10-Q/A 1 a4508358.txt REXHALL INDUSTRIES 10-Q/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For Quarter End June 30, 2003 Commission file number: 0-17824 REXHALL INDUSTRIES, INC. (Exact name of Registrant as specified in its charter) California 95-4135907 (State of Incorporation) (IRS Employer Identification No.) 46147 7th Street West, Lancaster, California 93534 (Address of principal executive offices) (Zip Code) (661) 726-0565 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes[X] No[ ] Applicable only to Corporate Issuers State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 5,872,700 as of August 07, 2003. --------------------------------- -i- REXHALL INDUSTRIES, INC. INDEX ----- PART I - FINANCIAL INFORMATION PAGE NUMBER Item 1. ----- Condensed Consolidated Financial Statements (Unaudited): Condensed Consolidated Balance Sheets at June 30, 2003 and December 31, 2002 1 Condensed Consolidated Statements of Operations for the Three and Six months ended June 30, 2003 and June 30, 2002 2-3 Condensed Consolidated Statements of Cash Flows for the Six months ended June 30, 2003 and June 30, 2002 4 Notes to Condensed Consolidated Financial Statements 5-6 Item 2. ------ Management's Discussion and Analysis of Financial Condition and Results of Operations 6-11 Item 3. ------ Quantitative and Qualitative Disclosure about Market Risks 11 Item 4. ------ Controls and Procedures 11 PART II - OTHER INFORMATION Legal Proceedings 11 Exhibits and Reports on Form 8-K 12 Signatures 13 Officer Certifications 14-15 -ii- PART I - FINANCIAL INFORMATION --------------------- Item 1. - Condensed Consolidated Financial Statements ------ REXHALL INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

See accompanying notes to condensed consolidated financial statements -1- REXHALL INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

See accompanying notes to condensed consolidated financial statements -2-

See accompanying notes to condensed consolidated financial statements -3-

See accompanying notes to condensed consolidated financial statements -4- REXHALL INDUSTRIES, INC. Notes to the Condensed Consolidated Financial Statements June 30, 2003 1. Basis of Presentation The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, they include all adjustments, consisting of normal accruals, necessary to present fairly the information set forth herein in accordance with accounting principles generally accepted in the United States of America for interim reporting. For further information refer to the Financial Statements and footnotes included in the Registrant's Annual Report on Form 10-K for the year ended December 31, 2002. The results of operations for any interim period are not necessarily indicative of the results to be expected for the full year. 2. Use of 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 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 estimates. 3. Income Taxes Income tax expense is based upon the estimated effective tax rate for the entire fiscal year. The effective tax rate is subject to on going evaluation by management. 4. Stock Split In July of 2002 the Company carried out a 2-for-1 stock split. All historical share and per share data are presented on a post-split basis. 5. Earnings Per Share Basic earnings per share represents net earnings divided by the weighted-average number of common shares outstanding for the period. Basic and diluted earnings per share are the same for all periods presented as the company has no potentially dilutive securities outstanding. 6. Inventory June 30, 2003 June 30, 2002 ------------- ------------- Chassis $ 3,922,000 $ 6,165,000 Raw Materials 2,649,000 3,730,000 Work-in-Progress 2,832,000 1,752,000 Finished Goods 8,196,000 4,206,000 ------------- ------------- Total $17,599,000 $15,853,000 =========== =========== -5- 7. Discontinued Operations In December 2001, the Company decided to discontinue its retail operations, Price One RV in Mesa, Arizona. At the time of discontinuing the retail operations, the remaining motorhome inventory was sold, at a discount, to another dealership in Arizona. The remaining assets were absorbed into Rexhall Industries, Inc. in 2003. 8. Property & Equipment In January 2003, the Company completed the purchase of 12.48 acres of Land adjacent to its headquarters in Lancaster, California. The Company paid $564,448 in cash and issued a promissory note for $300,000, for a total of $864,448. The agreement with the City of Lancaster will allow the promissory note to be forgiven in total or in part based upon a formula for providing jobs. The Company plans to build a new facility on this land so that it can produce its own diesel chassis with a new motorhome concept to be built on that chassis. Item 2. - Management Discussion and Analysis of Financial Condition and Results ------ of Operations. All statements in this discussion and analysis which relate to future sales, costs, capital expenditures or earnings are "Forward-Looking Statements" and should be read subject to the assumptions contained in the section "Forward-Looking Statements". Critical Accounting Policies ---------------------------- In the ordinary course of business, management has made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of its financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. Management believes that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results and require the most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Valuation of Inventory The Company values inventories at the lower-of-cost or market using the first-in, first-out (FIFO) method. Adjustments to the value of inventory are recorded based upon damage, deterioration, obsolescence and changes in market value. In determining market value, management has considered its current replacement cost ensuring it does not exceed net realizable value (i.e., estimated selling price in the ordinary course of business less estimated costs of completion and disposal). Management has evaluated the current level of inventories considering the order backlog and other factors in assessing estimated selling prices and made adjustments to cost of goods sold for estimated decrease in the net realizable value of inventory. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from actual results. Revenue Recognition The Company derives revenue primarily from the sale of motorhomes to dealers across the United States. Revenue is recognized when title of the motorhome transfers to the dealer. This generally occurs upon shipment. Most dealers have floor plan financing arrangements with banks or other financing institutions under which the lender advances all, or substantially all, of the purchase price of the motorhome. The loan is collateralized by a lien on the purchased motorhome. As is customary in the industry, the Company has entered into repurchase agreements with these lenders. In general, the repurchase agreements provide that in the event of default by the dealer on its agreement to the lending institution, the Company will repurchase the financed motorhome. Revenues are shown net of repurchases. The Company specifically reserves the gross margin for known repurchase obligations quarterly and at fiscal year end. Revenues are also generated from the service of motorhomes and from shipment or installation of parts and accessories. -6- Legal Accrual The Company's current estimated range of liability related to some of the pending litigation is accrued based on claims for which it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because of the uncertainties related to both the amount and range of loss on the remaining pending litigation, management is unable to make a reasonable estimate of the liability that could result from an unfavorable outcome. As additional information becomes available, management will assess the potential liability related to the pending litigation and revise the estimates. Such revisions in the estimates of the potential liability could materially impact the results of operation and financial position. Results of Operations -------------------- Comparison of the three months ended June 30, 2003 to the three months ended June 30, 2002. Revenues - three months ended June 30, 2003 compared to the three months ended -------- June 30, 2002 Net revenues for the quarter ended June 30, 2003 were $9,642,000 as compared to $18,964,000 for the same quarter in 2002. This represents a 49% decrease from the prior year. Net units sold for the quarter ended June 30, 2003 were 112 compared to 227 for the quarter ended June 30, 2002, a 51% decrease. Wholesale shipments of the Company's gas motorhomes were down 48%, while diesel shipments were down 60% when compared to last year's second quarter. Sales dropped below industry levels as a result of the failure of Rexhall's strategy to identify the current market for recreational vehicles. In an effort to satisfy dealers on an individual basis, Rexhall created a niche market rather than focusing on what it now believes the vast majority of RV customers want. Management believes that Rexhall's new product line will appeal to the mass market, and help to bridge this gap. However, these are forward looking statements and there can be no assurance that these statements will reflect actual results case for the reasons discussed below in "Forward Looking Statements." Gross Profit - three months ended June 30, 2003 compared to the three months ------------ ended June 30, 2002 Gross profit decreased to $1,259,000 from $2,354,000 for the same quarter in 2002, which is a decrease of $1,095,000 or 46%. Gross margin was 13.1% as compared to 12.4% last year. The increase in gross margin was primarily attributable to decreases in material cost for the period. Management views this increased margin as a positive sign, but there are no assurances due to the uncertain direction of the RV industry fundamentals and competition within the industry. Selling, General, Administrative and Other Expenses - three months ended June --------------------------------------------------- 30, 2003 compared to the three months ended June 30, 2002 Selling, General, Administrative and Other Expenses from continuing operations decreased by approximately $188,000 from the second quarter of 2002 to the second quarter of 2003. Selling, general, administrative and other expenses increased to 17.9% as a percentage of sales when compared to 10.1% for the quarter ended June 30, 2002. The increase is largely attributable to the decrease in sales base coupled with increases in warranty and legal expense. -7- Income Taxes - three months ended June 30, 2003 compared to the three months ------------ ended June 30, 2002 Income tax benefit was $184,000 for the quarter ended June 30, 2003 as compared to an expense of $177,000 in the same quarter of 2002. Income taxes are provided based upon the estimated effective tax rate for the entire fiscal year applied to the pre-tax income for the period. The effective tax rate is subject to ongoing evaluation by management. Comparison of the six months ended June 30, 2003 to the six months ended June 30, 2002. Revenues - six months ended June 30, 2003 compared to the six months ended June -------- 30, 2002 Net revenues for the first six months ended June 30, 2003 were $22,588,000 as compared to $36,371,000 for the first half of 2002. This represents a 38% decrease from the prior year. Net units sold for the six months ended June 30, 2003 were 260 compared to 443 for the six months ended June 30, 2002, a 41% decrease. Wholesale shipments of the Company's gas motorhomes were down 37%, while diesel shipments were down 54%. Sales dropped below industry levels as a result of the failure of Rexhall's strategy to identify the current market for recreational vehicles. In an effort to satisfy dealers on an individual basis, Rexhall created a niche market rather than focusing on what it now believes the vast majority of RV customers want. Management believes that Rexhall's new product line will appeal to the mass market, and help to bridge this gap. However, these are forward looking statements and there can be no assurance that these statements will reflect actual results case for the reasons discussed below in "Forward Looking Statements." Gross Profit - six months ended June 30, 2003 compared to the six months ended ------------ June 30, 2002 Gross profit decreased to $2,861,000 from $3,677,000 for the same six months in 2002, which is a decrease of $816,000 or 22%. Gross margin was 12.7% as compared to 10.1% last year. The increase in gross margin was primarily attributable to decreases in material cost for the period. Management views this increased margin as a positive sign, but there are no assurances due to the uncertain direction of the RV industry fundamentals and competition within the industry. Selling, General, Administrative and Other Expenses - six months ended June 30, --------------------------------------------------- 2003 compared to the six months ended June 30, 2002 Selling, General, Administrative and Other Expenses decreased by approximately $239,000 from the first half of 2002 to the first half of 2003. Selling, general, administrative and other expenses increased to 15.1% as a percentage of sales when compared to 10.0% for the six months ended June 30, 2002. The increase is largely attributable to the decrease in sales base coupled with increases in warranty and legal expense. Income Taxes - six months ended June 30, 2003 compared to the six months ended ------------ June 30, 2002 Income tax benefit was $217,000 for the six months ended June 30, 2003 as compared to an expense $12,000 in the first half of 2002. Income taxes are provided based upon the estimated effective tax rate for the entire fiscal year applied to the pre-tax income for the period. The effective tax rate is subject to ongoing evaluation by management. Financial Condition, Capital Resources and Liquidity ---------------------------------------------------- The Company has relied primarily on internally generated funds, trade credit and debt to finance its operations and expansions. As of June 30, 2003, the Company had working capital of $13,405,000, compared to $14,581,000 at December 31, 2002. The $1,176,000 decrease in working capital is primarily due to a $5,299,000 decrease in cash, a $182,000 decrease in current assets of discontinued operations, and a $1,157,000 increase in accounts payable, partially offset by a $403,000 increase in accounts receivable, a $2,551,000 increase in inventory, a $1,696,000 decrease in the chassis vendor line of credit, a $268,000 decrease in accrued legal, and a $315,000 decrease in other liabilities. Capital expenditures during the first six months of 2003 were $1,058,000. Management does not anticipate additional capital expenditures during the remaining half of 2003. -8- As of June 30, 2003, the Company had a $437,320 Reserve Line of Credit with a bank, which has been set aside as an Irrevocable Standby Letter of Credit for the Company to meet the requirements for Self-Insurance established by the Department of Industrial Relations which regulates Worker's Compensation Insurance in California. Because Rexhall had never drawn from the previous line of credit, and due to the costs associated with maintaining a higher line of revolving credit, Rexhall reduced its line from $2,500,000 to $437,320 during the second quarter. The interest rate is the prime rate plus 1% (5.00% at June 30, 2003). The Line expires on September 27, 2003. The Company has a line of credit with a chassis vendor, Ford Motor Credit Company ("FMCC"), with a $3,500,000 limit. Borrowings under the line bear interest at an annual rate of prime plus 1% (5.00% at June 30, 2003). All borrowings are secured by the Ford merchandise. The outstanding balance at June 30, 2003 was $1,685,000. The Company anticipates that it will be able to satisfy its ongoing cash requirements through 2003, including payments related to the expansion plans at the California facility, primarily with cash flows from operations. Repurchase Agreements - Motorhomes purchased by dealers, under financing agreements with third party lenders are subject to repurchase by the Company under the terms of the financing, at dealer cost and might include unpaid interest and other costs in the event of default by the dealer. During the six months ended June 30, 2003 and 2002, the Company repurchased approximately $1,412,000 and $1,585,000 respectively, (wholesale value) of motorhomes under these agreements. At June 30, 2003 and 2002, approximately $23,500,000 and $28,900,000, respectively, of dealer inventory was covered by repurchase agreements. Dealers do not have the contractual right to return motorhomes under any Rexhall Dealer Agreement. The repurchase agreements require the dealers to default or file for bankruptcy. There are also a number of state statutes that require the repurchasing of motorhomes whenever a dealership is terminated. New Accounting Pronouncements ------------------------------ In April 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 145 (SFAS No. 145), Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB No. 13 and Technical Corrections. The Statement rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, which required all gains and losses from extinguishment of debt to be aggregated and classified as an extraordinary item (net of related income tax effect), if material. The criteria in APB Opinion No. 30 will now be used to classify those gains and losses. Also SFAS No. 64 amended SFAS No. 4 and is no longer necessary because of this rescission. In July 2002, the FASB issued Statement No. 146, Accounting for Exit or Disposal Activities. The Statement was the second and final phase of the project to replace SFAS No. 121 and focuses on the accounting for costs associated with a disposal activity. The first phase was completed in August 2001 with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The Statement will be effective for disposal activities initiated after December 31, 2002, with early application encouraged. In October 2002, the FASB issued Statement No. 147, Acquisitions of Certain Financial Institution. The Statement applies to all acquisitions except those between mutual enterprises (which will be a separate project). The guidance related to (1) the application of the purchase method of accounting, is effective for acquisitions for which the date of acquisition is on or after October 1, 2002 and (2) accounting for the impairment or disposal of certain long-term customer-relationship intangible assets is effective on October 1, 2002. -9- In November 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 clarifies the requirements of SFAS No. 5, Accounting for Contingencies, relating to a guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. For certain guarantees issued after December 31, 2002, FIN 45 requires a guarantor to recognize, upon issuance of a guarantee, a liability for the fair value of the obligations it assumes under the guarantee. Guarantees issued prior to January 1, 2003, are not subject to liability recognition, but are subject to expanded disclosure requirements. The disclosure requirements of FIN 45 are effective immediately and are included in Note 7. The initial recognition and measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company has not yet determined what effect, if any, the new recognition and measurement provisions will have on the Company's future financial results. In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148 (SFAS No. 148), amending FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company is required to adopt SFAS No. 143 and 146 on January 1, 2003. However, the new pronouncements are not expected to have an effect on the Company's financial position or operating performance. In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 (SFAS No. 149), an amendment of FASB Statement No. 133, Derivative Instruments and Hedging Activities, which clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. This statement is effective for contracts and hedging relationships entered into or modified after June 30, 2003. The Company has not yet determined what effect, if any, the new recognition and measurement provisions will have on the Company's future financial results. In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (SFAS No. 150), Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This statement is effective for financial instruments entered into or modified after May 31, 2003 and is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. The Company has not yet determined what effect, if any, the new recognition and measurement provisions will have on the Company's future financial results. Forward-Looking Statements -------------------------- Our statements of our intentions or expectations are "forward-looking statements" based on assumptions and on facts known to us today. For example, our expectations regarding our new product line and the introduction and sales of our new T-Rex Double & Wide motorhomes are forward-looking statements. There can be no guarantee that a market will exist for these motor homes or that our new coaches will adequately respond to market trends or appeal to the mass -10- market. If a market does not develop for our new motorhomes or if we fail to receive sufficient orders for them, our sales may decline and our business and operating results could be seriously harmed. Even if the market for these motorhomes does develop, it may not grow at an adequate pace. Moreover, we may not be able to predict precisely the time and expense required to overcome unexpected production problems and to ensure production within the time limits we expect, or the reliability and high quality of the coach at an acceptable cost. Increased costs and other difficulties associated with manufacturing these motorhomes such as our inability to obtain critical parts and components from suppliers timely or at all could have a negative impact on our sales during particular periods and on our future gross margins. Rexhall's business is seasonal and cyclical. Most of Rexhall's competitors are substantially larger, and many of its suppliers and dealers have greater economic power, so that the volume and prices of both supplies and sales may be adversely affected by competitive action. Item 3. - Quantitative and Qualitative Disclosure About Market Risk ------ In the ordinary course of its business, the Company is exposed to certain market risks, including changes in interest rates. After an assessment of these risks to the Company's operations, the Company believes that its primary market risk exposures relating to interest rates (within the meaning of Regulation S-K Item 305) are not material and are not expected to have any material adverse effect on the Company's financial condition, results of operations or cash flows for the next fiscal year. Item 4. - Controls and Procedures ------ Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act")) pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by the report on Form 10-Q, our Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's Exchange Act filings. Changes in Internal Controls There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II - OTHER INFORMATION ---------------- Item 1. Legal Proceedings - The Company is a defendant in various legal ----------------- proceedings from the normal course of business. In the opinion of Company management, the resolution of such matters should not have a material effect on its financial statements or results of operations. The Company has learned that the staff of the Securities and Exchange Commission is conducting an investigation relating to the Company. The Company believes that the investigation primarily relates to the facts and events surrounding the Company's restatement of its results of operations for the first quarter ended March 31, 2002. The Company is cooperating with the staff in connection with the investigation. -11- Item 2. Exhibits and Reports On Form 8-K ------------------------------------------ (a) Exhibits 31.1 Certification of the Chief Executive Officer and Interim Chief Financial Officer required by Rule 13a-14(a) of the Exchange Act. 32.1 Certification pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350. (b) Reports on Form 8-K Three reports on Form 8-K were filed during the period covered by this Report. o An 8-K dated April 21, 2003 was filed on April 21, 2003 reporting matters under Item 12. o An 8-K dated May 6, 2003 was filed on May 6, 2003 reporting matters under Item 5. o An 8-K dated May 20, 2003 was filed on May 20, 2003 reporting matters under Item 12. -12- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Rexhall Industries, Incorporated (Registrant) By /S/ William J. Rex ---------------------------------- (Signature and Title)* William J. Rex, President and CEO Chairman of the Board and Interim Chief Financial Officer Date: August 14, 2003 -13-

REXHALL INDUSTRIES INC 10-Q/A