift" hull.

        As    the   Company's   sales   order
  volume   improved,   it    began
to     greatly     increase     its    level 
   of     purchases     of     high
performance       engines       and       other 
      critical       components.
Unfortunately,     the     high     performance 
    engines     and      certain
other    critical    components    were    not
    available    on    a    timely
basis.     This    caused    serious    and  
  prolonged    delays    in     the
Company's     boat     production.     Many 
   costly    inefficiencies     were
incurred    in    its   manufacturing   
operations   as   a    consequence    of
not     having     the     necessary    high 
    performance     engines     and
components   on   a   timely   basis.    By  
 July,   1994   most    of    these
supply    problems   had   been   resolved.  
  Most   of   the   sales    orders
that   were   not   completed   in   the   fourth 
  quarter   of   Fiscal   1994
because     of    delayed    deliveries    of   
 critical    components     were
completed in the first quarter of Fiscal 1995.

        The    Company's    gross   profit 
  margin   as   a    percentage    of
sales   increased   to   26.8%   in   Fiscal   1997
   from   22.3%   in   Fiscal
1996    and    20.1%   in   Fiscal   1995.    The 
  increase   in   the    gross
margin    percentage   was   due   to   price   
increases    and    the    sales
mix    of    larger,    higher    margin    sport 
   boats.     Greater    sales
volume, more integrated manufacturing operations
 and    production    efficiencies  
  also    contributed     to     an
improved gross margin for Fiscal 1997.

         Depreciation    expense    was    $1,642,969 
   for    Fiscal     1997,
$1,536,479    for    Fiscal   1996,   and 
  $1,628,867    for    Fiscal    1995.
Depreciation expense by asset category was as follows:

                                -22-
<PAGE>

                      Fiscal         Fiscal         Fiscal
                       1997           1996           1995

Land improvements  $  22,468          $20,595      $18,849

Buildings          $ 231,546          $260,580     $269,460

Molds & plugs     $1,041,211         $980,104      $1,076,746

Machinery & Equipment  $295,829     $ 225,654     $216,089

Furniture & fixtures  $24,572         $11,114        $12,094

Transportation equipment   $27,343   $ 38,432     $35,629
                    -------         -------    -------
Total                $1,642,969   $1,536,479   $ 1,628,867
                     ========      ========       ========

         The $ 92,388  decrease in    
depreciation    expense     for
Fiscal 1996  from Fiscal 1995 is due to an excess of
   molds  becoming  fully
depreciated     over new molds commencing 
   to     be     depreciated
during the year.  Those   particular   molds
   which   are   now    fully
depreciated are still in active service.

         Following    is    a    schedule    of 
   the    net    fixed     asset
additions during Fiscal 1997 and Fiscal 1996.

                         Fiscal 1997            Fiscal 1996

     Buildings ........     $    360,231     $ 225,781

     Land and Improvements...$    315,605         -

     Molds and plugs ......  $ 1,684,274      $ 878,513

     Construction in Progress...$  809,506        -

     Machinery & equipment ..$  649,895      $  376,241

     Furniture & fixtures ..  $  18,767       $  6,270

     Transportation equipment .$   41,718    $ (33,925)
                                 -----------   ----------
                    Total      $ 3,879,996     $1,482,880
                               =========          =========

                                -23-
<PAGE>

         Selling     expenses    were    $6,463,875  
   for     Fiscal     1997,
$4,285,923    for    Fiscal   1996,   and   $3,897,086 
  for    Fiscal    1995.
The    Company    continued    to   promote   its  
  products    primarily    by
magazine     advertising     in     Fiscal    1997. 
     Advertising     expense
was    $1,267,822    for    Fiscal    1997,  
 $849,627    for    Fiscal    1996,
and       $977,787      for      Fiscal      1995.  
     These       advertising
expenditures     increased     the     Company's  
  visibility      in      the
recreational    marine    industry    and    promoted 
   its     boat     sales.
Management    believes    that    advertising    
is    necessary    in     order
to maintain the Company's sales volume and dealer 
base.

         Additionally,    in    an    effort    to
    further    promote     its
products,     the     Company    continued    its 
   offshore     racing     and
tournament     fishing     programs.       These 
    programs     cost $1,256,631
in    Fiscal    1997,    $867,743   in   Fiscal 
   1996    and    $576,741    in
Fiscal    1995.     As   previously   noted,  
 the   Company    curtailed    its
offshore    racing    program   in   Fiscal   
1992    and    sold    its    last
remaining    race    boat,    but   continued 
  a   limited    racing    program
and    its    tournament   fishing   program  
 through   Fiscal    1997.     The
Company    commenced    construction   of   two  
 race   boats    during    late
Fiscal    1997    and   intends   to   again   
implement   a   racing    program
during Fiscal 1998.

        Selling    expenses    compared    for
    the    past    three    fiscal
years were as follows:

                     Fiscal 1997    Fiscal 1996      Fiscal 1995

Offshore racing and
 tournament fishing ..$1,256,631     $867,743        $576,741

Advertising           $1,267,822     $849,627          $977,787

Salaries  & commissions  $1,029,810  $ 578,170        $752,206

Boat Shows ... .          $452,859      $285,321     $388,710

Dealer incentives       $1,286,649     $ 954,234      $938,563

Other selling expenses    $1,170,104  $ 750,828       $263,079
                        -----------   ----------      ---------
Total                  $ 6,463,875     $4,285,923    $3,897,006
                          =======      =========      =========

          General      and     administrative 
    expenses      include      the
finance,     accounting,    legal,    personnel, 
   data     processing,     and
administrative     operating     expenses   
  of     the     Company.      These
expenses     were     $2,553,870    for   
 Fiscal    1997,    $1,904,988     for
Fiscal    1996,    and   $1,415,637   for  
 Fiscal   1995.     Most    of    the
increase    for    Fiscal   1997   over  
 Fiscal   1996   was    in    executive
compensation, travel expense, and attorneys' fees.

        Interest    expense   was   $557,768 
  for   Fiscal    1997,    $747,337
for    Fiscal   1996,   and   $989,359   for 
  Fiscal   1995.    The    decrease
in    interest   expense   for   Fiscal   1997  
 is   primarily    from    lower
interest rates on long term debt.

                                  -24-
<PAGE>

       No   fixed   assets   were   sold   in  
 Fiscal   1997.   During   Fiscal
1996    some    trucks    were    sold   yielding
    a    gain    of    $22,906.
During    Fiscal    1995   some   miscellaneous 
  fixed   assets    were    sold
yielding a loss amounting to $23,015.

        Included    in   other   income   for  
Fiscal   1997   are   consulting
fees     earned    by    the    use    of    Mr. 
   Fountain    amounting     to
$260,000,     and    these    have    been   
assigned    to    the     company.
Included    in    other   income   for   Fiscal  
 1996   is   a    non-recurring
$800,000     discount     earned     for     the 
    early     retirement     of
indebtedness    to    a    vendor.     Included  
  in    other    income     for
Fiscal   1995   is   the   non-recurring   gain  
 on   the   settlement   of   a
state    sales    and    use    tax   assessment 
   amounting    to    $169,552.
Also    included    in   other   income   for
   Fiscal   1996    are    $610,420
of    technical    consulting   fees   earned 
  by   the    Company    by    the
use    of    Mr.    Fountain.     These   
 consulting    fees    amounted     to
$452,911    for    Fiscal   1995.    Under  
 the   terms    of    the    current
consulting     contract,     the     consulting  
   fees     ended      entirely
after Fiscal 1997.

Liquidity and Financial Resources.

        Operations    in    Fiscal   1997 
  provided   $5,474,162    in    cash.
Net    income    plus    depreciation   expense  
  provided    cash    amounting
to      $2,882,920.      However,     relatively 
    large     amounts      were
needed      to      finance     investment  
   activities     in      purchasing
property,     plant,     equipment     and  
  molds.      The     loss     from
operations     of    the    discontinued 
   subsidiaries,    Fountain     Power,
Inc.    and   Mach   Performance,   Inc. 
  also   contributed   to    the    use
of     cash     (See    Note    15).   
 The    ending    cash    balance     was
$3,690,658.

        Operations    for    the    prior  
  fiscal    year    1996,    provided
$3,935,379     in    cash.     Net    income  
  plus    depreciation     expense
provided     cash     amounting    to 
   $5,216,513.     However,     relatively
large    amounts    were    needed   to  
 finance    increases    in    accounts
receivable     and    inventories.     The 
   ending    cash     balance     was
$1,360,619.

        During    Fiscal    year    1995   
 operations    consumed    $1,133,240
in    cash.     Net    income   plus  
 depreciation   expense   provided    cash
amounting     to     $3,676,743.     However, 
   relatively    large     amounts
were    needed   to   finance   an   increase 
 in   accounts   receivable,    a
decrease    in    accounts    payable    and  
  a    reduction    in    customer
deposits.  The ending cash balance was $490,807.

          Investing      activities      for 
     Fiscal      1997      required
$4,936,129,     including    expenditures    
for    additional     molds     and
plugs    amounting    to    $1,684,274   and 
   for    property,    plant    and
equipment    for    $2,249,670.     Also,  
  increases    in    other     assets
required $306,030.

          Investing      activities      for  
    Fiscal      1996      required
$1,484,306     including     expenditures   
 for    additional     molds     and
plugs    amounting    to    $878,513   and  
  for    other    property,    plant
and equipment amounting to $604,367.

          Investing      activities      for     
 Fiscal      1995      required
$1,169,744,     including    expenditures    for  
  additional     molds     and
plugs    amounting    to    $767,102   and   for  
 other    property,    plant,
and equipment amounting to $431,137.

                                   -25-
<PAGE>

          Financing      activities      for     
 Fiscal      1997      provided
$1,095,851.      Included     in    this    amount 
    are     proceeds     from
issuance    of    notes    payable   and   long  
 term    debt    to    G.    E.
Capital    Corporation   for   $8,500,000   and  
 the    retirement    of    all
previous long term debt of $6,427,060.

         Financing    activities    for    Fiscal 
   1996    used    $1,581,261.
Included    in    this   amount   is   $2,192,528 
  of   indebtedness    to    a
vendor    which    was    retired    entirely   
 during    the    year.     Debt
repayments      to      MetLife     Capital    
 Corporation      and      others
amounted to $627,637.

          Financing      activities      for   
   Fiscal      1995      provided
$2,118,080.      Included     in     this   
 amount     is     $2,600,000     of
indebtedness    to   a   vendor   which   was 
  converted    from    a    short-
term     trade     payable    to    a    
long-term    note    payable.      Debt
repayments    to    MetLife    Capital   
Corporation    and    other    amounted
to $928,632.

         The     net     increase    in   
 cash    for    Fiscal    1997     was
$2,330,039.     For    Fiscal    1998,    the   
 Company    anticipates     that
the     $3,690,658     beginning    cash  
   balance     and     the     amounts
expected    to   be   provided   from   
 1997   operations    will    be
sufficient    to   meet   most   of   the  
 Company's   liquidity    needs    of
the    year.     However,    planned    capital 
   expenditures    for    Fiscal
1998    are    substantially    greater   
than    for    Fiscal    1997.     The
Company      intends      to      increase 
    its     production      capacity,
principally     for    new    products,   
 in    Fiscal    1998.      Therefore,
the    Company    is    reviewing    
various    financing    alternatives     to
provide for its increased growth.

        Effective    December    31,    1996, 
   the    Company    repaid    its
indebtedness       to      MetLife     
Capital      Corporation,       Deutsche
Financial    Services,    and   others   with   
 a    new    $10,000,000    long
term       loan      agreement      with      General 
     Electric      Capital
Corporation,    of    which    $7,500,000   was 
   initially    disbursed.     A
second    disbursement    was   made   during   
the    year    for    $1,000,000
bringing    the    total    outstanding    as  
  of    June    30,    1997    to
$8,500,000 less scheduled monthly principal 
reductions.

        Effective    December   31,   1993, 
  the   Company    refinanced    its
indebtedness     to     Metlife    Capital   
 Corporation.      A     $2,000,000
revolving    loan    was    incorporated   into  
 the   long-term    debt    and
the   total   amount   was   amortized  over  
ten   years   with   a   call   at
the    end   of   the   fifth   year.    The  
 interest   rate   on   the   debt
was    fixed   at   8   1/2%.    The   new   
monthly   payment   amounts    very
closely    approximate    what    the 
   principal    and    interest    payment
amounts    were    prior    to   the  
 refinancing.    The    indebtedness    is
secured    by    a    first    lien    to  
 the   Company's    assets,    except
engines      manufactured     by     Mercury 
    Marine.      An      additional
$76,194    was    borrowed    in   the 
 transaction.     The    total    amount
of    the    debt   to   MetLife   as  
 December   31,   1993   was   $6,683,200
after     the     refinancing.     The    
indebtedness    to     MetLife     was
$6,003,799 at June 30, 1995 and $5,500,467
 at June 30, 1996.

        The    Loan   agreement   with 
  MetLife   was   amended   January    1,
1995,     to    revise    certain    financial 
   ratio    requirements     that
the    Company    had   previously   not  
 attained.    After    the    revision
of   the   financial   ratio   requirements  
 and   at   June   30,   1995   and
1996,    the   Company   was   in   compliance 
  with   all   of   the   MetLife
financial ratio requirements.

        In   June   of   1994,   the   
ompany   arranged   for   a   line    of
credit      from      Deutsche      Financial
      Services      for      engine
purchases.    At   June   30,   1994   the 
  amount   owed   to   Deutsche   was
$152,287,   at   June   30,   1995   the 
  amount   owed   was   $534,185    and
at    June    30,    1996     the    amount 
  owed    was    $1,173,089.     The
maximum    amount    of    the    line  
  of    credit    from    Deutsche    is
$1,200,000.     The    debt   is   secured 
  by   a   first    lien    on    all
engine    inventory    and    by    a   
 $200,000    irrevocable    letter    of
credit.

                                   -26-
<PAGE>


        In   December,   1995   the   
Company   borrowed   $600,000   from    G.
E.     Capital    Corporation    for    
the    purpose    of    retiring     its
indebtedness    to    a    vendor.     This 
  debt    to    G.    E.    Capital
Corporation    is    scheduled   for   
repayment   over    forty    months    at
9.00%    interest.     It    is   secured   
by   various    boat    molds    and
product    tooling   and   by   an   irrevocable 
  bank   letter    of    credit
for    $200,000.     The    unpaid   balance 
   at    June    30,    1996    was
$538,044.

Effects of Inflation.

        The    Company    has   not   been 
  materially    affected    by    the
moderate    inflation    of    recent   
 years.     Since    most     of     the
Company's     plant     and     its   
 equipment     are     relatively     new,
expenditures    for    replacements   
 are    not    expected    to     be     a
factor in the near-term future.

        When    raw    material   costs  
 increase   because    of    inflation,
the     Company     attempts    to    minimize
    the    effect     of     these
increases    by    using     alternative,  
  less    costly    materials,     or
by    finding    less    costly   sources  
 for   the   materials    it    uses.
When    the    foregoing    measures   are 
   not    possible,    its    selling
prices are increased to recover the cost
 increases.

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

Cautionary    Statement   for   Purposes  
 of   "Safe    Harbor"    Under    the
Private Securities Reform Act of 1995.

        The    Company    may   from   time  
to   time   make   forward-looking
statements,     including     statements   
  projecting,     forecasting,     or
estimating     the     Company's    performance  
   and     industry     trends.
The    achievement    of    the    projections, 
   forecasts,    or    estimates
contained    in    these    statements   is  
  subject    to    certain    risks
and    uncertainties,    and   actual   results 
  and    events    may    differ
materially from those projected, forecasted,
 or estimated.

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


                                -27-
<PAGE>

        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   dealers, 
 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.

Item 8.  Financial Statements and Supplementary Data.

The financial statements are  set    
forth immediately following
the signature page.



Item    9.     Changes    in    and   

        There were no changes in  
or disagreements with the
independent auditors  on  accounting   
 and financial disclosure
matters.


                          Part III

Item 10.  Directors and Executive Officers 
Registrant.

        The Current directors of   
Registrant  and its Subsidiary
are as Follows:

REGINALD  M. FOUNTAIN, JR., age 57, 
founded the Company's
Subsidiary  during 1979 and has  served 
as its Chief Executive
Officer from its organization. He   
became a director and
President  of the Company  upon its
 acquisition  of the
Subsidiary  in August, 1986. Mr. Fountain presently serves
as Chairman,  President,  Chief Executive
Officer,  and  Chief
Operating Officer of the Company and  
its  Subsidiary. From
1971  to  1979,  Mr. Fountain was a  
world class race boat
driver,  and was the Unlimited   Class  
World  Champion in 1976
and 1978.


REGGIE FOUNTAIN - A BIOGRAPHY

	Whether it's racing, building the world's premier
 high-performance sport boats, investing in real estate
 or selling life insurance, Reggie Fountain has always
 been a winner at everything he does.

	One only needs to spend a few minutes with Reggie
 Fountain to sense the excitement of an American success 
story come true.  The man loves his work.

	Whether it's beating a star-studded fleet of 
world-class offshore racers, personally researching, 
developing and manufacturing his renowned high-performance
 pleasure boats, earning a business and law degree at
 the University of North Carolina, joining the Million
 Dollar Round Table of Life Insurance Salesmen or
 completing a real estate deal in his native North
 Carolina, Fountain always finds a way to win.

WORLD CHAMPION TUNNEL BOAT RACER

	Reggie entered his first boat race in 1954 
at the age of 14, moving quickly into professional 
competition in 1970.  A year later, while driving 
for Glastron Boats, he was named the Houston Gulf 
Coast Marathon Association Champion and the Outstanding 
New Driver at the lake Havasu World Championships. 
 Relying on a keen sense for speed, a superstar 
racing career was under way.

	The following year, operating as an independent, 
Fountain made boat racing history by setting two world
 records earning three national closed-course 
championships all in one day at the Marine Stadium 
in Miami.  Fountain's dominance as an independent 
eventually earned him a place on the vaunted Mercury 
Factory Team where he teamed with Bill Seebold and 
Earl Bentz to become the most dominant trio in
 tunnel outboard history.

	Sporting the Mercury corporate colors, Fountain
 won an amazing 20 of 31 races entered in 1973. 
 In 1975, he followed up by winning 10 of 19 events,
 but it was the bicentennial year of 1976 that will
 be remembered as the pinnacle of Fountain's tunnel 
racing career.  He finished first in 15 of 23 races
 entered, capped by a well deserved title at the St.
 Louis OZ World Championships.  Fountain won the 
prestigious St. Louis race again in 1978, 
then retired from active competition the 
following year to pursue an extensive R&D 
testing program commissioned by Mercury Marine
 while continuing to manage his growing real 
estate interests.

FOUNTAIN POWERBOATS - THE BEST ON THE WATER

	Before Reggie could begin MerCruiser's
 testing program, he needed a boat.  After
 evaluating the market, he contracted with 
Bill Farmer of Excalibur Boats in Sarasota,
 Florida to use one of his 31' V-bottoms.  
As the testing program progressed, Fountain
 couldn't resist the temptation to tinker 
with the boat.   A little sandpaper on the 
running surface netted a speed increase. 
 Hand-crafted putty strakes improved handling 
and further modifications on the stern drive
 height improved acceleration.  Before long,
 Reggie had made so many changes the boat no 
longer resembled the original.

	Encouraged by the noteworthy performance 
gains, Fountain next attacked the deck and hull 
design.  As the development process continued,
 Fountain noticed a growing market for the 
high customized test boats.  A short time 
later, Fountain Powerboats was born in an
 abandoned used car dealership just outside
 Reggie's residence in Washington, North
 Carolina near the Pamlico River.

FOUNTAIN POWERBOATS - ALWAYS ON THE GO

	Growth has come rapidly at Fountain
 Powerboats.  What started in 1979 as a 
10,000-square foot manufacturing facility
 with eight employees and annual sales of
 $515,000 has swelled to 200,000 square 
feet, more than 300 employees and projected 
sales for the 1995-96 model year in excess 
of $45,000,000.

	Likewise, Fountain's model line has
 kept pace with the company's phenomenal
 growth.  Seventeen years after he started, 
Fountain's Lightning Series includes 35', 
42' and 47' offerings, while the award-winning
 Fever Series features 27', 29', 32' and 38'
 models.  For cruising enthusiasts that want
 more performance, Fountain's 32', 38' and 47'
 Sports Cruisers are considered the best on
 the water.  And for those interested in getting
 started in high-performance boating, Fountain 
offers an award-winning 24' Competition Series.

	In addition to his world-renowned sport boats,
 fisherman can likewise enjoy Fountain's patented 
brand of performance.  Fountain entered the
 bluewater fishing market at full strength in
 1990.  Today, the company's fishing fleet
 included a diverse mix of boats from 25' to 32'
 with either stern drive or outboard power in 
center console, cuddy cabin and open bow configurations.

THE BEST ON THE WATER

	From the outset, Fountain has insisted 
on ultimate quality.  A pioneer of space-age 
laminates in the boating industry, Fountain 
was among the first to use bi- and tri-directional
 glass along with lightweight coring material. 
 Underneath, Fountain was one of the first to
 successfully utilize a notch transom, pad 
keel running surface for improved handling 
and performance.

	With Reggie at the helm, Fountain 
Powerboats has gained an international 
reputation as the world's premier high-performance
 boat company.  Fountain is the only builder
 ever to earn Boat of the Year honors from
 three different boating publications, including 
Powerboat, Hot Boat and Boating.  For 15 
consecutive years, Fountain has been recognized
 in Powerboat magazine's annual Awards of
 Product Excellence program, including five 
Offshore Boat of the Year awards - the most
 recent in 1996.  Furthermore, fishing boats
 designed and built by Fountain have thoroughly
 dominated competition on the Southern
 Kingfish Association (SKA) tour like 
no other builder in history.  Anglers 
in Fountain fishing boats have earned 
firstplace overall honors four of the 
five years, including Dave Workman's 
back-to-back wins in 94'-955'.  Further,
 Team Fountain has never failed to place 
at least five boats in the top ten spots 
in the 2,000-member SKA.

A RETURN TO RACING

	Certainly, a trophy case full of awards
 and accolades have helped propel Fountain to
 the forefront of the boating world but it's 
been the achievement in offshore racing that 
has truly separated Fountain from the rest
 of the pack.  After nearly a decade of 
retirement from active competition, Reggie 
Fountain returned to racing in 1990 to 
campaign nationwide on the offshore circuit.
  Not since the late Don Aronow has a man
 designed, built, throttled and driven a 
boat of his own make to such dominance on 
the demanding offshore tour.  Fountain 
Powerboats is the only V-bottom builder 
in the decade of the 90's to score a 
first-place overall finish at a nationally
 sanctioned offshore race.  We've done it 
more than a dozen times.  Wellcraft, 
Cigarette, Formula, Baja and Hustler 
have a combined tally of zero.  Further,
 in a two-year stretch, Reggie Fountain 
went undefeated in major offshore competition.

	In addition to his complete 
dominance on the racecourse, Fountain 
has clearly established several times 
that he builds the world's fastest, safest,
 smoothest and best handling V-bottoms
 on the water.  In the last six years,
the most hotly contested prize on the 
offshore circuit has been the kilo 
record.  Fountain started this seesaw 
battle in 1991 with a 114.585-mph clocking
 in the triple-engine 47-foot Superboat 
Team Fountain.  The Wellcraft got into
 the act with a triple-engine 116.751-mph
 blast of its own.  Hell bent on returning 
bragging rights to North Carolina, Fountain
 upped the mark to 123.91 mph six month 
later with the wrinkle that he did the
 trick in a smaller, less powerful 42-foot
 twin-engine boat.  And then there's the 
latest episode that Fountain will always 
remember as icing on the cake literally. 
 Fountain's back to back 5/8th mile kilo 
passes of 133.788 and 130.092 mph became 
all the more noteworthy when you consider 
they were recorded in a freezing sub-zero
 snow flurry.  The new 131.94-mph speed 
marks the second time that Reggie has 
used a twin-engine boat to break a record
 held by a triple.

	Perhaps Fountain's biggest milestone
 achievement in offshore racing came in 
New Orleans, LA, in 1990.  Racing against 
a star-studded fleet that included actors 
Chuck Norris, Don Johnson, and Kurt 
Russell, Fountain overcame amazing odds
 and beat the entire field of hybrid 
racing catamarans with his V-bottom. 
 The win was particularly sweet for 
Fountain because heretofore V-bottoms 
reputedly were no match for the
catamarans in slick water.  To the 
amazement of the "experts" Fountain 
aced a fleet of the world's fastest 
offshore cats in water conditions on
 lake Ponchartrain that would've been
 ideal for a barefoot ski tournament.


	Two years later in 1992, Reggie,
 throttling john Rebhan's Fountain 42'
 Lightning, Ohio Steel, accomplished 
the near impossible by capturing the 
OPT World and National Championships
 in Open V-bottom.  Fountain also won 
the APBA World Championship in
 Manufacturer's Super Vee.

REGGIE FOUNTAIN - MR. FULL THROTTLE


	Although the title on his 
business card says, "Reggie Fountain,
 Chief Executive Officer, Chairman of 
the Board and President," it scarcely
 touches upon the extent of his actual
 involvement.  Unlike any other CEO in 
the performance boating industry, 
Reggie Fountain is hands-on every step 
of the way.

	Drawing on over 37 years of 
experience in all aspects of racing
 and pleasure boating, Fountain personally 
masterminds all engineering and new 
product Research and Development.  
Considered among the most innovative 
minds in the boating world, Fountain 
revolutionized the way we go fast on
 the water in the late 70's when he 
introduced his amazing notch-transom,
 pad-keel running surface.  Then in 
1992, he took the state of the art 
one giant step further when he 
introduced Positive Lift a breakthrough
 that added more than a 10 percent
 performance increase to Fountain's
 already superior top-end performance
 while also improving handling and
 cornering agility.

	Once a mold is created, 
Fountain performs all initial
 on-the-water testing and then 
collaborates with his staff on 
interior design and graphic styling. 
 To this day, Fountain still logs 
approximately 1,000 hours a year on the water.
  Time permitting, Reggie continues
 to offer personal instruction in 
the finer points of operating a 
high-performance boat to many of
 the customers that visit his North 
Carolina facility.  Furthermore, he
 personally tests many of his boats
 prior to shipment to a dealer
 network that expands to all 
corners of the United States.



GARY E. MAZZA,III, age 59, became 
a director of the
Company    on    December    28.   1993.    Mr.   
Mazza    is    a    practicing
attorney   in   the   business,   tax   and   
international   areas    of    the
law    in    Annapolis,   Maryland.    He   also 
  practices    law    in    New
York   and   Virginia.    He   is   the   Chairman  
 of   Triangle   Tractor   &
Trailer,    Inc.,    a    Director    of   the    
American    Red    Cross    of
Maryland,    and    an    Adjunct    Professor   
 at    the    University     of
Maryland.     He    is    the   founder,   
Executive   Vice    President,    and
General    Counsel    for    Aerovias   
Quisqueana,    C.    por    A.,    Santo
Domingo,     Dominican     Republic.      
Prior     to     entering      private
practice,    Mr.    Mazza   was   the  
 Director   of   the   Legal    Education
Institute    at    the    U.S.   Department  
 of   Justice    from    1977    to
1981.     Prior    to   1977,   he   served  
 as   the   Director    of    Legal
Training    for   the   U.S.   Civil   Service 
  Commission   and   as    Senior
Legal     Advisor    for    the    State    
Attorney    General's    Achievement
Award.      Mr.    Mazza    is    a    highly  
  decorated    retired     United
States Army Colonel.

                                -28-
<PAGE>

FEDERICO  PIGNATELLI, age 44,   
became a director of the
Company    on    April    8,    1992.     
Mr.    Pignatelli    is    the    U.S.
Representative     of    Eurocapital    
Partners,    Ltd.,    and     investment
banking    firm.    From   1989   to   April, 
  1992,   he   was   a    Managing
Director    at    Gruntal    &    Company,   
an   investment    banking    firm.
From    1988    to    1989,   he   was   General
   Manager    of    Euromobiliar
Ltd.,    a    subsidiary    of   Euromobiliare, 
   SpA,    a    publicly    held
investment     and    merchant    bank    in  
  Italy    and     Senior     Vice
President    of    New   York   and   Foreign
   Securities    Corporation,    an
institutional    brokerage    firm    in   
 New    York.     From    1986     to
1988,    he   was   Managing   Director   at  
 Ladenburg,   Thalmann   &    Co.,
an    investment    banking    firm.    From 
   1980    to    1986,    he    was
Assistant     Vice     President    of  
  E.    F.     Jutton     International.
Prior     to     1980,     he     was   
 a    financial     journalist.      Mr.
Pignatelli    was   elected   as   a  
 director   of   the   Company    pursuant
to    the    right   of   Eurocapital  
 Partners,   Ltd.   to   designate    one
member    of    the    Board    of    
Directors    in    connection    with    a
private     placement     of     the   
 Company's     Common     Stock.      Mr.
Pignatelli     also    serves    as    
chairman    of    BioLase     Technology,
Inc.,    a   company   which   produces  
 medical   and   dental   lasers    and
endodontic    products.     Formerly, 
  he   served    as    a    director    of
MTC    Electronic    Technologies    Co., 
  Ltd.,    a    NASDAQ/NMS    company,
and    of    CST    Entertainment   Imaging, 
  Inc.,    and    American    Stock
Exchange Company engaged in colonizing black
 and white film.

MARK SPENCER, age 42, became   a 
director on February    26,
1992.      He     founded     Spencer  
  Communications,     and     advertising
public     relations    firm    
specializing    in    the    marine    industry,
in     1987.      Previously,     Mr.  
  Spencer    began     his     journalism
career     at     Powerboat    Magazine  
  in    1976.      He     was     named
Executive    Editor   of   Powerboat   
Magazine   in   1981   and   served    in
that    capacity    until   1987.    During
   the   last   seven    years    Mr.
Spencer    has   served   as   on   camera 
  expert   commentator    for    ESPN
covering the boating industry.


 In addition to Mr. Fountain, 
who is listed above as a
director,    other executive    officers  
of the    Company are as
follows:

JOSEPH F. SCHEMENAUER, age 52,  
was appointed Vice President - Finance and Chief Financial  
Officer in September, 1997.
Mr. Schemenauer  has had twenty 
years    experience    as    Chief
Financial    Officer    and   or   Controller
   in   the    boating    industry,
primarily    with    Chris    Craft  
  Corporation    (and    its    successors,
Murray    Chris    Craft    Sportboats,
   Inc.   and    Murray    Chris    Craft
Cruisers,     Inc.),     Donzi     Marine 
    Corporation,     Wellcraft     and
Triumph     Yachts     Divisions    of  
  Genmar    Industries,     Inc.     and
Luhrs     Corporation.      His    predecessor, 
   Alan     Krehbiel,     served
in that capacity until August, 1997.


BLANCHE C. WILLIAMS, age 63, 
has been Corporate Secretary
and    Treasurer    of   the   Company  
 since   August,    1986,     and    has
held    the    same    positions   with  
 the   Company's    Subsidiary    since
it    was    formed    during   1979.   
 Mrs.   Williams    also    served    as
Executive    Assistant   to   the   President 
  from   1979    to    1988    and
is currently serving in that capacity.


                          -29-
<PAGE>

Item 11.  Executive Compensation.

         The     following     table   
 sets     forth     the     compensation
awarded,    paid    to   or   earned   by  
 the   Company's   Chief    Executive
Officer,    who    was   the   only   executive 
  officer   of    the    Company
whose     compensation    exceeded  
  $100,000    in    Fiscal    1997,    1996,
and 1995.

Name and Principal  Fiscal   Annual Compensation   Long-term        Stock
Position            Year     Salary(1)  Bonus(2)    Compensation    Options
---------------     -----    -----      -------     ----------       ------

Reginald M.
 Fountain Jr.      1997     $350,000      $151,717   $   -0-        -0-
 Chairman,
 President,Chief   1996      $232,154     $199,984    $  -0-        -0-
 Executive Officer,
  and              1995     $221,650      $106,438   $  -0-       450,000
 Chief Operating Officer (4)


(1)     The    Board    of    Directors  
 increased   Mr.   Fountain's    annual
base   salary   to   $285,000   for   the   
   period   March   30,   1995    to
March   30,   1996   and   to   $350,000  
 for   Fiscal   1997.    The   amounts
shown     do     not       include    the 
   value    of    certain     personal
benefits     received     in    addition  
  to    cash    compensation.      The
aggregate    value    of   such   personal 
  benefits    received    was    less
than ten percent (10%) of the total cash 
compensation paid.

(2)     The    bonuses    paid   to   Mr.  
 Fountain   for   Fiscal    1995,1996
and   1997   were   authorized   by   the   
   Board       on   May   1,   1994.
His    bonus    represents    5%    of   net  
  income    after    the    profit
sharing           distribution,    if  
 any,    but    before    income    taxes
limited to a maximum of $250,000.

(3)     Mr.    Fountain   does   not 
  participate   in   the   Company's    401
(k)    Plan    and   has   no   other  
 long-      term   compensation,    other
than stock options.


    The    Following table   
contains information concerning the
grant of  stock options to 
the  named executive officer    in
Fiscal 1995:

Name ...................   Reginald M. Fountain, Jr.

Number of securities underlying
 options/SARS granted ..........        450,000

Per cent of total options/SARS
 granted to employees in the
fiscal year .................              100%

Exercise price ..................         $4.667

Expiration date ..............            8/04/05


                           -30-
<PAGE>

Potential realizable value of assured
stock-appreciation for
option term based on a per share market
price of the common
stock   on   the   last   trading  day 
prior to the day of grant of $4.667:

     Five percent ...         $ 1,320,678

     Ten percent ....         $ 3,346,859


        The    following    table    contains 
  information    concerning    the
exercise    of    stock   options   and   
employment   related    options    and
information    concerning    unexercised  
 stock    options    held    as    of
June 30, 1997 by the named executive officer:

Name .......................       Reginald M. Fountain, Jr.

Shares acquired on exercise ......          -0-

Market value at time of exercise
 less exercise price, or
  value realized...............             -0-

Number of unexercised options & warrants:

     Exercisable options .........      480,000

     Non-Exercisable ............           -0-

Value of unexercised in-the-money
 options at June 30, 1997,
     Exercisable .............          $ 2,479,680  (1)

(1)     The    closing   sale   price   of  
the  Common   stock   on   Monday,
June 30, 1997 was    $9.833.   
Value  equals    the    difference
between market value and exercise price.

         In     October,    1995,    the    
Financial    Accounting    Standards
Board     issued    SFAS    No.    123,   
 "Accounting    for    Stock     Based
Compensation".     SFAS    No.    123    
permits    a    company    to    choose
either    a   new   fair   value   based  
 method   of   accounting   for    its
stock    based    compensation   arrangements 
  or   to    comply    with    the
current    APB    Opinion    25   intrinsic  
 value    based    method    adding
pro    forma    disclosure   of   net   income 
  and    earnings    per    share
computed   as   if   the   fair   value   based  
 method   had   been    applied
in    the    financial   statements.    SFAS   
No.   123   is   effective    for
fiscal    years    beginning   after   December 
  15,   1995.     The    Company
will    adopt   SFAS   No.   123   in   1997 
  using   pro   forma   disclosures
of    net   income   and   earnings   per  
 share.    The   impact   of    stock
options    on   the   Company's   pro   forma 
  disclosures   of   net    income
and    earnings    per    share   calculations
    is    not    know    as    the
Company has not yet implemented the provision 
of the SFAS.


                            -31-
<PAGE>



Directors' Compensation.

        Directors    of   the   Company 
  currently   do   not    receive    any
fees    or    other    compensation   for 
  their   services    as    directors,
but    they    are    reimbursed    for  
 travel   and    other    out-of-pocket
expenses    in    connection   with   their  
 attendance    at    meetings    of
the Board of Directors.

         In     Fiscal    1995,    each  
  non-employee    director     (Messrs.
Pignatelli,    Mazza,    Garbrecht,   
 and    Spencer)    was    granted    non-
qualified    stock    options   to   purchase 
  30,000    common    shares    at
$3.5833      per      share.      These 
    non-qualified     stock      options
awarded   to   the   outside   directors 
  were   not   under   any    of    the
Company's      existing     stock     
option     plans.      Mr.      Pignatelli
exercised    a   portion   of   his   
options   to   purchase   24,000    shares
during    Fiscal    1997    and    Mr.  
  Mazza    exercised    all    of    his
options    during    July    1997.     
Mr.    Garbrecht    resigned     as     a
director    in   April   1997.    The  
Company   takes   the   position    that
Mr.     Garbrecht's     options     terminated 
    upon     his     resignation.
These     options    are    disputed    in 
   the    lawsuit.     (See    "Legal
Proceedings" and "Stock Option Plans")

Employment Agreement.

         Reginald     M.    Fountain,    Jr.  
  serves    as    the    Company's
President,     Chief     Executive     
Officer,     and     Chief      Operating
Officer     pursuant    to    an    employment 
   agreement     entered     into
during      1989.       The      agreement 
     provides      for      automatic
extensions    of    one-year    periods  
  until    terminated.     Under    the
agreement,    Mr.    Fountain    receives 
  a   base    salary    approved    by
the    Board   of   Directors   and   an  
 annual   cash   bonus   based    upon
the   Company's   net   profits   before  
 taxes.    On   May   1,   1994,   the
Board     of    Directors    authorized  
  an    increase    in    the    annual
bonus   payment   to   Mr.   Fountain  to 
  5%   of   net   income   after   the
profit    sharing    distribution    but   
 before    income    taxes    limited
to    a    maximum    of   $250,000.   
 Bonuses   of   $151,717    for    Fiscal
1997,    $199,984   for   Fiscal   1996  
 and   $106,438   for    Fiscal    1995
were    paid    to    Mr.   Fountain.      
The   agreement    terminates    upon
death      or      permanent     disability. 
     The     current      agreement
replaced    a   similar   agreement   with 
  Mr.   Fountain   that   had    been
in effect from December, 1986 to 1989.


Profit Sharing Plan.

        No    Profit    Sharing   Plan   was 
  authorized   for   Fiscal    1997
or    Fiscal    1996.     On   May   1,   
1994,   the   Board    of    Directors
authorized    a    Profit   Sharing   Plan 
  applicable    to    all    eligible
employees    for    Fiscal    1995.     The 
   profit    sharing    calculations
were    based   upon   the   consolidated  
 audited   net   income    for    the
full    fiscal    year    before    income 
   taxes.     The    actual    profit
sharing    distribution    for    Fiscal  
1995    was    $376,614    and    was
paid in full to the eligible employees 
on August 12, 1995.


                             -32-
<PAGE>

Stock Option Plans.

        During    1987,    shareholders   
of   the    Company    approved    the
1986    Incentive    Stock    Option   Plan. 
   The   Plan    is    administered
by   the   Board   of   Directors   which   
may,   in   its   discretion,   from
time   to   time,   grant   to   officers   
and   key   employees   options   to
purchase    share    of   the   Company's  
 common   stock.     Directors    who
are     not    officers    or    employees   
 of    the    Company    or     its
Subsidiary    are   not   eligible   to   be  
 granted   options    under    the
1986 plan.

        The    1986    Plan    provides   that 
  the    purchase    price    per
share    of    common   stock   provided   for 
  in   options   granted    shall
not   be   less   than   100%   of  the  fair
  market   value   of   the   stock
at   the   time   the   option   is  granted.
    However,   in   the   case   of
an     optionee    who    possesses    more 
   than    10%    of    the    total
combined    voting   power   of   all   classes 
  of   the   Company's    stock,
the   purchase   price   shall   not   be  
 less   than   110%   of   the   fair
market value of the stock on the date of the 
grant.

        No    consideration    is    payable 
   to    the    Company    by    an
optionee   at   the   time   an   option  
 is   granted.   Upon   exercise    of
an   option,   payment   of   the   purchase
   price   of   the   common   stock
being   purchased   shall   be   made  to  
 the   Company   in   cash,   or   at
the   discretion   of   the   Board   of   
Directors,   by   surrender   of    a
promissory    not   from   the   optionee, 
or   by   surrender    of    shares
of    common   stock   already   held   by 
  the   optionee   which   shall   be
valued   at   their   fair   market  value 
  on   the   date   the   option   is
exercised,    or    by    any    combination 
  of    the    foregoing.     Also,
payment    may    be    in   installments, 
 and   upon   such    other    terms
and    conditions   as   the   Board   of 
  Directors,   in   its    discretion,
shall approve.

       Under   the   1986   Plan,   the 
  aggregate   fair   market   value   of
shares    with   respect   to   which   
options   are   exercisable   for    the
first   time   by   an   employee   in  
 any   calendar   year   generally   may
not exceed $100,000.

        The    term    of   each   option   
granted   under    the    Plan    is
determined   by   the   Board  of  Directors,  
 but   may   in   no   event   be
more    than    ten   years   from   the   date 
  such   option   is    granted.
However,   in   the   case   of   an   option  
 granted   to   a   person   who,
at    the    time    the    option   is   granted,  
 owns    stock    possessing
more    than    10%   of   the   total   combined  
 voting    power    of    all
classes   of   stock   of   the   Company,  the   
term   of   the   option   may
not   be   for   a   period  of  more  than  five 
 years  from   the   date   of
grant.     Unless    the    Board    of   
 Directors    determines    otherwise,
no    option   may   be   exercised   for  
 one   year   after   the   date   of
grant.     Thereafter,    an    option  
  may    be    exercised    either    in
whole   or   in   installments   as   shall  
 be   determined   by   the   Board
of    Directors    at    the    time   of  
 the   grant    for    each    option
granted.      All    rights    to    purchase 
   stock    pursuant     to     an
option,     unless    sooner    terminated   
 or    expired,    shall     expire
ten years from the date option was granted.

        Upon    the    termination   of  
 optionee's   employment    with    the
Company,   his   option   shall   be   
limited   to   the   number   of   shares
for   which   the   option   is   exercisable  
 by   him   on   the   date    of
his    termination   of   employment,   and
   shall   terminate   as   to    any
remaining    shares.    However,   if   the 
  employment    of    an    optionee
is    terminated    for    "cause"   (as  
 defined    in    the    Plan),    the
optionee's      rights      under      any 
    then      outstanding      option
immediately    terminate    at    the   
 time    of    his    termination     of
employment.     No    option   shall   be 
  transferable    by    an    optionee
otherwise     than     by    will    or  
  the    laws    of     descent     and
distribution.     As    part   of   the  
 employment   arrangement    of    Gary
Garbrecht     which     was     part  
  of    the    acquisition     of     Mach
Performance,     Inc.,     Mr.     Garbrecht's  
   contract     provided     for
30,000 shares of stock options.


                             -33-
<PAGE>

       Under   the   1986   Plan,   a 
 maximum  of   300,000   shares   of   the
Company's    common    stock   have   been 
 reserved    for    issuance.     In
the   event   of   a   stock   dividend   paid  
 in   shares   of   the   common
stock,     or     a    recapitalization,   
 reclassification,    split-up     or
combination    of   shares   of   such   stock,  
 the   Board    of    Directors
shall    have    the    authority   to   make 
  appropriate    adjustments    in
the    members   of   shares   subject   to 
  outstanding   options   and    the
option    prices    relating   thereto,  
 and   in   the   total    number    of
shares    reserved   for   the   future  
 granting   of   options   under    the
Plan.

        During   1989   the   Board   of  
 Directors   amended   the   Plan   to
delete    a   provision   requiring   that  
 options   granted   to   any    one
employee    be   exercised   only   in   the 
  sequential   order    in    which
they    were   granted.    That   provision  
 at   one   time   was,   but    is
no     longer,     required    by    the  
 Internal    Revenue     Code,     as
amended, to be contained in incentive stock 
option plans.

        During    Fiscal    1995    options 
  to    purchase    30,000    shares
were   awarded   to   Mr.   Fountain   at 
  $3.9417   ($3.5833   X   110%)   per
share    and    options   to   purchase   
30,000   share   were    awarded    to
the    Chief    Financial   Officer   at  
 $3.667    per    share.     Of    the
options    granted    in   previous   years,
   all   had   expired    by    June
30,    1996.     During    Fiscal    1997  
  options    to    purchase    30,000
shares    were    exercised    by   the  
 Chief    Financial    Officer.     The
1986 Plan terminated on December 5, 1996.

       On   June   21,   1995,   a   Special 
  Meeting   of   the   shareholders
was   held   to   vote   upon   the  adoption 
  of   the   1995   Stock   Option
Plan.     The    new    Plan   as   adopted 
  by   the   Shareholders    allowed
for   up   to   450,000   common   stock 
 options   to   be   granted   by   the
Board    of    Directors   to   employees 
  or   directors   of   the    Company
on    either    a    qualified    or   
non-qualified    basis.     Subsequently,
on    August   4,   1995,   the   Board  
 unanimously   voted   to   grant   the
entire    450,000    stock   options   
authorized   under   the    1995    Stock
Option    Plan   to   Mr.   Reginald  
 M.   Fountain,   Jr.   at   $4.667    per
share    on   a   non-qualified   basis. 
   None   of   the   options    granted
to    Mr.    Fountain    under   the  
 1995   Plan    have    been    exercised.
The    expiration    date   of   the  
 options   granted   to    Mr.    Fountain
is August 4, 2005.

         During     Fiscal    1995,   
 each    of    the    four    non-employee
directors      was      granted    
non-qualified     stock      options      to
purchase    30,000    common    shares   at  
 $3.5833    per    share.     These
non-qualified    stock    options   awarded 
   to    the    outside    directors
were    not    under    any   of   the   
Company's   existing    stock    option
plans.  (See Directors' Compensation for 
status)

        An    October    11,    1996   
 employment   agreement    with    former
director     Gary     Garbrecht    provided  
  him    with     30,000     option
shares,     pursuant     to     the  
  1986    stock     option     plan,     on
Industries   common   stock   exercisable 
  at   12.25   per   share    to    be
granted    in   blocks   of   5,000   
option   shares   each   year   for    the
four    year    term    of    the   employment
   contract    starting    October
11,     1998.      Gary     Garbrecht  
  resigned    employment     with     the
Company    April   29,   1997.    The 
 Company   takes   the   position    that
the    options   were   not   yet   granted 
  to   Gary   Garbrecht   when    he
resigned   and,   that,   in   any   event, 
  options   which   are   not    yet
exercisable    when    employment  
  terminates    are    void     under     the
1986    stock    option   plan.    
This   position   is   disputed    by    Gary
Garbrecht    and    the   options   
are   involved   in   a   lawsuit    between
the    Company    and   Gary   Garbrecht  
 which   is   discussed    above    in
the section titled "Legal Proceedings."

                           -34-
<PAGE>


401 (k) Payroll Savings Plan.

        During    Fiscal    1991,  
 the   Company   initiated    a    401    (k)
Payroll    Savings   Plan   (the   "401  
 (k)   Plan")   for   all    employees.
Eligible    employees   may   elect   to 
  defer   up   to    fifteen    percent
of    their    salaries.     The    amounts  
 deferred    by    the    employees
are    fully    vested   at   all   times.   
 The   Company   matches    twenty-
five     percent     of     the    employee's 
   deferred     salary     amounts
limited    to    a    maximum    of    five  
 percent    of    their    salaried
amounts,   or   a   maximum   of   one   and 
  one-fourth   percent   of   their
salaries.    Amounts   contributed   by   the 
  Company   vest   at    a    rate
of   twenty   percent   per   year   of 
  service.    Mr.   Fountain,   by   his
own    election,    does    not   participate 
  in    the    401    (k)    Plan.
There are no postretirement benefit plans
 in effect.


Performance Table.

        The    following   table   was  
 prepared   by   Standard    &    Poor's
Compustant      Services,      Inc.      
It     compares      the      Company's
cumulative     total    shareholder   
 return    with     a     stock     market
performance    indicator    (S.   &   P.
   500   Index)    and    an    industry
index    (S.    &    P.   Leisure   Time). 
   The   table   assumes    a    base
point    of    June   30,   1992   to  
 be   equal   to   $100.00    Accumulated
returns    are    noted   through   June  
 30,   1997.    Each    time    period
covered     by    the    table    gives   
 the    dollar    value     of     the
investment     assuming    monthly   
 reinvestment    of     dividends.      The
Company has never paid any cash dividends.


      Total Shareholder Returns - Dividends Reinvested

                                   Annual Return Percentage

Years Ending
Company/Index              Jun93     Jun94    Jun95     Jun96  Jun97

Fountain Powerboats
    Inds. Inc.             -14.01    -55.82   142.14    100.03  28.25
S&P 500 Index               13.63    1.41     26.07     26.00   34.70
Leisure Time
 (Products) -500            19.55    .87     -21.45     33.63   25.61


                   Base              Indexed Returns
                  Period             Years Ending
Company/Index     Jun92       Jun93   Jun94   Jun95   Jun96   Jun97

Fountain Powerboats
 Inds. Inc.         100       85.99    37.99   91.98  183.99  235.97
S&P 500 Index       100      113.33   115.23  145.27   183.04  246.55
Leisure Time
 (Products)-500     100      119.55   120.60  146.47   191.32  240.33

        As    can   be   seen   from   the 
  table,   the   total   return    to
shareholders    of    the    Company's   
 common    stock    over    the    past
five   years   compares   favorably  or 
 is   greater   than   the   S.   &   P.
500 stocks and the S. & P. Leisure Time 
stocks.

                               -35-
<PAGE>

Board Report on Executive Compensation.

        The    entire    Board   of   
Directors,   including    its    Chairman,
Mr.    Reginald    M.    Fountain,    Jr., 
   who    also    serves    as    the
Company's      President,     Chief     
Executive     Office,     and      Chief
Operating        Officer       has       
prescribed       unanimously        the
compensation     amounts     for    the   
Company's     executive     officers.
These    compensation    amounts   are  
 deemed   adequate    by    the    Board
based      upon      its      judgment  
   as     to     the     qualifications,
experience,     and     performance   
  of     the     individual      executive
officers,     as     well     as,     the  
  Company's     size,     complexity,
growth, and financial performance.


         During     Fiscal     1995,  
  recognizing    the    Company's     much
improved     financial     performance  
   under     his     leadership,     the
Board    increased    Mr.    Fountain's  
 salary    to    $285,000    for    the
period    March    30,    1995    through 
   March    30,    1996,    and     to
$350,000 thereafter.

         The     entire    Board    has 
   also    approved    Mr.    Fountain's
employment    agreement    with    the  
  Company,    more    fully    described
above      (Item      11),     under   
  "Employment     Agreements",      which
provides    for    a    minimum   base
   salary   and    annual    cash    bonus
equal    to    five    percent   of  
 the   Company's    net    profits    after
profit    sharing    distribution  
  but    before    income    taxes    limited
to    a   maximum   of   $250,000.  
  Bonuses   paid   to   Mr.   Fountain   for
Fiscal     1997    were    $151,717, 
   for    Fiscal    1996    amounted     to
$199,984 and for Fiscal 1995 amounted 
to $106,438.

Compliance with Section 16.

     Not applicable.

Item     12.     Security    Ownership 
   of    Certain    Beneficial     Owners
and Management.

        Principal    Shareholders.    
 The   following    table    sets    forth
the    beneficial   ownership   of  
 the   Company's   Common   Stock   as    of
September    15,   1997,   by   each  
 person   known   to   the   Company    to
beneficially     own     more    than  
  five    percent     (5%)     of     the
Company's    Common    Stock.    This 
  table   had    been    prepared    based
upon      information     provided    
 to     the      Company      by      each
Shareholder:


Name and               Amount of Beneficial         Percent of
Address                     Ownership              Class (3)

Reginald M. Fountain, Jr.
P.O. Drawer 457
Whichard's Beach Road
Washington, N.C.  27889       2,569,372 (1)          54.38%

Triglova Finanz, A.G.
P.O. Box 1824
52nd Street
Urbanization Obarrio
Torre Banco Sur, 10th Floor
Panama City,
Republic of Panama              408,750 (2)           8.65%


(1)     Mr.    Fountain   has   sole  
 voting   and   investment   power    with
respect     to     all     share   
 shown    as          beneficially     owned.
Includes options to acquire 480,000 
shares of common stock.

                                  -36-
<PAGE>


(2)     The    Company    is    informed
    that    the    shares    shown    as
beneficially    owned    by    Triglova 
       Finanz,    A.G.     are     owned
directly    by    it,   and   it   
claims   shared   voting    and    investment
power    with    respect   to   all   
such   shares   held   by   Mr.    Filippo
Dollfus     De    Vockersberg,    C/O   
 Fider    Service,    1    Via     Degli
Amadio     6900,     Lugano,    Switzerland.  
   Mr.    Dollfus     had     been
authorized    to    act    as    
attorney-in-fact    for    Triglova     Finanz,
A.G.,     and,     therefore,    claims
   shared    voting    and    investment
power with respect to such shares.

(3)     The    percentage    for   each 
  person   is    calculated    on    the
basis    of    the    Company's    total   
 outstanding    shares    less    the
15,000 shares owned by the Company's
 Subsidiary.


Directors    and    Officers.    The  
 following   table    sets    forth    the
beneficial    ownership    of    the  
  Company's    common    stock    as    of
September     15,     1997,    for  
  each    of    the    Company's     current
directors,    and   for   all   directors 
 and   officers   of   the    Company
as a group.



Name                      Amount of             Percent
and                       Beneficial              of
Address                   Ownership             Class (3)

Reginald M.
  Fountain, Jr. (1)      2,569,372 (2)        54.38%

Mark L. Spencer (1)      33,400 (2)            (3)

Federico Pignatelli (1)    30,000 (2)          (3)

Gary E. Mazza  III (1)      34,500               (3)

Blanche C. Williams (1)       300               (3)

Joseph F. Schemenauer (1)    -0-                (3)

All directors and officers as
a group (6 persons)        2,667,572 (2)           56.46%



(1)          The    address    of   each 
  person   is    P.O.    Drawer    457,
Whichard's      Beach      Road,    
  Washington,           North       Carolina
27889.     Except    as   otherwise   
indicated,   to   the    best    knowledge
of      management    of   the   Company, 
  each   of   the    persons    listed
or    included    in    the    group   
has   sole    voting    and    investment
power      over     all     shares     shown 
    as     beneficially      owned.
Percentages       for   each   person   listed 
  and   for   the    group    are
calculated      on      the      basis     of  
    the      Company's      total
outstanding    shares    less    the    15,000 
  shares    owned     by     the
Company's Subsidiary.


                                 -37-
<PAGE>

(2)     For    Mr.    Fountain,   includes 
  options   to    purchase    480,000
shares    of    common    stock   held.   
      For   Messrs.     Spencer    and
Pignatelli    includes    options    to   
 purchase    30,000      and     6,000
common      shares     respectively.     
 Mr.     Pignatelli     has     already
exercised 24,000 options shares.

(3)  Less than 1%

Item   13. Certain Relationships and Related-Party Transactions.

    During    the    fourth   quarter 
of   Fiscal   1996,   the    Company
borrowed  $170,000  from     Mr.    
Fountain to supplement     its
working  capital.   This    loan   was 
unsecured  with    interest    at
12%.   The Company   paid   Mr.   Fountain 
$2,710   in   interest.     The
loan was entirely repaid by June 30, 1996.

        Mr.    Fountain    loaned    the  
 Company   $300,000    in    November,
1992    to    supplement   the   Company's 
  working    capital.     The    loan
was    unsecured    and   bore   interest  
 at   the    rate    of    12%    per
annum.     Effective    January   31,   1994,
    the    Company's    Board    of
Directors      authorized     the     
issuance     of     129,858     additional
common    stock    shares   in   consideration 
 for   the    cancellation    of
this    $300,000    debt    to    Mr.  
 Fountain.    The    additional    shares
were   issued   at   a   price   of   $2.333 
  per   share   to   Mr.   Fountain
and    to    Triangle   Finance   Ltd.,  
 a   client   of   Eurocapital,    Ltd.
Mr.     Federico     Pignatelli     is   
 the     U.S.     representative     of
Eurocapital,    Ltd.    and    is   also  
 a   director    of    the    Company.
Mr.   Fountain   cancelled   two   thirds  
 of   the   total   amount   of   the
debt     ($202,000,    including    $200,000 
   of    principal    and    $2,000
of     accrued     interest)    for    86,572 
   common    shares.      Triangle
Finance   Ltd.   repaid   on-third   of   the 
  total   amount   of   the   debt
($101,000,     including    $100,000    of   
 principal    and     $1,000     of
accrued    interest)    for    43,286   common 
   shares.     The    Board    of
Directors    determined   that   the   price  
 of   $2.333   per    share    was
fair    to    the   Company   after 
  consideration   of   such    factors    as
the     common    stock's    book    value, 
  its    then    current     market
price, and recent private placements.

       No   interest   was   paid   to 
 Mr.  Fountain   in   Fiscal   1997,   or
1995.    The   Company   also   paid  
 rentals   at   what   it   believes    to
be    their    fair    market   values 
  during   the    last    three    fiscal
years    to    Mr.    Fountain    or  
 to   entities    owned    by    him    as
follows:

                         Fiscal         Fiscal       Fiscal
                          1997           1996          1995

Apartment Rentals.....   $17,260      $  15,380   $    13,995

R. M. Fountain, Jr.
  - airplane rentals ..$  296,498     $ 155,499      $104,469

                         --------     --------        ---------
                        $ 313,758      $170,879      $118,464
                         =======       =======         ======
(See Note 12)


                                 -38-
<PAGE>

        The    rentals    paid    to   
 Eastbrook   Apartments    and    Village
Green     Apartments    are    primarily 
   for    temporary     lodging     for
relocating     and     transient     Company 
    personnel     and     visitors.
The    rentals   paid   for   the   
airplane   are   based   upon   the   actual
hours   that   the   airplane   was   used  
 for   Company   business   plus   a
monthly     stand-by    charge    for   
 the    exclusive     use     of     the
airplane.      During    Fiscal    1993,   
 Mr.    Fountain    purchased     the
airplane    from    the   Company  
 together   with    a    parcel    of    real
estate     located     at     Morehead    
City,     North     Carolina.      The
Company    recorded    a    profit    on  
  these    transactions    with    Mr.
Fountain    amounting   to   $117,126.   
 During   the    first    quarter    of
Fiscal     1998    the    Company  
 purchased    an    airplane    from     Mr.
Fountain      for     $1,375,000.    
  Principal     financing      for      the
airplane is through General Electric Capital Corporation.

        Mr.    Gary    D.   Garbrecht  
 was   a   director   of   the    Company
through    April   1997   and   the  
 President   and   sole   shareholder    of
Mach      Performance,      Inc.      
which     supplies      the      Company's
subsidiary    with    some   of   its 
  requirements    for    propellers    and
other     accessory    items.     The  
 Company    paid    Mach    Performance,
Inc.     $254,623    in    Fiscal    1997, 
   $191,709    in    Fiscal     1996,
$254,696     in     Fiscal     1995.     
 The     Company     acquired      Mach
Performance,    Inc.    for   127,500  
shares   of    common    stock    during
Fiscal 1997.

         Mr.     Gary    E.    Mazza,    III, 
   a    distinguished    attorney,
businessman,      educator,     and  
   retired     United      States      Army
Colonel    was    elected    to   the   
Board   of   Directors    on    December
28,    1993.     He    is   Mr.   Fountain's
   father-in-law.     The    Company
paid   Mr.   Mazza   $1,709   in   Fiscal  
1997,   $11,079   in   Fiscal   1996
and $1, 743 in Fiscal 1995.

        Mr.    Federico    Pignatelli   was   
elected   to    the    Board    of
Directors     as     the     designee     of  
   Eurocapital,     Ltd.,      the
Company's     investment     banking    firm   
 in     connection     with     a
private    placement    of    the   Company's  
 Stock.     No    amounts    were
paid   to   Mr.   Pignatelli   or  to  
Eurocapital,   Ltd.,   or   to   any   of
their affiliates, in Fiscal 1997, 1996 
or 1995.

        Mr.   Mark   L.   Spencer   is   
a   director   of   the   Company   and
the       President       and       sole 
     shareholder       of       Spencer
Communications,     Inc.    which    furnishes
   advertising     and     public
relations     services    the    Company.  
   The    Company    paid     Spencer
Communications,    Inc.    $547,436     in 
   Fiscal    1997,    $265,985     in
Fiscal 1996 and $138,116 in Fiscal 1995.

        The    Company   believes   that  
 all   of   the   above   transactions
were    on   terms   which   were   not 
  more   favorable   than   would   have
been obtained from non-affiliated parties.


                                  -39-
<PAGE>

                           Part IV


Item      14.      Exhibits,     Financial 
    Statement     Schedules,      and
Reports on Form 8 and Form 8-K.

(a)     The    following    documents   are
    filed    as    part    of    this
Report:

         (1)   Financial    Statements. 
 The    Following     consolidated
financial statements of     the      
 Company  and its
Subsidiary are included in Part II, Item 8,
herein:

                                         Page No.

Independent Auditors'Report..................

Consolidated Balance Sheets
     June 30, 1997 and 1996 ........


Consolidated Statements of Operations
     Years Ended June 30, 1997, 1996, 1995 .............

Consolidated Statements of Stockholders' Equity
     Years Ended June 30, 1997, 1996, 1995 ............

Consolidated Statements of Cash Flows
     Years Ended June 30, 1997, 1996, 1995
 ...................

Notes to Consolidated Financial Statements .............

(2) Exhibits.  The following exhibits are filed with this
report or incorporated by reference to a
previous filing:

3.01 Certificate of Incorporation of the Company
(Incorporated by
 reference to the Company's Registration Statement filed
                                      on                   Previously
                          October 2, 1986)
 .........................................................   Filed

3.2  Amendments to Certificate of Incorporation of the
Company
     (Incorporated by reference to Amendment No. 1 to the
     Company's Registration Statement field on December 2,1986)
                           ....................  Previously Filed

3.3  Amendment to Certificate of Incorporation of the Company
     (Incorporated by reference to the exhibit filed with the
     Registrant's Annual Report on Form 10-K for the fiscal year
     ended June 30, 1991) ..................... Previously Filed

3.4  By-laws of the Company (Incorporated by reference to Amendment
     No. 1 to the Company's Registration Statement filed on
     December 2, 1986) ........................... Previously Filed

3.5  Certificate of Amendment to the Articles of Incorporation, Consent
     Action in Writing of the Majority Stockholders, and Resolutions
     Adopted by Unanimous Written Consent of the Board of Directors
     for the one-for-two reverse stock split of February 4, 1994
     ...........................................  Previously Filed

4.1  Form of Warrant Agreement (Incorporated by reference to
Amendment
     No. 2 to the Company's Registration Statement filed on
     December 10, 1986) .......................... Previously Filed

4.2  Form of Stock Certificate (Incorporated by reference to the
exhibit filed with the Registrant's Annual Report on Form 10K
 for the fiscal year ended October 1, 1989)........ Previously Filed

10.1   1986 Incentive Stock Option Plan (Incorporated by reference to
     Amendment No. 1 to the Company's Registration Statement
filed on
     December 2, 1986) ......................     Previously Filed

10.2 Employment Agreement dated May 31, 1989 between
Reginald M.
     Fountain, Jr. and the Company's Subsidiary
(Incorporated by
     reference to the exhibit filed with the Registrant's
Annual Report  on Form 10K for the fiscal year ended October
1, 1989)
                       ..................... Previously Filed

10.3 First Modification of Revolving Loan and Security
Agreement
     dated August 29, 1990 by and between Fountain
Powerboats Inc. and
     MetLife Financial Acceptance Corporation (Incorporated
by
     reference to the exhibit filed with the Registrant's
Annual Report
     on Form 10K for the fiscal year ended March 22, 1994)
                           ....................... Previously Filed

10.4 Loan and Security Agreement with MetLife Capital
Corporation
     dated December 31, 1993 .........  Previously Filed


10.5 Consulting and Marketing Agreement with the Mercury
Marine
     division of the Brunswick Corporation dated July 11,
1994
                              ................    Previously Filed

10.6 Loan Extension and Amendment Agreement with the Mercury
     Marine division of the Brunswick Corporation dated
     July 11, 1994 ...........     Previously Filed

10.7 Amendment to Consulting and Marketing Agreement with the
     Mercury marine division of the Brunswick Corporation dated
     July 11, 1994 ..................   Previously Filed

10.8 Standstill Agreement with the Mercury Marine division of the
     Brunswick Corporation dated July 11, 1994
     ....................................... Previously Filed

10.9 Amendment No. One dated September 24, 1994 to Loan and
     Security Agreement of December 31, 1993 with MetLife
     Capital Corporation ......... Previously Filed

10.10     Consent to Loan Restructure dated January 1, 1995
from MetLife
     Capital Corporation ............   Previously Filed

10.11     Amendment No. Two dated January 1, 1995 to Loan
and
     Security Agreement dated of December 31, 1993 with MetLife
     Capital Corporation ...........    Previously Filed

10.12     Second Loan Extension, Consolidation and Amendment
     Agreement dated February 24, 1995 with Brunswick Corporation,
     Mercury Marine Division .......    Previously Filed

10.13     Modification of Deeds and Trust and Assignment of Rents, Issues
     and Profits dated February 24, 1995 with Brunswick Corporation,
     Mercury Marine Division ........   Previously Filed

10.14     Consulting and Marketing Agreement dated February 24, 1995
     with Brunswick Corporation, Mercury Marine Division
               ......................   Previously Filed

10.15     Supply agreement dated February 24, 1995 with Brunswick
          ...............................Previously Filed

10.16     Master Security Agreement dated December 21, 1995
     with G.E. Capital Corporation
 ........................... Previously Filed

10.17     Promissory Note dated December 21, 1995 with
     G.E. Capital Corporation
 .................... Previously Filed

10.18     Collateral Schedule No. 001 dated December 21, 1995
     with G.E. Capital Corporation
 ...........................   Previously Filed

10.19     Letter of Credit Agreements dated December 21,
1995
       with G.E. Capital Corporation........   Previously Filed

10.20     Agreement and Plan of Reorganization with
         Mach Performance, Inc...................Filed Herewith

10.21  Loan Agreement dated December 31, 1996 with
     General Electric Capital Corporation........Filed Herewith

21   List of Subsidiaries ...........

(b)  No Amendments on Form 8 or Current Reports on Form 8-K
were filed by the Registrant  during the fiscal year
 ended June 30, 1996.


                              -42-
<PAGE>



                              
                         Signatures

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

          FOUNTAIN POWERBOATS INDUSTRIES, INC.
                                                                                
               /s/ Reginald M. Fountain, Jr.                               
        By: __________________________________________
                Reginald M. Fountain, Jr.
                Chairman, President, and
                Chief Executive Officer

        Date:     October 14, 1997

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

/s/ Reginald M. Fountain, Jr.
____________________________________         October 14, 1997
Reginald M. Fountain, Jr.
Chairman, President, and Chief Executive Officer
(Principal Executive Officer)

/s/ Gary E. Mazza III
____________________________________         October 14, 1997
Gary E. Mazza III
Director

/s/ Federico Pignatelli
____________________________________         October 14, 1997
Federico Pignatelli
Director

/s/ Mark L. Spencer
________________________________________          October 14, 1997
Mark L. Spencer
Director

/s/ Joseph Schemenauer
____________________________________         October 14, 1997
Joseph Schemenauer
Chief Financial Officer
 (Principal Accounting
   and Financial Officer)


                               -43-
<PAGE>
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
                CONSOLIDATED FINANCIAL STATEMENTS
                                
                     JUNE 30, 1997 AND 1996
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                 PRITCHETT, SILER & HARDY, P.C.
                  CERTIFIED PUBLIC ACCOUNTANTS

<PAGE>

       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
                                
                                
                                
                            CONTENTS

                                                              PAGE

        _  Independent Auditors' Report                          1


        _  Consolidated Balance Sheets, as of June 30, 1997
             and 1996                                             2


        _  Consolidated Statements of Operations, for the years
             ended June 30, 1997, 1996 and 1995.              3 - 4


        _  Consolidated Statement of Stockholders Equity, for the
             years ended June 30, 1997, 1996 and 1995.            5


        _  Consolidated Statements of Cash Flows, for the years
             ended June 30, 1997, 1996 and 1995.              6 - 7


        _  Notes to the Consolidated Financial Statements    8 - 24






<PAGE>




                  INDEPENDENT AUDITORS' REPORT



To the Board of Directors
FOUNTAIN POWERBOAT INDUSTRIES, INC.
Washington, North Carolina


We  have audited the accompanying consolidated balance sheets  of
Fountain Powerboat Industries, Inc. and Subsidiary as of June 30,
1997  and  1996,  and  the  related  consolidated  statements  of
operations,  stockholders' equity and cash flows  for  the  years
ended  June  30, 1997, 1996 and 1995. These financial  statements
are   the  responsibility  of  the  Company's  management.    Our
responsibility  is  to  express an  opinion  on  these  financial
statements based on our audits.

We  conducted  our  audits in accordance with generally  accepted
auditing  standards.  Those standards require that  we  plan  and
perform  the  audit to obtain reasonable assurance about  whether
the  financial statements are free of material misstatement.   An
audit  includes  examining, on a test basis, evidence  supporting
the  amounts  and  disclosures in the financial  statements.   An
audit also includes assessing the accounting principles used  and
significant  estimates made by management, as well as  evaluating
the  overall  financial statement presentation.  We believe  that
our audits provide a reasonable basis for our opinion.

In  our opinion, the consolidated financial statements audited by
us  present  fairly,  in  all material  respects,  the  financial
position of Fountain Powerboat Industries, Inc. and Subsidiary as
of  June  30, 1997 and 1996, and the results of their  operations
and  their cash flows for the years ended June 30, 1997, 1996 and
1995 in conformity with generally accepted accounting principles.




/s/ PRITCHETT, SILER & HARDY, P.C.

PRITCHETT, SILER & HARDY, P.C.


July 31, 1997
SALT LAKE CITY, UTAH  84111



<PAGE>


       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
                   CONSOLIDATED BALANCE SHEETS
                                
                             ASSETS
                                
                                                    June 30,
                                           _____________________
                                                1997       1996
                                           ______________________
CURRENT ASSETS:
  Cash & cash equivalents                   $2,994,503 $1,360,619
  Certificates of deposit - held to maturity   696,155         -
  Accounts receivable, less allowance for
   doubtful accounts of $30,000 for 1997
   and $27,000 for 1996                      1,867,747  2,853,684
  Inventories                                3,937,757  4,009,195
  Prepaid expenses                           1,131,703    154,843
  Current tax assets                           369,268         -
                                           ___________  _________
        Total Current Assets                10,997,133  8,378,341

PROPERTY, PLANT AND EQUIPMENT, net          12,219,156  9,928,186

OTHER ASSETS                                   497,607   191,577
                                           __________  ___________
                                         $23,713,896   $18,498,104
                                           __________  ___________
                                
              LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Notes payable                               $      -  $1,173,089
  Current maturities of long-term debt          595,607    767,254
  Accounts payable                            1,987,508  1,713,760
  Accrued expenses                              860,786    914,732
  Dealer territory service accrual            1,637,572    765,674
  Customer deposits                             310,042    228,608
  Allowance for boat repurchases                200,000    207,359
  Warranty reserve                              500,000    410,000
  Net liabilities of discontinued operations    213,697          -
                                           ____________  _________
        Total Current Liabilities             6,305,212  6,180,476
                                           ____________  _________
LONG-TERM DEBT, less current maturities       7,677,771  5,433,184

DEFERRED TAX LIABILITY                          369,268          -

COMMITMENTS AND CONTINGENCIES (See Note 10)           -          -

STOCKHOLDERS' EQUITY  [Restated]
  Common stock, par value $.01 per share,
    authorized 200,000,000 shares; issued
    4,725,108 and 4,543,608 shares               47,251    45,436
  Additional paid-in capital                 10,517,740  9,282,305
  Accumulated deficit                       (1,092,598) (2,332,549)
                                           ____________  __________ 
                                             9,472,393  6,995,192
  Less: Treasury Stock, at cost
    15,000 shares                              (110,748)  (110,748)
                                           ____________  __________
                                              9,361,645  6,884,444
                                           ____________  __________
                                            $23,713,896 $18,498,104
                                           ____________  __________

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

                              -2-
<PAGE>


       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
              CONSOLIDATED STATEMENTS OF OPERATIONS
                                
                                
                                       Year Ended June 30,
                            _____________________________________
                                  1997        1996         1995
                            _____________  __________  ___________
NET SALES                $    50,514,325  $41,598,051  $38,727,329

COST OF SALES                  36,976,247  32,326,371   30,953,992
                            _____________  __________  ___________
  Gross Profit                 13,538,078   9,271,680    7,773,337
                            _____________  __________  ___________

EXPENSES:
  Selling expense               6,463,375   4,285,923    3,897,086
  Selling expense - related party     500           -            -
  General and administrative    2,240,112   1,729,399    1,297,173
  General and administrative
    - related parties             313,758     175,589      118,464
                            _____________  ___________  __________
      Total expenses            9,017,745   6,190,911    5,312,723
                            _____________  ___________  __________
OPERATING INCOME                4,520,333   3,080,769    2,460,614

NON-OPERATING INCOME (EXPENSE):
  Other income                    437,694   1,404,500      642,277
  Interest expense              (557,768)   (744,627)    (989,359)
  Interest expense - related parties    -     (2,710)            -
  Gain (loss) on disposal of assets     -      22,906     (23,015)
                            ______________  ___________  _________
                                (120,074)     680,069    (370,097)

INCOME BEFORE INCOME TAXES      4,400,259   3,760,838    2,090,517

CURRENT TAX EXPENSE               330,427      80,804       42,641

DEFERRED TAX EXPENSE                    -           -            -
                            _____________  ___________  __________
INCOME FROM CONTINUING
   OPERATIONS                   4,069,832   3,680,034    2,047,876

DISCONTINUED OPERATIONS(See Note 14):
  Loss from Operations of
    Fountain Power, Inc. and
    Mach Performance, Inc.(Net
    of no income tax effect)    2,389,480         -            -
  Estimated losses on disposal
    of the operations of
    Fountain Power, Inc. and
    Mach Performance, Inc. (Net
    of no income tax effect)     440,401           -            -
                            ____________  ____________  ___________
LOSS FROM DISCONTINUED
   OPERATIONS                 (2,829,881)         -             -
                            ______________  ___________  __________
NET INCOME                      $1,239,951   $3,680,034  $2,047,876
                            ______________  ___________  __________
                           [Continued]

                                -3-
<PAGE>
             FOUNTAIN POWERBOAT, INC. AND SUBSIDIARY
                                
              CONSOLIDATED STATEMENTS OF OPERATIONS
                                
                           [CONTINUED]
                                
                                
                                       Year Ended June 30,
                            ______________________________________
                                  1997        1996         1995
                            ____________  ___________  ___________
PRIMARY EARNINGS PER SHARE:

  Continuing Operations        $     .82    $     .81   $      .45
  Loss from Operations of
    Discontinued Segments           (.48)          -            -
  Estimated Loss on Disposal
    of Discontinued Segments        (.09)           -           -
                            ______________  __________  ___________
PRIMARY EARNINGS PER SHARE      $     .25    $     .81   $      .45
                            ______________  ___________  __________
WEIGHTED AVERAGE SHARES
  OUTSTANDING                   4,995,154   4,528,608    4,528,608
                            _____________  ____________  __________

FULLY DILUTED EARNINGS PER SHARE:

  Continuing Operations        $    N/A     $     .77   $      .45
  Loss from Operations of
    Discontinued Segments           N/A            -            -
  Estimated Loss on Disposal
    of Discontinued Segments        N/A            -            -
                            _____________  ___________  ___________
FULLY DILUTED EARNINGS PER SHARE: $  N/A    $    .77         $ .45
                            _____________  ___________  ___________
FULLY DILUTED WEIGHTED AVERAGE
  SHARES OUTSTANDING                 N/A    4,800,238    4,539,694
                            _____________  ___________  ___________

















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

                                -4-
<PAGE>

               FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                        
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                        
                    FROM JUNE 30, 1994 THROUGH JUNE 30, 1997
                                   [RESTATED]
                                                                        Total
                 Common Stock    Additional  Accum-    Treasury Stock   Stock-
            __________________  Paid-in     ulated     _______________ holders'
                Shares   Amount   Capital   Deficit     Shares   Amount Equity
            _________   ______  _________   ______     _______  ______ ________

BALANCE, June 30,
 1994      4,543,608 $45,436 $9,282,305 $(8,060,459) 15,000 $110,748 $1,156,534
Net profit for
 the year ended
June 30, 1995      -      -         -      2,047,876       -     -    2,047,876
            __________  _______  _________   _________  _____  _______  ________

BALANCE, June 30,
 1995       4,543,608  45,436  9,282,305 (6,012,583)  15,000  110,748 3,204,410

Net profit for
 the year ended
June 30, 1996      -      -         -     3,680,034       -      -    3,680,034
           ________  _______  _________   ________  ______  _______  _________

BALANCE, June 30,
 1996      4,543,608  45,436  9,282,305  (2,332,549)   15,000 110,748 6,884,444

Common stock issued
 for acquisition of
 Mach Performance,
 October 1996, at
 $8.17 per share 127,500  1,275  1,039,975         -       -       -  1,041,250

Additional common
 stock shares
 issued for options
 exercised during
 Fiscal 1997, at
 $3.58 to $3.67
 per share         54,000    540   195,460         -        -       -   196,000

Net profit for the
 year ended
 June 30, 1997          -     -         -   1,239,951      -       -  1,239,951
           __________    ______   ______  _________   ______   _____   ________

BALANCE, June 30,
 1997     4,725,108 $47,251 $10,517,740 $(1,092,598)15,000 $110,748  $9,361,645
            _______   _____  __________  __________  ______   ______   _________


   The accompanying notes are an integral part of these financial statements.
 
                                 -5-
<PAGE>


      FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
              CONSOLIDATED STATEMENTS OF CASH FLOWS
                                
                                
                                       Year Ended June 30,
                            ______________________________________
                                  1997        1996         1995
                            _____________  ___________  ___________
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)             $1,239,951  $3,680,034  $2,047,876
  Adjustments to reconcile 
    net income(loss) to net
    cash provided by operating
    activities:
     Depreciation expense       1,642,974   1,536,479    1,628,867
     (Gain) loss on disposal
       of property,plant,
       and equipment                    -    (22,906)       23,015
     Net effect of Acquired
        Subsidiary              1,041,250          -            -
     Change in assets and liabilities:
      Accounts receivable         985,937   (954,830)  (1,486,475)
      Inventories                  71,438   (601,469)       89,224
      Prepaid expenses          (976,860)      50,104      (4,369)
      Accounts payable            273,748    (86,832)  (3,129,557)
      Accounts payable
        -related parties                -     (4,769)      (8,031)
      Accrued expenses           (53,946)   (237,757)      346,719
      Dealer territory
         service accrual          871,898     765,674            -
      Customer deposits            81,434   (184,201)    (447,016)
      Allowance for boat returns  (7,359)           -     (42,641)
      Warranty reserve             90,000      10,000       85,000
      Deferred sale net of
        deferred cost of sales          -    (14,148)    (235,852)
      Net liabilities of
        discontinued operations   213,697          -            -
                            ______________  ___________  __________
      Net Cash Provided by (Used in)
        Operating Activities  $5,474,162   $3,935,379  $(1,133,240)
                            _______________________________________

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of certificates
    of deposits, net              696,155           -           -
  Proceeds from sale of
    property, plant
    and equipment                       -      31,203       34,000
  Investment in additional
    molds and related plugs   (1,684,274)   (878,513)    (767,102)
  Purchase of other property,
    plant and equipment       (2,249,670)   (604,367)    (431,137)
  Increase in other assets      (306,030)    (32,629)      (5,505)
                            _____________  ___________  ___________
      Net Cash (Used in) Investing
        Activities          $(4,936,129)  $(1,484,306) $(1,169,744)
                            ____________  ____________  ___________
                                
                                
                                
                                
                                
                           [Continued]

                               -6-
<PAGE>

       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
              CONSOLIDATED STATEMENTS OF CASH FLOWS
                                
                           [CONTINUED]
                                
                                
                                       Year Ended June 30,
                            ______________________________________
                                  1997        1996         1995
                            _____________  __________  ___________
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net borrowings (repayments)
    on engine floor plan
    agreement                 $(1,173,089)  $638,904    $ 390,136
  Proceeds from issuance
    of common stock                196,000     -            -
  Proceeds from issuance of
    notes payable and 
    long-term debt              8,500,000     600,000    2,656,576
  Repayment of long-term debt  (6,427,060)  (2,820,165)  (928,632)
                            ______________  ___________  _________
      Net Cash Provided by (Used in)
        Financing Activities   $1,095,851  $(1,581,261) $2,118,080
                            ______________  ___________  _________

Net increase (decrease) in 
   cash & cash equivalents  $   1,633,884    $869,812   $(184,904)

Beginning cash & cash
   equivalents balance          1,360,619    490,807       675,711
                            _______________  __________  __________
Ending cash & cash
   equivalents balance    $  2,994,503     $1,360,619     $490,807
                            _____________  ___________   __________

Supplemental Disclosures of Cash Flow information:
  Cash paid during the period for:
    Interest:
     Unrelated parties          $ 557,768    $744,627    $ 989,359
     Related parties                    -       2,710            -
                            ______________  __________  ____________
                                $ 557,768    $747,337    $ 989,359
                            ______________  ___________  ___________
    Income taxes                $ 395,796    $ 42,641    $       -
                            _______________  __________  ___________

Supplemental schedule of Non-cash Investing and Financing
Activities:
  For the year ended June 30, 1997:
     The Company issued 127,500 shares of common stock in the
     acquisition of Mach Performance. Valued at $1,041,250
     or $8.17 per share (See Notes 7, 10 and 14).

  For the year ended June 30, 1996:
     None
     
  For the year ended June 30, 1995:
     None]
                                
                                
                                
                                
                                
 The accompanying notes are an integral part of these financial
                           statements.

                                -7-
<PAGE>

       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

  Nature   of  the  Business:  The  Company  manufactures   high-
  performance  deep  water  sport boats,  sport  cruisers,  sport
  fishing  boats, custom offshore racing boats and is  developing
  a  super  cruiser yacht.  These boats are sold to its worldwide
  network  of  approximately  sixty  dealers.   Its  offices  and
  manufacturing  facilities  are  located  in  Washington,  North
  Carolina  and it has been in business since 1979.  The  Company
  employs  approximately 326 people and is an equal  opportunity,
  affirmative action employer.
  
  Principles   of   consolidation:  The  consolidated   financial
  statements include the accounts of the Company and its  wholly-
  owned  subsidiary, Fountain Powerboats, Inc. together with  its
  six    subsidiaries,   Fountain   Aviation,   Inc.,    Fountain
  Sportswear,  Inc.,  Fountain Power,  Inc.,  Fountain  Trucking,
  Inc., Fountain Unlimited, Inc. and Mach Performance, Inc.   All
  significant inter-company accounts and transactions  have  been
  eliminated  in  consolidation.   Fountain  Aviation,  Inc.  and
  Fountain  Unlimited, Inc. were not active  during  Fiscal  1997
  and  were  subsequently dissolved effective  October  1,  1997.
  Also  effective  October 1, 1997, Fountain Trucking,  Inc.  and
  Fountain Sportswear, Inc. were subsequently dissolved  and  the
  operations  transferred  to  Fountain  Powerboats,  Inc.    The
  operations  of Fountain Power, Inc. and Mach Performance,  Inc.
  were discontinued effective June 30, 1997(see Note 14).
  
  Fiscal year: The Company's fiscal year-end is June 30th,  which
  is its natural business year-end.
  
  Accounting  Estimates: The preparation of financial  statements
  in  conformity  with  generally accepted accounting  principles
  requires  management  to make estimates  and  assumptions  that
  affect  the  reported  amounts of assets and  liabilities,  the
  disclosures  of contingent assets and liabilities at  the  date
  of  the  financial  statements, and  the  reported  amounts  of
  revenues  and  expenses  during the reporting  period.   Actual
  results could differ from those estimated by management.
  
  Cash  and  Cash Equivalents: For purposes of the  statement  of
  cash  flows,  the  Company considers  all  highly  liquid  debt
  instruments with a maturity of three months or less to be  cash
  equivalents.   At  June  30, 1997 and  1996,  the  Company  had
  $3,590,658   and  $1,260,619,  respectively,   in   excess   of
  federally  insured  amounts held in cash  and  certificates  of
  deposit.
  
  Certificates of Deposit:  The Company accounts for  investments
  in  debt and equity securities in accordance with Statement  of
  Financial  Accounting  Standard  (SFAS)  115,  "Accounting  for
  certain  Investments  in  Debt and Equity  Securities,".  Under
  SFAS   115   the   Company's  certificates  of  deposit   (debt
  securities)  have been classified as held-to-maturity  and  are
  recorded   at   amortized  cost.  Held-to-maturity   securities
  represent  those  securities that  the  Company  has  both  the
  positive  intent and ability to hold until maturity  (See  Note
  2).
  
  Inventories:  Inventories are stated at the lower  of  cost  or
  market.  Cost  is determined by the first-in, first-out  method
  (See Note 3).
  
  Property,  Plant,  and  Equipment and  Depreciation:  Property,
  plant,  and  equipment  is carried at  cost.   Depreciation  on
  property,   plant,  and  equipment  is  calculated  using   the
  straight-line  method  and is based upon the  estimated  useful
  lives of the assets (See Note 4).

                               -8-
<PAGE>

       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.  Nature   of  the  Business  and  Significant  Accounting
          Policies. [Continued]
     
  Fair Value of Financial Instruments:  Management estimates  the
  carrying  value  of financial instruments on  the  consolidated
  financial statements approximates their fair values.
  
  
  Dealer  territory service accrual:  The Company has established
  a   program  to  pay  a  service  award  to  dealers  for  boat
  deliveries  into  their market territory for  which  they  will
  perform  service.  The service award is  a  percentage  of  the
  purchase price of the boat ranging from 0% to 7% based  on  the
  dealers  service performance rating.  The Company  has  accrued
  estimated dealer territory service awards at June 30, 1997  and
  1996 of $1,637,572 and 765,674, respectively.
  
  Allowance  for  Boat  Repurchases:  The  Company  provides   an
  allowance  for  boats  financed by  dealers  under  floor  plan
  finance  arrangements  that  may be  repurchased  from  finance
  companies under certain circumstances where the Company  has  a
  repurchase  agreement  with  the lender.   The  amount  of  the
  allowance  is  based upon probable future events which  can  be
  reasonably estimated (See Note 10).
  
  Warranties:  The  Company warrants the entire  deck  and  hull,
  including its supporting bulkhead and stringer system,  against
  defects  in  materials and workmanship for a  period  of  three
  years.    The   Company  has  accrued  a  reserve   for   these
  anticipated future warranty costs.
  
  Revenue   recognition:  The  Company  sells   boats   only   to
  authorized  dealers  and to the U.S.  Government.   A  sale  is
  recorded  when  a  boat  is shipped  to  a  dealer  or  to  the
  Government,  legal title and all other incidents  of  ownership
  have  passed  from  the  Company  to  the  dealer  or  to   the
  Government,  and an account receivable is recorded  or  payment
  is  received from the dealer, from the Government, or from  the
  dealer's third-party commercial lender.  This is the method  of
  sales recognition in use by most boat manufacturers.
  
  The  Company has developed criteria for determining  whether  a
  shipment should be recorded as a sale or as a deferred sale  (a
  balance  sheet liability).  The criteria for recording  a  sale
  are  that  the boat has been completed and shipped to a  dealer
  or  to  the  Government, that title and all other incidents  of
  ownership  have passed to the dealer or to the Government,  and
  that  there  is no direct or indirect commitment to the  dealer
  or  to  the  Government to repurchase the boat or to pay  floor
  plan  interest  for  the  dealer beyond the  normal,  published
  sales program terms.
  
  The  sales  incentive  floor  plan interest  expense  for  each
  individual boat sale is accrued for the maximum six month  (180
  days)  interest  payment period in the same  fiscal  accounting
  period that the related boat sale is recorded.  The entire  six
  months'  interest expense is accrued at the time  of  the  sale
  because  the Company considers it a selling expense  (See  Note
  10).   The  amount of interest accrued is subsequently adjusted
  to  reflect  the  actual number of days of remaining  liability
  for  floor plan interest for each individual boat remaining  in
  the dealer's inventory and on floor plan.
  
  Presently, the Company's normal sales program provides for  the
  payment of floor plan interest on behalf of its dealers  for  a
  maximum  of six months.  The Company believes that this program
  is  currently  competitive with the interest  payment  programs
  offered by other boat manufacturers, but may from time to  time
  adopt  and publish different programs as necessary in order  to
  meet competition.

                              -9-
<PAGE>

       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     
Note 1.  Nature   of  the  Business  and  Significant  Accounting
          Policies. [Continued]
     
  Income  Taxes:  The  Company  accounts  for  income  taxes   in
  accordance with FASB Statement No. 109, "Accounting for  Income
  Taxes (see Note 8).
  
  Advertising   Cost:    Costs  incurred   in   connection   with
  advertising  and  promotion  of  the  Company's  products   are
  expensed  as  incurred.   Such costs  amounted  to  $1,267,822,
  $849,627  and  $977,787 for the years  ended   1997,  1996  and
  1995.
  
  Earnings  Per  Share:  The computations of  primary  and  fully
  diluted  earnings per share amounts are based upon the weighted
  average   number  of  outstanding  common  shares  during   the
  periods,  plus,  when  their  effect  is  dilutive,  additional
  shares  assuming the exercise of certain vested stock  options,
  reduced  by the number of shares which could be purchased  from
  the  proceeds  from the exercise of the stock options  assuming
  they were exercised.
  
  Restatement:  The financial statements have been  restated  for
  all  periods presented to reflect a three-for-two forward stock
  split effected August 14, 1997 (see Note 7 and 15).
  
  Reclassifications:  The financial statements  for  years  prior
  to  June  30, 1997 have been reclassified to conform  with  the
  headings  and  classifications  used  in  the  June  30,   1997
  financial statements.

Note 2.  Certificates of Deposit.

  Certificates  of  deposit are carried  at  amortized  cost  and
  consisted of the following investments at June 30, 1997:
  
                            Purchase    Amortized   Maturity
  Date AcquiredMaturity Date  Value         Cost      Value
  ___________  ____________  ________  __________   __________
   12/18/96     12/18/97     $50,086     $50,486     $52,641
    5/4/97       5/4/98      210,373     216,187     221,312
   3/28/97      3/28/98      209,275     212,077     220,157
   3/28/97      3/28/98      214,533     217,405     225,688
                         ____________  ___________   _________
                             $684,267    $696,155    $719,798
                         ___________   ___________   _________
  
Note 3.  Inventories.

  Inventories consist of the following:
                                                    June 30,
                                           ______________________
                                                1997       1996
                                           ___________  __________
               Parts and supplies           $2,820,414  $3,095,379
               Work-in-process                  882,323    715,133
               Trailers                               -     38,414
               Finished goods                   335,020    260,269
                                           ____________  __________
                                              4,037,757  4,109,195
               Reserve for obsolescence       (100,000)  (100,000)
                                           ____________  __________
                                             $3,937,757  $4,009,195
                                           ____________  __________

                               -10-
<PAGE>

       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4.  Property, Plant, and Equipment.

  Property, plant, and equipment consists of the following:

                               Estimated
                                 Useful           June 30,
                                 Lives    ________________________
                                in Years      1997         1996
                                _______   ___________  ____________
  Land and related improvements 10-30     $1,301,721  $   986,116
  Buildings and related
    improvements                10-30      6,559,930    6,199,699
  Construction-in-progress       N/A         815,793        6,287
  Production molds and 
    related plugs                  8       11,658,760   9,974,486
  Machinery and equipment         3-5       3,493,375   2,843,480
  Furniture and fixtures           5          483,699     464,932
  Transportation equipment         5          241,044     199,326
                                           ___________   ________
                                          $24,554,322  $20,674,326
  Accumulated depreciation               (12,335,166)  (10,746,140)
                                          ____________  ___________
                                          $12,219,156  $9,928,186
                                          ____________  ___________
  
  Depreciation  expense amounted to $1,642,975,  $1,536,479,  and
  $1,628,867  for  the year ended June 30, 1997, 1996  and  1995,
  respectively.
  
  Construction  costs of production molds for  new  and  existing
  product   lines  are  capitalized  and  depreciated   over   an
  estimated  useful  life  of eight years.   Depreciation  starts
  when  the  production mold is placed in service to  manufacture
  the  product.   The costs include the direct materials,  direct
  labor,  and  an  overhead allocation based on  a percentage  of
  direct labor.  Production molds under construction amounted  to
  $219,227 and $0 at June 30, 1997 and 1996.
  
  During  Fiscal 1997, the Company did not realize  any  gain  or
  loss  from the sale or disposition of any of its fixed  assets.
  The  Company sold fixed assets and realized gains amounting  to
  $22,906   for  Fiscal  1996.   For  Fiscal  1995,  the  Company
  incurred losses on fixed assets sold amounting to $23,015.
  
  On  June  30,  1997, the Company determined to discontinue  the
  operations  of  its Fountain Power, Inc. and Mach  Performance,
  Inc.  subsidiaries.  An allowance for estimated  future  losses
  expected  to be incurred upon disposal of certain fixed  assets
  has been accrued in the amount of $440,401 against $539,457  in
  fixed  assets.   These  assets have been  reclassified  to  net
  liabilities of discontinued operations (See Note 14).

Note 5.  Notes Payable.

  The  Company  had  no outstanding short-term notes  payable  at
  June  30,  1997.  During Fiscal 1996, the Company  retired  its
  interest bearing indebtedness to Mercury Marine.  Most  of  the
  amount  owing  to Mercury Marine was repaid from the  Company's
  operating funds, but, additionally, $600,000 was borrowed  from
  G.E.   Capital  Corporation  on  a  long-term  basis  to  repay
  Mercury.   This  indebtedness to G.E. Capital  Corporation  was
  retired  during Fiscal 1997 (See Note 6) as part of refinancing
  under a new credit agreement.
  
                                 -11-
<PAGE>

       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                
Note 5.  Notes Payable [Continued]
  
  The  Company  also  retired  the short-term  debt  to  Deutsche
  Financial  Services during Fiscal 1997 (see Note 6).   At  June
  30,  1996,  the  balance  of the note  amounted  to  $1,173,089
  payable  to  Deutsche Financial Services for  engine  purchases
  financed by Deutsche.

Note 6.  Long-term Debt and Pledged Assets.
     
  On  December  31,  1996,  the Company concluded  a  $10,000,000
  credit  agreement  with General Electric  Capital  Corporation.
  Under  the  terms  of  the  new credit agreement,  the  Company
  refinanced substantially all of its interest bearing debts  and
  will  have additional funds made available to it for expansion.
  Initially,  the  Company borrowed $7,500,000  from  GE  Capital
  Services  primarily to refinance existing debts.   All  of  the
  Company's  prior  interest  bearing debts  to  MetLife  Capital
  Corporation,   Deutsche   Financial   Services,   GE    Capital
  Corporation,  Branch  Bank  & Trust Leasing  Corp.,  and  other
  smaller   creditors  were  paid  off  entirely.   The   Company
  borrowed   another  $1,000,000  to  fund  plant  and  equipment
  additions.   An  additional  $1,500,000  is  available  to  the
  Company  for  further expansion until December 31,  1997.   The
  interest  rate  on the indebtedness to GE Capital  Services  is
  variable and ranged from 8.08% to 8.29% during the period  with
  a  rate  of  8.29%  on  June 30, 1997.   There  is  a  ten-year
  amortization of the debt with a five-year call.   The  loan  is
  secured by all of the Company's real and personal property  and
  by  the  Company's  assignment of a  $1,000,000  key  man  life
  insurance policy.  The current portion of the debt is  $595,607
  at June 30, 1997.
  
  At  June 30, 1996, long-term debt consisted of $5,500,467 owing
  to  MetLife and 538,044 owing to GE Capital Corporation.  Other
  long   term   contracts   primarily  various   capital   leases
  obligations amounted to $161,927. The current portion of  these
  obligations amounted to $767,254
  
  The  estimated aggregate maturities required on long-term  debt
  at June 30, 1997 are as follows:
               1998                        $ 595,607
               1999                          645,585
               2000                          699,757
               2001                          758,476
               2002                        5,573,953
            Thereafter                             -
                                         ____________
                                           $8,273,378
                                       _____________



                                 -12-

<PAGE>

       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7.  Common Stock, Options, and Treasury Stock.
  
  Common  Stock:   The  Company  issued  127,500  new  restricted
  common  shares at $8.17 per share to acquire Mach  Performance,
  Inc.  in  October, 1996 from a director of the Company.  During
  June  1997,  the  Company discontinued the operations  and  has
  filed  a  lawsuit asking for the rescission of  the acquisition
  agreement  from Mach Performance, Inc. to recover  the  127,500
  restricted common shares. (See Note 10 and 14).
  
  Subsequent  to the year ended June 30, 1997, and  reflected  in
  the accompanying financial statements, the Company announced  a
  three  for  two  forward stock split.  The  shareholder  record
  date  was set at August 1, 1997, with fractional shares  to  be
  paid in cash on the payable date, August 14, 1997.
  
  Stock Options: Under the terms of the Company's qualified  1986
  employee   incentive  stock  option  plan,  which  expired   on
  December  5,  1996, options were authorized to purchase  up  to
  300,000 shares of the Company's common stock at a price  of  no
  less  than 100% of the fair market value on the date  of  grant
  as  determined  by  the  Board of Directors.   Options  can  be
  exercised  for  a  ten-year period  from  the  date  of  grant.
  During  Fiscal  1995, 30,000 options each were granted  to  the
  Chief  Executive Officer and to the Chief Financial Officer  at
  $3.94  and  $3.67  per share respectively.   During  1997,  the
  Chief  Financial  Officer  exercised  his  30,000  options  for
  $110,000.
  
  During  October  1996, in connection with  the  acquisition  of
  Mach  Performance, Inc. the Company entered into an  employment
  agreement  with  the  director  to  continue  to  operate  Mach
  Performance,  Inc.  and to head up the operations  of  Fountain
  Power,  Inc..  The  employment  agreement  provided  that   the
  Company  issue  a total of 30,000 options under  the  Company's
  qualified   1986   employee   incentive   stock   option   plan
  exercisable  over a four year period (7,500 options exercisable
  each  year  on  the  anniversary date of  the  agreement).  The
  director  resigned  his  position as an employee  during  April
  1997  and as a director during May 1997.  The Company has filed
  a  lawsuit  seeking the return and cancelation of  the  options
  (See Note 10).
  
  On  June  21,  1995, a special meeting of the shareholders  was
  held  to vote upon the adoption of the 1995 stock option  plan.
  The  new  plan  as adopted by the shareholders  allowed  up  to
  450,000  common  stock options to be granted by  the  Board  of
  Directors to employees or directors of the Company on either  a
  qualified  or non-qualified basis.  Subsequently, on August  4,
  1995,  the Board unanimously voted to grant the entire  450,000
  stock  options authorized under the 1995 stock option  plan  to
  Mr.  Reginald  M. Fountain, Jr. at $4.67 per share  on  a  non-
  qualified  basis.  None of the options granted to Mr.  Fountain
  under the 1995 stock option plan have been exercised.
  
  Effective  March  23,  1995, the Board of Directors  authorized
  the  issuance  of  stock options to purchase 30,000  shares  of
  common  stock  to each of the Company's four outside  directors
  at  $3.58  per  share on a non-qualified basis.  During  Fiscal
  1997,  one  of the directors exercised his options  for  24,000
  shares  for $86,000 and assigned, with the specific consent  of
  the  Company's Board of Directors, his remaining 6,000  options
  to  another  party.   Subsequent  to  June  30,  1997,  another
  director exercised his 30,000 stock options for $110,000.

                              -13-
<PAGE>

       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7.  Common Stock, Options, and Treasury Stock. [Continued]
  
  A  summary  of  the  status of the options  granted  under  the
  Company's stock option plans and other agreements at  June  30,
  1997,  1996 and 1995, and changes during the periods then ended
  is presented in the table below:
  
                       1997                1996              1995
                 __________________   _______________   _______________
                          Weighted           Weighted          Weighted 
                          Average             Average           Average
                          Exercise            Exercise          Exercise
                  Shares    Price    Shares    Price    Shares   Price
                  _______  _______   _______   ______  ________  ______
  Outstanding at
    beginning
    of period     630,000   $6.54    198,750   $4.01    24,375    $7.44
  Granted          30,000    8.17    450,000    4.67   180,000     3.66
  Exercised       (54,000)   3.63        -        -          -      -
  Forfeited            -       -         -        -          -      -
  Canceled             -       -     (18,750)   7.44    (5,625)    7.44
                __________  ______   ________  _____  ________   ______
  Outstanding at end
    of Period     606,000   $4.63     630,000  $4.38   198,750    $4.01
                __________  ______   ________  _____  ________   ______
  Exercisable at end
    of period     576,000   $4.45     630,000  $4.38   198,750    $4.01
                __________  ______   ________  _____  _________   _____
  Weighted average
    fair value of options
    granted        30,000   $.28      450,000  $.22    180,000   $  .09
          ________________  ______   ________  _____  _________  ______
  
  The  fair value of each option granted is estimated on the date
  of  granted  using the Black-Scholes option pricing model  with
  the  following  weighted-average assumptions  used  for  grants
  during the year and period ended June 30, 1997, 1996 and  1995,
  respectively:   risk-free  interest rates  of  6.6%,  6.3%  and
  6.3%,  expected  dividend  yields  of  zero  for  all  periods,
  expected lives of 4, 2 and 7 years, and expected volatility  of
  83%, 85% and 85%.
  
  A  summary  of the status of the options outstanding under  the
  Company's stock option plans and other agreements at  June  30,
  1997 is presented below:
  
                   Options Outstanding           Options Exercisable
                   _____________________________   _________________
                           Weighted     Weighted            Weighted
                           Average      Average             Average
  Range of      Number     Remaining    Exercise   Number   Exercise
  Exercise   Outstanding  Contractual    Price   Exercisable  Price
  Prices                     Life
__________     ________   __________     ______   ________   ______

$3.58 - $3.94   126,000    7.9 years     $3.67    126,000    $3.67
    $4.67       450,000    8.1 years     $4.67    450,000    $4.67
    $8.17        30,000    9.2 years     $8.17          -     -
  
  Included in the options outstanding at June 30, 1997 and 1996 are
  60,000  and  30,000 options issued to a former  director  of  the
  Company.   The Company has filed a lawsuit seeking  to  have  the
  options returned and canceled.  (See Note 10).
  
                           -14-
<PAGE>


       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7.  Common Stock, Options, and Treasury Stock. [Continued]
  
  The   Company  accounts  for  these  plans  and  other   option
  agreements  under Accounting Principles Board Opinion  No.  25,
  "Accounting  for  Stock  Issued  to  Employees",  and   related
  interpretations.  Accordingly, since all options granted   were
  granted  with  exercise prices at market  value  or  above,  no
  compensation  cost  has  been recognized  in  the  accompanying
  financial statements.  Had compensation cost for these  options
  been determined based on the fair value at the grant dates  for
  awards   under   these  plans  and  other   option   agreements
  consistent   with  the  method  prescribed  by   Statement   of
  Financial Accounting Standards No. 123, "Accounting for  Stock-
  Based Compensation:, the Company's net income and earnings  per
  common  share would have been the proforma amounts as indicated
  below:
  
                                      Year Ended June 30,
                               _________________________________
                                   1997      1996       1995
                               __________   _________  _________
  
 Net  Income        As reported $1,239,951 $3,680,034 $2,047,876
                    Proforma    $1,234,605 $3,617,601 $2,037,360
  
 Earnings per share As reported $ .25      $ .81        $ .45
                    Proforma    $ .25      $ .80        $ .45
  
  Treasury  Stock: The Company is holding 15,000  shares  of  its
  own  common  stock.   This common stock  is  accounted  for  as
  treasury  stock at its acquisition cost of $110,748 ($7.38  per
  share) in the accompanying financial statements.
  

Note  8.  Income Taxes.

  The  Company  accounts  for  income taxes  in  accordance  with
  Statement of Financial Accounting Standards No. 109.  FASB  109
  requires  the  Company to provide a net deferred tax  asset  or
  liability  equal to the expected future tax benefit or  expense
  of   temporary  reporting  differences  between  book  and  tax
  accounting  and  any  available operating loss  or  tax  credit
  carryforwards.
  
  At  June  30,  1997  and 1996, the totals of all  deferred  tax
  assets  were  $1,462,432 and $1,917,494.   The  totals  of  all
  deferred  tax  liabilities were $1,037,362 and  $893,349.   The
  amount  of  and ultimate realization of the benefits  from  the
  deferred  tax  assets for income tax purposes is dependent,  in
  part,  upon  the  tax  laws  in effect,  the  Company's  future
  earnings, and other future events, the effects of which  cannot
  be  determined.   Because  of the uncertainty  surrounding  the
  realization  of  the  deferred  tax  assets,  the  Company  has
  established valuation allowances of $425,070 and $1,024,145  as
  of  June  30,  1997  and 1996, respectively,  which  have  been
  offset  against the deferred tax assets.  The net  decrease  in
  the  valuation allowance during the year ended June  30,  1997,
  was $599,075.
  
  The  Company  has  available at June 30, 1997 unused  operating
  loss  carryforwards  of approximately $601,119,  which  may  be
  applied  against  future taxable income  and  which  expire  in
  various years through 2010.

                                -15-
<PAGE>

     
       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note  8.  Income Taxes. [Continued]
  
  The  Company incurred current tax expense amounting to $258,371
  for  Fiscal 1997 and $80,804 for Fiscal 1996 as a result of the
  federal  alternative  minimum income  tax.  The  components  of
  federal  income tax expense from continuing operations  consist
  of the following:
                                      Year Ended June 30,
                            _____________________________________
                                  1997        1996         1995
                            ______________  _________  ___________
   Current income tax expense:
          Federal               $ 258,371    $ 80,804    $  41,431
          State                    72,056           -        1,210
                            ______________  _________  ___________
   Net current tax expense      $ 330,427    $ 80,804    $  42,641
                            ______________  __________  ___________
   Deferred tax expense (benefit) resulted from:
     Excess of tax over financial
        accounting depreciation. $144,013    $(18,130)     $67,663
     Warranty reserves           (42,300)     (4,200)     (35,700)
     Accrued vacations            (8,107)     (3,765)      (5,137)
     Dealer incentive reserves   (37,500)      42,000        7,258
     Bad debt reserves           (28,686)       1,260       1,260
     Deferred sales and cost, net    -          5,942      99,058
     Excess contributions
         carryforwards                -             -       1,298
     Inventory adjustment
         -Sec.263A                (6,366)    (12,304)    (16,648)
     Decrease in NOL
         carryforwards          1,014,168   1,646,237  805,215
     Decrease in valuation
         allowance              (599,075)  (1,573,833)   (797,651)
     Allowance for obsolete
         inventory                 3,000     (4,200)      (16,800)
     Alternative minimum tax
         credits                (256,982)    (79,007)    (41,431)
     Reserve for loss on
         disposition            (171,756)       -              -
     Investment tax credits        -             -        (86,294)
     Allowance for boat
         repurchases              (10,409)       -       17,909
                            ______________   ________   ___________
     Net deferred tax expense   $     -      $    -     $      -
                            ______________  _________   ___________

  Deferred   income  tax  expense  results  primarily  from   the
  reversal  of  temporary  timing  differences  between  tax  and
  financial statement income.

                                  -16-
<PAGE>

     
       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note  8. Income Taxes. [Continued]
  
          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:
     
                                       Year Ended June 30,
                     _____________________________________________
                                  1997        1996         1995
                            _______________________________________
     Computed tax at the expected
       federal statutory rate.       34.00%    34.00%      34.00%
     Excess of tax over financial   
       accounting depreciation         -         .43       (3.16)
     Warranty reserves                 -         .10        1.67
     State income taxes, net of
       federal benefit                5.00      5.28        5.28
     Deferred sales and cost, net.     -        (.14)      (4.62)
     Compensation from stock options (3.85)       -           -
     (Increase) decrease in NOL
       carryforwards                (14.48)    (38.82)     (37.59)
     Officer's life insurance          .78         -           -
     Valuation allowance            (16.08)        -           -
     Net effect of alternative minimum
       taxes                           .03       1.86        1.93
     Investment tax credits              -         -         4.03
     Other                            2.11      (.56)        .50
                            _______________________________________
     Effective income tax rates    7.51%        2.15%       2.04%
                            _______________________________________
  
  The  temporary differences gave rise to the following  deferred
  tax asset (liability):
     
                                                    June 30,
                                       ___________________________
                                                1997       1996
                                           ________________________
     Excess of tax over financial
        accounting depreciation             $(1,037,362) $(893,349)
     Warranty reserve                           214,500     72,200
     Obsolete inventory reserve                  39,000     42,000
     Accrued vacations                           48,063      9,957
     Allowance for boat repurchases              97,500      7,091
     Dealer incentive reserves                   58,500     21,000
     Bad debt reserve                            40,026      1,340
     Reserve for loss on disposition            171,756          -
     Inventory adjustments - Sec. 253A          124,992    118,626
     NOL carryforwards                          204,380  1,218,548
     Alternative minimum tax credits            377,421    120,438
     Investment tax credits..                    86,294     86,294
  

                                -17-
<PAGE>


       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note  9. Research and Development.
  
  The  Company  expenses the costs of researching and  developing
  new   products  and  components  as  the  costs  are  incurred.
  Research  and  development costs are included in  the  cost  of
  sales  and  amounted to $635,652 for Fiscal 1997, $234,425  for
  Fiscal 1996, and $134,828 for Fiscal 1995.

Note 10. Commitments and Contingencies.

  Employment  Agreement:  The Company  entered  into  a  one-year
  employment  agreement in 1989 with its Chairman,  Mr.  Reginald
  M.  Fountain,  Jr.  The agreement provides for  automatic  one-
  year  renewals  at  the  end  of  each  year  subject  to   Mr.
  Fountain's continued employment.
  
  Dealer  Interest:  The  Company regularly  pays  a  portion  of
  dealers'  interest charges for floor plan financing for  up  to
  six  months.  These interest charges amounted to $1,009,285 for
  Fiscal  1997, $704,736 for Fiscal 1996, and $708,655 for Fiscal
  1995.   They  are  included  in the  accompanying  consolidated
  statements of operations as part of selling expense.   At  June
  30,  1997  and  1996  the  estimated  unpaid  dealer  incentive
  interest included in accrued expenses amounted to $150,000  and
  $50,000, respectively.
  
  Manufacturer   Repurchase   Agreements:   The   Company   makes
  available  through  third-party finance  companies  floor  plan
  financing  for  many  of its dealers.  Sales  to  participating
  dealers  are approved by the respective finance companies.   If
  a  participating dealer does not satisfy its obligations  under
  the   floor  plan  financing  agreement  in  effect  with   its
  commercial lender(s) and boats are subsequently repossessed  by
  the  lender(s),  then under certain circumstances  the  Company
  may  be required to repurchase the repossessed boats if it  has
  executed  a repurchase agreement with the lender(s).   At  June
  30,  1997, the Company had a contingent liability to repurchase
  boats  in  the  event of dealer defaults and if repossessed  by
  the  commercial lenders amounting to approximately  $8,600,000.
  The  Company has reserved for the future losses it might  incur
  upon  the  repossession and repurchase of boats from commercial
  lenders.   The  amount  of the reserve is based  upon  probable
  future  events which can be reasonably estimated.  At June  30,
  1997,  the allowance for boat repurchases was $200,000.   Also,
  in  connection  with one of its floor plan  agreements  with  a
  lender, the Company has provided an irrevocable standby  letter
  of  credit  in  the  amount of $250,000  as  security  for  the
  lender.
  
  Utility  Agreement:  During 1997, the Company  entered  into  a
  development  agreement  with Beaufort County,  North  Carolina.
  Under  the agreement, the County will provide $522,802  towards
  the  extension  of  community sewer and water  service  to  the
  Company's plant site.  The Company agreed to: 1).  expand  it's
  plant  and purchase additional production equipment;  2) employ
  an  additional  fifty people by April 30, 1999,  sixty  percent
  whose  household  incomes  are under  low  or  moderate  income
  limits.   If  the  number  of  low  or  moderate  income  newly
  employed  individuals falls below fifty one percent,  then  the
  entire  $522,802  amount will become due  and  payable  by  the
  Company  to  the County.  If the Company fails  to  create  and
  maintain  fifty  new jobs specified prior to  April  30,  1999,
  then  the  Company will reimburse the County $10,456  for  each
  low  to  moderate  income job not created up to  a  maximum  of
  $522,802.


                              -18-
<PAGE>

       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10.  Commitments and Contingencies. [Continued]

  Environmental:  The  Company has been notified  by  the  United
  States  Environmental Protection Agency  (the  "EPA")  and  the
  North  Carolina Department of Environment, Health  and  Natural
  Resources  ("NCDEHNR")  that  it  has  been  identified  as   a
  potentially responsible party (a "PRP") and may incur,  or  may
  have  incurred, liability for the remediation of  ground  water
  contamination  at  the  Spectron/Galaxy  Waste  Disposal   Site
  located  in  Elkton, Maryland and the Seaboard  Disposal  Site,
  located in High Point, North Carolina, also referred to as  the
  Jamestown, North Carolina site, resulting from the disposal  of
  hazardous   substances  at  those  sites  by  a   third   party
  contractor of the Company.  The Company has been informed  that
  the  EPA and NCDEHNR ultimately may identify a total of between
  1,000  and  2,000, or more, PRP's with respect  to  each  site.
  The  amounts of hazardous substances generated by the  Company,
  which  were  disposed  of at both sites,  are  believed  to  be
  minimal   in   relation  to  the  total  amount  of   hazardous
  substances disposed of by all PRP's at the sites.  At  present,
  the  environmental conditions at the sites,  to  the  Company's
  knowledge,  have  not  been fully determined  by  the  EPA  and
  NCDEHNR,  respectively,  and  the  Company  is  not   able   to
  determine  at  this time the amount of any potential  liability
  it  may  have  in connection with remediation at  either  site.
  Without  any  acknowledgment  or admission  of  liability,  the
  Company has made payments of approximately $3,279 to date as  a
  non-performing   cash-out  participant  in  an   EPA-supervised
  response and removal program at the Elkton, Maryland site,  and
  in  a  NCDEHNR-supervised  removal and  preliminary  assessment
  program  at  the  Jamestown, North Carolina site.   A  cash-out
  proposal  for the next phase of the project is expected  to  be
  forthcoming  from the PRP Group for the Elkton,  Maryland  site
  within  the  near  future.  According to  the  PRP  Group,  the
  Company's   full   cash-out   amount   is   estimated   to   be
  approximately  $10,000  for the Elkton,  Maryland  site,  based
  upon  an  estimated 3,304 gallons of waste disposed of at  that
  site  by  the  Company.  A cash-out proposal in the approximate
  amount  of  $66,000  based on an estimated  19,245  gallons  of
  waste  is  anticipated from the PRP Group  for  the  Jamestown,
  North   Carolina  site  following  completion  of  a   remedial
  investigation  and feasibility study in early  1998,  according
  to  the  PRP Group administrator.  Any such cash-out  agreement
  will  be  subject to approval by EPA and NCDEHNR, respectively.
  The   Company  has  accrued  the  estimated  $76,000  liability
  related   to  these  matters  in  the  accompanying   financial
  statements.
                                
  Litigation: The Company was audited during Fiscal 1997  by  the
  State  of  North  Carolina  under  the  Escheat  and  Unclaimed
  Property  Statute.   The  State Treasurer's  audit  report  was
  received  and the Company paid a small amount of the  escheated
  funds.   However,  the  Company  filed  a  dispute  as  to  the
  remaining   escheats  property,  amounting   to   approximately
  $65,000.  The matter was appealed to the Administrative  Office
  of  the  State  of North Carolina. The dispute was subsequently
  resolved by the Company's payment of $3,090 to the state.

                              -19-
<PAGE>


       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10.  Commitments and Contingencies. [Continued]
          
  Litigation:  The  Company  received  a  demand  letter,   dated
  February   22,  1996,  from  a  representative  of   a   famous
  basketball  player  (Player), claiming  damages  in  connection
  with  an  advertisement for the Company.  The  letter  demanded
  payment  of $1,000,000 unless the claim was resolved  prior  to
  filing   suit.   The  Company  put  its  primary  and  umbrella
  insurance  carriers on notice after receiving the  demand.   On
  January 2, 1997, the Company filed suit in U.S. District  Court
  for  the Eastern District of North Carolina against the  Player
  and  his  affiliated  company and the  advertising  agency  (an
  agency  owned  by a director of the Company) that produced  the
  advertisement.   The  Company  asserted  that  it  had  neither
  previewed  nor authorized an advertisement using  the  Player's
  name  and that the advertising agency had designed and run  the
  advertisement without the Company's prior review  and  consent.
  The  Company contends that it withdrew the advertisement  after
  being  contacted  by the Player's counsel and that  Player  was
  not   damaged  by  the  advertisement.   The  Company   further
  contends  that  it did not state that the Player was  endorsing
  the  product  and  that the Player has no legal  claim  to  the
  usage  of  a  certain word within the advertisement.   Further,
  the  Company  claims  that Player's counsel  used  coercion  by
  threatening  suit and that the Company should  be  awarded  the
  costs  of  suit.  On May 8, 1997, the Player and his affiliated
  company   filed   an  answer,  counterclaim,  and   crossclaim,
  alleging   trademark  infringement,  unfair   competition   and
  trademark   dilution,  and  seeking  damages  of   $10,000,000,
  trebled,  plus  punitive and exemplary  damages.   On  June  4,
  1997,  the  Company filed a reply to the Counterclaim,  denying
  the   Player's  allegations  and  seeking  dismissal   of   the
  Counterclaims against it.  A discovery plan was  agreed  to  by
  all  parties  and  filed  on  July  14,  1997.   Discovery   is
  scheduled to be completed by April, 1998, and is set for  trail
  on  October 13, 1998. Shortly after the Company filed  suit  in
  North  Carolina, the Player and affiliated company  filed  suit
  against  the  Company and advertising agency  on  February  24,
  1997,  in  U.S.  District Court for the  Northern  District  of
  Illinois.    The   Complaint  alleges  trademark  infringement,
  unfair  competition and trademark dilution, and  seeks  damages
  of  $10,000,000, trebled, plus punitive and exemplary  damages.
  By  Order dated April 30, 1997, this matter was transferred  to
  North Carolina. The Company has moved to dismiss the suit  with
  prejudice   because   the  claims  are   repetitions   of   the
  counterclaims in the Company's declaratory judgment suit.   The
  Player  has responded by requesting that his suit be  dismissed
  without   prejudice   or  consolidated   with   the   Company's
  declaratory judgment action. The Company intends to  vigorously
  defend  its interests in these matters unless a reasonable  and
  equitable settlement can be reached.

                              -20-
<PAGE>

       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10.  Commitments and Contingencies. [Continued]
          
  Litigation: The Company filed suit on July 21, 1997, against  a
  former officer and director and his wife, Mach, Inc., and  Mach
  Performance,  Inc.  This suit was filed in U.S. District  Court
  for  the Eastern District of North Carolina, seeking rescission
  of  an  Agreement  and Plan of Reorganization entered  into  in
  1996  for  the Company's acquisition of Mach Performance,  Inc.
  in  a merger transaction.  The Company seeks rescission of  the
  acquisition and merger agreement and voidance of the  resulting
  transaction  on  grounds  of  fraud  and  material  breach   of
  contract.   The federal securities fraud claims  are  based  on
  the  alleged  deceptive acts in violation of Section  10(b)  of
  the  Securities Exchange Act of 1934, arising from the sale  of
  Mach  Performance,  Inc.  capital  stock  to  the  Company   in
  exchange  for  the Company's issuance to them  of  127,500  new
  restricted  shares  of its common stock valued  at  $1,041,250.
  Other  claims include breach of fiduciary duty, based on  North
  Carolina  law,  arising  from  the  former  director's  alleged
  material misrepresentations and omissions as a director of  the
  Company  during  the  time  when  the  acquisition  and  merger
  agreement   was   negotiated.   The  Company   is   seeking   a
  preliminary  and  permanent  injunction  against  the  sale  or
  transfer of its 127,500 new restricted common shares issued  in
  the  transaction,  and is seeking monetary  damages,  including
  trebled and punitive damages in an unspecified amount, for  the
  claims  stated  above, as well as for alleged  actions  by  the
  former  director and officer after the acquisition. The  former
  director and his wife have filed counterclaims alleging  breach
  of  contract  regarding the failure to merge  the  Company  and
  regarding  options issued to the former employee and  director.
  The  Company  intends to vigorously pursue its claims  in  this
  suit,  and  to  defend vigorously against any counterclaims  or
  suits  brought  by against the Company.  The  Company  is  also
  seeking  the  return  and cancelation of  options  to  purchase
  60,000 shares of common stock.
  
  Product  Liability  and  Other  Litigation:  There  were  seven
  product liability lawsuits brought against the Company at  June
  30,  1997.   The  Company  intends  to  vigorously  defend  its
  interests  in  these  matters.  The Company carries  sufficient
  product  liability insurance to cover attorney's fees  and  any
  losses  which may occur from these lawsuits over and above  the
  insurance  deductibles.  The Company is involved from  time  to
  time  in  other  litigation through the normal  course  of  its
  business.   Management believes there are no  such  undisclosed
  claims  which  would have a material effect  on  the  financial
  position of the Company.

Note 11.  Export Sales.
     
  The  Company  had export sales of $2,167,840 for  Fiscal  1997,
  $1,052,816  for  Fiscal  1996, and $507,097  for  Fiscal  1995.
  Export  sales  were  to  customers in the following  geographic
  areas:
                                       Year Ended June 30,
                    ______________________________________________
                                  1997        1996         1995
                            ______________________________________
     Americas                   $1,047,913   $658,738    $       -
     Asia                         367,126           -      197,932
     Middle East and Europe.      752,801     394,078      309,165
                            _______________________________________
                                $2,167,840   $1,052,816  $ 507,097
                            _______________________________________
      

                                   -21-
<PAGE>

        FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                
Note 12.  Transactions with Related Parties.
          
  The  Company paid or accrued the following amounts for services
  rendered  or  for interest on indebtedness to Mr.  Reginald  M.
  Fountain,   Jr.,  the  Company's  Chairman,  President,   Chief
  Executive Officer, and Chief Operating Officer, or to  entities
  owned or controlled by him:
                                        Year Ended June 30,
                    ______________________________________________
                                  1997        1996         1995
                            _______________________________________
     
   R.M.  Fountain, Jr.
     -Apartments rentals    $  17,260    $ 15,380    $  13,995
   R.M.  Fountain, Jr.
     - airplane rentals       296,498     155,499      104,469
   R.M.  Fountain, Jr.
     - interest on loans            -       2,710            -
   R.M. Fountain, Jr.
     - other misc.                500       2,000            -
                            _______________________________________
                                $ 314,258    $175,589    $ 118,464
                            _______________________________________
  
  As  of  June 30, 1997 the Company had receivables and  advances
  from  employees  of  the Company amounting  to  $165,936  which
  includes $147,081 from Mr. Fountain.
  
  During  March  1997, the Company purchase 4.84 acres  of  land,
  from  Mr.  Fountain for $123,000. The land is adjacent  to  the
  land owned by the Company for anticipated future expansion
     
  During  the fourth quarter of Fiscal 1996, the Company borrowed
  $170,000  from Mr. Fountain to supplement its working  capital.
  This  loan  was unsecured with interest at 12%.  The  loan  was
  entirely repaid to Mr. Fountain by June 30, 1996.
  
  The  Company paid $517,278, $265,985 and $138,116 for the  year
  ended  June 30, 1997, 1996 and 1995 for advertising and  public
  relations  services from a entity owned by a  director  of  the
  Company.
  
  The  Company  acquired  a subsidiary, Mach  Performance,  Inc.,
  from  a  director of the Company for 127,500 shares  of  Common
  Stock in a stock for stock purchase (See Note 15).
  
  Prior  to  June 30, 1997, the Company received consulting  fees
  pursuant  to  a  consulting agreement  with  a  vendor  of  the
  Company.  Mr.  Fountain has assigned these consulting  fees  to
  the  Company.   Included  in  other  non-operating  income  are
  consulting  fees  earned by the Company amounting  to  $260,000
  for  Fiscal  1997, $610,420 for Fiscal 1996, and  $452,911  for
  Fiscal 1995. The consulting agreement expired on June 30,  1997
  and has not been re-negotiated.
  
Note 13.  Concentration of Credit Risk
          
  Concentration  of  credit  risk  arise  due  to   the   Company
  operating  in the marine industry, particularly in  the  United
  States.   For  Fiscal  1997 one dealer accounted  for  6.6%  of
  sales and two other dealers each accounted for more than 5%  of
  sales.   For  Fiscal  1996 one dealer accounted  for  10.2%  of
  sales  and three other dealers each accounted for more than  5%
  of  sales.   For fiscal 1995 one dealer accounted for  9.8%  of
  sales  and four other dealers each accounted for more  than  5%
  of sales.

                               -22-

<PAGE>

       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
Note 14.  Acquisition and Discontinued Operations.

  The  Company  formed  Fountain Power,  Inc.,  a  subsidiary  of
  Fountain  Powerboats, Inc. late in Fiscal 1996 to acquire  Mach
  Performance, Inc., a propeller manufacturer, and to  engage  in
  the  manufacturing of propellers and development of engines and
  propulsion  systems.  Mach Performance, Inc.  was  acquired  on
  October  11, 1996, using the purchase method of accounting,  in
  a  stock  for  stock exchange (from a director of the  Company)
  through  the  issuance  of  127,500  restricted  common  shares
  valued  at  $8.167 per share or $1,041,250, which exceeded  the
  fair  market value of the net assets of Mach Performance,  Inc.
  by  $411,401.   The  excess was recorded as  goodwill  and  was
  being   amortized   over   20  years.   The   operations   were
  subsequently   moved  from  Lake  Hamilton,  Florida   to   the
  Company's  plant  site  near  Washington,  North  Carolina   in
  December, 1996.
  
  The  operations never became profitable and during June,  1997,
  the  Company  adopted a plan to discontinue the  operations  of
  Mach   Performance   Inc.  and  Fountain   Power,   Inc.    The
  accompanying  financial statements have  been  reclassified  to
  segregate   the   discontinued   operations   from   continuing
  operations.   Included  in  the  operating  losses   from   the
  discontinued  operations  is the  write  down  of  $395,761  of
  remaining  goodwill and $461,422 of propeller  inventory  which
  management believes is not saleable.  The Company also  accrued
  an  allowance for estimated losses expected to be  incurred  in
  the disposition of $440,401.
  
  During  July,  1997, the Company filed suit  against  a  former
  officer  and  director and his wife seeking rescission  of  the
  acquisition  and  merger agreement with Mach Performance,  Inc.
  and  voidance of the resulting transaction on grounds of  fraud
  and  material  breach  of  contract.  The  Company  is  further
  asking  that the 127,500 shares of common stock issued  in  the
  transaction  be returned to the Company and that certain  stock
  purchase  options  issued pursuant to an  employment  agreement
  also be rescinded and canceled.
  
  Net  sales  related to Mach Performance, Inc. for  fiscal  1997
  were $125,429.
  
  The  following is a condensed proforma statement of  operations
  that  reflects what the presentation would have  been  for  the
  year   ended   June  30,  1997  without  the  reclassifications
  required by "discontinued operations" accounting principles:
                                                    1997
                                               _____________
         Net Sales                                $50,954,753
         Cost of goods sold                       (39,132,978)
         Other operating expenses                (10,127,760)
         Other income (expense)                   (123,637)
         Provision for taxes                      (330,427)
                                               _____________
         Net income                               $1,239,951
                                               _____________
         Earnings per share                       $     .25
                                               _____________

                               -23-
<PAGE>



       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
Note 14. Acquisition and Discontinued Operations. [Continued]

  Net  (liabilities) of discontinued operations at June 30,1997
  consisted of the following:
                                                      1997
                                                  ____________
               Accounts receivables                 $ 4,174
               Prepaid expenses                      14,371
               Equipment, net                       539,457
               Accounts payable                     (226,332)
               Warranty & returns reserve           (100,000)
               Customer deposits                    (4,966)
               Estimated loss on disposal           (440,401)
                                                    ____________
                                                    $213,697
                                                    ____________

Note 15.  Subsequent Events.

  During  July 1997, the Company approved a three-for-two forward
  stock  split  of  all  its  previously issued  and  outstanding
  common  stock  including  options  to  purchase  common   stock
  (effectively a three share for two share stock dividend).   The
  split  was  accomplished  during August.   The  effect  of  the
  common  stock  split  has  been reflected  in  these  financial
  statements (See Note 1 and 7).
  
  During  July  1997, a director of the Company  exercised  stock
  options  held by him to acquire 30,000 shares of the  Company's
  common stock for $110,000 (See Note 7).

  Prior  to  fiscal  1993,  the Company  owned  and  operated  an
  aircraft.   During  fiscal  1993,  the  aircraft  was  sold  to
  officer  and  director of the Company.  The  Company  has  been
  leasing  airplane services from the officer and director  since
  that  time.   During  September 1997, the  board  of  directors
  determined to acquire an airplane for the Company and  approved
  the   acquisition  of  an  airplane  from  Mr.   Fountain   for
  $1,375,000.   The  Company will issue a  note  payable  to  Mr.
  Fountain  for approximately $420,000 and will also  assume  the
  remaining underlying indebtedness on the airplane.
  
  Effective  October 1, 1997, Fountain Trucking,  Inc.,  Fountain
  Sportswear,   Inc.,  Fountain  Aviation,  Inc.   and   Fountain
  Unlimited,  Inc.  were  dissolved.  In  connection   with   the
  dissolution  of  the  subsidiaries the operations  of  Fountain
  Trucking,  Inc., and Fountain Sportswear, Inc. were transferred
  to Fountain Powerboats, Inc. (See Note 1).
  
                              -24-
<PAGE>