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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For fiscal year ended June 30, 2004

Commission File Number: 0-14712

FOUNTAIN POWERBOAT INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

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

(Address of principal executive offices) (Zip Code)

(252) 975-2000

Registrant’s telephone number, including area code:

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 past 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirement for the past 90 days.    x  Yes    ¨  No

Indicate by check mark if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form, and no disclosure will 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.  ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act):    ¨  Yes    x  No

The aggregate market value of the Registrant’s voting and non-voting common equity held by affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the Registrant’s most recently completed second fiscal quarter was $7,857,930.

As of September 28, 2004, the number of outstanding shares of Registrant’s Common Stock was 4,814,275.

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

Table of Contents

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 fishing boats and sport cruisers intended for that segment of the recreational power boat market where speed, performance, and quality are the main criteria for purchase. The Company also produces military support craft for domestic and international government agencies, including the United States Customs Service, the United States Navy and the United States Coast Guard. The Company’s strategy in concentrating on these segments of the market is to maximize its use of the reputation of its Chairman and President, Reginald M. Fountain, Jr., as an internationally recognized designer and builder of high speed power boats.

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

Products.

The majority of the company’s recreational products are based upon a deep V-shaped fiberglass hull with a V-shaped pad, a notched transom, and a positive lift step hull. This design enables the boat to achieve performance with standard reliable power 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, smoothest, safest, and best-handling boats of their kind.

The Company’s sport boats, ranging from 27’ to 47’, are of inboard/outboard design. These boats are propelled by single, twin, or triple gasoline or diesel engines ranging from 300 HP to more than 1075 HP each. The Company builds outboard powered center consoles, and outboard or stern drive cabin model offshore sport fishing boats ranging from 23’ through 38’. In addition the company also has a line of express cruisers with 38’ and 48’ offerings. These boats are offered with gas or diesel options. The 48’ utilizes surface drives which are very efficient, durable, and resist corrosion better than traditional stern drives. The 48’ was named Boating Magazine’s Boat of the Year award for 2002 in its December 2002 issue, which is the boating industries highest accolade. In addition, the Robb Report named the 48’ the Best of the Best for 2003 in their June 2003 issue. This boat also set the record from Key West, Florida to Cancun, Mexico in just 8 hours and 35 minutes in August 2003. The Company also builds custom racing boats for the APBA and SBI racing circuits.

In addition to Sportboats, Fishing boats, and the new Cruiser Lines, the Company also produces a line of military/governmental boats of various configurations. These boats are commercial versions of the large sportboats and fishing boats, and along with the rigid inflatable boats (RIB), form a separate military/commercial product line.

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

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The Company’s redesigned 42’ Lightning, comes with a newly designed positive lift hull, a full wrap around windshield, as well as an impressive range of speed, stability and ride comfort. This top selling model equipped with special engines currently holds the world speed record for V-bottom boats at 171.883 mph recorded by APBA/UIM & SBI on August 7, 2004. The retail price of the 42 ranges from $293,000 to $592,000.

The 42’ Executioner was introduced in Fiscal 2004 with retro styling and competitive pricing for the 40+ foot sport boat market.

The 38’ Lightning operates at speeds of between 70 and 100 mph. The retail price ranges from $269,000 to $344,000, depending primarily upon the type of engines selected. This model was cited by Powerboat Magazine in 2002 as “Offshore Performance Boat of the Year”. In Fiscal 2002, the 38’ Lightning incorporated a new superventilated hull that is the most advanced superventilated hull produced by Fountain to date and it is based on their successful design, enhancing performance and interior space.

The 35’ Lightning Sport Boat was totally redesigned and introduced in Fiscal 2000 to go with a higher freeboard, new twin-step design, and new deck and interior. It operates at speeds between 70 and 100 mph. This boat won the 2001 Offshore Boat of the Year by Powerboat Magazine and has proven itself as the fastest boat in Factory II history, setting the kilo record at 94.187 mph. This boat’s retail price ranges from $230,000 to $303,000, depending primarily upon the type of engines selected.

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

The 32’ Fever was also reintroduced in Fiscal 2003. Retail price ranges from $154,000 to $168,000.

The 29’ Fever is still one of the most popular boats. It operates at speeds of 65 to 85 mph and retail price ranges from $112,000 to $153,000 depending on engine size. It has great balance and speed for a single engine and operates in offshore sea conditions with superior safety and handling. This boat is also offered with twin small block engines. This model has been awarded the 2001 Outstanding Sport Boat Performance Award by Powerboat Magazine and has set the 2000 APBA F-1 record at 89.873 mph.

The 27’ Fever is a single engine model that incorporates the same features, components and designs as our larger offshore performance boats. Its retail price ranges from $101,000 and $131,000.

The Company also builds and markets a sport fishing line. Our new generation of fishing boat is once again setting the standard for offshore fishing. The 34’ and 38’ are heavily campaigned on the Southern Kingfish Association (SKA) tournament trail.

The 38’ sport fish model is a wide beam center console with T-Top and cuddy cabin that was introduced in fiscal 2001. It features triple outboards and retail price ranges from $218,000 to $245,000.

The 34’ sport fish wide beam center console model was introduced in fiscal 2002 and is offered with twin or triple outboard engines. Its retail prices range from $194,000 to $224,000, depending upon engine selection. The addition of this model has added greatly to our fish boat volume and profitability.

The 31’ sport fish model features a center console with T-Top design and incorporates the same high performance, styling, and structural integrity as the sport boat models. It has a deck configuration engineered for the knowledgeable, experienced sport fisherman. Retail price for this model ranges from $125,000 to $137,000.

The additional models include the 29’ twin engine center console model and 23’ single engine center console model. The design, construction, and performance of these models, together with the proven features of the 31’ center console model, makes a line that appeals to many experienced sport fishermen, in addition to the weekend warrior.

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To further enhance its sport fishing line, the Company has a 31’ walk around cabin model based upon the proven 31’ center console hull design. This model features a deck design that incorporates a cabin with standup headroom, an enclosed head with shower, and a full galley. With twin outboard engine power, this model is produced either as a fishing machine or as a recreational cruiser.

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

The 38’ sport fish cruiser was introduced at the Miami Boat Show in February of 2003 and is offered with twin gas or diesel engines. The 38’ sport fish cruiser offers the customer the luxury and amenities of an express fisher while maintaining the performance and handling of a Fountain sport boat. Retail price for this boat ranges from $338,000 to $371,000.

Our newest boat, the 38LX is the perfect combination for fishing, performance, entertaining and over -nighting. Powered by triple Mercury outboards, the 38 is extremely efficient and runs in excess of 60 MPH. The price ranges from $285,000 to $300,000.

During the past three years the Company has made great strides in the express cruiser market by developing the 38’ and 48’ express cruiser models. These boats offer customers the speed and performance that you would typically find in a sport boat with the amenities of a traditional cruiser. We do it by integrating our positive lift bottom, notched transom and pad keel design, which greatly enhances the performance.

The 38’ express cruiser was introduced at the Miami Boat Show in February of 2001. The 38’ express cruiser offers the customer the luxury and space of a full cruiser while maintaining the performance and handling of a Fountain sport boat. This boat been extremely well received by the market and retail price ranges from $323,000 to $367,000.

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

In Fiscal 2005, the Company will introduce new and redesigned fish boat and sport boat models, to include:

23’ Fish Boat – Built to succeed our 23’ fish boat, features a wide, deep hull for smooth ride no matter what the condition of the seas. Plus, the hull’s double stepped, and available with twin Mercury engines, for added performance and safety. There is also plenty of fishing room, so the fisherman can easily maneuver about.

33’ Sport Fish Cruiser – So versatile it appeals to serious fishermen as well as fun-loving families, this new boat is sure to make a big splash next year. Powered by twin 275 HP Mercury Verado outboards, it races to the fish and features every amenity anglers demand. With large areas for entertaining, fishing and overnight capabilities for six, families will be just as impressed.

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

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

As of June 30, 2004 the Company had a backlog of firm orders for 206 boats, totaling sales of $39,087,752, all of which will be completed during Fiscal 2005. At June 30, 2003 the sales backlog was 54 boats, totaling $7,585,761.

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 32 full-time employees. Amounts spent on design, research, and development to build new plugs and molds in recent years were:

For Fiscal 2005, design, research and development planned expenses are estimated to be $958,000 and plug and mold construction expenditures are estimated to be $1,507,000. These expenditures will be used primarily to enhance and upgrade our line of fish boats to give us a more predominant presence in the very active fish boat market.

Manufacturing capacity is sufficient to accommodate approximately 30 to 40 boats in various stages of construction at any one time. Construction of a current model boat, depending on size, takes approximately three to ten weeks. The Company, with additional personnel, currently has the capacity to manufacture approximately 500 sport and fishing boats, and 75 cruisers per year.

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

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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 fuel tanks, seat frames, instrument panels, bow rails, brackets, T-tops, and windscreens) to assure that its quality standards are met. In addition, the Company also manufactures all of its upholstery to its own custom specifications and benefits from receiving these parts just in time for assembly. 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, 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 a hazardous waste disposal site resulting from the disposal of a hazardous substance at those sites by a third-party contractor of the Subsidiary. (See Legal Proceedings.)

Recreational powerboats must be certified by the manufacturer to meet U.S. Coast Guard specifications. 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 affecting safety. The Company has never had to conduct a product recall. In addition, boats manufactured for sale in the European Community must meet CE Certification Standards.

Sales and Marketing.

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

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

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

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

Field sales representatives call upon existing dealers and develop new dealers. The field sales force is headed by the Vice President of Sales who is responsible for developing a full dealer organization for sport boats, sport fishing boats and express cruisers. The Company is seeking to establish separate sport boat, fishing boat, and cruiser 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. To date, cancellations have not had a material effect on the Company. The Company normally does not manufacture boats for its own inventory.

The Company ships boats to some dealers on a cash-on-delivery basis. However, the majority 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 directly to the Company. Generally, payment is made to the Company within five business days. When the dealer sells the boat to a retail customer, the dealer repays the lender, thereby restoring its available credit line. The dealers make curtailment payments (principal payments) on the boats when required by their particular commercial lenders. As part of this sales promotion program the Company agrees to pay interest on the floor plan for a certain period of time. Similar sales promotion programs were in effect during fiscal years 2004, 2003 and 2002.

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 a new or like new condition. 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations). The Company participates in floor plan arrangements with several major third-party lenders on behalf of its dealers, most of whom have financing arrangements with more than one lender. Except as described above, or where it has a direct repurchase agreement with a dealer, the Company is under no material obligation to repurchase boats from its dealers. From time to time the Company will voluntarily repurchase a boat for the convenience of the dealer or for another dealer who needs a particular model not readily available from the factory. The marketing of boats to retail customers is primarily the responsibility of the dealer, whose efforts are supplemented by the Company through advertising in boating magazines, and by participation in boat shows.

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Additionally, in order to further promote its products over the years, the Company has developed racing programs to participate in the major classes of offshore powerboat races, many of which are regularly televised on networks such as Outdoor Channel. Additionally, Fountain single, twin and triple engine racing boats continue to hold their respective world speed records. The result of these racing programs 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 these performance programs contributes to its sales volume and brand recognition. The Company Founder and C.E.O., Reggie Fountain, has won numerous races in both factory and customer owned boats; he has also set numerous world speed records in both factory and customer owned boats.

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

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

Product Warranty.

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

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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:

Formula, a Division of Thunderbird Products Corporation

Baja Boats, a Division of Brunswick Corporation

Cigarette Racing Team, Inc.

Donzi, American Marine Holdings

Contender Boats

Wellcraft

Hydra Sports

Grady White

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

Market demographics and industry experience indicate that the fishing boat market is the best potential growth market. We are expanding our fishing boat offerings to met the rising demand in this market.

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

Employees.

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

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 were held as collateral on notes and mortgages payable having a balance of $17,310,558 at June 30, 2004. (See Note 5). The operating facility contains buildings totaling 235,040 square feet located on fifteen acres. The buildings consist of the following:

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

Item 3. Legal Proceedings.

As of June 30, 2004, the Company’s chief operating subsidiary was a defendant in 8 alleged breach of warranty suits. In the Company’s opinion these lawsuits are without merit and, therefore, the Company intends to vigorously defend its interest in such suits. The Company carries sufficient liability and product liability insurance to cover attorney’s fees and any losses that may occur from a product liability or breach of contract suit, over and above applicable insurance deductibles. The management of the Company believes that none of such current proceedings will have a material adverse effect.

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

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

None applicable

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Part II

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

The Company’s common stock, $.01 par value, trades on the NASDAQ National Market System (under the symbol “FPWR”). The following table lists the high and low prices for the Company’s common stock as reported on The NASDAQ National Market for each calendar quarter during our fiscal years ended June 30, 2003 and 2004.

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

On August 27, 2004, there were 207 holders of record for the Company’s common stock.

During Fiscal 2004, the Company sold an aggregate of 50,000 shares of its common stock to five officers, employees or consultants of the Company and its subsidiary upon their exercise of stock options and without registration in reliance upon the exemption from registration under Section 4(2) of the Securities Act of 1933. The shares sold and consideration received was as follows:

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Item 6. Selected Financial Data

Fountain Powerboat Industries, Inc. and Subsidiary

Selected Financial Data

Fiscal Years 2000 through 2004

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

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

At June 30, 2004, 2003, and 2002, 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. There were no deferred sales or cost of sales estimated at June 30, 2004, 2003, and 2002.

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. This liability amounted to approximately $18,177,586, $16,378,985 and $16,066,953 at June 30, 2004, 2003, and 2002, respectively. Sales to participating dealers are approved by the respective finance companies. If a participating dealer does not satisfy its obligation to the lender and the boat is subsequently repossessed by the lender, then the Company may be required to repurchase the boat.

Business Environment.

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

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

Net Sales by product segment for the Fiscal years of 2004, 2003 and 2002 are: