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)
June 30, 2003 December 31, 2002
------------- -----------------
ASSETS
CURRENT ASSETS
Cash $ 458,000 $ 5,757,000
Accounts Receivables, net 2,654,000 2,251,000
Income Tax Receivable 536,000 360,000
Inventories 17,599,000 15,049,000
Deferred Income Taxes 933,000 1,003,000
Other Current Assets 154,000 139,000
Current Assets of Discontinued Operations ----- 182,000
----------- -----------
TOTAL CURRENT ASSETS $22,334,000 $24,741,000
Property and Equipment at Cost Net
of Accumulated Depreciation 5,901,000 5,021,000
Property Held for Sale ----- -----
Other Assets 152,000 152,000
Non-Current Assets of Discontinued Operations ----- 37,000
----------- -----------
TOTAL ASSETS $28,387,000 $29,951,000
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 2,779,000 $ 1,622,000
Chassis Vendor Line of Credit 1,685,000 3,381,000
Notes Payable and Current Portion
of Long-Term Debt 62,000 36,000
Accrued Warranty 927,000 991,000
Accrued Legal 982,000 1,250,000
Accrued dealer incentives 569,000 638,000
Other Accrued Liabilities 1,435,000 1,750,000
Accrued Compensation and Benefits 490,000 472,000
Current Liabilities of Discontinued Operations ----- 20,000
----------- ----------
TOTAL CURRENT LIABILITIES 8,929,000 10,160,000
Long-Term Debt, less Current Portion 965,000 634,000
----------- ----------
TOTAL LIABILITIES 9,894,000 10,794,000
----------- ----------
STOCKHOLDERS' EQUITY
Preferred Stock - no par value, Authorized, 1,000,000 shares; no shares
outstanding at June 30, 2003
and December 31, 2002 ----- -----
Common Stock - no par value,
Authorized, 10,000,000 shares;
issued and outstanding
5,872,700 at June 30, 2003
and 6,038,000 December 31, 2002 5,580,000 5,906,000
Loan Receivable from Exercise of Options ----- -----
Retained Earnings 12,913,000 13,251,000
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 18,493,000 19,157,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $28,387,000 $29,951,000
=========== ===========
See accompanying notes to condensed consolidated financial statements
-1-
REXHALL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
June 30, 2003 June 30, 2002
------------- -------------
Net Revenues $ 9,642,000 $18,964,000
Cost of Sales 8,383,000 16,610,000
----------- ------------
Gross Profit $ 1,259,000 $ 2,354,000
Operating Expenses:
Selling, General, Administrative Expenses
and Other Expenses 1,725,000 1,913,000
------------ ------------
Income/(Loss) before Income Taxes (466,000) 441,000
Income Tax (Expense)/Benefit 184,000 (177,000)
------------- --------------
Net Income/(Loss) $ (282,000) $ 264,000
============== =============
Basic and Diluted Income/(Loss) - Per Share $ (.05) $ .04
Weighted Average Shares Outstanding
Basic and Diluted 5,872,700 6,115,000
============== =============
See accompanying notes to condensed consolidated financial statements
-2-
REXHALL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Six Months Ended
June 30, 2003 June 30, 2002
------------- -------------
Net Revenues $ 22,588,000 $36,371,000
Cost of Sales 19,727,000 32,694,000
----------- -----------
Gross Profit $ 2,861,000 $ 3,677,000
Operating Expenses:
Selling, General, Administrative Expenses
and Other Expenses 3,416,000 3,654,000
----------- ------------
Income/(Loss) before Income Taxes (555,000) 23,000
Income Tax (Expense)/Benefit 217,000 (12,000)
------------ --------------
Net Income/(Loss) $ (338,000) $ 11,000
============= =============
Basic and Diluted Income/(Loss) - Per Share $ (.06) $ .00
Weighted Average Shares Outstanding
Basic and Diluted 5,872,700 6,115,000
============ =============
See accompanying notes to condensed consolidated financial statements
-3-
REXHALL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
June 30, 2003 June 30, 2002
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ($ 338,000) $ 11,000
Adjustments to reconcile net income
to net cash provided by (used in)
Operating Activities:
Depreciation and amortization 178,000 191,000
Gain on sale of property, plant and equipment ----- (34,000)
Provision for deferred income taxes 70,000 -----
(Increase) decrease in:
Accounts receivable (403,000) (2,064,000)
Inventories (2,551,000) (3,307,000)
Income tax receivable (176,000) 86,000
Increase (decrease) in:
Accounts payable 1,157,000 (460,000)
Warranty Allowance (64,000) 121,000
Accrued legal (268,000) (11,000)
Dealer incentives (69,000) (136,000)
Other assets and liabilities (312,000) 855,000
------------- --------------
Net cash provided by (used in) operating activities (2,776,000) (4,748,000)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,058,000) (143,000)
Proceeds from sale of property and equipment ----- 159,000
------------ -------------
Net cash provided by (used in) investing activities (1,058,000) 16,000
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on long-term debt (40,000) (17,000)
Repayments on short-term notes ----- (222,000)
Proceeds (Repayment) on chassis vendor line of credit (1,696,000) (795,000)
Proceeds from redevelopment agency 300,000 -----
Proceeds received for purchase of equipment 98,000 -----
Proceeds from loan receivable on exercise of stock options ----- 5,000
Repurchase and retirement of stock (326,000) -----
------------- --------------
Net cash used in financing activities (1,664,000) (1,029,000)
------------- --------------
NET CASH FLOWS FROM DISCONTINUED OPERATIONS 199,000 132,000
NET INCREASE (DECREASE) IN CASH (5,299,000) (5,629,000)
BEGINNING CASH BALANCE 5,757,000 8,662,000
------------ ------------
ENDING CASH BALANCE $ 458,000 $ 3,033,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period $ 74,000 $ 33,000
Supplemental Disclosure of Non-Cash Financing Activities:
Notes payable for insurance policies 475,000 -----
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
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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
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Item 1. Legal Proceedings - The Company is a defendant in various legal
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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.
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Item 2. Exhibits and Reports On Form 8-K
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(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.
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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
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