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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934 For Quarter End March 31, 2004
    
    Commission file number: 0-17824
 REXHALL INDUSTRIES, INC.  California
(State of Incorporation)
    
    95-4135907
(IRS Employer Identification No.)
 46147 7th Street West, Lancaster, California 93534
(Address of principal executive offices) (Zip Code) (661) 726-0565
(Registrants telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x     No o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes o     No x. As of May 11, 2004, there were 5,872,700 shares of common stock outstanding.




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REXHALL INDUSTRIES, INC. INDEX PAGE NUMBERPART I  FINANCIAL INFORMATIONItem 1.Financial Statements (Unaudited):Condensed Consolidated Balance Sheets at March 31, 2004 and December 31, 2003
    
    
    1Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2004 and March 31, 2003
    
    
    2Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and March 31, 2003
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4-5Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    5-10Item 3.Quantitative and Qualitative Disclosure about Market Risks
    
    
    10Item 4.Controls and Procedures
    
    
    10PART II  OTHER INFORMATIONItem 6 - Exhibits and Reports on Form 8-K
    
    
    11Signatures
    
    
    12Officer Certifications
    
    
    13-15EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
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PART I  FINANCIAL INFORMATION 
 Item 1.  Condensed Consolidated Financial Statements 
 REXHALL INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31, 2004
    
    December 31, 2003ASSETSCURRENT ASSETSCash
    
    $
    406,000
    
    
    $
    1,883,000Accounts Receivables, net
    
    
    1,077,000
    
    
    
    1,332,000Income Tax Receivable
    
    
    549,000
    
    
    
    551,000Inventories
    
    
    18,131,000
    
    
    
    17,848,000Deferred Income Taxes
    
    
    159,000
    
    
    
    124,000Other Current Assets
    
    
    199,000
    
    
    
    265,000TOTAL CURRENT ASSETS
    
    $
    20,521,000
    
    
    $
    22,003,000Property and Equipment at Cost Net
of Accumulated Depreciation
    
    
    4,342,000
    
    
    
    4,613,000Property Held for Sale
    
    
    1,390,000
    
    
    
    1,189,000Other Assets
    
    
    194,000
    
    
    
    194,000TOTAL ASSETS
    
    $
    26,447,000
    
    
    $
    27,999,000LIABILITIES & STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts Payable
    
    $
    2,412,000
    
    
    
    1,836,000Chassis Vendor Line of Credit
    
    
    3,291,000
    
    
    
    4,432,000Notes Payable and Current Portion of Long-Term Debt
    
    
    54,000
    
    
    
    54,000Accrued Warranty
    
    
    619,000
    
    
    
    980,000Accrued Legal
    
    
    1,408,000
    
    
    
    1,594,000Accrued Dealer Incentives
    
    
    391,000
    
    
    
    384,000Other Accrued Liabilities
    
    
    1,180,000
    
    
    
    1,102,000Accrued Compensation and Benefits
    
    
    202,000
    
    
    
    280,000TOTAL CURRENT LIABILITIES
    
    
    9,557,000
    
    
    
    10,662,000Long-Term Debt, less Current Portion
    
    
    925,000
    
    
    
    942,000TOTAL LIABILITIES
    
    
    10,482,000
    
    
    
    11,604,000STOCKHOLDERS EQUITYPreferred Stock  no par value,
Authorized, 1,000,000 shares; none issued
    
    
    
    
    
    
    Common Stock  no par value,
Authorized, 10,000,000 shares;
issued and outstanding
5,872,700 at March 31, 2004
and 5,872,700 December 31, 2003
    
    
    5,580,000
    
    
    
    5,580,000Retained Earnings
    
    
    10,385,000
    
    
    
    10,815,000TOTAL STOCKHOLDERS EQUITY
    
    
    15,950,000
    
    
    
    16,395,000TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    26,447,000
    
    
    $
    27,999,000
 See accompanying notes to condensed consolidated financial statements - 1 -




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REXHALL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months EndedMarch 31, 2004
    
    March 31, 2003Net Revenues
    
    $
    4,779,000
    
    
    $
    12,946,000Cost of Sales
    
    
    4,288,000
    
    
    
    11,344,000Gross Profit
    
    $
    491,000
    
    
    $
    1,602,000Operating Expenses:Selling, General, Administrative Expenses
and Other Expenses
    
    
    919,000
    
    
    
    1,691,000Income/(Loss) before Income Taxes
    
    
    (428,000
    )
    
    
    (89,000
    )Income Tax Expense/(Benefit)
    
    
    2,000
    
    
    
    (32,000
    )Net Income/(Loss)
    
    $
    (430,000
    )
    
    $
    (57,000
    )Basic and Diluted Income/(Loss)  Per Share
    
    $
    (0.07
    )
    
    $
    (0.01
    )Weighted Average Shares Outstanding
Basic and Diluted
    
    
    5,872,700
    
    
    
    5,997,700
 See accompanying notes to condensed consolidated financial statements - 2 -




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REXHALL INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months EndedMarch 31, 2004
    
    March 31, 2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income/(loss)
    
    $
    (430,000
    )
    
    $
    (57,000
    )Adjustments to reconcile net income to net cash provided by/
(used in) operating activities:Depreciation and amortization
    
    
    85,000
    
    
    
    90,000Provision for deferred income taxes
    
    
    (35,000
    )
    
    
    (Increase)/Decrease in:Accounts receivable
    
    
    255,000
    
    
    
    (158,000
    )Inventories
    
    
    (283,000
    )
    
    
    (7,000
    )Income tax receivable
    
    
    2,000
    
    
    
    Increase/(Decrease) in:Accounts payable
    
    
    576,000
    
    
    
    2,052,000Warranty allowance
    
    
    (361,000
    )
    
    
    17,000Accrued legal
    
    
    (186,000
    )
    
    
    (232,000
    )Dealer incentives
    
    
    7,000
    
    
    
    (111,000
    )Other assets and liabilities
    
    
    66,000
    
    
    
    (116,000
    )Net cash provided by/(used in) operating activities
    
    
    (304,000
    )
    
    
    1,478,000CASH FLOWS FROM INVESTING ACTIVITIES:Additions to property and equipment
    
    
    (15,000
    )
    
    
    (910,000
    )Net cash provided by/(used in) investing activities
    
    
    (15,000
    )
    
    
    (910,000
    )CASH FLOWS FROM FINANCING ACTIVITIES:Repayments on long-term debt
    
    
    (17,000
    )
    
    
    (9,000
    )Proceeds/(repayment) on chassis vendor line of credit
    
    
    (1,141,000
    )
    
    
    (1,349,000
    )Proceeds from redevelopment agency
    
    
    
    
    
    
    300,000Repurchase and retirement of stock
    
    
    
    
    
    
    (247,000
    )Net cash used in financing activities
    
    
    (1,158,000
    )
    
    
    (1,305,000
    )NET INCREASE/(DECREASE) IN CASH
    
    
    (1,477,000
    )
    
    
    (737,000
    )BEGINNING CASH BALANCE
    
    
    1,883,000
    
    
    
    5,757,000ENDING CASH BALANCE
    
    $
    406,000
    
    
    $
    5,020,000SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Interest paid during the period
    
    $
    52,000
    
    
    $
    52,000Supplemental disclosure of non-cash financing activities:Notes payable for insurance policies
    
    $
    281,000
    
    
    $
    441,000
 See accompanying notes to condensed consolidated financial statements - 3 -




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REXHALL INDUSTRIES, INC. Notes to the Condensed Consolidated Financial Statements March 31, 2004 1. Basis of Presentation The accompanying unaudited Condensed Consolidated Financial Statements have
been prepared in accordance with accounting principles generally accepted in
the United States of America for interim financial information and with the
instructions to Form 10-Q. Accordingly, they do not include all of the
information and disclosures required by generally accepted accounting
principles for complete financial statements. However, in the opinion of
management, they include all adjustments, consisting of normal accruals,
necessary to present fairly the information set forth herein in accordance with
accounting principles generally accepted in the United States of America for
interim reporting. For further information refer to the Financial Statements and footnotes
included in the Registrants Annual Report on Form 10-K for the year ended
December 31, 2003. The results of operations for any interim period are not necessarily indicative
of the results to be expected for the full year. 2. Use of Estimates The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. 3. Earnings Per Share Basic earnings per share represents net earnings divided by the
weighted-average number of common shares outstanding for the period. Basic and
diluted earnings per share are the same for all periods presented as the
Company has no potentially dilutive securities outstanding. 4. Inventory March 31, 2004
    

December 31, 2003Chassis
    
    $
    6,192,000
    
    
    $
    8,306,000Raw Materials
    
    
    2,859,000
    
    
    
    2,638,000Work-in-Progress
    
    
    5,682,000
    
    
    
    2,033,000Finished Goods
    
    
    3,398,000
    
    
    
    4,871,000Total
    
    $
    18,131,000
    
    
    $
    17,848,000
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5. Property & Equipment At March 31, 2004, the Companys customer service Center in Mesa, Arizona was
listed as held for sale. The facility is approximately 10,000 square feet on
four acres of land, with a net book value of $1,189,000 as of March 31, 2004. Additionally, at March 31, 2004, the Companys property in Acton, California
was listed as held for sale with a net book value of $201,000. Originally
purchased for $401,000 in December 2000 by the Company and Mr. William J. Rex,
the Companys President and Chief Executive Officer, the property is
approximately 1.7 acres with a partially constructed building on its premises.
The Company and Mr. Rex each contributed 50% of the purchase price and agreed
to share equally in the final construction of the building on the property.
The Company paid $151,000 on behalf of Mr. Rex in exchange for a $151,000 note
receivable. The note is secured by the executives interest in the property. 
 Item 2.  Management Discussion and Analysis of Financial Condition and Results
of Operations. As used in this Report, we, us, our, Rexhall or the Company refer to
Rexhall Industries, Inc. and, where applicable, its consolidated subsidiary. All statements in this discussion and analysis which relate to future sales,
costs, capital expenditures or earnings are Forward-Looking Statements and
should be read subject to the assumptions contained in the section
Forward-Looking Statements. Critical Accounting Policies In the ordinary course of business, management has made a number of estimates
and assumptions relating to the reporting of results of operations and
financial condition in the preparation of its financial statements in
conformity with accounting principles generally accepted in the United States
of America. Actual results could differ significantly from those estimates
under different assumptions and conditions. Management believes that the
following discussion addresses our most critical accounting policies, which are
those that are most important to the portrayal of our financial condition and
results and require the most difficult, subjective and complex judgments, often
as a result of the need to make estimates about the effect of matters that are
inherently uncertain. Valuation of Inventory The Company values inventories at the lower of cost or market with cost
determined using the first-in, first-out (FIFO) method. Adjustments to the
value of inventory are recorded based upon damage, deterioration, obsolescence
and changes in market value. In determining market value, management has
considered its current replacement cost ensuring it does not exceed net
realizable value (i.e., estimated selling price in the ordinary course of
business less estimated costs of completion and disposal). Management has
evaluated the current level of inventories considering the order backlog and
other factors in assessing estimated selling prices and made adjustments to
cost of goods sold for estimated decrease in the net realizable value of
inventory. Actual results may differ significantly from these estimates under
different assumptions or conditions. Legal Accrual The Companys current estimated range of liability related to some of the
pending litigation is accrued based on claims for which it is probable that a
liability has been incurred and the amount of the loss can be reasonably
estimated. Because of the uncertainties related to both the amount and range of
loss on the remaining pending litigation, management is unable to make a
reasonable estimate of the liability that could result from an unfavorable
outcome. As additional information becomes available, management will assess
the potential liability related to the pending litigation and revise the
estimates. Such revisions in the estimates of the potential liability could
materially impact the results of operation and financial position. - 5 -




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Warranty Costs The Company provides an estimate for accrued warranty costs at the time a
product is sold. This estimate is based on historical average per-unit repair
costs and current dealer inventories, as well as other reasonable assumptions
as have been deemed appropriate by management. However, actual costs may vary
from estimates, requiring adjustments to warranty reserves. These reserves are
reviewed by management on a quarterly basis and adjusted accordingly. While
the Companys warranty costs have historically been within its expectations and
the provisions established, the Company cannot guarantee that it will continue
to experience the same warranty costs that it has in the past. A significant
increase in dealer shop rates, the cost of parts or the frequency of claims
could have a material adverse impact on the Companys operating results for the
period or periods in which such claims or additional costs materialize. There have been no material changes in our critical accounting policies from
the filing of our Annual Report filed on Form 10-K for the year ended December
31, 2003 Results of Operations Comparison of the three months ended March 31, 2004 to the three months ended
March 31, 2003. Revenues  2004 compared to 2003 Net revenues for the quarter ended March 31, 2004 were $4,779,000 as compared
to $12,946,000 for the same quarter in 2003. This represents a 63% decrease
from the prior year. Net units sold for the quarter ended March 31, 2004 were
51 compared to 152 for the quarter ended March 31, 2003, a 66% decrease.
Wholesale shipments of the Companys gas motorhomes were down 57%, while diesel
shipments were down 69% when compared to last years first quarter. The Companys sales continued to be below prior year levels and have declined
significantly while the industry, in general, has experienced increased sales.
Management believes the decline is a result of two major factors. Availability
of external flooring sources has diminished for many of the Companys dealers,
and as a result, its dealer network has similarly diminished. In contrast,
many of the Companys larger competitors provide flooring for its
dealers-making it easier for dealers to do business with the larger
manufacturer. Management also believes its premature announcement of the new
T-Rex floorplans has caused sales of its standard-line products to suffer,
while its dealers opt to wait and see how the T-Rex will be received by the
public, and to reserve its limited flooring for the T-Rex. Gross Profit  2004 compared to 2003 Gross profit decreased to $491,000 from $1,602,000 for the same quarter in
2003, which is a decrease of $1,111,000 or 69%. Gross margin was 10% as
compared to 12% last year. The decrease in gross margin was primarily due to a
decrease in production and increases in per-unit direct labor and manufacturing
expense related to rework done on T-Rex slide units. Selling, General, Administrative and Other Expenses  2004 compared to 2003 Selling, General, Administrative and Other Expenses decreased by approximately
$772,000 from the first quarter of 2003 to the first quarter of 2004. The
decrease in SG&A expenses is largely related to a $480,000 reduction in
warranty costs, a $238,000 reduction in administrative salaries and bonus, and
a $63,000 reduction in advertising expense. Selling, general, administrative
and other expenses increased to 19% as a percentage of sales when compared to
13% for the quarter ended March 31, 2003 primarily as a result of the decline
in sales. - 6 -




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Income Taxes  2004 compared to 2003 Income tax expense was $2,000 for the quarter ended March 31, 2004 as compared
to a benefit of $32,000 in the same quarter of 2002. Income taxes are provided
based upon the estimated effective tax rate for the entire fiscal year applied
to the pre-tax income for the period. The effective tax rate is subject to
ongoing evaluation by management. Financial Condition, Capital Resources and Liquidity The Company has relied primarily on internally generated funds, trade credit
and debt to finance its operations and expansions. As of March 31, 2004, the
Company had working capital of $10,964,000, compared to $11,341,000 at December
31, 2003. The $377,000 decrease in working capital is primarily due to a
$1,477,000 decrease in cash, a $255,000 decrease in accounts receivable, and a
$576,000 increase in accounts payable, partially offset by a $283,000 increase
in inventory, a $1,141,000 decrease in the chassis vendor line of credit, a
$361,000 decrease in warranty accrual, and a $186,000 decrease in the legal
accrual. Capital expenditures during the first three months of 2004 were $15,000. The
Company has made no commitments for, and does not expect to make material
capital expenditures for the remaining three quarters of 2004-depending upon
market conditions. As of September 30, 2003, the Company had eliminated its entire $2,500,000 Line
of Credit with a bank, which included an Irrevocable Standby Letter of Credit
for the Company to meet the requirements for self-insurance established by the
Department of Industrial Relations which regulates Workers Compensation
Insurance in California. Because Rexhall had never drawn from this line of
credit, and due to the costs and liability associated with maintaining a line
of revolving credit, Rexhall eliminated its line during the second and third
quarters. The requirements for self-insurance are now being met through the
California Self Insurers Security Fund and its Alternative Security Program
(ASP). Under the ASP, the fund will arrange for a composite security deposit
for participating self-insurers rather than rely on such members to arrange for
their security deposits on an individual basis. The Companys covered deposit
under this plan is $711,427. The Company has a line of credit with a chassis vendor, Ford Motor Credit
Company (FMCC), with a $3,500,000 limit. Borrowings under the line bear
interest at an annual rate of prime plus 1% (5.00% at March 31, 2004). All
borrowings are secured by the Ford merchandise. The outstanding balance at
March 31, 2004 was $2,421,000. Additionally, the Company has a financing agreement with GE Capital for the
purchase of chassis from Workhorse Custom Chassis. The limit on this line of
credit is $1,600,000. Borrowings under this line of credit bear interest at
the rate of prime plus 1% (5.00% at March 31, 2004). The chassis purchased
from Workhorse secure borrowings under this line of credit. The outstanding
balance under this line of credit was $870,000 at March 31, 2004. In light of the Companys elevated inventory levels at the start of 2004,
management expects cash requirements for the year to be significantly lower as
the Company uses up its material and raw chassis inventory and sells through
its finished goods inventory. Accordingly, the Company anticipates that it
will be able to satisfy its ongoing cash requirements through 2004 primarily
with cash flows from operations and chassis purchase lines of credit.
Additional cash may be generated through the Companys sale of its Mesa,
Arizona and Acton, California facilities, provided the Company is able to sell
the properties in the near future. Repurchase Agreements  Motorhomes purchased by dealers, under financing
agreements with third party lenders are subject to repurchase by the Company
under the terms of the financing, at dealer cost and might include unpaid
interest and other costs in the event of default by the dealer. During the
three months ended March 31, 2004 and 2003, the Company repurchased
approximately $818,000 and $528,000 respectively, (wholesale value) of
motorhomes under these agreements. At March 31, 2004 and 2003, approximately
$12,310,000 and $26,950,000, respectively, of dealer inventory was covered by
repurchase agreements. Dealers do not have the contractual right to return
motorhomes under any - 7 -




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Rexhall Dealer Agreement. The repurchase agreements require the dealers to
default or file for bankruptcy. There are also a number of state statutes that
under certain conditions require the repurchasing of motorhomes whenever a
dealership is terminated. New Accounting Pronouncements None. Certain Risk Factors That Could Affect Future Results You should carefully consider and evaluate all of the information in this Form
10-Q, including the risk factors listed below. The risks described below are
not the only ones facing our company. Additional risk not now known to us or
that we currently deem immaterial may also impair our business operations.
If any of these risks actually occur, our business could be materially harmed.
If our business is harmed, the trading price of our common stock could decline. This Form 10-Q also contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in these forward looking statements as a result of certain factors,
including the risks faced by us described below and elsewhere in this Form
10-Q. We undertake no duty to update any of the forward-looking statements
after the date of this Form 10-Q. Potential Fluctuations in Operating Results.The Companys net sales, gross
margin and operating results may fluctuate significantly from period to period
due to factors such as the mix of products sold, the level of discounting
employed on the Companys products, the ability to utilize or expand
manufacturing resources efficiently, material shortages, the introduction and
consumer acceptance of new models offered by the Company, competition, warranty
expense, the addition or loss of dealers, the timing of trade shows and
rallies, and factors affecting the recreational vehicle industry as a whole,
such as cyclicality and seasonality. In addition, the Companys overall gross
margin will be impacted by shifts in the Companys product. Due to the
relatively high selling prices of many of the Companys motorhome models, a
relatively small variation in the number of recreational vehicles sold in any
quarter can have a significant effect on sales and operating results for that
quarter. Continuation of Losses.The Company has had net losses totaling $2.4 million,
$935,000 and $2.0 million for 2003, 2002 and 2001, respectively, net losses of
$430,000 in the three months ended March 31, 2004. Continued losses could
reduce the Companys liquidity. This could have a negative effect on the
Companys ability to maintain production schedules, manufacture products of
high quality, and develop and manufacture new products that will achieve market
acceptance. This could in turn, have a negative impact on the Companys sales
and earnings. If the Company continues to suffer losses, the Company could be
unable to implement its business and financial strategies or meet its
obligations when due. Cyclicality, Seasonality and Economic Conditions. The recreational vehicle
industry has been characterized by cycles of growth and contraction in consumer
demand, reflecting prevailing economic conditions, which affect disposable
income for leisure-time activities. Concerns about the availability and price
of gasoline, decreases in consumer confidence, increases in interest rates and
reductions in available financing have had, and may in the future have, an
adverse impact on recreational vehicle sales. Seasonal factors, over which the
Company has no control, also have an effect on the demand for the Companys
products. Demand in the recreational vehicle industry declines over the winter
season, while sales are generally highest during the spring and summer months. Dependence on Certain Dealers. For the year ended December 31, 2003, two
dealers accounted for 14%, and 11%, respectively, of the Companys net sales.
The loss by the Company of one or more of these dealers could have a material
adverse effect on the Companys financial condition and results of operations. Dependence on Chassis Suppliers. One of the principal components used in the
manufacture of motorhomes is the chassis, which includes the engine, drive
train and other operating components. The - 8 -




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Company obtains the chassis required for its motorhomes from Ford Motor
Company, Workhouse Custom Chassis and, to a lesser extent, Spartan Motors. As
is standard in the industry, arrangements with such suppliers permit them to
terminate their relationship with the Company at any time. Lead times for the
delivery of chassis frequently exceed six weeks and the recreational vehicle
industry as a whole has from time to time experienced temporary shortages of
chassis. If any of the Companys suppliers were to discontinue the manufacture
of chassis utilized by the Company in the manufacture of its Class A
motorhomes, materially reduce their availability to the recreational vehicle
industry in general or limit or terminate their availability to the Company in
particular, the business and financial condition of the Company could be
materially and adversely affected. Repurchase Arrangements. As is typical in the recreational vehicle industry,
the Company enters into repurchase agreements with the financing institutions
used by its dealers to finance their purchases of the Companys Class A
motorhomes. These agreements require the Company to repurchase the dealers
inventory in the event that the dealer does not repay its lender. Obligations
under these agreements vary from period to period, but totaled approximately
$16.6 million as of December 31, 2003 and $12.3 million at March 31, 2004.
During the three months ended March 31, 2004, the Company repurchased
approximately $818,000 in the wholesale value of motorhomes. If the Company
became obligated to repurchase a significant number of units under any
repurchase agreement, its business, operating results, and financial condition
could be adversely affected. Competition.The Company competes with numerous manufacturers, many of which
have multiple product lines of recreational vehicles, which are larger and have
substantially greater financial and other resources than the Company. In
addition, sales of used recreational vehicles provide competition to
recreational vehicle manufacturers. Government Regulation.The Company is subject to numerous federal, state and
local regulations governing the manufacture and sale of its motorhomes. It is
also subject to federal and numerous state consumer protection and unfair trade
practice laws and regulations relating to the sale, transportation and
marketing of motor vehicles, including so-called Lemon Laws. Federal and
state laws and regulations also impose upon vehicle operators various
restrictions on the weight, length and width of motor vehicles, including buses
and motor homes, that may be operated in certain jurisdictions or on certain
roadways. Certain jurisdictions also prohibit the sale of vehicles exceeding
length restrictions. Finally, federal and state authorities also have various
environmental control standards relating to air, water, noise pollution and
hazardous waste generation and disposal that affect the Companys business and
operations. Failure to comply with any of the foregoing laws or regulations
could have an adverse impact on the Companys business. Warranty Claims. The Company is subject to warranty claims in the ordinary
course of its business. Although the Company maintains reserves for such
claims, which to date have been adequate, there can be no assurance that
warranty expense levels will remain at current levels or that such reserves
will continue to be adequate. A large number of warranty claims exceeding the
Companys current warranty expense levels could have a material adverse effect
on the Companys results of operations and financial condition. Product Liability.The Company maintains product liability insurance with
coverage in amounts which management believes is reasonable. To date, the
Company has been successful in obtaining product liability insurance on terms
the Company considers acceptable. Given the nature of the Companys business,
product liability in excess of the Companys insurance coverage, if incurred,
could have a material adverse financial effect on the Company. Risks Relating to Patents. The Company has been awarded two patents from the
United States Patent and Trademark Office covering the ornamental design for
its T-Rex Double & Wide motorhomes. The Companys patents on the design of the
new motorhomes may not provide it with meaningful protection against
duplication. Policing unauthorized use of the Companys designs could result in
the expenditure of significant financial and managerial resources and the
success of these efforts cannot be predicted with certainty. Litigation may be
necessary in the future to enforce the Companys patent and other - 9 -




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intellectual property rights. This litigation could be costly and its outcome
cannot be predicted with certainty. The Companys inability to adequately
protect against unauthorized use of its patent and other intellectual property
rights would significantly impair their value and could adversely damage its
competitive position. Dependence on, and Control of, William Rex.The Companys success depends to a
substantial degree on the continued participation in its business by William
Rex, a founder, the Chief Executive Officer and principal shareholder of the
Company. While the Company has an employment agreement with Mr. Rex, the loss
of his services through death, disability or other cause would have a material
adverse effect on the business of the Company. A family trust of which Mr. Rex
and his wife serve as trustees owns 53.3% of the Companys outstanding shares.
Accordingly, Mr. Rex controls a sufficient percentage of the outstanding stock
of the Company to control its affairs and policies. Issuance of Preferred Stock. The Company is authorized to issue up to 1,000,000
shares of preferred stock. This preferred stock may be issued in one or more
series, the terms of which may be determined at the time of issuance by the
Companys board of directors without further action by shareholders. The terms
of any series of preferred stock may include voting rights (including the right
to vote as a series on particular matters), preferences as to dividend,
liquidation, conversion and redemption rights and sinking fund provisions. No
preferred stock is currently outstanding. The issuance of any preferred stock
could materially adversely affect the rights of the holders of the Companys
common stock, and therefore, reduce the value of the Companys common stock. In
particular, specific rights granted to future holders of preferred stock could
be used to restrict the Companys ability to merge with, or sell the Companys
assets to, a third party and thereby preserve control by the present
management. 
 Item 3.  Quantitative and Qualitative Disclosure About Market Risk In the ordinary course of its business, the Company is exposed to certain
market risks, including changes in interest rates. After an assessment of
these risks to the Companys operations, the Company believes that its primary
market risk exposures relating to interest rates (within the meaning of
Regulation S-K Item 305) are not material and are not expected to have any
material adverse effect on the Companys financial condition, results of
operations or cash flows for the next fiscal year. 
 Item 4.  Controls and Procedures Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this report on Form 10-Q, we carried out
an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of our disclosure controls and procedures (as defined in
Rule 13a-15(e) of the Securities Exchange Act of 1934 (the Exchange Act))
pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that as of the
end of the period covered by the report on Form 10-Q, our Companys disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company (including its consolidated subsidiaries)
required to be included in the Companys Exchange Act filings. Changes in Internal Controls There have been no changes in our internal control over financial reporting
identified in connection with the evaluation required by paragraph (d) of Rule
13a-15 or 15d-15 under the Exchange Act that occurred during the last fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting. - 10 -




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PART II  OTHER INFORMATION 
 Item 6. Exhibits and Reports On Form 8-K  (a)
    
    Exhibits  31.1
    
    Certification of the Chief Executive Officer required by Rule
13a-14(a) of the Exchange Act.31.2
    
    Certification of the Chief Financial Officer required by Rule
13a-14(a) of the Exchange Act.32.1
    
    Certification pursuant to Rule 13a-14(b) and 18 U.S.C.
Section 1350.  (b)
    
    Reports on Form 8-KOne report on Form 8-K was filed during the period covered by this Report.  
    
    An 8-K dated March 4, 2004 was filed on March 12, 2004 reporting matters under Item 4. - 11 -




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. Rexhall Industries, Incorporated(Registrant)By /S/ William J. RexWilliam J. RexPresident and CEOChairman of the BoardDate: May 14, 2004By /S/ Michael R. PieperMichael R. PieperChief Financial OfficerDate: May 14, 2004
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