##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 
 FORM 10-K
 Mark One)
 x
 For the fiscal year ended December 31, 2003
OR   For the Transition period from ____ to ____ Commission file number: 0-10067   REXHALL INDUSTRIES, INC.
 (Exact name of registrant as specified in its charter)
 California
    
    95-4135907(State or other jurisdiction of Incorporation or organization)
    
    (IRS Employer Identification No.)
 46147 7th Street West
Lancaster, CA 93534
(Address of principal executive offices) Registrants telephone number, including area code: (661) 726-0565 Securities registered pursuant to Section 12(b) of the Act: None Name of each exchange on which registered: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value Indicate by check mark whether the registrant (1) 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 periods as 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 [   ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X] Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X] Aggregate market value of the voting and non-voting common stock held by
non-affiliates computed by reference to the price at which the common stock was
last sold, or the average bid and asked price of such common stock, as of the
last business day of the Registrants most recently completed second fiscal
quarter  $6,146,895 (As of June 30, 2003). As of April 12, 2004 there were 5,872,700 shares of the Registrants common stock
outstanding. DOCUMENTS INCORPORATED BY REFERENCE: None.




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TABLE OF CONTENTS PAGEPART I.Item 1. Business
    
    
    3Item 2. Properties
    
    
    9Item 3. Legal Proceedings
    
    
    10Item 4. Submission of Matters to a Vote of Security Holders
    
    
    10PART IIItem 5. Market for Registrants Common Equity and Related Stockholder Matters
    
    
    11Item 6. Selected Financial Data
    
    
    11Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 8. Financial Statements and Supplementary Data
    
    
    23Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    40Item 9A. Controls and Procedures
    
    
    41PART IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    43Item 11. Executive Compensation
    
    
    45Item 12. Security Ownership of Certain Beneficial Matters Owners and Management and Related Stockholder
    
    
    47Item 13. Certain Relationships and Related Transactions
    
    
    48Item 14. Principal Accountant Fees and Services
    
    
    49PART IVItem 15. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
    
    
    50Exhibit 10.6Exhibit 14.1Exhibit 31.1Exhibit 31.2Exhibit 32.1




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PART I 
 Item 1. Business Rexhall Industries, Inc. (the Company) designs, manufactures and sells
to dealers Class A motorhomes. Class A motorhomes are self-contained and
self-powered recreational vehicles used primarily in conjunction with leisure
travel and outdoor activities. The Company began operations in July 1986 as a
general partnership and conducted business in that form until December 31,
1986, when the assets and business of the partnership were contributed to
Rexhall Industries, Inc., a California corporation, which assumed the
liabilities of the partnership. Rexhall Industries, Inc. was incorporated in
California in June 1986, but except for organizational activities, conducted no
operations until January 1, 1987. As used herein, the Company refers to
Rexhall Industries, Inc. and its wholly-owned subsidiary, Price I, Inc. Price
I, Inc. which the Company organized in June 2000 to operate a retail dealership
for Class A motorhomes and other recreational vehicles, ceased retail
operations in December 2000 and then ceased all other operations (consisting of
operating a service facility) in December 2003. The following are trademarks of the Company: Rexhall®, RoseAir, RexAir®,
Aerbus, Vision®, American Clipper, Anthem, Concord, Minibus, EntrySlide,
and T-Rex Double & Wide. The Company produces all of its products from its manufacturing facility
in Lancaster, California, which also serves as its corporate headquarters.
These facilities and the Companys corporate headquarters are located at 46147
7th Street West, Lancaster, CA 93534 and the Companys telephone number is
(661) 726-0565. Class A Motorhomes Based upon industry standards established by the Recreation Vehicle
Industry Association (RVIA), the Company manufactures certain product lines
classified as conventional or Class A motorhomes. Conventional or Class A
motorhomes are self-powered vehicles built on a motor vehicle chassis, with
engine and drive train components which are supplied by a motor vehicle
manufacturer, such as Ford Motor Co., Spartan Motors Chassis, Inc. and
Workhorse Custom Chassis LLC. The interior of the completed vehicle typically
includes a kitchen and bathroom, as well as drivers, dining and sleeping areas.
Class A motorhomes are self-contained with their own electrical generation,
lighting, heating, cooking and refrigeration facilities, waste disposal and
water storage tanks, permitting occupancy without requiring connection to
utilities. While not designed or intended as permanent housing, Class A
motorhomes do provide comfortable living quarters for short periods,
particularly for people interested in travel and outdoor recreational
activities. Class A motorhomes are different from mobile homes, which are manufactured
housing designed for permanent or semi-permanent residential dwelling and,
although movable, are not used for transportation. Class A motorhomes are also
different from other recreational vehicles, such as Class B van campers, which
are smaller and do not provide all of the features that typically are standard
on Class A motorhomes; Class C mini-low profile and compact motorhomes, which
are built on a van or small truck chassis that is supplied with an engine and
finished cab section and are differentiated by size; and travel trailers, which
are non-motorized vehicles designed to be towed by automobiles, pick-up trucks
and vans, and generally by law may not be used as living quarters unless
stationary. Travel trailers are further classified as conventional, fifth
wheel and hybrid, and are generally differentiated by the method and vehicle
employed for towing, their size, configuration and use. Other recreational
vehicle categories include folding camping trailers, park trailers, truck
campers, and van conversions. As Class A motorhomes are self-contained with kitchen, bathroom facilities
and sleeping quarters, it is eligible to be treated as a qualified residence
under the Internal Revenue Code of 1986, as amended. Thus, as in the case of
other recreational vehicles suitable for overnight use, a purchaser may
generally deduct interest on debt incurred to acquire a Class 3




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A motorhome provided the purchaser designates and uses it as one of no
more than two residences and otherwise meets the requirements of the Internal
Revenue Code of 1986. Industry Based on information furnished in March 2004 by the Recreation Vehicle Industry
Association in Reston, Virginia, the following table sets forth comparisons of
units and dollar sales of all recreational vehicles and Class A motorhomes in
the United States compared with units and dollar sales of the Company during
the years ended December 31, 2003, 2002 and 2001: % Change
    
    
    
    
    
    % ChangeUnit
    
    From Prior
    
    Revenues
    
    From PriorSales
    
    Year
    
    (000)
    
    YearTotal Recreational
Vehicles2003
    
    
    377,800
    
    
    
    (0.2
    %)
    
    $
    11,509,273
    
    
    
    5.9
    %2002
    
    
    378,700
    
    
    
    18.0
    %
    
    $
    10,868,487
    
    
    
    24.1
    %2001
    
    
    321,000
    
    
    
    (23.3
    %)
    
    $
    8,760,483
    
    
    
    (20.8
    %)Class A Motorhomes2003
    
    
    41,500
    
    
    
    4.8
    %
    
    $
    4,775,281
    
    
    
    11.0
    %2002
    
    
    39,600
    
    
    
    18.6
    %
    
    $
    4,302,382
    
    
    
    23.4
    %2001
    
    
    33,400
    
    
    
    (18.5
    %)
    
    $
    3,486,492
    
    
    
    (9.5
    %)Rexhall Industries,
Inc. (1)2003
    
    
    448
    
    
    
    (41.3
    %)
    
    $
    38,892
    
    
    
    (38.6
    %)2002
    
    
    763
    
    
    
    5.2
    %
    
    $
    63,303
    
    
    
    11.7
    %2001
    
    
    725
    
    
    
    (20.3
    %)
    
    $
    56,680
    
    
    
    (15.3
    %)
   (1)
    
    All Company data is reported net of repurchases Approximately 77 million Americans were born between the years of 1946 and
1964. Commonly known as baby boomers, the Company believes that baby boomers
have been the historical group of potential Class A motorhome purchasers.
Although the typical Class A motorhome buyers are over the age of 60,
increasing disposable income in the 40 to 60 year old age group is expanding
the potential Class A market. The Companys continued product development
combined with the unified efforts of the recreational vehicle industry as a
whole to capture the attention of the 40 year old and greater population
heralds the future growth potential of the Companys target market. The Companys Motorhomes The Companys motorhomes are built with attention to quality. The
materials used by the Company in constructing its motorhomes are commonly found
on more expensive models and, in the opinion of management, generally are
superior to those found on motorhomes in the same price range as the Companys
motorhomes. The Company uses only steel, as opposed to wood or aluminum, in
framing its cage. The Company uses gel-coated, high gloss, one-piece
fiberglass panels for the sidewalls, and molded fiberglass front caps, rear
caps and roofs, which are construction techniques used in more expensive
motorhomes and eliminating many of the seams commonly found in most motorhomes.
Fiberglass is generally easier to repair collision marks and scrapes than
aluminum, which is the other material commonly used in sidewall construction.
The Company uses polyurethane foam and polystyrene for insulation. The Companys motorhomes are also built with attention to aerodynamics, by
using a streamlined 4




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bus-style front cap that tapers to a width broader at the junction with the
sidewalls than at the leading edge of the nose. This styling, coupled with
rounded corners throughout the coach, contributes to a smooth ride, even in
high winds or when large trucks or trailers pass the motorhome. The Company currently offers five lines of Class A motorhomes: RoseAir,
RexAir®, Aerbus, American Clipper and Vision®. The Companys Class A line
offers many models and floor plans with multiple decors. These various models
come with the following chassis and engine types:  
    
    Ford F-53 chassis with a 310 H.P. 6.8L Triton sequential electronic fuel
injection (SEFI) gas engine
    
    Workhorse chassis with a 340 H.P. V8 General Motors Vortec 8100 (L18)
gas engine
    
    Spartan Mountain Master chassis with a 300, 350 or 370 H.P. 8.3 liter
ISC diesel engine
    
    Workhorse chassis with a 400 H.P. 8.9 liter Cummins ISL turbocharged
electronic diesel engine Models range in size from an overall length of approximately 27 feet to
approximately 40 feet with wheelbase ranging from 178 inches to 252 inches.
All models have an overall maximum width of eight and one half feet (102
widebody) with a height (including air conditioner) of approximately thirteen
feet. In addition to size of chassis, RoseAir, RexAir®, Aerbus, American
Clipper and Vision® models are differentiated by exterior graphics, floor
plans and sleeping accommodations. Depending on the model, each motorhome is
equipped to sleep four to six adults comfortably. Standard features and
equipment on all the Companys models include a 75 or 100 gallon fuel tank
(depending on chassis and model), halogen headlights, dash air conditioning,
power steering, automatic transmission, radial tires, stabilizing air bags,
34,000 or 35,000 BTU furnace, water heater, batteries mounted on a slide-out
tray for easy access and service, and a powered entry step. Standard interior
features include a double-door, flush-mounted refrigerator/freezer, a
three-burner range with automatic pilot light, a large two-bowl kitchen sink, a
toilet, a fiberglass shower surround, a bathroom sink, coordinating designer
accents, and day/night shades. Additional standard equipment includes a
television with antenna, an AM/FM stereo radio with cassette player, auxiliary
power generators, a microwave oven, roof air conditioners, and a videocassette
recorder. Optional equipment items that may be ordered include a back up
camera, washer and dryer, hydraulic leveling jacks, electric and heated
mirrors, 50 AMP service, entertainment center, satellite dish, patio awning,
ducted roof air conditioning, dual-pane windows, and a simulated fireplace.
Some models may vary in standard equipment. In third quarter of 2003, the Company announced its new T-Rex Double &
Wide floor plan. Available in both gas and diesel models, the T-Rex
incorporates slideouts that extend nearly the length of the motorhome on both
sides, from behind the drivers and passengers seats, to the rear cap. When
fully extended, the opposing slides provide a considerable increase (nearly
double) to the interior space without compromising safety, structural integrity
or value. The suggested retail prices of the Companys diesel models range from
$148,000 to $206,000 with standard equipment, while the suggested retail prices
for the Companys gas models range from $76,000 to $132,000 with standard
equipment. Specialty Vehicles In addition to its line of Class A motorhomes, the Company also
manufactures and sells specialty vehicles. These vehicles are designed for
diverse purposes and varied users, some of which include mobile command posts
for police and fire departments, and mobile classrooms. Some of the Companys
specialty units are also modified to be wheelchair accessible. During 2003,
2002, and 2001, sales of specialty vehicles amounted to less than 1% of total
revenues. Although the Company has no intention of phasing out its specialty
vehicle business, it anticipates that such business will continue to constitute
a low percentage of the Companys overall revenues in the future. 5




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Production The Companys manufacturing facility has been designed to permit
production of motorhomes on an assembly-line basis. At the beginning of the
line, in an effort to achieve uniformity, a partial steel cage is pre-assembled
on a jig. The steel cage is welded together on the jig, which is then welded
to a wall that is welded directly to the chassis to form what the Company terms
a uni-body design. Steel outriggers are welded in place to support floor and
basement storage compartments. Seamless, gel-coated fiberglass is vacuum bonded to a steel frame to form
the exterior walls. Additionally, the roof structure is vacuum bonded. When
all the exterior walls are in place, polyurethane foam insulation is sprayed
inside the ceiling radius to fill voids and further bond the exterior shell to
the frame. Exterior doors and interior decorative wallboard complete the basic
construction. Vehicle components, cabinetwork, auxiliary power units,
appliances, plumbing fixtures, floor coverings, window treatments, hardware,
furniture and furnishings are then added. These components are generally
purchased in finished form from various suppliers, none of which are a sole
source. The Company manufactures its own driver-side doors, compartment doors,
cabinetwork, draperies, and fiberglass parts and also makes some of the
furniture used in its motorhomes. The Company expects to continue this
practice of producing many of the components used in the manufacturing of its
motorhomes as long as such practice is practical and results in cost savings
and better quality. The Company operated one production shift, producing an average of 38
units per month during 2003. Total gross units produced in 2003 were 456
units. Increases in production can be achieved at a relatively low incremental
cost on the existing production shift by increasing the number of production
employees. Raw Materials and Chassis The principal raw materials used in the manufacturing process are steel,
fiberglass, aluminum, lumber, plywood and plastic. These materials are
purchased from third parties and are generally available from numerous sources.
The Company has not experienced any significant delays or problems in
acquiring raw materials needed for production. The principal component used in the manufacturing process is the chassis,
which includes the engine and drive train. The Company obtains front-engine
gas chassis from Ford Motor Company (Ford) and Workhorse Custom Chassis, LLC
(Workhorse). Rear-engine diesel chassis are purchased from Workhorse Custom
Chassis, LLC (Workhorse) and Spartan Motors Chassis (Spartan). The Company
acquires Ford products under a converters agreement, which is used by the
Company to purchase the chassis with financing provided by the suppliers
affiliate. The financing provided to obtain Ford chassis under the converters
agreement bears interest at the prime rate plus 1% (5.00% at December 31, 2003)
and is secured by the Ford chassis obtained. Upon starting production of the
motorhome, or 90 days after receipt of chassis, whichever comes first, the
Company is required to pay to the lender the amount advanced for the purchase
of the underlying chassis plus accrued interest. Similarly, the Company
acquires its Workhorse products under a financing agreement with GE Capital
Corporation (GE). The financing agreement with GE bears interest at the prime
rate plus 1% (5.00% at December 31, 2003) and is secured by the Workhorse
chassis obtained. The Company is required to pay the lender the amount
advanced plus accrued interest upon the earliest to occur of starting
production of the motorhome, or 120 days. The terms of sale for the chassis
purchased from Spartan are on net 30-day basis. As is standard in the industry, arrangements with chassis suppliers
provide that either the Company or the chassis supplier may terminate their
relationship at any time. To date, the Company has not experienced any
substantial shortages of chassis. The recreational vehicle industry as a whole
has from time to time experienced shortages of chassis due to the concentration
or allocation of available resources by suppliers of chassis to the
manufacturers of vehicles other than recreational vehicles or for other causes.
If Ford were to discontinue the manufacturing of motorhome chassis or 6




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substantially reduce the current chassis allocation, or if as a group all
of the Companys chassis suppliers significantly reduced the availability of
chassis to the industry, the Companys business and financial results could be
materially adversely affected. Sales and Distribution The Company sells motorhomes in most of the states in the continental
United States. Additionally, the Company sells to dealers in Canada and
Europe. Sales outside the U.S. were less than $1 million during each of the
last three years. Consistent with industry practice, most of the Companys
dealers also stock previously owned recreational vehicles and carry
recreational vehicles manufactured by competitors. For information on sales to
dealers accounting for 10 percent or more of the Companys total net revenues,
see Note 8 to Notes to Consolidated Financial Statements. Sales are usually made to dealers on terms requiring payments within ten
days or less of the dealers receipt of the unit. 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 to the Company upon shipment to the dealer. 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 motorhome so financed. Dealers do not have the right to
return motorhomes to the Company, except by statute in some states. For
information on the Companys contingent liability and repurchase history, see
Note 7 to Notes to Consolidated Financial Statements. Advertising and Promotion The Company advertises its motorhomes to consumers in recreational vehicle
magazines and to dealers in trade publications, and uses point-of-purchase
promotional materials. Its promotional activities generally consist of
participation at major recreational vehicle shows (e.g., the California RV Show
in Pomona, California; the RVIA Trade Show in Louisville, Kentucky; and the
Tampa Super Show in Florida) held during the year, as well as local
recreational vehicle shows held by its dealers. The company also advertises
its product on the World Wide Web under the following site:
http://www.rexhall.com. E-Mail responses from consumers show great promise for
this advertising medium. Seasonality and Backlog The recreational vehicle business generally has been seasonal with most
sales occurring in the months of February through October, with sales from
November through January generally being considerably slower. Generally, the
Companys sales follow the industrys pattern. Historically, the Company has not maintained a significant inventory of
finished motorhomes. Production is based on dealer orders and shipments that
usually occur within four to eight weeks of the receipt of an order. At
December 31, 2003, 2002 and 2001, the Companys backlog of dealer orders, which
it believed were firm, were $2,820,000, $4,205,000 and $15,133,000,
respectively. The Company believes that backlog is not necessarily a reliable
indication of future sales because dealer orders fluctuate and, by industry
customs, may be canceled without penalty. Product Warranty The Company currently provides retail purchasers of its motorhomes with a
limited warranty against defects in materials and workmanship for 12 months or
12,000 miles, and a limited structural warranty on the steel cage for five
years or 50,000 miles. Both are measured from date of purchase, or upon the
transfer of the vehicle by the original owner, whichever occurs first. The
Companys warranty excludes certain specified components, including chassis,
engines and power train, which are warranted separately by the suppliers.
Warranty expense was $1,755,000, $1,904,000, and 7




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$1,070,000 for the years ended December 31, 2003, 2002 and 2001
respectively. In most cases, warranty work is performed by a member of the
Companys dealer network or by the Companys own service facility. Competition Competition in the manufacture and sale of motorhomes and other
recreational vehicles is intense. The Company has been manufacturing Class A
motorhomes for over 17 years and competes with many manufacturers of
recreational vehicles, such as Coachmen Industries, Fleetwood Enterprises,
Monaco Coach Corporation, National RV Holdings, Thor Industries, and Winnebago
Industries. Several of the Companys competitors have multiple product lines
of Class A motorhomes and other recreational vehicles and most, including all
of those competitors previously named, are larger and have substantially
greater financial, marketing and other resources than the Company, as well as
larger and more developed dealer networks. In addition, sales of used Class A
motorhome create additional competition for the Company. The Company believes
that the principal competitive factors that affect the market for the Companys
Class A motorhomes include price, product design and features, product quality,
reliability and performance, quality of support and customer service, loyalty
of customers and brand recognition. The Company believes its pricing
and quality may
help it to remain competitive. Regulation The Company is subject to the provisions of the National Traffic and Motor
Vehicle Safety Act and the safety standards for recreational vehicles and
components which have been promulgated thereunder by the Department of
Transportation. The regulations under that legislation permit the National
Highway Traffic Safety Administration to require a manufacturer to remedy
vehicles containing defects related to motor vehicle safety or vehicles that
fail to conform to all applicable Federal Motor Vehicles Safety Standards. The
National Traffic and Motor Vehicles Safety Act also provides for the recall and
repair of recreational vehicles that contain certain hazards or defects. The Company is subject to the provisions of Transport Canada for vehicles
exported to Canada. The regulations under that legislation are similar in
nature and design to its American counterparts. The Company relies on certifications obtained from chassis suppliers with
respect to compliance of the Companys vehicles with applicable emission
control standards and load bearing capacity. The Company believes that its
facilities and products comply in all material respects with applicable
environmental regulations and standards. The Companys manufacturing operations are subject to a variety of federal
and state environmental regulations relating to the use, generation, storage,
treatment, emissions, and disposal of hazardous materials and wastes and noise
pollution. Such laws and regulations are becoming more stringent, and it is
likely that future amendments to these environmental statutes and additional
regulations promulgated thereunder will be applicable to the Company, its
manufacturing operations and its products in the future. The failure of the
Company to comply with present or future regulations could result in fines
being imposed on the Company, civil and criminal liability, suspension of
operations, alterations to the manufacturing process or costly cleanup or
capital expenditures. Many states regulate the sale, transportation, and marketing of
recreational vehicles. The Company is also subject to state consumer
protection laws and regulations, which in many cases require manufacturers to
repurchase or replace chronically malfunctioning recreational vehicles. Some
states also legislate additional safety and construction standards for
recreational vehicles. The Company is also increasingly subject to regulations
by the various states with respect to relations with its dealers. The Company is a member of the RVIA (Recreational Vehicle Industry
Association). This association has promulgated stringent standards for
construction in connection with the manufacture of recreational vehicles. Each
of the 8




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units manufactured by the Company has an RVIA seal placed upon it to
certify that such standards have been met. The Companys facility is
periodically inspected by government agencies and the RVIA to ensure that the
Companys motorhomes comply with applicable governmental and industry
standards. Patents and Trademarks The Company has been awarded two patents from the United States Patent and
Trademark Office covering the ornamental design for its T-Rex Double & Wide
motorhomes. While the Company claims Rexhall®, RoseAir, RexAir®, Aerbus,
Vision®, American Clipper, Anthem, Concord, Minibus, T Rex Double & Wide
and EntrySlide as trademarks, it does not believe its business is dependent on
these names or any other marketing device. Employees At December 31, 2003, the Company had a total of 205 employees. None of
the Companys employees are represented by a labor union. The Company
considers its relations with its employees to be good. 
 Item 2. Properties In December 1995, the Company completed construction and moved into an
87,000 square foot manufacturing facility on ten acres in Lancaster,
California. This facility serves as both a manufacturing facility and the
Companys Corporate Headquarters and the total square footage is almost 120,000
square feet. The Lancaster manufacturing plant is debt free with no mortgages
on the facility. In September 1995, the Company purchased a 40,000 square foot facility
located on a 4.5-acre site in Lancaster, California to serve as the Companys
Recreational Vehicle Service Center. This facility was purchased from the City
of Lancasters Redevelopment Agency for $980,000. At December 31, 2003, the
Company was indebted to the City of Lancaster Redevelopment Agency for the
amount of $634,000 with interest at 5.93% per annum due through October 2015.
From December 1997 until June 2001, the Company leased a portion of the
facility to various third parties, which were major recreational vehicle retail
dealers. Since June 2001, the Company has been using that portion to perform
additional retail service and insurance paid repairs to motorhomes. In July 2000, the Company purchased approximately four acres in Mesa,
Arizona to serve as a site for Price I, Inc. dba, Price One RV, which is a
wholly owned subsidiary of the Company. The Company paid $809,000 for the land
and a partially constructed commercial building located on the property.
Another $410,000 was spent by the Company to complete the site for the retail
sale and service of motorhomes. In December 2001, the Company ceased its retail
operations, and continued to operate a service facility under the name Rexhall
Service Center  Arizona until December 2003, at which time the Company listed
the property as held for sale with a net book value of $1,189,000. In December 2000, the Company and Mr. William J. Rex, President & CEO,
purchased 1.7 acres in Acton, California for $401,000. The Company and Mr. Rex
each paid 50% of the purchase price and agreed to share equally in the
construction of a building on the property. In the first quarter of 2004, the
Company decided to list the property for sale. 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 would allow the promissory
note to be forgiven in total or in part based upon a formula for providing
jobs. Although the Company anticipates meeting hiring requirements for the debt
forgiveness, the full $300,000 is reflected as long-term debt in the Companys
financial statements. In the event the hiring requirements are not met,
interest on the promissory note is 10% per annum. At December 31, 2003, the
Company had accrued $30,000 interest on the note. The Company plans to build a
new facility on this land so that it can produce its own diesel chassis with 9




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a new motorhome concept to be built on that chassis. Due to changes in
the Companys manufacturing process necessitated by its introduction of the new
line of T-Rex motorhomes and redesign of its standard product, late
introduction of the T-Rex, and low sales, the Company had postponed any
expansion plans until after 2003. However, the Company believes that it may be
able to begin construction of the new facility in 2004 depending on market and
economic conditions. The total anticipated cost of this expansion is projected
to be approximately $5,000,000. The Company believes its facilities are adequate to meet its foreseeable
needs for its current product offerings. 
 Item 3. Legal Proceedings The Company is involved in legal proceedings in the ordinary course of
business, including a variety of warranty, lemon law and product liability
claims typical in the recreational vehicle industry. The Company does not
believe that the outcome of its pending legal proceedings, net of insurance
coverage, will have a material adverse effect on the business, results of
operations or financial condition of the Company. 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. 
 Item 4. Submission of Matters to a Vote of Security Holders No matter was submitted to the vote of security holders during the fourth
quarter of 2003. 10




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PART II 
 Item 5. Market for Common Equity and Related Stockholders Matters Market Information The Companys Common Stock has traded in the over-the-counter market since
June 22, 1989 and sales and other information are reported in the Nasdaq
National Market. The Companys Nasdaq symbol is REXL. The following table
sets forth the range of high and low closing sale prices of a share of the
Companys Common Stock in the over-the-counter market for each quarter during
the two years ended December 31, 2003 according to the Nasdaq National Market
(adjusted for the 2-for-1 stock split of July 2002): 2003
    
    High
    
    LowFourth Quarter
    
    $
    3.55
    
    
    $
    2.65Third Quarter
    
    
    3.30
    
    
    
    2.22Second Quarter
    
    
    2.74
    
    
    
    1.83First Quarter
    
    
    3.55
    
    
    
    1.75
 2002
    
    High
    
    LowFourth Quarter
    
    $
    3.90
    
    
    $
    2.38Third Quarter
    
    
    5.99
    
    
    
    1.51Second Quarter
    
    
    6.10
    
    
    
    3.78First Quarter
    
    
    4.30
    
    
    
    2.50
 Holders At
April 12, 2004, the Company had 55 registered shareholders of record. Dividends The payment of cash dividends on the Companys common stock is within the
discretion of its board of directors. Currently, the Company intends to retain
earnings, if any, to finance its business. The Company has not paid cash
dividends on its common stock and the board of directors does not expect to
declare cash dividends on the common stock in the foreseeable future. Securities Authorized Under Equity Compensation Plans The Company has no compensation plans or individual compensation
arrangements under which equity securities are authorized for issuance. 
 Item 6. Selected Financial Data The following selected Statements of Operations data for each of the three
years in the period ended December 31, 2003 and the Balance Sheet data as of
December 31, 2003 and 2002 are derived from our audited consolidated financial
statements included elsewhere herein. The selected Statements of Operations
data for each of the two years in the period ended December 31, 2000 and the
Balance Sheet data as of December 31, 2001, 2000 and 1999 were derived from our
audited consolidated financial statements, which are not included in this Form
10-K. The following data should be read in 11




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##### Table of Contents



conjunction with Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated financial statements
of the Company, including the notes thereto, included elsewhere in this Form
10-K. Statement of Operations Data:  Year Ended December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999Net Revenues
    
    $
    38,892
    
    
    $
    63,303
    
    
    $
    56,680
    
    
    $
    66,957
    
    
    $
    83,714Cost of Goods Sold
    
    
    32,938
    
    
    
    56,424
    
    
    
    51,584
    
    
    
    56,493
    
    
    
    69,659Gross Profit
    
    
    5,954
    
    
    
    6,879
    
    
    
    5,090
    
    
    
    10,464
    
    
    
    14,055Selling, General and Administrative Expenses
    
    
    8,402
    
    
    
    8,278
    
    
    
    7,333
    
    
    
    6,129
    
    
    
    6,572Income (Loss) from Operations
    
    
    (2,448
    )
    
    
    (1,399
    )
    
    
    (2,237
    )
    
    
    4,335
    
    
    
    7,483Interest Income
    
    
    23
    
    
    
    56
    
    
    
    250
    
    
    
    274
    
    
    
    256Interest Expense
    
    
    (155
    )
    
    
    (144
    )
    
    
    (181
    )
    
    
    (448
    )
    
    
    (208
    )Legal Settlement
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    604Other Income, net
    
    
    173
    
    
    
    
    
    
    
    242
    
    
    
    200
    
    
    
    151Gain on Sale of Fixed Assets
    
    
    
    
    
    
    34
    
    
    
    26
    
    
    
    
    
    
    
    573Income (Loss) from Continuing Operations before
Income Taxes
    
    
    (2,407
    )
    
    
    (1,453
    )
    
    
    (1,900
    )
    
    
    4,361
    
    
    
    8,859Income Taxes Expense (Benefit)
    
    
    29
    
    
    
    526
    
    
    
    603
    
    
    
    1,652
    
    
    
    3,557Income (Loss) from Continuing Operations
    
    
    (2,436
    )
    
    
    (927
    )
    
    
    (1,297
    )
    
    
    2,709
    
    
    
    5,302Income (Loss) from Discontinued Operations (net
of applicable income tax benefit of $333 and
$268 in 2001 and 2000, respectively
    
    
    
    
    
    
    
    
    
    
    (695
    )
    
    
    436
    
    
    
    Loss on Disposal of Discontinued Operations (net
of applicable income tax benefit of $5)
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    Net Income (Loss)
    
    
    ($2,436
    )
    
    
    ($935
    )
    
    
    ($1,992
    )
    
    $
    2,273
    
    
    $
    5,302Net Income (Loss) from Continuing Operations -
per share- Basic and Diluted
    
    
    ($0.41
    )
    
    
    ($0.15
    )
    
    
    ($0.21
    )
    
    $
    0.43
    
    
    $
    0.84Net Income (Loss) from Discontinued Operations -
per share  Basic and Diluted
    
    
    
    
    
    
    
    
    
    
    ($0.12
    )
    
    
    ($0.07
    )
    
    
    Net Income
(Loss) - per share  Basic and Diluted
    
    
    ($0.41
    )
    
    
    ($0.15
    )
    
    
    ($0.33
    )
    
    $
    0.36
    
    
    $
    0.84Weighted Average Shares Outstanding  Basic and
Diluted
    
    
    5,905,000
    
    
    
    6,077,000
    
    
    
    6,082,000
    
    
    
    6,232,000
    
    
    
    6,322,000
 Balance Sheet Data:(in thousands)
    
    As of December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999Working Capital
    
    $
    11,341
    
    
    $
    14,581
    
    
    $
    14,757
    
    
    $
    16,600
    
    
    $
    16,289Total Assets
    
    $
    27,999
    
    
    $
    29,951
    
    
    $
    36,352
    
    
    $
    40,932
    
    
    
    36,162Long-Term Debt Less Current Portion
    
    $
    924
    
    
    $
    634
    
    
    $
    671
    
    
    $
    705
    
    
    
    737Stockholders Equity
    
    $
    16,395
    
    
    $
    19,157
    
    
    $
    20,279
    
    
    $
    22,362
    
    
    $
    20,272
 12




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##### Table of Contents



Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The following table sets forth, for each of the three years indicated, the
percentage of revenues represented by certain items on the Companys Statements
of Operations: Percentage of Net RevenuesYear Ended December 31,2003
    
    2002
    
    2001Net Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of Goods Sold
    
    
    84.7
    
    
    
    89.1
    
    
    
    91.0Gross Profit
    
    
    15.3
    
    
    
    10.9
    
    
    
    9.0Selling, General and Administrative Expenses
    
    
    21.6
    
    
    
    13.1
    
    
    
    12.9Income (Loss) from Operations
    
    
    (6.3
    )
    
    
    (2.2
    )
    
    
    (3.9
    )Other Income (Expense), net
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    0.5Income (Loss) from Continuing Operations Before Income Taxes
    
    
    (6.2
    )
    
    
    (2.3
    )
    
    
    (3.4
    )Income Tax Expense (Benefit)
    
    
    (0.1
    )
    
    
    (0.8
    )
    
    
    (1.1
    )Income (Loss) from Continuing Operations
    
    
    (6.3
    )
    
    
    (1.5
    )
    
    
    (2.3
    )Income (Loss) from Discontinued Operations, net
    
    
    
    
    
    
    
    
    
    
    (1.2
    )Net Income (Loss)
    
    
    (6.3
    %)
    
    
    (1.5
    %)
    
    
    (3.5
    %)
 Forward-looking Statements Statements contained in this Form 10-K that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that forward-looking
statements are inherently uncertain. Actual performance and results may differ
materially from that projected or suggested herein due to certain risks and
uncertainties including, without limitation, potential fluctuations in the
Companys operating results; continuation of losses; seasonality and economic
conditions; dependence on certain dealers and concentration of dealers in
certain regions; dependence on chassis suppliers; potential liabilities under
repurchase agreements; competition; government regulation; warranty claims;
product liability the potential lack of meaningful patent protection, the
Companys dependence on its founder and Chief Executive Officer and its ability
to issue preferred stock. These risks and uncertainties are more fully
discussed below in the subsection Factors that May Affect Operating Results
and in the Companys other filings with the Securities and Exchange Commission.
The Company undertakes no obligation to revise or update publicly any
forward-looking statements for any reason. Overview The following discussion should be read in conjunction with the financial
statements and notes thereto appearing elsewhere herein. As is generally the
case in the recreational vehicle industry, various factors can influence sales.
These factors include demographics, changes in interest rates, consumer
confidence levels, competition, restrictions on the availability of financing
for the wholesale and retail purchases of recreational vehicles, as well as
significant changes in the availability and price of gasoline. The Company was founded in 1986 as a manufacturer of recreational
vehicles, and became publicly held in 1989. Historically, the Company has
manufactured only Class A motorhomes and specialty vehicles on either gas or
diesel chassis supplied by independent suppliers. The Companys products are
positioned to be value leaders, in that its products offer many of the design
and structural characteristics and quality components of higher-priced
motorhomes, but at a much more affordable price. 13




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##### Table of Contents



To counter the short-term and long-term effects of the bankruptcy of the
Companys largest dealer in 2000, the Company established its own retail
operations in Mesa, Arizona, called Price I, Inc. dba, Price One, RV. Under
the terms of the repurchase agreements with the bankrupt dealers lenders, the
Company was only obligated to repurchase $1.2 million of inventory; however,
the Company elected to repurchase $4.2 million in inventory in order to keep
these motorhomes from being dumped on the market at substantially lower prices.
The retail operations at Price One RV did not begin in earnest until November
of 2000. In December 2001, the Company ceased its retail operations and sold
the remaining Price One inventory to another dealership in Arizona. The
Company reported the retail operations as a discontinued operation during 2001,
and ceased all remaining operations of this subsidiary, consisting of operating
a service center in Arizona, in 2003. The Company listed the Arizona property
upon which it formerly conducted its retail and service center operations as
held for sale. Approximately 49,400 Class A motorhomes were wholesaled in 1999, which was
an all-time high. However, when the stock market started to slide in the
spring of 2000, Class A motorhome shipments dropped dramatically. Class A
motorhome sales in 2000 dropped 17% to 41,000 and dropped another 19% in 2001
to 33,400, which was the lowest annual level since 1995. The industry
rebounded by 19% in 2002 to 39,600 units shipped, and increased by 5% in 2003
to 41,500 units shipped. As is customary in the industry, the Company generally agrees with its
dealers lenders to repurchase any unsold recreational vehicles in the event of
various circumstances. Although the Companys maximum potential exposure under
these agreements approximated $16.6 million at December 31, 2003, as with
accounts receivable, the risk of loss was spread over numerous dealers and
lenders and was further reduced by the resale value of the recreational
vehicles that the Company would be required to repurchase. Losses under these
agreements have not been material in the past and management does not believe
that any future losses under such agreements will have a material adverse
effect on the Companys consolidated financial position or results of
operations. Management believes that sales trends will remain consistent in the
industry for the foreseeable future, and therefore would expect the Companys
historical pattern of repurchases to continue. For information on repurchases
history, see Note 7 to Notes to Consolidated Financial Statements. Comparison of Year Ended December 31, 2003 to Year Ended December 31, 2002 Net revenues for the year ended December 31, 2003, were $38.9 million,
compared to $63.3 million for 2002, a decrease of $24.4 million or 39%. The
number of units shipped, net of repurchased units, decreased 315 to 448 in 2003
from 763 in 2002, a decrease of 41%. The average net selling price increased
approximately 2% during the period primarily due to a base-price increase.
Wholesale unit shipments of the Companys gas and diesel motorhomes were down
30% and 67%, respectively, when compared to 2002. Despite industry-wide increases in wholesale shipments of class A
motorhomes in 2003, the Companys sales were down substantially. Management
believes this was due in large part to the Companys premature announcement of
its new T-Rex Double & Wide motorhome design. More specifically, mass
production of the T-Rex Double & Wide, originally announced in July, 2003, was
delayed through the end of the year. As a result, many dealers maintained
lower than usual stocking levels of the Companys standard-line product to make
room for the new T-Rex Double & Wide. Moreover, management now believes that
it may have inadvertently given the impression that it would discontinue
production of its standard-line in favor of T-Rex. This is not the case. In
reality, the Company has made considerable efforts to improve and enhance its
standard-line products during the latter-half of 2003. These new & improved
motorhomes are now available. Management is working to re-establish the
Company as a quality motorhome manufacturer to its existing dealer network, and
the industry as a whole. Additionally, in July of 2003, the Company decided that it would no longer
do business with its largest DealerLa Mesa RV (which accounted for 18% of
sales in 2002). The decision was made because the dealer would no longer
purchase the Companys motorhomes without seeking substantial discounts or rebates, which, in
managements view, precluded profitable sales to this dealer. 14




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##### Table of Contents



Gross profit for the year ended December 31, 2003, decreased to $6.0
million from $6.9 million for 2002, a decrease of $0.9 million or 13%. The
gross margin for 2003 was 15% as compared to 11% for 2002. The increase in
gross margin is primarily attributable to improved per-unit manufacturing labor
costs and material usage. Although management believes the Company will be
able to sustain these improved margins, gross margin may fluctuate in future
periods if the mix of Class A motorhomes the Company produces shifts from
higher to lower gross margin units or if the Company encounters unexpected
manufacturing difficulties or competitive pressures. Selling, general and administrative expenses (SG&A) for the year ended
December 31, 2003, were $8.4 million, compared to $8.3 million for 2002, and
increased as a percentage of sales from 13% to 22%. The increase in SG&A
expenses is primarily related to the approximately $1.6 million the Company
spent on research & development of its new T-Rex Double & Wide floorplans, and
improvements to its standard-line products. The Companys effective income tax rate was 0.1% for the year ended
December 31, 2003 as compared with 36% for 2002. The decrease is a result of
state tax refunds of approximately $606,000 and federal tax refunds of
approximately $130,000, offset by a valuation allowance of $1,719,000. Basic
and diluted net loss per share was ($0.41) for the year ended December 31,
2003, as compared to basic and diluted net loss per share of ($0.15) in 2002. Comparison of Year Ended December 31, 2002 to Year Ended December 31, 2001 Net revenues for the year ended December 31, 2002, were $63.3 million,
compared to $56.7 million for 2001, an increase of $6.6 million or 12%. The
number of units shipped, net of repurchased units, increased 38 to 763 in 2002
from 725 in 2001, an increase of 5%. The average net selling price increased
approximately 6% during the period due to a higher mix of diesel and large gas
units. Wholesale unit shipments of the Companys gas and diesel motorhomes
were up 3% and 10%, respectively, when compared to 2001. Poor recreational vehicle industry fundamentals of weakened consumer
confidence and tightening of credit continue to hinder the Companys efforts in
attracting large dealers east of the Rockies. The lack of new dealers was the
primary cause for the Company to lag behind the industrys 19% improvement in
shipments during 2002. Gross profit for the year ended December 31, 2002 increased to $6.9
million from $5.1 million for 2001, an increase of $1.8 million or 35%. The
gross margin for 2002 was 11% as compared to 9% for 2001. The primary drivers
of the increase in gross profit were higher sales and lower discounts and
incentives, partially offset by higher direct labor cost per unit. Selling, general and administrative expenses (SG&A) for the year ended
December 31, 2002 were $8.3 million, compared to $7.3 million for 2001, both
approximately 13% of sales. The increase in expenses is primarily related to
the approximately $850,000 the Company spent on outside firms during the
independent investigation into the restatement of its financial statements for
the first quarter of 2003. Other income in 2001 primarily consisted of rental income on the
sub-leased portion of the Companys facilities. As of December 31, 2001, the
Company was no longer sub-leasing any of its facilities, so no rental income
was earned in 2002. The Companys continuing operations effective income tax rate was 36% for
the year ended December 31, 2002 as compared with 32% for 2001. The increase
is a result of certain non-deductible expenses that were incurred in 2001, but
not 2002. Basic and diluted net loss per share was ($0.15) for the year ended
December 31, 2002, as compared to basic and diluted net loss per share of
($0.33) in 2001. 15




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##### Table of Contents



In December 2001, the Company ceased its retail operations, Price One in
Mesa, Arizona. The retail inventory was discounted significantly and sold to
another dealership in Arizona. The net results of the Companys retail
operations are presented in the accompanying financial statements as
Discontinued Operations. Liquidity and Capital Resources The Company has relied primarily on internally generated funds, trade
credit and debt to finance its operations and expansions. As of December 31,
2003, the Company had working capital of $11,341,000, compared to $14,581,000
at December 31, 2002, a $3,240,000 decrease in working capital. The most
significant working capital decrease was a $3,874,000 decrease in cash, a
$919,000 decrease in accounts receivable, a $879,000 decrease in deferred
income taxes, a $214,000 increase in accounts payable, and a $1,051,000
increase in borrowings under the Companys lines of credit with its chassis
vendors, partially offset by a $2,799,000 increase in inventory, and a $648,000
decrease in other accrued liabilities. Capital expenditures during 2003 were $1,124,000, which primarily consists
of the 12.48 acres of land the Company purchased adjacent to its headquarters
in Lancaster, California. The Company has made no commitments for, and does
not expect to make material capital expenditures in 2004 depending upon
market conditions. Cash flows from financing activities consisted primarily of
proceeds from chassis vendor lines of credit of $1,105,000 and proceeds from
the redevelopment agency of $300,000. This was partially offset by repayments
on long-term debt of $54,000 and the repurchase of stock on the open market of
$326,000. As of December 31, 2003, the Company had eliminated its entire $2,500,000
Line of Credit with a bank, which included 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 the Company had never drawn from this line of
credit, and due to the costs and liability associated with maintaining a line
of revolving credit, the Company eliminated its line during the second and
third quarters of 2003. The requirements for self-insurance are now being met
through the California Self Insurers Security Fund and its Alternative
Security Program (ASP). Under the ASP, the fund will arrange for a composite
security deposit for participating self-insurers rather than rely on such
members to arrange for their security deposits on an individual basis. The
Companys covered deposit under this plan is $711,427. As of December 31, 2003, the Company has a line of credit with a chassis
vendor, Ford Motor Credit Company (FMCC), with a $3,500,000 limit. This
limit reflects a reduction from $5,000,000 during the first quarter of 2003.
This line of credit reduction was due to an analysis by FMCC of the Companys
needs based on historical financing requirements. FMCC determined that the new
$3,500,000 limit would be enough to meet the Companys future financial
requirements. Borrowings under the line bear interest at an annual rate of
prime plus 1% (5.00% at December 31, 2003). All borrowings are secured by the
Ford merchandise. The outstanding balance at December 31, 2003 was $2,919,000. Additionally, beginning in the third quarter 2003, the Company established
a financing agreement with GE Capital for the purchase of chassis from
Workhorse Custom Chassis. The limit on this line of credit is $1,600,000.
Borrowings under this line of credit bear interest at the rate of prime plus 1%
(5.00% at December 31, 2003). The chassis purchased from Workhorse secure
borrowings under this line of credit. The outstanding balance under this line
of credit is $1,513,000 at December 31, 2003. The Company placed orders for chassis during the first six months of the
year, which were delivered during the second half of the year. As these
deliveries coincided with a decline in sales, inventories grew during the
second half of 2003. In light of the Companys elevated inventory levels,
management expects cash requirements for 2004 to be significantly lower as the
Company uses up its material and raw chassis inventory and sells through its
finished goods inventory. Accordingly, the Company anticipates that it will be
able to satisfy its ongoing cash requirements through 2004 16




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##### Table of Contents



primarily with cash flows from operations and chassis purchase lines of
credit. Additional cash may be generated through the Companys sale of its
Mesa, Arizona and Acton, California facilities, provided the Company is able to
sell the properties in the near future. Although the Company has typically
funded its land purchases and development with cash flow from operations,
depending on market conditions, it might consider external financing of all or
part of the expansion costs required for construction of a new facility on the
raw land adjacent to its headquarters in Lancaster, California. However, given
the Companys current economic condition, a definitive timeline for an
expansion has not yet been determined. Contractual Obligations and Commercial Commitments The following table summarizes the Companys obligations and commitments as of
December 31, 2003: Payments Due by Period (in thousands) Less than
    
    1-3
    
    4-5
    
    AfterContractual Cash Obligations
    
    Total
    
    1 Year
    
    Years
    
    Years
    
    5 YearsLong-Term Debt
    
    $
    996
    
    
    $
    54
    
    
    $
    187
    
    
    $
    95
    
    
    $
    660Employment Agreement
    
    $
    750
    
    
    $
    250
    
    
    $
    500
    
    
    $
    
    
    
    $
    Total Contractual Cash Obligations
    
    $
    1,746
    
    
    $
    304
    
    
    $
    687
    
    
    $
    95
    
    
    $
    660
 Amount of Commitment Expiration per Period (in thousands) Other Commercial
    
    Total Amounts
    
    Less than
    
    1-3
    
    4-5
    
    AfterCommitments
    
    Outstanding
    
    1 Year
    
    Years
    
    Years
    
    5 YearsLines of Credit
    
    $
    4,432
    
    
    $
    4,432
    
    
    $
    
    
    
    $
    
    
    
    $
    Total Commercial Commitments
    
    $
    4,432
    
    
    $
    4,432
    
    
    $
    
    
    
    $
    
    
    
    $
    
 17




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##### Table of Contents



Certain Risk Factors That Could Affect Future Results You should carefully consider and evaluate all of the information in this
Form 10-K, including the risk factors listed below. The risks described below
are not the only ones facing our company. Additional risks not now known to us
or that we currently deem immaterial may also impair our business operations. If any of these risks actually occur, our business could be materially
harmed. If our business is harmed, the trading price of our common stock could
decline. Potential Fluctuations in Operating Results.The Companys net sales,
gross margin and operating results may fluctuate significantly from period to
period due to factors such as the mix of products sold, the level of
discounting employed on the Companys products, the ability to utilize or
expand manufacturing resources efficiently, material shortages, the
introduction and consumer acceptance of new models offered by the Company,
competition, warranty expense, the addition or loss of dealers, the timing of
trade shows and rallies, and factors affecting the recreational vehicle
industry as a whole, such as cyclicality and seasonality. In addition, the
Companys overall gross margin will be impacted by shifts in the Companys
product. Due to the relatively high selling prices of many of the Companys
motorhome models, a relatively small variation in the number of recreational
vehicles sold in any quarter can have a significant effect on sales and
operating results for that quarter. Continuation of Losses. The Company has had net losses totaling $2.4
million, $935,000 and $2.0 million for 2003, 2002 and 2001, respectively.
Continued losses could reduce the Companys liquidity and cause the Company to
reduce its expenditures on capital improvements, machinery and equipment, and
research and development. This could have a negative effect on the Companys
ability to maintain production schedules, manufacture products of high quality,
and develop and manufacture new products that will achieve market acceptance.
This could in turn, have a negative impact on the Companys sales and earnings.
If the Company continues to suffer losses, the Company could be unable to
implement its business and financial strategies or meet its obligations when
due. Cyclicality, Seasonality and Economic Conditions. The recreational vehicle
industry has been characterized by cycles of growth and contraction in consumer
demand, reflecting prevailing economic conditions, which affect disposable
income for leisure-time activities. Concerns about the availability and price
of gasoline, decreases in consumer confidence, increases in interest rates and
reductions in available financing have had, and may in the future have, an
adverse impact on recreational vehicle sales. Seasonal factors, over which the
Company has no control, also have an effect on the demand for the Companys
products. Demand in the recreational vehicle industry declines over the winter
season, while sales are generally highest during the spring and summer months. Dependence on Certain Dealers. For the year ended December 31, 2003, two
dealers accounted for 14%, and 11%, respectively, of the Companys net sales.
The loss by the Company of one or more of these dealers could have a material
adverse effect on the Companys financial condition and results of operations. Dependence on Chassis Suppliers. One of the principal components used in
the manufacture of motorhomes is the chassis, which includes the engine, drive
train and other operating components. The Company obtains the chassis required
for its motorhomes from Ford Motor Company, Workhouse Custom Chassis and, to a
lesser extent, Spartan Motors. As is standard in the industry, arrangements
with such suppliers permit them to terminate their relationship with the
Company at any time. Lead times for the delivery of chassis frequently exceed
six weeks and the recreational vehicle industry as a whole has from time to
time experienced temporary shortages of chassis. If any of the Companys
suppliers were to discontinue the manufacture of chassis utilized by the
Company in the manufacture of its Class A motorhomes, materially reduce their
availability to the recreational vehicle industry in general or limit or
terminate their availability to the Company in particular, the business and
financial condition of the Company could be materially and adversely affected. 18




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Repurchase Arrangements.As is typical in the recreational vehicle
industry, the Company enters into repurchase agreements with the financing
institutions used by its dealers to finance their purchases of the Companys
Class A motorhomes. These agreements require the Company to repurchase the
dealers inventory in the event that the dealer does not repay its lender.
Obligations under these agreements vary from period to period, but totaled
approximately $16.6 million as of December 31, 2003, with approximately 23%
concentrated with the Companys two largest dealers. If the Company became
obligated to repurchase a significant number of units under any repurchase
agreement, its business, operating results, and financial condition could be
adversely affected. Competition. The Company competes with numerous manufacturers, many of
which have multiple product lines of recreational vehicles, which are larger
and have substantially greater financial and other resources than the Company.
In addition, sales of used recreational vehicles provide competition to
recreational vehicle manufacturers. For further discussion regarding
competitive factors affecting the Company, see Item 1 Business  Competition. Government Regulation. The Company is subject to numerous federal, state
and local regulations governing the manufacture and sale of its motorhomes. It
is also subject to federal and numerous state consumer protection and unfair
trade practice laws and regulations relating to the sale, transportation and
marketing of motor vehicles, including so-called Lemon Laws. Federal and
state laws and regulations also impose upon vehicle operators various
restrictions on the weight, length and width of motor vehicles, including buses
and motor homes, that may be operated in certain jurisdictions or on certain
roadways. Certain jurisdictions also prohibit the sale of vehicles exceeding
length restrictions. Finally, federal and state authorities also have various
environmental control standards relating to air, water, noise pollution and
hazardous waste generation and disposal that affect the Companys business and
operations. Failure to comply with any of the foregoing laws or regulations
could have an adverse impact on the Companys business. Warranty Claims. The Company is subject to warranty claims in the
ordinary course of its business. Although the Company maintains reserves for
such claims, which to date have been adequate, there can be no assurance that
warranty expense levels will remain at current levels or that such reserves
will continue to be adequate. A large number of warranty claims exceeding the
Companys current warranty expense levels could have a material adverse effect
on the Companys results of operations and financial condition. Product Liability. The Company maintains product liability insurance with
coverage in amounts which management believes is reasonable. To date, the
Company has been successful in obtaining product liability insurance on terms
the Company considers acceptable. Given the nature of the Companys business,
product liability in excess of the Companys insurance coverage, if incurred,
could have a material adverse financial effect on the Company. Risks Relating to Patents.The Company has been awarded two patents from
the United States Patent and Trademark Office covering the ornamental design
for its T-Rex Double & Wide motorhomes. The Companys patents on the design of
the new motorhomes may not provide it with meaningful protection against
duplication. Policing unauthorized use of the Companys designs could result in
the expenditure of significant financial and managerial resources and the
success of these efforts cannot be predicted with certainty. Litigation may be
necessary in the future to enforce the Companys patent and other intellectual
property rights. This litigation could be costly and its outcome cannot be
predicted with certainty. The Companys inability to adequately protect against
unauthorized use of its patent and other intellectual property rights would
significantly impair their value and could adversely damage its competitive
position. Dependence on, and Control of, William Rex. The Companys success depends
to a substantial degree on the continued participation in its business by
William Rex, a founder, the Chief Executive Officer and principal shareholder
of the Company. While the Company has an employment agreement with Mr. Rex, the
loss of his services through death, disability or other cause would have a
material adverse effect on the business of the Company. A family trust of 19




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##### Table of Contents



which Mr. Rex and his wife serve as trustees owns 53.3% of the Companys
outstanding shares. Accordingly, Mr. Rex controls a sufficient percentage of
the outstanding stock of the Company to control its affairs and policies. Issuance of Preferred Stock. The Company is authorized to issue up to
1,000,000 shares of preferred stock. This preferred stock may be issued in one
or more series, the terms of which may be determined at the time of issuance by
the Companys board of directors without further action by shareholders. The
terms of any series of preferred stock may include voting rights (including the
right to vote as a series on particular matters), preferences as to dividend,
liquidation, conversion and redemption rights and sinking fund provisions. No
preferred stock is currently outstanding. The issuance of any preferred stock
could materially adversely affect the rights of the holders of the Companys
common stock, and therefore, reduce the value of the Companys common stock. In
particular, specific rights granted to future holders of preferred stock could
be used to restrict the Companys ability to merge with, or sell the Companys
assets to, a third party and thereby preserve control by the present
management. 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 with cost determined 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. Actual results may differ significantly from these estimates under
different assumptions or conditions. 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. Warranty Costs -The Company provides an estimate for accrued warranty
costs at the time a product is sold. This estimate is based on historical
average per-unit repair costs and current dealer inventories, as well as other
reasonable assumptions as have been deemed appropriate by management. However,
actual costs may vary from estimates, requiring adjustments to warranty
reserves. These reserves are reviewed by management on a quarterly basis and
adjusted accordingly. While the Companys warranty costs have historically
been within its expectations and the provisions established, the Company cannot
guarantee that it will continue to experience the same warranty costs that it
has in the past. A significant increase in dealer shop rates, the cost of
parts or the frequency of claims could have a material adverse impact on the
Companys operating results for the period or periods in which such claims or
additional costs materialize. See Note 7 20




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##### Table of Contents



to Notes to Consolidated Financial
Statements. Deferred Taxes  Deferred tax assets and liabilities are determined based
on temporary differences between income and expenses reported for financial
reporting and tax reporting. We are required to record a valuation allowance
to reduce our deferred tax assets to the amount that we believe is more likely
than not to be realized. In assessing the need for a valuation allowance, we
previously have considered all positive and negative evidence, including
scheduled reversals of deferred tax liabilities, projected future taxable
income, tax planning strategies and recent financial performance. The
accounting guidance states that forming a conclusion that a valuation allowance
is not needed is difficult when there is negative evidence such as cumulative
losses in recent years. As a result of our recent losses, we have recorded a
100% valuation allowance of $2,255,000. If, after future assessments, we
determine a lesser allowance is required, we would record a reduction to income
tax expense and the valuation allowance in the period of such determination. 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. The Company was required
to adopt SFAS No. 146 on January 1, 2003. However, the new pronouncement did
not have an effect on the Companys financial position or operating
performance. 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. 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 was required to adopt SFAS No. 148 for the year ending December 31,
2003. However, the new pronouncement is 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. 143 (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 was
required to adopt SFAS No. 143 on July 1, 21




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##### Table of Contents



2003. However, the new pronouncement did not have an effect on the
Companys financial position or operating performance. 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 was required to adopt SFAS No. 150 on July 1, 2003.
However, the new pronouncement did not have an effect on the Companys
financial position or operating performance. In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an Interpretation of Accounting
Research Bulletin No. 51. FIN 46 requires certain variable interest entities
to be consolidated by the primary beneficiary of the entity if the equity
investors in the entity do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial support from
other parties. FIN 46 is effective immediately for all new variable interest
entities created or acquired after January 31, 2003. For variable interest
entities created or acquired prior to February 1, 2003, the provisions of FIN
46 must be applied for the first interim or annual period beginning after June
15, 2003. The Company does not expect the adoption of FIN 46 to have a material
impact on its historical financial position or results of operations. 
 Item 7A: Quantitative and Qualitative Disclosure about Market Risk In the ordinary course of its business the Company is exposed to certain
market risks, primarily 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 or
operations or cash flows for the next fiscal year. 22




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##### Table of Contents



Item 8. Financial Statements Independent Auditors Report The Board of Directors
Rexhall Industries, Inc. We have audited the accompanying consolidated balance sheet of Rexhall
Industries, Inc. and subsidiary as of December 31, 2003, and the related
consolidated statements of operations, stockholders equity, and cash flows for
the year then ended. In connection with our audit of the aforementioned
consolidated financial statements, we also have audited the related financial
statement schedule. These consolidated financial statements and financial
statement schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audit. We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Rexhall Industries,
Inc. and subsidiary as of December 31, 2003, and the results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein. /s/ CACCIAMATTA ACCOUNTANCY CORPORATION Irvine, California
April 6, 2004 23




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##### Table of Contents



Independent Auditors Report The Board of Directors
Rexhall Industries, Inc. We have audited the accompanying consolidated balance sheet of Rexhall
Industries, Inc. and subsidiary as of December 31, 2002, and the related
consolidated statements of operations, stockholders equity, and cash flows for
the year then ended. In connection with our audit of the aforementioned
consolidated financial statements, we also have audited the related financial
statement schedule. These consolidated financial statements and financial
statement schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit. We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Rexhall Industries,
Inc. and subsidiary as of December 31, 2002, and the result of their operations
and their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein. /s/ BECKMAN KIRKLAND & WHITNEY Agoura Hills, California
March 26, 2003 24




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Independent Auditors Report The Board of Directors
Rexhall Industries, Inc. We have audited the accompanying consolidated statements of operations,
stockholders equity, and cash flows of Rexhall Industries, Inc. and subsidiary
for the year ended December 31, 2001. In connection with our audit of these
aforementioned consolidated financial statements, we also have audited the
related financial statement schedule. These consolidated financial statements
and financial statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audit. We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated statements of operations, stockholders
equity, and cash flows referred to above present fairly, in all material
respects, the results of operations and cash flows of Rexhall Industries, Inc.
and subsidiary as of December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein. /s/ KPMG LLP
Los Angeles, California
March 1, 2002 25




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##### Table of Contents



REXHALL INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 and 2002 ASSETS
    
    2003
    
    2002CURRENT ASSETSCash
    
    $
    1,883,000
    
    
    $
    5,757,000Accounts Receivables, less Allowance for Doubtful Accounts
of $47,000 in 2003 and $103,000 in 2002
    
    
    1,332,000
    
    
    
    2,251,000Income Tax Receivable
    
    
    551,000
    
    
    
    360,000Inventories
    
    
    17,848,000
    
    
    
    15,049,000Deferred Income Taxes (Note 6)
    
    
    124,000
    
    
    
    1,003,000Other Current Assets
    
    
    265,000
    
    
    
    139,000Current Assets of Discontinued Operations (Note 12)
    
    
    
    
    
    
    182,000TOTAL CURRENT ASSETS
    
    
    22,003,000
    
    
    
    24,741,000Property and Equipment at Cost Net
of Accumulated Depreciation (Note 2)
    
    
    4,613,000
    
    
    
    5,021,000Property Held for Sale (Note 9)
    
    
    1,189,000
    
    
    
    Other Assets ( Note 4)
    
    
    194,000
    
    
    
    152,000Non-Current Assets of Discontinued Operations (Note 12)
    
    
    
    
    
    
    37,000TOTAL ASSETS
    
    $
    27,999,000
    
    
    $
    29,951,000LIABILITIES & STOCKHOLDERS EQUITYCURRENT LIABILITIES:Accounts Payable
    
    $
    1,836,000
    
    
    $
    1,622,000Chassis Vendor Line of Credit (Note 3)
    
    
    4,432,000
    
    
    
    3,381,000Notes Payable and Current Portion of Long-Term Debt (Note 5)
    
    
    54,000
    
    
    
    36,000Warranty Allowance
    
    
    980,000
    
    
    
    991,000Accrued Legal (Note 7)
    
    
    1,594,000
    
    
    
    1,250,000Dealer Incentives
    
    
    384,000
    
    
    
    638,000Other Accrued Liabilities
    
    
    1,102,000
    
    
    
    1,750,000Accrued Compensation and Benefits
    
    
    280,000
    
    
    
    472,000Current Liabilities of Discontinued Operations (Note 12)
    
    
    
    
    
    
    20,000TOTAL CURRENT LIABILITIES
    
    
    10,662,000
    
    
    
    10,160,000Long-Term Debt, less Current Portion (Note 5)
    
    
    942,000
    
    
    
    634,000TOTAL LIABILITIES
    
    
    11,604,000
    
    
    
    10,794,000STOCKHOLDERS EQUITYPreferred Stock  no par value
Authorized, 1,000,000 shares; none issuedCommon Stock  no par value,
Authorized, 10,000,000 shares, issued and outstanding
    
    
    
    
    
    
    5,872,700 at December 31, 2003 and 6,037,700 at 2002
    
    
    5,580,000
    
    
    
    5,906,000Retained Earnings
    
    
    10,815,000
    
    
    
    13,251,000TOTAL STOCKHOLDERS EQUITY
    
    
    16,395,000
    
    
    
    19,157,000Commitments and Contingencies (Notes 3 and 7)TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    27,999,000
    
    
    $
    29,951,000
 See accompanying notes to consolidated financial statements 26




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REXHALL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 and 2001 2003
    
    2002
    
    2001Net Revenues (Note 8)
    
    $
    38,892,000
    
    
    $
    63,303,000
    
    
    $
    56,680,000Cost of Sales
    
    
    32,938,000
    
    
    
    56,424,000
    
    
    
    51,584,000Gross Profit
    
    
    5,954,000
    
    
    
    6,879,000
    
    
    
    5,096,000Operating Expenses:Selling, General and Administrative Expenses
    
    
    8,402,000
    
    
    
    8,278,000
    
    
    
    7,333,000Loss from Operations
    
    
    (2,448,000
    )
    
    
    (1,399,000
    )
    
    
    (2,237,000
    )Interest Income
    
    
    23,000
    
    
    
    56,000
    
    
    
    250,000Interest Expense
    
    
    (155,000
    )
    
    
    (144,000
    )
    
    
    (181,000
    )Other Income, net
    
    
    173,000
    
    
    
    
    
    
    
    242,000Gain on Sale of Fixed Assets
    
    
    
    
    
    
    34,000
    
    
    
    26,000Loss from Continuing Operations Before Income Taxes
    
    
    (2,407,000
    )
    
    
    (1,453,000
    )
    
    
    (1,900,000
    )Income Tax Expense (Benefit) (Note 6)
    
    
    29,000
    
    
    
    (526,000
    )
    
    
    (603,000
    )Loss from Continuing Operations
    
    
    (2,436,000
    )
    
    
    (927,000
    )
    
    
    (1,297,000
    )Loss from Discontinued Operations
(net of applicable income tax benefit of $333,000 in
2001) (Note 12)
    
    
    
    
    
    
    
    
    
    
    (695,000
    )Loss on Disposal of Discontinued Operations
(net of applicable income tax benefit of $5,000) (Note 12)
    
    
    
    
    
    
    (8,000
    )
    
    
    Net Income (Loss)
    
    
    ($2,436,000
    )
    
    
    ($935,000
    )
    
    
    ($1,992,000
    )Basic and Diluted Loss
from Continuing Operations  Per Share
    
    
    ($0.41
    )
    
    
    ($0.15
    )
    
    
    ($0.21
    )Basic and Diluted Loss
from Discontinued Operations  Per Share
    
    $
    
    
    
    $
    
    
    
    
    ($0.12
    )Basic and Diluted Loss  Per Share
    
    
    ($0.41
    )
    
    
    ($0.15
    )
    
    
    ($0.33
    )Weighted Average Shares Outstanding  Basic and Diluted
    
    
    5,905,000
    
    
    
    6,077,000
    
    
    
    6,082,000
 See accompanying notes to consolidated financial statements 27




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REXHALL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 and 2003 COMMON
    
    STOCK
    
    LOAN
    
    RETAINEDSHARES
    
    AMOUNT
    
    RECEIVABLE
    
    EARNINGS
    
    TOTALBALANCE, December 31, 2000
    
    
    6,137,000
    
    
    $
    6,241,000
    
    
    
    ($57,000
    )
    
    $
    16,178,000
    
    
    $
    22,362,00Repurchase of Stock
    
    
    (42,000
    )
    
    
    (102,000
    )
    
    
    
    
    
    
    
    
    
    
    (102,000
    )Repayment of Loan Receivable
Related to Stock Options
    
    
    
    
    
    
    
    
    
    
    11,000
    
    
    
    
    
    
    
    11,000Net (Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,992,000
    )
    
    
    (1,992,000
    )BALANCE, December 31, 2001
    
    
    6,095,000
    
    
    $
    6,139,000
    
    
    
    ($46,000
    )
    
    $
    14,186,000
    
    
    $
    20,279,000Repurchase of Stock
    
    
    
    
    
    
    (57,000
    )
    
    
    (233,000
    )
    
    
    
    
    
    
    (233,000
    )Repayment of Loan Receivable
Related to Stock Options
    
    
    
    
    
    
    
    
    
    
    46,000
    
    
    
    
    
    
    
    46,000Net (Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (935,000
    )
    
    
    (935,000
    )BALANCE, December 31, 2002
    
    
    6,038,000
    
    
    $
    5,906,000
    
    
    $
    
    
    
    $
    13,251,000
    
    
    $
    19,157,000Repurchase of Stock
    
    
    (165,000
    )
    
    
    (326,000
    )
    
    
    
    
    
    
    
    
    
    
    (326,000
    )Repayment of Loan Receivable
Related to Stock Options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net (Loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,436,000
    )
    
    
    (2,436,000
    )BALANCE, December 31, 2003
    
    
    5,873,000
    
    
    $
    5,580,000
    
    
    $
    
    
    
    $
    10,815,000
    
    
    $
    16,395,000
 See accompanying notes to consolidated financial statements 28




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REXHALL INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 and 2001 2003
    
    2002
    
    2001CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    
    ($2,436,000
    )
    
    
    ($935,000
    )
    
    
    ($1,992,000
    )Adjustments to reconcile net income (loss)
to net cash provided by (used in)operating activities:Net loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    695,000Depreciation and amortization
    
    
    381,000
    
    
    
    383,000
    
    
    
    376,000Gain on sale of property, plant and equipment
    
    
    
    
    
    
    (34,000
    )
    
    
    (26,000
    )Provision for deferred income taxes
    
    
    879,000
    
    
    
    (39,000
    )
    
    
    (198,000
    )(Increase) decrease in:Accounts receivable
    
    
    919,000
    
    
    
    (200,000
    )
    
    
    4,848,000Inventories
    
    
    (2,799,000
    )
    
    
    (2,503,000
    )
    
    
    2,398,000Income tax receivable
    
    
    (191,000
    )
    
    
    426,000
    
    
    
    (594,000
    )Increase (decrease) in:Accounts payable
    
    
    214,000
    
    
    
    (1,801,000
    )
    
    
    534,000Warranty allowance
    
    
    (11,000
    )
    
    
    292,000
    
    
    
    (138,000
    )Accrued legal
    
    
    344,000
    
    
    
    448,000
    
    
    
    357,000Dealer incentives
    
    
    (254,000
    )
    
    
    (501,000
    )
    
    
    407,000Other assets and liabilities
    
    
    (1,008,000
    )
    
    
    1,572,000
    
    
    
    854,000Net cash
provided by (used in) operating activities
    
    
    (3,962,000
    )
    
    
    (2,892,000
    )
    
    
    7,521,000CASH FLOWS FROM INVESTING ACTIVITIESAdditions to property and equipment
    
    
    (1,162,000
    )
    
    
    (171,000
    )
    
    
    (178,000
    )Proceeds from sale of property and equipment
    
    
    
    
    
    
    159,000
    
    
    
    108,000Net cash
provided by (used in) investing activities
    
    
    (1,162,000
    )
    
    
    (12,000
    )
    
    
    (70,000
    )CASH FLOWS FROM FINANCING ACTIVITIESRepayments on long-term debt
    
    
    (54,000
    )
    
    
    (35,000
    )
    
    
    (34,000
    )Repayments on short-term notes
    
    
    
    
    
    
    (248,000
    )
    
    
    (237,000
    )Proceeds (repayment) on chassis vendor line of credit
    
    
    1,051,000
    
    
    
    328,000
    
    
    
    (502,000
    )Proceeds from loan receivable on exercise of stock options
    
    
    
    
    
    
    46,000
    
    
    
    11,000Proceeds from redevelopment agency
    
    
    300,000
    
    
    
    
    
    
    
    Increase in Long-Term Debt
    
    
    80,000
    
    
    
    
    
    
    
    Repurchase and retirement of stock
    
    
    (326,000
    )
    
    
    (233,000
    )
    
    
    (102,000
    )Net cash
provided by (used in) financing activities
    
    
    1,051,000
    
    
    
    (142,000
    )
    
    
    (864,000
    )NET CASH FLOWS FROM DISCONTINUED OPERATIONS
    
    
    199,000
    
    
    
    141,000
    
    
    
    (1,373,000
    )NET (DECREASE) INCREASE IN CASH
    
    
    (3,874,000
    )
    
    
    (2,905,000
    )
    
    
    5,214,000BEGINNING CASH BALANCE
    
    
    5,757,000
    
    
    
    8,662,000
    
    
    
    3,448,000ENDING CASH BALANCE
    
    $
    1,883,000
    
    
    $
    5,757,000
    
    
    $
    8,662,000SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONIncome taxes paid (refunded) during the year
    
    $
    (536,000
    )
    
    $
    (872,000
    )
    
    $
    113,000Interest paid during the year
    
    $
    155,000
    
    
    $
    144,000
    
    
    $
    589,000SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:Notes payable for insurance policies
    
    $
    392,000
    
    
    $
    475,000
    
    
    $
    328,000
 See accompanying notes to consolidated financial statements 29




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REXHALL INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Activities  Rexhall Industries, Inc. and subsidiary (the Company)
is engaged in designing, manufacturing and selling Class A motorhomes. Class A
motorhomes are self-contained and self-powered recreational vehicles used
primarily in conjunction with leisure travel and outdoor activities. The
Companys wholly owned subsidiary, Price I, Inc. dba Price One RV, was a
retailer of Class A motorhomes and other recreational vehicles. In December
2001, the Company ceased its retail operations. At December 31, 2003, Price
One had no significant assets or liabilities. Principles of Consolidation  The consolidated financial statements include the
financial statements of Rexhall Industries, Inc. and its wholly owned
subsidiary. All significant intercompany balances and transactions have been
eliminated in consolidation. Concentration of Credit Risk  Sales are usually made to dealers over a wide
geographic area primarily with terms requiring payment within ten days or less
of the dealers receipt of the unit. 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 motorhome so financed. The Company has recorded an allowance for doubtful accounts to cover the
difference between recorded receivables and collections from customers. The
allowance for bad debts is adjusted periodically based upon the Companys
evaluation of historical collection experiences, industry trends and other
relevant factors. Inventories  Inventories are stated at the lower of cost or market value,
determined using the first-in, first-out basis. Costs include material, labor
and applicable manufacturing overhead. 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. Inventories
consist of the following at December 31, 2003 and 2002: 2003
    
    2002Chassis
    
    $
    8,306,000
    
    
    $
    6,604,000Raw Materials
    
    
    2,638,000
    
    
    
    2,713,000Work-in-Progress
    
    
    2,033,000
    
    
    
    1,617,000Finished Goods
    
    
    4,871,000
    
    
    
    4,115,000Total
    
    $
    17,848,000
    
    
    $
    15,049,000
 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. Property, Plant and Equipment  Property, plant and equipment are stated at
cost. Depreciation and amortization are 30




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computed based on the straight-line
method over the estimated useful lives of the assets, which range from 3 to
31.5 years. Property held for sale is stated at the lower of cost or fair value less
selling expenses and includes certain property no longer used in the Companys
operation. Research and Development  Research and development costs were $1,606,000,
$146,000 and $426,000 in 2003, 2002 and 2001, respectively, and are expensed as
incurred. Revenue Recognition  The Company derives revenue primarily from the sale of
motorhomes to dealers across the United States. Revenue is recognized when all
of the following conditions have been met: 1) An order for a product has been
received from a dealer; 2) Written or verbal approval for payment has been
received from the dealers flooring institution; 3) A common carrier signs the
delivery ticket accepting responsibility for the product as agent for the
dealer; and 4) The product is removed from Rexhalls property for delivery to
the dealer who placed the order.
Most manufacturing sales are made on cash terms, with most dealers financing
their purchases under flooring arrangements with banks or finance companies.
Products are not ordinarily sold on consignment; dealers do not ordinarily have
the right to return products; and dealers are typically responsible for
interest costs to floorplan lenders. On average, we receive payments from
floorplan lenders on products sold to independent dealers within 15 days of the
invoice date, i.e. the date the product is shipped. Warranty Reserve Policy  The Company provides retail purchasers of its
motorhomes with a limited warranty against defects in materials and workmanship
for 12 months or 12,000 miles measured from date of purchase, or upon the
transfer of the vehicle by the original owner, whichever occurs first. The
Companys warranty excludes certain specified components, including chassis,
engines and power train, and appliances, which are warranted separately by the
suppliers. The Company estimates warranty reserves required by applying
historical experience with regard to probabilities of failure and cost to
product sales covered by warranty terms. Warranty expense was $1,755,000,
$1,904,000 and $1,070,000 for the years ended December 31, 2003, 2002 and 2001,
respectively. Income Taxes  Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date. The realizability of the deferred tax assets is assessed
throughout the year and a valuation allowance is established accordingly. Earnings per Share  Basic earnings per share represents net earnings divided
by the weighted average number of common shares outstanding during the period.
Diluted earnings per share represents net earnings divided by the weighted
average number of shares outstanding, inclusive of the dilutive impact of
common stock options, provided their impact is not anti-dilutive. All share
and per share amounts have been restated to reflect the retroactive effects of
the 2-for-1 stock split, which occurred in July 2002. See note 10 to Notes to
Consolidated Financial Statements. Use of Estimates  The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions relating to the reported amounts of assets and liabilities and
disclosure of contingent 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 these estimates. Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of  The
Company accounts for long-lived assets in accordance with the provisions of
SFAS No. 144, Accounting for the Impairment and Disposal of Long-Lived
Assets. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever 31




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events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are
reported at the lower of the carrying amount or fair value less costs to sell. Fair Values of Financial Instruments  The following methods and assumptions
were used to estimate the fair value of each class of financial instruments for
which it is practicable to estimate that value: Cash, trade and other receivables, trade accounts payable, notes payable and
accrued expenses: The carrying amounts approximate the fair values of these
instruments due to their short-term nature. Line of Credit: The fair value of the Companys line of credit approximates
carrying value as it accrues interest at prevailing market rates on a variable
basis. Long-Term Debt: The fair value of the Companys long-term debt approximates the
current book value based on estimated quotations made on long-term debt
facilities with similar quality and terms. 2. PROPERTY AND EQUIPMENT Property and equipment consist of the following at December 31, 2003 and 2002: Useful Lives(In years)
    
    2003
    
    2002Land
    
    
    
    
    
    $
    991,000
    
    
    $
    1,313,000Property Held for Sale
    
    
    
    
    
    
    1,189,000
    
    
    
    Building
    
    
    5, 31.5
    
    
    
    4,054,000
    
    
    
    3,968,000Autos and Trucks
    
    
    3-7
    
    
    
    354,000
    
    
    
    292,0008,500,000
    
    
    
    7,333,000Less: Accumulated Depreciation
    
    
    
    
    
    
    2,698,000
    
    
    
    2,312,000Property and Equipment, net
    
    
    
    
    
    $
    5,802,000
    
    
    $
    5,021,000Depreciation Expense
    
    
    
    
    
    $
    381,000
    
    
    $
    383,000
 In July 2001, there was a fire at the Companys manufacturing facility which
caused approximately $1,600,000 worth of damage to the plant, offices and
inventory. During 2002, the Company was able to determine the damage to the
building and improvements amounted to $524,000. The building improvements have
been written down and the Company has been reimbursed by insurance for the fire
damage. 3. LINES OF CREDIT As of December 31, 2003, the Company had eliminated its entire $2,500,000
Line of Credit with a bank, which included 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 The Company had never drawn from this line of
credit, and due to the costs and liability associated with maintaining a line
of revolving credit, Rexhall eliminated its line during the second and third
quarters of 2003. The requirements for self-insurance are now being met
through the California Self Insurers Security Fund and its Alternative
Security Program (ASP). Under the ASP, the fund will arrange for a composite
security deposit for participating self-insurers rather than rely on such 32




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##### Table of Contents



members to arrange for their security deposits on an individual basis. The
Companys covered deposit under this plan is $711,427. As of December 31, 2003, the Company has a line of credit with a chassis
vendor, Ford Motor Credit Company (FMCC), with a $3,500,000 limit, cancelable
upon notice by FMCC. This limit reflects a reduction from $5,000,000 during
the first quarter of 2003. This line of credit reduction was due to an
analysis by FMCC of the Companys needs based on historical financing
requirements. FMCC determined that the new $3,500,000 limit would be enough to
meet the
Companys future financial requirements. Borrowings under the line bear
interest at an annual rate of prime plus 1% (5.00% at December 31, 2003). All
borrowings are secured by the Ford merchandise. The outstanding balance at
December 31, 2003 was $2,919,000. Additionally, beginning in the third quarter 2003, the Company established
a financing agreement with GE Capital for the purchase of chassis from
Workhorse Custom Chassis. The limit on this line of credit is $1,600,000 and
is cancelable upon written notice by GE Capital. Borrowings under this line of
credit bear interest at the rate of prime plus 1% (5.00% at December 31, 2003).
The chassis purchased from Workhorse secure borrowings under this line of
credit. The outstanding balance under this line of credit is $1,513,000 at
December 31, 2003. 4. LOANS TO RELATED PARTIES From time to time the Company made loans to certain officers and key employees
related to the exercise of stock options. During 1998, the Company advanced
$385,000 to key employees under the Companys Incentive and Non-Statutory Stock
Option Plan (The Plan) in exchange for the exercise of 123,000 options. The
loans were full recourse loans and were secured by the shares of common stock
issued upon such exercise. The notes bear interest at a rate as defined by
Regulation 1.1274-4 of Internal Revenue Code of 1986, (4.92% at December 31,
2002). Loans extended for the exercise of incentive stock options are netted
against equity. During 2000, an executive of the company repaid a portion of
the outstanding loans and related accrued interest by foregoing the bonus
liability that was due from the Company. During 2002, the remaining balance
was paid in full leaving the outstanding balance as of December 31, 2002 at
nil. In December 2000, the Company and Mr. William J. Rex, President & CEO,
purchased a partially completed building on 1.7 acres in Acton, California for
$401,000. The Company and Mr. Rex each contributed 50% of the purchase price
and agreed to share equally in the final construction of the building on the
property. The Company paid $151,000 on behalf of Mr. Rex in exchange for a
$151,000 note receivable. The note is secured by the executives interest in
the property. This note receivable is classified as an Other Asset on the
balance sheet. The note bears interest at a rate as defined by Regulation
1.1274-4 of Internal Revenue Code of 1986, (5.12% at December 31, 2003). In
the first quarter of 2004, the Company decided to list the property for sale. 33




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5. NOTES PAYABLE AND LONG-TERM DEBT 2003
    
    2002Promissory note payable to the City of Lancaster Redevelopment
Agency, 240 monthly payments of $6,285 including principal
and interest at 5.93% per annum, note matures in October 2015
The note is collateralized by land and building with a net book value
of approximately $839,000 at December 31, 2003
    
    $
    634,000
    
    
    $
    670,000Employment program promissory note payable to City of Lancaster
Redevelopment Agency (may be forgiven in full or in part if hiring
requirements are met). The note accrues interest at 10% per annum,
and matures in January 2008. The note is collateralized by the land.
    
    
    300,000
    
    
    
    Note payable to Ingersol-Rand for equipment purchase, 36 monthly
payments of $2,209 including principal and interest at 0.14% per
annum, note matures in April 2006.
    
    
    62,000
    
    
    
    Total Notes Payable and Long-Term Debt
    
    $
    996,000
    
    
    $
    670,000Less: Current Portion
    
    
    54,000
    
    
    
    36,000Long-Term Portion
    
    $
    942,000
    
    
    $
    634,000
 Future annual minimum principal payments due on long-term debt (including
current portion) as of December 31, 2003 are as follows: Year Ending December 31,2004
    
    
    54,0002005
    
    
    66,0002006
    
    
    68,0002007
    
    
    53,000Thereafter
    
    
    755,000$
    996,000
 34




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6. INCOME TAXES The components of income tax expense (benefit) are as follows: Year Ended December 31,2003
    
    2002
    
    2001Income tax expense (benefit)
excluding discontinued operations
    
    $
    29,000
    
    
    
    ($526,000
    )
    
    
    ($603,000
    )Income tax (benefit) of discontinued operations
    
    
    
    
    
    
    (5,000
    )
    
    
    (333,000
    )Total income tax expense (benefit)
    
    $
    29,000
    
    
    
    ($531,000
    )
    
    
    ($936,000
    )Current:Federal
    
    
    ($129,000
    )
    
    
    ($392,000
    )
    
    
    ($788,000
    )State
    
    
    (600,000
    )
    
    
    (56,000
    )
    
    
    (50,000
    )(729,000
    )
    
    
    (448,000
    )
    
    
    (738,000
    )Deferred:Federal
    
    
    613,000
    
    
    
    (66,000
    )
    
    
    (105,000
    )State
    
    
    145,000
    
    
    
    (17,000
    )
    
    
    (93,000
    )758,000
    
    
    
    (83,000
    )
    
    
    (198,000
    )Total income tax expense (benefit)
    
    $
    29,000
    
    
    
    ($531,000
    )
    
    
    ($936,000
    )
 The components of deferred tax assets (liabilities) at December 31, 2003, 2002, and 2001 are as follows: 2003
    
    2002
    
    2001Current:Allowance for bad debts
    
    $
    19,000
    
    
    $
    35,000
    
    
    $
    60,000Inventory reserves and unicap
    
    
    150,000
    
    
    
    111,000
    
    
    
    125,000Warranty accrual
    
    
    390,000
    
    
    
    117,000
    
    
    
    281,000Net operating losses
    
    
    995,000
    
    
    
    235,000
    
    
    
    100,000Reserve for self insurance
    
    
    283,000
    
    
    
    456,000
    
    
    
    176,000Legal reserves
    
    
    320,000
    
    
    
    75,000
    
    
    
    146,000Other accrued liabilities
    
    
    222,000
    
    
    
    325,000
    
    
    
    151,000State tax
    
    
    
    
    
    
    
    
    
    
    $
    2,379,000
    
    
    $
    1,354,000
    
    
    $
    1,039,000Non Current:Depreciation
    
    
    (124,000
    )
    
    
    185,000
    
    
    
    Deferred tax assets
    
    $
    2,255,000
    
    
    $
    1,539,000
    
    
    $
    1,039,000Less:Valuation allowance
    
    
    (2,255,000
    )
    
    
    (536,000
    )
    
    
    (75,000
    )Net deferred tax asset
    
    $
    
    
    
    $
    1,003,000
    
    
    $
    964,000
 At December 31, 2003, the Company had a federal net operating loss carry
forward of approximately $2,478,000. These loss carry forwards begin to expire
in 2023 and will be fully expired in 2024. In addition, the Company has state
net operating loss carry forwards expiring in 2014. The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before income taxes due to the
following: 35




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Year Ended December 31,2003
    
    2002
    
    2001Net income (loss) before income taxes
    
    
    ($2,437,000
    )
    
    
    ($1,466,000
    )
    
    
    ($1,900,000
    )Statutory federal tax rate
    
    
    34
    %
    
    
    34
    %
    
    
    34
    %Expected tax expense (benefit)
    
    
    (829,000
    )
    
    
    (499,000
    )
    
    
    (646,000
    )State taxes net of federal effect
    
    
    (142,000
    )
    
    
    (86,000
    )
    
    
    (46,000
    )Permanent differences
    
    
    10,000
    
    
    
    8,000
    
    
    
    5,000Prior year federal and state tax refunds
    
    
    (736,000
    )
    
    
    
    
    
    
    Valuation Allowance
    
    
    1,719,000
    
    
    
    
    
    
    
    Other adjustments
    
    
    7,000
    
    
    
    51,000
    
    
    
    84,000Provision for income taxes of
continuing operations
    
    
    29,000
    
    
    
    (526,000
    )
    
    
    (603,000
    )Provision for income taxes of
discontinued operations
    
    
    
    
    
    
    (5,000
    )
    
    
    (333,000
    )Provision for income taxes
    
    $
    29,000
    
    
    
    ($531,000
    )
    
    
    ($936,000
    )
 7. COMMITMENTS AND CONTINGENCIES Repurchase Agreements As is customary in the industry, motorhomes purchased by
Dealers under financing agreements with third party lenders are subject to
repurchase by the Company in the event of default by the Dealer. The Companys
contingent liability under the repurchase agreements is limited to the total
unpaid balance (including, in some cases, interest and other charges) owed to
the lending institution by reason of its extension of credit to the dealer to
purchase the Companys motorhomes. The contingent liability under repurchase
agreements varies significantly from time to time, depending upon shipments and
dealer sales to end-users. The following table summarizes the Companys
contingent liability and repurchase history at December 31, 2003, 2002, and
2001: Repurchase History:
    
    2003
    
    2002
    
    2001Number of units sold
    
    
    473
    
    
    
    787
    
    
    
    769Amount of units sold
    
    $
    40,915,000
    
    
    $
    65,063,000
    
    
    $
    59,999,000Number of units repurchased
    
    
    25
    
    
    
    24
    
    
    
    44Amount of repurchases
    
    $
    2,023,000
    
    
    $
    1,760,000
    
    
    $
    3,319,000Loss recognized
    
    $
    97,000
    
    
    $
    197,000
    
    
    $
    267,000Average loss per unit repurchased
    
    $
    5,000
    
    
    $
    8,000
    
    
    $
    6,000Contingent Liability:Number of units subject to repurchase
    
    
    205
    
    
    
    344
    
    
    
    329Total contingent liability
    
    $
    16,600,000
    
    
    $
    28,900,000
    
    
    $
    23,900,000
 The risk of loss under these agreements is spread over numerous dealers and
financing institutions and is further reduced by the resale value of any
motorhomes that may be repurchased. To date, the Companys losses under these
repurchase agreements have been minimal at the gross margin level, upon resale
of the units. Employment Agreement  In July 2001, the Company entered into a five-year
employment agreement with its President and Chief Executive Officer, William J.
Rex. The employment agreement provides for minimum aggregate annual
compensation of $250,000, plus a bonus determined monthly equal to 10% of
income before bonus and taxes. There are no change of control arrangements in
the employment agreement. 36




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##### Table of Contents



Litigation  The Company is a defendant in various legal proceedings resulting
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 and have been adequately reserved for. Warranties  Estimated warranty costs are accrued for at the time the vehicle
is sold to a dealer. Included in the warranty cost accruals are costs for
basic warranties on units sold. Estimates for warranty costs are made based
primarily on recent warranty claim experience. The following is a tabular
reconciliation of the product warranty accrual: January 1, 2002 beginning balance
    
    $
    699,000Payments made in 2002
    
    
    (1,790,000
    )Changes to accrual related to warranties issued in 2002
    
    
    1,601,000Changes to accrual related to pre-existing warranties
    
    
    481,000December 31, 2002 ending balance
    
    $
    991,000January 1, 2003 beginning balance
    
    $
    991,000Payments made in 2003
    
    
    (1,969,000
    )Changes to accrual related to warranties issued in 2003
    
    
    1,249,000Changes to accrual related to
    
    
    709,000pre-existing warranties
    
    
    December 31, 2003 ending balance
    
    $
    980,000
 8. SIGNIFICANT CUSTOMERS The Company had two major customers, RV Peddler, Inc., with locations in CA and
AZ, and 10,000 RV Sales, Inc., in CA, who accounted for 14% and 11%
respectively of the Companys net revenues in 2003. During 2002, the Company
had one major customer, La Mesa RV with locations in CA and AZ, who accounted
for 18% of the Companys net revenues. The Company terminated its Dealer
Agreement with La Mesa RV in the third quarter of 2003. There were no
customers that comprised over 10% of the Companys revenues in 2001 9. PROPERTY HELD FOR SALE At December 31, 2001, the Companys customer service center in Elkhart, Indiana
was classified as held for sale. The facility has 1,500 square feet of office
space and a 3,500 square foot warehouse area with a net book value of $122,000
as of December 31, 2001. It was sold in 2002 for a net selling price of
$159,000. At December 31, 2003, the Companys customer service Center in Mesa, Arizona
was classified as held for sale. The facility is approximately 10,000 square
feet on four acres of land, with a net book value of $1,189,000 as of December
31, 2003. 10. EARNINGS PER SHARE All share and per share amounts have been restated to reflect the retroactive
effects of the 2-for-1 stock split, which occurred in July 2002. The following is a reconciliation of the basic and diluted earnings per share
computation for the year 2003, 2002 and 2001 (in thousands, except per share
data): 37




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##### Table of Contents



Year ended December 31,2003
    
    2002
    
    2001Net Income (Loss) Used for Basic and
Diluted Earnings Per Share
    
    
    ($2,436
    )
    
    
    ($935
    )
    
    
    ($1,992
    )Shares of Common Stock and Common Stock Equivalents:Weighted Average Shares Used in Basic and
Diluted Computation
    
    
    5,905
    
    
    
    6,077
    
    
    
    6,082Earnings Per Share:Basic and Diluted
    
    
    ($0.41
    )
    
    
    ($0.15
    )
    
    
    ($0.33
    )
 In 2003, the Company repurchased 165,000 common shares on the open market at an
average cost of $1.98 per share. There were no common stock equivalents
outstanding. 11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The results of operations for fiscal 2003 and 2002 are as follows: in thousands, except per share data
    
    First
    
    Second
    
    Third
    
    FourthQuarter
    
    Quarter
    
    Quarter
    
    QuarterFISCAL 2003:Net Revenues
    
    $
    12,946
    
    
    $
    9,642
    
    
    $
    10,823
    
    
    $
    5,481Gross Profit
    
    
    1,602
    
    
    
    1,259
    
    
    
    1,264
    
    
    
    1,829Loss from Continuing Operations
before Income Taxes
    
    
    (89
    )
    
    
    (466
    )
    
    
    (565
    )
    
    
    (1,287
    )Loss from Continuing Operations
    
    
    (57
    )
    
    
    (282
    )
    
    
    (204
    )
    
    
    (1,893
    )Net Loss
    
    
    (57
    )
    
    
    (282
    )
    
    
    (204
    )
    
    
    (1,893
    )Basic and Diluted Net Loss Per Share(1)
    
    
    (0.01
    )
    
    
    (0.05
    )
    
    
    (0.03
    )
    
    
    (0.33
    )FISCAL 2002:Net Revenues
    
    $
    17,407
    
    
    $
    18,964
    
    
    $
    12,872
    
    
    $
    14,060Gross Profit
    
    
    1,323
    
    
    
    2,354
    
    
    
    1,042
    
    
    
    2,160Income (Loss) from Continuing Operations
before Income Taxes
    
    
    (418
    )
    
    
    441
    
    
    
    (1,517
    )
    
    
    41Income (Loss) from Continuing Operations
    
    
    (253
    )
    
    
    264
    
    
    
    (907
    )
    
    
    (31
    )Net Income (Loss)
    
    
    (253
    )
    
    
    264
    
    
    
    (907
    )
    
    
    (39
    )Basic and Diluted Net Income (Loss) Per
Share(1)
    
    
    (0.04
    )
    
    
    0.04
    
    
    
    (0.15
    )
    
    
    (0.01
    )
 (1)Net income per share amounts for each quarter are required to be computed
independently and may not equal the amount computed for the total year. 12. 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 Companys financial statements have been
restated to reflect the retail segment as a discontinued operation for all
periods presented. Following is summary financial information for the Companys discontinued
retail operations: 38




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##### Table of Contents



Years Ended December 31,2003
    
    2002
    
    2001Net Sales
    
    $
    
    
    
    $
    
    
    
    $
    15,622,000Income (Loss) from Discontinued Operations
before Income Taxes
    
    
    
    
    
    
    
    
    
    
    (1,028,000
    )Income Tax Benefit
    
    
    
    
    
    
    
    
    
    
    (333,000
    )Net Loss from Discontinued Operations
    
    $
    
    
    
    $
    
    
    
    
    ($695,000Net Loss on Disposal of Discontinued Operations
    
    $
    
    
    
    
    ($8,000
    )
    
    $
    
 As of December 31,2003
    
    2002Cash
    
    $
    
    
    
    $
    154,000Receivables, net
    
    
    
    
    
    
    28,000Inventories
    
    
    
    
    
    
    Other Current Assets
    
    
    
    
    
    
    Current Assets of Discontinued Operations
    
    $
    
    
    
    $
    182,000Property and Equipment at Cost Net of
Accumulated Depreciation
    
    
    
    
    
    
    37,000Other Assets
    
    
    
    
    
    
    Non-Current Assets of Discontinued Operations
    
    $
    
    
    
    $
    37,000Accounts Payable
    
    
    
    
    
    
    Notes Payable
    
    
    
    
    
    
    20,000Other Current Liabilities
    
    
    
    
    
    
    Current Liabilities of Discontinued Operations
    
    $
    
    
    
    $
    20,000
 39




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##### Table of Contents



Item 9. Changes in and disagreements with Accountants on Accounting and Financial Disclosure Dismissal of KPMG and Change to Beckman, Kirkland & Whitney On December 30, 2002, the Audit Committee of the Company dismissed the
firm of KPMG LLP (KPMG) as the Companys independent auditors. KPMGs report on the Companys financial statements for the years ended
December 31, 2000 and December 31, 2001 did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. Except as described below, during the years ended December 31, 2000 and
December 31, 2001 and the subsequent interim periods preceding the date of
dismissal, there were no disagreements (as defined in Item 304(a) (1) (iv) of
Securities and Exchange Commission Regulation S-K). During the subsequent interim periods preceding the date of dismissal, the
Company concluded that an incorrect number was recorded for its raw material
inventory during the first quarter of 2002, and it would need to restate the
financial information in its Form 10-Q for the first quarter. Initially, the
Company and KPMG disagreed on the scope and timing of the independent
investigation related to this error, which commenced in August of 2002.
Ultimately, this disagreement was resolved with both the second quarter and
restated first quarter 10-Qs being filed after the independent investigation
was completed in late September, which identified no further changes were
needed to the first quarters financial statements other than what had been
originally identified by management. Except as described below, during the years ended December 31, 2000 and
December 31, 2001 and the subsequent interim periods preceding the date of
dismissal, there were no reportable events (as defined in Item 304(a) (1) (v)
of Securities and Exchange Commission Regulation S-K). During the subsequent interim periods preceding the date of dismissal,
KPMG proposed a significant increase in audit scope for the year-end audit of
2002. KPMG communicated to the Audit Committee of the Board of Directors that
various factors contributed to the increase, including their belief that there
was both a reduction in the number of personnel in the accounting and financial
reporting departments, and a reduction in the level of experience of personnel
with accounting and reporting responsibilities, and their belief that they
would be unable to rely upon internal controls related to information
technology systems and inventory. KPMG also proposed a very significant increase in the billing rates it had
used in the past for the Company, which led to the Companys Audit Committee to
solicit bids for the upcoming 2002 yearend audit. As the Company announced in its press release dated March 7, 2003, the
Companys Audit Committee gave consideration to the information provided by
KPMG with respect to their proposed increase in fees. The Audit Committee
shared this information with Beckman Kirkland & Whitney (BKW), the Companys
new auditors (see below), and requested BKW to perform additional tests and
procedures as part of its audit for the year ended December 31, 2002 and to
report to the Audit Committee with respect to the internal controls of the
Company related to information technology systems and inventory. The decision to dismiss KPMG was recommended by the Audit Committee and
unanimously approved by the Companys Board of Directors. The Company provided KPMG with the foregoing disclosures. Exhibit 16.1 to
this Form 10-K is a copy of KPMGs letter dated September 26, 2003 stating
whether it agreed with the foregoing statements. 40




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##### Table of Contents



On March 5, 2003, the Company engaged BKW to serve as its new independent
public accountants. During the years ended December 31, 2000 and December 31, 2001 and the
subsequent interim periods, the Company did not consult with BKW regarding
either (i) the application of accounting principles to a specified transaction
or the type of audit opinion that might be rendered on the Companys financial
statements or (ii) any matter that was either the subject of a disagreement (as
defined in Item 304(a) (l) (iv) of Regulation S-K) or a reportable event (as
defined in Item 304(a) (l) (v) of Regulation S-K). The decision to engage BKW was recommended by the Companys Audit
Committee and unanimously approved by the Companys Board of Directors. Resignation of BKW and Change to Cacciamatta Accountancy Corporation By letter dated March 4, 2004, BKW resigned as the independent accountants
for the Company because BKWs application with the Public Company Accounting
Oversight Board (the PCAOB) was still pending approval. Until such approval,
BKW is unable to issue audit reports on the financial statements of public
companies subject to SEC regulations and therefore currently cannot issue an
audit report on the Companys financial statements at and for the year ended
December 31, 2003. BKW was unable to estimate when the PCAOB will complete its
review process and therefore resigned in order to protect the interests of the
Company. On March 5, 2004, the Company, upon the recommendation of its audit
committee, engaged Cacciamatta Accountancy Corporation (CAC), located in
Irvine, California, to serve as its new auditors. BKW reported on the Companys financial statements at and for the year
ended December 31, 2002. The audit report of BKW on the Companys financial
statements as of and for the year ended December 31, 2002 did not contain any
adverse opinion or disclaimer of opinion, nor was it qualified or modified as
to uncertainty, audit scope or accounting principles. During the years ended December 31, 2002 and December 31, 2003 and the
subsequent interim period to the date hereof, there were none of the following
involving the Company and BKW: (i) any disagreements on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to BKWs satisfaction,
would have caused BKW to make reference to the subject matter of the
disagreement in connection with its report; or (ii) a reportable event (as
defined in Item 304(a)(1)(v) of Regulation S-K). During the years ended December 31, 2002 and December 31, 2003 and the
subsequent interim periods, the Company did not consult with CAC regarding (i)
the application of accounting principles to a specified transaction or the type
of audit opinion that might be rendered on the Companys financial statements
or (ii) any matter that was either the subject of a disagreement (as defined in
Item 304(a)(1)(iv) of Regulation S-K) or a reportable event (as defined in Item
304(a) (1)(v) of Regulation S-K). The Company provided a copy of the foregoing disclosures to BKW. Exhibit
16.2 to this Form 10-K is a copy of BKWs letter dated March 10, 2004 stating
that it has found no basis for disagreement with such statements. 
 ITEM 9A. CONTROLS AND PROCEDURES. Evaluation Of Disclosure Controls And Procedures As of the end of the period covered by this report on Form 10-K, 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-K, our
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company required to be included in the
Companys Exchange Act filings. 41




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##### Table of Contents



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 fourth quarter
of 2003 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting. 42




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##### Table of Contents



Part III 
 Item 10. Directors and Executive Officers of the Registrant The executive officers and directors of the Company and their ages as of
April 14, 2003 are as follows: Name
    
    Age
    
    Positions Held
    
    Director SinceWilliam J. Rex(1)
    
    53
    
    Chairman of the
Board of Directors,
President and Chief
Executive Officer
    
    06/19/86Robert A Lopez (1)(2)
    
    64
    
    Director
    
    05/26/93Dr. Dennis K. Ostrom(2)
    
    62
    
    Director
    
    7/12/99Anthony J. Partipilo(2)
    
    56
    
    Director
    
    11/25/03James C. Rex
    
    54
    
    Vice President and
General Manager of
Consumer AffairsMichael R. Pieper
    
    39
    
    Chief Financial
Officer and Vice
President of
Administration
  (1)
    
    Member of the Compensation Committee.(2)
    
    Member of the Audit Committee. Directors of the Company hold office until the next annual meeting of
shareholders and until their successors are elected and qualified, or until
their earlier resignation or removal. All officers are appointed by and serve
at the discretion of the Board of Directors subject, in the case of William J.
Rex, to the terms of his employment agreement. See Item 11, Executive
Compensation  Employment Agreement, below. Except for William J. and James
C. Rex, who are brothers, there are no family relationships between any
directors or officers of the Company. For their services as members of the
Board of Directors, outside directors receive $2,000 monthly. Mr. William J. Rex, a founder of the Company, has served as the Companys
Chief Executive Officer from its inception as a general partnership in 1986.
Upon commencing operations in corporate form in January 1987, Mr. Rex also
became the Companys President and Chairman of the Board, offices which he
continues to hold. From March 1983 until founding the Company, Mr. Rex served
in various executive capacities for Establishment Industries, Inc., a
manufacturer of Class A and Class C motorhomes which was acquired in June 1985
by Thor Industries, Inc., a large manufacturer of recreational vehicles. His
last position with Establishment Industries, Inc. was President. From 1970
until March 1983, Mr. Rex was employed in various production capacities by
Dolphin Trailer Company, a manufacturer of a wide range of recreational
vehicles products. At the time he left Dolphin Trailer Company (which changed
its name to National R.V., Inc. in 1985), Mr. Rex was Plant Manager in charge
of all production and research and development. Mr. Robert A. Lopez retired from Nickerson Lumber and Plywood in February
2003. Mr. Lopez started his employment with Nickerson as an outside salesman
in 1969 and in 1980 he became a partner. He was elected as President of
Nickerson in 1981 and served in that capacity until his retirement. His
background is primarily in marketing products to residential builders,
manufactured housing and recreational vehicle assemblers. In his spare time,
if any, Mr. Lopez is a member of the San Fernando Rangers, a non-profit
organization working to use horses as therapeutic conditioning for mentally and
physically disabled children. 43




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##### Table of Contents



Dr. Dennis K. Ostrom received his BS, MS and Ph.D. degrees in Engineering
from the University of California, Los Angeles. He majored in structural
mechanics and dynamics. Dr. Ostrom is a Professional Civil Engineer in the
State of California and since 1996 has served as a consultant for San Diego Gas
& Electric, Pacific Gas & Electric and Southern California Edison. Dr. Ostrom
was employed by Southern California Edison Company from 1970-1996. His
position was that of a Consultant. His job was formulating technical strategy
and policy and relating the same to the California Energy Commission,
California Public Utilities Commission, Nuclear Regulatory Commission and local
regulatory agencies. From 1988 to 2002, Dr. Ostrom was a member of the Board
of Directors for Keysor Century, Inc., in Saugus, California. In addition to
his consulting work, Dr. Ostrom is a Planning Commissioner for the City of
Santa Clarita. Mr. Anthony Partipilo has been a practicing attorney in the State of
California for over 30 years. He previously served as Chief Financial
Officer/Vice President of Administration and Legal for Rexhall Industries,
Inc., during 1997 and 1998. Mr. Partipilo is presently Associate
Director/Supervising Attorney for Imhoff and Associates, PC, a Law Firm. Mr. James C. Rex has been employed in the recreational vehicle Industry
since 1973, when he began his career with Dolphin Trailer Company. In 1983,
Mr. Rex was hired by Establishment Industries to manage their Service and
Warranty Department. He was later promoted to Vice President of Production
where he oversaw the production of Class A and Class C motorhomes. In 1993,
Mr. Rex was hired by Rexhall Industries, Inc. to manage the Companys Customer
Service Department. In 1995, he was promoted to National Director of Warranty
and Service, and in 2002 to Vice President and General Manager of Consumer
Affairs, and oversees the Companys Service Center in Lancaster, California. Mr. Michael R. Pieper rejoined the Company in February 2003 as
Manager/Information Technology and Special Projects, and was promoted to Chief
Financial Officer and Vice President of Administration in September 2003. From
1992 until rejoining the Company, he was employed as Corporate Controller,
Business Analyst, and Manager of Information Technology with Synergistic
Systems, a medical billing company. During 1990 and 1991 he served as
Accounting Manager for the Company. Mr. Pieper graduated from the University of
Phoenix with a B.S. degree in Business Information Systems in 2000. 44




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##### Table of Contents



Item 11. Executive Compensation Cash Compensation The following table sets forth certain information as to the Companys
Chief Executive Officer and the only other Executive Officer of the Company
whose salary and bonus exceeded $100,000 for the year ended December 31, 2003: SUMMARY COMPENSATION TABLE Annual CompensationBonusName and
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accrued
    
    Other AnnualPrincipal Position
    
    Year
    
    Salary ($)
    
    Bonus Paid
    
    Non-Paid
    
    Compensation(1)William J. Rex
    
    
    03
    
    
    
    249,600
    
    
    
    72,354
    
    
    
    4,896
    
    
    
    Chief Executive Officer
    
    
    02
    
    
    
    235,200
    (2)
    
    
    87,100
    
    
    
    22,342
    
    
    
    and President
    
    
    01
    
    
    
    237,100
    (2)
    
    
    150,100
    
    
    
    
    
    
    
    James C. Rex(3)
    
    
    03
    
    
    
    72,800
    
    
    
    48,586
    
    
    
    
    
    
    
    Vice President and
General
    
    
    02
    
    
    
    67,200
    
    
    
    46,800
    
    
    
    
    
    
    
    Manager of Consumer
    
    
    01
    
    
    
    52,000
    
    
    
    49,700
    
    
    
    
    
    
    
    Affairs
  (1)
    
    The unreimbursed incremental cost to the Company of providing perquisites
and other personal benefits during 2003 did not exceed, as to any named
officer, the lesser of $50,000 or 10% of the total 2003 salary and bonus
paid to such named officer and, accordingly, is omitted from the table.
These benefits included amounts allocated for personal use of a
company-owned automobile provided to William J. Rex.(2)
    
    Immediately following the tragic events of September 11, 2001, William J.
Rex took a 20% pay cut which was reinstated in April 2002.(3)
    
    Mr. James C. Rex is the brother of Mr. William J. Rex. 45




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##### Table of Contents



Option Grants and Exercises The Company has no option or similar plan or any outstanding options.
There were no options granted or exercised during the year ended December 31,
2003. Employment Agreement On July 5, 2001, the Company renewed for five years (expires July 31,
2006) an employment agreement with William J. Rex. The employment agreement
provides for an annual salary of $250,000 plus a bonus determined monthly equal
to 10% of income before bonus and taxes. There are no change-of-control
arrangements in the employment agreement. Compensation Committee Interlocks and Insider Participation None of the Companys executive officers has served or currently serves on
a board of directors or on a compensation committee of any other entity that
had officers who served on the Companys board of directors. Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and executive officers and persons who own more than 10% of a
registered class of the Companys equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of common
stock and other equity securities of the Company. Directors, executive officers
and 10% or greater stockholders are required by the SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file. The Companys believes, based solely on a review of the copies of such
reports furnished to the Company, that each report required of the Companys
executive officers, directors and 10% or greater stockholders was duly and
timely filed during the year ended December 31, 2003. Code of Business Conduct and Corporate Governance The Company has adopted a Code of Business Conduct and Ethics that applies
to all of its directors, officers and employees. In compliance with the
applicable rules of the SEC, special ethics obligations of the Companys Chief
Executive Officer, Chief Financial Officer and other employees who perform
financial or accounting functions are set forth in the section of our Code of
Business Conduct and Ethics, entitled Special Ethics Obligations of Employees
with Financial Reporting Responsibilities. The Code is available through our
web site at www.rexhall.com. Printed copies are available free of charge and
may be requested by contacting our Investor Relations Department either by mail
at our corporate headquarters, by telephone at 661-726-0565. We intend to satisfy the disclosure requirements under the Securities
Exchange Act of 1934, as amended, regarding an amendment to, or a waiver from,
our Code of Business Conduct and Corporate Governance by posting such
information on our web site at www.rexhall.com. Audit Committee Financial Expert The Companys Board of Directors has determined that at least one person
serving on the Audit Committee is an audit committee financial expert as
defined under Item 401(h) of Regulation S-K and Rule 4200(a)(15) of the Nasdaq 46




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##### Table of Contents



Marketplace Rules. Anthony J. Partipilo is an audit committee financial
expert and is independent as defined under Item 7(d)(3)(iv) of Schedule 14A of
the Exchange Act. 
 Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth information regarding the ownership of the
Companys Common Stock by (i) each person known by the Company to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock,
(ii) each of the Companys directors beneficially owning Common Stock, (iii)
each of the Companys executive officers named in the Summary Compensation
Table included under Executive Compensation under Item 11 of this Report who
beneficially owning Common Stock, and (iv) all of the Companys officers and
directors as a group as of March 10, 2004: Number ofName of Beneficial Owner
    
    Shares
    
    Percent ofOutstanding
    
    Beneficially
    
    Shares ator Identity of Group
    
    Owned(1)
    
    April 12, 2004Trust of William J. Rex
    
    
    3,247,000
    
    
    
    55.3
    %and Cheryl L. Rex(1)c/o Rexhall Industries46147 7th Street WestLancaster, California 93534James C. Rex
    
    
    10,000
    (2)All Directors and Executive
Officers as a Group
    
    
    3,257,000
    
    
    
    55.5
    %
  (1)
    
    William J. Rex and Cheryl. L. Rex have voting and investment power
with respect to all shares of Common Stock shown as beneficially
owned by the trust.(2)
    
    Less than one percent. 47




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Item 13. Certain Relationships and Related Transactions In December 2000, the Company and Mr. William J. Rex, its President and
Chief Executive Officer, purchased a partially completed building on 1.7 acres
in Acton, California for $401,000. The Company and Mr. Rex each contributed 50%
of the purchase price and agreed to share equally in the final construction of
the building on the property. In the first quarter of 2004, the
Company decided to list the property for sale. The
Company paid $151,000 on behalf of Mr. Rex in exchange for a $151,000 note
receivable. The note is secured by the executives interest in the property.
The note bears interest at a rate as defined by Regulation 1.1274-4 of Internal
Revenue Code of 1986, (5.12% at December 31, 2003). The largest amount owing to
the Company on this loan during 2003 was $159,000 (which includes accrued
interest) and at December 31, 2003 $159,000 was owed on this loan. 48




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##### Table of Contents



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Please see Item 9 for a description of the changes in the Companys
principal accountant. The following is a summary of the fees billed to the
Company by the Companys principal accountants for professional services
rendered for the years ended December 31, 2003 and 2002: Fee Category
    
    2003 Fees ($)
    
    2002 Fees ($)Audit Fees
    
    
    155,000
    
    
    
    116,000Audit-Related Fees
    
    
    
    
    
    
    246,000Tax Fees
    
    
    12,000
    
    
    
    12,000All Other Fees
    
    
    
    
    
    
    Total Fees
    
    
    167,000
    
    
    
    374,000
 Audit Fees.Consists of fees billed for professional services rendered for the
audit of the Companys consolidated financial statements and review of the
interim consolidated financial statements included in quarterly reports and
services that are normally required in connection with statutory and regulatory
filings or engagements. Audit-Related Fees.Consists of fees billed for professional services rendered
in conjunction with the Companys restatement of its results of operations for
the first quarter ending March 31, 2002. Tax Fees.Consists of fees billed for professional services for tax compliance,
tax advice and tax planning. All Other Fees.Not applicable Policy On Audit Committee Pre-Approval Of Audit And Permissible Non-Audit
Services Of Independent Auditors The Audit Committees policy is to pre-approve all audit and permissible
non-audit related services provided by the independent audits. These services
may include audit services, audit-related services, tax services and other
services. Pre-approval is generally provided for up to one year and any
pre-approval is detailed as to the particular service or category of services
and generally subject to a specific budget. The independent auditors and
management are required to periodically report to the Audit Committee regarding
the extent of services provided by the independent auditors in accordance with
this pre-approval, and the fees for the services performed to date. The Audit
Committee may also pre-approve particular services on a case-by-case basis. 49




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Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8K 
 (a) (1) Financial Statements The following financial statements of Rexhall Industries, Inc. are filed
as part of this report and included under Item 8:  
    
    Independent Auditors Report of Cacciamatta Accountancy Corporation;
    
    Independent Auditors Report of Beckman Kirkland & Whitney;
    
    Independent Auditors Report of KPMG LLP;
    
    Consolidated Balance Sheets December 31, 2003 and 2002;
    
    Consolidated Statements of Operations For The Years Ended December 31, 2003, 2002 and 2001;
    
    Consolidated Statements of Stockholders Equity For The Years Ended December 31, 2001, 2002 and 2003;
    
    Consolidated Statements of Cash Flows For The Years Ended December 31, 2003, 2002 and 2001; and
    
    Notes to Consolidated Financial Statements (2) Financial Statement Schedule  Schedule I  Valuation and Qualifying Accounts               
Page 53Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto. (3) Exhibits. The following exhibits are filed (or incorporated) as part of this Report: ExhibitNo.
    
    Description3.1
    
    Articles of Incorporation, as amended (incorporated by reference
to exhibit 3.1 as filed on Form S-18 Registration Statement with
the SEC on 5/16/89)3.2
    
    Bylaws, as amended to date (incorporated by reference to exhibit
3.2 as filed on Form S-18 Registration Statement with the SEC on
5/16/89).4.1
    
    A specimen of the Companys common stock certificate
(incorporated by reference to exhibit 3.1 as filed on Form S-18
Registration Statement with the SEC on 5/16/89).10.1
    
    Employment Agreement with William J. Rex (incorporated by
reference to exhibit 3.1 as filed on Form S-18 Registration
Statement with the SEC on 5/16/89).* 10.2
    
    Amendment to Employment Agreement with William J. Rex dated
07/05/01.* 10.3
    
    Authorized Ford Motor Company Converter Pool Agreement effective
5/24/90.10.4
    
    Financial Agreement with GE Capital for the purchase of chassis
from Workhorse Custom Chassis effective 11/10/03 (incorporated by
reference to exhibit 10.1 of Registrants Form 10-Q filed with the
SEC on 11/14/03).* 10.5
    
    Rex note and mortgage/trust deed to Rexhall securing note for
$151,000 in favor of Rexhall.10.6
    
    Documents reflecting January 2003 purchase of 12.48 acres of land
adjacent to headquarters in Lancaster, California; including
promissory note for $300,000; the agreement with the City of
Lancaster permitting foregiveness of promissory note in total or
in part based upon a formula for providing jobs.* 10.7
    
    Rexhall promissory note reflecting indebtedness to the City of
Lancaster Redevelopment Agency for $980,000, of which $634,000 was
owed at 12/31/03.14.1
    
    Code of Business Conduct and Ethics16.1
    
    Letter dated September 26, 2003 of KPMG LLP (incorporated by
reference to Exhibit 16(b) of registrants Form 8-K/A (Amendment
No. 3) filed with the SEC on October 1, 2003).16.2
    
    Letter dated March 4, 2004 of Beckman, Kirkland & Whitney
(incorporated by reference to Exhibit 16.1 of registrants Form
8-K filed with the SEC on March 12, 2004).25.1
    
    Power of Attorney (included on signature page).31.1
    
    Certification of the Chief Executive Officer required by Rule
13a-14(a) of the Exchange Act.31.2
    
    Certification of the 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.
   *
    
    To be filed by amendment.
 (b) Reports on Form 8-K 50




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A Form 8-K/A (Amendment No. 3) was filed on October 1, 2003 by Registrant
reporting under Item 7(c) and filing as Exhibit 16(b) a letter, dated September
26, 2003, from KPMG LLP the Securities and Exchange Commission. 51




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Signatures Pursuant to the requirements of section 13 or 5(d) 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 R. Pieper(Signature and Title)*
    
    (Signature and Title)*William J. Rex, President, CEO & Chairman
    
    Michael R. Pieper, CFO & V.P. of Administration(Principal Executive Officer)
    
    (Principal Financial and Accounting Officer)Date: April 14, 2004
    
    Date: April 14, 2004
 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William J. Rex as his true and lawful
attorneys-in-fact and agents, with full power of substitution for him in any
and all capacities, to sign any and all amendments to this Annual Report on
Form 10-K and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons in the capacities and on the
dates indicated. By /S/ William J. Rex(Signature and Title)*William J. RexPresident & CEOChairman of the BoardDate: April 14, 2004By /S/ Michael R. Pieper(Signature and Title)*Michael R. PieperCFO & V.P. of AdministrationDate: April 14, 2004By /S/ Robert A. Lopez(Signature and Title)*Robert A. LopezDirectorDate: April 14, 2004By /S/ Tony Partipilo(Signature and Title)*Tony PartipiloDirectorDate: April 14, 2004By /S/ Dr. Dennis K. Ostrom(Signature and Title)*Dr. Dennis K. OstromDirectorDate: April 14, 2003
 52




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Schedule I
Valuation and Qualifying Accounts Allowance for Doubtful Receivables BALANCE, December 31, 2000
    
    
    100,000Additions: Charges to Operations
    
    
    283,000Deductions: A/R Write Offs
    
    
    (281,000
    )BALANCE, December 31, 2001
    
    $
    102,000Additions: Charges to Operations
    
    
    1,000Deductions: A/R Write Offs
    
    
    (
    )BALANCE, December 31, 2002
    
    $
    103,000Additions: Charges to Operations
    
    
    Deductions: A/R Write Offs
    
    
    (56,000
    )BALANCE, December 31, 2003
    
    
    47,000
 53