SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For Quarter End September 30, 2002 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: 6,059,700 as of November 12, 2002. REXHALL INDUSTRIES, INC. -1- INDEX ----- PART I - FINANCIAL INFORMATION PAGE NUMBER Item 1. ------- Condensed Consolidated Financial Statements (Unaudited): Condensed Consolidated Balance Sheets at September 30, 2002 and December 31, 2001 3 Condensed Consolidated Statements of Operations for the Three and Nine months ended September 30, 2002 and September 30, 2001 4-5 Condensed Consolidated Statements of Cash Flows for the Nine months ended September 30, 2002 and September 30, 2001 6 Notes to Condensed Consolidated Financial Statements 7-8 Item 2. ------- Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 Item 3. ------- Quantitative and Qualitative Disclosure about Market Risks 12 Item 4. ------- Controls and Procedures 12 PART II - OTHER INFORMATION Repurchase Agreements 12 Legal Proceedings 12 Signatures 13 PART III - EXHIBITS Officer Certifications 14-15 -2- PART I - FINANCIAL INFORMATION --------------------- Item 1. - Condensed Consolidated Financial Statements - ------- REXHALL INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) September 30, 2002 December 31, 2001 ------------------ ------------------ ASSETS - ------ CURRENT ASSETS Cash $ 4,887,000 $ 8,662,000 Accounts Receivables, net 2,023,000 2,051,000 Income Tax Receivable 1,310,000 786,000 Inventories 16,833,000 12,546,000 Deferred Income Taxes 964,000 964,000 Other Current Assets 162,000 461,000 Current Assets of Discontinued Operations 587,000 4,689,000 -------------- ------------- TOTAL CURRENT ASSETS 26,766,000 30,159,000 Property and Equipment at Cost Net of Accumulated Depreciation 5,615,000 5,760,000 Property Held for Sale --- 122,000 Other Assets 153,000 151,000 Non-Current Assets of Discontinued Operations 37,000 160,000 -------------- -------------- TOTAL ASSETS $32,571,000 $36,352,000 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable $ 2,182,000 $ 3,423,000 Chassis Vendor Line of Credit 4,910,000 3,053,000 Notes Payable and Current Portion of Long-Term Debt 36,000 34,000 Accrued Warranty 916,000 699,000 Accrued Legal 791,000 802,000 Accrued Dealer Incentives 1,087,000 1,139,000 Other Accrued Liabilities 1,927,000 1,376,000 Accrued Compensation and Benefits 418,000 367,000 Current Liabilities of Discontinued Operations 424,000 4,509,000 -------------- ------------- TOTAL CURRENT LIABILITIES 12,691,000 15,402,000 Long-Term Debt, less Current Portion 643,000 671,000 -------------- -------------- TOTAL LIABILITIES 13,334,000 16,073,000 ------------ ------------ STOCKHOLDERS' EQUITY Preferred Stock - no par value, Authorized, 1,000,000 shares; no shares outstanding --- --- Common Stock - no par value, Authorized, 10,000,000 shares; issued and outstanding 6,060,000 at September 30, 2002 and December 31, 2001 5,986,000 6,139,000 Loan Receivable from Exercise of Options (39,000) (46,000) Retained Earnings 13,290,000 14,186,000 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 19,237,000 20,279,000 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $32,571,000 $36,352,000 =========== =========== See accompanying notes to condensed consolidated financial statements -3- REXHALL INDUSTRIES, INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended September 30, 2002 September 30, 2001 ------------------ ------------------ Net Revenues $12,872,000 $12,673,000 Cost of Sales 11,830,000 11,417,000 ------------- ------------- Gross Profit 1,042,000 1,256,000 Operating Expenses: Selling, General, Administrative Expenses and Other Expenses 2,559,000 2,084,000 ------------- ------------- Loss from Continuing Operations before Income Taxes (1,517,000) (828,000) Income Tax Benefit (610,000) (331,000) ------------- ------------- Loss from Continuing Operations (907,000) (497,000) Loss from Discontinued Operations (net of applicable income tax benefit of $103,000 in 2001) --- (158,000) ------------- ------------- Net Loss ($ 907,000) ($ 655,000) ============= ============= Basic and Diluted Income from Continuing Operations - Per Share ($0.15) ($0.08) Basic and Diluted Loss from Discontinued Operations - Per Share --- ($0.03) -------------- ------------- Basic and Diluted Income - Per Share ($0.15) ($0.11) ============== ============= Weighted Average Shares Outstanding Basic and Diluted 6,060,000 6,095,000 ============== ============= See accompanying notes to condensed consolidated financial statements -4- REXHALL INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Nine Months Ended September 30, 2002 September 30, 2001 ------------------ ------------------ Net Revenues $49,243,000 $44,425,000 Cost of Sales 44,524,000 39,587,000 ------------ ----------- Gross Profit 4,719,000 4,838,000 Operating Expenses: Selling, General, Administrative Expenses and Other Expenses 6,213,000 4,874,000 ------------ ----------- Loss from Continuing Operations before Income Taxes (1,494,000) (36,000) Income Tax Benefit (598,000) (14,000) ------------- ------------- Loss from Continuing Operations (896,000) (22,000) Loss from Discontinued Operations (net of applicable income tax benefit of $247,000 in 2001) --- (382,000) ------------- ------------ Net Loss ($ 896,000) ($ 404,000) ============ ============ Basic and Diluted Income from Continuing Operations - Per Share ($0.15) ($0.00) Basic and Diluted Loss from Discontinued Operations - Per Share --- ($0.07) ------------ ----------- Basic and Diluted Income - Per Share ($0.15) ($0.07) ============ =========== Weighted Average Shares Outstanding Basic and Diluted 6,060,000 6,095,000 ============ =========== See accompanying notes to condensed consolidated financial statements -5- REXHALL INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, 2002 September 30, 2001 ------------------ ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (896,000) $ (404,000) Adjustments to reconcile net income to net cash provided by (used in) Operating Activities: Net loss from discontinued operations --- 392,000 Depreciation and amortization 285,000 284,000 Gain on sale of property, plant and equipment (34,000) (3,000) Provision for deferred income taxes --- --- (Increase) decrease in: Accounts receivable 28,000 3,755,000 Inventories (4,287,000) 82,000 Income tax receivable (524,000) (108,000) Increase (decrease) in: Accounts payable (1,241,000) (108,000) Accrued warranty 217,000 (183,000) Accrued legal (11,000) 210,000 Accrued dealer incentives (52,000) 121,000 Other assets and liabilities 1,153,000 343,000 ------------- -------------- Net cash provided by (used in) operating activities (5,362,000) 4,381,000 ------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (143,000) (165,000) Proceeds from sale of property and equipment 159,000 85,000 --------------- -------------- Net cash provided by (used in) investing activities 16,000 (80,000) --------------- -------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments on long-term debt (26,000) (26,000) Repayments on short-term notes (254,000) (434,000) Repayments on chassis vendor line of credit 1,857,000 (2,527,000) Proceeds from loan receivable on exercise of stock options 7,000 8,000 Repurchase and retirement of stock (153,000) (102,000) -------------- -------------- Net cash provided by used in financing activities 1,431,000 (3,081,000) ------------- ------------- NET CASH FLOWS FROM DISCONTINUED OPERATIONS 140,000 (408,000) NET INCREASE (DECREASE) IN CASH (3,775,000) 812,000 BEGINNING CASH BALANCE 8,662,000 3,448,000 ------------- ------------- ENDING CASH BALANCE $ 4,887,000 $ 4,260,000 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid during the period $ 56,000 $ 83,000 See accompanying notes to condensed consolidated financial statements -6- REXHALL INDUSTRIES, INC. Notes to the Condensed Consolidated Financial Statements September 30, 2002 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, 2001. 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. Significant estimates include the valuation of inventory at the lower of cost or market, the allowance for doubtful accounts, deferred income tax asset valuation allowances, and the valuation of the company's long-lived assets. Considerable management judgement is necessary to estimate these and other amounts. Accordingly, actual results could vary significantly from management 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 September 30, 2002 December 31, 2001 ------------------ ----------------- Chassis $ 7,472,000 $ 3,219,000 Raw Materials 2,619,000 2,822,000 Work-in-Progress 1,475,000 1,363,000 Finished Goods 5,267,000 5,142,000 ----------- ----------- Total $16,833,000 $12,546,000 =========== =========== 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 fixed assets are expected to be disposed of in 2002. The Company's financial statements for the quarter ended September 30, 2001 have been restated to reflect the retail segment as a discontinued operation. -7- Following is summary financial information for the Company's discontinued retail operations: Nine Months Ended September 30, 2002 September 30, 2001 ------------------ ------------------ Net Sales $ --- $5,862,000 ============= ========== Loss from Discontinued Operations before Income Taxes --- (629,000) Income Tax Benefit --- (247,000) ------------- ------------ Net Loss from Discontinued Operations --- ($ 382,000) ============== =========== September 30, 2002 December 31, 2001 ------------------ ----------------- Cash $ 126,000 $ 90,000 Receivables, net 461,000 4,560,000 Inventories --- 34,000 Other Current Assets --- 5,000 ----------- ---------- Current Assets of Discontinued Operations $ 587,000 $4,689,000 ============= ========== Property and Equipment at Cost Net of Accumulated Depreciation $ 37,000 $ 158,000 Other Assets --- 2,000 ------------- ---------- Non-Current Assets of Discontinued Operations $ 37,000 $ 160,000 ============= ========== Accounts Payable $ 3,000 $ 54,000 Notes Payable 421,000 4,455,000 ------------- ---------- Current Liabilities of Discontinued Operations $ 424,000 $4,509,000 ============= ========== 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. -8- 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. 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 September 30, 2002 to the three months ended September 30, 2001 Management's focus was taken from running the business in the third quarter while it supported the review of the Company's accounting records and worked diligently to keep the Company's stock from being delisted from the NASDAQ. Unfortunately, this resulted in production challenges not getting resolved timely, which caused approximately two weeks' worth of production to not get completed and shipped by quarter end. Also, the audit and legal fees resulting from the review of the accounting records and the potential delisting have amounted to approximately $750,000. The Company plans to launch four new floor plans at the RVIA Industry Tradeshow in the fourth quarter, including two triple-slide gas motor homes, a 34' entry-level diesel, and a 40' quadruple-slide diesel. The Company also plans to refocus on the gas-powered side of the market, as well as ensure its diesel offerings remain value leaders. Revenues - 2002 compared with 2001 - ---------------------------------- Net revenues from continuing operations for the quarter ended September 30, 2002 were $12,872,000 as compared to $12,673,000 for the same quarter in 2001. This represents a 2% increase from the prior year. Net units sold for the quarter ended September 30, 2002 were 155 compared to 158 for the quarter ended September 30, 2001, a 2% decrease. Wholesale shipments of the Company's gas motorhomes were up 8%, while diesel shipments were down 22% when compared to last year's third quarter. Gross Profit - 2002 compared with 2001 - -------------------------------------- Gross profit from continuing operations decreased to $1,042,000 from $1,256,000 for the same quarter in 2001, which is a decrease of $214,000 or 17%. Gross margin was 8.1% as compared to 9.9% last year. The decrease in gross margin was attributable to production difficulties resulting in lower unit sales and higher direct labor per unit. Management expects the margins to hold or improve, but there are no assurances due to the uncertain direction of the RV industry fundamentals and competition within the industry. -9- Selling, General, Administrative and Other Expenses - 2002 compared with 2001 - ----------------------------------------------------------------------------- Selling, General, Administrative and Other Expenses from continuing operations increased by approximately $475,000 from the third quarter of 2001 to the third quarter of 2002. Selling, general, administrative and other expenses increased to 19.9% as a percentage of sales when compared to 16.4% for the quarter ended September 30, 2001. The increase is primarily related to approximately $750,000 spent by the Company on audit and legal fees during the review of its accounting records related to the restatement of its first quarter results, plus an increase in warranty expense and a decrease in rental and interest income. Without the fees related to the accounting records review and potential delisting, Selling, General, Administrative and Other Expenses from continuing operations would have decreased by approximately $275,000 from the third quarter of 2001 to the third quarter of 2002, and would have decreased to 14.1% as a percentage of sales when compared to 16.4% for the quarter ended September 30, 2001. Income Taxes - 2002 compared to 2001 - ------------------------------------ Income tax benefit from continuing operations was $610,000 for the quarter ended September 30, 2002 as compared to $331,000 in the same quarter of 2001. 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. Results of Operations - --------------------- Comparison of the nine months ended September 30, 2002 to the nine months ended September 30, 2001 Revenues - 2002 compared with 2001 - ---------------------------------- Net revenues from continuing operations for the first nine months ended September 30, 2002 were $49,243,000 as compared to $44,425,000 for the nine months of 2001. This represents an 11% increase from the prior year. Net units sold for the nine months ended September 30, 2002 were 598 compared to 563 for the nine months ended September 30, 2001, a 6% increase. Wholesale shipments of the Company's gas motorhomes were up 17%, while diesel shipments were down 18%. The increase in net revenues is primarily attributable to an industry-wide increase in Class "A" shipments of 17% when compared to last year. Management cannot predict whether the increase in sales will continue. The Company plans to launch four new floor plans at the RVIA Industry Tradeshow in the fourth quarter, including two triple-slide gas motor homes, a 34' entry-level diesel, and a 40' quadruple-slide diesel. The Company also plans to refocus on the gas-powered side of the market, as well as ensure its diesel offerings remain value leaders. Gross Profit - 2002 compared with 2001 - -------------------------------------- Gross profit from continuing operations decreased to $4,719,000 from $4,838,000 for the same nine months in 2001, which is a decrease of $119,000 or 2%. Gross margin was 9.6% as compared to 10.9% last year. The decrease in gross margin was primarily attributable to an increase in direct labor per unit. Management expects the margins to hold or improve, 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 - 2002 compared with 2001 - ----------------------------------------------------------------------------- Selling, General, Administrative and Other Expenses from continuing operations increased by approximately $1,339,000 from the first nine months of 2001 to the first nine months of 2002. Selling, general, administrative and other expenses increased to 12.6% as a percentage of sales when compared to 11.0% for the nine months ended September 30, 2001. The increase is primarily related to approximately $750,000 spent by the Company on audit and legal fees during the review of its accounting records related to the restatement of its first quarter results, plus an increase in warranty expense and a decrease in rental and interest income. Without the fees related to the accounting records review and potential delisting, Selling, General, Administrative and Other Expenses from continuing operations would have increased by approximately $589,000 from the first nine months of 2001 to the first nine months of 2002, and would have increased to 11.1% as a percentage of sales when compared to 11.0% for the nine months ended September 30, 2001. Income Taxes - 2002 compared to 2001 - ------------------------------------ Income tax benefit from continuing operations was $598,000 for the nine months ended September 30, 2002 as compared to $14,000 in the first nine months of 2001. 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. -10- 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 September 30, 2002, the Company had working capital of $14,075,000, compared to $14,757,000 at December 31, 2001. The $682,000 decrease in working capital is primarily due to a $3,775,000 decrease in cash and a $1,857,000 increase in the chassis vendor line of credit partially offset by a $4,287,000 increase in inventory and a $524,000 increase in income tax receivables. Capital expenditures during the first nine months of 2002 were $143,000. Management estimates an additional $25,000 to $75,000 of capital expenditures for the last quarter of 2002 related to refurbishment of the production facilities and related production equipment. Significant increases are expected to be incurred when the Company begins construction of the new facility, which is anticipated in the first half of next year. As of September 30, 2002 the Company has a $2,500,000 line of credit with a bank, which can be used for working capital purposes secured by equipment, inventory and receivables. The interest rate is the prime rate (4.75% at September 30, 2002). The line expires on September 27, 2003. Under this line of credit, $437,000 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. At September 30, 2002, no amounts were outstanding under the line of credit agreement. The line of credit contains various covenants. The Company was in compliance with such covenants as of September 30, 2002. The Company has a line of credit with a chassis vendor, Ford Motor Credit Company ("FMCC"), with a $5,000,000 limit. Borrowings under the line bear interest at an annual rate of prime plus 1% (5.75% at September 30, 2002). All borrowings are secured by the Ford merchandise. The outstanding balance at September 30, 2002 was $4,910,000. The Company anticipates that it will be able to satisfy its ongoing cash requirements through 2002, including payments related to the expansion plans at the California facility, primarily with cash flows from operations, supplemented, if necessary, by borrowings under its revolving credit agreement. New Accounting Pronouncements - ----------------------------- In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections which requires that the extinguishment of debt not be considered an extraordinary under APB Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, unless the debt extinguishment meets the unusual in nature and infrequency of occurrence criteria in APB 30. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002 and upon adoption, companies must reclassify prior period items which do not meet the extraordinary item classification criteria in APB 30. The adoption of SFAS No. 145 is not expected to have a material impact on the Company's financial condition or results of operations. On July 30, 2002, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 146, Accounting for Costs Associated with Exit or Disposal Activities." SFAS 146 nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." It requires that a liability be recognized for those costs only when the liability is incurred, that is, when it meets the definition of a liability in the FASB's conceptual framework. SFAS No. 146 also establishes fair value as the objective for initial measurement of liabilities related to exit or disposal activities. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with earlier adoption encouraged. The Company does not expect that the adoption of SFAS 146 will have a material impact on its financial position or results from operations. Forward-Looking Statements - -------------------------- Our statements of our intentions or expectations are "forward-looking statements" based on assumptions and on facts known to us today. Those assumptions will become less valid over time, but we do not intend to update this report. Rexhall's business is seasonal and cyclical, and sales in the next few months are typically lower. Consumer confidence levels have fallen significantly, and that may reduce future sales. Threats of war and increased fuel prices could adversely affect the entire industry. 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. Management intends to remain aware of these factors and react to them, but cannot predict their timing or significance. -11- 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. Threats of war and increased fuel prices could adversely affect sales for the entire industry. Item 4. - Controls and Procedures - ------- Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. In addition, we reviewed our internal controls, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of their last evaluation. PART II - OTHER INFORMATION ----------------- 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 nine months ended September 30, 2002 and 2001, the Company repurchased approximately $1,585,000 and $2,224,000 respectively, (wholesale value) of motorhomes under these agreements. At September 30, 2002 and 2001, approximately $24,700,000 and $22,700,000, 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. 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 restated its first quarter 10-Q to adjust inventory levels, and the second quarter 10-Q was not timely filed. The previously announced independent review of the Company's accounting records has been completed with no other errors found in the Company's financial statements for the first and second quarters of 2002. NASDAQ completed its hearing and took no action to delist the company's shares. -12- REXHALL INDUSTRIES, INC. 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 By /S/ J. Michael Bourne - ----------------------------- ------------------------------------------- (Signature and Title)* (Signature and Title)* William J. Rex, President, J. Michael Bourne, Executive Vice President, CEO & Chairman COO & CFO Date: November 13, 2002 Date: November 13, 2002 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant in capacities and on the dates indicated. By /S/ William J. Rex - ------------------------------------ -------------------------- (Signature and Title)* William J. Rex President & CEO Chairman of the Board Date: November 13, 2002 By /S/ J. Michael Bourne - ---------------------------- -------------------------- (Signature and Title)* J. Michael Bourne Executive Vice President, COO & CFO Director Date: November 13, 2002 By /S/ Robert A. Lopez - ----------------------------------- -------------------------- (Signature and Title)* Robert A. Lopez Director Date: November 13, 2002 By /S/ Frank A. Visco - ------------------------------------ -------------------------- (Signature and Title)* Frank A. Visco Director Date: November 13, 2002 By /S/ Dr. Dennis K. Ostrom - -------------------------------- -------------------------- (Signature and Title)* Dr. Dennis K. Ostrom Director Date: November 13, 2002 -13- PART III - EXHIBITS -------- CERTIFICATIONS - -------------- I, William J. Rex, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Rexhall Industries, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this quarterly report; 4. I and the other certifying officer: -- Are responsible for establishing and maintaining "disclosure controls and procedures" for the issuer; -- Have designed such controls and procedures to ensure that material information is made known to them, particularly during the period in which the periodic report is being prepared; -- Have evaluated the effectiveness of the issuer's disclosure controls and procedures as of a date within 90 days prior to the filing of the report; and -- Have presented in the report their conclusions about the effectiveness of the disclosure controls and procedures based on the required evaluation as of that date; 5. I and the other certifying officer have disclosed to the issuer's auditors and to the audit committee of the board of directors: -- All significant deficiencies in the design or operation of internal controls, which could adversely affect the issuer's ability to record, process, summarize, and report financial data and have identified any material weaknesses in the internal controls; and -- Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal controls; 6. I and the other certifying officer have indicated in the report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses; and 7. The periodic report containing the financial statements fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 780(d)) and the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer. Date: November 13, 2002 ----------------------------------------------- William J. Rex President, Chairman and Chief Executive Officer -14- CERTIFICATIONS - -------------- I, J. Michael Bourne, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Rexhall Industries, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this quarterly report; 4. I and the other certifying officer: -- Are responsible for establishing and maintaining "disclosure controls and procedures" for the issuer; -- Have designed such controls and procedures to ensure that material information is made known to them, particularly during the period in which the periodic report is being prepared; -- Have evaluated the effectiveness of the issuer's disclosure controls and procedures as of a date within 90 days prior to the filing of the report; and -- Have presented in the report their conclusions about the effectiveness of the disclosure controls and procedures based on the required evaluation as of that date; 5. I and the other certifying officer have disclosed to the issuer's auditors and to the audit committee of the board of directors: -- All significant deficiencies in the design or operation of internal controls, which could adversely affect the issuer's ability to record, process, summarize, and report financial data and have identified any material weaknesses in the internal controls; and -- Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer's internal controls; 6. I and the other certifying officer have indicated in the report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses; and 7. The periodic report containing the financial statements fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 780(d)) and the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer. Date: November 13, 2002 ------------------------------------------------- J. Michael Bourne Executive Vice President, Chief Operating Officer and Acting Chief Financial Officer