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Firm has doubts about Fountain’s future

An independent accounting firm has raised doubts about Fountain Powerboat Industries’ ability to stay in business.

“The company has current liabilities in excess of current assets, recent losses from operations, negative cash flows from operating activities, and has significant debt compared to the underlying equity,” the accounting firm, Gregory & Associates, said in a Sept. 16 letter accompanying Fountain’s annual report.

“These factors raise substantial doubt about the company’s ability to continue as a going concern,” the accounting firm said.

The Washington, N.C.-based boatbuilder discussed its plans to address those matters in the 10-K annual report filed Sept. 29 with the Securities and Exchange Commission.

Plans include stabilizing revenue and increasing prices of some models to compensate for increases in material and production costs, improving manufacturing efficiency by lowering production labor costs, and reducing advertising and offshore racing expenses.

Fountain also noted that dealer inventory is lower than it has been for the last five years, providing a positive situation for sustained sales. The uncertainty of the recreational boating market, volatile material prices, effects of fuel and oil prices on transportation costs and the economy, and the effects of the weakened housing market and mortgage crisis on consumer confidence may cause actual results to differ from those planned, the company said.

However, Fountain also said in its annual report that “cash flows will be sufficient to satisfy its current and future liquidity demands because management has realigned operating costs and expenses for the reduced level of production and returned the company to profitability in the fourth quarter of fiscal 2008 and is expecting to continue to operate profitably through fiscal 2009.”

Reginald M. Fountain Jr., chairman, CEO and president of the company, could not be reached for comment.

Fountain was notified in June that it was in danger of being delisted from the American Stock Exchange because of its financial situation. The company submitted a plan to Amex in July addressing how it intended to regain compliance with Amex's listing standards. Amex granted Fountain an extension until Dec. 11 to regain that compliance.

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