** **

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q/A**

** **

Amendment No.1

 

**(Mark One)**

** **

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

 

**For the quarterly periodended June 30, 2005**

** **

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

 

**Commission file number 001-12085**

** **

****

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

(Exact name of registrant as specified in its charter)

 
| **Delaware**                                                    | **33-0371079**                        |
|-----------------------------------------------------------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) | (I.R.S. Employer  Identification No.) |
|                                                            |                                  |
| **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 check markwhether the registrant (1) has filed all reports required to be filed bysection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 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 o   NO x

Indicate by check markwhether the registrant is an accelerated filer.

YES x   NO o

Indicate by check mark whether the registrant is ashell company (as defined in Exchange Act Rule 12b-2 of the ExchangeAct). Yes o  No x

Indicate thenumber of shares outstanding of each of the issuer’s classes of common stock,as of the latest practicable date.
| Class                                    | ** ** | **Outstanding at October 10, 2005** | ** ** |
|------------------------------------------|------------|---------------------------------------------------------|------------|
| Common stock,  par value $0.01 per share |       | 10,339,484                                              |       |

 

 

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****EXPLANATORY NOTE****

ThisAmendment No. 1 on Form 10-Q/A (“Form 10-Q/A”)amends and restates the Company’s Quarterly Report on Form 10-Q forthe three and six months ended June 30, 2005, as initially filed with theSecurities and Exchange Commission (the “SEC”) on October 26, 2005 (the “OriginalForm 10-Q”). This Form 10-Q/A is being filed to restatethe consolidated statements of operations for the three and six months ended June 30,2004, to restate the consolidated statement of cash flows for the six months endedJune 30, 2004 and to restate the consolidated balance sheets as of June 30,2005 and as of December 31, 2004 as described under the heading “NewRestatement” below and to clarify the presentation of the consolidatedfinancial information for the three and six months ended June 30, 2004appearing in certain sections of this filing as described under “Clarificationof Presentation” below. These restatements have previously been reflected inthe Company’s 2004 Form 10-K/A filed on March 21, 2006 and its 2005Form 10-K filed on March 30, 2006.

NewRestatement

TheCompany is restating the consolidated statements of operations for the threeand six months ended June 30, 2004, restating the consolidated statementof cash flows for the six months ended June 30, 2004 and restating theconsolidated balance sheets as of June 30, 2005 and as of December 31,2004 for the correction of accounting for the amortization of certain leaseholdimprovements. Statement of Financial Accounting Standards (SFAS) No. 13, “Accountingfor Leases,” as further clarified by Emerging Issues Task Force (EITF) No. 05-6,“Determining the Amortization Period of Leasehold Improvements,” requires thatleasehold improvements by the lessee be amortized over the shorter of theirestimated useful lives or the lease term. With respect to one of the Company’sleased properties, the Company amortized certain leasehold improvements over aperiod that exceeded the lease term. The use of the incorrect amortizationperiod on these leasehold improvements caused a cumulative understatement ofleasehold amortization expense of $0.41 million at December 31, 2004.Although this error was not material to any individual prior period, thecumulative adjustment to correct the error would be material to the quarter inwhich it were to be corrected. Accordingly, the Company has concluded torestate prior periods to correct this error. As a result of this restatement,the restated cost of goods sold, selling and general and administrativecombined expense was increased by $0.02 million and $0.03 million for the threeand six months ended June 30, 2004, respectively. This restatement is inaddition to the prior restatement reflected in the Company’s Original Form 10-Qas described below under “****Restatement of Prior Periods Previously Reflected in the Original Form 10-Q.”****

Clarificationof Presentation

Additionally,the Company is clarifying the presentation of the restatement of theconsolidated statements of operations for the three and six months ended June 30,2004 and the consolidated statement of cash flows for the six months ended June 30,2004 as disclosed in Note 2 to the Consolidated Financial Statements.

**In Note 2 to the Consolidated Financial Statements and inItem 2, the Original Form 10-Q presented the consolidated financialinformation for the three and six months ended June 30, 2004 under thecolumns “As Previously Reported” (which represented the originally reportedconsolidated financial statements adjusted for discontinued operations)followed by “As Restated” (which represented the originally reportedconsolidated financial statements adjusted for discontinued operations and forthe correction of certain errors discussed therein). In order to clarify thepresentation of the restated consolidated financial information for the threeand six months ended June 30, 2004, the Company is restating the financialtables on pages 10 and 17 of this Form 10-Q/A to present suchinformation “As Originally Reported” (which represents the originally reportedconsolidated financial statements for such periods), then “As Restated forCorrection of Errors” (which restates such financial information for thecorrection of certain errors), and finally “As Restated for Correction ofErrors and Discontinued Operations” (which includes the reclassification ofdiscontinued operations and the restatements for the correction of certainerrors).**

**Changes Reflected in this Form 10-Q/A**

**As a result of the restatement and clarifications, thedisclosures in the following items related to the three and six months ended June 30,2005 and 2004 and the year ended December 31, 2004 have been revised:**

**Part I, Item 1 — Consolidated Financial Statements andNotes to Consolidated Financial Statements**

**·**                    Consolidated Financial Statements

**·**                     Note 1 — Basis of Presentation (History of RecentLosses section)

**·**                     Note 2 — Restatement of a Prior Period

**·**                     Note 7 — Stock-Based Compensation

**·**                     Note 8 — Income Taxes

2

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**·**                    Note 10 — (Loss) Earnings Per Share

**Part I, Item 2 — Management’s Discussion and Analysisof Financial Condition and Results of Operations**

**·**                     Restatement of Financial Statements

**·**                     Executive Overview

**·**                    Results of Operations

**Part I, Item 4 — Controls and Procedures**

**Part II, Item 6 — Exhibits**

Exceptfor the foregoing restatement and clarified presentation, this Form 10-Q/Acontinues to describe conditions as presented in the Original Form 10-Q.Except in the sections identified above, this Form 10-Q/A does notreflect events occurring after the filing of the Original Form 10-Q,or modify 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 Form 10-Q.Accordingly, this Form 10-Q/A should be read in conjunction withfilings made with the SEC subsequent to the filing of the Original Form 10-Q,including any amendments to those filings.

****Restatement of Prior Periods Previously Reflected inthe Original Form 10-Q****

**As discussed and included in the Original Form 10-Q,in addition to providing financial statements and other required informationfor the three and six months ended June 30, 2005, this Quarterly Report onForm 10-Q/A also includes restated consolidated statements ofoperations for the three and six months ended June 30, 2004, as discussedin Note 2 to the Company’s Consolidated Financial Statements. The Company’spreviously issued financial statements for this period should not be reliedupon.**

**As discussed and included in the Original Form 10-Q,the Company is restating the consolidated statement of operations for the threeand six months ended June 30, 2004 in this Form 10-Q/A for thefollowing item:**

##### ·                  Correctionof accounting for dealer sales incentives

3

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

**INDEX**
| **PART I — FINANCIAL INFORMATION** | ** ** | ** **                                                                                                |
|----------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------|
|                                         |       |                                                                                                      |   |   |
| Item 1.                                      |       | Financial  Statements (Unaudited)                                                                         |   |   |
|                                         |       |                                                                                                      |   |   |
|                                         |       | Consolidated Balance  Sheets —  June 30, 2005 and December 31, 2004 (Restated)             |   |   |
|                                         |       |                                                                                                      |   |   |
|                                         |       | Consolidated  Statements of Operations  Three and Six Months Ended June 30, 2005 and 2004 (Restated) |   |   |
|                                         |       |                                                                                                      |   |   |
|                                         |       | Consolidated  Statements of Cash Flows  Six Months Ended June 30, 2005 and 2004 (Restated)           |   |   |
|                                         |       |                                                                                                      |   |   |
|                                         |       | 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 3.                                      |       | Defaults Upon  Senior Securities                                                                          |   |   |
|                                         |       |                                                                                                      |   |   |
| Item 6.                                      |       | Exhibits                                                                                                  |   |   |
|                                         |       |                                                                                                      |   |   |
|                                         |       | Signature                                                                                                 |   |   |

 

4

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**Table of Contents**

**PART I, ITEM 1Consolidated Financial Statements**

**NATIONALR.V. HOLDINGS, INC.CONSOLIDATED BALANCE SHEETS(In thousands, except share and per share amounts)(Unaudited)**
| ** **                                                                                                                    | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                    | ** ** | **(Restated)**          | ** ** | **(Restated)**              | ** ** |
|                                                                                                                          |       |                    |       |                        |       |
| ASSETS                                                                                                                        |       |                    |       |                        |       |
| Current assets:                                                                                                               |       |                    |       |                        |       |
| Cash and cash equivalents                                                                                                     |       | $                       | 187        |                        | $          | 11 |   |
| Restricted cash                                                                                                               |       | 25                      |       | 251                         |       |
| Receivables, less allowance for doubtful accounts of  $210 and $137, respectively                                             |       | 24,201                  |       | 19,976                      |       |
| Inventories                                                                                                                   |       | 81,891                  |       | 74,826                      |       |
| Deferred income taxes                                                                                                         |       | 1,086                   |       | 1,291                       |       |
| Note receivable                                                                                                               |       | 484                     |       | 2,213                       |       |
| Prepaid expenses                                                                                                              |       | 1,847                   |       | 2,924                       |       |
| Total current assets                                                                                                          |       | 109,721                 |       | 101,492                     |       |
| Property, plant and equipment, net                                                                                            |       | 38,472                  |       | 37,403                      |       |
| Other assets                                                                                                                  |       | 1,301                   |       | 1,338                       |       |
|                                                                                                                          |       | $                       | 149,494    |                        | $          | 140,233 |   |
|                                                                                                                          |       |                    |       |                        |       |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                    |       |                    |       |                        |       |
| Current liabilities:                                                                                                          |       |                    |       |                        |       |
| Accounts payable                                                                                                              |       | $                       | 30,063     |                        | $          | 16,612 |   |
| Accrued expenses                                                                                                              |       | 26,451                  |       | 22,242                      |       |
| Line of credit                                                                                                                |       | 12,218                  |       | 12,690                      |       |
| Book overdraft                                                                                                                |       | —                  |       | 803                         |       |
| Current portion of capital leases                                                                                             |       | 51                      |       | 51                          |       |
| Total current liabilities                                                                                                     |       | 68,783                  |       | 52,398                      |       |
| Long-term accrued expenses                                                                                                    |       | 6,902                   |       | 7,069                       |       |
| Deferred income taxes                                                                                                         |       | 1,086                   |       | 1,291                       |       |
| Long-term portion of capital leases                                                                                           |       | 171                     |       | 185                         |       |
| Total liabilities                                                                                                             |       | 76,942                  |       | 60,943                      |       |
|                                                                                                                          |       |                    |       |                        |       |
| Commitments and  contingent liabilities (Note 6)                                                                              |       |                    |       |                        |       |
|                                                                                                                          |       |                    |       |                        |       |
| Stockholders’ equity:                                                                                                    |       |                    |       |                        |       |
| Preferred stock - $0.01 par value; 5,000 shares  authorized, 4,000 issued and outstanding                                     |       | —                  |       | —                      |       |
| Common stock - $0.01 par value; 25,000,000 shares authorized,  10,339,484 and 10,302,109 issued and outstanding, respectively |       | 103                     |       | 103                         |       |
| Additional paid-in capital                                                                                                    |       | 37,563                  |       | 37,423                      |       |
| Retained earnings                                                                                                             |       | 34,886                  |       | 41,764                      |       |
| Total stockholders’ equity                                                                                               |       | 72,552                  |       | 79,290                      |       |
|                                                                                                                          |       | $                       | 149,494    |                        | $          | 140,233 |   |

 

The accompanying notes are an integral part of theconsolidated financial statements.

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**Table of Contents**

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

**CONSOLIDATEDSTATEMENTS OF OPERATIONS(In thousands, except per share amounts)(Unaudited)**
| ** **                                                    | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                    | ** ** | **2005**                                        | ** ** | **2004**                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                    | ** ** | ** **                                      | ** ** | **(Restated)**                                | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
|                                                          |       |                                            |       |                                          |       |   |   |   |   |
| Net sales                                                     |       | $                                               | 123,225    |                                          | $          | 119,282 |   | $ | 248,850 |   | $ | 222,428 |   |
| Cost of goods  sold                                           |       | 121,124                                         |       | 109,692                                       |       | 241,134 |   | 205,755 |   |
| Gross profit                                                  |       | 2,101                                           |       | 9,590                                         |       | 7,716 |   | 16,673 |   |
| Selling expenses                                              |       | 3,315                                           |       | 2,587                                         |       | 6,954 |   | 5,295 |   |
| General and  administrative expenses                          |       | 3,891                                           |       | 3,145                                         |       | 7,143 |   | 5,581 |   |
| Operating (loss) income                                       |       | (5,105                                          | )          | 3,858                                         |       | (6,381 | ) | 5,797 |   |
| Interest expense                                              |       | 311                                             |       | 16                                            |       | 588 |   | 78 |   |
| Other expense  (income)                                       |       | 18                                              |       | 1                                             |       | (91 | ) | (47 | ) |
| (Loss) income from continuing operations before  income taxes |       | (5,434                                          | )          | 3,841                                         |       | (6,878 | ) | 5,766 |   |
| Provision for  income taxes                                   |       | —                                          |       | 1,502                                         |       | — |   | 2,218 |   |
| (Loss) income from continuing operations                      |       | (5,434                                          | )          | 2,339                                         |       | (6,878 | ) | 3,548 |   |
| Income (loss)  from discontinued operations                   |       | —                                          |       | 249                                           |       | — |   | (623 | ) |
| Income taxes  related to discontinued operations              |       | —                                          |       | 111                                           |       | — |   | (213 | ) |
| Income (loss)  from discontinued operations, net of taxes     |       | —                                          |       | 138                                           |       | — |   | (410 | ) |
| Net (loss)  income                                            |       | $                                               | (5,434     | )                                             | $          | 2,477 |   | (6,878 | ) | 3,138 |   |
|                                                          |       |                                            |       |                                          |       |   |   |   |   |
| Basic (loss) earnings  per common share:                      |       |                                            |       |                                          |       |   |   |   |   |
| Continuing operations                                         |       | $                                               | (0.53      | )                                             | $          | 0.23 |   | $ | (0.67 | ) | $ | 0.35 |   |
| Discontinued operations                                       |       | —                                          |       | 0.01                                          |       | — |   | (0.04 | ) |
| Total                                                         |       | $                                               | (0.53      | )                                             | $          | 0.24 |   | $ | (0.67 | ) | $ | 0.31 |   |
|                                                          |       |                                            |       |                                          |       |   |   |   |   |
| Diluted (loss) earnings  per common share:                    |       |                                            |       |                                          |       |   |   |   |   |
| Continuing operations                                         |       | $                                               | (0.53      | )                                             | $          | 0.23 |   | $ | (0.67 | ) | $ | 0.34 |   |
| Discontinued operations                                       |       | —                                          |       | 0.01                                          |       | — |   | (0.04 | ) |
| Total                                                         |       | $                                               | (0.53      | )                                             | $          | 0.24 |   | $ | (0.67 | ) | $ | 0.30 |   |
|                                                          |       |                                            |       |                                          |       |   |   |   |   |
| Weighted average number  of shares:                           |       |                                            |       |                                          |       |   |   |   |   |
| Basic                                                         |       | 10,339                                          |       | 10,197                                        |       | 10,337 |   | 10,194 |   |
| Diluted                                                       |       | 10,339                                          |       | 10,440                                        |       | 10,337 |   | 10,377 |   |

 

The accompanying notes are an integral part of theconsolidated financial statements.

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**Table of Contents**

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

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS(In thousands)(Unaudited)**
| ** **                                                                            | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                            | ** ** | **2005**                                      | ** ** | **2004** | ** ** |
| ** **                                                                            | ** ** | ** **                                    | ** ** | **(Restated)** | ** ** |
| Cash flows from  operating activities                                                 |       |                                          |       |   |   |
| Net (loss) income                                                                     |       | $                                             | (6,878     | ) | $ | 3,138 |   |
| Adjustments to  reconcile net (loss) income to net cash used in operating activities: |       |                                          |       |   |   |
| Depreciation and amortization                                                         |       | 1,811                                         |       | 1,963 |   |
| Bad debt expense (recovery)                                                           |       | 93                                            |       | (16 | ) |
| Provision for excess and obsolete inventories                                         |       | 1,635                                         |       | 1,179 |   |
| Gain on asset disposal                                                                |       | (23                                           | )          | (45 | ) |
| Deferred income taxes                                                                 |       | —                                        |       | (10 | ) |
| Changes in  assets and liabilities:                                                   |       |                                          |       |   |   |
| Decrease in restricted cash                                                           |       | 226                                           |       | — |   |
| Increase in receivables                                                               |       | (4,018                                        | )          | (10,178 | ) |
| Increase in inventories                                                               |       | (8,700                                        | )          | (13,379 | ) |
| Decrease (increase) in prepaid expenses                                               |       | 1,077                                         |       | (335 | ) |
| Increase in accounts payable                                                          |       | 13,451                                        |       | 13,030 |   |
| Increase in accrued expenses                                                          |       | 4,042                                         |       | 3,273 |   |
|                                                                                  |       |                                          |       |   |   |
| Net cash provided by (used in) operating activities                                   |       | 2,716                                         |       | (1,380 | ) |
|                                                                                  |       |                                          |       |   |   |
| Cash flows from  investing activities                                                 |       |                                          |       |   |   |
| Decrease in other assets                                                              |       | 37                                            |       | 21 |   |
| Repayments on note receivable                                                         |       | 1,429                                         |       | — |   |
| Proceeds from sale of assets                                                          |       | 32                                            |       | 1,932 |   |
| Purchase of property, plant and equipment                                             |       | (2,889                                        | )          | (2,351 | ) |
|                                                                                  |       |                                          |       |   |   |
| Net cash used in investing activities                                                 |       | (1,391                                        | )          | (398 | ) |
|                                                                                  |       |                                          |       |   |   |
| Cash flows from  financing activities                                                 |       |                                          |       |   |   |
| Net payments on line of credit                                                        |       | (472                                          | )          | — |   |
| Decrease in book overdraft                                                            |       | (803                                          | )          | — |   |
| Principal payments on capital leases                                                  |       | (14                                           | )          | — |   |
| Principal payments on long-term debt                                                  |       | —                                        |       | (12 | ) |
| Proceeds from issuance of common stock                                                |       | 140                                           |       | 94 |   |
|                                                                                  |       |                                          |       |   |   |
| Net cash (used in) provided by financing activities                                   |       | (1,149                                        | )          | 82 |   |
| Net increase  (decrease) in cash and cash equivalents                                 |       | 176                                           |       | (1,696 | ) |
| Cash and cash  equivalents, beginning of the year                                     |       | 11                                            |       | 2,059 |   |
| Cash and cash  equivalents, end of period                                             |       | $                                             | 187        |   | $ | 363 |   |

 

The accompanying notes are an integral part of theconsolidated financial statements.

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**Table of Contents**

**NATIONALR.V. HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

## **NOTE1 — BASIS OF PRESENTATION**

**General**

The consolidatedfinancial statements include the financial statements of National RV Holdings, Inc.(the “Company”) and its wholly- owned subsidiaries National RV, Inc. (“NationalRV”) and Country Coach, Inc. (“Country Coach”). As further discussed inNote 9, the operating results of the Travel Trailer division have beenreclassified as a discontinued operation for the prior periods.

The accompanyingunaudited consolidated financial statements have been prepared in accordancewith the instructions to Form 10-Q and do not include all of theinformation and footnotes required by accounting principles generally acceptedin the United States of America for complete consolidated financial statements.These consolidated financial statements should be read in conjunction with theaudited consolidated financial statements for the year ended December 31,2004 and notes thereto included in the Company’s Annual Report on Form 10-K/Afiled with the Securities and Exchange Commission on March 21, 2006.

In the opinion of management, the accompanyingunaudited financial statements contain all adjustments necessary, consisting ofnormal recurring adjustments, to state fairly the financial position, theresults of operations and cash flows for all periods presented, including theelimination of significant intercompany accounts in consolidation. In additionto the restatement adjustments discussed in Note 2, certain reclassificationshave been made to prior period amounts to conform to current periodpresentation.

***SeasonalNature of Business Activities***

Results for the interimperiod are not necessarily indicative of the results for an entire year.Seasonal factors, over which the Company has no control, have an effect on thedemand for the Company’s products. Demand in the RV industry characteristicallydeclines over the winter season, while sales are generally highest during thespring and summer months.

***Use of Accounting Estimates***

The preparation of theconsolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and judgments that affect the reported amount of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe consolidated financial statements and the reported amount of revenues andexpenses for each period. On an on-going basis, management evaluates itsestimates and judgments. Management bases its estimates and judgments onhistorical experience and on various other factors that are believed to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying value of assets and liabilities that arenot readily apparent from other sources. Actual results may differ from theseestimates under different assumptions or conditions.

***History of Recent Losses***

The Company experienced anet loss in the first six months of 2005 of $6.9 million compared to a netincome of $3.1 million during the same period last year. The Company providedcash from operating activities in the first six months of 2005 of $2.7 millioncompared to a use of cash of $1.4 million for the same period last year.

TheCompany has incurred net losses of $9.5 million and $8.5 million for the yearsended December 31, 2004 and 2003, respectively. The Company has used cashfrom operating activities of $15.8 million for the year ended December 31,2004 and provided cash from operating activities of $8.4 million for the yearended December 31, 2003. The RV industry has been historically cyclicaland subject to downturns during periods of weak economic conditions. Withrising fuel prices and continued economic uncertainty, the Company experienceda further decline in demand for its products in 2005. These conditions led theCompany to assess its short-term liquidity needs and plans to achieveprofitability.

Management’splan to achieve operational profitability includes continuing or starting avariety of initiatives to improve its earnings and working capital position,including: i) new product introductions in the fourth quarter of 2005 withadditional new product and floor plan introductions in the first half of 2006,ii) new dealer additions to fill open market areas or replace under-performingdealers, iii) reductions in all categories of inventory, iv) head countre-balancings to current retail sales-supported production levels, v)engineering reviews of material components for the removal of non-value addeditems to reduce both material and assembly costs, vi) continued thoroughmotorhome inspections to improve quality and to more timely report failures,and vii) manufacturing cost reductions resulting from the continuedimplementation of lean manufacturing concepts.

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**Table of Contents**

In order to fund on-goingoperations in the short-term, the Company remains dependent upon its ability toutilize outside financing through borrowings on its line of credit until itachieves sustained operational profitability through a combination of increasedsales, cost reductions and improved product margins. After consideration of therestrictions of the borrowing capacity noted in Note 5, the Company believes ithas sufficient financial resources to fund its operations in the short-term. However,the Company’s ability to meet its obligations in the long-term is dependent onits ability to generate positive cash flows from operations and is dependent oncontinued borrowings under its line of credit. If management is unable toachieve its operational profitability plan or unforeseen events occur and itsexisting line of credit is insufficient to allow the Company to meet itsobligations, the Company may need to implement alternative plans that couldinclude long-term financing collateralized by real estate (which is presently unencumbered)or obtaining additional debt financing, additional reductions in operatingcosts, deferral of capital expenditures, and further reductions in workingcapital. While the Company believes that it could successfully complete thealternative plans, if necessary, there can be no assurance that suchalternatives would be available on acceptable terms and conditions or that theCompany would be successful in its implementation of such plans.

## **NOTE2 — RESTATEMENT OF A PRIOR PERIOD**

##### The consolidated financialstatements have been restated to correct an error related to the amortizationof leasehold improvements. Emerging Issues Task Force (EITF) No. 05-6,“Determining the Amortization Period of Leasehold Improvements” requires thatleasehold improvements by the lessee be amortized over the shorter of theirestimated useful lives or the lease term. With respect to one of the Company’sleased properties, the Company amortized certain leasehold improvements over aperiod that exceeded the lease term. The use of the incorrect amortizationperiod on these leasehold improvements caused a cumulative understatement ofleasehold amortization expense of $0.41 million at December 31, 2004. As aresult of this restatement, the restated cost of goods sold, selling and generaland administrative combined expense was increased by $0.02 million and $0.03million for the three and six months ended June 30, 2004, respectively.Also, as a result of this restatement, both the basic and diluted net earningsper share amounts were unchanged.

Inaddition, the consolidated financial statements for the three and six monthsended June 30, 2004 previously reflected the restatement of certain dealersales incentives, which include rebates and floorplan interest reimbursementpaid to dealers to promote the sale of the product and retail incentives paiddirectly to dealer retail salespersons to promote the sale of the product andthe return of sale and warranty information. The consolidated statements ofoperations for the three and six months ended June 30, 2004 have beenrestated to reclassify these sales incentives from selling expenses to areduction of revenue, as required by EITF No. 01-09, “Accounting forConsideration Given by a Vendor to a Customer (including a Reseller) of the Vendor’sProducts.” As a result of this restatement, both the restated net sales and therestated selling expenses were reduced by $0.46 million and $1.15 million forthe three and six months ended June 30, 2004, respectively. Also, as aresult of this restatement, both the basic and diluted net earnings per shareamounts were unchanged.

Thefollowing table presents the effect of changes in the consolidated statementsof operations caused by the restatement (in thousands):

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** Statementsof Operations**
| ** **                                                     | ** ** | **Three Months Ended June 30, 2004** | ** ** | **Six Months Ended June 30, 2004** | ** ** |
|----------------------------------------------------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                     | ** ** | **As  Originally  Reported**                                  | ** ** | **As Restated   for  Correction  of Errors** | ** ** | **As Restated  for  Correction  of Errors  and  Discontinued  Operations** | ** ** | **As  Originally  Reported** | ** ** | **As Restated   for  Correction  of Errors** | ** ** | **As Restated  for  Correction  of Errors  and  Discontinued  Operations** | ** ** |
| Net sales                                                      |       | $                                                             | 126,408    |                                                        | $          | 125,941 |   | $ | 119,282 |   | $ | 236,846 |   | $ | 235,694 |   | $ | 222,428 |   |
| Cost of goods  sold                                            |       | $                                                             | 115,738    |                                                        | $          | 115,752 |   | $ | 109,692 |   | $ | 218,889 |   | $ | 218,914 |   | $ | 205,755 |   |
| Gross profit                                                   |       | $                                                             | 10,670     |                                                        | $          | 10,189 |   | $ | 9,590 |   | $ | 17,957 |   | $ | 16,780 |   | $ | 16,673 |   |
| Selling expenses                                               |       | $                                                             | 3,262      |                                                        | $          | 2,796 |   | $ | 2,587 |   | $ | 6,883 |   | $ | 5,732 |   | $ | 5,295 |   |
| General and  administrative expenses                           |       | $                                                             | 3,286      |                                                        | $          | 3,287 |   | $ | 3,145 |   | $ | 5,873 |   | $ | 5,875 |   | $ | 5,581 |   |
| Operating income                                               |       | $                                                             | 4,122      |                                                        | $          | 4,106 |   | $ | 3,858 |   | $ | 5,201 |   | $ | 5,173 |   | $ | 5,797 |   |
| Income from  continuing operations before income taxes         |       | $                                                             | 4,105      |                                                        | $          | 4,089 |   | $ | 3,841 |   | $ | 5,170 |   | $ | 5,142 |   | $ | 5,766 |   |
| Provision for  income taxes                                    |       | $                                                             | 1,618      |                                                        | $          | 1,612 |   | $ | 1,502 |   | $ | 2,014 |   | $ | 2,004 |   | $ | 2,218 |   |
| Income from  continuing operations                             |       | $                                                             | 2,487      |                                                        | $          | 2,477 |   | $ | 2,339 |   | $ | 3,156 |   | $ | 3,138 |   | $ | 3,548 |   |
| Income (loss)  from discontinued operations                    |       | $                                                             | —     |                                                        | $          | — |   | $ | 249 |   | $ | — |   | $ | — |   | $ | (623 | ) |
| Income taxes  related to discontinued operations               |       | $                                                             | —     |                                                        | $          | — |   | $ | 111 |   | $ | — |   | $ | — |   | $ | (213 | ) |
| Income (loss)  from discontinued operations, net of taxes |       | $                                                             | —     |                                                        | $          | — |   | $ | 138 |   | $ | — |   | $ | — |   | $ | (410 | ) |
| Net income                                                     |       | $                                                             | 2,487      |                                                        | $          | 2,477 |   | $ | 2,477 |   | $ | 3,156 |   | $ | 3,138 |   | $ | 3,138 |   |
|                                                           |       |                                                          |       |                                                        |       |   |   |   |   |   |   |   |   |
| Basic (loss) earnings  per common share:                       |       |                                                          |       |                                                        |       |   |   |   |   |   |   |   |   |
| Continuing operations                                          |       | $                                                             | 0.24       |                                                        | $          | 0.24 |   | $ | 0.23 |   | $ | 0.31 |   | $ | 0.31 |   | $ | 0.35 |   |
| Discontinued operations                                        |       | —                                                        |       | —                                                      |       | 0.01 |   | — |   | — |   | (0.04 | ) |
| Total                                                          |       | $                                                             | 0.24       |                                                        | $          | 0.24 |   | $ | 0.24 |   | $ | 0.31 |   | $ | 0.31 |   | $ | 0.31 |   |
|                                                           |       |                                                          |       |                                                        |       |   |   |   |   |   |   |   |   |
| Diluted (loss) earnings  per common share:                     |       |                                                          |       |                                                        |       |   |   |   |   |   |   |   |   |
| Continuing operations                                          |       | $                                                             | 0.24       |                                                        | $          | 0.24 |   | $ | 0.23 |   | $ | 0.30 |   | $ | 0.30 |   | $ | 0.34 |   |
| Discontinued operations                                        |       | —                                                        |       | —                                                      |       | 0.01 |   | — |   | — |   | (0.04 | ) |
| Total                                                          |       | $                                                             | 0.24       |                                                        | $          | 0.24 |   | $ | 0.24 |   | $ | 0.30 |   | $ | 0.30 |   | $ | 0.30 |   |

 

**Statementof Cash Flows**

 
| ** **                                     | ** ** | **Six Months Ended June 30, 2004** | ** ** |
|------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                     | ** ** | **As Originally  Reported**                            | ** ** | **As Restated  for Correction  of Errors** | ** ** | **As Restated  for Correction  of Errors and  Discontinued  Operations** | ** ** |
| Net income                                     |       | $                                                           | 3,156      |   | $ | 3,138 |   | $ | 3,138 |   |
| Depreciation and  amortization                 |       | $                                                           | 1,935      |   | $ | 1,963 |   | $ | 1,963 |   |
| Bad debt  recovery                             |       | $                                                           | —     |   | $ | (16 | ) | $ | (16 | ) |
| Provision for  excess and obsolete inventories |       | $                                                           | —     |   | $ | 1,179 |   | $ | 1,179 |   |
| Deferred income  taxes                         |       | $                                                           | —     |   | $ | (10 | ) | $ | (10 | ) |
| Increase in  receivables                       |       | $                                                           | (10,194    | ) | $ | (10,178 | ) | $ | (10,178 | ) |
| Increase in inventories                        |       | $                                                           | (12,200    | ) | $ | (13,379 | ) | $ | (13,379 | ) |

 

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**Balance Sheets**
| ** **                                       | ** ** | **June 30, 2005**      | ** ** | **December 31, 2004**                           | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                       | ** ** | **As Originally  Reported** | ** ** | **As Restated  for Correction  of Errors** | ** ** | **As Originally  Reported** | ** ** | **As Restated  for Correction  of Errors** | ** ** |
| Deferred income  taxes                           |       | $                                | 1,089      |                                                      | $          | 1,086 |   | $ | 1,294 |   | $ | 1,291 |   |
| Total current  assets                            |       | $                                | 109,724    |                                                      | $          | 109,721 |   | $ | 101,495 |   | $ | 101,492 |   |
| Property, plant  and equipment, net              |       | $                                | 38,878     |                                                      | $          | 38,472 |   | $ | 37,809 |   | $ | 37,403 |   |
| Total assets                                     |       | $                                | 149,903    |                                                      | $          | 149,494 |   | $ | 140,642 |   | $ | 140,233 |   |
| Deferred income  taxes (long-term liabilities)   |       | $                                | 1,089      |                                                      | $          | 1,086 |   | $ | 1,294 |   | $ | 1,291 |   |
| Total  liabilities                               |       | $                                | 76,945     |                                                      | $          | 76,942 |   | $ | 60,946 |   | $ | 60,943 |   |
| Retained  earnings                               |       | $                                | 35,292     |                                                      | $          | 34,886 |   | $ | 42,170 |   | $ | 41,764 |   |
| Total  stockholders’ equity                 |       | $                                | 72,958     |                                                      | $          | 72,552 |   | $ | 79,696 |   | $ | 79,290 |   |
| Total liabilities and  stockholders’ equity |       | $                                | 149,903    |                                                      | $          | 149,494 |   | $ | 140,642 |   | $ | 140,233 |   |

 

**NOTE 3 — RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS**

In November 2004, the Financial AccountingStandards Board (FASB) issued Statement of Financial Accounting Standards(SFAS) No. 151, “Inventory Costs-an Amendment of ARB No. 43, Chapter4.” SFAS No. 151 requires that accounting for items such as idle facilityexpense, freight, handling costs, and wasted materials (spoilage) be recognizedas current period charges regardless of whether they meet the criterion of “soabnormal.” In addition, this Statement requires that allocation of fixedproduction overheads to the costs of conversion be based on the normal capacityof the production facilities. This Statement is effective for inventory costsincurred during fiscal years beginning after June 15, 2005. The provisionof this Statement shall be applied prospectively. The Company has notdetermined the impact that adoption of this standard will have on itsconsolidated financial statements.

In December 2004,the FASB issued FASB Staff Position (FSP) 109-1, “Application of FASBStatement No. 109, Accounting for Income Taxes, to the Tax Deduction on QualifiedProduction Activities Provided by the American Jobs Creation Act of 2004.” TheAmerican Jobs Creation Act, or AJCA, introduces a special 9% tax deduction onqualified production activities. FSP 109-1 clarifies that this taxdeduction should be accounted for as a special tax deduction in accordance withSFAS No. 109, “Accounting for Income Taxes”. FSP 109-1 is effectiveupon its issuance. The adoption of FSP 109-1 did not have a materialimpact on the Company’s consolidated financial statements.

In December 2004,the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123R),which replaces SFAS No. 123, “Accounting for Stock-Based Compensation,”(SFAS No. 123) and supercedes APB Opinion No. 25, “Accountingfor Stock Issued to Employees.” SFAS No. 123R requires all share-basedpayments to employees, including grants of employee stock options, to berecognized in the financial statements based on their fair values beginningwith the first annual period after June 15, 2005, with early adoptionencouraged. The pro forma disclosures previously permitted under SFAS No. 123no longer will be an alternative to financial statement recognition. TheCompany is required to adopt SFAS No. 123R in the first calendar quarterof 2006, beginning January 1, 2006. Under SFAS No. 123R, the Companymust determine the appropriate fair value model to be used for valuingshare-based payments, the amortization method for compensation cost and thetransition method to be used at date of adoption. The transition methodsinclude modified prospective and modified retrospective adoption options. Underthe modified retrospective option, prior periods may be restated either as ofthe beginning of the year of adoption or for all periods presented. Themodified prospective method requires that compensation expense be recorded forall unvested stock options and restricted stock at the beginning of the firstquarter of adoption of SFAS No. 123R, while the modified retrospectivemethod would record compensation expense for all unvested stock options andrestricted stock beginning with the first period restated. The Company isevaluating the requirements of SFAS No. 123R. The Company has not yetdetermined the method of adoption or the effect of adopting SFAS No. 123R,and the Company has not determined whether the adoption will result in amountsthat are similar to the current pro forma disclosures under SFAS No. 123.

In June 2005, theFASB issued SFAS No. 154, “Accounting Changes and Error Corrections—areplacement of APB No. 20 and FAS No. 3” (SFAS No. 154). SFAS No. 154provides guidance on the accounting for and reporting of accounting changes anderror corrections. It establishes, unless impracticable, retrospectiveapplication as the required method for reporting a change in accountingprinciple in the absence of explicit transition requirements specific to thenewly adopted accounting principle. SFAS No. 154 also provides guidancefor determining whether retrospective application of a change in accountingprinciple is impracticable and for reporting a change when retrospectiveapplication is impracticable. The correction of an error in previously issuedfinancial statements is not an accounting change. However, the reporting of anerror correction involves adjustments to previously issued financial statementssimilar to those generally applicable to reporting an accounting changeretrospectively. Therefore, the reporting of a

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correction of an errorby restating previously issued financial statements is also addressed by SFAS No. 154.SFAS No. 154 is required to be adopted in fiscal years beginning after December 15,2005. The Company does not believe that adoption of this standard will have animpact on its consolidated financial statements.

## **NOTE4 — SUPPLEMENTAL BALANCE SHEET INFORMATION**

Inventories consist of the following (in thousands):

|                    | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|--------------------|------------|-------------------------|------------|-----------------------------|------------|
|               |       |                    |       |                        |       |
| Finished goods     |       | $                       | 13,997     |                        | $          | 16,379 |   |
| Work-in-process    |       | 40,540                  |       | 35,388                      |       |
| Raw materials      |       | 20,073                  |       | 18,398                      |       |
| Chassis            |       | 7,281                   |       | 4,661                       |       |
| Total  inventories |       | $                       | 81,891     |                        | $          | 74,826 |   |

 

Accrued expenses consist of the following (inthousands):

|                                                    | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|----------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
|                                               |       |                    |       |                        |       |
| Current accrued  expenses:                         |       |                    |       |                        |       |
| Workers’  compensation self-insurance reserve |       | $                       | 3,032      |                        | $          | 2,720 |   |
| Warranty reserve                                   |       | 9,775                   |       | 8,330                       |       |
| Payroll and  other accrued expenses                |       | 13,644                  |       | 11,192                      |       |
| Total current accrued expenses                     |       | $                       | 26,451     |                        | $          | 22,242 |   |
|                                               |       |                    |       |                        |       |
| Long-term accrued  expenses:                       |       |                    |       |                        |       |
| Workers’  compensation self-insurance reserve |       | $                       | 6,083      |                        | $          | 6,151 |   |
| Warranty reserve                                   |       | 142                     |       | 175                         |       |
| Deferred  compensation                             |       | 677                     |       | 743                         |       |
| Total long-term  accrued expenses                  |       | $                       | 6,902      |                        | $          | 7,069 |   |

 

## **NOTE5 — CREDIT FACILITY**

At June 30, 2005,the Company had an asset-based revolving credit facility of $20 million withUPSC (UPS Capital Corporation), which was scheduled to expire in August 2005.At June 30, 2005 and December 31, 2004, the Company had outstandingloans under the line of credit totaling $12.2 million and $12.7 million,respectively. At June 30, 2005, the Company was in default with thecovenant requiring delivery of the Company’s annual financial statements withina required period of time and on that date the Company received an extensionletter from UPSC waiving the default on the Company’s required delivery date ofits annual financial statements and extending the required delivery date of theannual financial statements to August 31, 2005 (which date was extended toDecember 15, 2005 as part of the execution of the new credit facilitydiscussed below). At June 30, 2005, the interest rate on the outstandingborrowings under the line of credit was 7.00%. The weighted average interestrate for the borrowings under the line of credit during the six-month periodended June 30, 2005 and 2004 was 6.47% and 4.80%, respectively.

On August 12, 2005,the original facility was replaced by a new three-year asset-based revolvingcredit facility with UPSC and Wells Fargo Bank for $25 million, with theCompany having the option, subject to certain conditions, of increasing therevolver in $5 million increments up to a total credit facility of $40 million.On September 29, 2005, the Company effected such an increase in the amountof the credit facility from $25 million to $30 million. The new credit facilityis collateralized by all of the Company’s assets other than real estate.Borrowing availability is based on eligible accounts receivable and inventory.The facility also includes a requirement to maintain a blocked accountarrangement, whereby remittances from the Company’s customers reduce the debtoutstanding. The new credit facility contains, among other provisions, certainfinancial covenants, including funded debt to Earnings Before Interest, Tax,Depreciation and Amortization (EBITDA), and a fixed charge coverage ratio. Ifthese financial covenants are not met, the Company’s availability under thecredit facility will be reduced. TheCompany did not meet these financial covenants as of June 30, 2005, andcurrently does not expect to until September 30, 2006. Until thesecovenants are met, the Company’s average borrowings availability under its $40million facility is limited to an amount between $27 to $32 million, depending oneligible inventory and accounts receivable. Initial amounts borrowedunder the revolving credit facility bear interest at the prime rate listed inthe Wall Street Journal plus 0.50 percentage points and may be subsequentlyadjusted down based on a trailing twelve month funded debt to EBITDAcalculation.

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## **NOTE6 — COMMITMENTS AND CONTINGENCIES**

Mostof the Company’s motorhome sales are made on terms requiring payment within 15business days or less of the dealer’s receipt of the unit. Most dealers financeall, or substantially all, of the purchase price of their inventory under floorplan arrangements with banks or finance companies under which the lender paysthe Company directly. Dealers typically are not required to commence loanrepayments to such lenders for a period of at least six months. The loan iscollateralized by a lien on the motorhome. Consistent with industry practice,the Company has entered into repurchase agreements with these lenders. Ingeneral, the repurchase agreements require the Company to repurchase a unit ifthe dealer defaults on the financed unit. Upon a dealer default, the agreementsgenerally require the Company to repurchase RVs at the election of the lenderprovided certain conditions are met, such as repossession of the RV by thelender, the RV being new and unused and the time elapsed between invoice dateand demand for repurchase being no longer than a specified period which istypically 18 months or less. The Company’s maximum potential exposure underthese agreements approximated $177 million at June 30, 2005. As withreceivables, the risk of loss under the repurchase agreements was spread over anumber of dealers and lenders and was 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, results of operationsor cash flows.

The Company is involvedin legal proceedings in the ordinary course of business, including a variety ofwarranty, “lemon law” and product liability claims typical in the recreationvehicle industry. With respect to product liability claims, the Company’sinsurance policies cover, in whole or in part, defense costs and liabilitycosts for personal injury or property damage (excluding damage to Companymotorhomes). While it is not possible to estimate with certainty the ultimatelegal and financial liability with respect to this litigation, management is ofthe opinion that while the final resolution of any such litigation may have animpact on the Company’s consolidated results for a particular reporting period,the ultimate disposition of such litigation will not have any material adverseeffect on the Company’s financial position, results of operations or liquidity.

The Company’s warranty reserve is established based onits best estimate of the amounts necessary to settle future and existing claimson products sold as of the balance sheet date. The Company records an estimatefor future warranty-related costs based on recent actual warranty claims. Also,as part of the warranty reserve the Company’s recall reserve is established, asnecessary, based on management’s estimate of the cost per unit to remedy theproblem and the estimated number of units that will ultimately be brought infor the repair.

Six Months Ended June 30, 2005 (in thousands)
| ** **       | ** ** | **Beginning  Balance** | ** ** | **Additions** | ** ** | **Deductions** | ** ** | **Ending  Balance** | ** ** |
|------------------|------------|------------------------|------------|---------------|------------|----------------|------------|---------------------|------------|
| Warranty reserve |       | $                      | 8,505      |          | $          | 9,792          |       | $                   | 8,380      |   | $ | 9,917 |   |
|                  |            |                        |            |               |            |                |            |                     |            |  |  |  |  |

 

In August 2004, theCompany entered into an agreement to acquire, for $3 million, approximately 73acres of land adjacent to its Country Coach, Inc. facility in JunctionCity, Oregon. The Company paid a deposit of $0.1 million. The closing of thepurchase is subject to customary closing conditions and is expected to occur in2006.

## **NOTE7 — STOCK-BASED COMPENSATION**

The Company has stock option plans that enable it tooffer equity participation to employees, officers and directors as well ascertain non-employees. Stock options may be granted as incentive ornonqualified options. The Company has four fixed option plans that reserveshares of common stock for issuance to executives, key employees, consultants,and directors. The Company has also issued fixed options outside of such planspursuant to individual stock option agreements. Options granted to non-employeedirectors generally vest immediately upon grant and expire five to ten yearsfrom the date of grant. Options granted to employees, including employeedirectors, generally vest in three equal annual installments and expire five toten years from the date of grant. The price of the options granted pursuant tothese plans will not be less than 100 percent of the market value of the shareson the date of grant. There were no options granted for the three-month andsix-month periods ended June 30, 2005. There were 24,000 options grantedduring the three-month period and 260,500 options granted during the six-monthperiod ended June 30, 2004.

The Company has adopted the provisions of Statement ofFinancial Accounting Standards No. 148, “Accounting for Stock-Based Compensation- Transition and Disclosure” (SFAS No. 148), which amends SFAS No. 123,“Accounting for Stock-Based Compensation.” As permitted by SFAS No. 148,the Company continues to measure compensation cost in accordance withAccounting Principles Board Opinion No. 25, “Accounting for Stock Issuedto Employees” (APB 25) and related interpretations, but provides pro formadisclosures of net loss and loss per share as if the fair value method had beenapplied.

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The following tableillustrates the effect on net (loss) income and (loss) earnings per share ifthe Company had applied the fair value recognition provisions to stock-basedemployee compensation (in thousands, except per share amounts):
| ** **                                                                                                                            | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                                                            | ** ** | **2005**                                        | ** ** | **2004**                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                                                            | ** ** | ** **                                      | ** ** | **(Restated)**                                | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
|                                                                                                                                  |       |                                            |       |                                          |       |   |   |   |   |
| (Loss) income  from continuing operations                                                                                             |       | $                                               | (5,434     | )                                             | $          | 2,339 |   | $ | (6,878 | ) | $ | 3,548 |   |
| Income (loss)  from discontinued operations, net of taxes                                                                             |       | —                                          |       | 138                                           |       | — |   | (410 | ) |
| Net (loss)  income - as reported                                                                                                      |       | (5,434                                          | )          | 2,477                                         |       | (6,878 | ) | 3,138 |   |
| Total stock-based employee compensation expense  determined under fair value based method for all awards, net of related tax  effects |       | 147                                             |       | 170                                           |       | 341 |   | 289 |   |
| Pro forma net  (loss) income                                                                                                          |       | $                                               | (5,581     | )                                             | $          | 2,307 |   | $ | (7,219 | ) | $ | 2,849 |   |
|                                                                                                                                  |       |                                            |       |                                          |       |   |   |   |   |
| Basic (loss) earnings  per share as reported:                                                                                         |       |                                            |       |                                          |       |   |   |   |   |
| Continuing operations                                                                                                                 |       | $                                               | (0.53      | )                                             | $          | 0.23 |   | $ | (0.67 | ) | $ | 0.35 |   |
| Discontinued operations                                                                                                               |       | —                                          |       | 0.01                                          |       | — |   | (0.04 | ) |
| Total basic (loss) earnings per share                                                                                                 |       | (0.53                                           | )          | 0.24                                          |       | (0.67 | ) | 0.31 |   |
| Total stock-based employee compensation expense  determined under fair value based method for all awards, net of related tax  effects |       | 0.01                                            |       | 0.01                                          |       | 0.03 |   | 0.03 |   |
| Basic earnings  (loss) per share pro forma                                                                                            |       | $                                               | (0.54      | )                                             | $          | 0.23 |   | $ | (0.70 | ) | $ | 0.28 |   |
|                                                                                                                                  |       |                                            |       |                                          |       |   |   |   |   |
| Diluted (loss) earnings  per share as reported:                                                                                       |       |                                            |       |                                          |       |   |   |   |   |
| Continuing operations                                                                                                                 |       | $                                               | (0.53      | )                                             | $          | 0.23 |   | $ | (0.67 | ) | $ | 0.34 |   |
| Discontinued operations                                                                                                               |       | —                                          |       | 0.01                                          |       | — |   | (0.04 | ) |
| Total diluted (loss) earnings per share                                                                                               |       | (0.53                                           | )          | 0.24                                          |       | (0.67 | ) | 0.30 |   |
| Total stock-based employee compensation expense  determined under fair value based method for all awards, net of related tax  effects |       | 0.01                                            |       | 0.02                                          |       | 0.03 |   | 0.03 |   |
| Diluted earnings (loss)  per share pro forma                                                                                          |       | $                                               | (0.54      | )                                             | $          | 0.22 |   | $ | (0.70 | ) | $ | 0.27 |   |

 

The weighted-average fair value of the stock optionshas been estimated on the date of grant using the Black-Scholes option-pricingmodel. There were no new stock option grants during the six-month period ended June 30,2005. The assumptions used to calculate weighted-average fair value are listedbelow for new grants during the three-month period ended June 30, 2004.

 

|                          | ** ** | **June 30, 2004** | ** ** |
|--------------------------|------------|-----------------------------|------------|
| Dividend yield           |       | 0.0                         | %          |
| Expected  volatility     |       | 41.0                        | %          |
| Risk-free  interest rate |       | 3.45                        | %          |
| Expected lives           |       | 4.0 years                   |       |

 

## **NOTE8 — INCOME TAXES**

As of June 30, 2005, the Company has a currentdeferred tax asset of $1.1 million and a long-term deferred tax liability of$1.1 million. During the three and six-month periods ended June 30, 2005,the Company recorded a non-cash charge of $1.8 million and $2.4 million,respectively, to increase the valuation allowance to offset the change in netdeferred tax assets. As a result, the valuation allowance for deferred tax assetsincreased from $11.2 million at December 31, 2004 to $13.6 million at June 30,2005. Recent cumulative losses, the downturn in current market conditions andits impact on near term earnings led the Company to conclude that it was morelikely than not that all or a portion of the net deferred tax asset will not berealized. The Company expects to record a full valuation allowance on futuretax benefits until it can sustain an appropriate level of profitability anduntil such time, the Company would not expect to recognize any significant taxbenefits in its future results of operations.

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**Table of Contents**

## **NOTE 9 — DISCONTINUEDOPERATIONS**

On September 24, 2004, the Company sold its TravelTrailer business assets to Weekend Warrior, a privately owned, California-basedramp-trailer manufacturer. The sale was designed to allow the Company tofurther concentrate its efforts and resources on its growing motorhomebusiness. The total selling price of the business was $3.2 million. The saleincluded inventory totaling $2.8 million and equipment totaling $0.1 million.In addition, the Company recognized a $0.3 million gain on the sale. WeekendWarrior paid $0.5 million at closing with the balance to be paid in ten equalmonthly payments. 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 whichhas been included in note receivable in the accompanying consolidated balancesheets. The Company also entered into a sublease agreement, which allowsWeekend Warrior to lease a portion of the Company’s facilities for up to twelvemonths. Net sales from discontinued operations were $6.7 million and $13.3million for the three and six months ended June 30, 2004.

## **NOTE10 — (LOSS) EARNINGS PER SHARE**

Basic (loss) earnings pershare is computed by dividing net (loss) income by the weighted average numberof common shares outstanding for the period. Diluted (loss) earnings per sharereflect the potential dilution that could occur if options were exercised orconverted into common stock. Shares attributable to the exercise of outstandingoptions that are anti-dilutive are excluded from the calculation of dilutedloss per share for the three and six months ended June 30, 2005.

All amounts in thousands except per share amounts.
| ** **                                                | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                | ** ** | **2005**                                        | ** ** | **2004**                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                | ** ** | ** **                                      | ** ** | **(Restated)**                                | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
|                                                      |       |                                            |       |                                          |       |   |   |   |   |
| (Loss) income  from continuing operations                 |       | $                                               | (5,434     | )                                             | $          | 2,339 |   | $ | (6,878 | ) | $ | 3,548 |   |
| Income (loss)  from discontinued operations, net of taxes |       | —                                          |       | 138                                           |       | — |   | (410 | ) |
| Net (loss)  income                                        |       | $                                               | (5,434     | )                                             | $          | 2,477 |   | $ | (6,878 | ) | $ | 3,138 |   |
|                                                      |       |                                            |       |                                          |       |   |   |   |   |
| Basic weighted  average common shares outstanding         |       | 10,339                                          |       | 10,197                                        |       | 10,337 |   | 10,194 |   |
| Effect of  dilutive stock options                         |       | —                                          |       | 243                                           |       | — |   | 183 |   |
|                                                      |       |                                            |       |                                          |       |   |   |   |   |
| Diluted weighted  average common shares outstanding       |       | 10,339                                          |       | 10,440                                        |       | 10,337 |   | 10,377 |   |
|                                                      |       |                                            |       |                                          |       |   |   |   |   |
| Basic (loss) earnings  per share:                         |       |                                            |       |                                          |       |   |   |   |   |
| Continuing operations                                     |       | $                                               | (0.53      | )                                             | $          | 0.23 |   | $ | (0.67 | ) | $ | 0.35 |   |
| Discontinued operations                                   |       | —                                          |       | 0.01                                          |       | — |   | (0.04 | ) |
| Total                                                     |       | $                                               | (0.53      | )                                             | $          | 0.24 |   | $ | (0.67 | ) | $ | 0.31 |   |
|                                                      |       |                                            |       |                                          |       |   |   |   |   |
| Diluted (loss) earnings  per share:                       |       |                                            |       |                                          |       |   |   |   |   |
| Continuing operations                                     |       | $                                               | (0.53      | )                                             | $          | 0.23 |   | $ | (0.67 | ) | $ | 0.34 |   |
| Discontinued operations                                   |       | —                                          |       | 0.01                                          |       | — |   | (0.04 | ) |
| Total                                                     |       | $                                               | (0.53      | )                                             | $          | 0.24 |   | $ | (0.67 | ) | $ | 0.30 |   |

 

For the three months ended June 30, 2005 and2004, excluded from the computation of diluted earnings per share were stockoptions to purchase 911,844 shares and 12,000 shares, respectively. For the sixmonths ended June 30, 2005 and 2004, excluded from the computation ofdiluted earnings per share were stock options to purchase 911,844 shares and227,000 shares, respectively.

## **NOTE11 — SUBSEQUENT EVENTS**

As more fully discussedin Note 5, the Company executed a new three-year asset-based revolving creditfacility on August 12, 2005 with UPSC and Wells Fargo Bank for $25million, with the Company having the option, subject to certain conditions, ofincreasing the revolver in $5 million increments up to a total credit facilityof $40 million. On September 29, 2005, the Company effected such anincrease in the amount of the credit facility from $25 million to $30 million.

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**Table of Contents**

**NATIONAL R.V. HOLDINGS, INC.PART I, ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

## **DisclosureRegarding Forward Looking Statements**

This Quarterly Report on Form 10-Q/Acontains forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Investors are cautioned thatforward-looking statements are inherently uncertain. Actual performance andresults may differ materially from that projected or suggested herein due tocertain risks and uncertainties including, without limitation, potentialfluctuations in the Company’s operating results; any material weaknesses in theCompany’s internal control over financial reporting or the failure to remediateany of the previously disclosed material weaknesses; any failure to implementrequired new or improved controls; resumption of losses; seasonality andeconomic conditions; dependence on certain dealers and concentration of dealersin certain regions; dependence on chassis suppliers; potential liabilitiesunder repurchase agreements; competition; government regulation; warrantyclaims; and product liability claims. Certain risks and uncertainties thatcould cause actual results to differ materially from that projected orsuggested are set forth in the Form 10-K, in the Company’s filingswith the Securities and Exchange Commission (the “SEC”) and the Company’spublic announcements, copies of which are available from the SEC or from theCompany upon request. The Company undertakes no obligation to revise or updatepublicly any forward-looking statements for any reason.

## **Restatementof Financial Statements**

The following discussionand analysis gives effect to the restatement described in Note 2 to theunaudited consolidated financial statements for the periods ended June 30,2005, December 31, 2004 and June 30, 2004 contained herein. Accordingly,certain of the data set forth in this section is not comparable todiscussions and data in our previously filed annual and quarterly reports forcorresponding periods.

The following tablepresents the effect of changes in the consolidated statements of operationscaused by the restatement (in thousands):

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**Table of Contents**

**Statements of Operations**
| ** **                                                          | ** ** | **Three Months Ended June 30, 2004** | ** ** | **Six Months Ended June 30, 2004** | ** ** |
|---------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                          | ** ** | **As  Originally  Reported**                                  | ** ** | **As Restated   for  Correction  of Errors** | ** ** | **As Restated  for  Correction  of Errors  and  Discontinued  Operations** | ** ** | **As  Originally  Reported** | ** ** | **As Restated   for  Correction  of Errors** | ** ** | **As Restated  for  Correction  of Errors  and  Discontinued  Operations** | ** ** |
| Net sales                                                           |       | $                                                             | 126,408    |                                                        | $          | 125,941 |   | $ | 119,282 |   | $ | 236,846 |   | $ | 235,694 |   | $ | 222,428 |   |
| Cost of goods  sold                                                 |       | $                                                             | 115,738    |                                                        | $          | 115,752 |   | $ | 109,692 |   | $ | 218,889 |   | $ | 218,914 |   | $ | 205,755 |   |
| Gross profit                                                        |       | $                                                             | 10,670     |                                                        | $          | 10,189 |   | $ | 9,590 |   | $ | 17,957 |   | $ | 16,780 |   | $ | 16,673 |   |
| Selling expenses                                                    |       | $                                                             | 3,262      |                                                        | $          | 2,796 |   | $ | 2,587 |   | $ | 6,883 |   | $ | 5,732 |   | $ | 5,295 |   |
| General and administrative  expenses                                |       | $                                                             | 3,286      |                                                        | $          | 3,287 |   | $ | 3,145 |   | $ | 5,873 |   | $ | 5,875 |   | $ | 5,581 |   |
| Operating income                                                    |       | $                                                             | 4,122      |                                                        | $          | 4,106 |   | $ | 3,858 |   | $ | 5,201 |   | $ | 5,173 |   | $ | 5,797 |   |
| Income from  continuing operations before income taxes              |       | $                                                             | 4,105      |                                                        | $          | 4,089 |   | $ | 3,841 |   | $ | 5,170 |   | $ | 5,142 |   | $ | 5,766 |   |
| Provision for  income taxes                                         |       | $                                                             | 1,618      |                                                        | $          | 1,612 |   | $ | 1,502 |   | $ | 2,014 |   | $ | 2,004 |   | $ | 2,218 |   |
| Income from  continuing operations                                  |       | $                                                             | 2,487      |                                                        | $          | 2,477 |   | $ | 2,339 |   | $ | 3,156 |   | $ | 3,138 |   | $ | 3,548 |   |
| Income (loss)  from discontinued operations                         |       | $                                                             | —     |                                                        | $          | — |   | $ | 249 |   | $ | — |   | $ | — |   | $ | (623 | ) |
| Income taxes  related to discontinued operations                    |       | $                                                             | —     |                                                        | $          | — |   | $ | 111 |   | $ | — |   | $ | — |   | $ | (213 | ) |
| Income (loss)  from discontinued operations, net of taxes |       | $                                                             | —     |                                                        | $          | — |   | $ | 138 |   | $ | — |   | $ | — |   | $ | (410 | ) |
| Net income                                                          |       | $                                                             | 2,487      |                                                        | $          | 2,477 |   | $ | 2,477 |   | $ | 3,156 |   | $ | 3,138 |   | $ | 3,138 |   |
|                                                                |       |                                                          |       |                                                        |       |   |   |   |   |   |   |   |   |
| Basic (loss) earnings  per common share:                            |       |                                                          |       |                                                        |       |   |   |   |   |   |   |   |   |
| Continuing operations                                               |       | $                                                             | 0.24       |                                                        | $          | 0.24 |   | $ | 0.23 |   | $ | 0.31 |   | $ | 0.31 |   | $ | 0.35 |   |
| Discontinued operations                                             |       | —                                                        |       | —                                                      |       | 0.01 |   | — |   | — |   | (0.04 | ) |
| Total                                                               |       | $                                                             | 0.24       |                                                        | $          | 0.24 |   | $ | 0.24 |   | $ | 0.31 |   | $ | 0.31 |   | $ | 0.31 |   |
|                                                                |       |                                                          |       |                                                        |       |   |   |   |   |   |   |   |   |
| Diluted (loss) earnings  per common share:                          |       |                                                          |       |                                                        |       |   |   |   |   |   |   |   |   |
| Continuing operations                                               |       | $                                                             | 0.24       |                                                        | $          | 0.24 |   | $ | 0.23 |   | $ | 0.30 |   | $ | 0.30 |   | $ | 0.34 |   |
| Discontinued operations                                             |       | —                                                        |       | —                                                      |       | 0.01 |   | — |   | — |   | (0.04 | ) |
| Total                                                               |       | $                                                             | 0.24       |                                                        | $          | 0.24 |   | $ | 0.24 |   | $ | 0.30 |   | $ | 0.30 |   | $ | 0.30 |   |

 

**Statement of Cash Flows**
| ** **                                     | ** ** | **Six Months Ended June 30, 2004** | ** ** |
|------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                     | ** ** | **As Originally  Reported**                            | ** ** | **As Restated  for Correction  of Errors** | ** ** | **As Restated  for Correction  of Errors and  Discontinued  Operations** | ** ** |
| Net income                                     |       | $                                                           | 3,156      |   | $ | 3,138 |   | $ | 3,138 |   |
| Depreciation and  amortization                 |       | $                                                           | 1,935      |   | $ | 1,963 |   | $ | 1,963 |   |
| Bad debt  recovery                             |       | $                                                           | —     |   | $ | (16 | ) | $ | (16 | ) |
| Provision for  excess and obsolete inventories |       | $                                                           | —     |   | $ | 1,179 |   | $ | 1,179 |   |
| Deferred income  taxes                         |       | $                                                           | —     |   | $ | (10 | ) | $ | (10 | ) |
| Increase in  receivables                       |       | $                                                           | (10,194    | ) | $ | (10,178 | ) | $ | (10,178 | ) |
| Increase in inventories                        |       | $                                                           | (12,200    | ) | $ | (13,379 | ) | $ | (13,379 | ) |

 

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**Table of Contents**

**BalanceSheets**
| ** **                                       | ** ** | **June 30, 2005**      | ** ** | **December 31, 2004**                           | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                       | ** ** | **As Originally  Reported** | ** ** | **As Restated  for Correction  of Errors** | ** ** | **As Originally  Reported** | ** ** | **As Restated  for Correction  of Errors** | ** ** |
| Deferred income  taxes                           |       | $                                | 1,089      |                                                      | $          | 1,086 |   | $ | 1,294 |   | $ | 1,291 |   |
| Total current  assets                            |       | $                                | 109,724    |                                                      | $          | 109,721 |   | $ | 101,495 |   | $ | 101,492 |   |
| Property, plant  and equipment, net              |       | $                                | 38,878     |                                                      | $          | 38,472 |   | $ | 37,809 |   | $ | 37,403 |   |
| Total assets                                     |       | $                                | 149,903    |                                                      | $          | 149,494 |   | $ | 140,642 |   | $ | 140,233 |   |
| Deferred income  taxes (long-term liabilities)   |       | $                                | 1,089      |                                                      | $          | 1,086 |   | $ | 1,294 |   | $ | 1,291 |   |
| Total  liabilities                               |       | $                                | 76,945     |                                                      | $          | 76,942 |   | $ | 60,946 |   | $ | 60,943 |   |
| Retained  earnings                               |       | $                                | 35,292     |                                                      | $          | 34,886 |   | $ | 42,170 |   | $ | 41,764 |   |
| Total  stockholders’ equity                 |       | $                                | 72,958     |                                                      | $          | 72,552 |   | $ | 79,696 |   | $ | 79,290 |   |
| Total liabilities and  stockholders’ equity |       | $                                | 149,903    |                                                      | $          | 149,494 |   | $ | 140,642 |   | $ | 140,233 |   |

 

## **CriticalAccounting Policies**

The preparation offinancial statements and related disclosures in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make judgements, assumptions and estimates that affect theamounts reported. See the discussion of critical accounting policies in ourAnnual Report on Form 10-K/A for the year ended December 31,2004. For the quarter ended June 30, 2005, there were no unusualuncertainties of a material nature involved in the application of theseprinciples nor any unusual, material variation in estimates related to theseprinciples.

## **ExecutiveOverview**

National R.V. Holdings, Inc.(“the Company”) operates in one business segment that designs, manufactures,and markets motorhomes through its wholly owned subsidiaries, National R.V., Inc.(NRV) and Country Coach, Inc. (CCI). The RVs are marketed primarily in theUnited States of America by NRV under the Dolphin, Islander, Sea Breeze,Tradewinds and Tropi-Cal brand names and by CCI under brand names includingAffinity, Allure, Inspire, Intrigue, Magna and Prevost by Country Coach.

The following table setsforth for the periods indicated the percentage of net sales represented bycertain items reflected in the Company’s Consolidated Statements of Operations:
| ** **                                                    | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                    | ** ** | **2005**                                        | ** ** | **2004**                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                    | ** ** | ** **                                      | ** ** | **(Restated)**                                | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| Net sales                                                     |       | 100.0                                           | %          | 100.0                                         | %          | 100.0 | % | 100.0 | % |
| Cost of goods  sold                                           |       | 98.3                                            |       | 92.0                                          |       | 96.9 |   | 92.5 |   |
| Gross profit                                                  |       | 1.7                                             |       | 8.0                                           |       | 3.1 |   | 7.5 |   |
| Selling expenses                                              |       | 2.7                                             |       | 2.2                                           |       | 2.8 |   | 2.4 |   |
| General and  administrative expenses                          |       | 3.1                                             |       | 2.6                                           |       | 2.9 |   | 2.5 |   |
| Operating (loss) income                                       |       | (4.1                                            | )          | 3.2                                           |       | (2.6 | ) | 2.6 |   |
| Interest expense                                              |       | 0.3                                             |       | 0.0                                           |       | 0.2 |   | 0.0 |   |
| Other expense  (income)                                       |       | 0.0                                             |       | 0.0                                           |       | (0.0 | ) | (0.0 | ) |
| (Loss) income from continuing operations before  income taxes |       | (4.4                                            | )          | 3.2                                           |       | (2.8 | ) | 2.6 |   |
| Provision for  income taxes                                   |       | 0.0                                             |       | 1.2                                           |       | 0.0 |   | 1.0 |   |
| (Loss) income from continuing operations                      |       | (4.4                                            | )          | 2.0                                           |       | (2.8 | ) | 1.6 |   |
| (Income) loss  from discontinued operations                   |       | 0.0                                             |       | (0.2                                          | )          | 0.0 |   | 0.3 |   |
| Income taxes  related to discontinued operations              |       | 0.0                                             |       | 0.1                                           |       | 0.0 |   | (0.1 | ) |
| Income (loss)  from discontinued operations, net of taxes     |       | 0.0                                             |       | 0.1                                           |       | 0.0 |   | (0.2 | ) |
| Net (loss) income                                             |       | (4.4                                            | )%         | 2.1                                           | %          | (2.8 | )% | 1.4 | % |

 

During the second quarter of 2005, the Companyincurred a loss of $5.4 million compared to income of $2.3 million fromcontinuing operations for the same quarter last year. The second quarter of2005 loss per diluted share was $0.53 compared to earnings per diluted sharefrom continuing operations of $0.23 for the second quarter of 2004. The lossfrom continuing operations for the first six months ended June 30, 2005was $6.9 million, or $0.67 per diluted share, as compared to income of $3.5million from continuing operations, or $0.34 per diluted share, for the firstsix months ended June 30, 2004.

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## **LookingForward**

Many of the same objectives the Company addressed lastyear remain in place for the current year, including aggressive productdevelopment, improved productivity and cost control, and increasing its dealerbody.

During the second quarter of 2005, the Company rolledout its remaining 2006 model-year products.

Improvedproductivity and cost control remain significant objectives. The Company ismaking a significant investment this year in manufacturing engineers at itsCountry Coach facilities in an effort to increase productivity. Controllingcosts also remains a high priority, specifically in the manufacturing costareas, warranty, and workers’ compensation. The Company continues to focus onimproving the quality of its motorhomes to increase consumer satisfaction anddecrease future warranty costs. Also, the Company has instituted a number ofsafety programs, which have resulted in measurably reduced workers’compensation costs. The Company expects further progress in containing itscosts as it continues to implement lean manufacturing concepts.

Acontinued focus on dealer acquisition and enhanced training programs for theCompany’s workforce, service centers, dealers, and consumers are also keyinitiatives. The Company has undertaken efforts in the areas of safety; withnew distance learning capabilities, the Company is looking forward tobroadcasting its service training programs directly to dealers and serviceproviders, driving the movement for increased customer satisfaction in areas oftechnical maintenance. In addition, factory-training programs are providing theCompany’s customers a basis for self-diagnostics and a better understanding ofthe equipment they are operating.

TheRecreational Vehicle Industry Association’s (RVIA) market expansion campaign,GO RVing, now in its eighth year, is fostering greater awareness and garneringmedia attention. Though RVIA expects substantial growth for the industry in thelong-term or decade ahead, RVIA expects a decline in the industry in the nearterm or each of the years 2005 and 2006.

## **Resultsof Operations**

Comparison of Continuing Operations for the Three and Six Months Ended June 30,2005 to the Three and Six Months Ended June 30, 2004:

(Amountsin tables are in thousands, except percentages)

**Net sales**
| ** **                 | ** ** | **Three Months Ended  June 30,  Percent Change** | ** ** | **Six Months Ended  June 30,  Percent Change** | ** ** |
|----------------------------|------------|----------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                 | ** ** | **2005**                                                             | ** ** | ** **                                                         | ** ** | **2004** | ** ** | **2005** | ** ** | ** ** | ** ** | **2004** | ** ** |
| ** **                 | ** ** | ** **                                                           | ** ** | ** **                                                         | ** ** | **(Restated)** | ** ** | ** ** | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| Net sales                  |       | $                                                                    | 123,225    |                                                               | 3.3        | % | $ | 119,282 |   | $ | 248,850 |   | 11.9 | % | $ | 222,428 |   |
| as a percent of net  sales |       | 100.0                                                                | %          |                                                               |       | 100.0 | % | 100.0 | % |   |   | 100.0 | % |
|                            |            |                                                                      |            |                                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Net sales of $123.2 million for the three-month periodended June 30, 2005 increased $3.9 million or 3.3% from the samethree-month period ended June 30, 2004. Wholesale unit shipments of dieselmotorhomes for the three-month period ended June 30, 2005 were 379, down15% from 444 units during the same period last year. Shipments of gasmotorhomes for three-month period ended June 30, 2005 were 369, flatcompared to the 369 gas units sold during the same period last year.

Net sales of $248.9 million for the six months ended June 30,2005 increased $26.4 million or 11.9% from the same period last year. Wholesaleunit shipments of diesel motorhomes were 785, up 7% from 737 units during thesame period last year. Wholesale unit shipments of gas motorhomes were 770,down 11% from 868 units during the same period last year.

The increase in net sales is mainly attributable tothe change in the sales mix to include more of the highline diesel motorhomes,which have higher average sales prices than midline diesel units and gaspowered units.

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**Gross profit and gross profit margin**
| ** **          | ** ** | **Three Months Ended  June 30,  Percent Change** | ** ** | **Six Months Ended  June 30,  Percent Change** | ** ** |
|---------------------|------------|----------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **          | ** ** | **2005**                                                             | ** ** | ** **                                                         | ** ** | **2004** | ** ** | **2005** | ** ** | ** ** | ** ** | **2004** | ** ** |
| ** **          | ** ** | ** **                                                           | ** ** | ** **                                                         | ** ** | **(Restated)** | ** ** | ** ** | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| Gross profit        |       | $                                                                    | 2,101      |                                                               | (78.1      | )% | $ | 9,590 |   | $ | 7,716 |   | (53.7 | )% | $ | 16,673 |   |
| Gross profit margin |       | 1.7                                                                  | %          | (78.8                                                              | )%         | 8.0 | % | 3.1 | % | (58.7 | )% | 7.5 | % |
|                     |            |                                                                      |            |                                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Thegross profit margin for the three-month period ended June 30, 2005 was1.7% compared to an 8.0% gross margin for the same period last year. For thefirst six months of 2005, the gross profit margin was 3.1% compared to a 7.5%gross profit margin for the same period last year. The primary factors that ledto the decrease in gross margins were higher sales incentives, higher warrantycosts, and production inefficiencies, partially offset by reduced workers’compensation costs.

**Selling expenses**
| ** **                 | ** ** | **Three Months Ended  June 30,  Percent Change** | ** ** | **Six Months Ended  June 30,  Percent Change** | ** ** |
|----------------------------|------------|----------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                 | ** ** | **2005**                                                             | ** ** | ** **                                                         | ** ** | **2004** | ** ** | **2005** | ** ** | ** ** | ** ** | **2004** | ** ** |
| ** **                 | ** ** | ** **                                                           | ** ** | ** **                                                         | ** ** | **(Restated)** | ** ** | ** ** | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| Selling expenses           |       | $                                                                    | 3,315      |                                                               | 28.1       | % | $ | 2,587 |   | $ | 6,954 |   | 31.3 | % | $ | 5,295 |   |
| as a percent of net  sales |       | 2.7                                                                  | %          |                                                               |       | 2.2 | % | 2.8 | % |   |   | 2.4 | % |
|                            |            |                                                                      |            |                                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Sellingexpenses increased $0.7 million or 28.1% for the three-month period ended June 30,2005 over the same period last year. Selling expenses for the six months ended June 30,2005 increased $1.7 million or 31.3% over the same period last year. Sellingexpenses increased mainly due to higher media and marketing costs to supportthe Company’s dealer expansion and other initiatives, higher dealer conventionexpenses, and higher sales commissions resulting from higher sales.

**General and administrative expenses**
| ** **                           | ** ** | **Three Months Ended  June 30,  Percent Change** | ** ** | **Six Months Ended  June 30,  Percent Change** | ** ** |
|--------------------------------------|------------|----------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                           | ** ** | **2005**                                                             | ** ** | ** **                                                         | ** ** | **2004** | ** ** | **2005** | ** ** | ** ** | ** ** | **2004** | ** ** |
| ** **                           | ** ** | ** **                                                           | ** ** | ** **                                                         | ** ** | **(Restated)** | ** ** | ** ** | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| General and administrative  expenses |       | $                                                                    | 3,891      |                                                               | 23.7       | % | $ | 3,145 |   | $ | 7,143 |   | 28.0 | % | $ | 5,581 |   |
| as a percent of net  sales           |       | 3.1                                                                  | %          |                                                               |       | 2.6 | % | 2.9 | % |   |   | 2.5 | % |
|                                      |            |                                                                      |            |                                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Generaland administrative expenses totaling $3.9 million for the three-month periodended June 30, 2005 were up $0.7 million, or 23.7%, compared to the sameperiod last year. For the first six months of 2005, general and administrativeexpenses were $7.1 million, representing an increase of $1.6 million, or 28.0%,compared to the same period last year. The increase in general andadministrative expenses is due to higher audit and professional fees, as wellas higher staffing levels to support increased sales and production andincreased staffing to support ongoing Sarbanes-Oxley compliance.

**Interest expense**
| ** **                 | ** ** | **Three Months Ended  June 30,  Percent Change** | ** ** | **Six Months Ended  June 30,  Percent Change** | ** ** |
|----------------------------|------------|----------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                 | ** ** | **2005**                                                             | ** ** | ** **                                                         | ** ** | **2004** | ** ** | **2005** | ** ** | ** ** | ** ** | **2004** | ** ** |
| Interest expense           |       | $                                                                    | 311        |                                                               | 1,843.8    | % | $ | 16 |   | $ | 588 |   | 653.8 | % | $ | 78 |   |
| as a percent of net  sales |       | 0.3                                                                  | %          |                                                               |       | 0.0 | % | 0.2 | % |   |   | 0.0 | % |
|                            |            |                                                                      |            |                                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Interest expense for the three-month periods ended June 30,2005 and 2004 was $0.31 million and $0.02 million, respectively. For the firstsix months of 2005, interest expense was $0.59 million compared to $0.08million for the same period last year. The increase in interest expense is attributableto higher borrowings on the line of credit when compared to the same periodlast year.

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**Other expense (income)**
| ** **                 | ** ** | **Three Months Ended  June 30,  Percent Change** | ** ** | **Six Months Ended  June 30,  Percent Change** | ** ** |
|----------------------------|------------|----------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                 | ** ** | **2005**                                                             | ** ** | ** **                                                         | ** ** | **2004** | ** ** | **2005** | ** ** | ** ** | ** ** | **2004** | ** ** |
| Other expense  (income)    |       | $                                                                    | 18         |                                                               | 1,700.0    | % | $ | 1 |   | $ | (91 | ) | 93.6 | % | $ | (47 | ) |
| as a percent of net  sales |       | 0.0                                                                  | %          |                                                               |       | 0.0 | % | 0.0 | % |   |   | 0.0 | % |
|                            |            |                                                                      |            |                                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Otherexpense for the three-month periods ended June 30, 2005 and 2004 wasimmaterial. Other income for the six months ended June 30, 2005 was mainlyinterest and fees related to the note receivable. Other income for the sixmonths ended June 30, 2004 was mainly the gain on the sale of realproperty in Florida. As a percentage of net sales, the amount is immaterial.

**Provision for income taxes**
| ** **                  | ** ** | **Three Months Ended  June 30,  Percent Change** | ** ** | **Six Months Ended  June 30,  Percent Change** | ** ** |
|-----------------------------|------------|----------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                  | ** ** | **2005**                                                             | ** ** | ** **                                                         | ** ** | **2004** | ** ** | **2005** | ** ** | ** ** | ** ** | **2004** | ** ** |
| ** **                  | ** ** | ** **                                                           | ** ** | ** **                                                         | ** ** | **(Restated)** | ** ** | ** ** | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| Provision for income  taxes |       | $                                                                    | —     |                                                               | (100.0     | )% | $ | 1,502 |   | $ | — |   | (100.0 | )% | $ | 2,218 |   |
| as a percent of net  sales  |       | 0.0                                                                  | %          |                                                               |       | 1.2 | % | 0.0 | % |   |   | 1.0 | % |
|                             |            |                                                                      |            |                                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

Asdiscussed in Note 8 to the consolidated financial statements included in this Form 10-Q/A,recent cumulative losses, the downturn in current market conditions and itsimpact on near-term earnings led the Company to conclude that it was morelikely than not that its net deferred tax asset will not be realized. As aresult, the Company continues to record a full valuation allowance against itsnet deferred tax assets; consequently, the Company’s current effective tax ratefor 2005 is zero. The effective tax rate for the three and six months ended June 30,2004 was 39.4% and 39.0%, respectively. The Company expects to record a fullvaluation allowance on future tax benefits until it can sustain an appropriatelevel of profitability.

**Income (loss) from discontinued operations, net oftaxes**
| ** **                                                          | ** ** | **Three Months Ended  June 30,  Percent Change** | ** ** | **Six Months Ended  June 30,  Percent Change** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                          | ** ** | **2005**                                                             | ** ** | ** **                                                         | ** ** | **2004** | ** ** | **2005** | ** ** | ** ** | ** ** | **2004** | ** ** |
| ** **                                                          | ** ** | ** **                                                           | ** ** | ** **                                                         | ** ** | **(Restated)** | ** ** | ** ** | ** ** | ** ** | ** ** | **(Restated)** | ** ** |
| Income (loss) from  discontinued operations, net of taxes |       | $                                                                    | —     |                                                               | (100.0     | )% | $ | 138 |   | $ | — |   | (100.0 | )% | $ | (410 | ) |
| as a percent of net  sales                                          |       | 0.0                                                                  | %          |                                                               |       | 0.1 | % | 0.0 | % |   |   | (0.2 | )% |
|                                                                     |            |                                                                      |            |                                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

On September 24, 2004, the Company sold itsTravel Trailer business assets to Weekend Warrior, a privately owned,California-based ramp-trailer manufacturer. The income from discontinuedoperations for the three-month period ended June 30, 2004 was $0.1million. The loss for the six months ended June 30, 2004 was $0.4 million.

## **Liquidityand Capital Resources**

At June 30,2005 and December 31, 2004, the Company had cash and cash equivalents of$0.19 million and $0.01 million (excluding restricted cash totaling $0.03million and $0.25 million, respectively, required to secure a letter of creditin connection with one of the Company’s insurance policies), respectively.During the first six months of 2005, the Company financed its operationsprimarily through its existing working capital and its line of credit with UPSCapital Corporation (UPSC).

During the six-month period ended June 30, 2005 the Companyprovided $2.7 million of cash in its operations, with the two largestcontributing factors being a $13.5 million increase in accounts payable and a $4.0million increase in accrued expenses, and the two largest offsetting factorsbeing an $8.7 million increase in inventories and a net loss of $6.9 million.During the six-month period ended June 30, 2004 the Company used $1.4million of cash in its operations, with the two largest contributing factorsbeing a $13.4 

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million increase in inventories and a $10.2 millionincrease in receivables, and the largest offsetting factor being a $13.0million increase in accounts payable.

On June 30, 2005, the Company had working capitalof $40.9 million compared to $49.1 million at December 31, 2004. Thisdecrease of $8.2 million was primarily due to a $13.5 million increase in accountspayable and a $4.2 million increase in current accrued expenses, partiallyoffset by a $7.1 million increase in inventories and a $3.9 million increase inreceivables.

For the six-month period ended June 30, 2005, netcash used in investing activities was $1.4 million, consisting primarily of$2.9 million in capital expenditures, partially offset by repayments on notereceivable of $1.4 million. Net cash used in financing activities was $1.1million, primarily due to a decrease in the book overdraft of $0.8 million andnet payments on the line of credit of $0.5 million.

At June 30, 2005,the Company had an asset-based revolving credit facility of $20 million withUPSC, which was scheduled to expire in August 2005. At June 30, 2005and December 31, 2004, the Company had outstanding loans under the line ofcredit of $12.2 million and $12.7 million, respectively. At June 30, 2005,the Company was in default with the covenant requiring delivery of the Company’sannual financial statements within a required period of time and on that datethe Company received an extension letter from UPSC waiving the default on theCompany’s required delivery date of its annual financial statements andextending the required delivery date of the annual financial statements to August 31,2005 (which date was extended to December 15, 2005 as part of theexecution of the new credit facility discussed below).

On August 12, 2005,the original facility was replaced by a new three-year asset-based revolvingcredit facility with UPSC and Wells Fargo Bank for $25 million, with theCompany having the option, subject to certain conditions, of increasing therevolver in $5 million increments up to a total credit facility of $40 million.On September 29, 2005, the Company effected such an increase in the amountof the credit facility from $25 million to $30 million. The new credit facilityis collateralized by all of the Company’s assets other than real estate.Borrowing availability is based on eligible accounts receivable and inventory.The facility also includes a requirement to maintain a blocked accountarrangement, whereby remittances from the Company’s customers reduce the debtoutstanding. The new credit facility contains, among other provisions, certainfinancial covenants, including funded debt to EBITDA, and a fixed chargecoverage ratio. If these financial covenants are not met, the Company’savailability under the credit facility will be reduced. The Company did not meet these financial covenants as of June 30,2005, and does not expect to until September 30, 2006. Until thesecovenants are met, the Company’s average borrowings availability under its $40million facility is limited to an amount between $27 to $32 million, dependingon eligible inventory and accounts receivable. Initial amounts borrowedunder the revolving credit facility bear interest at the prime rate listed inthe Wall Street Journal plus 0.50 percentage points and may be subsequentlyadjusted down based on a trailing twelve month funded debt to EBITDA calculation.At June 30, 2005 the interest rate on the outstanding borrowings under theline of credit was 7.00%. The weighted average interest rate for the borrowingsunder the line of credit during the six-month period ended June 30, 2005and 2004 was 6.47% and 4.80%, respectively.

Management’s plan to achieve operational profitabilityincludes continuing or starting a variety of initiatives to improve the Company’searnings and working capital position, including: i) new product introductionsin the fourth quarter of 2005 with additional new product and floor planintroductions in the first half of 2006, ii) new dealer additions to fill openmarket areas or replace under-performing dealers, iii) reductions in allcategories of inventory, iv) head count re-balancings to current retailsales-supported production levels, v) engineering reviews of materialcomponents for the removal of non-value added items to reduce both material andassembly costs, vi) continued thorough motorhome inspections to improve qualityand to more timely report failures, and vii) manufacturing cost reductionsresulting from the continued implementation of lean manufacturing concepts.

In order to fund on-going operations in theshort-term, the Company remains dependent upon its ability to utilize outsidefinancing through borrowings on its line of credit until it achieves sustainedoperational profitability through a combination of increased sales, costreductions and improved product margins. The Company believes it has sufficientfinancial resources to fund its operations in the short-term. However, theCompany’s ability to meet its obligations in the long-term is dependent on itsability to generate positive cash flows from operations. If management isunable to achieve its operational profitability plan or unforeseen eventsoccur, the Company may need to implement alternative plans that could includelong-term financing collateralized by real estate or obtaining additional debtfinancing, additional reductions in operating costs, deferral of capitalexpenditures, and further reductions in working capital. While the Companybelieves that it could successfully complete the alternative plans, ifnecessary, there can be no assurance that such alternatives would be availableon acceptable terms and conditions or that the Company would be successful inits implementation of such plans.

As further discussed inNote 6 to the consolidated financial statements included in this Form 10-Q/A,the Company generally agrees with its dealers’ lenders to repurchase any unsoldRVs in the event of various circumstances. The Company’s maximum potentialexposure under these agreements approximated $177 million at June 30,2005. As with receivables, the risk of loss under the repurchase agreements wasspread over a number of dealers and lenders and was reduced by the resale valueof the RVs, which the Company would be required to repurchase. Losses underthese agreements have not been material in the past and management does

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not believe that anyfuture losses under such agreements will have a material adverse effect on theCompany’s consolidated financial position, results of operations, or cashflows.

In August 2004, theCompany entered into an agreement to acquire, for $3 million, approximately 73acres of land adjacent to its Country Coach, Inc. facility in JunctionCity, Oregon. The Company paid a deposit of $0.1 million. The closing of thepurchase is subject to customary closing conditions and is expected to occur in2006. The Company believes the combination of internally generated funds andunused borrowing availability will be sufficient to meet this obligation.

## **Recent AccountingPronouncements**

In November 2004,the Financial Accounting Standards Board (FASB) issued Statement of FinancialAccounting Standards (SFAS) No. 151, “Inventory Costs-an Amendment of ARB No. 43,Chapter 4.” SFAS No. 151 requires that accounting for items such as idlefacility expense, freight, handling costs, and wasted materials (spoilage) berecognized as current period charges regardless of whether they meet thecriterion of “so abnormal.” In addition, this Statement requires thatallocation of fixed production overheads to the costs of conversion be based onthe normal capacity of the production facilities. This Statement is effectivefor inventory costs incurred during fiscal years beginning after June 15,2005. The provision of this Statement shall be applied prospectively. TheCompany has not determined the impact that adoption of this standard will haveon its consolidated financial statements.

In December 2004,the FASB issued FASB Staff Position (FSP) 109-1, “Application of FASBStatement No. 109, Accounting for Income Taxes, to the Tax Deduction onQualified Production Activities Provided by the American Jobs Creation Act of2004.” The American Jobs Creation Act, or AJCA, introduces a special 9% taxdeduction on qualified production activities. FSP 109-1 clarifies thatthis tax deduction should be accounted for as a special tax deduction inaccordance with SFAS No. 109, “Accounting for Income Taxes”. FSP 109-1is effective upon its issuance. The adoption of FSP 109-1 did not have amaterial impact on the Company’s consolidated financial statements.

In December 2004,the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123R),which replaces SFAS No. 123, “Accounting for Stock-Based Compensation,”(SFAS No. 123) and supercedes APB Opinion No. 25, “Accountingfor Stock Issued to Employees.” SFAS No. 123R requires all share-basedpayments to employees, including grants of employee stock options, to berecognized in the financial statements based on their fair values beginningwith the first annual period after June 15, 2005, with early adoptionencouraged. The pro forma disclosures previously permitted under SFAS No. 123no longer will be an alternative to financial statement recognition. TheCompany is required to adopt SFAS No. 123R in the first calendar quarterof 2006, beginning January 1, 2006. Under SFAS No. 123R, the Companymust determine the appropriate fair value model to be used for valuingshare-based payments, the amortization method for compensation cost and thetransition method to be used at date of adoption. The transition methodsinclude modified prospective and modified retrospective adoption options. Underthe modified retrospective option, prior periods may be restated either as ofthe beginning of the year of adoption or for all periods presented. Themodified prospective method requires that compensation expense be recorded forall unvested stock options and restricted stock at the beginning of the firstquarter of adoption of SFAS No. 123R, while the modified retrospectivemethod would record compensation expense for all unvested stock options andrestricted stock beginning with the first period restated. The Company isevaluating the requirements of SFAS No. 123R. The Company has not yetdetermined the method of adoption or the effect of adopting SFAS No. 123R,and the Company has not determined whether the adoption will result in amountsthat are similar to the current pro forma disclosures under SFAS No. 123.

In June 2005, the FASB issued SFAS No. 154, “AccountingChanges and Error Corrections—a replacement of APB No. 20 and FAS No. 3”(SFAS No. 154). SFAS No. 154 provides guidance on the accounting forand reporting of accounting changes and error corrections. It establishes,unless impracticable, retrospective application as the required method forreporting a change in accounting principle in the absence of explicittransition requirements specific to the newly adopted accounting principle.SFAS No. 154 also provides guidance for determining whether retrospectiveapplication of a change in accounting principle is impracticable and forreporting a change when retrospective application is impracticable. Thecorrection of an error in previously issued financial statements is not anaccounting change. However, the reporting of an error correction involvesadjustments to previously issued financial statements similar to thosegenerally applicable to reporting an accounting change retrospectively.Therefore, the reporting of a correction of an error by restating previouslyissued financial statements is also addressed by SFAS No. 154. SFAS No. 154is required to be adopted in fiscal years beginning after December 15,2005. The Company does not believe that adoption of this standard will have animpact on its consolidated financial statements.

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**NATIONALR.V. HOLDINGS, INC.PART I, ITEM 3 - Quantitative and Qualitative Disclosures about MarketRisk**

The Company has no significant financial instruments.The Company does not have any significant foreign currency exposure because itdoes not transact business in foreign currencies. However, the Company isexposed to interest rate changes related primarily to cash borrowings on theCompany’s credit facility. The weighted average interest rate for theborrowings on the credit facility during the six-month period ended June 30,2005 was 6.47%. For every 0.25% increase in interest rates, the Company wouldexpect a quarterly increase in interest expense of approximately $0.6 thousandfor each $1.0 million borrowed.

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**NATIONAL R.V. HOLDINGS, INC.PART I, ITEM 4 — CONTROLS AND PROCEDURES**

**Disclosure Controls andProcedures**

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 thepreparation of its Quarterly Report on Form 10-Q, as of June 30,2005, an evaluation was performed under the supervision and with theparticipation of the Company’s management, including the CEO and CFO, of theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures (as defined in Rule 13a-15(e) under the ExchangeAct). In light of the material weaknesses referenced below, which the Companyfirst identified in connection with the assessment required by Section 404of the Sarbanes-Oxley Act of 2002 and disclosed in its Form 10-K/Afor the year ended December 31, 2004 and which continued to exist as ofthe end of the period covered by this report, the Company’s CEO and CFOconcluded 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 June 30, 2005.

**Internal Control over FinancialReporting**

A material weakness is acontrol deficiency, or a combination of control deficiencies, that results inmore than a remote likelihood that a material misstatement of the annual orinterim financial statements will not be prevented or detected. As of December 31,2004, we identified the following material weaknesses in the Company’s internalcontrol over financial reporting, which continued to exist as of June 30,2005:

*1. Insufficient personnelresources and technical expertise within its accounting function -*TheCompany did not maintain effective controls over the financial reportingprocess because of insufficient personnel resources and technical expertisewithin the accounting function. This material weakness contributed to thefollowing individual material weaknesses: (a) errors in the preparationand review of schedules and reconciliations supporting certain general ledgeraccount balances. As a result, errors were not detected in the amortization ofleasehold improvements and certain accrued liability accounts, including salesand marketing, warranty, legal and workers’ compensation, and the relatedincome statement accounts, including cost of goods sold, selling and generaland administrative expenses; (b) inadequate financial statementdisclosures, primarily related to the presentation of certain balances withinthe restatement footnote, sale of a division and capital leases were not identifiedby the corporate accounting staff; and (c) accounting cutoff errorsprimarily related to marketing accrued expenses and an inability to properlyand timely account for capital leases entered into during the year were notidentified at the NRV division. This control deficiency resulted in auditadjustments to the 2004 annual consolidated financial statements affectingaccrued liabilities, property, plant and equipment, and the related incomestatement accounts, primarily cost of goods sold, selling, general andadministrative, amortization and interest, and restatement of disclosures inthe 2004 annual consolidated financial statements. Insufficient personnelresources and technical expertise also contributed to the material weaknessesdiscussed in 2, 3, 4 and 5 below. Additionally, these control deficienciescould result in misstatements in the aforementioned accounts that would resultin a material misstatement to the annual or interim consolidated financialstatements that would not be prevented or detected.

*2. Revenue Recognition*—The Company did not maintain effective controls over the timing of the revenuerecognition related to the sale of certain motorhomes at its NRV division.Specifically, under a deferred payment arrangement the Company held themanufacturer’s certificate of origin as security for payment. This controldeficiency resulted in the restatement of the Company’s third quarter 2004consolidated financial statements to correct the timing of revenue recognition.This control deficiency also resulted in audit adjustments to the 2004 annualconsolidated financial statements. Additionally, this control deficiency couldresult in a misstatement of revenue and deferred revenue that would result in amaterial misstatement to the annual or interim consolidated financialstatements that would not be prevented or detected.

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*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 todealers 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. Accounting for Income Taxes -*TheCompany did not maintain effective controls over the determination andreporting of the provision for income taxes and related deferred income taxbalances. Specifically, the Company did not maintain effective controls toreview and monitor the accuracy of the valuation allowance as well as othercomponents of the income tax provision calculations and related deferred incometaxes. This control deficiency resulted in an audit adjustment to the fourthquarter 2004 annual consolidated financial statements. Additionally, thiscontrol deficiency could result in a misstatement of the income tax provisionor related deferred income tax balances that would result in a materialmisstatement to the annual or interim consolidated financial statements thatwould not be prevented or detected.

*5. Physical inventory process*-The Company did not maintain effective controls over the accuracy of thephysical inventory process at its NRV division. Specifically, the NRV divisiondid not have controls to ensure all of the individuals involved in the physicalinventory count were properly trained and supervised and that discrepanciesbetween quantities counted and the accounting records were properlyinvestigated. Further, the NRV division did not have controls to ensure theaccounting records were adjusted to reflect the actual quantities countedduring the physical inventory process. This control deficiency resulted in anaudit adjustment to the fourth quarter 2004 annual consolidated financialstatements. Additionally, this control deficiency could result in amisstatement of inventory and cost of goods sold that would result in amaterial misstatement to the annual or interim consolidated financialstatements that would not be prevented of detected.

*6. Unrestricted access toprograms 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. Thesecontrol deficiencies applied to certain systems and processes including thefinancial 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 deficiencies could result in a misstatement to financialstatement accounts that would result in a material misstatement to the annualor interim consolidated financial statements that would not be prevented ordetected.

**Remediation of MaterialWeaknesses**

As of the filing date ofthis Form 10-Q/A, the Company had not fully remediated one of thematerial weaknesses in the Company’s internal control over financial reportingidentified as of December 31, 2004 which continued to exist as of June 30,2005. We have taken the following actions to address the material weaknessesdescribed above:

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

Management has assessedthe organization of its accounting personnel and the technical expertise withinthe accounting function. As a result, the Company has established an accountingfunction at the parent company level. The NRV divisional controller was promotedto Corporate 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. As a result of the re-organization of its accountingpersonnel and increased technical expertise within the accounting function,management believes that these actions will remediate the material weaknessesdescribed in items (a), (b) and (c) above. As of the date of thefiling of the 2005 Form 10-K, the Company has not fully remediatedthe material weakness in the Company’s internal control over financialreporting. However, during fiscal year 2006, management has taken a number ofsteps that it believes will impact the effectiveness of our internal controlover financial reporting. Management has not completed its 2006 assessment ofinternal control over financial reporting. Upon completion of the 2006assessment, management will report on internal control over financial reportingand the status of remediation.

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2. *Revenue Recognition*

Effective April 1, 2005, the NRV divisiondiscontinued 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. As a result ofthe discontinued deferred payments arrangements and additional controlprocedures implemented, management believes that these actions will remediatethis material weakness. This material weakness was remediated as of December 31,2005.

3. *Accountingfor Sales Incentives*

Effective May 31,2005, the Company changed its method of accounting for sales incentive programsthat are paid directly to the dealers’ sales representatives. These salesincentives are now classified as a reduction of revenue rather than as aselling expense. These sales incentives were restated for all years presentedin the fiscal year 2004 Form 10-K and have been properly classifiedin the first and second quarters of fiscal year 2005. As more fully discussedin 1 above, the Company has increased its personnel and expertise within theaccounting function. In addition, the Company has revised its quarterly closingprocedures to strengthen its review of all existing sales incentive programs toensure they are accounted for properly. As a result of the re-organization ofits accounting personnel and increased technical expertise within theaccounting function and additional control procedures implemented, managementbelieves that these actions will remediate this material weakness. Thismaterial weakness was remediated as of December 31, 2005.

*4. Accounting for Income Taxes*

As more fully discussedin 1 above, the Company has recently increased its personnel and technicalexpertise within the accounting function. In addition, the Company revised itsquarterly closing procedures to strengthen its review of the income taxprovision to ensure the accuracy of the components of the income tax provisionand related deferred income taxes. As a result of the reorganization of itsaccounting personnel and technical expertise within the accounting function andadditional control procedures implemented, management believes that theseactions will remediate this material weakness. This material weakness wasremediated as of December 31, 2005.

*5. Physical inventory process*

Beginning with the firstquarter of 2005, management increased its training of all personnel involved inthe physical inventory process at the NRV division, particularly thoseindividuals performing the data entry function. Additionally, the physicalinventory report was revised such that any inventory item, which does notinclude a corresponding item number, will result in an exception requiringfollow-up by management. In addition, the NRV division has implemented enhancedreview procedures by senior management of the reconciliation process betweenthe quantities obtained from the physical inventory tags and the quantitiesobtained from the updated perpetual inventory report. As a result of theincreased training of all personnel involved in the physical inventory process,the revision of certain physical inventory reports and additional controlprocedures implemented, management believes that these actions will remediatethis material weakness. This material weakness was remediated as of December 31,2005.

6. *Unrestrictedaccess to programs and data*

The NRV division hascorrected access rights for known instances in which information technologypersonnel and users with accounting and reporting responsibilities had accessto financial accounting applications programs and data that was incompatiblewith their functional business requirements. The NRV division is also in theprocess of refining and developing ongoing processes to ensure that properaccess rights are granted, reviewed and maintained in a timely manner. As aresult of the correction of access rights of information technology personneland users with accounting and reporting responsibilities and additional controlprocedures implemented, management believes that these actions will remediatethis material weakness. This material weakness was remediated as of December 31,2005.

The Company believes thatit has improved its disclosure controls and procedures and will be able toremedy the remaining material weakness identified as part of itsassessment process at December 31, 2004 and 2005. Notwithstanding theCompany’s remediation efforts, because of the inherent limitations in a cost-effectivecontrol system, misstatements due to error or fraud may occur and not bedetected.

#### **Changes in Internal Control over FinancialReporting**

Except as disclosed above, there have been no changesin the Company’s internal control over financial reporting during the mostrecently completed fiscal quarter that has materially affected, or isreasonably likely to materially affect, the Company’s internal control overfinancial reporting.

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

**PART II- OTHER INFORMATION**

**ITEM 3.****DEFAULTS UPON SENIOR SECURITIES**

At June 30, 2005, the Company was in default withthe covenant of its credit facility with UPS Capital Corporation (“UPSC”)requiring delivery of the Company’s annual consolidated financial statementswithin a required period of time and on that date the Company received anextension letter from UPSC waiving the default on the Company’s requireddelivery date of the annual consolidated financial statements to August 31,2005. Such date was extended to December 15, 2005 as part of the executionby the Company of a new credit facility on August 12, 2005 with UPSC andWells Fargo Bank. The Company filed its Annual Report on Form 10-Kwith the Securities and Exchange Commission on October 11, 2005.

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

Exhibits

| 31.1   |   | Certification of Chief Executive Officer pursuant to  Rule 13a-14(a)/15d-14(a) of the Exchange Act.                       |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                |
| 31.2   |   | Certification of Chief Financial Officer pursuant to  Rule 13a-14(a)/15d-14(a) of the Exchange Act.                       |
|   |   |                                                                                                                                |
| 32.1   |   | Certification pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

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**Table of Contents**

**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:  June 23, 2006 |       | By                                |   | /s/ THOMAS J. MARTINI |
|                      |       |                              |   | Thomas J. Martini |
|                      |       |                              |   | Chief Financial Officer |
|                      |       |                              |   | (Principal Accounting and |
|                      |       |                              |   | Financial  Officer) |

 

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