##### 



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended July 31, 2002

OR

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

Commission File Number 0-16448

HOLIDAY RV SUPERSTORES, INC.

I.R.S. # 59-1834763

State of Incorporation: Delaware

100 Tri-State International Drive
Suite 115
Lincolnshire, IL 60069

(847) 948-1684

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

[X] YES       [   ] NO

As of September 20, 2002 Holiday RV Superstores, Inc. had outstanding 953,068 shares
of Common Stock, par value $.10 per share.

1



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##### 



TABLE OF CONTENTS

|                      |  |                                                                                       |  |      
|--------------------- |  | ------------------------------------------------------------------------------------- |  | -----
|Item                  |  |                                                                                       |  | Page 
|                      |  |                                                                                       |  |      
|Part I               
|Financial Information |  |                                                                                      
|1.                    |  | Condensed Consolidated Balance Sheets                                                 |  | 3-4  
|                      |  | Condensed Consolidated Statements of Operations                                       |  | 5    
|                      |  | Condensed Consolidated Statements of Cash Flows                                       |  | 6-7  
|                      |  | Notes to Condensed Consolidated Financial Statements                                  |  | 8-17 
|2.                    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 18-29
|3.                    |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 30   
|Part II              
|Other Information     |  |                                                                                      
|1.                    |  | Legal Proceedings                                                                     |  | 31   
|2.                    |  | Changes in Securities and Use of Proceeds                                             |  | 31   
|3.                    |  | Defaults Upon Senior Securities                                                       |  | 31   
|4.                    |  | Submission of Matters to a Vote of Securities Holders                                 |  | 31-32
|5.                    |  | Other Information                                                                     |  | 32   
|6.                    |  | Exhibits and Reports on Form 8-K                                                      |  | 33   
|7.                    |  | Certifying Statements of
CEO & CFO                                                    |  | 34-35

2



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##### 



HOLIDAY RV SUPERSTORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

|                            |                                 |                      |              |            |            |            |            |            |            |            | 
|--------------------------- | ------------------------------- | -------------------- | ------------ | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | ---------- | 
|                            |                                 |                      |              |            | 07/31/02   |            | 10/31/2001
|                            |                                 |                      |              |            |            |            |           
|Assets                      |                                 |                      |              |            |            |            |            |           
|Current assets:             |                                 |                      |              |            |            |            |            |           
|                            | Cash and cash equivalents       |                      | $            | 404,159    |            |            | $          | 93,484     |           
|                            | Restricted cash and investments |                      |              | 547,902    |            |            |            | 1,131,662  |           
|                            | Trade accounts receivable       |                      |              | 666,297    |            |            |            | 1,631,871  |           
|                            | Other receivables               |                      |              | 355,286    |            |            |            | 989,492    |           
|                            | Inventories, net                |                      |              | 22,027,060 |            |            |            | 34,363,637 |           
|                            | Prepaid expenses                |                      |              | 610,127    |            |            |            | 161,709    |           
|                            | Refundable income taxes         |                      |              | 93,042     |            |            |            | 529,888    |           
|                            | Property held for sale          |                      |              | 1,237,305  |            |            |            | 633,468    |           
|                            | Other                           |                      |              | 275,573    |            |            |            | 124,958    |           
|                            |                                 |                      |              |            |            |            |            |           
|                            |                                 | Total current assets |              |            | 26,216,751 |            |            |            | 39,660,169 |           
|                            |                                 |                      |              |            |            |            |            |           
|Property and equipment, net |                                 |                      | 8,879,593    |            |            |            | 11,339,229 |           
|Other assets:               |                                 |                      |              |            |            |            |            |           
|                            | Goodwill, net                   |                      |              |           |            |            |            | 5,665,656  |           
|                            | Other                           |                      |              | 989,198    |            |            |            | 229,399    |           
|                            |                                 |                      |              |            |            |            |            |           
|                            |                                 |                      | Total assets |            | $          | 36,085,542 |            |            | $          | 56,894,453 | 
|                            |                                 |                      |              |            |            |            |            |           

(Continued)

3



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##### 



HOLIDAY RV SUPERSTORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

|                                                                                                   |                                                                                                                                                                                                                               |                           |                                                                                  |             |            |        |            |            |            |        | 
|-------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | -------------------------------------------------------------------------------- | ----------- | ---------- | ------ | ---------- | ---------- | ---------- | ------ | 
|                                                                                                   |                                                                                                                                                                                                                               |                           |                                                                                  |             | 07/31/02   |        | 10/31/2001
|                                                                                                   |                                                                                                                                                                                                                               |                           |                                                                                  |             |            |        |           
|Liabilities, Mandatorily Redeemable Convertible Preferred Stock and Shareholders Equity (Deficit) |                                                                                                                                                                                                                               |                           |                                                                                  |             |            |        |            |           
|Current liabilities:                                                                               |                                                                                                                                                                                                                               |                           |                                                                                  |             |            |        |            |           
|                                                                                                   | Floor plan notes payable                                                                                                                                                                                                      |                           | $                                                                                | 19,492,335  |            |        | $          | 31,034,172 |           
|                                                                                                   | Accounts payable                                                                                                                                                                                                              |                           |                                                                                  | 1,954,754   |            |        |            | 2,131,754  |           
|                                                                                                   | Customer deposits                                                                                                                                                                                                             |                           |                                                                                  | 171,300     |            |        |            | 142,962    |           
|                                                                                                   | Accrued expenses and other current liabilities                                                                                                                                                                                |                           |                                                                                  | 3,639,773   |            |        |            | 3,875,897  |           
|                                                                                                   | Deferred finance and insurance income                                                                                                                                                                                         |                           |                                                                                  | 1,412,257   |            |        |            | 1,501,519  |           
|                                                                                                   | Current portion of capital lease obligation                                                                                                                                                                                   |                           |                                                                                  | 48,492      |            |        |            | 126,015    |           
|                                                                                                   | Current portion of LIFO tax liability                                                                                                                                                                                         |                           |                                                                                  |            |            |        |            | 333,935    |           
|                                                                                                   | Current portion of mortgages payable                                                                                                                                                                                          |                           |                                                                                  | 252,835     |            |        |            | 198,412    |           
|                                                                                                   | Current portion of notes payable                                                                                                                                                                                              |                           |                                                                                  | 2,565,000   |            |        |            | 1,662,923  |           
|                                                                                                   | Current portion of deferred gain on leaseback transaction                                                                                                                                                                     |                           |                                                                                  | 48,612      |            |        |            | 48,624     |           
|                                                                                                   |                                                                                                                                                                                                                               |                           |                                                                                  |             |            |        |            |           
|                                                                                                   |                                                                                                                                                                                                                               | Total current liabilities |                                                                                  |             | 29,585,358 |        |            |            | 41,056,213 |       
|                                                                                                   | Long-term deferred finance and insurance income                                                                                                                                                                               |                           |                                                                                  | 807,877     |            |        |            | 855,355    |           
|                                                                                                   | Long-term capital lease obligation, less current portion                                                                                                                                                                      |                           |                                                                                  | 82,161      |            |        |            | 123,177    |           
|                                                                                                   | LIFO tax liability, less current portion                                                                                                                                                                                      |                           |                                                                                  |            |            |        |            | 333,935    |           
|                                                                                                   | Long-term mortgages payable, less current portion                                                                                                                                                                             |                           |                                                                                  | 6,554,598   |            |        |            | 6,787,776  |           
|                                                                                                   | Long-term notes payable, less current portion                                                                                                                                                                                 |                           |                                                                                  | 500,000     |            |        |            | 500,000    |           
|                                                                                                   | Deferred gain on leaseback transaction, less current portion                                                                                                                                                                  |                           |                                                                                  | 340,409     |            |        |            | 376,858    |           
|                                                                                                   | Series A and Series AA common stock warrant                                                                                                                                                                                   |                           |                                                                                  | 165,000     |            |        |            |           |           
|                                                                                                   |                                                                                                                                                                                                                               |                           |                                                                                  |             |            |        |            |           
|                                                                                                   |                                                                                                                                                                                                                               | Total liabilities         |                                                                                  |             | 38,035,403 |        |            |            | 50,033,314 |       
|                                                                                                   |                                                                                                                                                                                                                               |                           |                                                                                  |             |            |        |            |           
|                                                                                                   | Commitments and contingencies                                                                                                                                                                                                 |                           |                                                                                  |             |            |        |            |            |           
|                                                                                                   | Mandatorily Redeemable Convertible Series A preferred stock
$.01 par value; shares authorized 2,000,000 inclusive of preferred stock Series
AA-2; issued and outstanding 20,000 at July 31, 2002, stated at liquidation value |                           |                                                                                  | 2,578,182   |            |        |            |           |           
|                                                                                                   | Mandatorily Redeemable Convertible Series AA-2 preferred stock
$.01 par value; shares authorized 2,000,000 inclusive of preferred stock Series A;
issued and outstanding 15,000 at July 31, 2002, stated at liquidation value |                           |                                                                                  | 1,944,308   |            |        |            |           |           
|                                                                                                   |                                                                                                                                                                                                                               |                           |                                                                                  |             |            |        |            |           
|                                                                                                   | Shareholders Equity (Deficit):                                                                                                                                                                                               |                           |                                                                                  |             |            |        |            |            |           
|                                                                                                   |                                                                                                                                                                                                                               |                           | Common stock, $.10 par, shares authorized 38,000,000;
issued 983,138 and 935,200 |             |            | 98,314 |            |            |            | 93,520 | 
|                                                                                                   | Additional paid-in capital                                                                                                                                                                                                    |                           |                                                                                  | 14,171,491  |            |        |            | 13,630,108 |           
|                                                                                                   | Accumulated Deficit                                                                                                                                                                                                           |                           |                                                                                  | (20,200,501 | )          |        |            | (6,320,834 | )         
|                                                                                                   | Treasury stock, 30,070 shares at cost                                                                                                                                                                                         |                           |                                                                                  | (541,655    | )          |        |            | (541,655   | )         
|                                                                                                   |                                                                                                                                                                                                                               |                           |                                                                                  |             |            |        |            |           
|                                                                                                   | Total shareholders equity (deficit)                                                                                                                                                                                          |                           |                                                                                  | (6,472,351  | )          |        |            | 6,861,139  |           
|                                                                                                   |                                                                                                                                                                                                                               |                           |                                                                                  |             |            |        |            |           
|                                                                                                   | Total liabilities, mandatorily redeemable convertible preferred stock
and shareholders equity (deficit)                                                                                                                      |                           | $                                                                                | 36,085,542  |            |        | $          | 56,894,453 |           
|                                                                                                   |                                                                                                                                                                                                                               |                           |                                                                                  |             |            |        |            |           

See accompanying notes to condensed consolidated financial statements.

4



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##### 



HOLIDAY RV SUPERSTORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

|                                                                                                 |                      |                      |            |                    |            |                   |            |          |           |          |             |            |             |   |             |            |            |  
|------------------------------------------------------------------------------------------------ | -------------------- | -------------------- | ---------- | ------------------ | ---------- | ----------------- | ---------- | -------- | --------- | -------- | ----------- | ---------- | ----------- | - | ----------- | ---------- | ---------- | -
|                                                                                                 |                      |                      |            | THREE MONTHS ENDED |            | NINE MONTHS ENDED
|                                                                                                 |                      |                      |            |                    |            |                  
|                                                                                                 |                      |                      |            | 07/31/02           |            | 07/31/01          |            | 07/31/02 |           | 07/31/01
|                                                                                                 |                      |                      |            |                    |            |                   |            |          |           |         
|Sales and service revenue                                                                        |                      | $                    | 22,859,570 |                    |            | $                 | 36,171,723 |          |           | $        | 61,163,853  |            |             | $ | 110,697,451 |           
|Cost of sales and service                                                                        |                      |                      | 20,716,499 |                    |            |                   | 29,712,651 |          |           |          | 52,163,066  |            |             |   | 92,036,250  |           
|                                                                                                 |                      |                      |            |                    |            |                   |            |          |           |          |             |            |             |   |             |           
|                                                                                                 |                      | Gross profit         |            |                    | 2,143,071  |                   |            |          | 6,459,072 |          |             |            | 9,000,787   |   |             |            | 18,661,201 |  
|Selling, general and administrative expenses                                                     |                      |                      | 6,716,006  |                    |            |                   | 6,539,580  |          |           |          | 16,202,220  |            |             |   | 19,942,129  |           
|Marketing (income) expense                                                                       |                      |                      | (220,000   | )                  |            |                   |           |          |           |          | 1,640,000   |            |             |   |            |           
|Goodwill impairment                                                                              |                      |                      | 4,759,102  |                    |            |                   |           |          |           |          | 4,759,102   |            |             |   |            |           
|Other                                                                                            |                      |                      | (223,853   | )                  |            |                   |           |          |           |          | (223,853    | )          |             |   |            |           
|                                                                                                 |                      |                      |            |                    |            |                   |            |          |           |          |             |            |             |   |             |           
|                                                                                                 |                      | Loss from operations |            |                    | (8,888,184 | )                 |            |          | (80,508   | )        |             |            | (13,376,682 | ) |             |            | (1,280,928 | )
|Other income (expense):                                                                          |                      |                      |            |                    |            |                   |            |          |           |          |             |            |             |   |             |           
|                                                                                                 | Interest expense     |                      |            | (789,363           | )          |                   |            | (968,167 | )         |          |             | (2,115,735 | )           |   |             | (3,598,090 | )         
|                                                                                                 | Note conversion cost |                      |            |                   |            |                   |            |         |           |          |             | (167,784   | )           |   |             | (1,377,581 | )         
|                                                                                                 | Other                |                      |            |                   |            |                   |            | 398,379  |           |          |             |           |             |   |             | 358,562    |           
|                                                                                                 |                      |                      |            |                    |            |                   |            |          |           |          |             |            |             |   |             |           
|                                                                                                 |                      | Total other expense  |            |                    | (789,363   | )                 |            |          | (569,788  | )        |             |            | (2,283,519  | ) |             |            | (4,617,109 | )
|                                                                                                 |                      |                      |            |                    |            |                   |            |          |           |          |             |            |             |   |             |           
|Loss before income tax expense (benefit) and cumulative effect of
change in accounting principle |                      |                      | (9,677,547 | )                  |            |                   | (650,296   | )        |           |          | (15,660,201 | )          |             |   | (5,898,037  | )         
|Income tax expense (benefit)                                                                     |                      |                      | (90,250    | )                  |            |                   | 2,740      |          |           |          | (1,780,534  | )          |             |   | (378,096    | )         
|                                                                                                 |                      |                      |            |                    |            |                   |            |          |           |          |             |            |             |   |             |           
|Net loss before cumulative effect of change in accounting principle                              |                      |                      | (9,587,297 | )                  |            |                   | (653,036   | )        |           |          | (13,879,667 | )          |             |   | (5,519,941  | )         
|Cumulative effect as of November 1, 2000 related to the
Implementation of SAB 101                |                      |                      |           |                    |            |                   |           |          |           |          |            |            |             |   | (2,189,271  | )         
|                                                                                                 |                      |                      |            |                    |            |                   |            |          |           |          |             |            |             |   |             |           
|Net loss                                                                                         |                      |                      | (9,587,297 | )                  |            |                   | (653,036   | )        |           |          | (13,879,667 | )          |             |   | (7,709,212  | )         
|Deemed dividend on redeemable convertible preferred stock                                        |                      |                      | (125,001   | )                  |            |                   |           |          |           |          | (1,214,236  | )          |             |   |            |           
|                                                                                                 |                      |                      |            |                    |            |                   |            |          |           |          |             |            |             |   |             |           
|Net loss available to common stockholders                                                        |                      | $                    | (9,712,298 | )                  |            | $                 | (653,036   | )        |           | $        | (15,093,903 | )          |             | $ | (7,709,212  | )         
|                                                                                                 |                      |                      |            |                    |            |                   |            |          |           |          |             |            |             |   |             |           
|Basic and diluted loss per common share:                                                         |                      |                      |            |                    |            |                   |            |          |           |          |             |            |             |   |             |           
|Loss before cumulative effect of change in accounting principle                                  |                      | $                    | (10.19     | )                  |            | $                 | (0.74      | )        |           | $        | (16.11      | )          |             | $ | (6.64       | )         
|Cumulative effect as of November 1, 2000 related to the
implementation of SAB 101                |                      |                      |           |                    |            |                   |           |          |           |          |            |            |             |   | (2.63       | )         
|                                                                                                 |                      |                      |            |                    |            |                   |            |          |           |          |             |            |             |   |             |           
|Net loss                                                                                         |                      | $                    | (10.19     | )                  |            | $                 | (0.74      | )        |           | $        | (16.11      | )          |             | $ | (9.27       | )         
|                                                                                                 |                      |                      |            |                    |            |                   |            |          |           |          |             |            |             |   |             |           
|Weighted average number of shares
basic and diluted                                              |                      |                      | 953,068    |                    |            |                   | 885,200    |          |           |          | 937,088     |            |             |   | 831,383     |           
|                                                                                                 |                      |                      |            |                    |            |                   |            |          |           |          |             |            |             |   |             |           

See accompanying notes to condensed consolidated financial statements.

5



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##### 



HOLIDAY RV SUPERSTORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

|                                                     |                                                                      |                                                     |         |                   |            |          |            |              |            |  
|---------------------------------------------------- | -------------------------------------------------------------------- | --------------------------------------------------- | ------- | ----------------- | ---------- | -------- | ---------- | ------------ | ---------- | -
|                                                     |                                                                      |                                                     |         | NINE MONTHS ENDED
|                                                     |                                                                      |                                                     |         |                  
|                                                     |                                                                      |                                                     |         | 07/31/02          |            | 07/31/01
|                                                     |                                                                      |                                                     |         |                   |            |         
|Cash Flows from Operating Activities:                |                                                                      |                                                     |         |                   |            |          |            |             
|                                                     | Cash received from customers                                         |                                                     | $       | 63,732,047        |            |          | $          | 110,165,432  |           
|                                                     | Cash paid to suppliers and employees                                 |                                                     |         | (67,769,735       | )          |          |            | (109,455,701 | )         
|                                                     | Interest received                                                    |                                                     |         | 7,472             |            |          |            |             |           
|                                                     | Interest paid                                                        |                                                     |         | (2,123,207        | )          |          |            | (4,145,745   | )         
|                                                     | Income taxes received                                                |                                                     |         | 2,217,380         |            |          |            | 1,452,069    |           
|                                                     | Endorsement
agreement                                                |                                                     |         | (1,500,000        | )          |          |            |             |           
|                                                     |                                                                      |                                                     |         |                   |            |          |            |             
|                                                     |                                                                      | Net cash used in operating activities               |         |                   | (5,436,043 | )        |            |              | (1,983,945 | )
|                                                     |                                                                      |                                                     |         |                   |            |          |            |             
|Cash Flows from Investing Activities:                |                                                                      |                                                     |         |                   |            |          |            |             
|                                                     | Purchase of property and equipment                                   |                                                     |         | (35,518           | )          |          |            | (402,765     | )         
|                                                     | Proceeds from the sale of property and equipment                     |                                                     |         | 993,930           |            |          |            | 108,799      |           
|                                                     | Transfer of restricted cash                                          |                                                     |         | 583,760           |            |          |            | (1,151,345   | )         
|                                                     | Proceeds from casualty gain                                          |                                                     |         |                  |            |          |            | 256,500      |           
|                                                     |                                                                      |                                                     |         |                   |            |          |            |             
|                                                     |                                                                      | Net cash provided by (used in) investing activities |         |                   | 1,542,172  |          |            |              | (1,188,811 | )
|                                                     |                                                                      |                                                     |         |                   |            |          |            |             
|Cash Flows from Financing Activities:                |                                                                      |                                                     |         |                   |            |          |            |             
|                                                     | Proceeds from bridge financing                                       |                                                     |         |                  |            |          |            | 1,500,000    |           
|                                                     | Proceeds from notes payable                                          |                                                     |         | 1,728,000         |            |          |            |             |           
|                                                     | Repayment of capital lease obligations                               |                                                     |         | (118,539          | )          |          |            | (147,705     | )         
|                                                     | Repayments of notes and mortgages payable                            |                                                     |         | (1,244,915        | )          |          |            | (394,891     | )         
|                                                     | Proceeds from the issuance of Series A redeemable preferred stock    |                                                     |         | 2,000,000         |            |          |            |             |           
|                                                     | Payment of Series A issuance cost                                    |                                                     |         | (150,000          | )          |          |            |             |           
|                                                     | Proceeds from the issuance of Series AA-2 redeemable preferred stock |                                                     |         | 1,500,000         |            |          |            |             |           
|                                                     | Payment of Series AA-2 issuance cost                                 |                                                     |         | (10,000           | )          |          |            |             |           
|                                                     | Proceeds from Series B advance                                       |                                                     |         | 500,000           |            |          |            |             |           
|                                                     |                                                                      |                                                     |         |                   |            |          |            |             
|                                                     |                                                                      | Net cash provided by financing activities           |         |                   | 4,204,546  |          |            |              | 957,404    |  
|                                                     |                                                                      |                                                     |         |                   |            |          |            |             
|Net increase (decrease) in Cash and Cash Equivalents |                                                                      |                                                     | 310,675 |                   |            |          | (2,215,352 | )           
|Cash and Cash Equivalents, beginning of year         |                                                                      |                                                     | 93,484  |                   |            |          | 2,215,352  |             
|                                                     |                                                                      |                                                     |         |                   |            |          |            |             
|                                                     |                                                                      |                                                     |         |                   |            | $        |            |             
|                                                     |                                                                      | Cash and Cash Equivalents, end of year              |         | $                 | 404,159    |          |            |              |           |  
|                                                     |                                                                      |                                                     |         |                   |            |          |            |             

(Continued)

6



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##### 



HOLIDAY RV SUPERSTORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  CONTINUED
(Unaudited)

|                                                                                           |                           |                                                                                    |             |                   |             |          |            |   |             |  
|------------------------------------------------------------------------------------------ | ------------------------- | ---------------------------------------------------------------------------------- | ----------- | ----------------- | ----------- | -------- | ---------- | - | ----------- | -
|                                                                                           |                           |                                                                                    |             | NINE MONTHS ENDED
|                                                                                           |                           |                                                                                    |             |                  
|                                                                                           |                           |                                                                                    |             | 07/31/02          |             | 07/31/01
|                                                                                           |                           |                                                                                    |             |                   |             |         
|RECONCILIATION OF NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES                        |                           |                                                                                    |             |                   |             |          |            |  
|Net loss                                                                                   |                           | $                                                                                  | (13,879,667 | )                 |             | $        | (7,709,212 | )
|Adjustments to reconcile net loss to net cash
used in operating activities:                |                           |                                                                                    |             |                   |             |          |            |  
|                                                                                           |                           | Depreciation and amortization                                                      |             |                   | 902,173     |          |            |   | 828,593     |  
|                                                                                           |                           | Amortization of deferred gain                                                      |             |                   | (36,461     | )        |            |   |            |  
|                                                                                           |                           | Stock option compensation and warrant issuance                                     |             |                   |            |          |            |   | 264,489     |  
|                                                                                           |                           | Income tax benefit                                                                 |             |                   | (90,250     | )        |            |   | (378,096    | )
|                                                                                           |                           | Net loss on disposal of property and equipment                                     |             |                   | 252,796     |          |            |   | 1,377,581   |  
|                                                                                           |                           | Impairment of long-lived assets                                                    |             |                   | 490,000     |          |            |   |            |  
|                                                                                           |                           | Reserve on property held for sale                                                  |             |                   | 110,000     |          |            |   |            |  
|                                                                                           |                           | Note conversion expense                                                            |             |                   | 167,784     |          |            |   |            |  
|                                                                                           |                           | Remeasurement of warrant liability                                                 |             |                   | (540,000    | )        |            |   |            |  
|                                                                                           |                           | Marketing expense for warrants issued                                              |             |                   | 2,180,000   |          |            |   |            |  
|                                                                                           |                           | Casualty gain                                                                      |             |                   |            |          |            |   | (358,562    | )
|                                                                                           |                           | Goodwill impairment                                                                |             |                   | 4,759,102   |          |            |   |            |  
|                                                                                           |                           | Good SamTM impairment                                                              |             |                   | 533,332     |          |            |   |            |  
|                                                                                           |                           | Cumulative effect as of November 30, 2001
related to the implementation of SAB 101 |             |                   |            |          |            |   | 2,189,271   |  
|Changes in assets and liabilities                                                          |                           |                                                                                    |             |                   |             |          |            |  
|                                                                                           | (Increases) decreases in: |                                                                                    |             |                   |             |          |            |   |            
|                                                                                           |                           | Contracts in transit                                                               |             |                   |            |          |            |   | 1,485,239   |  
|                                                                                           |                           | Accounts receivable                                                                |             |                   | 1,599,780   |          |            |   | (2,189,812  | )
|                                                                                           |                           | Refundable income taxes                                                            |             |                   | 527,096     |          |            |   | 1,452,069   |  
|                                                                                           |                           | Inventories                                                                        |             |                   | 12,336,577  |          |            |   | 23,291,716  |  
|                                                                                           |                           | Prepaid expenses                                                                   |             |                   | (448,418    | )        |            |   | (79,624     | )
|                                                                                           |                           | Payment
of Good Sam Endorsement Fee                                               |             |                   | (1,500,000  | )        |            |   |            |  
|                                                                                           |                           | Other assets                                                                       |             |                   | (562,644    | )        |            |   | 332,530     |  
|                                                                                           | Increases (decreases) in: |                                                                                    |             |                   |             |          |            |   |            
|                                                                                           |                           | Floor plan contracts                                                               |             |                   | (11,541,837 | )        |            |   | (25,056,548 | )
|                                                                                           |                           | Accounts payable                                                                   |             |                   | (177,000    | )        |            |   | 3,538,020   |  
|                                                                                           |                           | Customer deposits                                                                  |             |                   | 28,338      |          |            |   | (401,638    | )
|                                                                                           |                           | Accrued expenses                                                                   |             |                   | (479,998    | )        |            |   | (569,961    | )
|                                                                                           |                           | Preferred stock dividends paid                                                     |             |                   | (66,746     | )        |            |   |            |  
|                                                                                           |                           |                                                                                    |             |                   |             |          |            |  
|Net cash used in operating activities                                                      |                           | $                                                                                  | (5,436,043  | )                 |             | $        | (1,983,945 | )
|                                                                                           |                           |                                                                                    |             |                   |             |          |            |  
|Non cash investing and financing activities:                                               |                           |                                                                                    |             |                   |             |          |            |  
|Notes
payable and $27,866 of accrued interest converted
into 47,982 shares of common stock |                           | $                                                                                  | 287,629     |                   |             | $        |           |  
|                                                                                           |                           |                                                                                    |             |                   |             |          |            |  

See accompanying notes to condensed consolidated financial statements.

7



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:

The unaudited condensed consolidated financial statements presented herein
have been prepared in accordance with the instructions to Form 10-Q, and do not
include all of the information and disclosures required by generally accepted
accounting principles. These statements should be read in conjunction with the
financial statements and notes thereto included in the Companys Annual Report
on Form 10-K for the year ended October 31, 2001. In the opinion of management,
the accompanying financial statements include all adjustments, consisting only
of normal recurring adjustments and accruals, inter-company eliminations, and
any significant adjustments relating to specific events which occurred during
the periods presented which are necessary to summarize fairly the Companys
financial position and results of operations.

Basis of Presentation:The accompanying Condensed Consolidated Financial
Statements have been prepared on a going concern basis, which contemplates
continuity of operations, realization of assets, and liquidation of liabilities
in the ordinary course of business and do not reflect adjustments that might
result if the Company is unable to continue as a going concern.

As more fully discussed in Note 5 the Companys primary floor plan
agreement entered into in fiscal year 2001 expired on November 30, 2001.
Through March 15, 2002, the Company financed its new and used marine and
vehicle inventory at eight of its locations under a forbearance agreement that
expired March 15, 2002 at which time the parties agreed to amend the expired
agreement essentially under the same terms through October 31, 2002 lowering
the maximum borrowing to $20,000,000. On May 15, 2002, the maximum borrowing
commitment was further reduced to $19,032,679 as the result of the sale of real
property, which served as additional collateral for the floor plan agreement.
The reduced borrowing level does not provide the Company sufficient capacity to
meet its business plan requirements. Additionally, as of
July 31, 2002, the Company was not in compliance with certain
covenants contained within the floor plan agreement and has not
received waivers for such events of defaults. On September 18,
2002 the lender has provided notification preserving their rights
with respect to the events of default. Through September 20, 2002,
the lender has not communicated any intention relating to the
violation of the covenants. However, there can be no assurance that
the lender will not call the loan. These circumstances raise substantial
doubt about the Companys ability to continue as a going concern. The Company
is in discussions with other lenders to provide a new alternative floor plan
agreement to meet all of the Companys floor plan capacity and to meet its
business plan requirements. While the Company has retained the ability to floor
plan its inventory, failure to come to terms with its alternative floor plan
lenders or obtain sufficient floor plan financing could have a material adverse
effect on the Company and raises substantial doubt about the Companys ability
to continue as a going concern and to achieve its intended business objectives.

See also discussion in Note 7 on the Companys transfer to the Nasdaq
Small Cap Market and period of non-compliance with listing requirements, which
also raises substantial doubt regarding the Companys ability to continue as a
going concern.

8



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Additionally, the
Company incurred a net loss of $15,093,903, $18,021,656 and
$3,204,775 for the nine month period ended July 31, 2002, fiscal 2001
and 2000, respectively, and incurred net cash outflows from
operations of $5,436,043, $2,504,120 and $568,465 for the nine month
period ended July 31, 2002, fiscal 2001 and 2000, respectively. As
of October 31, 2001 certain inventory initiatives coupled with restrictions placed
on the Companys ability to order new product by its primary floor plan lender
resulted in a 42.7% reduction in the year-over-year inventory levels with an
additional 35.9% reduction since October 31, 2001. In addition, the short-term
performance and the long-term potential for each retail location were reviewed
together with each dealerships management team. As a result, three dealerships
that were under-performing or competing in the same markets were closed and/or
consolidated into other Company dealerships during the fiscal year ended
October 31, 2001 and an additional three more dealerships were closed and
consolidated during the nine month period ended July 31, 2002. Three more
stores have been identified as underperforming either due to the demographics
in the geographic market in which they operate or due to a competitive
disadvantage. Management anticipates that two of the stores will be closed and
consolidated into other stores within the geographic region prior to September
30, 2002. The Company continues to evaluate the viability of the third
dealership and if the Company can relieve itself of certain obligations
associated with the third dealership it will decide to exit that market.
Management believes that with the restructuring of its dealerships and the
focus on managing its inventory to optimum levels and turns, the continuation
of rigid expense control, the infusion of additional capital and the continued
support of its primary floor plan lender under more favorable terms, improved
revenues, profits and cash flows from operations of remaining stores will
result in the fourth quarter of fiscal year 2002, provided that sufficient
floor plan funding is available. However, there can be no assurance
that the Company's business plan will be achieved or the Company will
be able to obtain sufficient floor plan availability. While management believes that the remaining
same store operating performance will improve in the remainder of the fourth
quarter of fiscal year 2002, the Company will be required to obtain additional
outside funding to fund operating deficits. Management further believes that
additional financing will be made available to support the Companys liquidity
requirements and that certain costs and expenditures could be reduced further
should any needed additional funding not be available. Failure to raise
additional capital, generate sufficient revenues or continue to restrain
discretionary spending could have a material adverse effect on the Company and
raises substantial doubt about the Companys ability to continue as a going
concern and to achieve its intended business objectives.

Effective November 1, 2000, the Company changed its revenue recognition
policy related to commissions earned by the Company for placing retail
financing contracts with indirect lending institutions in connection with
customer vehicle and marine purchases and customer purchases of credit life
insurance products to defer these commissions until the chargeback period has
lapsed. Also effective November 1, 2000, the Company changed its revenue
recognition policy related to commissions earned on the sale of administrator
obligor extended warranty and service contracts to defer these commissions
until the 100% charge back period has lapsed and to recognize revenue ratably
over the remaining life of the contracts as commissions are earned and not
subject to chargeback. This change was made in accordance with the
implementation of the U.S. Securities and Exchange Commission Staff Accounting
Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101).
The effect of this change is reported as the cumulative effect of a change in
accounting principle in the year ended October 31, 2001. The net effect
reflects the deferral as of November 1, 2000 of $2,189,271 of revenue net of
chargebacks previously recognized. As required by SAB 101, the Company has
restated its previously reported financial statements for the three and nine
month periods ended July 31, 2001 to include the effects of this accounting
change.

On August 7, 2002 the Company affected a 1-for-10 reverse split of all
outstanding shares and treasury shares of the Companys common stock. All
share and per share data contained herein reflects completion of the
above-described 1-for-10 share reverse stock split.

9



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NOTE 2: Inventories

Inventories are summarized as follows:

|                      |  |             |            |            |  |   |            | 
|--------------------- |  | ----------- | ---------- | ---------- |  | - | ---------- | 
|                      |  | (unaudited) |            |           
|                      |  |             |            |           
|                      |  | 7/31/2002   |            | 10/31/2001
|                      |  |             |            |           
|New Vehicle           |  | $           | 17,939,827 |            |  | $ | 27,279,230 | 
|New Marine            |  |             | 832,901    |            |  |   | 516,340    | 
|Used Vehicle & Marine |  |             | 2,337,171  |            |  |   | 5,208,373  | 
|Parts and accessories |  |             | 917,161    |            |  |   | 1,359,694  | 
|                      |  |             |            |            |  |   |            | 
|                      |  | $           | 22,027,060 |            |  |   | 34,363,637 | 
|                      |  |             |            |            |  |   |            | 

During the nine month period ended July 31, 2002, the Company recorded a charge
of $2,219,841 to adjust the carrying value of certain of its inventory to the
lower of cost or net realizable value. This charge was recorded to reflect a
decline in the market value of the related units resulting from various
factors, including the state of the economy in general and supply and demand
for new and used RV and marine products in addition to the existence of excess parts inventories resulting from the
consolidation of several stores parts inventories into fewer selling points.
The Company's inability to obtain sufficient floor plan availability
could have a detrimental impact on the Company's business plan with
respect to the Company's inventory mix and resulting traffic levels.
This coupled with the same factors previously discussed, could result in future charges.

Note 3: Goodwill

The excess of the purchase price over the fair values of the net assets
acquired from acquisitions of businesses has been recorded as goodwill and is
being amortized on a straight-line basis over 20 years.

During the three
months ended July 31, 2002, the Company reevaluated its tax liabilities
which were established at the acquisition date of a business and the Company has
determined that, due to continued operating losses, those liabilities will not be incurred which resulted
in a reduction of goodwill in the amount of $667,870. Amortization
expense for the three and nine month periods ended July 31, 2002 and
2001 was $79,638 and $238,762, and $87,615 and $294,497,
respectively. Accumulated amortization at July 31, 2002 and October 31, 2001 totaled $892,955 and 654,272, respectively. As discussed
below, a goodwill impairment charge of $4,759,102 was recorded as a charge to operations during the
three months ended July 31, 2002.

The Company continually evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of intangible
assets or whether the remaining balance of intangible assets should be
evaluated for possible impairment. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the intangible
assets and other economic factors in measuring whether there is an impairment. Measurement of the
amount of
impairment may be based upon appraisals, market values of similar assets or
estimated discounted cash flow resulting from the use and ultimate disposition
of the asset.

In July 2002, the Company decided to close and consolidate one of the
Companys dealerships. As of July 31, 2002, the unamortized goodwill relating
to that dealership was $922,383 and deemed to be not realizable. Accordingly,
the Company recorded a non-cash charge to write off the unamortized balance.
Management has reassessed the realizability of the goodwill associated with a
dealership acquired in March 2000. As of July 31, 2002, this dealership had
just completed going through three complete selling seasons and has not been
able to demonstrate that it can generate sufficient cash flows to recover the
unamortized goodwill of $1,631,900 as of July 31, 2002 related to the store.
Based on the historical experience of this dealership, management does not
believe that this goodwill is recoverable.
Accordingly, the Company recorded a non-cash charge to write off the
unamortized balance. Additionally, management has reassessed the
realizability of the goodwill associated with a dealership acquired in November
2000. As of July 31, 2002, this dealership had just completed going through
two complete selling seasons and has not been able to demonstrate that it can
generate sufficient cash flows to recover the unamortized goodwill of $591,957
as of July 31, 2002 related to the store. Based on the historical experience
of this dealership, management does not believe that this

10



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goodwill is recoverable. Accordingly, the Company recorded a non-cash charge
to write off the unamortized balance. Finally, the Company has reassessed the
recoverability of the unamortized goodwill associated with a facility that was
previously destroyed by fire. It was the Companys expectation to have the
facility repaired and placed back in service within several months. Due to
delays in construction the reopening was significantly postponed. Due
to the significant delay in reopening the dealership and the
resulting loss of competitive advantage in the marketplace, management has determined that the unamortized
balance of the goodwill of $1,612,862 is no longer realizable. Accordingly,
the Company recorded a non-cash charge to write off the unamortized balance.

NOTE 4: Endorsement Agreement

In March 2002, the Company entered into an agreement with Affinity Group
Inc., a company wholly owned by the majority holder of the Companys Series A
Preferred Stock (see Note 7) and all of the Company Series AA
Preferred Stock (see Note 8). That agreement grants the Company a non-exclusive
right to use its Good Sam name and logo, including trade names of all of
Affinitys service marks in connection with the sales and service of the
Companys products for a period of three years. Under the agreement, Affinity
and the Company agreed to develop a marketing program for certain products and
services offered by Affinity through its Good Sam program. The Company paid
Affinity a one-time fee of $1,500,000 for the license in March 2002. In
addition, the Company may be required to pay additional royalties for the use
of licenses and other trademarks under the agreement. The Company is
amortizing the cost of the endorsement agreement on a straight-line basis over
the three-year term of the agreement. Amortization expense for the three and
nine months ended July 31, 2002 is $125,001 and $166,668, respectively. During
the three months ended July 31, 2002, the Company re-assessed the
realizability of the costs associated with the Good Sam endorsement
agreement. At the time the agreement was consummated, the Company was
operating 10 dealerships and it was anticipated that Company would be able to
recover the costs associated with the endorsement agreement through benefits
derived at all 10 dealerships. During the three months ended July 31, 2002,
the Company closed one dealership and anticipates closing another two
dealerships prior to September 30, 2002. In addition, the Company anticipates
selling one more dealership in September 2002 if the Company can relieve itself
of certain obligations associated with the dealership. As a result the Company
recorded an impairment charge of $533,332. Management believes that
the remaining unamortized balance will be realized through future sales at
remaining dealerships resulting from additional traffic caused by the
Good Sam affiliation. However, as a result of the circumstances described
in Note 1, the Company may not be able to meet its business plan
and additional adjustments to the financial statements may result.

NOTE 5: Floor Plan Contracts

The primary floor
plan lender amended the forbearance agreement to extend the floor plan financing agreement to March 15, 2002 at which time
the parties agreed to amend the expired forbearance agreement essentially under
the same terms through October 31, 2002 lowering the maximum borrowing to
$20,000,000 and adjusting the financial covenants based on the Companys fiscal
2002 business plan. The Company has been charged a loan origination fee of
$200,000 with $50,000 paid at closing, $50,000 paid on May 7, 2002 and the
remaining balance of $100,000 to be paid at maturity. Of the total fees,
$100,000 will be waived if the loan is paid in full before maturity. In
connection with the amendment, the financial covenants were adjusted effective
March 15, 2002. As of
July 31, 2002, the Company was not in compliance with certain
covenants contained within the floor plan agreement and has not
received waivers for such events of defaults. On September 18,
2002 the lender has provided notification preserving their rights
with respect to the events of default. Through September 20, 2002,
the lender has not communicated any intention relating to the
violation of the covenants. However, there can be no assurance that
the lender will not call the loan. In May 2002, the maximum borrowing commitment was further
reduced to $19,032,679 in connection with the Companys sale of certain real
property (see note 11).

The Company has a floor plan facility with a
$5,000,000 commitment level and $2,609,038 outstanding on the facility
as of July 31, 2002. The lender has requested additional security
for the facility and has temporarily suspended the facility as of
July 31, 2002 until such security is received. Additionally the
lender could call the loan.

11



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The Company has negotiated an arrangement with one of its floor plan
providers that requested to be paid down in February 2001 because of the
Companys less than acceptable performance under its floor plan agreement and
because the provider subsequently exited the business of providing floor plan
financing to RV dealers. The Company is currently paying off the outstanding
balance of $467,404 at July 31, 2002 as units are sold and repaying past due
amounts on a mutually agreed schedule. On August 26, 2002, the Company entered
into a two year term note for $253,598 which is net of an initial payment of
$100,000 due September 2002. The note is payable in equal monthly installments
beginning in September 2002 and bears interest at a rate of prime plus 5%. The
Company anticipates concluding the pay down of the remaining floor
plan in
September 2002.

The Company is in discussions with other lenders to provide all of the
Companys floor plan capacity or to increase the amount of floor plan financing
available to allow for additional dealerships to be included under the other
major floor plan agreements. There can be no assurance that the Company will
come to terms with its prospective lenders under either scenario to obtain
sufficient alternative floor plan financing to meet its business plan
requirements.

NOTE 6: Note Payable

On March 18, 2002, AGHI Finance Co., LLC, an affiliate of Affinity Group,
Inc. (see Note 4) loaned the Company $1,600,000 for a term of one year at an
interest rate of 20%, payable quarterly, one half of which may be paid in stock
at the discretion of the Companys board of directors. If certain specified
events of default occur, as defined in the loan agreement, the lender
may declare the principle and interest payable immediately, the interest rate
increases to 25% and the Company is subject to a 6% late fee if the event of
default is a lack of timely payment. As collateral for the note a lien has been
placed on all assets of the Company. However, through
September 20, 2002, the lender has not communicated any
intention relating to the prepayment of the note. However,
there can be no assurance that the lender will not call the loan. As of July 31, 2002, the interest rate on
the note was 25%, as the Company had not paid the interest due in cash relating
to the months of June and July 2002. The Company was charged a $50,000
origination fee, which is included in the note and is being amortized over the
life of the loan. In accordance with the terms of the note, the Company is
committed to pay a fee equal to 10% of the loan amount 91 days and 181 days
from the loan origination date. These fees can be paid in the form of the
Companys common stock. Accordingly, the Company accrued $320,000 on March 18,
2002 and is amortizing these fees to interest over the life of the loan.
Additionally, the stockholders of the Company approved the issuance of a
warrant, relating to this note, to purchase 90,000 shares of its common stock exercisable at $5.00 per
share with a term of five years.

NOTE 7: Series A Preferred

On January 3, 2002, the Companys Board of Directors authorized the
issuance of up to 35,000 shares of Series A Preferred Stock, of which 8,807
have been designated Sub-Series A-1 Convertible Preferred Stock (the Series
A-1 Shares) and 26,193 have been designated Sub-Series A-2 Stock (the Series
A-2 Shares, collectively the Series A Shares). The Series A stockholders are
entitled to dividends at a rate of 10% of the purchase price per annum, which
accrue on a daily basis and are payable in cash each quarter. If certain
specified events of default occur, that dividend rate increases to
15%. The Series A-1 and A-2 Shares have identical rights
and preferences. The Series A Shares are also entitled to a redemption payment
equal to 125% of the original issuance price plus accrued and unpaid dividends
(the Liquidation Price) upon the sale or liquidation of the Company or upon
an event of default, as defined. Upon the occurrence of a default, as
defined in the Certificate of Designation, Rights and Preference, to
include the failure to pay dividends, each holder of the
Series A shares has the right to request redemption of the
Series A shares at their liquidation price. However, through
September 20, 2002, the Company has not received any notices
requesting the redemption of the Series A preferred. As of July 31, 2002, the dividend rate was
15%, as the Company had not made the Series A Preferred quarterly dividend
payments due March 31, 2002 and June 30, 2002, which constitutes an event of
default under the Certificate of Designation, Rights and Preference.

12



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The Company is required to redeem the Series A shares, including any
accrued and unpaid dividends, on December 31, 2007 and therefore
the Series A shares have been
classified in the mezzanine section in the accompanying balance sheet.
Redemption may be required sooner at the Liquidation Price in the event of a change
in control, as defined in the Certificate of Designation, Rights and
Preferences, a delisting of the Companys common stock, or a failure to honor a
conversion request and other events including non-payment of dividends. On
February 14, 2002, prior to the Companys filing of its Form 10-Q for the
period ended January 31, 2002, the Company was notified by the Nasdaq National
Market that it had failed to comply with certain listing requirements and was
therefore subject to delisting. Accordingly, the Company recorded the Series A
shares at their Liquidation Price in January 2002. On April 29, 2002, the
Nasdaq Listing Qualifications Panel approved the Companys transfer from the
Nasdaq National Market to the Nasdaq SmallCap Market. At that time, the
Company was not in compliance with the Nasdaq price per share listing
requirement. On August 23, 2002, the Company received notification from Nasdaq
that the Company had successfully met the price per share listing requirement.
There can be no assurance that the Company will be able to maintain its listing
requirements in the future and, as a result of non-payment of dividends due on
March 31, 2002 and June 30, 2002, an event of default existed at July 31, 2002.
Accordingly, the Company continues to reflect the Series A shares at their
Liquidation Price in the condensed consolidated balance sheet as of July 31,
2002.

In January 2002, the
Company sold 20,000 shares of Series A preferred stock for
$2,000,000, with warrants to purchase 87,500 shares of common stock
at an exercise price of $5.00 per share. The voting and conversion rights of
the Series A-2 shares were subject to stockholder approval. The Company
received approval at its 2002 Annual Meeting of its Stockholders.

The Series A-1 and Series A-2 shares are being sold on a pro-rata basis to
investors, up to the maximum of 35,000 Series A shares authorized. If the
Company does not issue all of the Series A-1 shares, investors will be entitled
to exchange each Series A-2 share for Series A-1 shares on a pro-rata basis
until all Series A-1 shares have been issued. As of July 31, 2002, the Company
had sold 5,033 and 14,967 shares of Series A-1 and Series A-2 shares,
respectively, for net proceeds of $1,850,000.

In January 2002, the Company issued shares of its Series A preferred stock
for $1,500,000 to an investor in connection with a strategic business
relationship. That relationship is described in Note 4. These shares were also
sold as units. Because of the ongoing discussions between the Company and the
investor regarding the Affinity Endorsement Agreement, and the proximity of the
issuance of the Series A preferred stock and the Affinity Endorsement
Agreement, the Company believes that the application of EITF Issue No. 01-1,
Accounting for a Convertible Instrument Granted or Issued to a Nonemployee for
Goods or Services or a Combination of Goods or Services and Cash(EITF No
01-1) is appropriate. On the date of the transaction, the Companys stock
was trading at $10.00 per share and the conversion feature of the Series A
preferred stock was priced at $5.00 per share. Therefore, the fair market
value of the Series A preferred stock on the date of the transaction on an
if-converted basis was $3,000,000. The related warrants, valued utilizing
the Black-Scholes option-pricing model as discussed below, had a fair market
value of $500,000 on the date of the transaction. Combined the units had a
fair value of $3,500,000 at the date of the transaction. In accordance with the
consensus in EITF Issue No. 01-1, the Company has recorded a charge of
$2,000,000, which is equal to the excess of the fair market value of the units
over the amount received in cash. The Company considered this cost to be an
inducement for Affinity to enter into future strategic relationships with the
Company, as evidenced by the Affinity Endorsement Agreement. That amount has
been classified as marketing expense in the accompanying statement of
operations for the nine months ended July 31, 2002.

13



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In addition, the
Company sold 5,000 shares of Series A preferred stock, with
warrants to purchase 12,500 shares of common stock at an exercise
price of $5.00 per share, to another investor for gross
proceeds of $500,000. Because the Series A-1 shares that comprise a part of
those units convert to common stock at a conversion price that was less than
the quoted market price of its common stock on the date of the transaction, the
Company has recorded a beneficial conversion as discussed below. On the date of
the transaction, the Companys stock was trading at $10.00 per share and the
conversion feature of the Series A preferred stock was priced at $5.00 per
share. Therefore, the fair market value of the Series A preferred stock on the
date of the transaction on an if-converted basis was $1,000,000. The related
warrants, valued utilizing the Black-Scholes option-pricing model as discussed
below, had a fair market value of $167,000 on the date of the transaction.
Accordingly, the portion of the proceeds ascribed to the Series A preferred
stock is $333,000 (the total proceeds of $500,000 less the portion ascribed to
the warrants of $167,000). The beneficial conversion value adjusted for the
fair value allocation would have been in excess of $333,000 and therefore, is
limited to that amount. However, because the Series A preferred stock was
subject to immediate mandatory redemption, given the potential of default
relating to Nasdaq delisting issues previously discussed, the Series A
preferred stock was accreted to its liquidation price. The beneficial
conversion feature equal to the conversion feature of $333,000 plus additional
accretion up to its liquidation price has been recognized as a deemed dividend
to the Series A stockholders in the accompanying statement of operations for
the nine months ended July 31, 2002.

The warrants contain certain provisions that may preclude the Company from
settling them in shares at the time they are exercised. Accordingly, in
accordance with EITF Issue No. 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Companys Own Stock", the
Company has classified those warrants as a liability in the accompanying
balance sheet. Furthermore, those warrants will be remeasured each period with
changes in their fair value reflected in the Companys statement of operations.
The warrants were valued at the date of issuance utilizing the Black-Scholes
option-pricing model using the Nasdaq closing bid price on the date of the
transaction as the fair value, $5.00 as the exercise price, and historical
volatility rate of 41% and a risk-free six-year interest rate of 5.01%. The
Black-Scholes option-pricing model is also used at each remeasurement date. As
of July 31 2002, the Companys condensed consolidated balance sheet includes a
Series A common stock warrant liability of $95,000. The effect of remeasuring
the warrants on the Companys statement of operation for the three and nine
months ended July 31, 2002, was a reduction of marketing expense of $110,000
and $430,000, respectively for the warrants issued to an investor in connection
with a strategic business relationship (see Notes 4 and 8) and an interest
expense reduction of $35,000 and $135,000, respectively relating to the
remaining warrants.

The Certificate of Designation, Rights and Preferences also provides for
adjustment in the conversion price of the Series A shares in the event of
certain future events. However, because the Company recorded the maximum
beneficial conversion feature at issuance, no further beneficial conversion
will be recognized if and when those events occur.

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NOTE 8: Series AA-2 preferred stock

In March 2002, the Companys board of directors designated a new series of
preferred stock as Series AA-2 preferred stock and authorized the issuance of
15,000 shares of that series to raise a total of $3,500,000. In March 2002,
the Company sold 150 units (each of which consisted of 100 shares of Series
AA-2 preferred stock and warrants to purchase 500 shares of common stock at an
exercise price of $5.00 per share) for a purchase price of $1,500,000, less
transaction costs of approximately $10,000, to the majority holder of the
Series A preferred stock issued in January 2002. The Series AA-2 preferred
stock that is included in the units has the same preferences, rights,
qualifications, limitations and restrictions as the Series A-2 shares issued in
January 2002. However, through September 20, 2002, the lender has
not communicated any intention relating to the prepayment of the
note. As of July 31 2002, the dividend rate was 15% as the Company had
not made the Series AA-2 preferred quarterly dividend payments due June 30,
2002, which constitutes an event of default under the Certificate of
Designation, Rights and Preferences. The shares of Series AA-2 preferred stock
are initially convertible at a conversion price of $5.00 per share. The Series
AA-2 preferred stock is classified as redeemable preferred stock in the
mezzanine section of the Companys condensed consolidated balance sheet as of
July 31, 2002. In connection with the issuance of the Series AA-2 preferred
stock, the Company also granted the purchaser a right of first refusal with
respect to the potential sale by the Company of certain real property. These
units were sold to an investor in combination with establishing a strategic
relationship between an affiliate of that investor and the Company. That
relationship is described above. Those units had a fair value of approximately
$1,680,000 at the date of the transaction. In accordance with the consensus in
EITF Issue No. 01-1, Accounting for a Convertible Instrument Granted or Issued
to a Nonemployee for Goods or Services or a Combination of Goods or Services
and Cash,the Company recorded a charge equal to the excess of the fair value
of the units over the amount received in cash as marketing expense in its
statement of operations for the nine months ended July 31, 2002. The
accompanying warrants contain certain provisions that may preclude the Company
from settling them in shares at the time they are exercised. In accordance with
EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Companys Own Stock,the Companys condensed
consolidated balance sheet includes a Series AA-2 common stock warrant
liability of $70,000 as of July 31, 2002. Furthermore, those warrants will be
remeasured each period with changes in their fair value reflected in the
Companys statement of operations. The effect of remeasuring the warrants on
the Companys statement of operations for the three and nine months ended July
31, 2002, was a reduction of marketing expense of $110,000. Since the Series
AA-2 preferred stock was subject to immediate mandatory redemption, given the
potential of default relating to Nasdaq delisting issues previously discussed,
the Series AA-2 preferred stock was accreted to its liquidation price at July
31, 2002.

NOTE 9: Series B Preferred

In December 2001 and February 2002 the Company received $250,000,
respectively, as the first and second tranche payments on a proposed investment
of $1,250,000 in Series B preferred stock of the Company. The terms are
expected to be essentially identical to the Series A preferred stock, except
that the Series B preferred stock will be junior in status to the Series A
preferred stock. Final placement of the Series B preferred stock is also
subject to final negotiation and completion of definitive documentation and all
authorizations required under applicable law. The proceeds are expected to be
used to repay the Companys 15% $1,000,000 bridge financing obtained in
December 2000. At July 31, 2002, the $500,000 payment is classified as a
current liability in the current portion of notes payable.

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NOTE 10: Bridge Financing

As of January 31, 2002, the Company agreed to convert into 47,938 shares
of common stock, at a per share conversion price of $6.00, $287,629 of the
unpaid balance including accrued interest of $27,866 on certain bridge
financing and a demand loan from an affiliate of a former director and a former
officer/director of the Company. The market price of the Companys common stock
at the conversion date was $9.50. Had the conversion been made at market price,
the Company would have issued 30,277 shares. The incremental shares issued
(17,662) valued at market price is $167,784 and has been recorded as note
conversion expense. The remaining balance of the bridge financing and demand
loan of $128,000 has been assigned by the former officer/director of the
Company to the Companys CEO in settlement of non-Company obligations between
these two related parties. The CEO agreed to eliminate the interest charge
prospectively. On April 17, 2002, the outstanding balance was paid in full to
the Companys CEO.

In January 2002, the Company agreed to restructure the $500,000 6.75%
bridge financing received in August 2001 by converting $250,000 into common
stock and with the per share conversion price to be determined at a future date
to be determined by the Companys management. Payment of the remaining $250,000
balance will be due no later than December 31, 2003. In
addition, the holder agreed to release the junior security interest in the
Tampa, Florida and Las Cruces, New Mexico properties.

NOTE 11: Sale of Tampa Property

On May 7, 2002, the Company entered into a contract to sell its Tampa,
Florida facility for $1,026,000. The transaction closed on May 15, 2002 and
the Company realized proceeds of $967,320, net of transaction costs. The
proceeds from the transaction were used to reduce the aggregate outstanding
loan balance on the Companys primary floor plan agreement. The gain of
$333,852 relating to this sale is included in loss from operations for the
three months ended July 31, 2002.

NOTE 12: Income Tax Benefit

On March 9, 2002, the Job Creation and Worker Assistances Act (H.R.
3090) became effective. The new law made numerous changes to the U.S. corporate
tax laws, including the temporary extension of the general net operating loss
carry back period to five years (from two years under prior law) for net
operating losses arising in taxable years ending in 2001 and 2002. As a result
of the change in tax law, the Company was able to carry back net operating
losses, which were fully reserved with a valuation allowance. Accordingly, the
Company recorded an income tax benefit of $1,690,284 to reflect the change in
the Companys tax valuation allowance.

Note 13: Impairment of Long-Lived Assets

Impairment of long-lived assets are recognized when events or changes in
circumstances indicate that the carrying amount of the asset, or related groups
of assets, may not be recoverable and the Companys estimate of undiscounted
cash flows over the assets remaining estimated useful life are less than the
assets carrying value. Measurement of the amount of impairment may be based
upon appraisals, market values of similar assets or estimated discounted future
cash flows resulting from the use and ultimate disposition of the asset. Due
to managements continued focus on the operations of the Company and the
related closing and consolidation of one of the Companys dealerships, during
the three months ended July 31, 2002 the Company recognized a non-cash charge
of $490,000 relating to an impairment of leasehold improvements and fixed
assets of the related operation, which is included in selling, general and
administrative expenses in the condensed consolidated statement of operations.

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Note 14: Subsequent Events

On September 13, 2002, the Company received an advance of $500,000 from the
majority owner of the Companys preferred stock.

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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations

Cautionary Statement Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements.
These forward-looking statements may generally be identified by introductions
such as outlook for an upcoming period of time, or words and phrases such as
should, expects, hopes, plans, anticipates, projected, believes,
forward-looking (or variants of those words and phrases) or similar language
indicating the expression of an opinion or view concerning the future. Any
forward-looking statements made by or on behalf of the Company are subject to
uncertainties and other factors that could cause actual results to differ
materially from such statements. The uncertainties and other factors include,
but are not limited to, the factors listed in the Companys Annual Report on
Form 10-K for the year ended October 31, 2001 (many of which have been
discussed in prior SEC filings by the Company). Although the Company has
attempted to list the factors it believes to be important to its business, the
Company cautions investors that other factors might prove to be important in
affecting the Companys results of operations. New factors emerge from time to
time and it is not possible for management to predict all such factors, nor can
it assess the impact of each factor on the business or the extent to which any
factor, or combination of factors, may cause actual results to differ
materially from forward-looking statements.

Investors are further cautioned not to place undue reliance on any
forward-looking statements as they speak only of the Companys view as of the
date the statement was made.

General

Holiday RV Superstores, Inc. is a multi-store chain that retails,
finances, and services recreation vehicles, or RVs, and other recreation
vehicles. As of July 31, 2002, the Company operated nine retail centers, two
in central and north central Florida, one in Spartanburg, South Carolina, two
in Californias central valley cities of Roseville and Bakersfield, one in Las
Cruces, New Mexico, one in Prosperity, West Virginia, one in Wytheville,
Virginia, and one in Lexington, Kentucky. Since July 31, 2002, the Company has
closed and consolidated the stores in north central Florida and Wytheville,
Virginia and anticipates closing on the sale of the store in Roseville,
California in September 2002. The Clermont store (into which the central
Florida store will be consolidated), which was destroyed by fire in
April 2001, will reopen
in September 2002 bringing the total number of retail centers operated by the
Company to six. The Company operates on a fiscal year beginning on the first
day of November and ending on the last day of October. References herein to
Holiday, Recreation USA, we, us or our refer to Holiday RV
Superstores, Inc. and its consolidated subsidiaries unless the context
specifically requires otherwise.

See discussion in Note 1, Basis of Presentation, and in the Liquidity and
Capital Resources section concerning substantial doubts about our ability to
continue as a going concern.

Our growth depends primarily on our ability to obtain the necessary
capital to support our operations and allow us to successfully execute our
business plan. Key elements of our business plan include opening new stores,
increasing the performance of our existing locations, and, growing through
selective acquisitions in limited circumstances. Our inability to meet our
projected growth potential will adversely impact our business.

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Our primary focus in fiscal 2000 was on acquiring well-established RV and
marine dealerships with strong leadership roles in key geographic markets with
strong demographics. We then worked to improve their performance and
profitability by implementing our operating strategies. Our rapid
growth during this period coupled with a downturn with the general
state of the economy, resulted in significant reductions in our
working capital and an immediate deterioration in our results of
operations caused by insignificant levels of working capital. In fiscal 2001, our
primary strategy focused on integrating the acquired dealerships into our
corporate structure, reducing our inventory turnover rates to comply with
dollar limits imposed by our primary floor plan lender, reducing expenditures
and closing unprofitable locations. Our performance in fiscal 2001 reflected a
reevaluation of our business from all aspects. We believe that structuring our
business to fit within the limitations of our capital resources will position
us to perform at higher levels if the demand for recreational products
increases at the anticipated rate. We intend to add new dealerships by leasing
suitable property in key geographic markets and through co-location
opportunities with strategic partners, but only if we have sufficient working
capital to sustain expansion. We will also consider acquisition opportunities
if we believe they will result in operating and marketing efficiencies and that
the acquisition will immediately add profits and positive cash flow to our
operations. During the second quarter of fiscal year 2002, we closed the
Sanford store located in the central Florida market. In addition, during the
third quarter of fiscal year 2002, we closed the Ripley store which was located
in western West Virginia. Since July 31, 2002 we have closed and
consolidated two stores and
anticipate selling a third store during the fourth quarter of 2002. Besides
these three stores, we do not anticipate closing any additional stores from our
current dealerships. We do intend to continue to closely monitor the
performance of all locations and close any that are unprofitable or whose
performance does not justify continued operations.

Our growth also depends on same store growth and maintaining sufficient
working capital to operate each store efficiently. We have experienced a
downturn in sales since the fourth quarter of fiscal 2000. We believe that the
industry and our markets are poised for recovery and increased sales. We expect
our same store sales growth to follow these industry trends based on the number
of baby boomers, our target demographic group, reaching their peak earnings
and vacation years during that period. We also believe there is a renewed sense
of national pride and an increased desire to experience the geographic
diversity of the United States. The U.S. Census Bureau confirms the projected
growth of the baby boomers population segment. We believe this group of buyers
and other demographic groups will increasingly use recreational products as a
travel alternative and to enhance the quality of their lives. However, these
trends may not produce the increased sales that we expect.

Effective November 1, 2000, we changed our revenue recognition policy
related to commissions we earn for placing retail financing contracts with
indirect lending institutions in connection with customer vehicle and marine
purchases and customer purchases of credit life insurance products to defer
these commissions until the chargeback period has lapsed. Also effective
November 1, 2000, we changed our revenue recognition policy related to
commissions earned on the sale of administrator obligor extended warranty and
service contracts to defer recognition of the commissions until the 100%
chargeback period has lapsed and to recognize revenue ratably over the
remaining life of the contract as commissions are earned and not subject to
chargeback. This change was made in accordance with the implementation of the
U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements (SAB 101). The effect of this
change is reported as the cumulative effect of a change in accounting principle
in the year ended October 31, 2001. The net effect reflects the deferral as of
November 1, 2000 of approximately $2.2 million of revenue net of chargebacks
previously recognized.

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Results of Operations

Results of operations for the three and nine-month periods ended July 31, 2002,
compared to the three and nine-month periods ended July 31, 2001.

Sales and service revenue decreased $13.3 million or 36.8% to $22.9
million for the three-months ended July 31, 2002 from $36.2 million for the
three months ended July 31, 2001. Sales and service revenue decreased $49.5
million or 44.8% to $61.2 million for the nine months ended July 31, 2002 from
$110.7 million for the nine months ended July 31, 2001. Of the decrease for
the three months ended July 31, 2002 compared to the three months ended July
31, 2001, $4.3 million was attributable to a 15.8% decrease in same store
sales. Net store closures during fiscal 2001 and fiscal 2002 represented a
decrease in revenues of $9.0 million for the three months ended July 31, 2002.
In addition, $1.9 million of the decrease is attributable to the closure of our
Clermont location. This location, which was damaged by fire in April 2001, is
currently under reconstruction and is scheduled to re-open in September 2002.
Same store sales decreased $18.2 million, or 24.4%, for the nine
months ended July 31, 2002 to $56.5 million from
$74.7 million for the nine months ended July 31, 2001. This
decrease was primarily the result of limited inventory levels and mix
resulting from the Companys constrain floor plan coupled with
the factors discussed below. Net store closures during fiscal 2001 and fiscal 2002
represented a decrease in revenues of $31.8 million for the nine months ended
July 31, 2002. Finally, the temporary out of service Clermont store
represented $11.4 million decrease. Used vehicle sales as a percentage of
total vehicle sales decreased to 33.5% for the nine months ended July 31, 2002,
compared to 38.2% for the nine months ended in July 31, 2001. New RV and marine
product sales decreased for the nine months ended July 31, 2002 to $33.7
million, or 66.5% of total RV and marine product sales, from $58.6 million, or
61.8% of total RV and marine product sales for nine months ended July 31, 2001.
Even though management believes that its prior inventory levels were
principally overstocked, new vehicle sales have been adversely affected by the
reduction in available inventory due to our limited floor plan financing.

The decline in comparable store sales was primarily the result of the
following factors:

Internal
management initiatives.Beginning in the second quarter of fiscal
2001, the management team began a concentrated program to reduce aged and
overstocked inventory by reducing selling prices, lowering inventory at all
locations to increase inventory turnover and restocking inventory based on
local market demand at each dealership. We also focused on changing our product
mix to include less expensive new models, and more used RVs, which have a
higher gross profit. We believe that lower priced used vehicles are more
desirable in a weak economy characterized by declining consumer confidence. In
addition, in the last 45 days of fiscal year 2001 and the beginning of fiscal
year 2002, we focused on store performance by closing four dealerships we
believed were not performing at levels sufficient to justify their continued
operation or were in markets where we had multiple locations. We expect to
offset most of the loss of revenue from the closed locations with increased
revenue and profits from stores remaining in the same general market of each
closed dealership once our financial position is stabilized through additional
capital and increased floor plan availability.

Financial
constraints.Our ability to maintain what we believe is a
desirable mix between new and used products has been hampered by reductions in
our available floor plan credit line and the time required to sell aged
inventory, which is not eligible for floor plan funding, and overstocked
inventory. In addition, we have had insufficient capital to satisfy all of our
working capital requirements. This dramatically limits our ability to meet our
business objectives and fully exploit our markets in any economic environment.

Parts and services revenue decreased $1.4 million, or 35.1%, to
approximately $2.5 million for the three months ended July 31, 2002 from $3.9
million for the three months ended July 31, 2001. Parts and services revenue
decreased $4.1 million, or 36.2%, to approximately $7.3 million for the nine
months ended July 31, 2002 from $11.4 million for the nine months ended July
31, 2001. While same store sales remained relatively flat, parts and services
was affected by a decrease of $1.0 million and $3.6 million for the three and
nine month periods ended July 31, 2002 due to net store closures made in fiscal
2001 and fiscal 2002 and our temporary out of service Clermont store not being
operational while under reconstruction from fire damage sustained in April
2001.

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Net revenue from finance and insurance products and other sources
decreased $0.2 million, or 22.9%, to $0.9 million for the three months ended
July 31, 2002 from $1.1 million for the three months ended July 31, 2001. Net
revenue from finance and insurance products and other sources decreased $0.8
million, or 24.9%, to $2.6 million for the nine months ended July 31, 2002 from
$3.4 million for the nine months ended July 31, 2001. The decrease in both
periods is directly related to our decrease in new and used RV and marine
product sales and charge backs relating to closed stores. Effective November 1,
2000, we changed our revenue recognition policy by adopting SAB 101, which
defers recognizing revenue on commissions received from placing indirect retail
installment contracts with indirect lenders, fees generated from the sale of
credit life insurance and extended warranty contracts. As of July 31, 2002,
April 30, 2002, January 31, 2002 and October 31, 2001, the amounts deferred
relating to these commissions and fees was $2.2 million, $2.1 million, $2.2
million, and $2.4 million, respectively. Accordingly, for the three and nine
month periods ended July 31, 2002, we recognized earned revenue from this
change in the amount of $0.5 million and $1.9 million.

Total gross profit
decreased $4.4 million, or 66.8%, to $2.1 million for
the three months ended July 31, 2002 from $6.5 million for the three months
ended July 31, 2001, primarily due to a 33.1% decrease in same store gross
profit with the remainder attributable to lost volume from store closures made
in fiscal 2001 and fiscal 2002 and our Clermont location which was under
reconstruction from fire damage sustained in April 2001. Also negatively
impacting gross profit during the three months ended July 31, 2002, we recorded
a charge of $0.9 million to write down certain older new and used vehicles, a
significant portion of which originated at closed facilities, to their fair
market value. Additionally, a charge of $0.5 million was taken for excess
parts inventory. This excess was created when part inventories, from closed
stores, were consolidated to existing open stores which resulted in fewer sales
points. For the reasons previously discussed, total gross profit decreased
$9.7 million, or 51.8%, to $9.0 million for the nine months ended July 31, 2002
from $18.7 million for the nine months ended July 31, 2001; gross margin as a
percent of sales decreased to 14.6% from 16.9% due to the charges mentioned
above. Otherwise, gross margin was relatively flat for the nine months ended
July 31, 2002 compared to the nine months ended July 31, 2001.

Parts and services gross profit decreased $1.3 million, or 69.5%, to $.6
million for the three months ended July 31, 2002 from $1.9 million in the three
months ended July 31, 2001. Parts and services gross profit decreased $3.9
million, or 58.6%, to $2.7 million for the nine months ended July 31, 2002 from
$6.6 million in the nine months ended July 31, 2001. Same store gross profit
decreased $0.7 million, or 39.7% to $1.0 million for the three months ended
July 31, 2002 from $1.7 million in the three months ended July 31, 2001. Same
store gross profit decreased $1.2, or 26.0%, to $3.5 million for the nine
months ended July 31, 2002 from $4.7 million in the nine months ended July 31,
2001. The gross profit decrease was attributed to the Company determining
that, due to the closing and consolidation of stores, our parts inventory
became overstocked due to fewer selling points. This created a longer shelf
life for the inventory causing some parts to become obsolete. The parts
inventory therefore was adjusted to market value creating a charge of $0.5
million for the three months ending July 31, 2002. The remainder of the
decrease for the three and nine month periods ended July 31, 2002 is the result
of net store closures made in fiscal 2001 and our temporary out of service
Clermont location, which was damaged by fire in April 2001.

Net revenue from finance and insurance and other products contributed
26.4% and 20.8% of total gross profit in the three and nine month periods ended
July 31, 2002 compared to 7.8% and 16.0% in three and nine month periods ended
July 31, 2001.

Selling, general and
administrative expenses increased $0.2 million, or
2.7%, to $6.7 million for the three months ended July 31, 2002 from $6.5
million for the three months ended July 31, 2001. On a same store basis,
selling, general and administrative expenses remained relatively flat. Selling,
general and administrative expenses decreased $3.7 million, or
18.8%, to $16.2
million for the nine months ended July 31, 2002 from $19.9 million for the nine
months ended July 31, 2001. On a same store basis, selling, general and
administrative expenses decreased $1.6 million, or 13.7%, to $9.9 million in
the nine months ended July 31, 2002 compared to $11.5 million in the nine
months ended July 31, 2001. The selling, general and administrative expense
increase was due to one time charges totaling $1.6 million for the three months
ended July 31, 2002. These charges include an $0.5 million
write down of impaired long-lived assets, $0.6 million for uncollectible warranty
receivables, and $0.5 million due to the
impairment of the Good Sam endorsement fee. These charges occurred due to the
closing and the proposed selling of stores which were deemed to be under
performing.

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Store closures represent expense of $0.5 million and $1.5 million in the
three and nine-month periods ended July 31, 2002 compared to $1.7 million and
$5.7 million for the three and nine-month periods ended July 31, 2001.
Personnel expenses decreased 38.6% or approximately $4.8 million, for the nine
months ended July 31, 2002 and represented 44.3% of expenses for the nine
months ended July 31, 2002, compared to 61.9% for the nine months ended July
31, 2001 the result of head count reduction. Total selling, general and
administrative expenses as a percent of revenue increased to 29.4%
and 26.5%
from 18.1% and 18.0% due to decreased revenue and negative fixed cost
absorption for the three and nine month periods ended July 31, 2002.

The marketing expense (income) of $(0.2) million and $1.6 million
represents the difference between the fair value of the units of preferred
stock and warrants sold to a potential business partner over the cash proceeds
received (see Notes 7 and 8 to the condensed consolidated financial statements)
net of the impact of periodically remeasuring the fair value of the warrant
liability component of the units sold. The charge (income) is required because
on the date of the issuances of these shares, we were in discussion with, and
have since developed a business relationship with, a company controlled by the
majority holder of the Series A preferred stock and Series AA preferred stock.
In March 2002, we entered into the Endorsement Agreement with Affinity Group
(see Note 4 to the condensed consolidated financial statements). During the
three and nine months ended July 31, 2002, we recorded a marketing (income)
expense of $(0.2) million and $1.6 million, respectively, relating to units of
preferred stock and warrants sold during the periods.

In July 2002, we decided to close and consolidate one of our dealerships.
As of July 31, 2002, the unamortized goodwill relating to that dealership was
$922,383 and deemed to be not realizable. Accordingly, we recorded a non-cash
charge to write off the unamortized balance. We have reassessed the
realizability of the goodwill associated with a dealership acquired in March
2000. As of July 31, 2002, this dealership had just completed going through
three complete selling seasons and has not been able to demonstrate that it can
generate sufficient cash flows to recover the unamortized goodwill of
$1,631,900 as of July 31, 2002 related to the store. Based on the historical
experience of this dealership, we do not believe that is more likely than not
that this goodwill is recoverable. Accordingly, we recorded a non-cash charge
to write off the unamortized balance. Additionally, we have reassessed the
realizability of the goodwill associated with a dealership acquired in November
2000. As of July 31, 2002, this dealership had just completed going through
two complete selling seasons and has not been able to demonstrate that it can
generate sufficient cash flows to recover the unamortized goodwill of $591,957
as of July 31, 2002 related to the store. Based on the historical experience
of this dealership, we do not believe that is more likely than not that this
goodwill is recoverable. Accordingly, we recorded a non-cash charge to write
off the unamortized balance. Finally, we have reassessed the recoverability of
the unamortized goodwill associated with a facility that was previously
destroyed by fire. It was our expectation to have the facility repaired and
placed back in service within several months. Due to delays in construction
the reopening was significantly postponed. Due to the significant
delay of reopening the dealership and the resulting loss of
competitive advantage in the marketplace, management has determined
that the unamortized balance of the goodwill of $1,612,862 is no
longer realizable. Accordingly, we recorded a non-cash charge to write off the
unamortized goodwill balances from the respective stores, as listed above, in
the amount of $4,759,102.

Loss from operations for the three and nine month periods ended July 31,
2002 was $8.9 million and $13.4 million, respectively, compared to operating
losses of $0.1 million for the three months ended July 31, 2001 and a loss from
operations of $1.3 million for the nine months ended July 31, 2002. This was
primarily the result of the activities described above.

Interest expense decreased to $0.8 million and $2.1 million, respectively,
for the three and nine month periods ended July 31, 2002 from $1.0 million and
$3.6 million, respectively, for the three and nine-month periods ended July 31,
2001. The decrease was primarily due to reductions in floor plan financing as a
result of decreased inventory levels, despite an increase in our floor plan
interest rates.

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Note conversion expense of $0.2 million for the nine months ended July 31,
2002, is the result of converting $0.3 million of a certain bridge financing
and a demand loan, including accrued interest, from an affiliate of a former
director and a former officer/director of ours at a per share conversion price
of $6.00. The market price of our common stock at the conversion date was
$9.50. We issued 47,938 shares under the terms of the conversion. Only 30,277
shares would have been issued at the market price. The market value of the
additional 17,662 shares issued is recorded as a non-cash note conversion
expense. Note conversion expense of $1.4 million for the nine months ended
July 31, 2001, was the result of a required non-cash expense in connection with
the April 2001 conversions of seller notes into shares of the our common stock.
Seller notes with a principal balance of approximately $3.2 million were
converted into 91,200 shares of common stock valued at approximately $2.7
million ($0.5 million less than the carrying value of the debt). Since the
terms of the conversion were the result of a modification of the original
conversion terms that would have called for share issuance at a fixed price of
$75.00 per share, or 43,092 shares, we were required under SFAS No. 84,
Induced Conversions of Convertible Debt, to record this non-cash expense
charge equal to the fair value of the incremental shares (48,108) issued.

An income tax benefit of $0.1 million and $1.8 million in the three and
nine-month periods ended July 31, 2002 compared to no benefit in the three
months ended July 31, 2001 and a benefit of $0.4 million recorded for the nine
months ended July 31, 2001. As a result of the change in tax law, we were able
to carry back net operating losses, which were fully reserved with a valuation
allowance. Accordingly, we recorded an income tax benefit of $1.7 million to
reflect the change in our tax valuation allowance.

In fiscal 2001, we recorded a $2.2 million charge for the cumulative
effect of a change in accounting principle resulting from the change in our
revenue recognition policy from adopting SAB 101, which defers recognizing
revenue on commissions received from placing indirect retail installment
contracts with indirect lenders and fees generated from the sale of credit life
insurance and also defers recognizing revenue from administrator obligor
extended warranty and service contracts until the 100% chargeback period has
lapsed.

Liquidity And Capital Resources

Our cash needs are primarily to support operations, including non-floored
inventory for resale. Historically, we have met our cash needs with cash on
hand or occasional borrowings from former affiliates of our directors or
officers, and other non-affiliated third parties, in the form of bridge
financing. We intend to limit our use of this source of funding in the future
because the terms and expense of this type of short term lending do not fit
within our financing strategy. Our new and used inventories are financed by
floor plan credit facilities, which were significantly reduced in fiscal 2001
and further reduced in May 2002 and are currently being renegotiated.

Cash flows from operations.During the nine months ended July 31, 2002, we
had deficit cash flows from operations of approximately $5.4 million, compared
to deficit cash flows from operations of $2.0 million in the same period in the
prior year. This degradation in cash flows from operations is due primarily to
the lack of new inventory to generate sufficient sales to meet our business
plan and fund operations coupled with our emphasis to move older units, which
in some instances resulted in negative cash flow transaction after the
repayment of floor plan related liabilities and the utilization of $1.5 million
in connection with our payment of the Good Sam endorsement fee.

Cash flows from investing.Investing activities for the nine months ended
July 31, 2002 increased net cash of $1.5 million, compared to our net use of
cash $1.2 million for the same period in the prior year. This improvement
resulted primarily through the receipt of proceeds from fixed asset sales and
the return of a portion of our restricted cash, due to a change in our
collateral requirements, which was used for financing activities.

23



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Cash flows from financing.Financing activities for the nine months ended
July 31, 2002 provided net cash of $4.2 million as compared to $1.0 million for
the same period in the prior year. The increase in the nine months ended July
31, 2002 was primarily due to the sale of Series A and Series AA-2 Preferred
Stock for net proceeds of approximately $3.3 million and the proceeds from a
$1.6 million note payable to AGHI (see Note 6 to the condensed consolidated
financial statements).

Net cash provided from all activities was $0.3 million, which increased
our cash and cash equivalents to $0.4 million from $0.1 million at October 31,
2001.

Working capital.Working capital decreased to a deficiency of $(3.4)
million at July 31, 2002 from a deficiency of $(1.4) million as of October 31,
2001, primarily due to the receipts of net proceeds from the Preferred Stock
issuance and the proceeds from the $1.6 million note payable, which were used
to pay down certain current liabilities. These working capital improvements
were partially offset by the continued net operating losses incurred for the
nine months ended July 31, 2002.

Capital expenditures.Generally, all major capital projects are
discretionary in nature and no material commitments currently exist. Any
capital expenditures will be funded from additional debt or equity sources.

Principal long-term commitments.As of July 31, 2002, our principal
long-term commitments consist of operating leases, notes payable and
mandatorily redeemable preferred stock.

Our obligations and commitments to make future payments under contracts
consist principally of our floor plan financing, long-term debt payable,
mandatorily redeemable preferred stock and capital and operating lease
commitments. The following table sets forth our contractual commitments as of
July 31, 2002: Capital leases below include a contractual obligation entered
into in July 2002 for $373,617 with an effective date of October 2002.

(unaudited)

|                                       |       |       |            |                    |  |           |            |            |  |               |           |           |  |   |         |           |  |  |           |            | 
|-------------------------------------- | ----- | ----- | ---------- | ------------------ |  | --------- | ---------- | ---------- |  | ------------- | --------- | --------- |  | - | ------- | --------- |  |  | --------- | ---------- | 
|Contractual                            |       |       |            |                    |  |           |            |            |  |               |           |           |  |   |         |           |  |  |           |           
|Obligation                             |       | Total |            | Less Year One Year |  | 1-3 Years |            | 4-5 Years  |  | After 5 Years
|                                       |       |       |            |                    |  |           |            |            |  |              
|Floor Plan Financing                   |       | $     | 19,492,335 |                    |  | $         | 19,492,335 |            |  | $             |          |           |  | $ |        |           |  |  |          |           
|Long Term Debt                         |       |       | 9,872,433  |                    |  |           | 2,817,835  |            |  |               | 1,060,382 |           |  |   | 643,390 |           |  |  | 5,350,827 |           
|Mandatorily
Redeemable
Preferred Stock |       |       | 4,464,235  |                    |  |           |           |            |  |               |          |           |  |   |        |           |  |  | 4,464,235 |           
|Capital Leases                         |       |       | 504,270    |                    |  |           | 96,632     |            |  |               | 206,987   |           |  |   | 185,496 |           |  |  | 15,155    |           
|Operating Leases                       |       |       | 3,659,557  |                    |  |           | 875,632    |            |  |               | 1,383,576 |           |  |   | 641,718 |           |  |  | 758,589   |           
|                                       |       |       |            |                    |  |           |            |            |  |               |           |           |  |   |         |           |  |  |           |           
|                                       | Total |       | $          | 37,992,830         |  |           | $          | 23,282,433 |  |               | $         | 2,650,945 |  |   | $       | 1,470,604 |  |  | $         | 10,588,806 | 
|                                       |       |       |            |                    |  |           |            |            |  |               |           |           |  |   |         |           |  |  |           |           

Our recovery and growth strategies depend upon obtaining adequate
financing to cover operational needs and ultimately establish additional RV and
marine dealerships.

We finance substantially all new and used inventories through floor plan
financing arrangements with one primary and several smaller lenders. These
financing agreements generally require that substantially all new and used
vehicles and marine products held in inventory be pledged as collateral.
Advances become due upon sale of the related vehicle or marine product or as
the related item ages beyond the allowable finance period.

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Our floor plan agreement with our primary lender expired on October 31,
2001. Subsequently, we continued to negotiate a new agreement, executing a
forbearance and amendment to the expired agreement through January 23, 2002
while negotiations continued. The primary floor plan lender continued the
forbearance through March 15, 2002 at which time we executed an amendment to
the expired agreement essentially under the same terms, lowering the maximum
borrowing to $20.0 million and adjusting the financial covenants based on our
fiscal 2002 business plan. The maximum borrowing was reduced again to $19.0 in
May 2002 as a result of our sale of our Tampa property, which served as
collateral for the floor plan with our primary lender. As of July 31, 2002, we
were not in compliance with certain financial covenants of the floor plan
financing agreement that was executed on March 15, 2002. Waivers were not
received for the non-compliance and as of September 18, 2002, the lender has
provided notification preserving their rights with respect to the events of
default; however, our lender has not communicated any intention relating to the
events of default. However, there can be no assurance that the lender
will not call the loan.

We have a floor plan
facility with a $5,000,000 commitment level and $2,609,038
outstanding on the facility as of July 31, 2002. The lender has
requested additional security for the facility and has temporarily
suspended the facility as of July 31, 2002 until such security
is received. However, there can be no assurance that the lender will
not call the Loan.

We have negotiated an arrangement with one of our floor plan providers
that requested to be paid down in February 2001 because of our less than
acceptable performance under its floor plan agreement and because the provider
subsequently exited the business of providing floor plan financing to RV
dealers. We are currently paying off the outstanding balance, $467,404 at July
31, 2002, as units are sold and repaying past due amounts on a mutually agreed
schedule. On August 26, 2002, we entered into a two year term note for
$253,598 which is net of an initial payment of $100,000 due September 2002.
The note is payable in equal monthly installments beginning in September 2002
and bears interest at a rate of prime plus 5%. We anticipate concluding the
pay down of the remaining floor plan in September 2002.

We are currently in discussions with another floor plan lender to
consolidate all of our floor plan lending into one source and to increase the
amount of floor plan financing available to us. This will allow for both
continued support of our existing operations and future expansion to meet our
business plan objectives. However, we may not be able to obtain sufficient
alternative floor plan financing to meet our business plan requirements.

On March 18, 2002, AGHI, an affiliate of the owner of the majority of the
Series A Preferred shares, loaned us $1.6 million in the form of a one-year
term loan. The loan has an interest rate of 20%, payable monthly, half of
which may be paid in stock at the discretion of our board of directors. If
certain specified events of default occur, as defined in the loan agreement,
the lender may declare the principle and interest payable
immediately, the interest rate increases to 25%. While we have not
received any communication from the lender regarding its intention to
require prepayment of the note, we are currently not in the financial
position to prepay the note if requested due to ongoing defaults. As of July 31, 2002, the interest rate on
the note was 25%, as we had not paid the interest due for the months of June
2002 and July 2002. However, through September 20, 2002, the
lender has
not communicated any intention relating to the prepayment of the
note. We paid a $50,000 origination fee, which is included in
the note. The loan also calls for us to pay a fee equal to 10% of the loan
balance 91 days and 181 days from origination. This fee can be paid in the
form of stock with approval from our board of directors. The loan is secured
by a lien against our assets. Additionally, our stockholders approved
the issuance of a warrant to purchase 90,000 shares of our common
stock at an exercise price of $5.00 per share.

Dividends have not been paid on the shares of Series
A preferred issued in January 2002 and on the shares of
Series AA-2 preferred issued in March 2002. Such failure to pay
dividends constitutes a default under the respective Certificates of
Designation, Rights and Preference and gives each holder of
Series A preferred and Series AA-2 preferred the right to
request redemption of their shares of preferred stock. While we have
not received any notices regarding redemption of the shares of
preferred stock, we are
currently not in the financial position to redeem the preferred stock
if requested due to ongoing defaults.

Going Concern.There is continued uncertainty regarding the status of our
arrangement with our primary floor plan lender and our ability to obtain
sufficient alternative floor plan financing to meet our business needs in the
remainder of fiscal year 2002. We also incurred net losses of $18.0 million,
$3.2 million and $15.1 million in fiscal 2001, 2000 and for the nine month
period ended July 31, 2002, respectively, and incurred net cash outflows from
operations of approximately $2.5 million, $0.6 million and $5.4 million,
respectively. These circumstances, and those fully described in Note 1 in the
notes to the Condensed Consolidated financial statements, raise substantial
doubt about our ability to continue as a going concern. Management
believes that operating performance will improve in the remainder of fiscal
year 2002, provided that sufficient floor plan funding is available.
However, we will
require additional funding to cover operating deficits. While management
believes that additional financing will be made available, failure to
raise additional capital, generate sufficient revenues, or continue to restrain
discretionary spending could have a material adverse effect on our ability to
continue as a going concern and to achieve our intended business objectives.

Inflation.If inflation occurs in the general economy, the cost of our
inventory could increase and interest rates paid by our customers or us could
increase. We believe that increases in the cost of new RVs and marine products
purchased from our manufacturers can generally be passed on to consumers,
although there may be a lag in our ability to pass such increases on to our
customers.

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Historically, increases in operating costs are passed on to the consumer
when the market allows. We believe that our business has not been significantly
affected by past inflation, despite increased chassis and manufacturer
conversion costs. However, significant increases in interest rates may make RVs
less affordable to many potential purchasers. This could materially and
adversely affect purchases of RVs generally and our results of operations.

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Critical Accounting Policies

The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
revenue and expenses during the period reported. The following accounting
policies require management to make estimates and assumptions. These estimates
and assumptions are reviewed periodically and the effects of revisions are
reflected in the period that they are determined to be necessary. If actual
results differ significantly from managements estimates, the financial
statements could be materially impacted.

Revenue Recognition

We recognize revenue in accordance with U.S. Securities and Exchange
Commission Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements (SAB 101). SAB 101 requires that the following four basic
criteria must be met before revenue can be recognized: (1) persuasive evidence
of an arrangement must exist; (2) delivery must have occurred or services
rendered; (3) the fee must be fixed and determinable; and (4) collectibility
must be reasonably assured. Determinations of criteria are based on
managements judgments regarding the fixed nature of the fee charged for
services rendered and products delivered and the collectibility of those fees.
Should changes in conditions cause management to determine these criteria are
not met for certain future transactions, revenue recognized for any reporting
period could be adversely affected.

RV and marine product sales are not recognized until the unit is delivered
to the customer, title has passed to the customer, and payment has been
received from the customer or financing has been arranged. Parts and service
sales are paid at the time the service is rendered through cash or credit card
payment. The commissions received from the placement of finance and insurance
products are deferred for revenue recognition until the period in which the
commission may be charged back to us has lapsed. The commissions received on
extended warranty and service contracts are deferred for revenue recognition
until the 100% chargeback period has lapsed with revenue recognized ratably
over the remaining life of the contract as commissions are earned and not
subject to chargeback.

Impairment of Goodwill

In July 2002, we decided to close and consolidate one of our dealerships.
As of July 31, 2002, the unamortized goodwill relating to that dealership was
$922,383 and deemed to be not realizable. Accordingly, we recorded a non-cash
charge to write off the unamortized balance. We have reassessed the
realizability of the goodwill associated with a dealership acquired in March
2000. As of July 31, 2002, this dealership had just completed going through
three complete selling seasons and has not been able to demonstrate that it can
generate sufficient cash flows to recover the unamortized goodwill of
$1,631,900 as of July 31, 2002 related to the store. Based on the historical
experience of this dealership, we do not believe that is more likely than not
that this goodwill is recoverable. Accordingly, we recorded a non-cash charge
to write off the unamortized balance. Additionally, we have reassessed the
realizability of the goodwill associated with a dealership acquired in November
2000. As of July 31, 2002, this dealership had just completed going through
two complete selling seasons and has not been able to demonstrate that it can
generate sufficient cash flows to recover the unamortized goodwill of $591,957
as of July 31, 2002 related to the store. Based on the historical experience
of this dealership, we do not believe that this
goodwill is recoverable. Accordingly, we recorded a non-cash charge to write
off the unamortized balance. Finally, we have reassessed the recoverability of
the unamortized goodwill associated with a facility that was previously
destroyed by fire. It was our expectation to have the facility repaired and
placed back in service within several months. Due to delays in construction
the reopening was significantly postponed. Due to the significant
delay of reopening the dealership and the resulting loss of
competitive advantage in the marketplace, management has determined
that the unamortized balance of the goodwill of $1,612,862 is no
longer realizable. Accordingly, we recorded a non-cash charge to write off the
unamortized goodwill balances from the respective stores, as listed above, in
the amount of $4,759,102.

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Statement of Financial Accounting Standards No. 142, Goodwill and other
Intangible Assets (SFAS 142) requires the use of a non-amortization approach
to account for purchased goodwill and certain intangibles. Under a
non-amortization approach, goodwill and certain intangibles will not be
amortized into results of operations, but instead would be reviewed for
impairment and written down and charged to results of operations only in the
periods in which the recorded value of goodwill and certain intangibles is more
than its fair value. SFAS 142 is required to be applied starting with fiscal
years beginning after December 15, 2001, with early application permitted in
certain circumstances. Currently management is analyzing the potential impact
of this pronouncement and has determined that it will not have any
impact on the
financial statements.

Inventory Valuation

We record the purchase of used RV and marine products based on the cost to
acquire the units. Trade-ins are recorded at their fair market value at the
time the trade-in is received on a unit sold. Estimating the fair market value
of used RV and marine products is a dynamic process that depends on several
factors, including general economic conditions and supply and demand for new
and used RV and marine products, and may require downward adjustments to be
recognized in future periods. Periodically, used inventory units are reviewed
and compared to the N.A.D.A. Recreation Vehicle Appraisal Guide or other
wholesale auction values to determine whether market declines have occurred
since the unit was placed into inventory. For any unit whose book value is
greater than the indicative market value, the carrying cost is adjusted as
required to properly value it at the lower of cost or market value. As
previously mentioned, overstocked conditions attributable to a number of
factors and general economic conditions could also cause inventory write-downs.
Failure to properly manage both new and used RV and marine products could
result in inventory write-down adjustments that could, in turn, have a material
adverse impact on our financial condition and results of operations.

Equity-Based Compensation

We account for equity instruments issued to non-employees in accordance
with the provisions of SFAS No. 123 and Emerging Issues Task Force (EITF)
Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services and EITF 01-01, Accounting for Convertible Instruments Granted or
Issued to a Nonemployee for Goods or Services or a Combination of Goods or
Services and Cash. All transactions in which goods or services are the
consideration received for the issuance of equity instruments are accounted for
based on the fair value of the consideration received or the fair value of the
equity instrument issued, whichever is more reliably measurable. The
measurement date of the fair value of the equity instrument issued is the
earlier of the date on which the counterpartys performance is complete or the
date on which it is probable that performance will occur.

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Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, Business Combinations (SFAS 141) and
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets (SFAS 142). SFAS No. 141 requires business combinations
initiated after June 30, 2001 to be accounted for using the purchase method of
accounting, and broadens the criteria for recording intangible assets separate
from goodwill. Recorded goodwill and intangibles will be evaluated against that
new criteria and may result in certain intangibles being subsumed into
goodwill, or alternatively, amounts initially recorded as goodwill may be
separately identified and recognized apart from goodwill. SFAS No. 142 requires
the use of a non-amortization approach to account for purchased goodwill and
certain intangibles. Under a non-amortization approach, goodwill and certain
intangibles will not be amortized into results of operations, but instead would
be reviewed for impairment and written down and charged to results of
operations only in the periods in which the recorded value of goodwill and
certain intangibles is more than its fair value. SFAS 142 is required to be
applied starting with fiscal years beginning after December 15, 2001, with
early application permitted in certain circumstances. Management does not
believe that the implementation of these statements will have a material impact
on the Companys financial position or results of operations.

In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 143, Accounting for Asset Retirement
Obligations (SFAS 143). SFAS 143 establishes accounting standards for
recognition and measurement of a liability for asset retirement obligation and
the associated asset retirement cost. SFAS 143 is effective for financial
statements relating to fiscal years beginning after June 15, 2002. Management
does not expect SFAS 143 to have a material effect on our financial statements.

In September 2001, the Financial Accounting Standards Board issued
Statement Of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS 144). SFAS 144 addresses
the financial accounting and reporting for the impairment or disposal of
long-lived assets. SFAS 144 is effective for financial statements issued for
fiscal years beginning after December 15, 2001. Management is still analyzing
the potential impacts of this pronouncement.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statement
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. Under Statement 4, all gains and losses from extinguishment of
debt were required to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. This Statement
eliminates Statement 4 and as a result, gains and losses from extinguishment of
debt should be classified as extraordinary items only if they meet the criteria
in APB No. 30, Reporting the Results of Operations  Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. Additionally, this Statement
amends SFAS No. 13, Accounting for Leases, such that lease modifications that
have economic effects similar to sale-leaseback transactions be accounted for
in a similar manner as a sale-leaseback. This Statement will become effective
for us on November 1, 2003.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This Statement addresses
financial accounting and reporting for costs associated with exit or disposal
activities and supersedes Emerging Issues Task Force (EITF) Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit and Activity (including Certain Costs Incurred in a
Restructuring). A liability for a cost associated with an exit or disposal
activity shall be recognized and measured initially at its fair value in the
period in which the liability is incurred, except for certain qualifying
employee termination benefits. This Statement will be effective for exit or
disposal activities initiated by us after October 30, 2003.

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ITEM 3: Quantitative and Qualitative Disclosures about Market Risk

Foreign Exchange.To date, our revenue from operations has exclusively
been denominated in United States dollars. The recreational vehicle and boat
products that we have sold to date have been priced in United States dollars
and all our sales in fiscal years 2000, 2001 and 2002 have been denominated in
United States dollars. In the future, we may acquire recreational vehicle or
boat products that are priced in currencies other than the United States dollar
and we may expand sales operations outside the United States. If either of
these events occurs, fluctuations in the values of the respective currencies in
which we purchase or sell our products could adversely affect us. Due to the
constantly changing currency exposures and the volatility of currency exchange
rates, there can be no assurance that we would not experience currency losses
in the future, nor can we predict the effect of exchange rate fluctuations upon
future operating results. If we conduct transactions in currencies other than
the United States dollar, management intends to carefully evaluate its currency
management policies. If management deems it appropriate, we may consider
hedging a portion of a currency exposure in the future.

Interest Rates:We invest our surplus cash in financial instruments
consisting principally of overnight bank repurchase agreements with fixed rates
of interest. Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities may
have their fair market value adversely impacted due to a rise in interest
rates, while floating rate securities may produce less income than expected if
interest rates fall. Our overnight repurchase investments have some of the
characteristics of floating rate securities, because the rates are subject to
change each business day. Due in part to these factors, our future investment
income may fall short of expectations due to changes in interest rates. If in
the future we invest in longer-term fixed rate investments, we may suffer
losses in principal if forced to sell securities that have seen a decline in
market value due to changes in interest rates. We may also face interest rate
risk exposure in connection with debt issued in connection with our acquisition
strategy.

We have variable floor plan notes payable that subjects us to market risk
exposure. At July 31, 2002, we had a maximum of $26.8 million available under
all of floor plan contracts with $20.3 million outstanding. During the nine months
ended July 31, 2002, the maximum floor plan amount outstanding at any month end
was $28.7 million and the average floor plan outstanding for the nine months
ended July 31, 2002 was $23.4 million. The weighted average interest during the
nine months ended July 31, 2002 was 8.9%. A hypothetical increase or decrease
in the floor plan interest of 10% would impact operations annually by
approximately $0.2 million. This is based on the assumption that our inventory
and debt levels remain the same for the year.

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

No disclosure required.

Item 2. Changes in Securities and Use of Proceeds

No disclosure required.

Item 3. Defaults Upon Senior Securities



| |  | On September 6, 2002, we received notice from our senior lender, Bank of
America, N.A., that we were in default of certain covenants under the
Amended and Restated Loan and Security Agreement, dated March 8, 2001, as
amended.                                                                                                                                                                                                                                                     
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | We have not made the
Series A preferred stock quarterly dividend payments due
March 31, 2002 and June 30, 2002, which constitutes an
event of default under the Certificate of Designation, Rights and
Preference of Series A preferred stock. The dividend rate of the
Series A preferred stock was increased to 15% as a result of
this default. However, through September 20, 2002, the Company has
not received any notice requesting redemption of the Series A
preferred stock.
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | We have not made the
Series AA-2 preferred stock quarterly dividend payments due
June 30, 2002, which constitutes an event of default under the
Certificate of Designation, Rights and Preferences of the
Series AA-2 preferred stock. The dividend rate of the
Series AA-2 preferred stock was increased to 15% as a result of
this default. However, through September 20, 2002, the Company has
not received any notice requesting redemption of the Series AA-2
preferred stock.  
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | We have not paid interest due
in June and July 2002 under our $1,600,000 loan from AGHI Finance
Co., LLC, an affiliate of Affinity Group, Inc. Because this
non-payment is an event of default under our loan agreement with
AGHI, the interest rate on this loan has been increased from 20% per
annum to 25% per annum. However, through September 20, 2002, AGHI has
not communicated any intention relating to the prepayment of this note.                                       

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



| |  | At the annual meeting of our stockholders held on June 21, 2002, nine
items were submitted to a vote of the stockholders.
| |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | An amendment to our Certificate of Incorporation to
increase the number of authorized shares of common stock from
23,000,000 to 38,000,000 was approved by the stockholders, with
290,499 shares voting in favor of the amendment, 5,743 shares
voting against and 48,348 shares abstaining.                                                                                                                                   
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | An amendment to our Certificate of Incorporation to
provide that each share of Series A preferred stock will vote
together with the common stock on an as-converted basis, as if
each share of Series A preferred stock was converted into 85.5
shares of common stock, was approved by the stockholders, with
254,204 shares voting in favor of the amendment, 41,878
shares voting against and 48,548 shares abstaining.     
|
| |  |  | An amendment to our Certificate of Incorporation to
provide that each share of Series AA-2 preferred stock will vote
together with the common stock on an as-converted basis, as if
each share of Series AA-2 preferred stock was converted into 200
shares of common stock, was approved by the stockholders, with
254,164 shares voting in favor of the amendment, 41,878
shares voting against and 48,548 shares abstaining.
|
| |  |  | Our stockholders approved the right of the holders of
the shares of Sub-Series A-2 preferred stock and Series AA-2
preferred stock to convert their shares into common stock at an
initial conversion price of $5.00 per share, with 289,994
shares voting in favor of the action, 5,888 shares voting
against and 48,708 shares abstaining.                                                                                   

31



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##### 





| |  |  | Our stockholders approved the right of the note holder in
connection with a loan in March 2002 to convert the outstanding
principal and interest into shares of common stock at a per share
price equal to the lesser of $5.00 or the fair market value of a
share of common stock on the day before the note is converted,
with 290,904 shares voting in favor of the action, 50,680
shares voting against and 48,818 shares abstaining.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Our stockholders approved the right of holders of
warrants issued in private placements in January and March 2002
to exercise their warrants to purchase 355,000 shares of
common stock, with 255,904 shares voting in favor of the
action, 39,988 shares voting against and 48,698 shares
abstaining.                                                                                                                                   
|
| |  |  | Our stockholders authorized the Board of Directors to
amend the Certificate of Incorporation, if the Board deems it
necessary, to effect a reverse stock split of the outstanding
shares of common stock on the basis of one of the following
ratios, with the specific ratio to be determined just before the
reverse stock split is effected:                                                                                          



| | A.                                                                                                                                                            |  | One share in exchange for every five shares;    
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------
|
| | B.                                                                                                                                                            |  | One share in exchange for every seven shares; or
|
| | C.                                                                                                                                                            |  | One share in exchange for every ten shares.     
|
| | The proposal was approved by
the stockholders with 476,047
shares voting in favor of the amendment, 7,824 shares voting
against and 48,508 shares abstaining.



| |  |  | Our stockholders approved the appointment of
PricewaterhouseCoopers LLP as our independent auditors for the
fiscal year ending October 31, 2002, with 481,308 shares
voting in favor of the appointment, 2,545 voting against the
appointment and 48,528 abstaining.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Our stockholders elected Lee B. Sanders and Casey L.
Gunnel to hold office until the Annual Meeting of Stockholders
in 2005. Each of the directors received 494,801 votes to
re-elect and 37,580 shares voted against re-election.                                  

Item 5. Other Information



| |  | Earnest B. Davis, Jr. resigned as a member of the Board of Directors
effective as of July 30, 2002.                                                                                                                                                                                                                                                                                                                                
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Our Board of Directors and our stockholders approved a one-for-ten
reverse split of our outstanding common stock. The reverse split became
effective at 12:01 a.m. (Eastern Standard Time) on Wednesday, August 7,
2002. After giving effect to the reverse split, we have 983,138 shares
of common stock outstanding. The number of authorized shares of common
stock remained at 38,000,000 upon completion of the reverse split.

32



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##### 



Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits.



| | 99.1 |  | Certifying Statement of the Chief Executive Officer to
Section 1350 of Title 18 of the United States Code         
| | ---- |  | ------------------------------------------------------------------------------------------------------------------
|
| | 99.2 |  | Certifying Statement of the Chief Financial Officer pursuant
to Section 1350 of Title 18 of the United States Code

(b)  Reports on Form 8-K.



| |  |  | Current Report on
Form 8-K dated June 6, 2002  
| |  |  | -----------------------------------------------
| |  |  | Current Report on Form 8-K dated August 7, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                   |  |                                       
|------------------ |  | --------------------------------------
|Date               |  | HOLIDAY RV SUPERSTORES, INC.          
|                   |  |                                       
|September 23, 2002 |  | /s/ Marcus A. Lemonis                 
|                   |  |                                       
|                   |  | Chairman of the Board of Directors,   
|                   |  | President and Chief Executive Officer 
|                   |  |                                       
|September 23, 2002 |  | /s/ Anthony D. Borzillo               
|                   |  |                                       
|                   |  | Vice President and Chief Financial    
|                   |  | Officer (Principle Accounting Officer)

33



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##### 



CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Marcus A. Lemonis certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Holiday RV
Superstores, Inc.;                                                                                                                                                                                                                                               
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.                       

Date: September 23, 2002

| |  |                              |  |                        
| |  | ---------------------------- |  | -----------------------
| |  | Holiday RV Superstores, Inc.
| |  |                              |  |                        
| |  | By:                          |  | /s/ Marcus A. Lemonis  
| |  |                              |  |                        
| |  |                              |  | Marcus A. Lemonis      
| |  |                              |  | Chief Executive Officer

34



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##### 



CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Anthony D. Borzillo, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Holiday RV
Superstores, Inc.;                                                                                                                                                                                                                                               
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.                       

Date: September 23, 2002

| |  |                              |  |                        
| |  | ---------------------------- |  | -----------------------
| |  | Holiday RV Superstores, Inc.
| |  |                              |  |                        
| |  | By:                          |  | /s/ Anthony D. Borzillo
| |  |                              |  |                        
| |  |                              |  | Anthony D. Borzillo    
| |  |                              |  | Chief Financial Officer

35