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   {NO FEE REQUIRED]
                                       
                      For fiscal year ended June 30, 1998
                                       
     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

      The aggregate market value of the voting stock held by non-affiliates  of
the registrant was $ 15,313,752 at September 9, 1998 based upon a closing price
of $6.00 per share on such date for the Company's Common Stock.

      As  of  September  9, 1998 there were 4,702,608 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.

<PAGE>
                                    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  achieve performance and stability standards, which the Company believes are
greater  than those offered by any of its competitors, worldwide.  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  give  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.

      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 310 HP to more than 900 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.   During the first half of Fiscal 1999, the company will introduce  a
Super  Cruiser,  65 foot in length with a 16' beam.  This is  the  first  of  a
family of Super Cruisers to be introduced during the next several years.

      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 $328,000 to $394,000.

      The  Company's  47'  Lightning Sport Boat has been newly  redesigned  and
restyled and operates at maximum speeds of 75 to 100 mph and is very stable and
suited for long range cruising  in offshore waters.  Its sleek styling makes it
particularly  attractive.  Depending primarily upon the  type  of  engines  and
options  selected,  this  boat  retails at  prices  ranging  from  $343,000  to
$648,000.   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.  Equipped with special racing engines, this model set a new
world speed record for V-hulled boats in February, 1996 at 131.941 mph.

<PAGE>
      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 $208,000  to
$248,000.

      The 38' Fever Sport Boat operates at maximum speeds of between 70 and 100
mph.   Its  retail price ranges from $189,000 to $229,000, 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 35' 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
$150,000 to $192,000, 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 $118,000 to $150,000.

      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 $79,000 and
$100,000 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 powerboat 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 $65,000 to $81,000.

      In  1990, the Company began its offshore sport fishing program with a 31'
sport fishing model which features a center console design and incorporates 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.

      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  were the 25' and 29' walk around cabin model fishing  boats  with
inboard power.

<PAGE>

      For  Fiscal  1998, the Company introduced an all-new surface drive  sport
boat,  the  51'  Lightning.   This boat comes with the  Company's  new  second-
generation  positive lift hull.  The 42' Lightning was also new for  1998.   It
comes with the new style deck with full wrap around windshield, canvas top  and
the  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 during the first half of Fiscal  1999.   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
and  less  component parts and gears for 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
                          1998                1997                1996

Sport boats  .             324                 336                 295

Sport cruisers .            9                   14                  20

Sport fishing boats   .    116                 128                 109
                          ------              ------              ------
     Total                 449                 478                 424
                          ====                 ====                ====

      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  62  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 1998     .....          $575,918           $2,010,634

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

Fiscal 1996     .....           234,425              878,274

      For  Fiscal 1999, planned design research and development expenses are
$700,000  and  plug  and  mold  construction expenditures  are  approximately
$1,500,000.  These expenditures will be primarily to complete the tooling for
new sport boat decks and interiors plus initiation of the first in the new mid-
line  cruiser line  along with the second model in the new Supercruiser  line.
Details are not yet complete and will be released in the near future.

     Manufacturing capacity is sufficient to accommodate approximately 30 to 40
boats in various stages of construction at any one time.

<PAGE>

       Construction  of  a  boat  currently  made,  depending  on  size,  takes
approximately three to five weeks.  Construction of the all new wide beam Super
Cruisers is expected as follows: A 40' in six weeks, a 50' in ten weeks  and  a
65' in twelve weeks.  The Company, with additional personnel, currently has the
ability  to  manufacture approximately 500 sport and fishing  boats  and  15-20
yachts per year.  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  hand  "laying-up"  of  vinylester resins and high  quality  stitched,  bi-
directional  and  quad-directional fiberglass over a foam  core  in  the  molds
designed  and constructed by the Company's engineering and tooling  department.
This  creates  a composite structure with strong outer and inner skins  with  a
thicker,  light core in between.  The "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  resins used by most other fiberglass boat  manufacturers.
Decks  are  bonded  to  the  hulls using bonding  agents,  rivets,  screws  and
fiberglass to achieve a strong, unitized construction.

     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 costs as it receives  parts
just  in  time  for  assembly  and achieves considerable  savings.   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 discounts.

     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 re-mediation  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 powerboats 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 international dealers.  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.


<PAGE>

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





                         Fiscal `98          Fiscal `97       Fiscal `96

United States  ........$46,068,495         $48,346,485       $40,545,235

Canada, Mexico, Central
and South America  .....$2,639,523         $ 1,047,913       $  658,738

Europe and
the Middle East  ...... $1,834,524         $   752,801       $  394,078

Asia .................. $  109,495         $   367,126       $      -0-
                     -------------            -------------  ----------

Total       ...........$50,652,037         $50,514,325     $ 41,598,051
                          ========           ========          =======


     The Company has a growing international advertising program and is seeking
additional  distribution for its products in foreign markets  through  its  own
sales  representative.  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 10-20% of  its
total sales.

      For Fiscal 1998 one dealer accounted for 6.7% of sales, one for 6.3%  and
one  other  dealer accounted for more than 5% of 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.  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 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.

      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 up to 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.

<PAGE>


     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 who 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.   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 to participate  in
the  major  classes  of offshore powerboat races, many of which  are  regularly
televised  on programs such as ESPN.  Additionally, Fountain single,  twin  and
triple engine racing boats currently hold their respective world speed records.
The  result  of these racing victories and world speed records has  established
the  Company's products as the highest performing and safest designed  offshore
boats.      The Company believes that the favorable publicity generated by  its
performance  programs contribute to its sales volume.  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  constructed two race boats  during  Fiscal  1997  and
implemented  a  racing  program during Fiscal 1998, of  which  a  major  engine
manufacturer is a sponsor.  In Fiscal 1998, the company completed the structure
of  its  racing  program  with a third boat and captured  several  world  speed
records through the summer of calendar 1998 with the 100th victory completed by
Reggie Fountain in New York City in September.
     
        As  part  of  the marketing program for its new line of  sport  fishing
boats, the Company sponsors 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, a Fountain fisherman took
first  place.  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.

Sales Order Backlog.

     The sales order backlog as of mid September 1998 was for approximately 200
boats  having an estimated sales value of $20,000,000.  All of the  backlog  is
generally  shipped within 6 months.  This compares to an equivalent backlog  at
this  time  in  September 1997 and 1996.   During the last year, the  Company's
performance  boats'  increase in sales value to a greater degree  than  fishing
boats has increased the overall average unit price.  Later this year, with  the
formal  introduction  of  the new 65' yacht, which has  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 prime spring and summer selling seasons.


<PAGE>

Product Warranty.

     The Company warrants its boats against defects in material and workmanship
for a period of three years.  The engine manufacturer warrants engines included
in  the boats.  Warranty expenses of $531,062 were incurred in Fiscal 1998  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, 1998.  For 1997, warranty costs were $707,202 or 1.4 percent of sales.
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 powerboat manufacturing industry is intense.  While
the  high performance sports boat market comprises only a small segment of  all
boats  manufactured,  the higher prices commanded by  these  boats  make  it  a
significant  market  in terms of total dollars spent.  The  manufacturers  that
compete directly with the Company in its market segment include:

                 Wellcraft 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.

      The 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.

      The  Company  believes that its current owners, many whom have  purchased
multiple  and  increasingly larger boats from the Company  regenerate  a  ready
waiting market for its expansion into the cruiser and yacht market.


Employees.

      As  of September 1, 1998 the Company had 376 employees, of whom ten  were
executive  and  management personnel.  Twenty-three were engaged  primarily  in
administrative positions including accounting, personnel, marketing  and  sales
activities.   None  of  the  Company's employees  are  party  to  a  collective
bargaining  agreement.   The Company considers its  employee  relations  to  be
satisfactory. The Company is an affirmative action, equal opportunity employer.


Item 2.  Properties.


      The  Company's executive offices and manufacturing facilities are located
on 66 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  $9,129,622  at
June 30, 1998

      The  operating facility contains buildings totaling 229,280  square  feet
located on fifteen acres.   The buildings consist of the following:




<PAGE>









                    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 ..........      75,800       Lamination, upholstery, final,
                                        assembly, inventory, and
                                        cafeteria.

Building 4 ..........      14,250        Woodworking.

Building 5  ..........     26,800        Mating, small parts lamination.

Building 6 ..........      23,800        Metal fabrication.

Building 7  ..........     15,720        Racing, service, and warranty.

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

Building 9...               4,800        Mold Storage.

Building 10....            26,960        Fabrication, sportswear sales.

Building 11....            12,000        Yacht manufacturing.
                         ----------
  Total .............     229,280
                           ======

     The  results  of the heavy expenditures in property, plant  and  equipment
also  include  additions of a travellift bay, 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.  The present  site  can  accommodate  an
addition of up to 300,000 square feet of manufacturing space.


Item 3.  Legal Proceedings.

      The  Company's subsidiary was notified by the United States Environmental
Protection  Agency  ("EPA") and the North Carolina Department  of  Environment,
Health  and  Natural  Resources (NCDEHNR") that it has  been  identified  as  a
potentially  responsible party ("PRP") and may incur,  or  may  have  incurred,
liability  for  remediation  of  contamination  at  the  Spectron/Galaxy  Waste
Disposal  Site  in Elkton, Maryland, and the Seaboard Disposal  Site,  in  High
Point, North Carolina, also referred to as the Jamestown, North Carolina  site,
respectively,  resulting  from the disposal of hazardous  substances  at  those
sites  by a third party contractor of the Company, which has been informed  the
EPA  and  NCDEHNR ultimately may identify a total of 1,000 to 2,000,  or  more,
PRP's with respect to each site.  The amounts of hazardous substances generated
by  the  Company and disposed of at these sites are believed to be  minimal  in
relation  to the total amount of hazardous substances disposed of by all  PRP's
at  such sites.  At present, the environmental conditions at the sites and  the
cost  of  remediation, to the best of the Company's knowledge,  have  not  been
determined fully 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
ultimately  have  in connection with remediation at either site.   Without  any
acknowledgement or admission of liability, the Company has made payments  as  a

<PAGE>

non-performing cash-out participant in an EPA-supervised response  and  removal
program  at  the  Spectron/Galaxy Site, and in NCDEHNR-supervised  removal  and
preliminary  assessment  program at the Seaboard  Disposal  Site.   A  cash-out
proposal  for the next phase of the project is expected to be forthcoming  from
the  PRP  Group for the Spectron/Galaxy Site.  According to the PRP Group,  the
Company's full cash-out amount is estimated to be approximately $10,000 for the
Spectron/Galaxy Site in Elkton, Maryland, based on 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  Seaboard Disposal Site in North  Carolina  following
completion  of  a Remedial Investigation and Feasibility Study  in  late  1998,
according  to  the  PRP Group administrator.  Any cash-out  agreement  will  be
subject to approval by EPA and NCDEHNR, respectively.

      As  of  June  30,  1998, the Company's chief operating subsidiary  was  a
defendant  in  six  product liability suits.  In the Company's  opinion,  these
lawsuits  are without merit and, therefore, the Company is vigorously defending
its  interests in such suits.  The Company carries sufficient product liability
insurance  to  cover attorney's fees and any losses that may  occur  from  such
suits, over and above applicable insurance deductibles.

      On  June 9, 1998, and Order was entered in U. S. District Court  for  the
Eastern District of North Carolina, regarding a settlement among the parties in
a   trademark  infringement  suit  involving  the  Company's  chief   operating
subsidiary,  Fountain  Powerboats, Inc., Mark Spencer, Spencer  Communications,
and  Michael  Jordan, a professional basketball player.  A description  of  the
litigation  is contained in the Company's Annual Report on Form 10-K  for  June
30,  1997, filed with the Commission on October 14, 1997, which description  is
incorporated by reference herein.

      On  June  16,  1998, a court-mediated settlement was  reached  among  the
Company and Gary D. Garbrecht, Marcia K. Garbrecht, and Mach Performance, Inc.,
of  a  lawsuit filed by the Company and its subsidiary in U. S. District  Court
for  the  Eastern  District  of North Carolina; the settlement  also  concludes
another  suit  filed  by  the  Company  in  Beaufort  County  Superior   Court,
Washington,  North  Carolina, against an affiliate of the Garbrechts,  P.R.O.P.
Tour, Inc.  A description is incorporated by reference herein.

     The Company is involved in litigation in Texas and North Carolina with one
of  its  dealers  in  Austin,  Texas,  concerning  termination  of  the  dealer
agreement.   The  Company's  position is that  the  dealer  agreement  is  non-
exclusive,  allowing  the Company to have other dealers in  the  Austin,  Texas
area.  The Company is seeking a declaratory judgment that the dealer terminated
the  agreement or, alternatively, that the dealer is bound by the agreement and
should  fulfill  its  inventory-stocking obligation.   The Company  intends  to
vigorously defend its interests in this matter.


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

The  only  matter  submitted to the Shareholders for a  vote  during  the  last
quarter  of  Fiscal 1998 was the notice of annual meeting with revocable  proxy
for election of Director Nominees and ratification of the Board's selection  of
Pritchett, Siler & Hardy, P.C., Certified Public Accountants, as the  Company's
independent public accountants.



                                    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:

          
<PAGE>          
          
          
          
          
      Quarter Ended                 High           Low

      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

      September 30, 1997     ...   14.88          9.00
      December 31, 1997      ...   15.38          8.88
      March 31, 1998         ...   12.75          8.50
      June    30,   1998     ...   13.00          8.93

      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 9, 1998 was approximately 1500.


<PAGE>

<TABLE>

Item 6.  Selected Financial Data

               Fountain Powerboat Industries, Inc. and Subsidiary
                             Selected Financial Data
                         Fiscal Years 1994 through 1998
                                        
<CAPTION>
                                                  Year Ended June 30,
Operations Statement Data: -------------------------------------------------------------------
     (Period Ended)                 1998         1997          1996        1995           1994
-----------------------      --------------   -----------   --------      -------     ----------
<S>                             <C>           <C>          <C>          <C>           <C>   
Sales ........................  $50,652,037   $50,514,325  $41,598,051  $38,727,329   $22,240,212

Net Income (loss) ...........   $ 2,740,487   $ 1,239,951  $ 3,680,034  $ 2,047,876   $(2,993,344)

Income (loss) per share ..        $  .58       $  .27         $ .81        $ .45       $ (.67)

Weight average shares
     outstanding ..........        4,751,779    4,664,251    4,528,608    4,528,608    4,452,856

Fully diluted earnings (loss)
     per share ..............     $  .54    $    .24          $ .77        $ .45          N/A

Fully diluted weighted average
     shares outstanding ...        5,110,090    5,093,289    4,573,153    4,539,694      N/A

Balance Sheet Data
(At Period End)
-----------------------------------
Current assets ...............    $12,718,535  $10,997,133  $ 8,378,341  $ 6,185,727   $ 5,365,619

Total Assets .................    $32,497,393  $23,713,896  $18,498,104  $16,334,757   $16,266,787

Current Liabilities ..........    $10,289,985  $ 6,305,212  $ 6,180,476  $ 6,081,298   $14,976,570

Long-term debt ...............    $ 9,499,895  $ 8,047,039  $ 5,433,184  $ 7,049,049   $   133,683

Stockholders' equity (1) ....     $11,780,706  $ 9,361,645  $ 6,884,444  $ 3,204,410   $ 1,156,534

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

</TABLE>

<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  was
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, 1998, 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, 1998,  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 1998 and 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 may be required to repurchase the boat.   The  Company
had  a  contingent  liability  of approximately $8,600,000  at  June  30,  1998,
$8,600,000 at June 30, 1997 and $7,200,000 at June 30, 1996 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,  1998,
1997  and  1996,  the Company had recorded reserves of  $200,000,  $200,000  and
$207,359,   which  represent  losses which may  be  reasonably  expected  to  be
incurred on boat repurchases in future years.

<PAGE>

Business Environment.

      The  Company's Sales have continued to increase each year.  Sales for 1998
were  $50,652,037.  The sales volume for Fiscal 1998 was in line with the stable
environment  in  the overall recreational boating industry.   Plant  utilization
stands at about 80% until full production of the new 65' yacht is achieved.

      Sales  for  Fiscal 1997 were $50,514,325, a 21% increase  from  sales  for
Fiscal 1996.  Sales for Fiscal 1996 were $41,598,051.

       In   Fiscal   1998,  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 maintaining our performance  market
share.

      Typically, each dealer's floor plan credit facilities are secured  by  the
dealer's  inventory,  and,  perhaps,  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 1998,  1997  and  Fiscal  1996  in
connection  with  floor plan arrangements.  Five boats were  repurchased  during
Fiscal  1995 in connection with floor plan arrangements.  At June 30,  1998  and
1997,  the  Company  had recorded a $200,000 reserve for  losses  which  may  be
reasonably expected to be incurred on boat repurchases in future years.

Results of Operations.

      Net  income  for Fiscal 1998 was $2,740,487 or $.58 per share outstanding.
This  compares to net income for Fiscal 1997 of $1,239,951, or $.27  per  share.
The  change  in  net income was primarily due to a discontinued operations  loss
and  write-down  of assets of a Subsidiary, Fountain Power, Inc. for  $2,829,881
in Fiscal 1997. (See Note #14).

      Operating  income  decreased slightly from $4,520,333 in  Fiscal  1997  to
$4,084,388 in Fiscal 1998.  Income from continuing operations (before  the  loss
and  write-down  due  to  Fountain Power, Inc.)  decreased  (primarily  due  the
Company's  current tax liability) in Fiscal 1998 to $2,439,556  from  $4,069,832
in Fiscal 1997.

      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.


      The  Company's  gross  profit  margin as a  percentage  of  sales  changed
slightly  to 24.8% in Fiscal 1998 from 26.8% in Fiscal 1997 and 22.3% in  Fiscal
1996.   The  change in the gross margin percentage was due to the overall  sales
mix of boats and production efficiencies.

<PAGE>

      Depreciation expense was $1,953,207 for Fiscal 1998, $1,642,975 for Fiscal
1997,  and  $1,536,479 for Fiscal 1996.  Depreciation expense by asset  category
was as follows:

                               Fiscal        Fiscal       Fiscal
                                1998          1997         1996

Land  improvements ........ $   29,504    $    22,468  $   20,595

Buildings  ................ $  239,187    $   231,546  $  260,580

Molds   &   plugs  ........ $1,112,705    $ 1,041,217  $  980,104

Machinery  &  Equipment ... $  353,102    $   295,829  $  225,654

Furniture  &  fixtures  ....$   15,238    $    24,572  $   11,114

Transportation  equipment ..$  129,722    $    27,343  $   38,432

Racing Equipment.....       $   73,749
                            ----------    -----------   ---------
Total                       $1,953,207    $ 1,642,975   $1,536,479
                             ========       ========     ========

           Following  is  a  schedule of the net fixed  asset  additions  during
Fiscal 1998 and Fiscal 1997.

                           Fiscal 1998        Fiscal 1997

Buildings    .............  $  240,003         $  360,231

Land  and Improvements....  $   35,537         $  315,605

Molds  and plugs    ......  $2,050,745         $1,684,274

Construction  in Progress.. $3,139,725         $  809,506

Machinery  & equipment .....$  512,933         $  649,895

Furniture & fixtures   .....$   24,495         $   18,767

Transportation equipment ...$1,458,079         $   41,718

Racing equipment......      $1,335,163         $      -0-
                            -----------        -----------
Total                       $ 8,796,680        $ 3,879,996
                             =========          =========

<PAGE>

      Selling  expenses were $5,687,097 for Fiscal 1998, $6,463,875  for  Fiscal
1997,  and  $4,285,923 for Fiscal 1996.  The Company continued  to  promote  its
products primarily by magazine advertising in Fiscal 1998.  Advertising  expense
was  $1,166,633  for Fiscal 1998, $1,267,822 for Fiscal 1997, and  $849,627  for
Fiscal  1996.  These advertising expenditures continue to promote the  Company's
visibility  in the recreational marine industry and 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  $953,928 in Fiscal 1998, $1,256,631 in Fiscal 1997 and $867,743 in  Fiscal
1996.   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
began a racing program during Fiscal 1998.

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

                         Fiscal 1998         Fiscal 1997    Fiscal 1996

Offshore racing and
  tournament fishing   ..$     953,928       $ 1,256,631     $ 867,743

Advertising   ...........$   1,166,633       $ 1,267,822     $ 849,627

Salaries & commissions ..$     939,541       $ 1,029,810     $ 578,170

Boat Shows   ............$     446,706       $   452,859     $ 285,321

Dealer incentives  ......$   1,031,611       $ 1,286,649     $ 285,321

Other selling expenses ..$   1,148,678       $ 1,170,104     $ 750,828
                           -----------       -----------    ----------
Total                    $   5,687,097       $ 6,463,875     $4,285,923
                             =========         =========     =========

      General  and  administrative  expenses include  the  finance,  accounting,
legal, personnel, data processing, and administrative operating expenses of  the
Company.  These expenses were $2,725,146 for Fiscal 1998, $2,553,870 for  Fiscal
1997,  and  $1,904,988 for Fiscal 1996.  Most of the increase  for  Fiscal  1998
over Fiscal 1997 was in attorneys' fees.  (See Item 3-Legal Proceedings)

      Interest  expense was $833,932 for Fiscal 1998, $557,768 for Fiscal  1997,
and  $747,337 for Fiscal 1996.  The increase in interest expense for Fiscal 1998
was  primarily  due  to an overall increase in loan debt from  the  Fiscal  1997
consolidation loan from General Electric Capital Corporation.

      For  Fiscal  1998,  the Company recorded $500,000 in racing  participation
fees,  which reduced our overall program cost for the year.  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.   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.  Under the  terms  of  the  consulting
contract, the consulting fees ended entirely after Fiscal 1997.

<PAGE>

Liquidity and Financial Resources.

      Operations  in Fiscal 1998 provided $3,869,619 in cash.  Net  income  plus
depreciation   expense   provided  cash  amounting  to   $4,693,694.    However,
relatively  large  amounts  were  needed to  finance  investment  activities  in
purchasing  property, plant, equipment, inventory and molds.  In  addition,  the
new  yacht construction with associated development costs added to the heavy use
of cash.  The ending cash balance was $1,376,984.

      Operations  for  the prior fiscal year 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.   The  ending  cash  balance  was
$2,994,503.

      Operations  for  the 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.

      Investing  activities  for  Fiscal  1998  required  $8,218,341,  including
expenditures  for  additional molds and plugs amounting to  $2,050,745  and  for
property,  plant and equipment for $6,745,936.  Also, increases in other  assets
required $124,396.

      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.

      Financing  activities  for Fiscal 1998 provided $2,731,203.   Included  in
this  amount  are proceeds from issuance of notes payable and long term-debt  to
G.  E.  Capital Corporation for $3,362,137 and the retirement of previous  long-
term debt of $738,434.

      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.

      The net decrease in cash for Fiscal 1998 was $1,633,884, primarily due  to
the  investment  in facilities, equipment and molds.  During  Fiscal  1998,  the
Company  borrowed the remaining $1,500,000 against the initial General  Electric
Capital  Corporation  loan,  bringing  the  balance  to  $10,000,000,  less  the
scheduled  monthly  principal reductions.  During the first  quarter  of  Fiscal
1999,  the  Company concluded negotiations for a new $4,000,000 promissory  note
with  Transamerica Business Credit Corporation, which included  restatement  and
amendment  of  certain existing promissory notes with General  Electric  Capital
Corporation.  For  Fiscal  1999,  the Company anticipates  that  the  $1,376,984
beginning  cash balance along with the proceeds of the additional financing  and
net  income from Fiscal 1999 operations will be sufficient to meet most  of  the
Company's  liquidity needs of the year.  The Company intends to  concentrate  on
developing the new yacht assembly line in Fiscal 1999.

<PAGE>

     Effective  December 31, 1996, the Company concluded a new $10,000,000  term
loan  agreement  with  General  Electric Capital Corporation  repaying  previous
indebtedness  to  MetLife Capital Corporation, Deutsche Financial  Services  and
others.   At  June  30, 1997, the total outstanding amount was  $8,500,000  less
scheduled monthly principal reductions.


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 powerboat 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.


The Year 2000.

      A  current  concern, known as the "Year 2000" or "Y2K" Bug is expected  to
effect a large number of computer systems and software during or after the  year
1999.   The  concern  is  that  any  computer  function  that  requires  a  date
calculation  may  produce  errors.  The Year 2000 issue  affects  virtually  all
companies  and  organizations,  including the Company.   The  Company  plans  on
taking  all  steps  necessary  to prevent these  errors  from  occurring.   With
respect  to  third party providers whose services are critical to  the  Company,
the  Company intends to monitor the efforts of such vendors, as they become Year
2000  compliant.  Management is not presently aware of any Year 2000 issues that
have  been  encountered by any such third party, which could  materially  affect
the  Company's  operations.  At present, the Company anticipates  the  costs  of
upgrading  some  of  its software and hardware in order to  avoid  any  problems
resulting  from the Millennium bug will cost approximately $300,000.   There  is
no assurance that the Company will not experience operational difficulties as  a
result of Year 2000 issues.

<PAGE>

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, forecast, 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.

      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.


Item  9.   Changes  in  and  Disagreements with Accountants  on  Accounting  and
Financial Disclosure.

      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 of Registrant.

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










REGINALD  M.  FOUNTAIN,  JR.,  age 58, 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.

DARRYL  M. DIAMOND, M. D., age 61, is a retired physician.  From 1984  to  1986,
Dr. Diamond served as a director of the Company's subsidiary.

<PAGE>

GEORGE  L.  DEICHMANN,  III,  age  54, is  the  President  and  owner  of  Trent
Olds/Cadillac/Buick/GMC, an automobile dealership located  in  New  Bern,  North
Carolina.

CRAIG  F.  GOESS,  age  44, is the President and General Manager  of  Greenville
Toyota, an automobile dealership located in Greenville, North Carolina.

GARY  E.  MAZZA, III,  age 60, 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.


FEDERICO  PIGNATELLI,   age 45, 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, an 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 53, 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.

<PAGE>

BLANCHE C. WILLIAMS,  age 64, 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.

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  1998,  1997,  and
1996.

Name and Principal       Fiscal   Annual Compensation    Long-term Stock
                                ---------------------  ---------------------
   Position               Year  Salary(1)   Bonus(2)   Compensation  Options
---------------------    -----  --------    --------    ---------     ------
Reginald M. Fountain Jr.  1998  $350,000    $218,017    $ -0-         -0-
Chairman, President,Chief 1997  $350,000    $ 78,519    $ -0-         -0-
Executive Officer,and     1996  $232,154    $199,984    $ -0-         -0-
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  forward.  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 1996,1997  and  1998  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:

<PAGE>

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

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, 1998 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, 1998,
       Exercisable......................................$ 3,121,599  (1)

(1)   The  closing sale price of the Common stock on Tuesday, June 30, 1998  was
$11.125.  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 adopted 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 disclosed in the  "Notes  To  Consolidated
Financial Statements" contained within this report.


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.

<PAGE>

      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 and Mr. Spencer retain  their  issued
stock  options of 30,000 shares each.  Mr. Garbrecht resigned as a  director  in
April 1997.

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 $218,017  for
Fiscal  1998, $78,519 for Fiscal 1997 and $199,984 for Fiscal 1996  were  earned
by   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 1998 or Fiscal 1997.   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.

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 should 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.

<PAGE>

      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.

      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.

<PAGE>

      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.  On June 16, 1998,  an  order  was
entered  in  U.  S. District Court for the Eastern District of  North  Carolina,
whereas  the  above  options were cancelled as part  of  an  overall  settlement
agreement.

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 post-retirement 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, 1993 to  be
equal  to  $100.00  Accumulated returns are noted through June 30,  1998.   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.








<PAGE>                                       
                                       
                                       
                                       
                                       
             Total Return To Shareholder's - Dividends Reinvested

                                     ANNUAL PERCENTAGE RETURN
                                           YEARS ENDING
Company / Index                 Jun94  Jun95  Jun96   Jun97  Jun98 
FOUNTAIN POWERBOAT INDS         -55.82 142.14 100.03  28.25  13.14              
INC
S&P 500 INDEX                     1.41  26.07  26.00  34.70  30.16              
LEISURE TIME (PRODUCTS)-          0.87  21.45  30.63  25.61  20.51              
500
                                                                                
                                                                                
                                                                                
                                INDEXED RETURNS
                        Base     Years Ending
                        Period                                                  
Company / Index         Jun93    Jun94  Jun95  Jun96  Jun97  Jun98     
FOUNTAIN POWERBOAT INDS    100   44.18 106.98 213.98 274.43 310.49              
INC
S&P 500 INDEX              100  101.41 127.84 161.08 216.98 282.42              
LEISURE TIME (PRODUCTS)-   100  100.87 122.51 160.03 201.02 242.26              
500
                                                                                

      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.


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
earned  by Mr. Fountain for Fiscal 1998 were $218,017, for Fiscal 1997 amounted
to $78,519 and for Fiscal 1996 amounted to $199,984.

Compliance with Section 16.

     Not applicable.

<PAGE>

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)              54.81%

Triglova Finanz, A.G.
P.O. Box 1824
52nd Street
Urbanization Obarrio
Torre Banco Sur, 10th Floor
Panama City, Republic of Panama        266,500(2)               5.69%


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

(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, 1998, for  each  of
the  Company's  current directors, and for all directors and  officers  of  the
Company as a group.




<PAGE>




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

Reginald M. Fountain, Jr.(1)           2,569,372(2)                54.81%

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

Federico Pignatelli (1)                   10,000(2)                   (3)

Gary E. Mazza III (1)                     46,744                       (3)

Blanche C. Williams (1)                      800                       (3)

Darryl M. Diamond, M.D.(1)                   -0-                       (3)

George L. Deichmann, III(1)                  -0-                       (3)

Craig F. Goess  (1)                          -0-                       (3)

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

All directors and officers as
a group (6 persons)                    2,660,316 (2)                 56.75%



(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.

(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 one-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.

<PAGE>

     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
                               1998           1997            1996

Apartment Rentals...........$   6,717     $ 17,260        $  15,380

R. M. Fountain, Jr.
     - airplane rentals ....$ 107,312     $296,498        $ 155,499

     -  interest ........   $  26,509        -0-              -0-

                            ---------      -------         ---------
                            $ 140,583     $313,758         $170,879
                             =======       =======          ======
(See Note 12)

      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.  The airplane rentals  ended  in
September  1997.  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 with
a second note payable to Mr. Fountain for $415,821.

     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.
At  the  end  of Fiscal 1997, the Company ceased operations of Fountain  Power,
Inc., the operating Company into which Mach Performance was contained and filed
suit  during  Fiscal  1998  seeking rescission of the  acquisition  and  merger
agreement.   On  June 10, 1998, a Court mediated legal settlement  was  reached
between  the  parties.   Refer  to  note  14  -  Acquisition  and  Discontinued
Operations in the Consolidated Financial Statements contained herein.

     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.  $288,915 in Fiscal 1998, $547,436  in  Fiscal  1997  and
$265,985 in Fiscal 1996.

      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.

<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              Previously
   Company's Registration Statement field on December 2,1986) .........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       Previously
   ended June 30, 1991)................................................Filed


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

<PAGE>

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    Previously
   for the one-for-two reverse stock split of February 4, 1994....    Filed

4.1  Form of Warrant Agreement (Incorporated by reference to Amendment
   No. 2 to the Company's Registration Statement filed on            Previously
   December 10, 1986).................................................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     Previously
   fiscal year ended October 1, 1989)............................     Filed

10.1 1986 Incentive Stock Option Plan (Incorporated by reference to
   Amendment No. 1 to the Company's Registration Statement filed on  Previously
          December 2, 1986)...........................................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 Previously
   on Form 10K for the fiscal year ended October 1, 1989)..........     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 Previously
  on Form 10K for the fiscal year ended March 22, 1994).............    Filed

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


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

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

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

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

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

<PAGE>

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

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

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

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

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

10.15     Supply agreement dated February 24, 1995 with BrunswickPreviously
                                                       Filed

10.16     Master Security Agreement dated December 21, 1995         Previously
   with G.E. Capital Corporation......................                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.......              Previously
                                                                Filed
10.21     Loan Agreement dated December 31, 1996 with
     General Electric Capital Corporation............        Previously
                                                               Filed

10.22   Omnibus Loan Agreement dated September 2, 1998 with General
    Electric Capital Corporation and
   Transamerica Business Credit Corporation................ Filed Within

<PAGE>

(b) Form 8K was filed on June 3, 1998:

     On  June 9, 1998, an Order was entered in the United States District Court
for  the  Eastern District of North Carolina concerning a settlement among  the
parties  in  a  lawsuit involving the Registrant's chief operating  subsidiary,
Fountain  Powerboats, Inc., Mark Spencer, Spencer Communications,  and  Michael
Jordan.   A  description of this litigation is contained  in  the  Registrant's
Annual  Report  on  Form 10-K, filed with the Commission on October  14,  1997,
which is incorporated by reference herein.

     On  June  16,  1998,  a court-mediated settlement was  reached  among  the
Registrant  and Gary D.  Garbrecht, Marcia K. Garbrecht, and Mach  Performance,
Inc.  of a lawsuit filed by the Registrant in the United States District  Court
for  the  Eastern District of North Carolina; the settlement also will conclude
another  suit  filed  by  the  Registrant in Beaufort  County  Superior  Court,
Washington,  North  Carolina, against an affiliate of the Garbrechts,  P.R.O.P.
Tour,  Inc.   A description of the litigation is contained in the  Registrant's
Annual Report on Form 10-K filed with the Commission on October 14, 1997, which
is incorporated by reference herein.

     On  June 15, 1998, Registrant engaged CIBC Oppenheimer Corp. (Oppenheimer)
to  assist the Registrant in evaluating its strategic alternatives to  maximize
shareholder  value, pursuant to an agreement between the two parties  for  such
services.   On June 25, 1998, the Registrant issued a press release  concerning
its  engagement of Oppenheimer, a copy of which is included as  an  exhibit  to
this Report and is incorporated by reference herein.

     The  Registrant's  Board  of  Directors  has  approved  a  change  in  the
Registrant's  stock  transfer agent and registrar  to  Firstar  Trust  Company,
Milwaukee, Wisconsin (Firstar).  Firstar will replace the Registrant's  current
stock  transfer agent and registrar, Registrar and Transfer Company, New  York,
New York.  The Registrant currently is in the process of effecting such change,
which is projected to be effective on June 30, 1998.

     The Board of Directors of the Registrant on June 3, 1998, elected officers
of  the Registrant and its operating subsidiary, Fountain Powerboats, Inc., and
elected  four  of  its outside directors as the members of  Registrant's  Audit
Committee, as follows:

     Officers:

 Reginald M. Fountain, Jr. - Chairman, President and Chief Executive Officer
 Donald J. Abel - Vice President, Chief Operating Officer and General Manager
 Gary G. Baltz, Jr. - Vice President/Sales
 Joseph F. Schemenauer - Vice President/Finance and Chief Financial Officer
 Blanche C. Williams - Secretary/Treasurer
 Carol J. Price - Assistant Secretary

 Audit Committee:    Darryl M. Diamond, M.D., George L. Deichmann, III,
                     Craig F. Goess, Federico Pignatelli


<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.
                                                                               
By:  /s/ Reginald M. Fountain, Jr.                  September 23, 1998
Chairman, President, and Chief Executive Officer

     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.                         September 23, 1998
Chairman, President, and Chief Executive Officer
(Principal Executive Officer)


/s/ Darryl M. Diamond, M. D.                          September 25, 1998
Director


/s/ George L. Deichmann, III                          September 21, 1998
Director


/s/ Craig F. Goess                                    September 21, 1998
Director


/s/ Gary E. Mazza, III                                September 21, 1998
Director


/s/ Federico Pignatelli                               September 21, 1998
Director


/s/ Mark  L Spencer                                   September 21, 1998
Director


/s/ Joseph F. Schemenauer                             September 21, 1998
Chief Financial Officer
(Principal Accounting and Financial Officer)

                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
                CONSOLIDATED FINANCIAL STATEMENTS
                                
                     JUNE 30, 1998 AND 1997
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                 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, 1998
             and 1997                                                2


        -  Consolidated Statements of Operations, for the years
             ended June 30, 1998, 1997 and 1996.                 3 - 4


        -  Consolidated Statement of Stockholders' Equity, for the
             years ended June 30, 1998, 1997 and 1996.               5


        -  Consolidated Statements of Cash Flows, for the years
             ended June 30, 1998, 1997 and 1996.                 6 - 7


        -  Notes to the Consolidated Financial Statements       8 - 26









<PAGE>

                  INDEPENDENT AUDITORS' REPORT



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


We  have audited the accompanying consolidated balance sheets  of
Fountain Powerboat Industries, Inc. and Subsidiary as of June 30,
1998  and  1997,  and  the  related  consolidated  statements  of
operations,  stockholders' equity and cash flows  for  the  years
ended  June 30, 1998, 1997 and 1996. These consolidated financial
statements
are   the  responsibility  of  the  Company's  management.    Our
responsibility is to express an opinion  on  these  consolidated
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  consolidated 
financial position of Fountain Powerboat Industries, Inc. and 
Subsidiary as of  June  30, 1998 and 1997, and the consolidated 
results of their  operations and  their cash flows for the years 
ended June 30, 1998, 1997 and 1996 in conformity with generally 
accepted accounting principles.




/s/ Pritchett, Siler & Hardy, P.C.

PRITCHETT, SILER & HARDY, P.C.



Salt Lake City, Utah
July 31, 1998

<PAGE>

       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
                   CONSOLIDATED BALANCE SHEETS
                                
                             ASSETS
                                
                                                        June 30,
                                               __________________________
                                                   1998          1997
                                               ____________  ____________
CURRENT ASSETS:
  Cash & cash equivalents                        $1,376,984    $2,994,503
  Certificates of deposit - held to maturity              -       696,155
  Accounts receivable, less allowance for doubtful
    accounts of $30,000 for 1998 and 1997         2,715,754     1,867,747
  Inventories                                     7,077,540     3,937,757
  Prepaid expenses                                  489,290     1,131,703
  Current tax assets                              1,058,967       369,268
                                               ____________  ____________
        Total Current Assets                     12,718,535    10,997,133

PROPERTY, PLANT AND EQUIPMENT, net               19,156,855    12,219,156

OTHER ASSETS                                        622,003       497,607
                                               ____________  ____________
                                                $32,497,393  $23,713,896
                                               ____________  ____________
                                
              LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Notes payable - related party                $    415,821     $       -
  Current maturities of long-term debt              981,365       595,607
  Accounts payable                                3,591,489     1,987,508
  Accrued expenses                                1,939,791       860,786
  Dealer territory service accrual                2,046,939     1,637,572
  Customer deposits                                 510,967       310,042
  Allowance for boat repurchases                    200,000       200,000
  Warranty reserve                                  500,000       500,000
  Net liabilities of discontinued operations        103,612       213,697
                                               ____________  ____________
        Total Current Liabilities                10,289,984     6,305,212

LONG-TERM DEBT, less current maturities           9,499,895     7,677,771

DEFERRED TAX LIABILITY                              926,807       369,268

COMMITMENTS AND CONTINGENCIES (See Note 10)               -             -
                                               ____________  ____________
        Total Liabilities                        20,716,686    14,352,251
                                               ____________  ____________
STOCKHOLDERS' EQUITY  [Restated]
  Common stock, par value $.01 per share,
    authorized 200,000,000 shares; issued
    4,702,608 and 4,725,108 shares                   47,026        47,251
  Additional paid-in capital                     10,196,540    10,517,740
  Accumulated earnings (deficit)                  1,647,889   (1,092,598)
                                               ____________  ____________
                                                 11,891,454     9,472,393
        Less: Treasury Stock, at cost 15,000
                 shares                           (110,748)     (110,748)
                                               ____________  ____________
                                                 11,780,707     9,361,645
                                               ____________  ____________
                                               $ 32,497,393  $ 23,713,896
                                               ____________  ____________

 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,
                                    ________________________________________
                                         1998         1997          1996
                                    ____________  ____________  ____________
NET SALES                           $ 50,652,037  $ 50,514,325  $ 41,598,051

COST OF SALES                         38,084,034    36,976,247    32,326,371
                                    ____________  ____________  ____________
  Gross Profit                        12,568,003    13,538,078     9,271,680
                                    ____________  ____________  ____________

EXPENSES:
  Selling expense                      5,687,097     6,463,375     4,285,923
  Selling expense - related party              -           500             -
  General and administrative           2,722,665     2,240,112     1,729,399
  General and administrative - related
    parties                               73,853       313,758       175,589
                                    ____________  ____________  ____________
      Total expenses                   8,483,615     9,017,745     6,190,911
                                    ____________  ____________  ____________
OPERATING INCOME                       4,084,388     4,520,333     3,080,769

NON-OPERATING INCOME (EXPENSE):
  Other income                           252,967       437,694     1,404,500
  Interest expense                     (807,423)     (557,768)     (744,627)
  Interest expense - related parties    (26,509)             -       (2,710)
  Gain  on disposal of assets              4,637             -        22,906
                                    ____________  ____________  ____________
                                       (576,328)     (120,074)       680,069

INCOME BEFORE INCOME TAXES             3,508,060     4,400,259     3,760,838

CURRENT TAX EXPENSE                    1,057,640       330,427        80,804

DEFERRED TAX EXPENSE                      10,864             -             -
                                    ____________  ____________  ____________
INCOME FROM CONTINUING OPERATIONS      2,439,556     4,069,832     3,680,034

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 income (loss) on disposal
    of the operations of Fountain
    Power, Inc. and Mach Performance,
    Inc. (Net of $282,512 income tax
    benefit)                             300,931     (440,401)             -
                                    ____________  ____________  ____________
INCOME (LOSS) FROM DISCONTINUED
  OPERATIONS                             300,931   (2,829,881)             -
                                    ____________  ____________  ____________
NET INCOME                          $  2,740,487  $  1,239,951  $  3,680,034
                                    ____________  ____________  ____________

                           [Continued]

                                     -3-
<PAGE>

             FOUNTAIN POWERBOAT, INC. AND SUBSIDIARY
                                
              CONSOLIDATED STATEMENTS OF OPERATIONS
                                
                           [CONTINUED]
                                
                                
                                              Year Ended June 30,
                                    ________________________________________
                                        1998          1997          1996
                                    ____________  ____________  ____________
BASIC EARNINGS PER SHARE:

  Continuing operations             $        .51  $        .87  $        .81
  Loss from operations of
    discontinued segments                      -         (.51)             -
  Estimated income (loss) on
    disposal of discontinued
    segments                                 .07         (.09)             -
                                    ____________  ____________  ____________
BASIC EARNINGS PER SHARE            $        .58  $        .27  $        .81
                                    ____________  ____________  ____________
WEIGHTED AVERAGE SHARES
  OUTSTANDING                          4,751,779     4,664,251     4,528,608
                                    ____________  ____________  ____________

DILUTED EARNINGS PER SHARE:

  Continuing operations             $        .48  $        .80  $        .77
  Loss from operations of discontinued
    segments                                   -         (.47)             -
  Estimated income (loss) on disposal
    of discontinued segments                 .06         (.09)             -
                                    ____________  ____________  ____________
DILUTED EARNINGS PER SHARE:         $        .54  $        .24  $        .77
                                    ____________  ____________  ____________
DILUTED WEIGHTED AVERAGE
  SHARES OUTSTANDING                   5,110,090     5,093,289     4,573,153
                                    ____________  ____________  ____________

















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

                                    -4-
<PAGE>
<TABLE>
       FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
         CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                
       FROM JUNE 30, 1995 THROUGH JUNE 30, 1998 [RESTATED]
<CAPTION>

                    Common Stock      Additional                 Treasury Stock    Total
                 ___________________    Paid-in    Accumulated   ________________  Stockholders'
                   Shares    Amount     Capital      Earnings    Shares   Amount   Equity
                 _________  ________  ___________  ___________   ______  ________  __________
<S>              <C>         <C>      <C>          <C>           <C>     <C>       <C>
BALANCE, June
 30, 1995        4,543,608   $45,436  $ 9,282,305  $(6,012,583)  15,000  $110,748  $ 3,204,410

Net income 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 income 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

Cancellation of
 common stock previously
 issued in acquisition
 of Mach Performance
 during June 1998
 at $8.17
 per share         (52,500)    (525)     (428,400)          -         -        -    (428,925)

Issuance of common
 stock upon exercise
 of options at $3.58
 per share by a
 director of the
 Company during
 July 1997.          30,000      300       107,200          -         -        -     107,500

Net income for
 the year ended
 June 30, 1998            -        -             -  2,740,487         -        -    2,740,487
               ____________  _______   ___________  _________   _______  _______  _________
BALANCE, June
 30, 1998         4,702,608  $47,026   $10,196,540 $1,647,889    15,000 $110,748  $11,780,707
               ____________  _______   ___________  _________   _______  _______  ___________

</TABLE>
                                
 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,
                                       ______________________________________
                                          1998          1997          1996
                                       __________    __________    __________
CASH FLOWS FROM OPERATING ACTIVITIES: 
  Net income                           $2,740,487    $1,239,951    $3,680,034
  Adjustments to reconcile net income
    to net cash provided by operating
    activities:
     Depreciation expense               1,953,207     1,642,974     1,536,479
     Gain on disposal of property, 
     plant, and equipment                 (4,637)             -      (22,906)
     Net effect of Acquired Subsidiary  (525,095)     1,041,250             -
     Change in assets and liabilities:
      Accounts receivable               (848,007)       985,937     (954,830)
      Inventories                     (3,139,783)        71,438     (601,469)
      Prepaid expenses                    642,413     (976,860)        50,104
      Net tax asset                     (132,160)             -             -
      Accounts payable                  1,603,982       273,748      (86,832)
      Accounts payable-related parties          -             -       (4,769)
      Accrued expenses                  1,079,005      (53,946)     (237,757)
      Dealer territory service accrual    409,367       871,898       765,674
      Customer deposits                   200,925        81,434     (184,201)
      Allowance for boat returns                -       (7,359)             -
      Warranty reserve                          -        90,000        10,000
      Deferred sale net of deferred cost
        of sales                                -             -      (14,148)
      Net liabilities of discontinued
        operations                      (110,085)       213,697             -
                                       __________    __________    __________
      Net Cash Provided by Operating
        Activities                     $3,869,619    $5,474,162    $3,935,379
                                       __________    __________    __________

CASH FLOWS FROM INVESTING ACTIVITIES:
  (Purchase) sale of certificates of
     deposits, net                        696,155     (696,155)            -
  Proceeds from sale of property, plant
    and equipment                           6,581             -        31,203
  Investment in additional molds and
    related plugs                      2,050,745)   (1,684,274)     (878,513)
  Purchase of other property, plant
    and equipment                     (6,745,936)   (2,249,670)     (604,367)
  Increase in other assets              (124,396)     (306,030)      (32,629)
                                     ____________  ____________  ____________
      Net Cash (Used in) Investing
        Activities                   $(8,218,341)  $(4,936,129)  $(1,484,306)
                                     ____________  ____________  ____________
                                
                                
                                
                                
                                
                           [Continued]
       
                                    -6-
<PAGE>

         FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
                                
               CONSOLIDATED STATEMENTS OF CASH FLOWS
                                
                            [CONTINUED]
                                
                                
                                                Year Ended June 30,
                                      ________________________________________
                                          1998          1997          1996
                                      ____________  ____________  ____________
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net borrowings (repayments) on 
    engine floor plan agreement       $          -  $(1,173,089)  $    638,904
  Proceeds from issuance of common
    stock                                  107,500       196,000             -
  Proceeds from issuance of notes
    payable and long-term debt           3,362,137     8,500,000       600,000
  Repayment of long-term debt            (738,434)   (6,427,060)   (2,820,165)
                                      ____________  ____________  ____________
      Net Cash Provided by (Used in)
        Financing Activities          $  2,731,203  $  1,095,851  $(1,581,261)
                                      ____________  ____________  ____________

Net increase (decrease) in cash &
  cash equivalents                    $(1,617,519)  $  1,633,884  $    869,812

Beginning cash & cash equivalents
  balance                                2,994,503     1,360,619       490,807
                                      ____________  ____________  ____________
Ending cash & cash equivalents 
  balance                             $  1,376,984  $  2,994,503  $  1,360,619
                                      ____________  ____________  ____________

Supplemental Disclosures of Cash Flow information:
  Cash paid during the period for:
    Interest:
     Unrelated parties                $    767,867  $    557,768  $    744,627
     Related parties                        26,509             -         2,710
                                      ____________  ____________  ____________
                                      $    794,376  $    557,768  $    747,337
                                      ____________  ____________  ____________
    Income taxes                      $    825,570  $    395,796  $     42,641
                                      ____________  ____________  ____________

Supplemental schedule of Non-cash Investing and Financing
Activities:
  For the year ended June 30, 1998:
     The Company entered into an agreement whereby 52,500 shares of
     stock previously issued in the acquisition of Mach Performance
     at $8.17 per share were returned for cancellation.
     
     The Company purchased an airplane for $1,375,000 by assuming a
     $959,179 loan and issuing a $415,821 note payable (See Note 4).
     
     The Company borrowed $47,079 for the purchase of a vehicle.

  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 and 14).

  For the year ended June 30, 1996:
     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 the Company's
  worldwide
  network of approximately sixty dealers.  The Company's offices and
  manufacturing facilities are located in Washington, North
  Carolina and the Company has been in business since 1979. The Company
  employs approximately 370 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
  subsidiary, Fountain Power, 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 1998 and 1997
  and were 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 as of 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, 1998 and 1997, the Company had
  $905,115 and $3,590,658, 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
  dealer's service performance rating.  The Company has accrued
  estimated dealer territory service awards at June 30, 1998 and
  1997 of $2,046,939 and $1,637,572, 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 generally sells boats only to
  authorized dealers and to the U.S. Government.  A sale is
  recorded when a boat is shipped to a dealer or to the
  Government, legal title and all other incidents of ownership
  have passed from the Company to the dealer or to the
  Government, and an account receivable is recorded or payment
  is received from the dealer, from the Government, or from the
  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 $1,166,633,
  $1,267,822 and $849,627 for the years ended 1998, 1997 and
  1996.
  
  Earnings Per Share: In February 1997, the Financial
  Accounting Standards Board issued Statement of Financial
  Accounting Standards (SFAS) No. 128 "Earnings Per Share,"
  which requires the Company to present basic and diluted
  earnings per share, instead of the primary and fully diluted
  earning per share.  The computation of basic earning per share
  is based on the weighted average number of shares outstanding
  during the periods presented.  The computation of diluted
  earnings per shares is based on the weighted average number of
  outstanding common shares during the year plus, when their
  effect is dilutive, additional shares assuming the exercise of
  certain vested and non-vested stock options and warrants,
  reduced by the number of shares which could be purchased from
  the proceeds.  Prior period earnings per share and weighted
  average shares have been restated to reflect the adoption of
  SFAS No. 128. (See Note 15)
  
  Stock Based Compensation: The Company accounts for its stock
  based compensation in accordance with Statement of Financial
  Accounting Standards 123 "Accounting for Stock-Based
  Compensation".  This statement establishes an accounting
  method based on the fair value of equity instruments awarded
  to employees as compensation.  However, companies are
  permitted to continue applying previous accounting standards
  in the determination of net income with disclosure in the
  notes to the financial statements of the differences between
  previous accounting measurements and those formulated by the
  new accounting standard.  The Company has adopted the
  disclosure only provisions of SFAS No. 123; accordingly, the
  Company has elected to determine net income using previous
  accounting standards.
  
  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).
  
  Reclassifications:  The financial statements for years prior
  to June 30, 1998 have been reclassified to conform with the
  headings and classifications used in the June 30, 1998
  financial statements.
  
  Recently Enacted Accounting Standards: In June 1997, SFAS
  Nos. 130, "Reporting Comprehensive Income" and 131,
  "Disclosures about Segments of an Enterprise and Related
  Information" were issued.  SFAS No. 130 requires that all
  items that are required to be recognized as comprehensive
  income be reported in a financial statement that is displayed
  with the same prominence as the other financial statements.
  SFAS No. 131 sets standards for reporting information about
  operating segments in the financial statements.  SFAS No. 131
  also sets standards for the disclosure about products, major
  customers, and geographical areas.  SFAS No. 132 provides for
  disclosures about pensions and other post-retirement benefits.
  Although such statements are not effective until fiscal years
  beginning after December 15, 1997, had such statements been
  adopted for the periods presented, their effect on the
  financial statements would not have been significant.

                                    -10-
<PAGE>

         FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2.  Certificates of Deposit.

  During the year ended June 30, 1998, the Company included in
  interest income $4,940 from the sale of certificate of
  deposits with an amortized cost of $701,095 on the date of the
  sale and an amortized cost of $696,155 as of June 30, 1997.
  The proceeds from the sale of the certificates of deposit were
  used to provide additional working capital to the Company.
  
Note 3.  Inventories.

  Inventories consist of the following:
                                                    June 30,
                                           __________________________
                                               1998          1997
                                           ____________  ____________
               Parts and supplies          $  4,510,373  $  2,820,414
               Work-in-process                2,235,394       882,323
               Finished goods                   451,773       335,020
                                           ____________  ____________
                                              7,197,540     4,037,757
               Reserve for obsolescence       (120,000)     (100,000)
                                           ____________  ____________
                                           $  7,077,540  $  3,937,757
                                           ____________  ____________

Note 4.  Property, Plant, and Equipment.

  Property, plant, and equipment consists of the following:

                                   Estimated
                                     Useful             June 30,
                                     Lives    __________________________
                                    in Years       1998           1997
                                     _______  ____________  ____________
  Land and related improvements       10-30   $  1,416,429  $  1,301,721
  Buildings and related improvements  10-30      6,720,762     6,559,930
  Construction-in-progress             N/A       3,955,544       815,793
  Production molds and related plugs    8       13,669,394    11,658,760
  Machinery and equipment              3-5       4,063,677     3,493,375
  Furniture and fixtures                5          538,516       483,699
  Transportation equipment              5        1,711,526       241,044
  Racing boats                          5        1,335,163             -
                                              ____________  ____________
                                              $ 33,411,011  $ 24,554,322
  Accumulated depreciation                    (14,254,156)  (12,335,166)
                                              ____________  ____________
                                              $ 19,156,855  $ 12,219,156
                                              ____________  ____________
  
  Depreciation expense amounted to $1,953,207, $1,642,975 and
  $1,536,479 for the years ended June 30, 1998, 1997 and 1996,
  respectively.

                                    -11-
<PAGE>

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
Note 4.  Property, Plant, and Equipment. [Continued]
  
  During fiscal 1998, the Company purchased an airplane from its
  executive officer for $1,375,000 by assuming the loan on the
  airplane from GE Capital Services, and issuing a note to the
  Company's CEO.  The balance owing to GE Capital Services and
  to the Company's CEO on June 30, 1998, was $959,199 and
  $415,821, 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
  $914,886 and 219,227 at June 30, 1998 and 1997.
  
  During Fiscal 1998 and 1996, the Company sold fixed assets and
  realized gains amounting to $4,637 and $22,900, respectively.
  During Fiscal 1997, the Company did not realize any gain or
  loss from the sale or disposition of any of its fixed assets.
  
Note 5.  Notes Payable - Related Party.

  The Company issued a $415,821 note payable to an officer and
  director of the Company, in connection with the purchase of an
  airplane.  The note accrues interest at a fixed rate of 8.5%,
  which is payable monthly.  The principle amount is due in a
  balloon payment on March 31, 1999.

                                    -12-
<PAGE>

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 6.  Long-term Debt and Pledged Assets.
  
  The following is a summary of long-term debt at:
                                                                 June 30,
                                                        _____________________
                                                             1998       1997
                                                        __________   ________
Loan payable to General Electric Capital Corporation
  assumed on an airplane purchased by the Company from
  an officer and director during September, 1997 with a carrying
  value of $959,179 on that date.  The loan has a variable
  interest rate with the rate being 8.35% on June 30, 1998.
  Monthly payments of $15,181.  Matures August 1, 2004. The
  Loan was subsequently amended and restated. (See Note 16)  $872,881  $   -

7.15% loan payable to 1st Citizens Bank for the purchase
  of a vehicle, monthly payments of $1,055 through October,
  2002, secured by the vehicle purchased.                      47,079      -

Amounts borrowed against the cash surrender value of key-
  man life insurance policies during June 1998, fixed interest
  rate of 8% on $356,476 and variable interest rate of 7.39%
  at June 30, 1998 on the remaining $75,202, monthly payments
  of $10,000.                                                 431,678      -

$10,000,000 credit agreement with General Electric Capital
  Corporation.  (See Below).                            9,129,622  8,273,378
                                                      __________  __________
                                                       10,481,260  8,273,378
 
Less:Current maturities included in current liabilities:(981,365)  (595,607)
                                                       __________  _________
                                                      $9,499,895  $7,677,771
                                                       __________  _________
 
  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
  had additional funds made available to it for expansion.
  Initially, the Company borrowed $7,500,000 to primarily
  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.  During 1998 and 1997 the Company borrowed the
  additional $1,500,000 and $1,000,000, respectively, to fund
  plant and equipment additions.  The credit agreement has a
  variable interest rate with the rate ranging from 8.06% to
  8.29% during 1998, with a rate of 8.29% on June 30, 1998.  The
  agreement calls for monthly payments of $123,103 and has a ten-
  year amortization with a five-year call.  The credit agreement
  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 credit agreement was subsequently
  amended and restated (See Note 16).

                            -13-
<PAGE>

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
Note 6.  Long-term Debt and Pledged Assets. [Continued]
  
  The estimated aggregate maturities required on long-term debt
  at June 30, 1998 are as follows:
               1999                        $ 981,365
               2000                        1,063,643
               2001                        1,152,824
               2002                        6,892,694
               2003                          192,870
            Thereafter                       197,864
                                         ____________
                                           $10,481,260
                                         ____________

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
  subsequently filed a lawsuit asking for the rescission of the
  acquisition agreement from Mach Performance, Inc. to recover
  the 127,500 restricted common shares.  During July, 1998 the
  parties entered into a settlement agreement resulting in the
  recovery and cancellation of 52,500 shares of common stock.
  (See Note 14).
  
  Restatement:  During the year ended June 30, 1998, and
  reflected in the accompanying financial statements, the
  Company effected 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 issued 30,000 options to a
  former officer of Fountain Power, Inc. and a former director
  of the Company under the Company's qualified 1986 employee
  incentive stock option plan. During June 1998, the options
  were cancelled in connection with the settlement agreement
  (See Note 14).

                            -14-
<PAGE>

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
Note 7.  Common Stock, Options, and Treasury Stock. [Continued]
  
  On June 21, 1995, the shareholders voted to adopt the 1995
  stock option plan.  The plan allowed up to 450,000 common
  stock options to be granted by the Board of Directors to
  employees or directors of the Company. On August 4, 1995, the
  Board of Directors voted to grant the 450,000 stock options to
  Mr. Reginald M. Fountain, Jr. at $4.67 per share, exercisable
  for 10 years from the date granted, on a non-qualified basis.
  As of June 30, 1998, none of these options have been
  exercised.
  
  Effective March 23, 1995, the Board of Directors authorized
  the issuance of 30,000 stock options to each of the Company's
  four outside directors at $3.58 per share on a non-qualified
  basis.  During the year ended to June 30, 1998, a director
  exercised 30,000 stock options for $110,000.  During Fiscal
  1997, a director exercised his options for 24,000 shares for
  $86,000 and assigned, with the specific consent of the
  Company's Board of Directors, the remaining 6,000 options to
  another party.
  
  A summary of the status of the options granted under the
  Company's stock option plans and other agreements at June 30,
  1998, 1997 and 1996, and changes during the periods then ended
  is presented in the table below:
  
                         1998             1997               1996
                ____________________  _______________  ________________
                            Weighted         Weighted          Weighted  
                            Average          Average           Average
                            Exercise         Exercise          Exercise
                 Shares     Price    Shares  Price    Shares   Price    
                _________   _______   _____  ______  _______   _______
Outstanding at
  beginning
  of period       606,000    4.63   630,000   $6.54  198,750     $4.01
Granted                 -       -    30,000    8.17  450,000      4.67
Exercised         (30,000)   3.58   (54,000)   3.63        -         -
Forfeited               -       -         -      -         -         -
Canceled          (30,000)   8.17         -      -   (18,750)     7.44
                _______________________________________________________
Outstanding at end
  of Period       546,000    4.50   606,000    $4.63  630,000    $4.38
                ______________________________________________________
Exercisable at end
  of period       546,000    4.50   576,000    $4.45  630,000    $4.38
                _______________________________________________________
Weighted average
 fair value of options
 granted                -       -    30,000   $  .28  450,000   $  .22
                _______________________________________________________
  
  The fair value of each option granted is estimated on the date
  granted using the Black-Scholes option pricing model with the
  following weighted-average assumptions used for grants during
  the years ended June 30, 1997 and 1996, respectively: risk-free
  interest rates of 6.6% and 6.3%, expected dividend yields of
  zero for all periods, expected lives of 4 and 2 years, and
  expected volatility of 83% and 85%.  No options were granted
  during the year ended June 30, 1998.

                        -15-
<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 outstanding under the
  Company's stock option plans and other agreements at June 30,
  1998 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  96,000   6.9 years      3.67     96,000     3.67
    $4.67       450,000   7.1 years      4.67    450,000     4.67
  
  The Company accounts for its option 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,
                           ________________________________
                               1998      1997       1996
                           __________  _________  _________
  
 Net Income    As reported $2,740,487 $1,239,951  $3,680,034
               Proforma    $2,740,487 $1,234,605  $3,617,601
  
 Earnings
 per share     As reported   $.58       $ .25       $ .81
               Proforma      $.58       $ .25       $ .80
  
  Treasury Stock: The Company holds 15,000 shares of its 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.

                        -16-
<PAGE>

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
Note  8.  Income Taxes. [Continued]
  
  At June 30, 1998 and 1997, the totals of all deferred tax
  assets were $1,328,619 and $1,462,432.  The totals of all
  deferred tax liabilities were $1,196,459 and $1,037,362.  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 $0 and $425,070 as of June
  30, 1998 and 1997, respectively, which have been offset
  against the deferred tax assets.  The net decrease in the
  valuation allowance during the years ended June 30, 1998 and
  1997, were $425,070 and $599,075.
  
  The Company has no unused operating loss carryforwards at June
  30, 1998.
     
  As a result of the federal alternative minimum income tax, the
  Company incurred current tax expense amounting to $258,371 for
  Fiscal 1997 and $80,804 for Fiscal 1996. The components of
  federal income tax expense from continuing operations consist
  of the following:
                                     Year Ended June 30,
                            ___________________________________
                                  1998        1997         1996
                            ____________________________________
 Current income tax expense:
      Federal                   $ 783,508    $258,371  $  80,804
      State                       274,132      72,056          -
                            ____________________________________
 Net current tax expense       $1,057,640    $330,427  $  80,804
                            ____________________________________
 Deferred tax expense (benefit) resulted from:
   Excess of tax over financial
     accounting depreciation.      $303,782  $144,013 $  (18,130)
   Warranty reserves                     -    (42,300)    (4,200)
   Accrued vacations                 (3,850)   (8,107)    (3,765)
   Dealer incentive reserves       (293,662)  (37,500)    42,000
   Bad debt reserves                     -    (28,686)     1,260
   Deferred sales and cost, net          -          -      5,942
   Excess contributions  carryforwards   -          -          -
   Inventory adjustment-Sec.263A   (131,941)   (6,366)   (12,304)
   Decrease in NOL carryforwards    204,380 1,014,168   1,646,237
   Decrease in valuation allowance (316,948) (599,075) (1,573,833)
   Allowance for obsolete inventory  (7,800)    3,000     (4,200)
   Alternative minimum tax credits  186,947  (256,982)   (79,007)
   Reserve for loss on disposition       -   (171,756)         -
   Investment tax credits            86,294         -          -
   Allowance for boat repurchases        -    (10,409)         -
   Accrued executive compensation   (16,338)        -          -
                          _______________________________________
 Net deferred tax expense         $  10,864    $    -    $     -
                            _____________________________________

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

                            -17-
<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,
                     _____________________________________________
                                  1998        1997         1996
                            ______________________________________
     Computed tax at the expected
       federal statutory rate.       34.00%   34.00%     34.00%
     State income taxes, net of
       federal benefit                5.00     5.00       5.28
     Compensation from stock options (2.77)   (3.85)        -
     (Increase) decrease in NOL
       carryforwards                  4.86   (14.48)    (38.82)
     Officer's life insurance          .36      .78         -
     Valuation allowance             (9.03)  (16.08)        -
     Net effect of alternative minimum
       taxes                          (.34)     .03       1.86
     Other                           (1.62)    2.11       (.17)
                            _______________________________________
     Effective income tax rates      30.46%    7.51%      2.15%
                            _______________________________________
  
  The temporary differences gave rise to the following deferred
  tax asset (liability):
     
                                                    June 30,
                                       ___________________________
                                                1998       1997
                                           ________________________
     Excess of tax over financial
       accounting depreciation            $(1,196,460) $(1,037,362)
     Warranty reserve                           214,500    214,500
     Obsolete inventory reserve                  46,800     39,000
     Accrued vacations                           51,914     48,063
     Allowance for boat repurchases              96,972     97,500
     Dealer incentive reserves                  352,162     58,500
     Bad debt reserve                            23,349     40,026
     Reserve for loss on disposition                  -    171,756
     Inventory adjustments - Sec. 253A          269,652    124,992
     NOL carryforwards                                -    204,380
     Alternative minimum tax credits            259,233    377,421
     Investment tax credits                           -     86,294
     Accrued executive compensation              16,338          -

Note  9. Research and Development.
  
  The Company expenses the costs of research and develop for new
  products and components as the costs are incurred.  Research
  and development costs are included in the cost of sales and
  amounted to $575,918 for fiscal 1998, $635,652 for Fiscal 1997
  and $234,425 for Fiscal 1996.

                           -18-
<PAGE>

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 $1,031,611 for
  fiscal 1998, $1,009,285 for Fiscal 1997 and $704,736 for
  Fiscal 1996.  They are included in the accompanying
  consolidated statements of operations as part of selling
  expense.  At June 30, 1998 and 1997 the estimated unpaid
  dealer incentive interest included in accrued expenses
  amounted to $160,000 and $150,000, 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, 1998 and 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 at each year end.  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, 1998 and 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.
  
  Litigation:  A suit was filed against the Company on May 1,
  1998 in the Circuit Court for Lake County, Illinois.  The
  plaintiff seeks to collect fees of $6,641 for advertising
  services allegedly earned from employment with the Company.  A
  motion to dismiss the suit has been filed on the Company's
  behalf, due to incorrect designation of the defendant in this
  matter.  The Company intends to vigorously defend its
  interests in this matter.

                        -19-
<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 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.  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 late 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:  A suit was filed against the Company in District
  Court, Travis County, Austin, Texas on February 5, 1998,
  alleging that the Company wrongfully attempted to terminate
  its dealer agreement with one of its dealers ("Dealer") in
  Texas, or breached the agreement by attempting to change to a
  different dealer in the Austin, Texas area.  In an Answer
  filed on March 10, 1998, the Company asserted that on February
  24, 1998, it had filed a related declaratory judgement action
  in Beaufort County Superior Court, Washington, North Carolina,
  and that the dealer agreement by its terms was governed by
  North Carolina law.  The company asked the Texas Court to
  abate the Texas suit pending the outcome of the North Carolina
  declaratory judgement action.  On May 6, 1998, the Texas
  District Court ordered the Texas case abated pending the
  results of the North Carolina action, but allowed discovery to
  proceed in the Texas case.  In the North Carolina action, the
  Company's position is that the dealer agreement is non-
  exclusive, allowing the Company to have other dealers in the
  Austin, Texas area, and the company is seeking a declaration
  judgement that the Dealer terminated the agreement or,
  alternatively, that it is bound by the agreement and should
  fulfill its inventory-stocking obligation.  A court-mediated
  settlement conference has been scheduled for August 11, 1998.
  The client intends to vigorously defend its interests in this
  matter, unless an 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 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.  Shortly after the
  Company filed suit in North Carolina, the Player and
  affiliated company filed suit against the Company and its
  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 without
  prejudice.  The North Carolina suit then proceeded through the
  discovery stage and, as a result of a court mediated
  settlement conference held during June 1998, the parties
  reached a confidential settlement of the matter, which was
  approved by the Court.  A formal settlement agreement has been
  drafted and currently is being circulated to counsel for the
  various parties for their comments.  The final settlement is
  to be concluded during September, 1998.
  
  Product Liability and Other Litigation: There were various
  product liability lawsuits brought against the Company at June
  30, 1998.  The Company intends to vigorously defend its
  interests in these matters.  The Company carries sufficient
  product liability insurance to cover attorney's fees and any
  losses which may occur from these lawsuits over and above the
  insurance deductibles.  The Company is also involved from time
  to time in other litigation through the normal course of its
  business.  Management believes there are no such undisclosed
  claims which would have a material effect on the financial
  position of the Company.

  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.

                           -21-
<PAGE>

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
Note 10.  Commitments and Contingencies. [Continued]
  
  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 post-retirement benefits plans in effect.

Note 11.  Export Sales.
     
  The Company had export sales of $4,583,542 for Fiscal 1998,
  $2,167,840 for Fiscal 1997 and $1,052,816 for Fiscal 1996.
  Export sales were to customers in the following geographic
  areas:
                                       Year Ended June 30,
                            ______________________________________
                                  1998        1997         1996
                            _______________________________________
     Americas                   $2,639,523   $1,047,913  $ 658,738
     Asia                       1,834,524     367,126            -
     Middle East and Europe.      109,495     752,801      394,078
                            _______________________________________
                               $4,583,542   $2,167,840  $1,052,816
                            _______________________________________

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,
                                       ____________________________
                                          1998     1997      1996
                                       ____________________________
 Apartments rentals                   $   6,717  $ 17,260  $ 15,380
 R.M. Fountain, Jr.- airplane rentals   107,312   296,498   155,499
 R.M. Fountain, Jr. - interest on loans  26,509         -     2,710
 R.M. Fountain, Jr. - other misc.            -        500     2,000
                                      _____________________________
                                      $ 140,538  $314,258  $175,589
                                      _____________________________
  
  During the year ended June 30, 1998 the Company purchased an
  airplane from Mr. Fountain for $1,375,000 by assuming the loan
  on the airplane from GE Capital Services for $959,179, (See
  Note 6) and issuing a note to Mr. Fountain in the amount of
  $415,821 (See Note 5).
  
  As of June 30,1998 and 1997 the Company had receivables and
  advances from employees of the Company amounting to $77,574
  and $165,936 which includes $48,624 and $147,081 from Mr.
  Fountain.

                             -22-
<PAGE>

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
Note 12.  Transactions with Related Parties. [Continued]
  
  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 $288,915,  $547,436 and $265,985 for the years
  ended June 30, 1998, 1997 and 1996 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 14).
  
  During the years ended 1997 and 1996 the Company paid $1,709
  and $11,079 in legal fees to a firm associated with a director
  of the Company.  There were no such payments during 1998.
  
  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 and $610,420 for Fiscal 1996. The consulting
  agreement expired on June 30, 1997 and has not been re-
  negotiated.

Note 13.  Concentration of Credit Risk.
          
  Concentration of credit risk arises due to the Company
  operating in the marine industry, particularly in the United
  States.  For Fiscal 1998 one dealer accounted for 6.7% of
  sales, another for 6.3%, and one other dealer for 5% of 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.

Note 14.  Acquisition and Discontinued Operations.

  On October 11, 1996 Fountain Power, Inc acquired Mach
  Performance, Inc.  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 of
  the Company 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 moved from Lake Hamilton, Florida to the Company's plant
  site near Washington, North Carolina in December, 1996.

                            -23-
<PAGE>

FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14. Acquisition and Discontinued Operations. [Continued]
  
  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 for June 30, 1997 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 reclassified $539,457 in fixed assets to net
  liabilities of discontinued operations and accrued a $440,401
  for estimated future losses expected to be incurred in the
  disposition.
  
  The Company filed suit on July 21, 1997, against the former
  officer and director, his wife, Mach, Inc., and Mach
  Performance, Inc. seeking a rescission of the Mach
  Performance, Inc acquisition and merger agreement  and
  voidance of the resulting transaction on grounds of fraud and
  material breach of contract. The former director and his wife
  filed counterclaims alleging breach of contract regarding the
  failure to merge the Company and regarding options issued to
  the former employee and director.  In a related action, a
  corporate affiliate of the former director was sued by the
  Company in a declaratory judgement action filed on September
  3, 1997, regarding a racing sponsorship contract.  The parties
  involved reached a confidential settlement of both lawsuits
  during June 1998, and settlement documents are currently being
  circulated for execution. As a result of the settlement
  agreement, 52,500 shares of common stock valued at $428,925
  have been returned and cancelled by the Company and the 30,000
  options issued in connection with the former officer's
  employment were cancelled.
  
  During the year ended June 30, 1998, the Company adjusted it
  estimates for loss on disposal resulting in a gain on the
  disposal of discontinued operations of $290,512 (net of a tax
  benefit of $272,093).   The gain was a result of the return of
  52,500 shares of common stock valued at $428,925, less
  associated legal fees of approximately $486,399 plus
  adjustments to the estimated loss on disposal of approximately
  $75,893.
  
  The following is a condensed proforma statement of operations
  that reflects what the presentation would have been for the
  years ended June 30, 1998 and 1997 without the
  reclassifications required by "discontinued operations"
  accounting principles:
                                         1998       1997
                                   _________________________
         Net Sales                 $50,652,037  $ 50,954,753
         Cost of goods sold        (38,084,034) (39,132,978)
         Other operating expenses   (8,894,121) (10,127,760)
         Other income (expense)       (147,403)    (123,637)
         Provision for taxes          (785,992)    (330,427)
                                   _________________________
         Net income                 $2,740,487    $1,239,951
                                   _________________________
         Earnings per share          $     .58       $ .25
                                   _________________________


                            -24-
<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, 1998
  and 1997 consisted of the following:
                                           1998       1997
                                      ________________________
               Accounts receivables      $     -    $  4,174
               Prepaid expenses                -      14,371
               Equipment, net                  -     539,457
               Accounts payable                -    (226,332)
               Warranty & returns reserve(98,646)   (100,000)
               Customer deposits          (4,966)     (4,966)
               Estimated loss on disposal      -    (440,401)
                                        __________  _________
                                         $(103,612) $(213,697)
                                        __________  _________
  
Note 15 - Earnings Per Share.
  
  The following data shows the amounts used in computing
  earnings per share and the effect on income and the weighted
  average number of shares of potential dilutive common stock
  for the years ended June 30, 1998, 1997 and 1996:

                                    For the years ended June 30,
                              _____________________________________
                                      1998      1997      1996
                              _____________  __________  __________
  Income from continuing
   operations available to
   common stockholders           $2,439,556  $4,069,832  $3,680,034
                              _____________  __________  __________
  Weighted average number of
   common shares outstanding
   used in basic earnings per
   share                          4,751,779   4,664,251   4,543,608

  Effect of dilutive securities:
   Stock options                    358,311     429,038     209,545

  Weighted number of common
   shares and potential dilutive
   common shares outstanding
   used in dilutive earning
   per share                      5,110,090   5,093,289   4,573,153
                              _____________  __________  __________

                                -25-
<PAGE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  
Note 16.  Subsequent Events.
  
  During September, 1998 the Company concluded negotiations for
  a new $4,000,000 promissory note with Transamerica Business
  Credit Corporation which included restatement and amendment of
  certain existing promissory notes with General Electric
  Capital Corporation ("GECC").  An omnibus Agreement was
  entered into which provides that all the underlying collateral
  and encumbered property would apply ratably to all of the
  Notes Payable.  The $4,000,000 promissory note provides for
  thirty-nine monthly principal payments in the amount of
  $100,000 beginning October 1, 1998 with a final payment of the
  entire outstanding payment due on January 2, 2002.  Accrued
  interest will be paid monthly in addition to the principal
  payment.  Interest will be calculated at 2.7% per annum above
  the published LIBOR Rate (London Interbank Offered Rates) and
  is calculated monthly.   The Company executed a restated and
  amended Note to GECC in the amount of $9,007,797, which
  replaces a previous note with the same outstanding balance.
  The note provides for thirty-nine monthly payments of $123,103
  which includes principal and interest.  A final payment of the
  outstanding balance will be due on January 2, 2002.  Interest
  is calculated at 2.7% per annum above the published LIBOR
  Rate. The Company also executed a restated and amended Note to
  GECC in the amount of $855,050, which replaces a previous note
  with the same outstanding balance.  The note provides for
  seventy monthly payments of $15,181 which includes principal
  and interest.  A final payment of the outstanding balance will
  be due on August 1, 2004.  Interest is calculated at 2.7% per
  annum above the published LIBOR Rate.  All of the notes
  provide for prepayment penalties according to a predefined
  time table.

                               -26-
<PAGE>