<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[X]  Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 For the fiscal year ended DECEMBER 31, 1999 or

[ ]  Transition report pursuant to Section 13 or 15(d) of the
     Securities Exchange Act of 1934 For the transition period from
     __________ to __________

Commission file number 0-25390

                                 SMC CORPORATION
             (Exact name of registrant as specified in its charter)

     Oregon                                               93-0939076
     (State or other jurisdiction of                     (I.R.S. Employer
     incorporation or organization)                      Identification No.)

     20545 Murray Road
     Bend, Oregon                                        97701
     (Address of principal executive offices)            (Zip Code)

                         Registrant's telephone number,
                       including area code: (541) 389-1144


Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  Common Stock

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X  No
                                             ---    ---

     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 statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
           ---

     Aggregate market value of Common Stock held by nonaffiliates of the
Registrant at March 15, 2000: $6,061,196. For purposes of this calculation,
officers and directors are considered affiliates.

     Number of shares of Common Stock outstanding at March 15, 2000: 5,780,599.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                                         Part of Form 10-K into
Document                                                   which incorporated
--------                                                   ------------------
Proxy Statement for 2000 Annual
  Meeting of Shareholders                                       Part III


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                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM OF FORM 10-K                                                           PAGE
-----------------                                                           ----
<S>                                                                         <C>
PART I....................................................................    1

Item 1       Business.....................................................    1

Item 2       Properties...................................................   14

Item 3       Legal Proceedings............................................   15

Item 4       Submission of Matters to a Vote of Security Holders..........   15

Item 4(a)    Executive Officers of the Registrant.........................   15

PART II...................................................................   17

Item 5       Market for the Registrant's Common
             Equity and Related Shareholder Matters.......................   17

Item 6       Selected Financial Data......................................   18

Item 7       Management's Discussion and Analysis
             of Financial Condition and Results of Operations.............   20

Item 7(a)    Quantitative and Qualitative Disclosures
             About Market Risk............................................   25

Item 8       Financial Statements and Supplementary Data..................   25

Item 9       Changes in and Disagreements with Accountants
             on Accounting and Financial Disclosure.......................   25

PART III..................................................................   26

Item 10      Directors and Executive Officers of
             the Registrant...............................................   26

Item 11      Executive Compensation.......................................   26

Item 12      Security Ownership of Certain Beneficial
             Owners and Management........................................   26

Item 13      Certain Relationships and Related Transactions...............   26

PART IV...................................................................   27

Item 14      Exhibits, Financial Statement Schedules,
             and Reports on Form 8-K......................................   27

SIGNATURES................................................................   30
</TABLE>

<PAGE>

PART I

ITEM 1.  BUSINESS

INTRODUCTION

SMC Corporation (SMC or the Company) is one of the largest manufacturers of
high-line motor coaches in the United States. SMC was incorporated in Oregon in
1986 and production operations began in 1987. In 1998, SMC relocated its
headquarters to Bend, Oregon from Harrisburg, Oregon and now has six operating
subsidiaries. The Company's executive offices are located at 20545 Murphy Road,
Bend, Oregon, 97701, and its telephone number is (541) 389-1144. The
subsidiaries of the Company are Safari Motor Coaches, Inc. (Safari), Magnum
Manufacturing, Inc. (Magnum), Beaver Motor Coaches, Inc. (Beaver), Electronic
Design & Assembly, Inc. (ED&A), Composite Technologies, Inc. (CTI), and Harney
County Operations, Inc. (HCO). Safari and Magnum are located in Harrisburg,
Oregon; Beaver and ED&A are located in Bend, Oregon; and CTI and HCO are located
in Hines, Oregon.

GENERAL BACKGROUND

Within the multi-billion dollar recreational vehicle industry, the majority of
SMC's products are positioned among the most expensive. SMC predominately builds
luxury Class A motor coaches - motorized, fully self-contained motorhomes with
features such as solid hardwood cabinetry, powerful diesel engines, and
residential decor that separate these coaches from the rest of the market.

This select segment was targeted from SMC's founding and the Company rapidly
grew to become a leader in the luxury market. Mathew Perlot, SMC's founder and
Chief Executive Officer, considered this market particularly attractive -
anticipating the aging of the "baby boomers" and believing that this maturing,
affluent group would provide growing support for this product. The initial
product included coaches ranging from 30 to 34 feet and retailed for about
$100,000. Over the next several years SMC expanded its product offerings to both
higher and lower price points, to include coaches ranging in length from 24 to
45 feet, and with retail prices ranging from $70,000 to $699,000.

Magnum began production of chassis for Safari products in 1993 and has since
expanded operations to provide chassis for seven of the eight model lines of
Safari and Beaver products. By manufacturing chassis specially designed for
applications in the recreational vehicle (RV) industry, the Company believes it
has quality, ride and cost advantages over competitors that do not build their
own chassis. In 1997, a new chassis was developed for the Beaver Marquis.
Previously, the Marquis was constructed on a purchased Gillig brand chassis.
Gillig ceased production of the chassis in 1997. Magnum acquired the rights to
manufacture the chassis from Gillig and, after making some modifications for the
Marquis' specific requirements, now produces the chassis at a lower overall cost
to the Company. Magnum now produces the new chassis for all of the Company's
models except the Trek and Class C models, resulting in significant overall
costs savings to the Company.


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SMC acquired the Beaver brand names and production facilities in 1994. At that
time the Beaver product ranged in retail price from $180,000 to $350,000. The
line has since been broadened to include a lower-priced coach, the Monterey. In
1999, Beaver introduced the Amethyst Marquis, a 42 foot tag axle coach that
retails for over $400,000. This expansion of product offerings has enabled
Beaver to expand distribution of its products.

In 1999, the Solitaire, a bus conversion product, was also introduced. Its
features are similar to those found in luxury buses and it carries a starting
retail price of $672,000.

In 1996, the Company began to seek product opportunities in the lower-priced
segment of the recreational vehicle industry when it entered the Class C market
through acquisition of a facility in the Midwest. The Company continued its
penetration into the upper range Class C market in 1997 through its operations
at HCO and the introduction of a Safari brand Class C motor coach. This model
has retail prices ranging from $66,000 to $85,000. In 1998 the Company
introduced the Desperado, another Class C model, as the Company continues to
expand in the Class C market. Although the Company's primary market focus
remains the high-line luxury motor coaches on which it built its foundation, the
Company plans to continue to develop this segment of its business.

Also, at the HCO facility, the Renegade, a new Class A motor coach, was
introduced in 1998. With retail prices starting at $137,000, the Renegade was
targeted toward the entry-level of the Class A market -- buyers that are
value-oriented but still demanding features and quality. Products in this
segment of the market have become very popular. In 1999, the Company upgraded
the Renegade and introduced the Riata as the entry level product at HCO. The
Riata retails in the $129,000 to $137,000 range. The production facility is
located in Hines, Oregon and has ample production capacity to meet expected
demand for both the Renegade and Riata as well as the Class C production.

At the Beaver facility, the newly designed Contessa Class A model was introduced
in December 1997. The Contessa had been a Beaver product before the Company
acquired Beaver in 1994, but had been dormant since that time. Priced below the
existing Patriot model but above the Monterey, the Contessa has been resurrected
with a new design and feature set that has been widely accepted. In 1999, the
company introduced the Amethyst Marquis as the top level Class A motorhome as
well as the ultra luxurious Solitaire designed to compete in the bus conversion
market.

At the Safari facility, a new Class A model, the Zanzibar, was introduced in
June 1998. Additionally, the Cheetah was introduced in late 1999 as an entry
level diesel motorhome similar in concept to the Riata, but designed with the
distinction of a Safari brand product.

In 1998, the Company opened a service center facility in Tampa, Florida to
provide better, more timely, and cost effective customer service. This service
center operation is a branch of the existing service centers located in
Harrisburg and Bend, Oregon.


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INDUSTRY BACKGROUND

Recreational vehicles encompass a wide range of mobile housing options,
including folding camping trailers, van conversions, truck campers, fifth wheel
trailers, Class A, B and C motor coaches, and bus conversions. The retail prices
of these vehicles range from under $3,000 for the simplest folding camping
trailer to over $1.2 million for the most expensive bus conversion. The
Recreational Vehicle Industry Association (RVIA) has reported that one in ten
households in the U.S. owns a recreational vehicle, resulting in a total
ownership of approximately nine million recreational vehicles.

Although retail sales of recreational vehicles and Class A motor coaches have
fluctuated over the last five years, retail sales of high-line motor coaches
have remained steady during this period according to Statistical Surveys, Inc.
The following table shows (i) unit shipments to dealers of all recreational
vehicles, all motor coaches, and Class A motor coaches in the U.S., based on
RVIA data, and (ii) unit retail sales of high-line motor coaches in the U.S. and
unit retail sales of Safari and Beaver coaches as a percentage of the high-line
market, based on data distributed by Statistical Surveys, Inc.


<TABLE>
<CAPTION>
                                                  1995     1996     1997     1998     1999
                                                   (In thousands, except percentage data)
<S>                                               <C>      <C>      <C>      <C>      <C>
UNIT SHIPMENTS FROM MANUFACTURERS TO DEALERS:

  All recreational vehicles                       475.2    466.8    438.8    441.3    473.8

  All motor coaches                                52.8     55.3     55.0     63.5     71.6

  Class A motor coaches                            33.0     36.5     37.6     42.9     49.4

UNIT RETAIL SALES AND MARKET SHARE DATA:
  High-line motor coaches                           3.9      4.2      4.4      4.1      4.5

  SMC percentage of high-line market:*             24.5%    29.1%    27.6%    25.3%    22.6%
                                                   ====     ====     ====     ====     ====
</TABLE>

*    Includes sales for both Safari and Beaver motor coaches (excluding Trek)
     for all years.

SMC focuses primarily on the high-line segment of the Class A motor coach
market. Class A motor coaches incorporate kitchen, sleeping and bathroom
facilities built on a self-powered chassis. The term "high-line motor coach" is
virtually synonymous with "diesel pusher." For reasons of cooling and drive
train engineering, almost all motor coaches are powered either by a gasoline
engine mounted in the front or a diesel engine mounted in the rear. Diesel
pushers are more expensive, but can be built at greater lengths and are
generally more powerful. Thus most high-line coaches are diesel pushers - with
horse power ratings over 300, and at this time nearly all high-line diesel
pushers retail for over $150,000.

All of SMC's products except the Trek and the Class C units are high-line
coaches with retail prices over $150,000. Although the Trek shares many
high-line features of the Company's other models, its retail price ranges from
$86,000 to $107,000, and it is


                                       3
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therefore excluded from market data compiled for high-line products. The
Desperado is a Class C motor coach with retail prices ranging from $61,000 to
$80,000. The Safari Class C price ranges from $66,000 to $85,000.

The high-line segment of the Class A RV market has seen consistent growth since
1989, and in recent years this market has attracted many other companies. Many
"mainstream" RV builders, such as Fleetwood, Winnebago, and Coachmen, have
developed offerings in this market. Meanwhile, some luxury builders, such as
Monaco Coach and Country Coach, have broadened their product lines. Others are
merging into larger conglomerates, Beaver Coaches was acquired by SMC in 1994,
Holiday Rambler was purchased by Monaco Coach in early 1996, and Country Coach
was acquired by National RV Holdings in late 1996.

Several long-term trends favor the luxury segment of the RV industry. The most
significant indicator of future growth potential is the change in RV-owner
demographics. Households between 45 and 64 years old form the principal market
for luxury RVs. As the "baby-boom" generation ages, this demographic group is
expected to increase to 27% of the U.S. population by the year 2010. The Company
believes that on average this generation is expected to retire earlier and have
more discretionary income than preceding generations, which is expected to
provide a growing base for RV sales.

This trend is also reflected in the substantial increase in the number and
quality of facilities available for RV use and in companies serving the RV
market. The increased availability of accessories and facilities will continue
to make the RV lifestyle more attractive.


                                       4
<PAGE>

Three other factors also have a lesser impact on the RV industry:

FUEL AVAILABILITY AND PRICE STABILITY

Diesel fuel has been relatively abundant and inexpensive since the beginning of
the 1980's. The Company believes the needs of the transportation industry for
diesel fuel may contribute to continued availability and pricing stability. All
of the Company's Class A motor coaches are powered by diesel engines.
Consequently, an interruption in the supply or a significant increase in the
price of or tax on the sale of diesel fuel on a regional or national basis could
have a material adverse effect on the Company's results of operations. The
Company believes that recent price increases in diesel fuel in late 1999 and
into 2000 have not had an impact on the highline segment of the industry. There
is no assurance that the supply of diesel fuel will continue uninterrupted, that
rationing of diesel fuel will not be imposed, or that the price of or tax on
diesel fuel will not significantly increase in the future.

LOW INTEREST RATES

Interest rate levels affect the cost of a motor coach for consumers who finance
their purchase and, more significantly, the cost of inventory maintenance for
motor coach dealers. Recent periods of relatively low interest rates have
facilitated dealer financing resulting in generally higher dealer stocking
levels.

FAVORABLE TAX TREATMENT

U.S. tax laws generally allow individuals who itemize deductions to deduct
interest paid on loans used to finance the purchase of either a first or second
residence. The definition of "residence" has been interpreted to include motor
coaches of the type manufactured by the Company. The Company believes the tax
deductibility of interest paid on loans used to purchase a Class A motor coach
increases the attractiveness of ownership. These laws, however, have
historically been amended frequently, and it is likely that further amendments
and additional tax laws will be applicable to financing the purchase of motor
coaches in the future. There is no assurance that favorable tax treatment for
financing the purchase of motor coaches will not be amended or repealed.


                                       5
<PAGE>

SALES AND MARKETING

SMC has three distinctive brands that are marketed through separate dealer
networks. (Sales of Class C motor coaches to date have not been a significant
part of the Company's business.) The Beaver, Safari, and Harney products are
differentiated to help increase total penetration of the high-line market. The
Beaver product is marketed as an upscale luxury RV. Its fiberglass wall
construction, air suspension, and "classic" RV styling places the Beaver models
near the top of high-line coaches. The Safari product is designed for a midrange
luxury customer. Its aluminum exterior is unique in this market, and innovations
such as the Velvet-Ride(TM) Suspension and power disk brakes further separate
the Safari from the rest of the luxury RV market. The Harney product is designed
to attract entry level and first time buyers in the Class A luxury market. While
it incorporates several luxury features into its design, the use of more
economical materials and assembly methods allow a more practical price.

The Company markets its products through independent dealers throughout the
United States and Canada. Few dealers carry both the Safari and Beaver brand
products. SMC has made dealer development a priority, because it believes that
an expanded dealer base results in greater retail sales exposure and ultimately
more retail sales volume. Total Class A dealer locations were 87, 94, and 104 as
of December 31, 1997, 1998 and 1999 respectively.

The Company grants exclusive distribution rights to a dealer within a geographic
region. Dealers are selected based on location, financial stability, marketing
expertise, sales history, integrity and repair and service capability. The
Company provides a variety of support services to its dealers, including
promptly supplied product literature, display materials and space rental
subsidies at trade shows and exhibitions, and a dealer newsletter with updates
on product development and other product information. The Company offers
training and technical support to dealer salespeople through its in-house
"university" programs. The Company representatives visit dealers on a regular
basis for sales training and assistance.

The Company focuses its advertising on consumer publications which emphasize the
RV lifestyle. In 1995, the Company consolidated its media production in-house to
control costs and quality. In-house media development has also added flexibility
and responsiveness to the process, which frequently involves "rush" jobs to take
advantage of market opportunities.

A key part of the Company's marketing effort is the sponsorship and active
promotion of the Safari International and the Beaver Ambassador Club, both of
which are active clubs for owners of Safari and Beaver products, respectively.
Members of these groups socialize, discuss common experiences and enjoy motor
coaching activities together, thus helping to build customer loyalty and
enthusiasm. The Company publishes quarterly newsletters for members of the
owners' clubs, as well as a quarterly magazine, the "Rendezvous," which is
circulated to owners, prospective purchasers, suppliers, dealers


                                       6
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and employees. In addition, the Company annually sponsors "homecoming" rallies
at the Safari and Beaver factories, open to all Safari and Beaver coach owners.

Dealers typically finance their inventory through revolving credit facilities
established with asset-based lending institutions, including specialized finance
companies and banks. It is industry practice for these "floor plan" financiers
to require motor coach manufacturers to repurchase motor coaches previously sold
to the dealer if the dealer defaults on its financing agreements or if the
lender otherwise has a reasonable basis to be concerned about the ability of the
dealer to meet its obligations to the lender. This agreement typically applies
for a period of 12 to 18 months from the date of the dealer's purchase from the
manufacturer. See "Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

The Company takes several steps to reduce its exposure to coach repurchase risk.
A dealer is typically required to make periodic payments of principal, referred
to as a "curtailment," to the flooring financing institution commencing in the
seventh month after purchase of the coach. A coach manufacturer may waive these
curtailment payments at the request of a dealer under certain circumstances, but
the Company generally will not do so unless the dealer owes no more than 90% of
the wholesale price of the coach. The Company also monitors the inventory levels
and financial circumstances of its dealers through reports generated by the
flooring institutions and through frequent contact by its sales personnel with
the dealers. The Company believes, however, that its most fundamental protection
against significant loss due to repurchase obligations is the production and
marketing of motor coaches that are sufficiently popular to enable the Company
quickly to resell, at satisfactory prices, any coaches it may be required to
repurchase. In 1997, 1998, and 1999, the Company repurchased a total of 8, 8,
and 3 motor homes respectively under the requirements of the repurchase
obligations. No significant losses were incurred upon the subsequent resale of
the motor homes.

In 1999, one dealer accounted for 12% of net sales. This same dealer accounted
for 14% of net sales in 1998, and for 12% of net sales in 1997. For 1997, sales
to one other motor coach dealer accounted for approximately 10% of net sales.


                                       7
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PRODUCT INFORMATION BY SUBSIDIARY

SOLITAIRE

The Solitaire was introduced in the third quarter of 1999. It is built on Magnum
monocoque chassis and has a tag axle design. The coach measures forty five
feet in length and is by far the most luxurious product produced by SMC. With a
retail price ranging from $672,000 to $699,000, it is designed to compete with
luxury bus conversions. The amenities of the Solitaire are similar to those
found in luxury buses retailing in excess of $1 million. This product is a
limited production model and will be manufactured at the Beaver facility.

BEAVER

MARQUIS

The Marquis is positioned at the top of the Beaver product line. With retail
prices of over $410,000, it is one of the most expensive and luxurious motor
coaches in production today. The Marquis has traditionally been the most visible
and best recognized of the Beaver models. The Marquis motor coach was further
upgraded in 1997 to its current ultra-luxury position. As part of this strategy,
production of the Marquis was slowed and a craftsman-intensive team production
program was developed to produce each vehicle. New cabinet technologies were
introduced, allowing the use of exotic veneers and richer lacquers. The Marquis
is now positioned as a prestige product. Previously built on a chassis supplied
by an outside supplier, in 1997 the Company began building the Marquis on a
chassis developed by Magnum at an overall cost savings for the Company. In 1999,
the Company introduced the Amethyst Marquis which is a forty two foot, tag axle
model carrying the most features and highest price of any Marquis.

PATRIOT

In July 1995, SMC introduced the 1996 Patriot on the all-new Magnum B-Series
chassis. This new Magnum chassis replaced a chassis from an outside chassis
vendor used since the Patriot model was introduced in 1992. The Patriot model
has a retail price ranging from $229,000 to $313,000, depending upon options
which include the upgraded Thunder option which features a powerful
425-horsepower engine and a heavy-duty transmission. Since the Marquis upgrade
in 1997, the Patriot has successfully filled the niche of the original Marquis
product.

CONTESSA

In 1997, the Company introduced the completely redesigned Contessa, which had
been a Beaver model prior to the acquisition of Beaver in 1994. The Contessa is
a high-end coach powered by a 330-horsepower engine which retails from $204,000
to $244,000, depending upon options.


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<PAGE>

MONTEREY

The Monterey was the first all-new Beaver product since the acquisition of
Beaver in 1994. Retailing from $172,000 to $211,000, depending upon options, the
Monterey provides Beaver with a product priced for broader appeal. An air-ride
option has been developed to provide the traditional RV owner an alternative
which is typically seen in high-line motor coaches.

SAFARI

CONTINENTAL

The Continental is the flagship product from Safari. Its design and technology
features include disk brakes, Magnum Intellidrive computerized monitoring
display, and Magnum Air Chassis all as standard equipment. The coach is driven
by a 330hp Caterpillar engine and features an Allison MD3030 transmission with
six forward speeds and two overdrives. The Continental retails from $241,000 to
$308,000, depending upon options, including the Panther option which features a
powerful 425-horsepower engine and a heavy-duty transmission.

SERENGETI AND IVORY

As the oldest of the Safari brand names, the Serengeti has been a core Safari
product since its introduction in 1988. The Serengeti retails from $204,000 to
$257,000, depending upon options, and its sibling, the Ivory model, occupies the
higher end of that price range.

SAHARA

The Sahara model was introduced in 1993 and then repositioned in 1994 to stand
as a value-oriented luxury coach. The Sahara model retails from $161,000 to
$204,000, depending upon options. The product provides many of the features of
the Serengeti and Ivory at a lower cost to the customer.

ZANZIBAR

The Zanzibar was introduced in 1998. The standard equipment offers an array of
features found on higher priced models, but at an entry level price. It is
constructed on the Magnum `R' chassis. The Zanzibar model retails from $152,000
to $174,000, depending on the options. This model has quickly become one of
Safari's best sellers.

CHEETAH

In late 1999, this new Class A diesel pusher model was introduced to compete as
an entry level product retailing in the $130,000 to $135,000 range. Market
analysis indicates that a strong demand exists for an entry level diesel pusher
as more consumers enter the RV market and those already owning gas RVs seek the
enhanced performance of a diesel pusher product. This product is built on BF
Goodrich's Torsilastic suspension system that is otherwise available on bus
conversions in the $1 million retail price range.


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<PAGE>

TREK

The Trek is constructed on a Workhorse chassis powered by a gasoline engine. As
the lowest priced SMC Class A motor coach, it is intended to acquaint new
customers with SMC's products and attract them to the RV lifestyle. Equipped
with SMC's patented Electro-Majic bed, the Trek occupies a niche in the
otherwise competitive gas coach market. The Trek retails from $86,000 to
$107,000, depending upon options.

HARNEY COUNTY OPERATIONS (DBA HARNEY COACH WORKS)

SAFARI CLASS C AND DESPERADO

The Safari Class C and the Desperado are both constructed on a gasoline powered
Ford or Chevrolet van chassis. The first sales of the Safari Class C were made
in 1997 and initial sales of the Desperado were in 1998. These units retail from
$61,000 to $85,000, depending upon options, and occupy the high-end of the Class
C motor home market.

RENEGADE CLASS A

The Renegade is constructed on Magnum `R' series chassis with a Cat
330hp engine. Shipments began in January 1998. In 1999, the Renegade was
upgraded and now retails from $137,000 to $159,000. The Renegade is still
targeted to the expanding entry level Class A market which offers many features
of the higher-line models, but at a more affordable pricing structure.

RIATA

In late 1999, this new Class A diesel pusher model was introduced to compete as
an entry level product retailing in the $129,000 to $137,000 range. Similar to
the Cheetah, the Riata's design is distinct to the products made at the Harney
works. Market analysis indicates that a strong demand exists for an entry level
diesel pusher as more consumers enter the RV market and those already owning gas
RVs seek the enhanced performance of a diesel pusher product. The Riata's 300hp
engine and six speed transmission are significant features not available in
competitive coaches.

BACKLOG

Motor coach dealers, particularly those with a relatively large sales volume,
from time to time indicate to motor coach manufacturers the number of coaches
they expect to purchase in the following months. While the Company regularly
receives such indications, the Company includes in its backlog only purchase
orders it has received that are sufficiently complete as to specifications
(color, floor plan, options, etc.) to permit the Company to schedule production
of the coach. Consequently, backlog generally represents orders for coaches
scheduled to be manufactured and shipped in the following 45 to 60 days. The
Company's backlog at December 31, 1999 was $24.4 million, compared to backlog of
$12.8 million at December 31, 1998. Backlog can fluctuate substantially as the
result of the receipt of purchase orders in connection with various major motor
coach shows and rallies, which are not held at even intervals throughout the
year. Consequently, and because orders are generally cancelable without penalty,
the amount of backlog at any date is not necessarily indicative of sales in
future periods. To date, order cancellations have not been material.


                                       10
<PAGE>

CUSTOMER SERVICE

The Company believes one of the most important elements in the success of its
business is understanding its customers and their preferences and providing
excellent customer service. Customer service is important because many of the
Company's customers are repeat purchasers and because a high level of service is
expected by purchasers of high quality coaches. In addition, because motor coach
purchasers tend to communicate freely their views on the quality of various
coaches and business reputations of motor coach manufacturers, the quality of
post-sale customer service provided by a motor coach manufacturer is a key
factor in establishing a manufacturer's reputation among this group.

The Company offers a one-year or 12,000-mile warranty, whichever occurs first,
on all coaches. Customers have the option to purchase extended warranties,
written by others, from Company dealers. The Company's warranty covers all
manufacturing-related problems and parts and system failures. Repairs are made
at a Company owned service facility or by one of the Company's dealers or
authorized service centers. In addition to the Company's warranty, the chassis,
drive train, engine and transmission are covered by separate warranties offered
by the manufacturers of those components, or by the Company on the chassis
manufactured by its Magnum Manufacturing subsidiary. The Company's warranty on
the Magnum chassis and drive train is for three years or 36,000 miles, whichever
occurs first. Appliances in the coaches are covered by the warranties of
manufacturers of those items.

The Company maintains toll-free telephone lines for customers to call with
repair or operating questions or problems. Although many questions can be
resolved by telephone, the Company often refers the customer to a local dealer
or repair facility for additional assistance.

The Company opened a 24-bay service center in Harrisburg in November 1995 to
better serve its customers. In late 1998, the Company purchased a service center
in Tampa, Florida and moved its service activities from a smaller leased
facility in that area. The Company also operates a service center adjacent to
its Beaver manufacturing facility in Bend, Oregon.

MANUFACTURING

The Company uses current production techniques in its coach manufacturing
process. These techniques emphasize teamwork, include significant input from
worker teams and employ just-in-time inventory controls to improve product
quality and manufacturing efficiencies. Recently, the Company adopted a "Kaizen"
or continuous improvement approach at its facilities that emphasizes safety,
quality, and productivity.

The Company believes its coach manufacturing operations are vertically
integrated to a substantial degree compared to most other high-line motor coach
builders. Components of the Company's motor coaches produced by the Company
include chassis constructed by Magnum Manufacturing, Inc., the shell or "house"
portion of the coach, fiberglass, countertops, hardwood cabinetry and portions
of the interior upholstery. The Company believes this in-house production of
certain components results in cost savings to the Company and greater control
over quality and inventory.

The Company purchases raw materials, parts, subcomponents, electric systems and
appliances from approximately 1,000 suppliers. These items are either placed
directly into the coach or


                                       11
<PAGE>

are incorporated into subassemblies by the Company. All components,
subassemblies and finished products are inspected for compliance with the
Company's specifications. The Company attempts to minimize its inventory costs
by ordering inventory only on an as-needed, or just-in-time, basis. Some
supplies, such as fiberglass, are ordered and delivered to the Company's plant
on a daily basis, while other items, particularly engines and transmissions, are
ordered as much as four months in advance of the expected use date. While the
Company generally commences construction on a coach only after receipt of an
order from a dealer, it must nonetheless order certain parts or components, some
of which represent a significant expenditure, in advance of orders.

Certain components and subassemblies included in the Company's motor coaches are
obtained from a single or limited number of suppliers. Transmissions of the type
used in the Company's coaches and those of most of its competitors are
manufactured solely by Allison Transmission. Although the Company believes it
would be able to develop alternate sources for any of the components, other than
transmissions, used in its products, significant delays or interruptions in the
delivery of certain components from suppliers or difficulties or delays in
shifting to new suppliers could have a material adverse effect on the Company.
Presently the company is not experiencing any interruptions or supply
limitations from its major suppliers.

Upon completion of the manufacturing process, each coach undergoes a thorough
inspection and test drive. Any problems discovered are corrected prior to
shipment.

COMPETITION

The market for manufacture of mid- to high-line motor coaches is very
competitive, and the Company has significant competition in each of its product
lines. Other manufacturers of high-line coaches include Blue Bird Corporation,
Country Coach, Inc. (acquired in late 1996 by National RV Holdings, Inc.),
Fleetwood Enterprises, Inc., Foretravel Inc., Gulf Stream Coach, Inc., Monaco
Coach Corporation, and Holiday Rambler Corporation (acquired in early 1996 by
Monaco Coach Corporation). The Company competes with a number of other
manufacturers, some of which are much larger than the Company and have greater
financial and other resources than the Company. Certain of these larger
manufacturers have also identified value-oriented high-line motor coaches as an
attractive market and have recently developed coaches more directly competitive
with the Company's coaches.

The Company believes the principal competitive factors in the manufacture and
sale of high-line motor coaches are product quality and design, price, customer
service, performance and reliability. The Company believes it is competitive
with respect to each of these factors and believes its customer service and the
performance and reliability of its products compare favorably to those of its
competitors.

PRODUCT DESIGN AND PATENTS

The Company strives to be a design innovator in motor coach floor plans,
interior features, coach amenities and mechanical systems and believes it is
generally recognized in the industry as a design leader. Among the innovations
introduced by the Company are the first use of a side aisle floor plan, the
Electro-Majic bed, a rear-mounted cooling system, 110 volt residential-style
lighting and the successful use of Torsilastic suspension on a high-line motor
coach. The Company updates the fabrics, carpets, fixtures and floor plans of its
coaches each year and plans for a complete redesign of each model every three to
four years.


                                       12
<PAGE>

The Company began development of its Electro-Majic bed in 1988 and in 1992
obtained a patent for this electric powered bed system. Using a hidden electric
motor, the system uses small gear tracks attached to the living room walls to
lower a double-size bed from the ceiling down to a desired sleeping level. The
Electro-Majic bed is used in most Trek models. In two of the Company's
best-selling Trek floor plans, the Electro-Majic bed is the primary sleeping
space, which allows the entire coach to be used for living, kitchen and bathroom
areas. The Company believes there is no comparable motor coach floor plan on the
market.

The Company designed and patented an all new air ride suspension system in 1996
for use in its Beaver Patriot and Marquis models. The suspension system is
designed to optimize the stability of the moving coach, while at the same time
maximizing ride comfort.

GOVERNMENT REGULATION

Motor coach manufacturers, such as the Company, are subject to federal, state,
and local regulations governing the manufacture and sale of their products,
including the provisions of the Motor Vehicle Act. The Motor Vehicle Act
provides for, among other things, the recall for modification, repair or
replacement of vehicles that contain defects which are potentially dangerous, or
which fail to comply with applicable standards. The Company's motor coaches also
may be subject to recall by chassis manufacturers in the event the chassis fail
to comply with applicable standards. The Company relies upon certifications from
its engine suppliers and chassis manufacturers that the Company's motor coaches
comply with all applicable emission control standards. Although motor coaches
manufactured by the Company have been voluntarily recalled for repair from time
to time in the past, the Company has not incurred significant expenses in
connection with recalls. Because the Company sells its products in Canada, it is
also governed by similar laws and regulations issued by the Canadian government.
There is no assurance that future recalls of the Company's products will not
occur or that any such recalls will not adversely affect the Company's
operations or financial condition.

The Company is also subject to regulations promulgated by the Occupational
Safety and Health Administration ("OSHA") concerning workplace health and
safety. The Company's plants are periodically inspected by OSHA.

The business and operations of the Company are affected by federal, state, and
local environmental regulations relating to air and water pollution, hazardous
wastes, and noise. These regulations control the Company's use, storage, and
disposal of production chemicals and other wastes. The regulations also restrict
the Company's air contaminant emissions and waste water discharges and prohibit
noise in excess of certain levels.

The Company holds a federal operating permit as required by Title V of the
federal Clean Air Act Amendments of 1990 (a "Title V Permit") for its Safari and
Beaver motor coach manufacturing facilities. The combined CTI and HCO facility
holds an air contaminant discharge permit ("ACDP"), issued by the Oregon
Department of Environmental Quality and has applied for a Title V permit. The
Company believes it will be issued the permits necessary to allow it to operate
these facilities. The ACDPs and the Title V permits, however, are issued for
operations at specified levels, and any increase in emissions beyond those
levels, including increases resulting from expanded operations or process
modifications, will require permit amendments.


                                       13
<PAGE>

To date, the Company has not been required to make significant expenditures for
environmental compliance. The promulgation of additional safety or environmental
regulations, or the need to acquire permit amendments, in the future, however,
could require the Company to incur additional expense which could adversely
impact the Company's results of operations. There is no assurance that the
Company will not be required to make significant expenditures in the future with
respect to such safety or environmental regulations.

The Company believes it is in compliance with applicable laws relating to the
manufacture and operation of motor coaches and operations of its manufacturing
facilities. There is no assurance, however, that future governmental regulations
will not be more stringent, and that compliance with those regulations will not
require the Company to incur additional cost.

EMPLOYEES

At December 31, 1999 the Company had 1,520 full-time employees. None of the
Company's employees are represented by a labor union, and the Company has never
experienced a work stoppage, slowdown or strike. The Company believes it
maintains good employee relations.

ITEM 2.  PROPERTIES

The Company's Safari and Magnum manufacturing facilities are located in
Harrisburg, Oregon on property owned by the Company. The Safari manufacturing
facility consists of buildings totaling 163,000 square feet on 16 acres, with
11,300 square feet of office space and 151,700 square feet of manufacturing
space. The Magnum manufacturing facility consists of four buildings with a
combined size of approximately 93,000 square feet on 12 acres. The Company's
Beaver manufacturing facility and corporate headquarters are located in Bend,
Oregon and consist of buildings totaling 124,700 square feet on 11.3 acres that
are leased on a long-term basis. In January 1996, the Company purchased a
172,000 square foot building on 16 acres in Hines, Oregon to meet future
production requirements. The Company leases a 13,000 square foot facility in
Bend, Oregon where ED&A operates. The present lease has an option to renew
through December of 2005.

The Company also owns a 39,000 square foot facility on 5 acres in Tampa, Florida
where it operates a service center and leases about 12,000 feet of this facility
to an RV dealer. The Company also leases a facility in Bend, Oregon as a service
center. Its service center in Harrisburg, Oregon is located on the Magnum
Manufacturing property.

The Company believes its existing office and service facilities are sufficient
to meet company needs.


                                       14
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

The Company is involved from time to time in litigation arising out of its
operations in the normal course of business, including claims under the "lemon
laws" of various states. In 1997, 1998, and 1999, the costs of all claims
including legal fees were $1.4 million, $2.9 million, and $2.8 million
respectively. The Company establishes a reserve for a case when a judgement has
been entered and the company appeals that judgement. Due to the inconsistencies
of state laws and judicial interpretations of these laws, the Company can not
anticipate which cases where it will prevail. As such, the Company often seeks
to resolve these matters before litigation takes place.

As a manufacturer and seller of motor coaches, the Company is subject to a risk
of loss resulting from claims that its products or components of its products
caused or contributed to damage or injury. The Company has obtained product
liability insurance under terms it considers acceptable. In the past, the
Company has not incurred material expenses for product liability; however, such
liabilities, if incurred in the future, could have a material adverse effect on
the Company's operations if they exceed the insurance coverage maintained.
Furthermore, there can be no assurance that the Company will be able to obtain
insurance coverage in the future at adequate levels or for a reasonable cost.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 4(a).  EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information with respect to the executive
officers of the Company as of March 15, 2000.

<TABLE>
<CAPTION>
NAME                  AGE    POSITION
----                  ---    --------
<S>                   <C>
Mathew M. Perlot      63     Chief Executive Officer and Chairman of the Board

Michael R. Jacque     42     President and Chief Operating Officer

William L. Rich       45     Vice President of Finance and
                             Chief Financial Officer
</TABLE>

MATHEW M. PERLOT co-founded the Company in November 1986 and has served as Chief
Executive Officer and Chairman of the Board since that time. Mr. Perlot also
served as President until May of 1997. Mr. Perlot served as Director of Sales
and Marketing for Monaco Coach Corporation from 1982 to 1985 and for Beaver
Coaches, Inc. from 1985 to 1987. Mr. Perlot also served as President of RV
Marketing, Inc. from 1980 to 1987. Mr. Perlot is married to Connie M. Perlot, a
director and Secretary-Treasurer of the Company.

MICHAEL R. JACQUE joined the Company as President in June 1999. Prior to joining
the Company, Mr. Jacque served, concurrently, as the President and a major
shareholder of


                                       15
<PAGE>

Marathon Coach, Incorporated, the largest bus converter in the U.S., from
1988-1993 and as General Manager at Guaranty RV, one of the largest single point
RV dealers in the United States between 1980 and 1995. Mr. Jacque graduated
summa cum laude with a BA in Psychology from the University of Oregon. He will
complete the requirements for a law degree from the University of Oregon Law
school and will receive his J.D. in May 2000.

WILLIAM L. RICH joined the Company as Vice President of Finance and Chief
Financial Officer in November 1998. Prior to joining the Company, Mr. Rich
served as Vice President of Finance and Administration at Marus Dental
International, a subsidiary of the Henry Schein Corporation. Prior to that, Mr.
Rich held senior financial positions at manufacturing companies in the Midwest.
Mr. Rich obtained his B.S. degree in Business from Miami University (Ohio) and
MBA from the University of North Texas. Mr. Rich is a CPA and CMA.




                                       16
<PAGE>

                                                      PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
         SHAREHOLDER MATTERS

The Company's Common Stock has been traded on the Nasdaq National Market System
since January 20, 1995 under the symbol SMCC. Information with respect to the
high and low sales prices for the Common Stock is set forth on page F-18.

At March 15, 2000 there were 87 shareholders of record of the Company's Common
Stock and 5,780,599 shares were outstanding. The Company believes the number of
beneficial owners is substantially greater than the number of record holders
because a large portion of the Company's outstanding Common Stock is held of
record in broker "street names" for the benefit of individual investors.

The Company did not pay any dividends in 1999 or 2000. The Company intends to
retain future earnings for use in its business and therefore does not anticipate
paying cash dividends in the foreseeable future.




                                       17
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

The selected financial data presented below for, and as of the end of, each of
the years in the five-year period ended December 31, 1999 have been derived from
the audited financial statements of the Company. This data should be read in
conjunction with the financial statements, related notes and other financial
information included elsewhere in this report.

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31
                                      ----------------------------------------------------------
                                         1995        1996         1997        1998       1999
                                      ---------    ---------   ---------   ---------   ---------
                                       (In thousands, except per share and other operating data)
<S>                                   <C>          <C>         <C>         <C>         <C>
STATEMENT OF INCOME DATA:
Sales                                 $ 148,189    $ 200,835   $ 203,019   $ 217,485   $ 215,540
Cost of sales                           128,846      174,457     175,809     195,405     194,127
                                      ---------    ---------   ---------   ---------   ---------
Gross profit                             19,343       26,378      27,210      22,080      21,413
Selling, general and administrative
   expenses                              11,702       16,668      17,968      17,610      18,099
Restructuring expense                      --          2,392        --          --          --
Litigation and settlement costs            --            933       1,385       2,849       2,808
                                      ---------    ---------   ---------   ---------   ---------
Income from operations                    7,641        6,385       7,857       1,621         506
Other expense                               774          418         813         940         155
                                      ---------    ---------   ---------   ---------   ---------
Income before provision for
   income taxes                           6,867        5,967       7,044         681         351
Provision for income taxes(1)             1,926        2,384       2,798         272         110
                                      ---------    ---------   ---------   ---------   ---------
Net income                            $   4,941    $   3,583   $   4,246   $     409   $     241
                                      =========    =========   =========   =========   =========
Net income per share - basic          $     .76    $     .55   $     .65   $     .06   $     .04
                                      =========    =========   =========   =========   =========
Net income per share - diluted        $     .74    $     .54   $     .65   $     .06   $     .04
                                      =========    =========   =========   =========   =========
Weighted average shares outstanding
   basic                                  6,469        6,563       6,506       6,429       5,825
                                      =========    =========   =========   =========   =========
Weighted average shares outstanding
   diluted                                6,647        6,661       6,507       6,429       5,825
                                      =========    =========   =========   =========   =========
PRO FORMA STATEMENT OF
INCOME DATA:
Income before provision for
   income taxes                       $   6,867          N/A         N/A         N/A         N/A
Pro forma provision for income
   taxes (1)                              2,612          N/A         N/A         N/A         N/A
                                      ---------
Pro forma net income (1)              $   4,255          N/A         N/A         N/A         N/A
                                      =========
Pro forma net income per
   share - basic (1)(2)               $     .66          N/A         N/A         N/A         N/A
                                      =========
Pro forma net income per
   share - diluted (1)(2)             $     .64          N/A         N/A         N/A         N/A
                                      =========
Pro forma common shares - basic (2)       6,469          N/A         N/A         N/A         N/A
                                      =========
Pro forma common shares -
    diluted (2)                           6,647          N/A         N/A         N/A         N/A
                                      =========
OTHER OPERATING DATA:
Coaches sold                              1,405        1,859       1,765       1,706       1,584
</TABLE>



                                       18
<PAGE>

<TABLE>
<CAPTION>
                                            DECEMBER 31,
                         -----------------------------------------------
                           1995      1996      1997      1998     1999
                         -------   -------   -------   -------   -------
                                         (In thousands)
<S>                      <C>       <C>       <C>       <C>       <C>
BALANCE SHEET DATA:
Current assets           $26,109   $39,740   $39,081   $45,453   $59,704
Property and equipment    12,061    19,584    18,585    20,551    13,978
Total assets              41,198    61,920    59,842    68,020    75,669
Current liabilities       18,254    34,225    29,335    36,492    44,127
Long-term debt             4,676     6,626     5,376     7,353     8,646
Shareholders' equity      17,411    20,994    24,293    23,209    22,879
</TABLE>

----------------

(1)  The Company was an S corporation and accordingly was not subject to federal
     and state income taxes prior to 1995. Pro forma net income reflects federal
     and state income taxes as if the Company had been a C corporation, based on
     the effective tax rates that would have been in effect during those
     periods. Effective January 1, 1995 the Company elected C corporation tax
     status. In accordance with SFAS No. 109, "Accounting For Income Taxes," the
     Company recorded a transition adjustment to establish a deferred asset for
     prepaid taxes, reducing the Company's reported tax provision by $686,000
     for 1995. The 1995 pro forma provision for income taxes reflects the
     provision for income taxes as if this transition adjustment were excluded.

(2)  Shares used in pro forma computations of income per share include the
     estimated number of shares required to be sold by the Company in its
     initial public offering to make final S corporation distributions to the
     Company's shareholders.


                                       19
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

This analysis of the Company's financial condition and operating results should
be viewed in conjunction with the accompanying financial statements, including
the notes thereof.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, selected statement of
operations data, expressed as a percentage of sales, and the percentage change
in such data from the comparable prior period.

<TABLE>
<CAPTION>
                                                               PERCENTAGE CHANGE IN
                                                                DOLLAR AMOUNTS FROM
                                   YEAR ENDED DECEMBER 31,     --------------------
                                                                 1997         1998
                                  1997      1998      1999     TO 1998      TO 1999
                                  ----      ----      ----     -------      -------
<S>                              <C>       <C>       <C>        <C>       <C>
Sales                            100.0 %   100.0 %   100.0 %      7.1 %       (0.9)%
Cost of sales                     86.6      89.8      90.1       11.1         (0.7)
                                 -----     -----     -----
Gross profit                      13.4      10.2       9.9      (18.9)        (3.0)

Selling, general and
 administrative expenses           8.9       8.1       8.4       (2.0)         2.8
Litigation and
 settlement costs                  0.6       1.3       1.3      105.7         (1.4)
                                 -----     -----     -----
Income from operations             3.9       0.8       0.2      (79.4)       (68.8)

Interest expense                   0.5       0.4       0.7      (12.9)        89.2
Other (income) expense            (0.1)      0.1      (0.6)     205.8     (1,189.0)
                                 -----     -----     -----

Pretax income                      3.5       0.3       0.1      (90.3)       (48.5)
Provision for income taxes         1.4       0.1       0.0      (90.3)       (59.6)
                                 -----     -----     -----
Net income                         2.1       0.2       0.1      (90.4)       (41.1)
                                 =====     =====     =====
</TABLE>




                                       20
<PAGE>

1999 COMPARED TO 1998

Consolidated sales decreased by $1.9 million or 0.9% to $215.5 million in 1999
from $217.5 million for 1998. Safari sales decreased from 1998 levels by $3.0
million or 3.1% to $95.8 million in 1999. Beaver sales decreased from 1998
levels by $2.1 million or 2.4% to $87.9 million in 1999. Sales at the HCO
division increased by $3.8 million or 16.1% to $27.6 million for 1999 from $23.8
million for 1998.

Consolidated unit coach sales decreased by 122 units or 7.2% to 1,584 units in
1999 from 1,706 units in 1998. Safari unit coach sales decreased by 100 units or
11.1% to 801 units in 1999 from 901 units in 1998. Beaver unit coach sales
decreased by 38 units or 7.6% to 461 units in 1999 from 499 in 1998. HCO unit
sales increased by 16 or 5.2% to 322 units in 1999 from 306 units in 1998.

Even though unit sales decreased by approximately 7% in 1999 from 1998, the
average revenue per coach increased by 6.7%. The impact of product mix was not
significant. The increase in revenue per coach is a function of consumer
preferences for more optional features on the coaches.

Consolidated gross profit margins decreased $667,000 or 3.0% and decreased as a
percentage of sales to 9.9% from 10.2% in 1998. The impact of lower sales
volumes account for approximately $200,000 of the decline in gross profit. The
remainder of the variance was a function of a $3.8 million improvement in
material costs that was offset by increases of $1.3 million in direct labor
million and $2.4 million in factory overheads. These increases were incurred
primarily in the first half of the year. Warranty costs were also higher by
approximately $500,000.

Selling, general, and administrative expenses increased by $489,000 or 2.8% to
$18.1 million in 1999 from $17.6 million in 1998. As a percentage of sales,
selling, general and administrative expenses increased to 8.4% from 8.1% of
sales for 1999 and 1998, respectively. Selling costs for the year increased by
$1.3 million as a result of new product introductions of the Solitaire, Marquis
Amethyst, Cheetah, and Riata models as well as increased promotional costs.
Promotional costs were higher due to a year end special promotion and increasing
our dealer base in the second half of the year. Administrative costs decline by
$800,000 due to reductions in accounting and administrative staff.

Interest expense increased 89.2% to $1.5 million in 1999 from $813,000 in 1998
as the result of a higher utilization of the operating credit line and the
financing of the Florida service center property acquired at the beginning of
the year.

The Company's effective tax rate was 31.3%, resulting in an income tax provision
of $110,000 compared to an effective rate of 40.0% and an income tax provision
of $272,000 for 1998. The primary impact creating the lower rates in 1999 was a
state energy credit received from its HCO and CTI operations. The 1999 provision
also includes some unanticipated energy credits received in 1999 that relate to
a prior period.


                                       21
<PAGE>

Net income after tax decreased $168,000 or 41.1% to $241,000 from 1998's net
income after tax of $409,000. This is a result from the factors affecting gross
margin, as discussed earlier.

1998 COMPARED TO 1997

Consolidated sales increased by $14.5 million or 7.1% to $217.5 million in 1998
from $203.0 million for 1997. Safari sales decreased from 1997 levels by $5.3
million or 5.0% to $98.8 million in 1998. Beaver sales increased from 1997
levels by $5.9 million or 7.0% to $90.1 million in 1998. Sales at the HCO
division increased by $15.8 million or 199.6% to $23.8 million for 1998 from
$7.9 million for 1997.

Excluding coach sales from discontinued operations, consolidated unit coach
sales increased by 4 units or .2% to 1,706 units in 1998 from 1,702 units in
1997. Safari unit coach sales decreased by 124 units or 12.1% to 901 units in
1998 from 1,025 units in 1997. Beaver unit coach sales decreased by 20 units or
3.9% to 499 units in 1998 from 519 in 1997. HCO unit sales increased by 148 or
93.7% to 306 units in 1998 from 158 units in 1997.

Although unit sales were flat in 1998 compared to 1997, sales dollars increased
due to a shift in mix towards the Company's higher priced coaches. A 2% price
increase for all models was implemented during the fourth quarter, however, its
impact on annual revenues was not significant. The sales revenue increase was
attributable to the decrease in sale units of the lower priced Trek model that
were offset by increased units of the relatively higher priced Renegade. The
Renegade began shipping in 1998.

Consolidated gross profit margins decreased $5.1 million or 18.9% and decreased
as a percentage of sales to 10.2% from 13.4% in 1997. A number of factors led to
this decrease. The new Class A Renegade model sales contributed to sales growth.
However, the profit margins of this coach were low, due to the higher costs of
introduction and production startup. Also, the gross margin was impacted by
production difficulties of the Safari 1999 model changeover during the second
and third quarters of 1998.

Selling, general, and administrative expenses decreased by $358,000 or 2.0% to
$17.6 million in 1998 from $18.0 million in 1997. As a percentage of sales,
selling, general and administrative expenses decreased from 8.9% to 8.1% of
sales for 1997 and 1998, respectively. During 1998, the Company recognized and
reserved for costs associated with product claims. During the third quarter of
1998, the Company increased its reserves for these costs by approximately $1.1
million. The increase from 1997 levels represented reserves established on
certain claims appealed by the Company.

Interest expense decreased 12.9% to $813,000 in 1998 from $933,000 in 1997. The
operating revolving facility had no utilization as of December 31, 1998.

The Company's effective tax rate was 40.0%, resulting in an income tax provision
of $272,000 compared to an effective rate of 39.7% and an income tax provision
of $2.8 million for 1997.


                                       22
<PAGE>

Net income after tax decreased $3.8 million or 90.4% to $409,000 from 1997's net
income after tax of $4.2 million. This resulted from the factors affecting gross
margin, as discussed earlier.

INFLATION

The Company does not believe inflation has had a material impact on its results
of operations for the periods presented.

FACTORS AFFECTING FUTURE OPERATING RESULTS

The Company's operating results have fluctuated in the past and may fluctuate
significantly in the future. Short-term fluctuations in operating results may be
caused by a variety of factors, including the relatively high unit cost of the
Company's motor coaches, the timing of orders from dealers, dealer cancellations
of orders, the repurchase of coaches from dealers, new product introductions,
production delays and the timing of trade shows and rallies. Because the
Company's gross profit is generally greater with respect to its more expensive
coaches, changes in the product mix of coaches sold can affect the Company's
operating results. Over longer periods, the cyclical nature of the recreational
vehicle industry, changes in interest rates and changes in the level of
discretionary consumer spending may also adversely affect the Company's results
of operations. The impact of these and other factors on the Company's sales and
operating results in any future period cannot be predicted with certainty, and
the results for any prior period may not be indicative of results for any future
period.

The Company believes that the high-line motor coach market is much less volatile
than the RV industry as a whole, and believes buyers purchasing high-line
products are making lifestyle decisions largely independent of factors such as
the state of the economy or interest rates. High-line coach sales have increased
every year since 1989, while the sale of all Class A motor coaches have seen
both increases and decreases during this period.

LIQUIDITY AND CAPITAL RESOURCES

During 1999, net cash used in operating activities was $16.9 million. This
was primarily the result of increased inventories (primarily finished goods) at
the year-end. Most of this inventory has been subsequently sold. Accounts
receivable were over $2.0 million higher than previous year end levels
in part because of very heavy sales in the last two weeks of December.

The Company generated $6.0 million in cash from investing activities as the
result of proceeds from the sale of assets including an airplane and certain
real estate. As part of the acquisition of the Florida service center property,
SMC received $1.1 million from the prior tenant for their release from a
long-term lease obligation.

The Company maintains an operating line of credit of $10 million and a real
estate line of credit of $10.1 million, plus an additional $4.0 million
equipment financing line of credit.


                                       23
<PAGE>

At December 31, 1999, the Company utilized $9.5 million of the operating line.
There was no utilization of the equipment line at December 31, 1999. There was
approximately $7.7 million utilized of the real estate line of credit at
December 31, 1999. Amounts outstanding under these lines of credit bear interest
at a LIBOR based rate (8.188% at December 31, 1999) and are secured by all
assets not specifically identified in other financing obligations. The terms of
the revolving credit and equipment financing agreements require compliance with
certain financial and other covenants unless the Company receives consent from
the lender. The covenants include restrictions relating to (1) mergers,
consolidations and sale of assets, (2) guarantees by the Company of debts or
obligations of other persons or entities, (3) acquisition of the Company's own
stock, and (4) declaring or paying dividends in cash, stock, or other property.
The Company was in compliance with all covenants and agreements at December 31,
1999. The Company does not believe any of these covenants will have a material
impact on the Company's ability to meet its cash obligations. See Notes 4 and 5
of Notes to Consolidated Financial Statements.

Most dealer purchases of motor coaches from the Company are financed under
flooring financing arrangements between the dealer and a bank or finance
company. Under these flooring arrangements, the financing institution lends
the dealer all or substantially all of the wholesale purchase price of a
motor coach and retains a security interest in the coach purchased. These
financing arrangements provide that, for a period of time after a coach is
financed (generally 12 to 18 months), if the dealer defaults on its payment
or other obligations to the lender, the Company is obligated to repurchase
the dealer's inventory for the amount then due from the dealer plus, in
certain circumstances, costs incurred by the lender in connection with
repossession of the inventory. The repurchase price may be more than the
resale value of the coach. The Company's contingent liability under its
repurchase obligations varies from time to time. As of December 31, 1999, the
Company estimates its total contingent liability under repurchase obligations
to be approximately $104.0 million. Included in this amount is approximately
$3.0 million that is guaranteed by SMC in the event one particular dealer
fails to repay the finance company from sales proceeds. To date, losses
incurred by the Company pursuant to repurchase obligations have not been
material. The Company cannot predict with certainty its future losses, if
any, pursuant to repurchase obligations, and these amounts may vary
materially from the expenditures historically made by the Company.
Furthermore, even in circumstances where losses in connection with repurchase
obligations are not material, a repurchase obligation can represent a
significant cash requirement for the Company. See "Business -- Sales and
Marketing" and Note 9 of Notes to Consolidated Financial Statements.

                                       24
<PAGE>

YEAR 2000 ISSUE

The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Computer programs that
have date sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. To be in "Year 2000 compliance" a computer program
must be written using four digits to define years. As a result, computer systems
and/or software used by many companies may have required upgrading to comply
with such "Year 2000" (Y2K) requirements.

The Company completed its evaluation of both information technology systems
("IT") and non-IT systems to determine Year 2000 compliance. The Company
experienced no significant Y2K problems when the new year started.

ITEM 7(a).  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
            MARKET RISK

Not applicable.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data required by this item are
included on pages F-1 to F-18 of this report.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

Not applicable.




                                       25
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information with respect to directors of the Company will be included under
"Election of Directors" in the Company's definitive proxy statement for its 2000
annual meeting of shareholders (the "2000 Proxy Statement") to be filed not
later than 120 days after the end of the fiscal year covered by this Report and
is incorporated herein by reference. Information with respect to executive
officers of the Company is included under Item 4(a) of Part I of this Report.

ITEM 11. EXECUTIVE COMPENSATION

Information with respect to executive compensation will be included under
"Executive Compensation" in the Company's 2000 Proxy Statement and is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information with respect to security ownership of certain beneficial owners and
management will be included under "Security Ownership of Certain Beneficial
Owners and Management" in the Company's 2000 Proxy Statement and is incorporated
herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information with respect to certain relationships and related transactions with
management will be included under "Certain Transactions" in the Company's 2000
Proxy Statement and is incorporated herein by reference.



                                       26
<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
(a)(1)   FINANCIAL STATEMENTS                                        PAGE IN THIS REPORT
                                                                     -------------------
<S>                                                                  <C>
            Report of Independent Accountants                                F-1

            Consolidated Balance Sheet at December 31, 1998
               and 1999                                                      F-2

            Consolidated Statement of Income for the Years
               Ended December 31, 1997, 1998 and 1999                        F-3

            Consolidated Statement of Changes in Shareholders'
               Equity for the Years Ended December 31, 1997, 1998
               and 1999                                                      F-4

            Consolidated Statement of Cash Flows for the Years
               Ended December 31, 1997, 1998 and 1999                        F-5

            Notes to Consolidated Financial Statements                       F-6
</TABLE>

(a)(2)   FINANCIAL STATEMENT SCHEDULES - NONE

(a)(3)   EXHIBITS

          3.1  Restated Articles of Incorporation; incorporated by reference to
               Exhibit 3.1 to the 1995 S-1

          3.2  Restated Bylaws; incorporated by reference to Exhibit 3.2 to the
               Registrant's Annual Report on Form 10-K for the year ended
               December 31, 1994

          4.1  See Articles II and V of Exhibit 3.1 and Articles I and VI of
               Exhibit 3.2

         *10.1 1994 Stock Incentive Plan, as amended; incorporated by reference
               to Exhibit 10.1 to the Registrant's Annual Report on Form 10-K
               for the year ended December 31, 1994

          10.2 Stock Purchase Agreement dated March 28, 1988 among Curtis Lawler
               and Sandra Lawler, Mathew M. Perlot and the Registrant;
               incorporated by reference to Exhibit 10.2 to the 1995 S-1


                                       27
<PAGE>

          10.3 Revised form of Representatives' Warrant Agreement, including
               form of warrant; incorporated by reference to Exhibit 10.5 to the
               1995 S-1

          10.4 Manufacturer Agreement dated June 24, 1987 between General
               Electric Credit Corporation and the Registrant; incorporated by
               reference to Exhibit 10.7 to the 1995 S-1

          10.5 Repurchase Agreement dated November 30, 1993 between the
               Registrant and General Motors Acceptance Corporation;
               incorporated by reference to Exhibit 10.9 to the 1995 S-1

         +10.6 Floorplan Agreement dated April 14, 1994 between ITT Commercial
               Finance Corp. and the Registrant, and amendment and amendment
               letters thereto; incorporated by reference to Exhibit 10.10 to
               the 1995 S-1

          10.7 Lease Assignment and Assumption Agreement dated June 1994 between
               Beaver Coaches, Inc. and Beaver Motor Coaches, L.L.C., with Lease
               dated May 15, 1989 by and between Frank Storch and James Hogue,
               dba S&H Associates, and Beaver Coaches, Inc., and amendments
               thereto; incorporated by reference to Exhibit 10.11 to the 1995
               S-1

          21.1 Subsidiaries of the Registrant

          23.1 Consent of PricewaterhouseCoopers LLP

          27.1 Financial Data Schedule

----------------

     *    This exhibit constitutes a management contract or compensatory plan or
          arrangement.

     +    Confidential treatment has been granted by the Commission for certain
          portions of this agreement.



                                       28
<PAGE>

(b)  REPORTS ON FORM 8-K.

No report on Form 8-K was filed by the Company in the last quarter of 1999.



                                       29
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

     Date:  March 29, 2000              SMC CORPORATION


                                        By: /s/ WILLIAM L. RICH
                                            ----------------------------
                                            William L. Rich
                                            Chief Financial Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the following capacities on March 29, 2000.

       SIGNATURE                          TITLE

MATHEW M. PERLOT                 Chief Executive Officer
---------------------------      and Chairman of the Board
Mathew M. Perlot                 (Principal Executive Officer)


MICHAEL R. JACQUE                President and Director
---------------------------
Michael R. Jacque

WILLIAM L. RICH                  Chief Financial Officer
---------------------------      (Principal Financial and Accounting Officer)
William L. Rich

CURTIS W. LAWLER                 Director
---------------------------
Curtis W. Lawler

CONNIE M. PERLOT                 Director
---------------------------
Connie M. Perlot

LAWRENCE S. BLACK                Director
---------------------------
Lawrence S. Black

JIM L. TRAUGHBER                 Director
---------------------------
Jim L. Traughber




                                       30
<PAGE>

                                  EXHIBIT INDEX

EXHIBIT
   NO.    DESCRIPTION

   3.1    Restated Articles of Incorporation; incorporated by reference to
          Exhibit 3.1 to the 1995 S-1

   3.2    Restated Bylaws; incorporated by reference to Exhibit 3.2 to the
          Registrant's Annual Report on Form 10-K for the year ended
          December 31, 1994

   4.1    See Articles II and V of Exhibit 3.1 and Articles I and VI of
          Exhibit 3.2

 *10.1    1994 Stock Incentive Plan, as amended; incorporated by reference to
          Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the
          year ended December 31, 1994

  10.2    Stock Purchase Agreement dated March 28, 1988 among Curtis Lawler
          and Sandra Lawler, Mathew M. Perlot and the Registrant; incorporated
          by reference to Exhibit 10.2 to the 1995 S-1

  10.3    Revised form of Representatives' Warrant Agreement, including form
          of warrant; incorporated by reference to Exhibit 10.5 to the 1995 S-1

  10.4    Manufacturer Agreement dated June 24, 1987 between General Electric
          Credit Corporation and the Registrant; incorporated by reference to
          Exhibit 10.7 to the 1995 S-1

  10.5    Repurchase Agreement dated November 30, 1993 between the Registrant
          and General Motors Acceptance Corporation; incorporated by reference
          to Exhibit 10.9 to the 1995 S-1

 +10.6    Floorplan Agreement dated April 14, 1994 between ITT Commercial
          Finance Corp. and the Registrant, and amendment and amendment letters
          thereto; incorporated by reference to Exhibit 10.10 to the 1995 S-1

  10.7    Lease Assignment and Assumption Agreement dated June 1994 between
          Beaver Coaches, Inc. and Beaver Motor Coaches, L.L.C., with Lease
          dated May 15, 1989 by and between Frank Storch and James Hogue, dba
          S&H Associates, and Beaver Coaches, Inc., and amendments thereto;
          incorporated by reference to Exhibit 10.11 to the 1995 S-1

  21.1    Subsidiaries of the Registrant

  23.1    Consent of PricewaterhouseCoopers LLP

  27.1    Financial Data Schedule


                                       31
<PAGE>

----------------

    *  This exhibit constitutes a management contract or compensatory plan or
       arrangement.

    +  Confidential treatment has been granted by the Commission for certain
       portions of this agreement.



                                       32
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
SMC Corporation

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
SMC Corporation and its subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.


PRICEWATERHOUSECOOPERS LLP

Portland, Oregon
February 9, 2000



                                      F-1
<PAGE>

SMC CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                                                       1998         1999
                                                                      -------     -------
<S>                                                                   <C>         <C>
ASSETS
Current assets:
   Cash and cash equivalents                                          $ 1,310     $    26
   Accounts receivable, net (Note 1)                                   12,857      15,056
   Inventories (Notes 1 and 2)                                         26,715      41,703
   Prepaid expenses and other                                             530         292
   Prepaid taxes                                                          897          --
   Deferred tax asset (Note 6)                                          3,144       2,627
                                                                      -------     -------
      Total current assets                                             45,453      59,704

Property, plant and equipment, net (Notes 1 and 3)                     20,551      13,978
Intangible assets, net                                                  1,942       1,756
Deferred tax asset (Note 6)                                                --          43
Other assets                                                               74         188
                                                                      -------     -------

      Total assets                                                    $68,020     $75,669
                                                                      =======     =======

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Notes payable (Note 4)                                             $    --     $ 9,464
   Current portion of long-term debt (Note 5)                             953         364
   Accounts payable                                                    24,789      22,969
   Income taxes payable (Note 6)                                           --         700
   Product warranty liabilities                                         3,766       3,481
   Current portion of capital lease obligation (Note 8)                    19          21
   Accrued liabilities                                                  6,965       7,128
                                                                      -------     -------
      Total current liabilities                                        36,492      44,127

Long-term debt, net of current portion (Note 5)                         7,353       8,646
Capital lease obligation, less current portion (Note 8)                    38          17
Deferred income taxes (Note 6)                                            928          --
                                                                      -------     -------
      Total liabilities                                                44,811      52,790
                                                                      -------     -------

Commitments and contingencies (Notes 7 and 9)

Shareholders' equity:
   Preferred stock, 5,000 shares authorized, none issued or
     outstanding (Note 11)                                                 --          --
   Common stock, 30,000 shares authorized, 5,890 and 5,780 shares
     issued and outstanding, respectively (Note 10)                     9,604       9,033
   Additional paid-in capital (Note 10)                                 1,472       1,472
   Retained earnings (Note 10)                                         12,133      12,374
                                                                      -------     -------
      Total shareholders' equity                                       23,209      22,879
                                                                      -------     -------

   Total liabilities and shareholders' equity                         $68,020     $75,669
                                                                      =======     =======
</TABLE>

    The accompanying notes are an integral part of this financial statement.


                                      F-2
<PAGE>

SMC CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                    1997           1998         1999
                                                 ---------      ---------     ---------
<S>                                              <C>            <C>           <C>
Sales                                            $ 203,019      $ 217,485     $ 215,540
Cost of sales                                      175,809        195,405       194,127
                                                 ---------      ---------     ---------
    Gross profit                                    27,210         22,080        21,413
Selling, general and administrative expenses        17,968         17,610        18,099
Litigation and settlement costs                      1,385          2,849         2,808
                                                 ---------      ---------     ---------
Income from operations                               7,857          1,621           506
Interest expense                                       933            813         1,538
Other (income) expense, net                           (120)           127        (1,383)
                                                 ---------      ---------     ---------
Income before tax provision                          7,044            681           351
Provision for income taxes (Note 6)                  2,798            272           110
                                                 ---------      ---------     ---------
Net income                                       $   4,246      $     409     $     241
                                                 =========      =========     =========
Net income per share - basic                     $     .65      $     .06     $     .04
                                                 =========      =========     =========
Net income per share - diluted                   $     .65      $     .06     $     .04
                                                 =========      =========     =========
Weighted average number of shares - basic            6,506          6,429         5,825
                                                 =========      =========     =========
Weighted average number of shares - diluted          6,507          6,429         5,825
                                                 =========      =========     =========
</TABLE>

    The accompanying notes are an integral part of this financial statement.


                                      F-3
<PAGE>

SMC CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                    COMMON STOCK          ADDITIONAL
                               ----------------------      PAID-IN       RETAINED
                                SHARES        AMOUNT       CAPITAL       EARNINGS        TOTAL
                               --------      --------      --------      --------      --------
<S>                              <C>          <C>            <C>           <C>          <C>
Balance, December 31, 1996        6,563        10,914         1,556         8,524        20,994
Net income                           --            --            --         4,246         4,246
Stock repurchase (Note 10)         (220)         (104)          (68)         (775)         (947)
                               --------      --------      --------      --------      --------
Balance, December 31, 1997        6,343      $ 10,810      $  1,488      $ 11,995      $ 24,293
                               ========      ========      ========      ========      ========
Net income                           --            --            --           409           409
Common Stock issued upon
  exercise of options               252         1,954            --            --         1,954
Stock repurchase (Note 10)         (705)       (3,160)          (16)         (271)       (3,447)
                               --------      --------      --------      --------      --------
Balance, December 31, 1998        5,890      $  9,604      $  1,472      $ 12,133      $ 23,209
                               ========      ========      ========      ========      ========
Net Income                           --            --            --           241           241
Stock repurchase (Note 10)         (110)         (571)           --            --          (571)
                               --------      --------      --------      --------      --------
Balance, December 31, 1999        5,780      $  9,033      $  1,472      $ 12,374      $ 22,879
                               ========      ========      ========      ========      ========
</TABLE>

    The accompanying notes are an integral part of this financial statement.


                                      F-4
<PAGE>

SMC CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31,
                                                                  1997          1998          1999
                                                                --------      --------      --------
<S>                                                             <C>           <C>           <C>
Cash flows from operating activities:
   Net income                                                   $  4,246      $    409      $    241
   Adjustments to reconcile net income to net cash provided
     by operating activities:
     Depreciation and amortization                                 2,092         2,133         2,081
     Deferred taxes                                                  648          (163)         (454)
     (Gain) loss on asset dispositions                               (44)            2        (1,450)
     Litigation and settlement costs                                  --         1,070          (191)
     Changes in certain assets and liabilities
       Accounts receivable                                           462          (460)       (2,199)
       Inventories                                                   595        (3,677)      (14,988)
       Prepaid expenses and other                                   (135)         (718)        1,135
       Other assets                                                   52           (27)         (114)
       Accounts payable                                               91         7,447        (1,820)
       Income taxes payable                                         (960)         (405)          700
       Accrued liabilities and other obligations                     451         1,167            69
                                                                --------      --------      --------
Net cash provided by (used in) operating activities                7,498         6,778       (16,990)
                                                                --------      --------      --------
Cash flows from investing activities:
    Capital expenditures                                          (2,468)       (3,952)         (734)
    Proceeds from disposal of equipment                              275            38         5,758
    Lease abatement                                                   --            --         1,104
    Other                                                           (195)           --            --
                                                                --------      --------      --------
Net cash provided by (used in) investing activities               (2,388)       (3,914)        6,128
                                                                --------      --------      --------
Cash flows from financing activities:
    Net borrowings (repayments) on notes payable                  (4,103)       (1,695)        9,464
    Proceeds from long-term debt                                   1,924         4,522         3,216
    Repayments of long-term debt                                  (3,545)       (2,973)       (2,512)
    Principal payments on capital lease obligation                   (16)          (18)          (19)
    Proceeds from sale-leaseback                                   1,364            --            --
    Repurchase of capital stock (Note 10)                           (947)       (3,447)         (571)
Proceeds from issuance of common stock                                --         1,954            --
                                                                --------      --------      --------
Net cash provided by (used in) financing activities               (5,323)       (1,657)        9,578
                                                                --------      --------      --------
Net increase (decrease) in cash and cash equivalents                (213)        1,207        (1,284)
Cash and cash equivalents, beginning of year                         316           103         1,310
                                                                --------      --------      --------
Cash and cash equivalents, end of year                          $    103      $  1,310      $     26
                                                                ========      ========      ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
    Interest, net of amount capitalized of $22,000
       in 1997, respectively. There were no amounts
       capitalized in 1998 and 1999                             $    982      $    687      $  1,504
    Income taxes                                                $  3,128      $  1,725      $ (1,033)
</TABLE>

    The accompanying notes are an integral part of this financial statement


                                      F-5
<PAGE>

SMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1.   NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     NATURE OF BUSINESS

     SMC Corporation, an Oregon corporation, and its wholly owned subsidiaries
     (collectively, the "Company") design, manufacture, and market Class A and
     Class C motor coaches sold primarily to dealers which are independent of
     the Company throughout the United States and Canada.

     BASIS OF CONSOLIDATION

     The accompanying consolidated financial statements include the accounts of
     SMC Corporation and the following seven wholly owned subsidiaries which
     operate under the control of SMC Corporation: Safari Motor Coaches, Inc.
     ("Safari"), Beaver Motor Coaches, Inc. ("Beaver"), Magnum Manufacturing,
     Inc. ("Magnum"), Electronic Design and Assembly, Inc. ("ED&A"), Composite
     Technologies, Inc. ("CTI"), SMC Midwest, Inc. ("Midwest"), and Harney
     County Operations, Inc. ("HCO"). Safari, Beaver, and HCO purchase motor
     coach chassis and other components used in the manufacture of finished
     motor coaches from the other subsidiaries, excluding Midwest which was
     engaged in the manufacture of Class C motor coaches but ceased operations
     in 1997. All significant intercompany transactions have been eliminated for
     purposes of presentation of the consolidated financial statements of SMC
     Corporation.

     REPORTING PERIODS

     The Company reports its annual results of operations on the basis of
     52-week periods ending December 31 and its quarterly results of operations
     on the basis of 13-week periods ending on the Saturday nearest the calendar
     month end. For presentation purposes, the Company has indicated its
     quarters as ending March 31, June 30, September 30, and December 31.

     CASH AND CASH EQUIVALENTS

     Cash and cash equivalents consist of demand deposits with financial
     institutions. The Company considers all highly liquid short-term
     investments with original maturities of three months or less to be cash
     equivalents for purposes of the consolidated balance sheet and consolidated
     statement of cash flows. Noncash transactions have been excluded from the
     consolidated statement of cash flows.

     ACCOUNTS RECEIVABLE

     Accounts receivable are net of an allowance for doubtful accounts of
     $66,000 and $55,000 at December 31, 1998 and 1999, respectively.

     INVENTORIES

     Inventories are stated at the lower of cost or market, with cost determined
     by the first-in, first-out method for raw materials, work-in-progress and
     finished goods and by the specific cost method for chassis. Cost includes
     the purchase price of raw materials, direct labor and an allocation of
     overhead costs. Raw materials inventory consists of component parts and
     motor coach chassis. Chassis manufacturers provide terms calling for
     payment generally upon completion of the motor coach.


                                      F-6
<PAGE>

SMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1.    NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)

      PROPERTY, PLANT AND EQUIPMENT

      Property, plant and equipment are stated at cost. Additions, renewals and
      betterments are capitalized. Expenditures for maintenance, repairs, and
      minor renewals and betterments are charged to expense. Gains or losses
      realized from sales or retirements are reflected in earnings. Gains of
      $44,000, $2,000 and $1,450,000 were recorded during the years ended
      December 31, 1997, 1998 and 1999, respectively. Depreciation and
      amortization are provided using the straight-line method over the
      estimated useful lives of 15 years for land improvements, 20 to 30 years
      for buildings and improvements, and 5 to 12 years for machinery and
      equipment.

      INTANGIBLE ASSETS

      Costs in excess of the fair value of the assets of Beaver acquired in 1994
      consists primarily of product trade names, which are amortized using the
      straight-line method over 15 years. Amortization expense for the years
      ended December 31, 1997, 1998 and 1999 was $220,000, $186,000 and $186,000
      respectively. Periodically the Company reviews the recoverability of its
      intangible assets based on estimated undiscounted future cash flows from
      operating activities compared with the carrying value of the intangible
      assets. If the aggregate future cash flows are less than the carrying
      value, a write-down would be required, measured by the difference
      between the discounted future cash flows and the carrying value of the
      intangible assets.

      FINANCIAL INSTRUMENTS

      The Company estimates the fair value of its monetary assets and
      liabilities based upon the existing interest rates related to such assets
      and liabilities compared to the current market rates of interest for
      instruments of a similar nature and degree of risk. Cash and cash
      equivalents, and notes payable to banks approximate fair value as reported
      in the consolidated balance sheet. The fair value of long-term debt is
      estimated using discounted cash flow analyses, based on the Company's
      incremental borrowing rates for similar types of borrowing arrangements.
      The fair value of the Company's long-term debt at December 31, 1998 and
      1999 approximates the carrying value. The Company records all other
      financial instruments, including accounts receivable and accounts payable,
      at cost, which approximates market value.

      REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE

      The Company recognizes revenue from the sale of motor coaches when title
      and risk of ownership are transferred to the dealer, which generally is
      upon shipment or dealer pick-up. Motor coaches are shipped to dealers only
      upon verification of dealer financing from the finance company providing
      the motor coach financing. Finance companies remit funds directly to the
      Company upon receipt of the manufacturer's certificate of origin,
      generally within 10 days after shipment. A dealer may be invoiced for and
      receive title to motor coaches prior to taking physical possession when
      the dealer has made a fixed, written commitment to purchase, the motor
      coaches have been completed and are available for pick-up or delivery, and
      the dealer has requested the Company to hold the motor coaches until the
      dealer determines the most economical means of taking physical possession.
      Upon such a request, the Company has no further obligation except to
      segregate the motor coaches, invoice them under normal billing and credit
      terms and hold them for a short period of time as is customary in the
      industry, generally less than two weeks, until pick-up or delivery. Motor
      coaches are built to dealer specification and no right of return or
      exchange privileges are generally granted. Accordingly, no provision for
      sales allowances or returns is recorded.


                                      F-7
<PAGE>

SMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1.    NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)

      REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE (CONTINUED)

      Sales and the percentage of total sales made to dealers representing more
      than 10% of consolidated sales in any of the following periods were as
      follows (dollar amounts in thousands); (n/a means sales did not meet
      levels requiring disclosure):

<TABLE>
<CAPTION>
                                      YEAR ENDED DECEMBER 31,
                                1997            1998            1999
                                ----            ----            ----
<S>                          <C>             <C>             <C>
      Dealer 1               $20,843 10%     $   n/a             n/a
      Dealer 2               $24,368 12%     $29,546 14%     $26,242 12%
</TABLE>

      CERTAIN RISKS, UNCERTAINTIES AND CONCENTRATION OF CREDIT RISK

      The preparation of financial statements in conformity with generally
      accepted accounting principles requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities and
      disclosure of contingent assets and liabilities at the date of financial
      statements and the reported amounts of revenues and expenses during the
      reporting period. Actual results could differ from these estimates.

      The Company has a concentration of credit risk in the recreational vehicle
      industry, and specifically related to amounts outstanding at any point in
      time in accounts receivable and/or under repurchase agreements (see Note
      9) with any specific dealership to which it has sold motor coaches. The
      Company requires no collateral from its dealers upon sale of a motor
      coach, and most dealer financing arrangements provide for repurchase
      agreements which require the Company to repurchase previously sold motor
      coaches in the event of the dealer's default on its financing arrangement.

      PRODUCT WARRANTY

      The Company provides a one year warranty against defects in material and
      workmanship to dealers and purchasers of motor coaches and a similar three
      year warranty for chassis manufactured by the Company. Certain components
      used in the manufacture of the Company's motor coaches carry warranties of
      other manufacturers. Estimated warranty costs are reserved at the time of
      sale of the warranted products.

      INCOME TAXES

      The Company accounts for income taxes under the liability method, as set
      forth in Statement of Financial Accounting Standards No. 109, "Accounting
      for Income Taxes," (SFAS No. 109). Under the liability method, deferred
      taxes are determined based upon the difference between the financial
      statement and tax bases of assets and liabilities at enacted tax rates in
      effect in the years in which the differences are expected to reverse.
      Deferred tax expense represents the change in the deferred tax
      asset/liability balance. A valuation allowance is established for deferred
      taxes if their realization is not likely.

      COMPREHENSIVE INCOME

      The Company adopted SFAS No. 130, "Reporting Comprehensive Income" as of
      January 1, 1998. Comprehensive income is equal to net income for all
      periods presented.

      RECLASSIFICATIONS

      Certain prior year amounts have been reclassified to conform to the
      current year presentation. These changes had no impact on previously
      reported results of operations or shareholders' equity.


                                      F-8
<PAGE>

SMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

1.    NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (CONTINUED)

      SEGMENT DISCLOSURE

      The Company complies with segment reporting as set forth in Statement of
      Financial Accounting Standards No.131,"Disclosures about Segments of an
      Enterprise and Related Information," (SFAS No. 131) effective December
      1998. Under this statement, the Company employs the aggregation criteria
      of this standard.

      EARNINGS PER SHARE

      The Company has adopted FASB Statement 128, "Earnings Per Share". FASB 128
      requires dual presentation of basic and diluted EPS. Previously, the
      Company had presented primary EPS. Diluted EPS is calculated by dividing
      net income by the total of the weighted average actual shares outstanding
      for each period plus the number of shares calculated as having a dilutive
      impact, if any, related to the stock options under the Company's Stock
      Incentive Plan, and the warrants issued in conjunction with the Company's
      initial public offering. Previously reported amounts for primary EPS are
      the same as the diluted EPS amounts now reported. Basic EPS is computed by
      dividing the net income by the weighted average actual shares outstanding
      for each period presented with no consideration as to the dilutive impact
      of the Company's outstanding stock options or warrants. Prior periods have
      been restated to conform to FASB 128.

2.    INVENTORIES

      Inventories by major classification are as follows (in thousands):

<TABLE>
<CAPTION>
                                                  DECEMBER 31,
                                               1998         1999
                                              -------     -------
<S>                                           <C>         <C>
            Raw materials                     $14,982     $15,506
            Work-in-progress                    8,527      10,080
            Finished goods                      3,206      16,117
                                              -------     -------
            Total                             $26,715     $41,703
                                              =======     =======
</TABLE>

3.    PROPERTY, PLANT AND EQUIPMENT

      The components of property, plant and equipment are as follows (in
      thousands):

<TABLE>
<CAPTION>
                                                         DECEMBER 31,
                                                     1998          1999
                                                   --------      --------
<S>                                                <C>           <C>
            Land and improvements                  $  3,094      $  3,624
            Buildings and improvements               10,449        10,597
            Machinery and equipment                  11,042         7,787
            Construction in progress                  3,150           522
                                                   --------      --------
                                                     27,735        22,530
            Less accumulated depreciation            (7,184)       (8,552)
                                                   --------      --------
            Property, plant and equipment, net     $ 20,551      $ 13,978
                                                   ========      ========
</TABLE>


                                      F-9
<PAGE>

SMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

4.    NOTES PAYABLE

      The Company has a $10.0 million revolving line of credit for working
      capital requirements. The available borrowings under the line of credit
      are limited to 80% of eligible accounts receivable plus 90% of eligible
      finished goods inventory and 50% of eligible raw and work-in progress
      inventory. As of December 31, 1999, the available amount was $536,000.
      Outstanding borrowings under the line of credit are due on demand. The
      line of credit is secured by accounts receivable, inventory (excluding
      chassis inventory purchased from third parties), and equipment. Further,
      the line of credit is cross-collateralized among the companies.

      The Company has entered into a credit agreement which enable borrowings of
      up to $4.0 million for equipment purchases, or operations, as needed. No
      amounts were borrowed under this credit agreement at December 31, 1999.

      The terms of the respective credit agreements require compliance with
      certain financial covenants, including working capital requirements. As of
      December 31, 1999, the Company was in compliance with all of its financial
      covenants associated with its line of credit facilities and other bank
      loans.



                                      F-10
<PAGE>

SMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

5.    LONG-TERM DEBT

         Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                                     DECEMBER 31,
                                                                                   1998        1999
                                                                                 -------      -------
                                                                                    (IN THOUSANDS)
<S>                                                                              <C>          <C>
           Bank loan secured by equipment with monthly payments of
             $35,000 plus interest at LIBOR plus 1.5%, or 6.875% at
             December 31, 1998. This loan was paid in full July 23, 1999.        $ 2,050      $    --

           Bank loan secured by equipment, with monthly payments of
             $35,000 including interest at 7.625%, with the balance due
             December 31, 2002.                                                    1,454        1,131

           Bank loan secured by a first trust deed on the Beaver
             manufacturing facility, with monthly payments of $13,000
             plus interest at the bank's prime rate plus .75%, or 8.5% at
             December 31, 1998. This loan was paid in full April 29, 1999.           138           --

           Promissory note secured by a mortgage on the related
             property, with annual payments of $24,000 including
             interest at 6%, with the balance due no later than
             January 15, 2007.                                                       142          142

           Real estate line of credit, with a maximum amount of $10.1
             million, based on a reducing revolving term, with only interest
             payable until no principle is available. Interest is LIBOR
             based at 8.188% as of December 31, 1999. This line is amortized
             on a 10 year term.                                                    4,522        7,737
                                                                                 -------      -------
                                                                                   8,306        9,010
           Less portion due within one year                                         (953)        (364)
                                                                                 -------      -------
           Long-term debt less current portion                                   $ 7,353      $ 8,646
                                                                                 =======      =======
</TABLE>

      The aggregate maturities of long-term debt for the next five years and
      thereafter as of December 31, 1999 are $364,000, $393,000, $422,000,
      $18,000, $19,000 and $7,794,000, respectively.

      Certain of the borrowings are subject to restrictive covenants, including
      working capital requirements, with which the Company is in compliance at
      December 31, 1999. Other terms of the borrowings require the lending
      bank's written consent prior to the issuance of any dividends.


                                      F-11
<PAGE>

SMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

6.     PROVISION FOR INCOME TAXES

       The provision for income taxes for the years ended December 31, 1997,
       1998 and 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
                                           YEAR ENDED DECEMBER 31,
                                       1997         1998         1999
                                     -------      -------      -------
<S>                                  <C>          <C>          <C>
            Current:
               Federal               $ 1,961      $   390      $   582
               State                     189           45          (18)
                                     -------      -------      -------
                                       2,150          435          564
                                     -------      -------      -------
            Deferred:
               Federal                   574         (144)        (402)
               State                      74          (19)         (52)
                                     -------      -------      -------
                                         648         (163)        (454)
                                     -------      -------      -------
                                     $ 2,798      $   272      $   110
                                     =======      =======      =======
</TABLE>

       Deferred tax assets (liabilities) are comprised of the following
       components (in thousands):

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                                     1998         1999
                                                                   -------      -------
<S>                                                                <C>          <C>
            Current:
               Vacation reserve                                    $   369      $   345
               Accrued workers' compensation claim liabilities          87           77
               Warranty reserves                                     1,916        1,648
               Inventory reserves                                       43           32
               Other liabilities                                       718          504
               Allowance for doubtful accounts                          11           21
                                                                   -------      -------
                                                                   $ 3,144      $ 2,627
                                                                   =======      =======
            Noncurrent:
               Tax depreciation in excess of book depreciation     $  (950)     $    23
               Other                                                    22           20
                                                                   -------      -------
                                                                   $  (928)     $    43
                                                                   =======      =======
</TABLE>


                                      F-12
<PAGE>

SMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


6.    PROVISION FOR INCOME TAXES  (CONTINUED)

      The effective tax rate differs from the U.S. statutory federal tax rate
      due to the following:

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31,
                                                      1997      1998       1999
                                                      ----      ----       ----
<S>                                                   <C>       <C>        <C>
            Statutory federal tax rate                34.0%     34.0%      34.0%
            State taxes, net of federal benefit        3.7       4.0        3.0
            Nondeductible expenses                     1.1       5.0        8.9
            Other, net                                 0.9      (3.0)     (14.6)
                                                      ----      ----      -----
                                                      39.7%     40.0%      31.3%
                                                      ====      ====      =====
</TABLE>

      The primary impact creating the lower rate in 1999 was a state energy
      credit received from its HCO and CTI operations. The 1999 provision also
      includes some unanticipated energy credits received in 1999 that relate to
      a prior period.

7.    RELATED PARTIES

      In 1998, the Company began purchasing electronic parts from a supplier
      company that is owned by a principal related to an officer. The total
      amount of purchases for the year ended December 31, 1998 was $449,000.
      For the year ended December 31, 1999, the Company purchased a total
      amount of $946,000 from this supplier.

      In 1998, as part of the Company's program to repurchase 800,000 shares of
      stock, the Company repurchased 100,000 shares from an officer of the
      Company for $4.2375 per share. In 1999, another 100,000 shares of stock
      were repurchased from an officer for $5.25 per share as part of this
      program. See Note 10 for further details.

8.    LEASES

      The Company is obligated under a capital lease for computer software that
      expires in September of 2001. At December 31, 1998 and 1999, the gross
      amount of equipment and related accumulated amortization recorded under
      capital leases was $95,000 and $55,000, and $95,000 and $76,000,
      respectively.

      The Company also has noncancelable operating leases, primarily for
      facilities space, manufacturing equipment, telecommunications,
      transportation equipment, and computer software and hardware, which expire
      over the next five years and thereafter. Rental expense under operating
      leases was $783,000, $944,000, and $1,080,000 for the years ended December
      31, 1997, 1998, and 1999, respectively.


                                      F-13
<PAGE>

SMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

8.    LEASES (CONTINUED)

      Future minimum lease payments under noncancelable operating leases and
      future minimum capital lease payments as of December 31, 1999 are:

<TABLE>
<CAPTION>
           YEAR ENDING DECEMBER 31:                      CAPITAL LEASE        OPERATING LEASES
           ------------------------                      -------------        ----------------
<S>                                                      <C>                   <C>
           2000                                          $    23,000           $   1,301,000
           2001                                               18,000               1,171,000
           2002                                                   --               1,033,000
           2003                                                   --                 865,000
           2004                                                   --                 844,000
           Thereafter                                             --               4,898,000
                                                         -----------           -------------
           Total minimum lease payments                       41,000           $  10,112,000

           Less amount representing interest
              (at 8.52%)                                       3,000
                                                         -----------
           Minimum lease payments,
              excluding interest                              38,000
           Current installments of obligation
              under capital lease                             21,000
                                                         -----------
           Obligation under capital lease
              excluding current installments             $    17,000
                                                         ===========
</TABLE>

9.    COMMITMENTS AND CONTINGENCIES

      As is customary in the recreational vehicle industry, the Company is
      contingently liable under the terms of repurchase agreements with finance
      companies which provide secured inventory financing for dealers of the
      Company's products. These agreements require the Company to repurchase its
      products from the finance company in the event of a dealer's default. The
      contingent liability under these agreements approximates the sales price
      of the motor coaches, less principal payments made by the dealer. The
      Company expects to resell any products repurchased to reduce any
      liabilities incurred. Historically, the Company has not experienced
      significant losses under these repurchase agreements.

      The risk of loss is spread over various dealers and finance companies.
      Total secured inventory financing obligations of the Company's dealers,
      for which the Company was contingently liable, were approximately $106.8
      million and $104.0 million at December 31, 1998 and 1999, respectively.

      From time to time, the Company is involved in various customer complaints
      which arise in the ordinary course of business. The Company does not
      believe that losses, if any, incurred under outstanding repurchase
      agreements or customer complaint settlements will have a significant
      impact on the Company's financial position or results of operations.


                                      F-14
<PAGE>

SMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

10.   COMMON STOCK MATTERS AND EARNINGS PER SHARE

      In conjunction with the Company's initial public offering on January 20,
      1995, a total of 125,000 warrants were issued to the Underwriters of the
      Offering. Such warrants entitle the holder to purchase an equal amount of
      shares of common stock of the Company anytime after January 20, 1996 until
      their expiration on January 20, 2000 at a price of $9.30 per share. No
      stock has been purchased related to the warrants as of the date of this
      report. Subsequent to December 31, 1999, these warrants have expired.

      STOCK INCENTIVE PLAN

      Effective October 20, 1994, the Company adopted a stock incentive plan for
      key employees and directors of the Company. In 1997, the shareholders of
      the Company voted to increase the number of shares authorized under the
      plan from 1.1 million to 1.4 million shares of common stock; accordingly,
      these shares have been reserved for by the Company. The stock options
      generally become exercisable ratably over a period of three years from the
      date of grant at prices equal to the fair market value at the date of
      grant. The maximum option term is 10 years. The following table summarizes
      option transactions under the plan:

<TABLE>
<CAPTION>
                                                    1997             1998              1999
                                                -----------      -----------       -----------
<S>              <C>                            <C>               <C>               <C>
      SHARES SUBJECT TO OPTION:
      Balance at January 1                        883,000           937,785           928,500
      Options granted                             152,500           333,000           222,000
      Options exercised                                 -          (252,285)                -
      Options terminated                          (97,715)          (90,000)         (327,000)
                                                ---------         ---------         ---------
      Balance at December 31                      937,785           928,500           823,500
                                                ---------         ---------         ---------
      WEIGHTED AVERAGE OPTION
        PRICE IN DOLLARS:
      At January 1                              $    7.97         $    7.84         $    8.23
      Options granted                                7.76              9.05              4.77
      Options exercised                                 -              7.75                 -
      Options terminated                             7.75              8.49              8.52
      At December 31                                 7.84              8.23              7.18

      SHARES AVAILABLE FOR
      GRANT AT DECEMBER 31:                       451,651           208,651           313,651
</TABLE>

      The exercise prices of the 823,500 options granted as of December 31, 1999
      range between $4.625 and $9.375 and have a weighted average remaining
      contractual life of 7.5 years; 574,497 of the total options granted are
      fully vested, and therefore may be exercised, as of December 31, 1999 at a
      weighted average exercise price of $8.17.


                                      F-15
<PAGE>

SMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

10.   COMMON STOCK MATTERS AND EARNINGS PER SHARE (CONTINUED)

      STOCK INCENTIVE PLAN (CONTINUED)

      The Company applies ABP Opinion 25 and related Interpretations in
      accounting for the stock incentive plan. Had compensation cost for the
      stock incentive plan been determined based on the fair value at the grant
      dates for awards under the plan consistent with the method of FASB
      Statement 123, "Accounting for Stock-Based Compensation," the Company's
      net income and income per share would have been reduced to the pro forma
      amounts indicated below:

                                                  PRO FORMA INFORMATION
                                        (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                                                1997          1998          1999
                                                              --------       ------        -------
<S>                                                           <C>            <C>           <C>
        Net Income                      As reported           $  4,246       $  409        $   241
                                        Pro Forma             $  3,882       $   14        $  (130)

        Income per share - basic        As reported           $    .65       $  .06        $   .04
                                        Pro Forma             $    .60       $    -        $  (.02)

        Income per share - diluted      As reported           $    .65       $  .06        $   .04
                                        Pro Forma             $    .60       $    -        $  (.02)
</TABLE>

      The fair value of each option grant is estimated on the date of grant
      using the Black-Scholes option pricing model with the following
      weighted-average assumptions used for grants in 1997: expected dividend
      yield: 0.0%, expected volatility: 71.49%, risk-free interest rate: 6.3%,
      expected life: 10 years. For 1998 and 1999, the expected dividend yield
      and expected life was the same as 1997. The expected volatility was 72.11%
      and 71.23% for 1998 and 1999, respectively. The risk-free interest rate
      used was 5.5% and 6.48% for 1998 and 1999, respectively. Results may not
      be representative of future years because options are generally granted on
      an annual basis and vest over time.

      STOCK REPURCHASE

      During 1997, the Company purchased 220,000 of its common shares from a
      former officer of the Company. The shares were purchased subject to the
      terms of Stock Purchase Agreement between the Company and the former
      officer. Under the terms of the agreement, the Company had first option to
      purchase the subject shares for two-thirds of the current market value.
      The shares were purchased for a price of $4.30, resulting in an overall
      purchase price of $947,000. The shares have been returned and canceled.

      During 1998, the Company repurchased 50,000 of its common shares from a
      director of the Company. The shares were purchased subject to the terms of
      Stock Purchase Agreement between the Company and the director. Under the
      terms of the agreement, the Company had first option to purchase the
      subject shares for two-thirds of the current market value. The shares were
      purchased for a price per share of $6.00, resulting in an overall purchase
      price of $300,000. The shares have been returned and canceled.


                                      F-16
<PAGE>

SMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

10.   COMMON STOCK MATTERS AND EARNINGS PER SHARE (CONTINUED)

      STOCK REPURCHASE (CONTINUED)

      Pursuant to a board resolution, the Company authorized 800,000 shares of
      stock to be repurchased by the Company for the year ended December 31,
      1998. Under this program, 655,000 shares were repurchased at the average
      price of $4.80, for an overall amount of $3,147,000. Continuing this
      program in 1999. The Company repurchased 109,500 shares at the average
      price of $5.22, for an overall amount of $571,000.

11.   PREFERRED STOCK

      The Company has authorized 5,000,000 shares of Preferred Stock which may
      be issued from time to time in one or more series as authorized by the
      Company's Board of Directors. The Board of Directors, without any further
      approval by the shareholders of the Company is authorized to fix the
      dividend rights and terms, dividend rates, voting rights, terms of
      redemption price, conversion rights and liquidation preferences related to
      the Preferred Stock. There have been no shares of Preferred Stock issued,
      and the Company has no plans to issue any as of the date of this report.

12.   INCENTIVE AND DEFERRED COMPENSATION PLANS

      The Company has an incentive compensation plan for its key officers. The
      amounts charged to expense for the years ended December 31, 1997, 1998,
      and 1999 aggregated were $245,000, $326,000, and $15,000 respectively.

      The Company has established a joint 401(k) and Profit Sharing Plan which
      allows eligible employees to contribute up to 15% of their compensation
      annually. The plan allows for a Company matching percentage based upon the
      discretion of management, and $2,000 was contributed by the Company and
      its subsidiaries to the plan during the year ended December 31, 1997.
      There were no contributions for 1998 and 1999. To date there have been no
      amounts contributed by the Company or its subsidiaries to the profit
      sharing element of the plan.


                                      F-17
<PAGE>

SMC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

13.   QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                                          FIRST       SECOND        THIRD       FOURTH
                                                         QUARTER     QUARTER       QUARTER     QUARTER
                                                         -------     -------       -------     -------
                                                            (In thousands, except per share amounts)
<S>                                                       <C>         <C>          <C>          <C>
            YEAR ENDED DECEMBER 31, 1998:
               Revenue                                    47,805      52,324       50,276       67,080
               Gross profit                                6,006       5,869        2,793        7,412
               Net income (loss)                             916         838       (2,482)       1,137
               Net income (loss) per share - basic           .14         .13         (.38)         .18
               Net income (loss) per share - diluted         .14         .13         (.38)         .18

            YEAR ENDED DECEMBER 31, 1999:
               Revenue                                    56,822      53,794       46,711       58,213
               Gross profit                                6,209       4,143        5,012        6,049
               Net income (loss)                             108        (149)         130          152
               Net income (loss) per share - basic           .02        (.03)         .02          .03
               Net income (loss) per share - diluted         .02        (.03)         .02          .03
</TABLE>

14.   MARKET INFORMATION (UNAUDITED)

      The Company's common stock is traded on the Nasdaq National Market System
      under the symbol SMCC. The following table sets forth the high and low
      daily closing prices of the stock for each quarter of 1998 and 1999:

<TABLE>
<CAPTION>
                                         1998                1999
                                    HIGH       LOW      HIGH       LOW
                                   ------     -----     -----     -----
<S>                                 <C>       <C>       <C>       <C>
            First Quarter           9.750     6.875     6.750     4.250
            Second quarter         10.875     6.750     5.375     4.250
            Third quarter           7.875     5.563     5.750     3.563
            Fourth quarter          6.000     4.000     4.500     3.750
</TABLE>


                                      F-18