# ** **

# **SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q/A**

**Amendment No. 1**

** **

**(MarkOne)**

**ý****QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended September 30, 2004**

 

**o****TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Commissionfile number 001-12085**

 

**NATIONAL R.V. HOLDINGS, INC.**

(Exact name of registrant asspecified in its charter)

 
| **Delaware**                                  | ** ** | **33-0371079**                        |
|-----------------------------------------------|------------|---------------------------------------|
| (State or  other jurisdiction of              |       | (I.R.S.  Employer Identification No.) |
| incorporation  or organization)               |       |                                  |
|                                          |       |                                  |
| **3411 N.  Perris Blvd., Perris, California** |       | **92571**                             |
| (Address of  principal executive offices)     |       | (Zip Code)                            |

 

Registrant’s telephone number,including area code: **(951) 943-6007**

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 

YES  ý    NO  o

 

Indicateby check mark whether the registrant is an accelerated filer.

 

YES  o    NO  ý

 

Indicate the number of shares outstanding ofeach of the issuer’s classes of common stock, as of the latest practicabledate.

 
| **Class**                              | ** ** | **Outstanding at October 28,  2004** |
|----------------------------------------|------------|-------------------------------------------|
| Common stock, par value $.01 per share |       | 10,245,440                                |

 

 

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****EXPLANATORY NOTE****

 

This Amendment No. 1 on Form 10-Q/A(this “Form 10-Q/A”) amends the Company’s Quarterly Report on Form 10-Qfor the fiscal quarter ended September 30, 2004, as initially filed withthe Securities and Exchange Commission (the “SEC”) on November 12, 2004,and is being filed to reflect the restatement of the consolidated financialstatements for the three and nine months ended September 30, 2004 and2003, as discussed in Note 2 thereto.

 

As described in the Form 8-K filed byNational R.V. Holdings, Inc. (the “Company”) with the Securities andExchange Commission on April 4, 2005, the Company announced it willrestate its financial statements for the third quarter of 2004. The restatementreflects the Company’s determination that it did not correctly recognizerevenue for or with respect to a limited number of motorhomes sold in the thirdquarter of 2004 under a deferred payment arrangement because the Company heldthe manufacturer’s certificate of origin as security for payment. The Companydetermined that revenues of approximately $4.5 million previously recognized inthe third quarter 2004 should have been recognized in the fourth quarter 2004,resulting in a $0.02 reduction to the Company’s third quarter 2004 dilutedearnings per share.

 

In addition, the Company determined that thegain it recognized on the sale of its travel trailer business at the end of thethird quarter 2004 was overstated by $0.06 million which amount represented theimplied interest portion of the note receivable the Company received fromWeekend Warrior, the purchasing company. This adjustment did not affect theCompany’s third quarter 2004 discontinued operations diluted loss per share.

 

In addition, subsequent to the filing of theCompany’s Form 8-K on April 4, 2005, the Company determined that arestatement of its prior period statements of operations is required to reclassifydealer sales incentives, which include rebates, floorplan interestreimbursement and retail salespersons incentives paid to dealers or dealerretail salespersons to promote the sale of the product and the return of saleand warranty information. These dealer sales incentives are required to bereclassified from selling expenses to a reduction of revenue as required byEmerging Issues Task Force (“EITF”) Issue No. 01-09, “Accounting forConsideration Given by a Vendor to a Customer (including a Reseller) of theVendor’s Products”. Net sales, gross profit and selling expenses were reducedby $0.5 million and $1.6 million for the three and nine months ended September 30,2004, respectively. Net sales, gross profit and selling expenses were reducedby $0.3 million and $1.4 million for the three and nine months ended September 30,2003, respectively. This adjustment had no impact on net (loss) income aspreviously reported.

 

Except for theforegoing amended information required to reflect the effects of the restatedconsolidated financial statements, this Form 10-Q/A continues to describeconditions as presented in the original report on Form 10-Q. The Form 10-Q/Adoes not reflect events occurring after the filing of the Form 10-Q, ormodify or update those disclosures, including exhibits to the Form 10-Qaffected by subsequent events. Information not affected by the restatement isunchanged and reflects the disclosures made at the time of the original filingof the Form 10-Q on November 12, 2004. Accordingly, this Form 10-Q/Ashould be read in conjunction with filings made with the SEC subsequent to thefiling of the original Form 10-Q, including any amendments to thosefilings. The following items have been amended (and conforming changes havebeen made where indicated as restated) as a result of the restatement:

 

2

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Part I -Item 1 - Financial Statements (unaudited)

 

Part I -Item 2 - Management’s Discussion and Analysis of Financial Condition andResults of Operations

 

Part I -Item 4 - Controls and Procedures

 

Concurrently with the filing of this Form 10-Q/A,the Company is filing with the SEC the Form 10-K as of and for the yearended December 31, 2004, which includes the financial statements as of December 31,2003 and the two years ended December 31, 2003, on a restated basis. Noamendments have been made to our previously filed Annual Reports on Form 10-Kfor fiscal years 2002 or 2003, or the Quarterly Reports on Form 10-Q forthe quarters ended March 31, 2003, June 30, 2003 and September 30,2003 and therefore they should not be relied upon.

 

3

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**NATIONAL R.V. HOLDINGS, INC.**

 

### **INDEX**

###  

| **PART I - FINANCIAL INFORMATION** | ** **                                                                                                                          |
|-----------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------|
|                                    |                                                                                                                                |   |
| Item 1.                                 | Financial Statements (Unaudited) (Restated)  Consolidated Balance Sheets –  September 30, 2004 and December 31, 2003 |   |
|                                    |                                                                                                                                |   |
|                                    | Consolidated Statements of Operations –  Three and Nine Months Ended September 30, 2004 and 2003                          |   |
|                                    |                                                                                                                                |   |
|                                    | Consolidated Statements of Cash Flows –  Nine Months Ended September 30, 2004 and 2003                                    |   |
|                                    |                                                                                                                                |   |
|                                    | Notes to Consolidated  Financial Statements                                                                                         |   |
|                                    |                                                                                                                                |   |
| Item  2.                                | Management’s  Discussion and Analysis of  Financial Condition and Results of Operations                                        |   |
|                                    |                                                                                                                                |   |
| Item 3.                                 | Quantitative and Qualitative  Disclosures about Market Risk                                                                         |   |
|                                    |                                                                                                                                |   |
| Item 4.                                 | Controls and Procedures                                                                                                             |   |
|                                    |                                                                                                                                |   |
| **PART II - OTHER INFORMATION**    |                                                                                                                                |
|                                    |                                                                                                                                |   |
| Item 5.                                 | Other Information                                                                                                                   |   |
|                                    |                                                                                                                                |   |
| Item  6.                                | Exhibits                                                                                                                            |   |
|                                    |                                                                                                                                |   |
|                                    | Signature                                                                                                                           |   |

 

4

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**NATIONALR.V. HOLDINGS, INC.**

**CONSOLIDATED BALANCE SHEETS**

**(Inthousands, except share amounts)**

**(Unaudited)**

 
| ** **                                                                                                                    | ** ** | **September 30,**   | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------|------------|
| ** **                                                                                                                    | ** ** | **2004**                 | ** ** | **2003**              | ** ** |
| ** **                                                                                                                    | ** ** | **(As Restated Note 2)** | ** ** | ** **            | ** ** |
| ** **                                                                                                                    | ** ** | ** **               | ** ** | ** **            | ** ** |
| ASSETS                                                                                                                        |       |                     |       |                  |       |
| Current assets:                                                                                                               |       |                     |       |                  |       |
| Cash and  cash equivalents                                                                                                    |       | $                        | 11         |                  | $          | 2,059 |   |
| Restricted  cash                                                                                                              |       | 250                      |       | 250                   |       |
| Receivables,  less allowance for doubtful accounts ($103 and $132, respectively)                                              |       | 23,479                   |       | 20,978                |       |
| Inventories                                                                                                                   |       | 72,884                   |       | 51,659                |       |
| Deferred  income taxes                                                                                                        |       | 6,058                    |       | 7,955                 |       |
| Note  receivable                                                                                                              |       | 2,682                    |       | —                |       |
| Prepaid  expenses                                                                                                             |       | 3,270                    |       | 1,658                 |       |
| Assets held  for sale                                                                                                         |       | 1,669                    |       | —                |       |
| Total  current assets                                                                                                         |       | 110,303                  |       | 84,559                |       |
| Property, plant and equipment, net                                                                                            |       | 37,312                   |       | 40,833                |       |
| Long-term deferred income taxes                                                                                               |       | 3,805                    |       | 3,805                 |       |
| Other                                                                                                                         |       | 1,242                    |       | 1,252                 |       |
|                                                                                                                          |       | $                        | 152,662    |                  | $          | 130,449 |   |
|                                                                                                                          |       |                     |       |                  |       |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                                                    |       |                     |       |                  |       |
| Current liabilities:                                                                                                          |       |                     |       |                  |       |
| Line of  credit                                                                                                               |       | $                        | 2,150      |                  | $          | — |   |
| Book  overdraft                                                                                                               |       | 7,228                    |       | —                |       |
| Current  portion of long-term debt                                                                                            |       | 1                        |       | 19                    |       |
| Accounts  payable                                                                                                             |       | 22,310                   |       | 14,101                |       |
| Accrued  expenses                                                                                                             |       | 21,497                   |       | 20,770                |       |
| Total  current liabilities                                                                                                    |       | 53,186                   |       | 34,890                |       |
| Long-term accrued expenses                                                                                                    |       | 7,716                    |       | 7,569                 |       |
| Total liabilities                                                                                                             |       | 60,902                   |       | 42,459                |       |
|                                                                                                                          |       |                     |       |                  |       |
| Commitments and contingencies                                                                                                 |       |                     |       |                  |       |
|                                                                                                                          |       |                     |       |                  |       |
| Stockholders’ equity:                                                                                                    |       |                     |       |                  |       |
| Preferred  stock - $.01 par value; 5,000 shares authorized, 4,000 issued and outstanding                                      |       | —                   |       | —                |       |
| Common stock  - $.01 par value; 25,000,000 shares authorized, 10,242,940 and 10,190,230  issued and outstanding, respectively |       | 102                      |       | 102                   |       |
| Additional paid-in capital                                                                                                    |       | 36,960                   |       | 36,463                |       |
| Retained earnings                                                                                                             |       | 54,698                   |       | 51,425                |       |
| Total  stockholders’ equity                                                                                              |       | 91,760                   |       | 87,990                |       |
|                                                                                                                          |       | $                        | 152,662    |                  | $          | 130,449 |   |

 

See Notes to ConsolidatedFinancial Statements.

 

5

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**NATIONAL R.V. HOLDINGS, INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Inthousands, except per share amounts)**

**(Unaudited)**

 
| ** **                                                    | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|---------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                    | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                    | ** ** | **2004**               | ** ** | **2003**               | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                    | ** ** | **(As Restated**       | ** ** | **(As Restated**       | ** ** | **(As Restated** | ** ** | **(As Restated** | ** ** |
| ** **                                                    | ** ** | **Note 2)**            | ** ** | **Note 2)**            | ** ** | **Note 2)** | ** ** | **Note 2)** | ** ** |
|                                                          |       |                   |       |                   |       |   |   |   |   |
| Net sales                                                     |       | $                      | 112,525    |                   | $          | 84,365 |   | $ | 334,953 |   | $ | 219,603 |   |
| Cost of goods sold                                            |       | 104,606                |       | 80,756                 |       | 310,336 |   | 219,749 |   |
| Gross profit  (loss)                                          |       | 7,919                  |       | 3,609                  |       | 24,617 |   | (146 | ) |
| Selling expenses                                              |       | 3,003                  |       | 2,570                  |       | 8,298 |   | 6,907 |   |
| General and administrative expenses                           |       | 3,063                  |       | 1,543                  |       | 8,642 |   | 5,407 |   |
| Other expense                                                 |       | 374                    |       | —                 |       | 374 |   | — |   |
| Operating  income (loss)                                      |       | 1,479                  |       | (504                   | )          | 7,303 |   | (12,460 | ) |
| Interest expense                                              |       | 52                     |       | 85                     |       | 130 |   | 309 |   |
| Other income                                                  |       | (25                    | )          | (2                     | )          | (72 | ) | (6 | ) |
| Income  (loss) from continuing operations before income taxes |       | 1,452                  |       | (587                   | )          | 7,245 |   | (12,763 | ) |
| Provision (benefit) for income taxes                          |       | 608                    |       | (217                   | )          | 2,835 |   | (4,723 | ) |
| Income  (loss) from continuing operations                     |       | 844                    |       | (370                   | )          | 4,410 |   | (8,040 | ) |
| Loss from discontinued operations                             |       | 1,532                  |       | 503                    |       | 2,155 |   | 1,230 |   |
| Gain from sale of discontinued operations                     |       | (281                   | )          | —                 |       | (281 | ) | — |   |
| Benefit for income taxes                                      |       | (524                   | )          | (186                   | )          | (737 | ) | (455 | ) |
| Net loss from discontinued operations                         |       | (727                   | )          | (317                   | )          | (1,137 | ) | (775 | ) |
| Net income (loss)                                             |       | $                      | 117        |                   | $          | (687 | ) | $ | 3,273 |   | $ | (8,815 | ) |
|                                                          |       |                   |       |                   |       |   |   |   |   |
| Basic earnings (loss) per common share:                       |       |                   |       |                   |       |   |   |   |   |
| Continuing  operations                                        |       | $                      | 0.08       |                   | $          | (0.04 | ) | $ | 0.43 |   | $ | (0.82 | ) |
| Discontinued  operations                                      |       | $                      | (0.07      | )                      | $          | (0.03 | ) | $ | (0.11 | ) | $ | (0.08 | ) |
| Total                                                         |       | $                      | 0.01       |                   | $          | (0.07 | ) | $ | 0.32 |   | $ | (0.90 | ) |
|                                                          |       |                   |       |                   |       |   |   |   |   |
| Diluted earnings (loss) per common share:                     |       |                   |       |                   |       |   |   |   |   |
| Continuing  operations                                        |       | $                      | 0.08       |                   | $          | (0.04 | ) | $ | 0.42 |   | $ | (0.82 | ) |
| Discontinued  operations                                      |       | $                      | (0.07      | )                      | $          | (0.03 | ) | $ | (0.11 | ) | $ | (0.08 | ) |
| Total                                                         |       | $                      | 0.01       |                   | $          | (0.07 | ) | $ | 0.31 |   | $ | (0.90 | ) |
|                                                          |       |                   |       |                   |       |   |   |   |   |
| Weighted average number of shares:                            |       |                   |       |                   |       |   |   |   |   |
| Basic                                                         |       | 10,222                 |       | 9,835                  |       | 10,203 |   | 9,833 |   |
| Diluted                                                       |       | 10,426                 |       | 9,835                  |       | 10,392 |   | 9,833 |   |

 

See Notes to ConsolidatedFinancial Statements.

 

6

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**NATIONALR.V. HOLDINGS, INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Inthousands)**

**(Unaudited)**

 
| ** **                                                                                           | ** ** | **Nine Months Ended**     | ** ** |
|------------------------------------------------------------------------------------------------------|------------|---------------------------|------------|
| ** **                                                                                           | ** ** | **September 30,**    | ** ** |
| ** **                                                                                           | ** ** | **2004**                  | ** ** | **2003** | ** ** |
| ** **                                                                                           | ** ** | **(As Restated  Note 2)** | ** ** | ** ** | ** ** |
|                                                                                                 |       |                      |       |   |   |
| Cash flows from operating activities:                                                                |       |                      |       |   |   |
| Net income  (loss)                                                                                   |       | $                         | 3,273      |   | $ | (8,815 | ) |
| Adjustments  to reconcile net income (loss) to net cash (used in) provided by operating  activities: |       |                      |       |   |   |
| Depreciation  and amortization                                                                       |       | 2,881                     |       | 2,959 |   |
| Bad debt  (recovery) expense                                                                         |       | (1                        | )          | 43 |   |
| Loss on  asset disposal                                                                              |       | 61                        |       | 3 |   |
| Deferred  income tax provision (benefit)                                                             |       | 1,897                     |       | (4,876 | ) |
| Changes in  assets and liabilities, net of discontinued operations:                                  |       |                      |       |   |   |
| Increase in  receivables                                                                             |       | (2,500                    | )          | (11,618 | ) |
| (Increase)  decrease in inventories                                                                  |       | (24,057                   | )          | 11,326 |   |
| Decrease in  income taxes receivable                                                                 |       | —                    |       | 7,015 |   |
| (Increase)  decrease in prepaid expenses                                                             |       | (1,612                    | )          | 628 |   |
| Increase in  accounts payable                                                                        |       | 8,209                     |       | 6,256 |   |
| Increase  (decrease) in accrued expenses                                                             |       | 874                       |       | (827 | ) |
| Net cash  (used in) provided by operating activities                                                 |       | (10,975                   | )          | 2,094 |   |
|                                                                                                 |       |                      |       |   |   |
| Cash flows from investing activities:                                                                |       |                      |       |   |   |
| Decrease  (increase) in other assets                                                                 |       | 10                        |       | (177 | ) |
| Proceeds  from sale of assets                                                                        |       | 1,932                     |       | 3 |   |
| Proceeds  from sale of discontinued operation                                                        |       | 500                       |       | — |   |
| Purchases of  property, plant and equipment                                                          |       | (3,372                    | )          | (1,196 | ) |
| Net cash  used in investing activities                                                               |       | (930                      | )          | (1,370 | ) |
|                                                                                                 |       |                      |       |   |   |
| Cash flows from financing activities:                                                                |       |                      |       |   |   |
| Net advances  under (payments on) line of credit                                                     |       | 2,150                     |       | (1,727 | ) |
| Increase in  book overdraft                                                                          |       | 7,228                     |       | 499 |   |
| Principal  payments on long-term debt                                                                |       | (18                       | )          | (17 | ) |
| Proceeds  from issuance of common stock                                                              |       | 497                       |       | 518 |   |
| Net cash  provided by (used in) financing activities                                                 |       | 9,857                     |       | (727 | ) |
|                                                                                                 |       |                      |       |   |   |
| Net decrease in cash                                                                                 |       | (2,048                    | )          | (3 | ) |
| Cash and cash equivalents, beginning of  period                                                      |       | 2,059                     |       | 14 |   |
| Cash and cash equivalents, end of period                                                             |       | $                         | 11         |   | $ | 11 |   |

 

See Notes to ConsolidatedFinancial Statements.

 

7

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**NATIONAL R.V. HOLDINGS, INC.**

 

**PART I,ITEM 1**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)**

 

## **NOTE 1 - GENERAL**

 

In the opinion ofNational R.V. Holdings, Inc. (collectively, with its subsidiaries NationalR.V., Inc. (NRV) and Country Coach, Inc. (CCI) referred to herein asthe “Company”), the accompanying unaudited consolidated financial statementscontain all adjustments, consisting only of normal recurring adjustments,necessary for the fair statement of the financial position, results ofoperations and cash flows for all periods presented. Results for the interimperiods are not necessarily indicative of the results for an entire year. Thesefinancial statements should be read in conjunction with the financial statementsand notes thereto contained in the Company’s latest annual report on Form 10-K.Certain reclassifications, none of which affected net income or loss orretained earnings, have been made to prior period amounts to conform to currentperiod presentation.

 

## **NOTE 2 – RESTATEMENT OF FINANCIAL STATEMENTS**

 

The financial statements included herein have been restated for threecorrecting adjustments. These adjustments are discussed in more detail below.

 

*Correction of accounting for dealer salesincentives.*The financial statements reflect therestatement of certain dealer sales incentives, which include rebates andfloorplan interest reimbursement paid to dealers to promote the sale of theproduct and retail incentives paid directly to dealer retail salespersons topromote the sale of the product and the return of sale and warrantyinformation. The statements of operations for the three and nine months ended September 30,2004 and 2003 have been restated to reclassify these sales incentives fromselling expenses to a reduction of revenue, as required by Emerging Issues TaskForce (“EITF”) Issue No. 01-09, “Accounting for Consideration Given by aVendor to a Customer (including a Reseller) of the Vendor’s Products”. Netsales, gross profit and selling expenses were reduced by $0.5 million and $1.6million for the three and nine months ended September 30, 2004,respectively. Net sales, gross profit and selling expenses were reduced by $0.3million and $1.4 million for the three and nine months ended September 30,2003, respectively. This adjustment had no impact on net (loss) income aspreviously reported.

 

*Correction of accounting for deferred paymentmotorhome sales.* The financial statements reflect theremoval of certain motorhome sales previously included in the third quarter2004 financial statements. The restatement reflects the Company’s determinationthat it did not correctly recognize revenue with respect to a limited number ofmotorhomes sold in the third quarter of 2004 under a deferred payment arrangementbecause the Company held the manufacturer’s certificate of origin as securityfor payment. The Company determined that revenues of approximately $4.5 millionpreviously recognized in the third quarter 2004 should have been recognized inthe fourth quarter 2004, resulting in a reduction of $0.2 million to net incomeand a $0.02 reduction to the Company’s third quarter 2004 diluted earnings pershare.

 

*Correction of accounting for gain on sale oftravel trailer business.* The Company determined thatthe gain it recognized on the sale of its travel trailer business at the end ofthe third quarter 2004 was overstated by $0.06 million which amount representedthe implied interest portion of the note receivable the Company received fromWeekend Warrior, the purchasing company. This adjustment did not affect theCompany’s third quarter 2004 discontinued operations diluted loss per share.

 

8

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The consolidated financial statements for thethree and nine months ended September 30, 2004 have been restated asfollows (in thousands, except per share amounts):

 

**Statements of Operations**

 
| ** **                                             | ** ** | **Three Months Ended**       | ** ** | **Nine Months Ended**       | ** ** |
|--------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                             | ** ** | **September 30, 2004**  | ** ** | **September 30, 2004** | ** ** |
| ** **                                             | ** ** | **As  previously  reported** | ** ** | **As restated**             | ** ** | **As  previously  reported** | ** ** | **As restated** | ** ** |
| Net sales                                              |       | $                            | 117,457    |                        | $          | 112,525 |   | $ | 340,977 |   | $ | 334,953 |   |
| Cost of goods sold                                     |       | 108,672                      |       | 104,606                     |       | 314,402 |   | 310,336 |   |
| Gross profit                                           |       | 8,785                        |       | 7,919                       |       | 26,575 |   | 24,617 |   |
| Selling expenses                                       |       | 3,512                        |       | 3,003                       |       | 9,899 |   | 8,298 |   |
| Operating income                                       |       | 1,836                        |       | 1,479                       |       | 7,660 |   | 7,303 |   |
| Income from continuing operations before  income taxes |       | 1,809                        |       | 1,452                       |       | 7,602 |   | 7,245 |   |
| Provision for income taxes                             |       | 758                          |       | 608                         |       | 2,985 |   | 2,835 |   |
| Income from continuing operations                      |       | 1,051                        |       | 844                         |       | 4,617 |   | 4,410 |   |
| Gain from sale of discontinued operations              |       | (336                         | )          | (281                        | )          | (336 | ) | (281 | ) |
| Income taxes related to discontinued  operations       |       | (501                         | )          | (524                        | )          | (714 | ) | (737 | ) |
| Net loss from discontinued operations                  |       | (695                         | )          | (727                        | )          | (1,105 | ) | (1,137 | ) |
| Net income                                             |       | 356                          |       | 117                         |       | 3,512 |   | 3,273 |   |
|                                                   |       |                         |       |                        |       |   |   |   |   |
| Basic earnings (loss) per common share:                |       |                         |       |                        |       |   |   |   |   |
| Continuing  operations                                 |       | $                            | 0.10       |                        | $          | 0.08 |   | $ | 0.45 |   | $ | 0.43 |   |
| Discontinued  operations                               |       | (0.07                        | )          | (0.07                       | )          | (0.11 | ) | (0.11 | ) |
| Total                                                  |       | $                            | 0.03       |                        | $          | 0.01 |   | $ | 0.34 |   | $ | 0.32 |   |
|                                                   |       |                         |       |                        |       |   |   |   |   |
| Diluted earnings (loss) per common share:              |       |                         |       |                        |       |   |   |   |   |
| Continuing  operations                                 |       | $                            | 0.10       |                        | $          | 0.08 |   | $ | 0.44 |   | $ | 0.42 |   |
| Discontinued  operations                               |       | (0.07                        | )          | (0.07                       | )          | (0.10 | ) | (0.11 | ) |
| Total                                                  |       | $                            | 0.03       |                        | $          | 0.01 |   | $ | 0.34 |   | $ | 0.31 |   |
|                                                   |       |                         |       |                        |       |   |   |   |   |
| Weighted average number of shares:                     |       |                         |       |                        |       |   |   |   |   |
| Basic                                                  |       | 10,222                       |       | 10,222                      |       | 10,203 |   | 10,203 |   |
| Diluted                                                |       | 10,426                       |       | 10,426                      |       | 10,392 |   | 10,392 |   |

 

9

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**Balance Sheets**

 
| ** **                              | ** ** | **September 30, 2004**  | ** ** |
|-----------------------------------------|------------|------------------------------|------------|
| ** **                              | ** ** | **As  previously  reported** | ** ** | **As restated** | ** ** |
| Receivables, net                        |       | $                            | 27,941     |   | $ | 23,479 |   |
| Inventories                             |       | 68,818                       |       | 72,884 |   |
| Deferred income taxes (current portion) |       | 5,885                        |       | 6,058 |   |
| Note receivable                         |       | 2,737                        |       | 2,682 |   |
| Accrued expenses (current portion)      |       | 21,536                       |       | 21,497 |   |
| Retained earnings                       |       | 54,937                       |       | 54,698 |   |
|                                         |            |                              |            |  |  |  |  |

 

**Statements of Cash Flows**

 
| ** **                                           | ** ** | **Nine Months Ended**        | ** ** |
|------------------------------------------------------|------------|------------------------------|------------|
| ** **                                           | ** ** | **September 30, 2004**  | ** ** |
| ** **                                           | ** ** | **As  previously  reported** | ** ** | **As restated** | ** ** |
| Net income                                           |       | $                            | 3,512      |   | $ | 3,273 |   |
| Loss on asset disposal                               |       | 6                            |       | 61 |   |
| Decrease in deferred income tax provision            |       | 2,070                        |       | 1,897 |   |
| Increase in receivables                              |       | (6,962                       | )          | (2,500 | ) |
| Increase in inventories                              |       | (19,991                      | )          | (24,057 | ) |
| Increase in accrued expenses                         |       | 913                          |       | 874 |   |
| Net cash (used in) provided by operating  activities |       | (10,975                      | )          | (10,975 | ) |
| Net cash used in investing activities                |       | (930                         | )          | (930 | ) |
| Net cash provided by (used in) financing  activities |       | 9,857                        |       | 9,857 |   |
|                                                      |            |                              |            |  |  |  |  |

 

The consolidated statements of operations forthe three and nine months ended September 30, 2003 have been restated asfollows (in thousands, except per share amounts):

 

**Statements of Operations**

 
| ** **          | ** ** | **Three Months Ended**       | ** ** | **Nine Months Ended**       | ** ** |
|---------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **          | ** ** | **September 30, 2003**  | ** ** | **September 30, 2003** | ** ** |
| ** **          | ** ** | **As  previously  reported** | ** ** | **As restated**             | ** ** | **As  previously  reported** | ** ** | **As restated** | ** ** |
| Net sales           |       | $                            | 84,640     |                        | $          | 84,365 |   | $ | 220,979 |   | $ | 219,603 |   |
| Gross profit (loss) |       | 3,884                        |       | 3,609                       |       | 1,230 |   | (146 | ) |
| Selling expenses    |       | 2,845                        |       | 2,570                       |       | 8,283 |   | 6,907 |   |
|                     |            |                              |            |                             |            |  |  |  |  |  |  |  |  |

 

## **NOTE 3 – CONTINUATION OF LOSSES**

 

Although theCompany experienced a net profit in the first nine months of 2004 of $3.3million compared to a net loss of $8.8 million, restated, during the sameperiod last year, the Company had net losses totaling $8.4 million, restated, and$19.9 million, restated, for the years ended December 31, 2003 and 2002,respectively. Continued losses could reduce the Company’s liquidity and causethe Company to reduce its expenditures on capital improvements, machinery andequipment, and research and development. This could have a negative effect on the Company’s ability to maintainproduction schedules, manufacture products of high quality, and develop andmanufacture new products that will achieve market acceptance.  This could in turn, have a negative

 

10

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impact on sales andearnings.  If the Company continues tosuffer losses, the Company could be unable to implement its business andfinancial strategies or meet its obligations when due. The Company’s losses in2003 and 2002 were mainly caused by (i) excess manufacturing capacity andrelated fixed costs caused by continued low production levels, (ii) continuedsignificant discounting to wholesale distributors in 2002 and the first half of2003, (iii) the recognition of the complete impairment of the Company’sgoodwill in 2002, (iv) high warranty costs in 2002 and (v) a workers’compensation reserve increase in 2002 and continued high workers’ compensationcosts in 2003.  There are no assurancesthat the conditions that have resulted in the Company’s losses in the past willnot continue through 2005 and beyond.

 

## **NOTE 4 – STOCK BASED COMPENSATION**

 

The Company hasstock option plans that enable it to offer equity participation to employees,officers, and directors as well as certain non-employees. Stock options may begranted as incentive or nonqualified options.

 

The Company hasfour fixed option plans that reserve shares of common stock for issuance toexecutives, key employees, consultants, and directors. The Company has alsoissued fixed options outside of such plans pursuant to individual stock optionagreements. Options granted to non-employee directors generally vest immediatelyupon grant and generally expire five to ten years from the date of grant.Options granted to employees, including employee directors, generally vest inthree equal annual installments and expire five to ten years from the date ofgrant. The price of the options granted pursuant to these plans will not beless than 100 percent of the market value of the shares on the date of grant.There were no options granted during the third quarter of 2004, 24,000 optionswere granted during the second quarter of 2004 and 236,500 options granted inthe first quarter of 2004, and there were no options granted during 2003.

 

The Company hasadopted the provisions of Statement of Financial Accounting Standards No. 148,“Accounting for Stock-Based Compensation - Transition and Disclosure” (SFAS148), which amends SFAS Statement 123, “Accounting for Stock-BasedCompensation.” As permitted by SFAS 148, the Company continues to measurecompensation cost in accordance with Accounting Principles Board Opinion No. 25,“Accounting for Stock Issued to Employees” (APB 25) and relatedinterpretations, but provides pro forma disclosures of net income and earningsper share as if the fair-value method had been applied. The following tableillustrates the effect on net income (loss) and earnings (loss) per share ifthe Company had applied the fair value recognition provisions to stock-basedemployee compensation:

 

All amounts in thousands except per share amounts

 
| ** **                                                                                                                            | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                                                            | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                                                                                                            | ** ** | **2004**               | ** ** | **2003**               | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                                                                                                  |       |                   |       |                   |       |   |   |   |   |
| Net income (loss) – as restated                                                                                                  |       | $                      | 117        |                   | $          | (687 | ) | $ | 3,273 |   | $ | (8,815 | ) |
| Total  stock-based employee compensation expense determined under fair value based  method for all awards, net of related tax effects |       | 138                    |       | 64                     |       | 431 |   | 253 |   |
| Pro forma net  income (loss)                                                                                                          |       | $                      | (21        | )                      | $          | (751 | ) | $ | 2,842 |   | $ | (9,068 | ) |
|                                                                                                                                  |       |                   |       |                   |       |   |   |   |   |
| Basic earnings (loss) per share as reported                                                                                           |       | $                      | 0.01       |                   | $          | (0.07 | ) | $ | 0.32 |   | $ | (0.90 | ) |
| Total  stock-based employee compensation expense determined under fair value based  method for all awards, net of related tax effects |       | 0.01                   |       | 0.01                   |       | 0.04 |   | 0.02 |   |
| Basic earnings (loss) per share pro forma                                                                                             |       | $                      | —     |                   | $          | (0.08 | ) | $ | 0.28 |   | $ | (0.92 | ) |
|                                                                                                                                  |       |                   |       |                   |       |   |   |   |   |
| Diluted earnings (loss) per share as  reported                                                                                        |       | $                      | 0.01       |                   | $          | (0.07 | ) | $ | 0.31 |   | $ | (0.90 | ) |
| Total  stock-based employee compensation expense determined under fair value based  method for all awards, net of related tax effects |       | 0.01                   |       | 0.01                   |       | 0.04 |   | 0.02 |   |
| Diluted earnings (loss) per share pro forma                                                                                           |       | $                      | —     |                   | $          | (0.08 | ) | $ | 0.27 |   | $ | (0.92 | ) |

 

11

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Theweighted-average fair value of the stock options has been estimated on the dateof grant using the Black-Scholes option-pricing model. The weighted-averagefair value of stock options and the assumptions used to calculateweighted-average fair value are listed below for new grants during the ninemonths ended September 30, 2004. There were no new stock option grantsduring the nine months ended September 30, 2003.

 

| ** **              | ** ** | **September 30, 2004** | ** ** |
|-------------------------|------------|-----------------------------|------------|
|                    |       |                        |       |
| Dividend yield          |       | 0.0                         | %          |
| Expected volatility     |       | 279.1                       | %          |
| Risk-free interest rate |       | 3.45                        | %          |
| Expected lives          |       | 4 years                     |       |

 

## **NOTE 5 – SUPPLEMENTAL BALANCE SHEET INFORMATION**

 

Inventories consist of the following (in thousands):

 
| ** **         | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|--------------------|------------|------------------------|------------|-----------------------|------------|
| ** **         | ** ** | **2004**               | ** ** | **2003**              | ** ** |
|               |       |                   |       |                  |       |
| Finished goods     |       | $                      | 12,023     |                  | $          | 8,957 |   |
| Work-in-process    |       | 32,256                 |       | 22,142                |       |
| Raw  materials     |       | 18,348                 |       | 13,902                |       |
| Chassis            |       | 10,257                 |       | 6,658                 |       |
| Total  inventories |       | $                      | 72,884     |                  | $          | 51,659 |   |

 

Accrued expenses consist of the following (in thousands):

 
| ** **                                         | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                         | ** ** | **2004**               | ** ** | **2003**              | ** ** |
|                                               |       |                   |       |                  |       |
| Current accrued expenses:                          |       |                   |       |                  |       |
| Workers’ compensation self-insurance  reserve |       | $                      | 2,975      |                  | $          | 3,561 |   |
| Warranty reserve                                   |       | 8,621                  |       | 8,312                 |       |
| Payroll and other accrued expenses                 |       | 9,901                  |       | 8,897                 |       |
| Total current accrued expenses                     |       | $                      | 21,497     |                  | $          | 20,770 |   |
|                                               |       |                   |       |                  |       |
| Long-term accrued expenses:                        |       |                   |       |                  |       |
| Workers’ compensation self-insurance  reserve |       | $                      | 6,702      |                  | $          | 6,499 |   |
| Warranty reserve                                   |       | 219                    |       | 348                   |       |
| Deferred compensation                              |       | 795                    |       | 722                   |       |
| Total long-term accrued expenses                   |       | $                      | 7,716      |                  | $          | 7,569 |   |

 

12

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## **NOTE 6 – CREDIT FACILITY**

 

As of September 30,2004, the Company had an asset-based revolving credit facility of $15 millionwith UPS Capital Corporation (UPSC) expiring in August 2005. As of September 30,2004, the Company had reserved $0.3 million from the line-of-credit for threemonths’ rent on the CCI facility, and the remaining $14.7 million was availablefor general corporate working capital needs and capital expenditures. Amountsborrowed under the revolving credit facility bear interest at the prime ratelisted in the Wall Street Journal plus 0.75 percentage points, which was 5.50%at September 30, 2004. The credit facility contains, among otherprovisions, certain financial covenants, including net worth requirements. At September 30,2004, the Company had outstanding loans under the line-of-credit totaling $2.2million and the Company was not in default with any covenants of its loanagreement with UPSC.

 

## **NOTE 7 – EARNINGS (LOSS) PER SHARE**

 

Basic earnings(loss) per share is computed by dividing net earnings (loss) by the weightedaverage number of common shares outstanding for the period. Diluted earningsper share reflects the potential dilution that could occur if options wereexercised or converted into common stock. Shares attributable to the exerciseof outstanding options that are anti-dilutive are excluded from the calculationof diluted loss per share.

 

All amounts in thousands except per share amounts.

 
| ** **                                          | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|-----------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                          | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                          | ** ** | **2004**               | ** ** | **2003**               | ** ** | **2004** | ** ** | **2003** | ** ** |
|                                                |       |                   |       |                   |       |   |   |   |   |
| Net income (loss) – as restated                |       | $                      | 117        |                   | $          | (687 | ) | $ | 3,273 |   | $ | (8,815 | ) |
| Basic weighted average common shares  outstanding   |       | 10,222                 |       | 9,835                  |       | 10,203 |   | 9,833 |   |
| Effect of dilutive stock options                    |       | 204                    |       | —                 |       | 189 |   | — |   |
| Diluted  weighted average common shares outstanding |       | 10,426                 |       | 9,835                  |       | 10,392 |   | 9,833 |   |
|                                                |       |                   |       |                   |       |   |   |   |   |
| Basic earnings (loss) per share                     |       | $                      | 0.01       |                   | $          | (0.07 | ) | $ | 0.32 |   | $ | (0.90 | ) |
|                                                |       |                   |       |                   |       |   |   |   |   |
| Diluted earnings (loss) per share                   |       | $                      | 0.01       |                   | $          | (0.07 | ) | $ | 0.31 |   | $ | (0.90 | ) |

 

Excluded from thecomputation of diluted earnings per share are outstanding common stock optionswith an exercise price greater than the average market price of the commonshares as of September 30, 2004 and September 30, 2003. For thequarters ended September 30, 2004 and 2003, excluded from the computationof diluted earnings per share were stock options to purchase 12,000 shares and1,304,000 shares, respectively. Also for the nine months ended September 30,2004 and 2003, excluded from the computation of diluted earnings per share werestock options to purchase 12,000 shares and 1,304,000 shares, respectively.

 

## **NOTE 8 – DISCONTINUED OPERATIONS**

 

On September 24,2004, the Company sold its travel trailer business assets to Weekend Warrior, aprivately owned, California-based ramp-trailer manufacturer. The sale wasdesigned to allow the Company to further concentrate its efforts and resourceson its growing motorhome business. The total selling price of the business was $3.2million. The sale included inventory totaling $2.8 million and equipmenttotaling $0.1 million. Weekend Warrior paid $0.5 million at closing with thebalance to be paid in ten equal monthly payments. The note receivable has beenrecorded in the accompanying consolidated balance sheets net of $0.06 millionof

 

13

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an unamortized discountfor imputed interest. Furthermore, a payment of 1% of monthly sales for otherassets and trademarks will be made on a monthly basis over a twelve-monthperiod ending October 10, 2005 with a minimum due of $0.3 million. TheCompany also entered into a sublease agreement, which allows Weekend Warrior tolease a portion of the Company’s facilities for up to twelve months. Net salesfrom discontinued operations for the three and nine months ended September 30,2004 were $1.4 million and $14.7 million, respectively. For the three and ninemonths ended September 30, 2004 the Company recorded a net loss fromdiscontinued operations of $0.7 million and $1.1 million, respectively. Thisnet loss included a pre-tax gain on the sale of the discontinued operations of$0.3 million.

 

**NOTE 9 – ASSETS HELD FOR SALE**

 

On October 5,2004, the Company closed on the sale of land located in Florida. At September 30,2004, the Company recorded this property as an asset held for sale and recordedan impairment loss of $0.3 million related to the sale of this property whichhas been recorded in other operating expenses in the accompanying consolidated statementsof operations.

 

## **NOTE 10 – COMMITMENTS AND GUARANTEES**

 

As is customary inthe industry, the Company generally agrees with its dealers’ lenders torepurchase any unsold RVs in certain circumstances. Although the Company’smaximum potential exposure under these agreements approximated $111 million at September 30,2004, as with accounts receivable, the risk of loss was spread over numerousdealers and lenders and was further reduced by the resale value of the RVs,which the Company would be required to repurchase. Losses under theseagreements have not been material in the past and management does not believethat any future losses under such agreements will have a material adverseeffect on the Company’s consolidated financial position or results ofoperations.

 

The Company’swarranty reserve is established based on its best estimate of the amountsnecessary to settle future and existing claims on products sold as of thebalance sheet date. The Company records an estimate for future warranty-relatedcosts based on recent actual warranty claims. Also, as part of the warrantyreserve the Company’s recall reserve is established, as necessary, based onmanagement’s estimate of the cost per unit to remedy the problem and theestimated number of units that will ultimately be brought in for the repair.

 

Nine Months Ended September 30, 2004 (in thousands)

 
| ** **       | ** ** | **Beginning** | ** ** | ** **    | ** ** | ** **     | ** ** | **Ending**  | ** ** |
|------------------|------------|---------------|------------|---------------|------------|----------------|------------|-------------|------------|
| ** **       | ** ** | **Balance**   | ** ** | **Additions** | ** ** | **Deductions** | ** ** | **Balance** | ** ** |
| Warranty reserve |       | $             | 8,660      |          | $          | 10,033         |       | $           | 9,853      |   | $ | 8,840 |   |
|                  |            |               |            |               |            |                |            |             |            |  |  |  |  |

 

14

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**NATIONALR.V. HOLDINGS, INC.**

 

**PART I, ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

## **Disclosure Regarding Forward Looking Statements**

 

This QuarterlyReport on Form 10-Q/A contains forward-looking statements within themeaning of the Private Securities Litigation Reform Act of 1995. Investors arecautioned that forward-looking statements are inherently uncertain. Actualperformance and results may differ materially from that projected or suggestedherein due to certain risks and uncertainties including, without limitation,potential fluctuations in the Company’s operating results; ; any materialweaknesses in the Company’s internal control over financial reporting or anyfailure to implement required new or improved controls; resumption of losses;seasonality and economic conditions; dependence on certain dealers andconcentration of dealers in certain regions; dependence on chassis suppliers;potential liabilities under repurchase agreements; competition; governmentregulation; warranty claims; and product liability. Certain risks anduncertainties that could cause actual results to differ materially from thatprojected or suggested are set forth in the Company’s filings with the Securitiesand Exchange Commission (the “SEC”) and the Company’s public announcements,copies of which are available from the SEC or from the Company upon request.The Company undertakes no obligation to revise or update publicly any forwardlooking statements for any reason.

 

## **Restatement of Financial Statements**

 

The financial statements included herein have been restated for threecorrecting adjustments. These adjustments are discussed in more detail below.

 

*Correction of accounting for dealer salesincentives.*The financial statements reflect therestatement of certain dealer sales incentives, which include rebates andfloorplan interest reimbursement paid to dealers to promote the sale of theproduct and retail incentives paid directly to dealer retail salespersons topromote the sale of the product and the return of sale and warrantyinformation. The statements of operations for the three and nine months ended September 30,2004 and 2003 have been restated to reclassify these sales incentives fromselling expenses to a reduction of revenue, as required by Emerging Issues TaskForce (“EITF”) Issue No. 01-09, “Accounting for Consideration Given by aVendor to a Customer (including a Reseller) of the Vendor’s Products”. Netsales, gross profit and selling expenses were reduced by $0.5 million and $1.6million for the three and nine months ended September 30, 2004,respectively. Net sales, gross profit and selling expenses were reduced by $0.3million and $1.4 million for the three and nine months ended September 30,2003, respectively. This adjustment had no impact on net (loss) income aspreviously reported.

 

*Correction of accounting for deferred paymentmotorhome sales.* The financial statements reflect theremoval of certain motorhome sales previously included in the third quarter2004 financial statements. The restatement reflects the Company’s determinationthat it did not correctly recognize revenue with respect to a limited number ofmotorhomes sold in the third quarter of 2004 under a deferred payment arrangementbecause the Company held the manufacturer’s certificate of origin as securityfor payment. The Company determined that revenues of approximately $4.5 millionpreviously recognized in the third quarter 2004 should have been recognized inthe fourth quarter 2004, resulting in a reduction of $0.2 million to net incomeand a $0.02 reduction to the Company’s third quarter 2004 diluted earnings pershare.

 

*Correction of accounting for gain on sale oftravel trailer business.* The Company determined thatthe gain it recognized on the sale of its travel trailer business at the end ofthe third quarter 2004 was overstated by $0.06 million which amount representedthe implied interest portion of the note receivable the

 

15

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Company received from Weekend Warrior, the purchasing company. Thisadjustment did not affect the Company’s third quarter 2004 discontinued operationsdiluted loss per share.

 

The consolidated financial statements for thethree and nine months ended September 30, 2004 have been restated asfollows (in thousands, except per share amounts):

 

**Statements of Operations**

 
| ** **                                             | ** ** | **Three Months Ended**       | ** ** | **Nine Months Ended**       | ** ** |
|--------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                             | ** ** | **September 30, 2004**  | ** ** | **September 30, 2004** | ** ** |
| ** **                                             | ** ** | **As  previously  reported** | ** ** | **As restated**             | ** ** | **As  previously  reported** | ** ** | **As restated** | ** ** |
| Net sales                                              |       | $                            | 117,457    |                        | $          | 112,525 |   | $ | 340,977 |   | $ | 334,953 |   |
| Cost of goods sold                                     |       | 108,672                      |       | 104,606                     |       | 314,402 |   | 310,336 |   |
| Gross profit                                           |       | 8,785                        |       | 7,919                       |       | 26,575 |   | 24,617 |   |
| Selling expenses                                       |       | 3,512                        |       | 3,003                       |       | 9,899 |   | 8,298 |   |
| Operating income                                       |       | 1,836                        |       | 1,479                       |       | 7,660 |   | 7,303 |   |
| Income from continuing operations before  income taxes |       | 1,809                        |       | 1,452                       |       | 7,602 |   | 7,245 |   |
| Provision for income taxes                             |       | 758                          |       | 608                         |       | 2,985 |   | 2,835 |   |
| Income from continuing operations                      |       | 1,051                        |       | 844                         |       | 4,617 |   | 4,410 |   |
| Gain from sale of discontinued operations              |       | (336                         | )          | (281                        | )          | (336 | ) | (281 | ) |
| Income taxes related to discontinued  operations       |       | (501                         | )          | (524                        | )          | (714 | ) | (737 | ) |
| Net loss from discontinued operations                  |       | (695                         | )          | (727                        | )          | (1,105 | ) | (1,137 | ) |
| Net income                                             |       | 356                          |       | 117                         |       | 3,512 |   | 3,273 |   |
|                                                   |       |                         |       |                        |       |   |   |   |   |
| Basic earnings (loss) per common share:                |       |                         |       |                        |       |   |   |   |   |
| Continuing  operations                                 |       | $                            | 0.10       |                        | $          | 0.08 |   | $ | 0.45 |   | $ | 0.43 |   |
| Discontinued  operations                               |       | (0.07                        | )          | (0.07                       | )          | (0.11 | ) | (0.11 | ) |
| Total                                                  |       | $                            | 0.03       |                        | $          | 0.01 |   | $ | 0.34 |   | $ | 0.32 |   |
|                                                   |       |                         |       |                        |       |   |   |   |   |
| Diluted earnings (loss) per common share:              |       |                         |       |                        |       |   |   |   |   |
| Continuing  operations                                 |       | $                            | 0.10       |                        | $          | 0.08 |   | $ | 0.44 |   | $ | 0.42 |   |
| Discontinued  operations                               |       | (0.07                        | )          | (0.07                       | )          | (0.10 | ) | (0.11 | ) |
| Total                                                  |       | $                            | 0.03       |                        | $          | 0.01 |   | $ | 0.34 |   | $ | 0.31 |   |
|                                                   |       |                         |       |                        |       |   |   |   |   |
| Weighted average number of shares:                     |       |                         |       |                        |       |   |   |   |   |
| Basic                                                  |       | 10,222                       |       | 10,222                      |       | 10,203 |   | 10,203 |   |
| Diluted                                                |       | 10,426                       |       | 10,426                      |       | 10,392 |   | 10,392 |   |

 

16

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**Balance Sheets**

 
| ** **                              | ** ** | **September 30, 2004**  | ** ** |
|-----------------------------------------|------------|------------------------------|------------|
| ** **                              | ** ** | **As  previously  reported** | ** ** | **As restated** | ** ** |
| Receivables, net                        |       | $                            | 27,941     |   | $ | 23,479 |   |
| Inventories                             |       | 68,818                       |       | 72,884 |   |
| Deferred income taxes (current portion) |       | 5,885                        |       | 6,058 |   |
| Note receivable                         |       | 2,737                        |       | 2,682 |   |
| Accrued expenses (current portion)      |       | 21,536                       |       | 21,497 |   |
| Retained earnings                       |       | 54,937                       |       | 54,698 |   |
|                                         |            |                              |            |  |  |  |  |

 

**Statements of Cash Flows**

 
| ** **                                           | ** ** | **Nine Months Ended**        | ** ** |
|------------------------------------------------------|------------|------------------------------|------------|
| ** **                                           | ** ** | **September 30, 2004**  | ** ** |
| ** **                                           | ** ** | **As  previously  reported** | ** ** | **As restated** | ** ** |
| Net income                                           |       | $                            | 3,512      |   | $ | 3,273 |   |
| Loss on asset disposal                               |       | 6                            |       | 61 |   |
| Decrease in deferred income tax provision            |       | 2,070                        |       | 1,897 |   |
| Increase in receivables                              |       | (6,962                       | )          | (2,500 | ) |
| Increase in inventories                              |       | (19,991                      | )          | (24,057 | ) |
| Increase in accrued expenses                         |       | 913                          |       | 874 |   |
| Net cash (used in) provided by operating  activities |       | (10,975                      | )          | (10,975 | ) |
| Net cash used in investing activities                |       | (930                         | )          | (930 | ) |
| Net cash provided by (used in) financing  activities |       | 9,857                        |       | 9,857 |   |
|                                                      |            |                              |            |  |  |  |  |

 

The consolidated statements of operations forthe three and nine months ended September 30, 2003 have been restated asfollows (in thousands, except per share amounts):

 

**Statements of Operations**

 
| ** **          | ** ** | **Three Months Ended**       | ** ** | **Nine Months Ended**       | ** ** |
|---------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **          | ** ** | **September 30, 2003**  | ** ** | **September 30, 2003** | ** ** |
| ** **          | ** ** | **As  previously  reported** | ** ** | **As restated**             | ** ** | **As  previously  reported** | ** ** | **As restated** | ** ** |
| Net sales           |       | $                            | 84,640     |                        | $          | 84,365 |   | $ | 220,979 |   | $ | 219,603 |   |
| Gross profit (loss) |       | 3,884                        |       | 3,609                       |       | 1,230 |   | (146 | ) |
| Selling expenses    |       | 2,845                        |       | 2,570                       |       | 8,283 |   | 6,907 |   |
|                     |            |                              |            |                             |            |  |  |  |  |  |  |  |  |

 

**Overview**

 

For the thirdquarter of 2004, the Company’s income from continuing operations increased to$0.8 million compared to a loss of $0.4 million for the same quarter last year.The third quarter’s earnings per diluted share from continuing operations were$0.08 compared to a loss per diluted share from continuing operations of $0.04for the third quarter of 2003. Income from continuing operations for the ninemonths ended September 30, 2004 was $4.4 million or $0.42 per dilutedshare compared to a loss from continuing operations in the same period of 2003of $8.0 million or $0.82 per diluted share. Net sales, from continuingoperations, for the third quarter of 2004 increased to $112.5 million from $84.3million for the third quarter of 2003, an increase of 33%.

 

17

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During the thirdquarter, the Company sold its Travel Trailer business, which it recorded as adiscontinued operation. The sale was designed to allow the Company to furtherconcentrate its efforts and resources on its growing motorhome business. Forthe three and nine months ended September 30, 2004 the Company recorded anet loss from discontinued operations of $0.7 million and $1.1 million,respectively. The net loss on discontinued operations for the three and ninemonths ended September 30, 2004 included a pre-tax gain on the sale of theTravel Trailer business of $0.3 million.

 

Net income for thethird quarter of 2004 was $0.1 million, or $0.01 per diluted share, as comparedto a net loss of $0.7 million, or $0.07 per diluted share in the third quarterof 2003. The Company’s improved results were driven by stronger demand for itsproducts as well as progress made by the Company in its gross margins comparedto those in the comparable periods of 2003. The Company’s results for the firstthree quarters of 2004 have also benefited from a healthy economy and strongindustry demand.

 

**OperatingPerformance**

 

Continual effortto improve the safety of the workforce and decrease its workers’ compensationcosts resulted in an approximate $1.0 million reduction in workers’compensation costs for the third quarter of 2004 compared to the third quarterof 2003. Continued reductions are part of the strategy throughout 2004, thoughworkers’ compensation costs continue to be a challenge in California. TheCompany has undertaken significant safety programs to address these costs andthe Company is being more proactive in the handling of its claims. In additionto these measures, which are helping, the Company believes that its workers’compensation costs should be further reduced by recent state reforms, althoughno assurance can be provided.

 

Other factorsleading to the improvement in gross profit margin percentage from last year’sthird quarter include higher sales, production levels and price increases,partially offset by various items including production inefficiencies andincreased discounting. Both National RV and Country Coach have increasedproduction during the nine months ended September 30, 2004.

 

As new andrevitalized products have come on-line, the Company has seen a rise inwholesale deliveries and an improvement in Class A retail market share,from 5.9% for the first eight months of 2003 to 6.7% for the first eight monthsof 2004. Both the industry and the Company have experienced a shift to the moreprofitable diesel versus gas product lines. Stronger product offerings and theresulting increase in demand have reduced the need to discount many of theCompany’s products through the first nine months of 2004 though there can be noassurance that future demand and competitive conditions will not cause theCompany to increase discounts in future periods.

 

**LookingForward**

 

Many of the sameobjectives the Company addressed last year remain in place for the currentyear. Aggressive product development, cost containment, and increased customersatisfaction are three of those objectives.

 

The 2004 thirdquarter saw the release of the remaining 2005 model year offerings. NationalR.V. expects to introduce the Tradewinds and Islander diesel-powered productsat the industry’s annual tradeshow in early December 2004.

 

Cost containmentremains a high priority, specifically in the manufacturing cost areas,warranty, and workers’ compensation. The Company continues to focus onimproving the quality of its motorhomes resulting in decreased warranty costs.Also, the Company has instituted a number of safety programs, which havealready resulted in measurably reduced workers’ compensation costs. The Companyexpects further progress in containing its costs as it continues to implementlean manufacturing concepts.

 

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The Company iscontinually striving to increase its customer support by improving clubsupport, telephone support for owners and dealers, and parts fulfillment. The Companyutilizes various techniques such as surveys and focus groups to ensure that itis improving in the area of customer satisfaction.

 

A renewed focus ondealer acquisition and enhanced training programs for the Company’s workforce,service centers, dealers, and consumers are also key initiatives. The Companyhas already undertaken efforts in the areas of safety; with new distancelearning capabilities, the Company is looking forward to broadcasting itsservice training programs directly to dealers and service providers, drivingthe movement for increased customer satisfaction in areas of technicalmaintenance. In addition, factory-training programs are providing the Company’scustomers a basis for self-diagnostics and a better understanding of the equipmentthey are operating.

 

**Critical Accounting Policies**

 

The Company’s discussion and analysis of itsfinancial condition and results of operations are based upon its consolidatedfinancial statements, which have been prepared in accordance with accounting principlesgenerally accepted in the United States. The preparation of these financialstatements requires the Company to make estimates and judgments that affect thereported amount of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the financial statements and the reported amountof revenues and expenses for each period.

 

The following represents a summary of theCompany’s critical accounting policies, defined as those policies that theCompany believes are: i) the most important to the portrayal of the Company’sfinancial condition and results of operations, and ii) that require the Company’smost difficult, subjective or complex judgments, often as a result of the needto make estimates about the effects of matters that are inherently uncertain.

 

*Valuation of Long-Lived Assets.*Effective the first quarter of fiscal 2003, the Company adopted SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets.” In accordancewith SFAS No. 144, the Company assesses the fair value and recoverabilityof its long-lived assets whenever events and circumstances indicate thecarrying value of an asset may not be recoverable from estimated future cashflows expected to result from its use and eventual disposition. In doing so,the Company makes assumptions and estimates regarding future cash flows andother factors. The fair value of the long-lived assets is dependent upon theforecasted performance of the Company’s business and the overall economicenvironment. When the Company determines that the carrying value of thelong-lived assets may not be recoverable, it measures impairment based upon aforecasted discounted cash flow method. The following table provides theestimated useful lives used for each asset type:

 

| Computer software / hardware         |   | 3 – 5 years |   |
|--------------------------------------|--------|------------------|--------|
| Furniture  and fixtures              |   | 7 years          |   |
| Machinery  and equipment             |   | 7 years          |   |
| Buildings  and building improvements |   | 40 years         |   |

 

*Warranty Reserve.*The Company’s warranty reserve is established based on its best estimate of theamounts necessary to settle future and existing claims on products sold as ofthe balance sheet date. The Company records an estimate for futurewarranty-related costs based on recent actual warranty claims and historicalexperience. Also, the Company’s recall reserve is established, as necessary,based on management’s estimate of the cost per unit to remedy a recall problemand the estimated number of units that will ultimately be brought in for therepair. In addition, from time to time, the Company is involved in warranty or

 

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“lemon law” litigation arisingout of its operations in the normal course of business. To date, the number ofsuch matters as a percentage of sales is low and the aggregate cost to theCompany for these actions have not been material. While the Company’s warrantycosts have historically been within its expectations and the provisionsestablished, the Company cannot guarantee that it will continue to experiencethe same warranty costs that it has in the past. A significant increase indealer shop rates, the cost of parts or the frequency of claims could have amaterial adverse impact on the Company’s operating results for the period orperiods in which such claims or additional costs materialize.

 

*Revenue Recognition.*The Company recognizes revenue in accordance with SEC Staff Accounting BulletinNo. 104, Revenue Recognition in Financial Statements, or SAB 104. SAB 104requires that four basic criteria must be met before revenue can be recognized:i) persuasive evidence of an arrangement exists, ii) delivery has occurred andtitle and the risks and rewards of ownership have been transferred to thecustomer, iii) the price is fixed and determinable, and iv) collectability isreasonably assured. During the fourth quarter of 2004, NRV began deliveringmotorhomes to its customers through independent third party carriers. Title andrisks of rewards of ownership are transferred to a customer upon delivery of amotorhome to a third party carrier. When all of the above criteria aresatisfied, motorhome sales are generally recorded by NRV at the time themotorhomes are delivered to an independent third party carrier and are recordedby CCI, which does not deliver its motorhomes through an independent thirdparty carrier, when accepted by the dealer.

 

In addition, as is common throughout the RVindustry, the Company offers incentives to its dealers in the form of discountsand floorplan interest reimbursement programs, rebate and holdback programs,and retail sales incentives paid to dealer retail salespersons. The Companyrecognizes and records the costs of these incentives in accordance withEmerging Issue Task Force (EITF) No. 01-09, “Accounting for ConsiderationGiven by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)”.

 

Discounts and floorplan interestreimbursement programs are offered to dealers on purchases of certain unitsduring dealer or other trade show events. The Company will occasionally alsooffer these programs to its dealers to sell slower-moving units. The Companyrecognizes the cost of these programs as a reduction of revenue and records thecost of discounts when the associated revenue is recognized.

 

Rebate and holdback programs involve paymentsby the Company to the dealer based on either a percentage of the net invoiceprice or a predetermined amount based on the model of the coach sold by thedealer. The dealer incentive program varies by dealer. Not all dealersparticipate. The purpose of the program is to provide an additional incentiveto the dealer to promote sales of the product. The dealers earn the incentive upon the wholesale purchase of the unitfrom the Company. The Company recognizes these incentives as a reductionof revenue and records the cost of these incentives when the associated revenueis recognized.

 

The Companyoften pays retail sales incentives directly to dealer retail salespersons topromote the sale of the product and the return of sale and warrantyinformation. This information assists in providing sales and marketing data tothe Company. The Company recognizes the cost of such retail sales incentives asa reduction of revenue and records the cost of such retail sales incentiveswhen the associated revenue is recognized.

 

Cooperative advertising arrangements existthrough which dealers receive a certain allowance of the total purchases fromthe Company if certain qualitative advertising criteria are met and ifspecified amounts are spent on the advertisements. A dealer must maintaindocumentation of all advertising performed that includes the Company’s productsand provide that documentation to the Company upon request. Because the Companyreceives an identifiable advertising benefit

 

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from the dealer, the Companyrecognizes the cost of cooperative advertising as a selling expense and recordsthe cost of cooperative advertising when the units are sold to the dealers.

 

*Legal Proceedings.*The Company is involved in legal proceedings in the ordinary course ofbusiness, including a variety of warranty, “lemon law” and product liabilityclaims typical in the recreation vehicle industry. With respect to productliability claims, the Company’s insurance policies cover, in whole or in part,defense costs and liability costs for personal injury or property damage(excluding damage to Company motorhomes). While it is impossible to estimatewith certainty the ultimate legal and financial liability with respect to thislitigation, management is of the opinion that while the final resolution of anysuch litigation may have an impact on the Company’s consolidated results for aparticular reporting period, the ultimate disposition of such litigation willnot have any material adverse effect on the Company’s financial position,results of operations or liquidity.

 

*Income Taxes.* Aspart of the process of preparing its consolidated financial statements, theCompany estimates its income taxes in each of the taxing jurisdictions in whichthe Company operates. This process involves estimating actual current taxexpense together with assessing any temporary differences resulting from thedifferent treatment of certain items, such as the timing for recognizingrevenues and expenses, for tax and financial reporting purposes. Thesedifferences may result in deferred tax assets and liabilities, which areincluded in the consolidated balance sheet. The Company is required to assessthe likelihood that its deferred tax assets, which include net operating loss carryforwardsand temporary differences that are expected to be deductible in future years,will be recoverable from future taxable income or other tax planningstrategies. If recovery is not likely, the Company must provide a valuationallowance based on its estimates of future taxable income in the various taxingjurisdictions, and the amount of deferred taxes that are ultimately realizable.

 

The provision for tax liabilities involvesevaluations and judgments of uncertainties in the interpretation of complex taxregulations by various taxing authorities. In situations involving tax relateduncertainties, the Company provides for tax liabilities when it determines itis probable that additional taxes may be due. As additional information becomesavailable, or these uncertainties are resolved with the taxing authorities,revisions to these liabilities may be required, resulting in additionalprovision for or benefit from income taxes in the consolidated statement ofoperations in the period such determination is made.

 

*Valuation of Inventory.*Inventory is valued at the lower of cost(estimated using the first-in, first-out method) or market. The Companyperiodically evaluates the carrying value of inventories and maintains areserve for excess and obsolescence to adjust the carrying value as necessaryto the lower of cost or market or to amounts on hand to meet expected demand inthe near term. Specifically, service and slow-moving parts not being used inthe manufacture of current model year motorhomes are reviewed by the Company todetermine which can be used in production, which can be used for future serviceand warranty repairs of customer-owned motorhomes, and which can be returned tosuppliers for full or partial credit. In addition, prior model year finishedgood motorhomes are evaluated by the Company and the value of those motorhomesis adjusted to an estimated market value based on a combination of the NationalAutomobile Dealers Association Guide and the Company’s general industryknowledge. During 2003, NRV established an inventory reserve for slow-moving,damaged and obsolete, and service parts inventory, which reserve did not changematerially in 2004. During 2004, CCI established an inventory reserve forslow-moving and service parts inventory. Additionally, higher production levelsand increased evaluation of damaged and obsolete inventory also contributed tothe increase in the CCI inventory reserve. The inventory reserves are reviewedeach fiscal quarter and

 

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revisionsare made as necessary. Unfavorable changes in obsolete inventory estimateswould result in an increase in the inventory reserve and a decrease in grossprofit.

 

*Workers’ Compensation Reserve.*****The Company’s workers’ compensation reserve is establishedbased on its best estimate of the amounts necessary to settle future andexisting employee workers’ compensation claims incurred as of the balance sheetdate. The Company records a reserve estimate for future workers’ compensationrelated costs based on the Company’s historical workers’ compensation claimspaid history using an actuarial incurred but not reported (IBNR) approach. Eventhough the Company’s workers’ compensation costs declined during 2004, theCompany cannot provide assurance that these costs will continue at theselevels, increase or decrease, in the near term. A significant change inCalifornia workers’ compensation legislation, the cost of claims or thefrequency of claims could have a material adverse impact on the Company’soperating results for the period or periods in which such claims or additionalcosts materialize.

 

*Allowancefor Doubtful Accounts*. The Company provides anallowance for doubtful accounts on its accounts receivable for estimated lossesresulting from the inability of its dealers to make required payments. Thecurrent methodology takes into consideration the dealer financing arrangement,where payment on motorhomes is pre-approved prior to shipment with payment madedirectly from the dealer’s third party finance source to the Company within 15business days from the date of shipment. This arrangement significantly reducesthe risk of loss from the sale of motorhomes. Parts receivables represent aminimal portion of the total accounts receivable. The Company uses a specificreserve methodology and currently reserves 100% of invoices greater than 120days old. Additionally, the Company reviews all other accounts forcollectability and those not considered collectible are reserved for as deemedappropriate. There is no expectation that this methodology will change in thenear term; however, to the extent any of the assumptions should change in thefuture, the Company will reassess the methodology and make any necessaryadjustments.

 

**Liquidityand Capital Resources**

 

The Company’sprimary sources of liquidity are internally generated cash from operations andavailable borrowings under its credit facility. At September 30, 2004, theCompany had working capital of $57.1 million compared to $49.7 million at December 31,2003. This increase of $7.4 million was primarily due to a $21.2 millionincrease in inventory and a $2.5 million increase in accounts receivable,partially offset by an $8.2 million increase in accounts payable and a $7.2million book overdraft increase. Both the increase in accounts payable and theincrease in inventory are primarily due to the Company’s purchasing andproduction increases to meet the market demand for its products. During thefirst nine months of 2004, the Company used cash in its operations of $11.0million, compared to $2.1 million of cash provided by its operations during thefirst nine months of 2003.

 

Net cash used ininvesting activities was $0.9 million for the nine months ended September 30,2004. This is primarily comprised of $3.4 million in purchases of property,plant, and equipment, partially offset by proceeds of $1.9 million from thesale of real property, and by proceeds of $0.5 million received as partialpayment from the sale of the travel trailer business.

 

Net cash providedby financing activities was $9.9 million for the nine months ended September 30,2004, which was primarily explained by an increase in book overdraft of $7.2million and advances under the line of credit of $2.2 million.

 

The Company’sconsolidated financial statements have been presented on the basis that it willcontinue as a going-concern, which contemplates the realization of assets andthe satisfaction of liabilities in the normal course of business. The Companyhas suffered net losses of $8.4 million, $19.9 million and $12.5

 

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million, as restated, for the years ended December 31, 2003, 2002and 2001, respectively. For the year ended December 31, 2003, the Companyprovided cash from operating activities totaling $8.1 million, as restated, andused cash in operating activities of $4.8 million, as restated, for the yearended December 31, 2002.

 

The Company hasfunded its financial needs primarily through operations and its existing lineof credit. At September 30, 2004, the Company had cash and cashequivalents of $11,000 (excluding restricted cash totaling $0.3 million dollarsrequired to secure a letter-of-credit in connection with one of the Company’sinsurance policies), working capital of $57.1 million, and $12.5 millionavailable under the credit facility. The Company remains dependent upon itsability to obtain outside financing either through the issuance of additionalshares of its common stock or through borrowings until it achieves sustainedprofitability through a combination of increased sales and improved productmargins.

 

As of September 30,2004, the Company had an asset-based revolving credit facility of $15 millionwith UPS Capital Corporation (UPSC) expiring in August 2005. As of September 30,2004, the Company had reserved $0.3 million from the line-of-credit for threemonths’ rent on the CCI facility, and the remaining $14.7 million was availablefor general corporate working capital needs and capital expenditures. Amountsborrowed under the revolving credit facility bear interest at the prime ratelisted in the Wall Street Journal plus 0.75 percentage points. The creditfacility contains, among other provisions, certain financial covenants,including net worth requirements. At September 30, 2004, the Company hadoutstanding advances under the line-of-credit totaling $2.2 million and theCompany was not in default with any covenants of its loan agreement with UPSC.

 

In August 2004,the Company entered into an agreement to acquire for $3 million approximately73 acres of land adjacent to its Country Coach, Inc. facility in JunctionCity, Oregon.  The closing of thepurchase is subject to customary closing conditions and is expected to occur inearly 2005. The Company believes the combination of internally generated fundsand unused borrowing availability will be sufficient to meet this obligation.

 

Management isfocused on continuing to improve liquidity through certain initiativesthroughout 2004 including: i) a reduction of manufacturing costs resulting fromthe continued implementation of lean manufacturing concepts, ii) furtherreduction of warranty costs, and iii) a reduction of workers’ compensationcosts.

 

The Companybelieves the combination of internally generated funds, working capital, andunused borrowing availability will be sufficient to meet the Company’s plannedcapital and operational requirements for at least through 2005. Should theCompany require further capital resources, it would most likely address suchrequirements through a combination of sales of equity securities, sales ofexcess properties, and/or additional debt financings. If circumstances changed,and additional capital was needed, no assurance can be given that the Companywould be able to obtain such additional capital resources.

 

If unexpectedevents occur requiring the Company to obtain additional capital and it isunable to do so, it then might attempt to preserve its available resources bydeferring the creation or satisfaction of various commitments, deferring theintroduction of various products or entry into various markets, or otherwisescaling back its operations. If the Company were unable to raise suchadditional capital or defer certain costs as described above, such inabilitywould have an adverse effect on the financial position, results of operations,cash flows and prospects of the Company.

 

## **Results of Operations**

 

The followingtable sets forth for the periods indicated the percentage of net salesrepresented by certain items reflected in the Company’s Consolidated Statementsof Operations:

 

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| ** **                                                    | ** ** | **Percentage of Net Sales** | ** ** |
|---------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                    | ** ** | **Three Months Ended**      | ** ** | **Nine Months Ended** | ** ** |
| ** **                                                    | ** ** | **September 30,**      | ** ** | **September 30,** | ** ** |
| ** **                                                    | ** ** | **2004**                    | ** ** | **2003** | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                                                    | ** ** | **(As Restated)**           | ** ** | **(As Restated)** | ** ** | **(As Restated)** | ** ** | **(As Restated)** | ** ** |
|                                                          |       |                        |       |   |   |   |   |   |   |
| Net sales                                                     |       | 100.0                       | %          | 100.0 | % | 100.0 | % | 100.0 | % |
| Cost of  goods sold                                           |       | 93.0                        |       | 95.7 |   | 92.7 |   | (100.1 | ) |
| Gross profit (loss)                                           |       | 7.0                         |       | 4.3 |   | 7.3 |   | (0.1 | ) |
| Selling  expenses                                             |       | 2.7                         |       | 3.1 |   | 2.4 |   | 3.1 |   |
| General and  administrative expenses                          |       | 2.7                         |       | 1.8 |   | 2.6 |   | 2.5 |   |
| Other  expense                                                |       | 0.3                         |       | 0.0 |   | 0.1 |   | 0.0 |   |
| Operating income (loss)                                       |       | 1.3                         |       | (0.6 | ) | 2.2 |   | (5.7 | ) |
| Interest  expense                                             |       | 0.0                         |       | 0.1 |   | 0.0 |   | 0.1 |   |
| Other income                                                  |       | (0.0                        | )          | (0.0 | ) | (0.0 | ) | (0.0 | ) |
| Income (loss) from continuing operations  before income taxes |       | 1.3                         |       | (0.7 | ) | 2.2 |   | (5.8 | ) |
| Provision  (benefit) for income taxes                         |       | 0.5                         |       | (0.3 | ) | 0.9 |   | (2.1 | ) |
| Income (loss) from continuing operations                      |       | 0.8                         | %          | (0.4 | )% | 1.3 | % | (3.7 | )% |
|                                                          |       |                        |       |   |   |   |   |   |   |
| Loss from  discontinued operations                            |       | 1.4                         |       | 0.6 |   | 0.6 |   | 0.5 |   |
| Gain from  sale of discontinued operations                    |       | (0.2                        | )          | (0.0 | ) | (0.1 | ) | (0.0 | ) |
| Benefit for  income taxes                                     |       | (0.5                        | )          | (0.2 | ) | (0.2 | ) | (0.2 | ) |
| Net loss  from discontinued operations                        |       | (0.7                        | )          | (0.4 | ) | (0.3 | ) | (0.3 | ) |
| Net income (loss)                                             |       | 0.1                         | %          | (0.8 | )% | 1.0 | % | (4.0 | )% |

 

**Comparisonof Continuing Operations for the Three and Nine Months Ended September 30,2004 to the Three and Nine Months Ended September 30, 2003:**

(Amounts in tables are in thousands, except percentages)

 

The discussionbelow comparing the results for the three and nine months ended September 30,2004 and 2003 reflects the restatement described above under “Restatement ofFinancial Statements”.

 

**Net sales**

 
| ** **                 | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|----------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                 | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                 | ** ** | **Percent Change**     | ** ** | **Percent Change**     | ** ** |
| ** **                 | ** ** | **2004**               | ** ** | ** **             | ** ** | **2003** | ** ** | **2004** | ** ** | ** ** | ** ** | **2003** | ** ** |
| ** **                 | ** ** | **(As Restated)**      | ** ** | **(As Restated)**      | ** ** |
|                       |       |                   |       |                   |       |   |   |   |   |   |   |   |   |
| Net sales                  |       | $                      | 112,525    |                   | 33.4       | % | $ | 84,365 |   | $ | 334,953 |   | 52.5 | % | $ | 219,603 |   |
| as a percent  of net sales |       | 100.0                  | %          |                   |       | 100.0 | % | 100.0 | % |   |   | 100.0 | % |
|                            |            |                        |            |                        |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Net sales of$112.5 million for the quarter ended September 30, 2004 represent anincrease of $28.2 million or 33.4% from the same quarter last year. Thirdquarter wholesale unit shipments of diesel motorhomes were 315, up 6% from 297units during the same period last year. Quarterly shipments of gas motorhomeswere 466, up 45% from 321 units during the same period last year.

 

Net sales of$335.0 million for the nine months ended September 30, 2004 represent anincrease of $115.4 million or 52.5% from the same period last year. Wholesaleunit shipments of diesel motorhomes were 1,051, up 40% from 752 units duringthe same period last year. Wholesale unit shipments of gas motorhomes were1,334, up 41% from 946 units during the same period last year.

 

Revenues in thequarter for National RV were $57.1 million, up 36% from $42.0 million for thethird quarter of last year. Revenues in the quarter for

 

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Country Coach were $55.4 million, up 31% from $42.4 million for thethird quarter of last year. Revenues during the first nine months for NationalRV were $176.2 million, up 38% from $127.9 million during the first nine monthsof 2003. Revenues during the first nine months for Country Coach were $158.8million, up 73% from $91.7 million during the first nine months of 2003. Theincrease in net sales is mainly attributable to strong sales of National RV’sTropi-Cal which was introduced in the first quarter of 2003 and of CountryCoach’s Inspire which was introduced in the second quarter of 2003, as well asan overall increase in the demand for the Company’s other products. The Companyalso benefited from a healthy economy and strong industry demand.

 

**Gross profit margin**

 
| ** **           | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|----------------------|------------|------------------------|------------|------------------------|------------|
| ** **           | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **           | ** ** | **Percent Change**     | ** ** | **Percent Change**     | ** ** |
| ** **           | ** ** | **2004**               | ** ** | ** **             | ** ** | **2003** | ** ** | **2004** | ** ** | ** ** | ** ** | **2003** | ** ** |
| ** **           | ** ** | **(As Restated)**      | ** ** | **(As Restated)**      | ** ** |
|                 |       |                   |       |                   |       |   |   |   |   |   |   |   |   |
| Gross profit  margin |       | 7.0                    | %          | 62.8                   | %          | 4.3 | % | 7.3 | % | N/A |   | (0.1 | )% |

 

The gross profitmargin for the third quarter of 2004 was 7.0% compared to a 4.3% gross marginfor the same period last year. For the first nine months of 2004, the grossprofit margin was 7.3% compared to a (0.1)% gross profit margin for the sameperiod last year. The primary factors that led to the improved gross marginswere higher production levels, product price increases, and reduced workers’compensation costs, with the third quarter gross profit margin also beingpartially offset by various items including production inefficiencies andincreased discounting.

 

**Selling expenses**

 
| ** **                 | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|----------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                 | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                 | ** ** | **Percent Change**     | ** ** | **Percent Change**     | ** ** |
| ** **                 | ** ** | **2004**               | ** ** | ** **             | ** ** | **2003** | ** ** | **2004** | ** ** | ** ** | ** ** | **2003** | ** ** |
| ** **                 | ** ** | **(As Restated)**      | ** ** | **(As Restated)**      | ** ** |
| Selling  expenses          |       | $                      | 3,003      |                   | 16.8       | % | $ | 2,570 |   | $ | 8,298 |   | 20.1 | % | $ | 6,907 |   |
| as a percent  of net sales |       | 2.7                    | %          |                   |       | 3.1 | % | 2.4 | % |   |   | 3.1 | % |
|                            |            |                        |            |                        |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Selling expensesincreased $0.4 million or 16.8% for the three months ended September 30,2004 over the same period last year. Selling expenses for the nine months endedSeptember 30, 2004 increased $1.4 million or 20.1% over the same periodlast year. Selling expenses increased mainly due to increased sales commissionsresulting from higher sales. However, as a percentage of net sales, sellingexpenses decreased due to higher sales over which to spread the fixed sellingexpenses.

 

**General and administrative expenses**

 
| ** **                          | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|-------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                          | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                          | ** ** | **Percent Change**     | ** ** | **Percent Change**     | ** ** |
| ** **                          | ** ** | **2004**               | ** ** | ** **             | ** ** | **2003** | ** ** | **2004** | ** ** | ** ** | ** ** | **2003** | ** ** |
|                                |       |                   |       |                   |       |   |   |   |   |   |   |   |   |
| General and administrative expenses |       | $                      | 3,063      |                   | 98.5       | % | $ | 1,543 |   | $ | 8,642 |   | 59.8 | % | $ | 5,407 |   |
| as a percent  of net sales          |       | 2.7                    | %          |                   |       | 1.8 | % | 2.6 | % |   |   | 2.5 | % |
|                                     |            |                        |            |                        |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

General andadministrative expenses totaling $3.1 million for the quarter ended September 30,2004 were up $1.5 million, or 98.5%, compared to the same period last year. Forthe first nine months of 2004, general and administrative expenses were $8.6million, representing an increase of $3.2 million, or 59.8%, compared to thesame period last year. The increase in general and administrative

 

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expenses is due to increased expenses related to compliance with theSarbanes-Oxley Act, increased personnel expenses, a new employee incentiveprogram, and increased training (principally safety) expenses.

 

**Other expense**

 
| ** **                 | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|----------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                 | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                 | ** ** | **Percent Change**     | ** ** | **Percent Change**     | ** ** |
| ** **                 | ** ** | **2004**               | ** ** | ** **             | ** ** | **2003** | ** ** | **2004** | ** ** | ** ** | ** ** | **2003** | ** ** |
|                       |       |                   |       |                   |       |   |   |   |   |   |   |   |   |
| Other  expense             |       | $                      | 374        |                   | 100.0      | % | — |   | $ | 374 |   | 100.0 | % | — |   |
| as a percent  of net sales |       | 0.3                    | %          |                   |       | 0.0 | % | 0.1 | % |   |   | 0.0 | % |
|                            |            |                        |            |                        |            |  |  |  |  |  |  |  |  |  |  |

 

Other expense forthe three months and nine months ended September 30, 2004 was primarilythe impairment charge on the real property in Florida.

 

**Interest expense**

 
| ** **                 | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|----------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                 | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                 | ** ** | **Percent Change**     | ** ** | **Percent Change**     | ** ** |
| ** **                 | ** ** | **2004**               | ** ** | ** **             | ** ** | **2003** | ** ** | **2004** | ** ** | ** ** | ** ** | **2003** | ** ** |
|                       |       |                   |       |                   |       |   |   |   |   |   |   |   |   |
| Interest  expense          |       | $                      | 52         |                   | (38.8      | )% | $ | 85 |   | $ | 130 |   | (57.9 | )% | $ | 309 |   |
| as a percent  of net sales |       | 0.0                    | %          |                   |       | 0.1 | % | 0.0 | % |   |   | 0.1 | % |
|                            |            |                        |            |                        |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Interest expense forthe three months ended September 30, 2004 and 2003 was $0.05 million and$0.09 million, respectively. For the first nine months of 2004, interestexpense was $0.1 million compared to $0.3 million for the same period lastyear. The reduction in interest expense is attributable to lower borrowing onthe line of credit when comparing the third quarter of 2004 to the same periodlast year. As a percentage of net sales, interest expense for these periods wasimmaterial.

 

**Other income**

 
| ** **                 | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|----------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                 | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                 | ** ** | **Percent Change**     | ** ** | **Percent Change**     | ** ** |
| ** **                 | ** ** | **2004**               | ** ** | ** **             | ** ** | **2003** | ** ** | **2004** | ** ** | ** ** | ** ** | **2003** | ** ** |
|                       |       |                   |       |                   |       |   |   |   |   |   |   |   |   |
| Other income               |       | $                      | (25        | )                      | 100.0      | % | $ | (2 | ) | $ | (72 | ) | 100.0 | % | $ | (6 | ) |
| as a percent  of net sales |       | (0.0                   | )%         |                   |       | (0.0 | )% | (0.0 | )% |   |   | (0.0 | )% |
|                            |            |                        |            |                        |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

The components ofother income during the three months and nine months ended September 30,2004 are immaterial. The other income during the same period in 2003 wasimmaterial.

 

**Provision (benefit) for income taxes**

 
| ** **                            | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|---------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                            | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                            | ** ** | **Percent Change**     | ** ** | **Percent Change**     | ** ** |
| ** **                            | ** ** | **2004**               | ** ** | ** **             | ** ** | **2003** | ** ** | **2004** | ** ** | ** ** | ** ** | **2003** | ** ** |
| ** **                            | ** ** | **(As Restated)**      | ** ** | ** **             | ** ** | ** ** | ** ** | **(As Restated)** | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                  |       |                   |       |                   |       |   |   |   |   |   |   |   |   |
| Provision  (benefit) for income taxes |       | $                      | 608        |                   | N/A        |   | $ | (217 | ) | $ | 2,835 |   | N/A |   | $ | (4,723 | ) |
| as a percent  of net sales            |       | 0.5                    | %          |                   |       | (0.3 | )% | 0.9 | % |   |   | (2.1 | )% |
|                                       |            |                        |            |                        |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

The effective taxrate for the three and nine months ending September 30, 2004 was 41.9% and39.1% respectively, compared to 37.0% for the same periods last year. Theincrease in the effective tax rate for the three and nine months ending

 

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September 30, 2004 was the result of a higher Federal tax rate,related to projected increases in annual pre-tax profit, and increased statetax rates and obligations.

 

**Net loss from discontinued operations**

 
| ** **                            | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|---------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                            | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                            | ** ** | **Percent Change**     | ** ** | **Percent Change**     | ** ** |
| ** **                            | ** ** | **2004**               | ** ** | ** **             | ** ** | **2003** | ** ** | **2004** | ** ** | ** ** | ** ** | **2003** | ** ** |
| ** **                            | ** ** | **(As Restated)**      | ** ** | ** **             | ** ** | ** ** | ** ** | **(As Restated)** | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                  |       |                   |       |                   |       |   |   |   |   |   |   |   |   |
| Net loss from discontinued operations |       | $                      | (727       | )                      | 129.3      | % | $ | (317 | ) | $ | (1,137 | ) | 46.9 | % | $ | (774 | ) |
| as a percent  of net sales            |       | (0.7                   | )%         |                   |       | (0.4 | )% | (0.3 | )% |   |   | (0.3 | )% |
|                                       |            |                        |            |                        |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

On September 24,2004, the Company sold its Travel Trailer business assets to Weekend Warrior, aprivately owned, California-based ramp-trailer manufacturer. The net loss fromdiscontinued operations for the three months ended September 30, 2004 was$0.7 million compared to a net loss of $0.3 million for the same period lastyear. The net loss for the nine months ended September 30, 2004 was $1.1million compared to a net loss of $0.8 million for the same period last year.The net loss on discontinued operations for the three and nine month ended September 30,2004 included a pre-tax gain on the sale of $0.3 million.

 

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**NATIONAL R.V. HOLDINGS, INC.**

 

**PART I, ITEM3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

The Company has nosignificant financial instruments. The Company has not entered into anyderivative financial instruments. The Company does not have any significantforeign currency exposure because it does not transact business in foreigncurrencies. However, the Company is exposed to market risk as a result ofinterest rate changes (Interest Rate Risk). Interest rate risk relatesprimarily to cash investments in money market funds. Cash balances invested inthese funds are insignificant and consequently, interest rate risk is minimal.

 

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**NATIONAL R.V. HOLDINGS, INC.**

**PART I, ITEM 4 – CONTROLS AND PROCEDURES**

 

**Disclosure Controls and Procedures**

 

The Company maintainsdisclosure controls and procedures that are designed to ensure that informationrequired to be disclosed in the Company’s reports under the Securities ExchangeAct of 1934, as amended (the “Exchange Act”), is recorded, processed,summarized and reported within the time periods specified in the SEC’s rules andforms, and that such information is accumulated and communicated to management,including the Company’s Chief Executive Officer (“CEO”) and Chief FinancialOfficer (“CFO”), as appropriate, to allow timely decisions regarding requireddisclosure. In designing and evaluating the disclosure controls and procedures,management recognized that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving thedesired control objectives, as the Company’s are designed to do, and managementnecessarily was required to apply its judgment in evaluating the cost-benefitrelationship of possible controls and procedures.

 

In connection with the preparation of this Quarterly Report on Form 10-Q/A,as of September 30, 2004, an evaluation was performed under thesupervision and with the participation of the Company’s management, includingthe CEO and CFO, of the effectiveness of the design and operation of theCompany’s disclosure controls and procedures (as defined in Rule 13a-15(e) underthe Exchange Act). In light of the material weaknesses referenced below, whichexisted as of the end of the period covered by this report, the Company’s CEOand CFO concluded that, as of the end of the period covered by this report, thedisclosure controls and procedures were not effective at a reasonable assurancelevel as of September 30, 2004.

 

A material weakness is a control deficiency, or a combination ofcontrol deficiencies, that results in more than a remote likelihood that amaterial misstatement of the annual or interim financial statements will not beprevented or detected. We identified the following material weaknesses in theCompany’s internal control over financial reporting:

 

*1.**         Insufficientpersonnel resources and technical expertise within its accounting function.*The Company did not maintain effective controls over the financial reportingprocess at its NRV division and at corporate because of insufficient personnelresources and technical expertise within the accounting function. This materialweakness contributed to the following individual material weaknesses:  (a) errors in the preparation and reviewof schedules and reconciliations supporting certain general ledger accountbalances. As a result, errors were not detected in certain accrued liabilityaccounts, including sales and marketing, warranty, legal and workers’compensation, and the related income statement accounts, including cost ofgoods sold, selling and general and administrative expenses at the NRVdivision; (b) inadequate financial statement disclosures, primarilyrelated to the sale of a division and capital leases were not identified by thecorporate accounting staff; and (c) accounting cutoff errors primarilyrelated to marketing accrued expenses and an inability to properly and timelyaccount for capital leases entered into during the year were not identified atthe NRV division. This control deficiency resulted in audit adjustments to the2004 annual consolidated financial statements affecting accrued liabilities,property, plant and equipment, and the related income statement accounts,primarily cost of goods sold, selling, general and administrative, amortizationand interest. Insufficient personnel resources and technical expertise alsocontributed to the material weaknesses discussed in 2, 3, 4 and 5 below. Additionally,these control deficiencies could result in misstatements in the aforementionedaccounts that would result in a material misstatement to the annual or interimconsolidated financial statements that would not be prevented or detected.

 

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*2.**         RevenueRecognition*– The Company did not maintain effective controls over thetiming of the revenue recognition related to the sale of certain motorhomes atits NRV division. Specifically, under a deferred payment arrangement theCompany held the manufacturer’s certificate of origin as security for payment.This control deficiency resulted in the restatement of the Company’s thirdquarter 2004 consolidated financial statements to correct the timing of revenuerecognition. This control deficiency also resulted in audit adjustments to the2004 annual consolidated financial statements. Additionally, this controldeficiency could result in a misstatement of revenue and deferred revenue thatwould result in a material misstatement to the annual or interim consolidatedfinancial statements that would not be prevented or detected.

 

*3.*         *Accounting for Sales Incentives*- The Company did notmaintain effective controls over the accounting for sales incentives.Specifically, certain sales incentive programs which are paid directly to thedealer or dealers sales representatives were improperly classified as sellingexpenses and should have been classified as a reduction of revenue. Thiscontrol deficiency resulted in the restatement of the Company’s 2003 and 2002consolidated financial statements. This control deficiency also resulted inaudit adjustments to the 2004 annual consolidated financial statements.Additionally, this control deficiency could result in a misstatement of revenueand selling expenses that would result in a material misstatement to the annualor interim consolidated financial statements that would not be prevented ordetected.

 

*4.**         Accountingfor Income Taxes -*The Company did not maintain effective controls over thedetermination and reporting of the provision for income taxes and relateddeferred income tax balances. Specifically, the Company did not maintaineffective controls to review and monitor the accuracy of the valuationallowance as well as other components of the income tax provision calculationsand related deferred income taxes. This control deficiency resulted in an auditadjustment to the fourth quarter 2004 annual consolidated financial statements.Additionally, this control deficiency could result in a misstatement of theincome tax provision or related deferred income tax balances that would resultin a material misstatement to the annual or interim consolidated financialstatements that would not be prevented or detected.

 

*5.**         Physicalinventory process* - The Company did not maintain effective controls overthe accuracy of the physical inventory process at its NRV division.Specifically, the NRV division did not have controls to ensure all of theindividuals involved in the physical inventory count were properly trained andsupervised and that discrepancies between quantities counted and the accountingrecords were properly investigated. Further, the NRV division did not havecontrols to ensure the accounting records were adjusted to reflect the actualquantities counted during the physical inventory process. This controldeficiency resulted in an audit adjustment to the fourth quarter 2004 annualconsolidated financial statements. Additionally, this control deficiency couldresult in a misstatement of inventory and cost of goods sold that would resultin a material misstatement to the annual or interim consolidated financialstatements that would not be prevented of detected.

 

*6.**         Unrestrictedaccess to programs and data* - The Company did not maintain effectivecontrols over access to certain financial application programs and data at itsNRV division. Specifically, there were instances in which informationtechnology personnel and users with accounting and reporting responsibilitieshad access to financial accounting application programs and data that wasincompatible with their functional business requirements. Further, theactivities of these individuals were not subject to independent monitoring.These control deficiencies applied to certain systems and processes includingthe financial statement preparation, human resources, payroll, purchasing,receiving and revenue and billing. These control deficiencies did not result inan adjustment to the 2004 interim or annual consolidated financial statements.However, these control

 

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deficiencies could result in a misstatementto financial statement accounts that would result in a material misstatement tothe annual or interim consolidated financial statements that would not beprevented or detected.

 

Remediation of Material Weaknesses

####  

During fiscal year 2005, management has takena number of steps that it believes will impact the effectiveness of ourinternal control over our financial reporting including the following:

 

**1.****    *Insufficientpersonnel resources and technical expertise within its accounting function*

 

Management has assessed the organization ofits accounting personnel and the technical expertise within the accountingfunction. As a result, the Company has established an accounting function atthe parent company level. The NRV divisional controller was promoted toCorporate Controller and will be responsible for setting and establishingaccounting policies for the Company and its two divisions in accordance withgenerally accepted accounting principles (“GAAP”) and guidelines required bythe Securities and Exchange Commission (“SEC”). To assist the CorporateController, the Company has also promoted an individual to a newly createdposition of Manager of Financial Reporting. In addition, the Company hassubscribed to an on-line research tool to assist this group in staying abreastof new accounting pronouncements, proper accounting disclosure and alsoresearch technical accounting issues relating to the Company’s ongoing businesstransactions. At the NRV division, the Company has hired a new Controller andAccounting Manager.

 

2.     *Revenue Recognition*

 

Effective April 1, 2005, the NRVdivision discontinued the deferred payment arrangement under which it held themanufacturer’s certificate of origin as security for payment. During the secondquarter of 2005, the NRV division revised its quarterly closing procedures tostrengthen its review of any new agreements or other terms to determine whetherthe related transactions are accounted for in the proper period.

 

3.     *Accounting for Sales Incentives*

 

Effective May 31, 2005, the Companychanged its method of accounting for sales incentive programs that are paiddirectly to the dealer sales representatives. These sales incentives are nowclassified as a reduction of revenue rather than as a selling expense. Thesesales incentives were restated for all years presented in the fiscal year 2004 Form 10-Kand have been properly classified in the first and second quarters of fiscalyear 2005. As more fully discussed in 1 above, the Company has increased itspersonnel and expertise within the accounting function. In addition, theCompany has revised its quarterly closing procedures to strengthen its reviewof all existing sales incentive programs to ensure they are accounted forproperly.

 

*4.**     Accountingfor Income Taxes*

 

As more fully discussed in 1 above, theCompany has recently increased its personnel and technical expertise within theaccounting function. In addition, the Company revised its quarterly closingprocedures to strengthen its review of the income tax provision to ensure theaccuracy of the components of the income tax provision and related deferredincome taxes.

 

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*5.**     Physicalinventory process*

 

Beginning with the first quarter of 2005,management increased its training of all personnel involved in the physicalinventory process at the NRV division, particularly those individualsperforming the data entry function. Additionally, the physical inventory reportwas revised such that any inventory item, which does not include acorresponding item number, will result in an exception-requiring follow-up bymanagement. In addition, the NRV division has implemented enhanced reviewprocedures by senior management of the reconciliation process between thequantities obtained from the physical inventory tags and the quantitiesobtained from the updated perpetual inventory report.

 

6.     *Unrestricted access to programs and data*

 

The NRV division has corrected access rightsfor known instances in which information technology personnel and users withaccounting and reporting responsibilities had access to financial accountingapplications programs and data that was incompatible with their functionalbusiness requirements. The NRV division is also in the process of refining anddeveloping ongoing processes to ensure that proper access rights are granted,reviewed and maintained in a timely manner.

 

The Company believes that it will be able toimprove its disclosure controls and procedures and remedy the materialweaknesses and additional control deficiencies identified as part of itsassessment process. Notwithstanding the Company’s remediation efforts, becauseof the inherent limitations in a cost-effective control system, misstatementsdue to error or fraud may occur and not be detected.

 

Changes in Internal Control over FinancialReporting

####  

There have been no changes in the Company’sinternal control over financial reporting during the most recently completedfiscal quarter that has materially affected, or is reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

 

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**NATIONAL R.V. HOLDINGS, INC.**

 

**PART II- OTHER INFORMATION**

 

**ITEM 5.****OTHER INFORMATION**

 

On September 24, 2004 the Companymodified its Loan Agreement with UPS Capital Corporation to amend one of thefinancial covenants.

 

**ITEM 6.****EXHIBITS**

 

Exhibits

 

10.1             LoanModification Agreement No. 2 dated as of September 24, 2004 betweenUPS Capital Corporation and the Company.

 

31.1             Certificationof Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) ofthe Exchange Act.

 

31.2             Certificationof Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) ofthe Exchange Act.

 

32.1             Certificationpursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906of the Sarbanes-Oxley Act of 2002.

 

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**SIGNATURE**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                  | **NATIONAL R.V. HOLDINGS, INC.** |                  |
|-----------------------|----------------------------------|-----------------------|
|                  | (Registrant)                     |                  |
|                  |                             |
| Date: October 5, 2005 | By                               | /s/ THOMAS J. MARTINI |   |
|                  |                             |
|                  | Thomas J. Martini                |
|                  | Chief Financial Officer          |
|                  | (Principal Accounting and        |
|                  | Financial  Officer)              |
|                       |                                  |                       |  |  |

 

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