ALFA LEISURE INC, 10-K, 1998-07-17

ALFA LEISURE INC
10-K, 1998-07-17
MISCELLANEOUS TRANSPORTATION EQUIPMENT

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<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-K

(Mark One)
(X) Annual Report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
(Fee Required) for fiscal year ended April 30, 1998 or

( ) Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
(No Fee Required) for the transition period from _______ to ________

COMMISSION FILE NUMBER 0-8624
---------------------------------------------------------

ALFA LEISURE, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER)

Texas 75-1309458
- ---------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

13501 5th Street, Chino, California 91710
- ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)

(Registrant's telephone number, including area code) (909) 628-5574
--------------------------

Securities registered pursuant to Section 12(b) of the act:

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED

None None
- ---------------------------------- ------------------------------------------
- ---------------------------------- ------------------------------------------

Securities registered pursuant to Section 12(g) of the act:

Common Stock, no par value
- --------------------------------------------------------------------------------
(Title of class)

- --------------------------------------------------------------------------------
(Title of class)

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

There is no established trading market for the registrant's common stock. The
aggregate market value of the voting stock held by non-affiliates of the
registrant was $351,083 as of July 15, 1998 based on the last known sales price
for the registrant's common stock of $.50 in April 1998.

The number of shares of the registrant's common stock, no par value, outstanding
as of July 15, 1998 was 3,048,137.

DOCUMENTS INCORPORATED BY REFERENCE. None.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
--------

<PAGE> 2

PART I

ITEM 1. BUSINESS
--------

General Development of Business
- -------------------------------

Alfa Leisure, Inc. (the "Company" or "Alfa") was incorporated under the laws of
the State of Texas in October 1969 under the name Brougham Coach, Inc. and
commenced operations as a manufacturer and seller of recreational vehicles in
January 1970. Between March 1985 and December 29, 1986, the Company was under
the protection of Chapter 11 of the United States Bankruptcy Code. On December
29, 1986, the Company merged (the "Merger") with two privately held corporations
engaged in the business of manufacturing and selling recreational vehicles. Alfa
Leisure, Inc., a California corporation ("Alfa-California") and Alfa Leisure of
Louisiana, Inc., a California corporation ("Alfa-Louisiana"). The present
business of the Company consists primarily of the businesses of Alfa-California
to which it has succeeded via the Merger. During 1989 the Company closed its
plant in Louisiana and consolidated those operations into its Chino, California
facilities. Unless otherwise indicated, all references to the past operations of
the Company refer exclusively to the past operations of Alfa-California. The
Company has one subsidiary, Brougham International, Inc., which it organized in
August 1976 for the purpose of operating as a domestic international sales
corporation, which has been inactive since 1982.

Financial Information about Industry Segments:
- ----------------------------------------------

The Company operates in one (1) identifiable industry segment, the manufacture
and sale of recreational vehicles. The Company has no affiliated customers to
which it sells recreational vehicles.

Narrative Description of Business:
- ----------------------------------

Products:
---------

The Company manufactures and sells recreational vehicles designed as
short-period accommodations for vacationers or long-period accommodations for
travelers who live "full-time" in their vehicles. These products are fifth wheel
travel trailers designed to be towed behind and attached to special couplers in
the bed of pickup trucks. The Company's products are marketed under the brand
names "Gold", "Toyhouse", "See Ya" and "Ideal". They are distributed by
approximately 47 independent dealers located throughout the United States. The
Company has positioned itself as one of the premier names in high-quality fifth
wheel travel trailers in the western United States.

The Company has a reputation for high quality, well priced products
throughout its various product lines from its top of the line "Gold" models
through the "Ideal" models to the "Toyhouse" for the adventuresome.

Each of the model lines are constructed such that the frame and
structure integration is of the strongest, lightest body design technology.
Steel "I" beams are used for the chassis rails. Several components are
strategically positioned between the rails for optimum weight distribution,
including holding tanks, air conditioning system, slide-out mechanisms and spare
tire providing for a low center of gravity. The underbelly is fully enclosed
providing for all-weather protection and use. Trailer sidewalls are of advanced
high pressure "vacubond" construction encompassing Heli-arc welded structural
aluminum tubing. Alfa's "Straight-Line" six inch thick crowned roof, combination
truss/rafter structure has the characteristics of aircraft monocoque
construction.

-2-

<PAGE> 3

The Company offers three primary product lines. Each of the product
lines targets a different market ranging from vacationers looking for short
period accommodations to long period travelers looking for full time live in
accommodations.

Alfa Gold. The Alfa Gold models are presented in two versions in lengths
of 30' to 38' and multiple floor plans. The Travel Series designed for the
discriminating 5th wheel owner who enjoys following the seasons throughout the
year, and the Resort Living Series with additional spaciousness and luxury for
extended resort living. The Gold has more standard features than other product
lines and as standard equipment it includes Corian counter tops, hardwood floors
and leather furnishings. Retail prices for recreational vehicles in the Alfa
Gold product line range from about $55,000 to $69,400.

Alfa Ideal. The Ideal, although only slightly less luxuriously appointed
than the Gold, is more moderately priced, comes in lengths ranging from 28' to
38' with multiple floor plans. The Ideal is Alfa's volume leader and is widely
accepted for its value for price features. Retail prices for recreational
vehicles in the Alfa Ideal product line range from about $42,400 to $56,400.

Common to both the Gold and Ideal lines are product features which help
give Alfa its competitive edge including basement air conditioning, rack &
pinion slide out rooms with oversized windows and 8` high ceilings, double and
triple glide-out rooms, dual refrigeration systems, extensive storage areas and
entertainment centers.

Alfa See Ya Toyhouse. The Toyhouse is a fully equipped, dual purpose
vehicle having many of the same features found in the Alfa Gold and Ideal
models, including chassis, side-walls and roof construction. Also included as
standard is a 4.0 KW generator for the freedom to go where there are no
hook-ups, and plenty of storage for traveling with off-road toys. The retail
price for the Alfa Toyhouse is about $53,300.

Historically the Company has sold primarily to buyers upgrading from
another brand recreational vehicle. The Company is considering the development
of an entry level priced line to reach first time buyers, a segment of the
market which the Company has not historically serviced. The Company believes
that operating efficiencies and desirable product flow logistics along with the
low-line product introduction would require an additional facility.

The Company's headquarters and manufacturing facilities are located in
Chino, California. The main plant and nearby wall assembly structure, with
approximately 107,000 square feet under cover, provide adequate capacity for the
Company's current production levels. The Company's primary manufacturing
facility also houses a full factory service center providing warranty repair and
parts sales.

The Company's manufacturing facilities are designed to provide assembly
line construction of its recreational vehicles. Each facility is organized into
specific production task areas, such as chassis construction, cabinet assembly,
electrical, plumbing, wall and roof installation, etc., and the vehicles are
moved through each area in a production line manner. The Company manufactures
all of its products in two facilities in Chino, California.

Raw Materials
-------------

The raw materials and finished components for the Company's products are
purchased or are obtainable from numerous sources. The Company is not dependent
upon any one supplier.

-3-

<PAGE> 4

Marketing
---------

Alfa distributes through a network of dealers throughout the United
States, who market to a large extent to retirees and those nearly retired. The
Alfa dealer selection process emphasizes commitment and is undertaken with the
objective of establishing long-term relationships. Dealers are provided
substantial support from the factory in terms of sales staff participation at
dealer events and national trade shows, promotional materials and advertising
assistance. The Company advertises its recreational vehicles primarily in
recreational vehicle magazines. It also promotes its products through
participation in regional trade shows, in association with area dealers.

The Company's sales of recreational vehicles also benefit significantly
from the activities of the "Sundancers", an independent organization of
approximately 1,200 owners of the Company's products consisting of nine chapters
in the western portion of the United States. Each chapter of the Sundancers
typically holds several outings each year at various parks and recreation sites
at which members enjoy caravaning, boat trips, pot luck dinners and dancing. In
addition, the Sundancers annually hold a national rally comprising all chapters.
The national rally is typically held over a one-week period of time and is
attended by representatives of the Company and the manufactures of the
appliances and equipment featured in the Company's products. The Company's and
manufacturers' representatives provide presentations on the care and upkeep of
the Company's products and the related appliances and equipment. The Sundancers
are under the direction and control of its Board of Directors, which is
comprised of and elected by members of the Sundancers.

Warranty
--------

The Company provides a warranty to the first retail purchaser of each
recreational vehicle, warranting the vehicle to be free from manufacturing
defects in material and workmanship under normal use and with reasonable care
and maintenance for one (1) year. The Company is obligated to correct defects in
material and workmanship by repair or replacement of any necessary parts, free
of charge, in a manner intended to prevent further damage. The Company assists
purchasers in enforcing warranties on appliances and equipment included in the
vehicles and will cover such items as a part of its warranty in the event
satisfactory results cannot be obtained on such warranties due to no fault of
the purchaser. The Company has a service department at its factory in Chino,
California. Support through the dealership network is a requirement, and all
dealers maintain service facilities where warranty, service and parts sales are
an essential part of their business. The Company requires that the selling
dealer provide any servicing required upon the request of the vehicle's owner.

Seasonality
-----------

Sales of the Company's products vary regionally based on climate rather
than season. The Company believes that this trend is typical of the entire
recreational vehicle industry. Due to anticipated stabilizing of the 5th wheel
trailer market, only minimal variation due to seasonality is projected in the
near future, with the first and second quarters expected to be only slightly
lower than the third and fourth quarters.

Payment Terms
-------------

The Company requires dealer flooring institution approval prior to
shipment of recreational vehicles, with payment generally by wired funds within
three to seven days of delivery.

-4-

<PAGE> 5

Backlog
-------

The Company does not consider the level of the backlog at any given date
to be a significant factor affecting its business, except in establishing
production schedules. The Company normally adjusts the production rate to adapt
to any fluctuation in the incoming order rate.

Competition
-----------

The recreational vehicle industry includes several styles of vehicles
which can range from those self-propelled, or motor homes which are driven, to
those which are towed, or travel trailers which are either towed behind a
vehicle or as in the case of the fifth wheel vehicles are towed by attachment to
the bed of a pick-up truck.

Fifth wheel trailers can range from the low-end moderately priced units
to top of the line, high quality, luxurious units such as Alfa builds.

The market for fifth wheel travel trailers is a very mature, competitive
market. The Recreational Vehicle Industry Association ("RVIA") estimates overall
market growth of between 4% and 6% through the end of the century, in both units
and value.

Total Recreational Vehicle "Towables" Retail Deliveries - ($ millions)
----------------------------------------------------------------------

<TABLE>
<CAPTION>
1996 1996 1997 1997
Units Value Units Value
Towables (thousands) (millions) (thousands) (millions)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Travel Trailers
Conventional 75.4 1,071.6 78.8 1,131.3

5th Wheel Trailers 48.5 1,099.6 52.8 1,224.8

Folding Trailers 57.3 284.0 57.6 309.3

Truck Campers 11.0 121.9 10.3 124.2
-----------------------------------------------------------
Total 192.2 2,577.1 199.5 2,789.6

</TABLE>

Recently, factors affecting the industry's growth potential, such as
demographics, stable long-term oil prices, increases in the living standard
accompanied by downward pressures on interest rates all have a favorable impact
on the recreational vehicle industry.

The Company believes that the business of manufacturing and selling
recreational vehicles is highly competitive with respect to price, quality,
design and features. Management believes that the keys to success are somewhat
dependent on innovation, but over the long term continue to be product quality,
reputation, and management.

There are many manufacturers in the industry, including several in the
areas where the Company's products are marketed. Many of the Company's
competitors are larger and have greater resources available to them than the
Company. Based upon market surveys, dealer feedback, and customer satisfaction
polls, the Company believes that its principal marketing advantages are price
and design.

-5-

<PAGE> 6

Research and Development
- ------------------------

The Company manufactures and sells recreational vehicles only. The
Company periodically revises and redesigns models in response to consumer
demand. The extent of these revisions and redesigns are dictated by what is
required to obtain market acceptance. In fiscal 1998, 1997 and 1996, the Company
spent $290,665, $176,760 and $166,046, respectively, on research and development
activities.

Patents
-------

The Company has applied for patent protection relating to its innovative
"step chassis" design and "basement" air conditioning system.

Trademarks
----------

In November, 1996, the Company obtained a U.S. registered trademark, No.
74-610,898 for the Alfa name and logo on "Gold" units. In November 1997 the
Company obtained a U.S. registered trademark, No. 75-041,559 for the Alfa name
and logo on "Ideal" units.

Government Regulations
----------------------

The Company's recreational vehicles are less than 400 square feet in
size and, accordingly, are not regulated as "mobile homes" by United States
Department of Housing and Urban Development. The Company is subject to the
industry standards of the Recreational Vehicle Industry Association and state
housing standards. The Company also complies with specific government
regulations including motor vehicle safety standards. The Company is also
subject to the Fair Labor Standards Act that governs such matters as minimum
wage requirements, overtime and other working conditions.

Employees
---------

As of July 15, 1998, the Company employed approximately 333 people on a
full-time basis and minimal part-time basis personnel.

ITEM 2. DESCRIPTION OF PROPERTY
-----------------------

The Company's executive offices and principal manufacturing facilities
are in Chino, California. The Company leases the premises from Hercules Land
Holding, Inc., a corporation owned by the Company's chairman, president and
principal shareholder. The lease is for five years commencing January 30, 1997
at a monthly base rental rate of $12,932 subject to annual cost of living
increases. The Company has the option to extend the lease for three additional
three-year periods. The Company also has the option to purchase the property at
its fair market value as determined by appraisal at any time during the lease
term. Based on an informal market survey, the Company believes that the monthly
rental rate for the property and facilities is consistent with local market
rates.

The Company leases two facilities adjacent to its principal
manufacturing facilities in Chino. The lease is for three years commencing March
1,1998 at a monthly base rental rate of $3,625 subject to annual cost of living
increases. There are options to extend the lease for three additional one-year
periods.

-6-

<PAGE> 7

The Company leases additional premises near its principal facility that
consists of approximately 25,000 square feet and is used primarily for
construction of vacuum bonded exterior walls. The Company has leased these
premises until June 1, 2001. The rental rate is $3,500 per month through
February 29, 2000, increasing to $4,375 for the remainder of the term.

The Company owns approximately 67,000 square feet of land contiguous to
its principal facilities which it uses for off-street parking and storage.

The Company also owns a facility in Louisiana consisting of
approximately 53,000 square feet of structures on 10 acres of land, which it has
leased to an unaffiliated third party for $4,100 per month.

ITEM 3. LEGAL PROCEEDINGS
-----------------

The Company is involved in several routine litigation matters incidental
to its business. Such litigation matters, when ultimately determined, will not,
in the opinion of management, have a material adverse effect on the financial
position or the results of operations of the Company.

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

Not applicable.

PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY & RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------

There is no established trading market for the Company's common stock.

As of July 15, 1998, there were approximately 400 record holders of the
Company's Common Stock.

Holders of shares of Common Stock are entitled to receive such
dividends, if any, as may be declared by the Board of Directors of the Company
out of funds legally available therefore and, upon the liquidation, dissolution
or winding up of the Company are entitled to share ratably in all net assets
available for distribution to such shareholders.

The Company has never paid dividends. The Board of Directors may
consider the declaration and payment of dividends in the future.

-7-

<PAGE> 8

ITEM 6. SELECTED FINANCIAL DATA
-----------------------

The following selected financial data should read in conjunction with
the Financial Statements and Notes thereto of the Company included elsewhere in
this Annual Report, and such data should be read with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
data at April 30, 1998 & 1997 and for each of the three fiscal years in the
period ended April 30, are derived form the Company's Financial Statements for
such years which Financial Statements are included elsewhere herein.

Statement of Operations Information
(In Thousands except Share and Per Share Information)

For the year ended April 30,
----------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $36,026 $28,590 $25,750 $27,349 $23,593
Net Income (loss) $1,345 $330 $665 $824 $1,000
from continuing
operations
Net Income (loss) per $.44 $.11 $.22 $.27 $.33
share from continuing
operations
Weighted number of shares 3,048,137 3,050,000 3,050,000 3,050,000 3,050,000
outstanding
Research and Development $291 $177 $166 $163 $162
expense

</TABLE>

Balance Sheet Information
(In Thousands except Share and Per Share Data)

As of April 30,
------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets $5,559 $5,406 $5,988 $5,703 $4,256
Current Assets 3,738 3,767 4,311 4,570 3,303
Current Liabilities 2,455 2,751 2,600 3,241 2,062
Net Working Capital 1,283 1,016 1,711 1,329 1,241
Long-term obligations 8 981 2,006 1,706 1,898
Cash dividends per share 0 0 0 0 0

</TABLE>

-8-

<PAGE> 9

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

The following discussion should be read in conjunction with the
"Selected Financial Information", the Company's financial statements and the
notes thereto included elsewhere herein. The information set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" below includes "forward looking statements" within the meaning of
Section 27A of the Securities Act, and is subject to the safe harbor created by
that section. Factors that could cause actual results to differ materially from
those contained in the forward looking statements are set forth in "Management's
Discussion and Analysis of Financial Condition and Results of Operations".

OVERVIEW

The Company manufactures and sells recreational vehicles which are
distributed by independent dealers located throughout the United States, but
concentrated in the western and southwestern portions of the United States.

RESULTS OF OPERATIONS

The Company's operating results depend in large part on its ability to
effectively produce and sell its recreational vehicles. The demand for
recreational vehicles, more specifically fifth wheel travel trailers, is subject
to general economic, industry and market-specific conditions including
competitive forces beyond the Company's control which may result in fluctuations
in volume of the Company's products being sold. The Company seeks to maintain
its operating margins by monitoring its material costs, labor efficiencies and
overhead expenses. While the Company has some control over selling prices, it
seeks to minimize risk by maintaining low inventory levels.

YEARS ENDED APRIL 30, 1998 AND 1997

Revenues. Revenues in 1998 were $36.0 million compared to $28.6 million
in 1997, an increase of 26%. This was partially a result of a 17% increase in
units shipped in fiscal 1998 compared to fiscal 1997. Price increases for the
1998 models, and change in sales mix to a higher ratio of larger trailers
shipped in fiscal 1998 compared to fiscal 1997, also effected the 1998 revenues.

Cost of Sales. Cost of Sales in 1998 was $31.2 million compared to $25.0
million in 1997, an increase of 24.8%. This percentage increase, which is less
than the percentage increase in revenue, resulted in a .7% improvement in gross
profit. The most significant factor contributing to the improved gross margin
was the .6% improvement in material cost as a percent of revenue from 63.6% in
1997 to 63.0% in 1998. As a percentage of revenue, total Cost of Sales was 86.6%
in 1998 compared to 87.3% in 1997.

Operating Expenses. Selling, general and administrative expenses totaled
$3.2 million in 1998, an increase of 8.2% over the prior year amount of $3.0
million. As a percentage of sales, operating expenses decreased to 9.0% in 1998
from 10.5% for the prior year. As a percentage of sales, decreases in fiscal
1998 over the corresponding period of 1997 occurred in travel, promotion, and
general insurance.

Interest Expense. Interest expense was approximately $80,000 for the
year ended April 30, 1998 compared to approximately $197,000 in fiscal year
1997, a decrease of approximately $117,000 attributable primarily to a decrease
in borrowed funds.

-9-

<PAGE> 10

Tax Provisions. The tax provision for 1998 was favorably affected by the
elimination of the valuation allowance relating to the Company's deferred tax
asset. In addition a significant portion of the Company's net operating loss
carryforward was utilized in fiscal 1998.

YEARS ENDED APRIL 30, 1997 AND 1996

Revenues. Revenues in 1997 were $28.6 million compared to $25.7 million
in 1996, an increase of 11.0%. This revenue increase was due primarily to a
10.2% increase in the unit volume from that of 1996. The 1997 model price
increases were partially offset as a result of discontinuance of the Company's
"See Ya" line of products with corresponding increases in the "Gold" and lower
priced "Ideal" lines.

Cost of Sales. Cost of Sales in 1997 was $25.0 million compared to $22.8
million in 1996, an increase of 9.6%. This percentage increase, which is less
than the percentage increase in revenues, resulted in a 21.8% improvement in
gross profit. The most significant factor contributing to the improved gross
margin was the Company's ability to hold increases in labor and variable
overhead to slightly above the 8.5% level. As a percentage of revenue, total
Cost of Sales was 87.3% in 1997 compared to 88.4% in 1996.

Operating Expenses. Selling, general and administrative expenses totaled
$3.0 million in 1997, an increase of 16.1% over the prior year amount of $2.6
million. As a percentage of sales, operating expenses remained relatively
constant, increasing to 10.5% in 1997 from 10.0% for the prior year. Increases
in fiscal 1997 over the corresponding period of 1996 occurred in public
relations, primarily in promotional and trade show expenses.

Interest Expense. Interest expense was approximately $197,000 for the
year ended April 30, 1997 compared to approximately $258,000, a decrease of
approximately $61,000 attributed primarily to a decrease in borrowed funds.

Tax Provisions. The tax provision for 1997 was favorably affected by a
reduction of $129,996 in the valuation allowance against the Company's net
deferred tax assets.

LIQUIDITY AND CAPITAL RESOURCES

The Company has accumulated retained earnings of $3,397,230 through
April 30, 1998.

In January 1998 the Company opened a line of credit set at $1,000,000
with Wells Fargo Bank. The line of credit bears interest at Wells Fargo Bank's
prime rate plus 1%. Interest is payable monthly. All terms and conditions of the
existing Merlin Financial, Inc. line of credit remain the same. The Company will
draw against the Merlin Financial, Inc. line of credit only after the Wells
Fargo Bank line of credit is fully used. The Company has paid down $972,500 on
its line of credit obligation to a zero balance as of April 30, 1998.

Net cash provided by operating activities in 1998 was $1,285,804
compared to $996,115 in 1997. The increase is due primarily to net income of
$1,344,629, offset by changes in various working capital accounts.

Net cash used in investing activities was $372,371 in 1998 representing
primarily capital expenditures for replacement of existing plant and equipment.
The Company believes it has sufficient available plant capacity to meet the
demand for its current product line in the foreseeable future.

Net cash used in financing activities was $895,944 in 1998. This was
attributable mainly to the $972,500 reduction in the Company's line of credit.

-10-

<PAGE> 11

Currently there are no major purchase commitments that are expected to
have a significant impact on liquidity. The Company has a lease commitment of
$240,684 annually under leases for its facilities, including $155,184 with the
Company's President and his affiliates.

Management believes that funds generated by operations and the available
lines of credit will be sufficient to fund operations for the coming year.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Alfa Leisure, Inc. Index to Consolidated Financial statements:
--------------------------------------------------------------

<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report ............................................... 12

Report of Independent Accountants........................................... 13

Consolidated Balance Sheets as of
April 30, 1998 and 1997 .................................................... 14

Consolidated Statements of Operations
for the years ended April 30, 1998, 1997 and 1996 .......................... 15

Consolidated Statements of Stockholders'
Equity for the years ended April 30, 1998, 1997 and 1996 ................... 16

Consolidated Statements of Cash Flows for the years ended
April 30 1998, 1997 and 1996 .............................................. 17

Notes to Consolidated Financial Statements ................................. 19

</TABLE>

-11-

<PAGE> 12

INDEPENDENT AUDITOR'S REPORT

Board of Directors and Shareholders
Alfa Leisure, Inc.

We have audited the accompanying consolidated balance sheets of Alfa Leisure,
Inc. and subsidiary (the "Company") as of April 30, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at April 30, 1998 and 1997, and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.

Deloitte & Touche LLP

Los Angeles, California
June 12, 1998

-12-

<PAGE> 13

REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors
Alfa Leisure, Inc.

We have audited the accompanying consolidated balance sheet of Alfa Leisure,
Inc. as of April 30, 1996 and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the two years in the period
ended April 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amount and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Alfa
Leisure, Inc. as of April 30, 1996, and the results of its operations and its
cash flows for each of the two years in the period ended April 30, 1996, and the
results of its operations and its cash flows for each of the two years in the
period ended April 30, 1996 in conformity with generally accepted accounting
principles.

PricewaterhouseCoopers LLP

Newport Beach, California
June 28, 1996

-13-

<PAGE> 14

ALFA LEISURE, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS
------

<TABLE>
<CAPTION>
April 30,
---------------------------------
1998 1997
---------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 410,671 $ 393,182
Restricted cash 150,247 149,350
Accounts receivable 1,614,276 1,769,153
Inventories 1,415,794 1,299,641
Prepaid expenses and other current assets 139,623 150,559
Deferred tax asset - current 7,438 5,156
---------- ----------
Total Current Assets 3,738,049 3,767,041

Property, plant and equipment, net 1,300,407 1,103,154
Other assets and deposits 50,064 10,000
Deferred tax asset 470,403 526,240
---------- ----------

Total Assets $5,558,923 $5,406,435
========== ==========

LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------

Current Liabilities:
Accounts payable $1,271,896 $1,916,611
Accrued expenses 596,805 415,841
Accrued compensation 586,028 418,474
---------- ----------

Total Current Liabilities 2,454,729 2,750,926

Line of credit 0 972,500
Deferred income 8,200 8,200
---------- ----------

Total Liabilities 2,462,929 3,731,626
Commitments and Contingencies ---------- ----------

Stockholders equity:
Common stock, authorized 30,000,000 shares
of no par value; issued and
outstanding 3,048,137 shares at
April 30, 1998 and April 30, 1997
respectively. 62,000 62,000
Note receivable from President (363,236) (439,792)
Retained earnings 3,397,230 2,052,601
---------- ----------

Total Stockholders' Equity 3,095,994 1,674,809
---------- ----------
Total Liabilities and
Stockholders' Equity $5,558,923 $5,406,435
========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

-14-

<PAGE> 15

ALFA LEISURE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

<TABLE>
<CAPTION>
For the Years Ended April 30,
---------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Sales $36,025,591 $28,590,285 $25,749,645

Cost of sales 31,186,855 24,951,677 22,762,110
----------- ----------- -----------

Gross profit 4,838,736 3,638,608 2,987,535

Operating Expenses:

Selling, general and administrative 3,249,093 3,002,621 2,585,652
----------- ----------- -----------

Income from operations 1,589,643 635,987 401,883

Interest and other expense 79,672 197,411 257,593
----------- ----------- -----------

Income before taxes 1,509,971 438,576 144,290

Provision (benefit) for taxes 165,342 109,032 (520,384)
----------- ----------- -----------

Net income $ 1,344,629 $ 329,544 $ 664,674
=========== =========== ===========
Net income per share $ .44 $ .11 $ .22
=========== =========== ===========

Weighted average shares 3,048,137 3,050,000 3,050,000
outstanding =========== =========== ===========

</TABLE>

See accompanying notes to consolidated financial statements.

-15-

<PAGE> 16
ALFA LEISURE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the Years Ended April 30, 1998, 1997 and 1996

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

<TABLE>
<CAPTION>
Common Stock
----------------------
Note receivable Retained
Shares Amount from President earnings
--------- -------- --------------- ----------

<S> <C> <C> <C> <C>
Balance April 30, 1995 3,050,000 $62,000 $(363,377) $1,058,383

Net advances to president (39,013)

Net income 664,674
--------- ------- --------- ----------

Balance April 30, 1996 3,050,000 62,000 (402,390) 1,723,057

Net advances to president (37,402)

Net income 329,544

Cancellation of shares (1,863)
--------- ------- --------- ----------

Balance April 30, 1997 3,048,137 62,000 (439,792) 2,052,601

Net income 1,344,629

Net reductions from president 76,556
--------- ------- --------- ----------

Balance April 30, 1998 3,048,137 $62,000 $(363,236) $3,397,230
========= ======= ========= ==========

</TABLE>

See accompanying notes to consolidated financial statements.

-16-

<PAGE> 17

ALFA LEISURE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

For the Years Ended April 30,
---------------------------------------
1998 1997 1996
---------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:

Net income $1,344,629 $329,544 $ 664,674

Adjustments to reconcile net income to
net cash provided by operating
activities:

Depreciation and amortization 174,221 128,887 129,947
Changes in operating assets and liabilities:
Deferred income taxes 53,555 8,874 (540,270)
Accounts receivable 154,877 47,500 (320,511)
Inventories (116,153) 395,157 706,871
Prepaids and other assets (29,128) (64,938) (25,977)
Accounts payable (644,715) 115,501 (524,438)
Accrued compensation 167,554 31,213 82,327
Accrued expenses 180,964 4,377 (197,844)
---------- -------- ---------
Net cash provided by (used in)
operating activities 1,285,804 996,115 (25,221)
---------- -------- ---------

Cash flow from investing activities:

Acquisition of property, plant and equipment (371,474) (95,350) (133,104)
Deposits (10,000)
Restricted cash (897) 59,792 70,810
---------- -------- ---------
Net cash used in investing activities (372,371) (45,558) (62,294)
---------- -------- ---------

</TABLE>

(continued)

See accompanying notes to consolidated financial statements.

-17-

<PAGE> 18

ALFA LEISURE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

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

<TABLE>
<CAPTION>
For the Years Ended April 30,
------------------------------------------
1998 1997 1996
--------- ----------- ---------
<S> <C> <C> <C>
Cash flows from financing activities:

Principal payments on notes payable $ 0 $ 0 $ (943)
Net (increase) decrease in note receivable
from President 76,556 (37,402) (39,013)
Principal drawn on line of credit 300,000
Principal payments on line of credit (972,500) (1,025,000)
--------- ----------- --------

Net cash provided by (used in) financing
activities (895,944) (1,062,402) 260,044
--------- ----------- --------

Net increase (decrease) in cash 17,489 (111,845) 172,529

Cash and cash equivalents at
beginning of year 393,182 505,027 332,498
--------- ----------- --------

Cash and cash equivalents at
end of year $ 410,671 $ 393,182 $505,027
========= =========== ========

Supplemental cash flow disclosures:

Interest paid $ 79,672 $ 192,482 $246,970
========= =========== ========

Income taxes paid $ 111,141 $ 111,490 $172,355
========= =========== ========
</TABLE>

See accompanying notes to consolidated financial statements.

-18-

<PAGE> 19

ALFA LEISURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1. Summary of Significant Accounting Policies:
-------------------------------------------

General:
- --------

The Company manufactures and sells recreational vehicles which are distributed
by independent dealers located throughout the United States but concentrated in
the western and southwestern portions of the United States.

Consolidation:
- --------------

The consolidated financial statements include the accounts of Alfa Leisure, Inc.
and its inactive, wholly owned subsidiary Brougham International, Inc.,
collectively the "Company".

Accounting Periods:
- -------------------

The Company's fiscal year ends on the Sunday in April falling between the 17th
and the 23rd. Fiscal 1998 ended on April 19, 1998, fiscal 1997 ended April 20,
1997 and fiscal 1996 ended on April 21, 1996. While the financial statements
reflect operations of the Company as of and for the periods ending on those
dates, they have been presented as if the Company's fiscal year ends on April 30
of each year to simplify the presentation.

Cash Equivalents and Restricted Cash:
- -------------------------------------

Cash equivalents are highly liquid investments that are readily convertible into
known amounts of cash and have maturity's at acquisition of three months or
less.

Restricted cash balances consist of funds held as collateral for the Company to
be bonded, as required by various state agencies for licensing procedures. For
purposes of the statements of cash flows, these amounts are not considered cash
equivalents.

Inventories:
- ------------

Inventories are stated at the lower of cost (determined using the first-in,
first out method), or market.

Property, Plant and Equipment:
- ------------------------------

Property, plant and equipment are stated at cost. Depreciation and amortization
of property, plant and equipment are provided over the estimated useful lives of
the assets which range from five to forty years. Leasehold improvements are
amortized over the lives of the respective leases, or the service lives of the
improvements, whichever is shorter. Accelerated and straight-line methods of
depreciation are used for both financial reporting and income tax reporting
purposes. Upon sale or disposition of assets, any gain or loss is included in
the statement of operations.

-19-

<PAGE> 20

ALFA LEISURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)

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

The Company evaluates long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If the estimated future cash flows (undiscounted and without
interest charges) from the use of an asset are less than the carrying value, the
related asset would be written down to its estimated value.

Normal repairs and maintenance are charged to expense as incurred whereas
significant improvements that materially increase values or extend useful lives
are capitalized and depreciated over the estimated useful lives of the related
assets.

Net Income per Share:
- ---------------------

During fiscal 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings Per Share. The Statement replaces the
presentation of primary EPS with a presentation of basic EPS, which excludes
dilution and is computed by dividing income available to shareholders of
beneficial interest by the weighted average number of shares outstanding for the
period. The statement also requires the dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of diluted EPS
computation. Diluted EPS is computed similarly to fully diluted EPS pursuant to
APB Opinion No. 15. The adoption of SFAS No. 128 did not have an effect on the
Company's financial statements. In addition, it is not necessary to restate
prior periods presented. Fully diluted earnings per common share does not differ
from that presented.

Income Taxes:
- -------------

Deferred income taxes reflect the tax consequences in future years of (a)
differences between the tax bases of assets and liabilities and the
corresponding bases used for financial reporting purposes and (b) net operating
loss and tax credit carryforwards. A valuation allowance is recorded, if
necessary, to reduce net deferred income tax assets to the amount that more
likely than not will be recoverable.

Advertising Expenses:
- ---------------------

Advertising costs are expensed when incurred. Advertising expense for the years
ended April 30, 1998, 1997 and 1996 were $123,788, $86,762 and $95,773
respectively.

Research and Development Costs:
- -------------------------------

Research and development costs are expensed when incurred. Research and
development costs for the years ended April 30, 1998, 1997 and 1996 were
$290,655, $176,760 and $166,046 respectively.

Management Estimates:
- ---------------------

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

-20-

<PAGE> 21

ALFA LEISURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)

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

Fair Value of Financial Instruments:
- ------------------------------------

Statement of Financial Accounting Standards No. 107 (SFAS No. 107), Disclosures
about Fair Market Value of Financial Instruments, requires management to
disclose the estimated fair value of certain assets and liabilities defined by
SFAS No. 107 as financial instruments. Financial instruments are generally
defined by SFAS No. 107 as cash, evidence of ownership interest in equity, or a
contractual obligation that both conveys to one entity a right to receive cash
or other financial instruments from another entity and impose on the other
entity the obligation to deliver cash or other financial instruments to the
first entity. Cash, restricted cash, accounts receivable and accounts payable
are carried at the approximate fair value because of the short maturities of
these instruments. Management estimates that the fair value of the line of
credit approximates carrying value based upon the Company's effective borrowing
rate for issuance of debt with similar terms.

Concentration of Credit Risk:
- -----------------------------

Financial instruments that subject the Company to credit risk consist primarily
of accounts receivable. Concentration of credit risk with respect to accounts
receivable is generally diversified due to the number of entities composing the
Company's customer base and their geographic dispersion. The Company performs
ongoing credit evaluations of its customers for potential credit loss exposure.

2. Inventories:
------------

Inventories are stated as follows:
<TABLE>
<CAPTION>
April 30,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
Raw materials $ 869,762 $ 691,976
Work in process 514,728 558,326
Finished products 31,304 49,339
---------- ----------

Total inventories $1,415,794 $1,299,641
========== ==========
</TABLE>

-21-

<PAGE> 22

ALFA LEISURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)

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

3. Property, Plant and Equipment:
------------------------------

The major classes of property, plant and equipment are as follows:

<TABLE>
<CAPTION>
Useful
Lives April 30,
------------ -----------------------------
1998 1997
----------- -----------
<S> <C> <C> <C>
Land $ 332,262 $ 332,262
Buildings 28 years 895,097 895,097
Machinery and equipment 2 to 7 years 1,019,523 802,920
Transportation equipment 5 years 242,608 189,055
Furniture and office equipment 3 to 5 years 377,012 299,323
Leasehold improvements 5 to 7 years 237,460 213,832
----------- -----------

3,103,962 2,732,489
Less: Accumulated depreciation and
amortization (1,803,555) (1,629,335)
----------- -----------

Net property, plant and equipment $ 1,300,407 $ 1,103,154
=========== ===========
</TABLE>

The Company has a manufacturing facility in Benton, Louisiana which the Company
is not currently using. The net book value of these premises is $350,530 and
$364,551 at April 30, 1998 and 1997 respectively. This facility was leased to a
tenant beginning April 1, 1995 for five years at $4,100 per month.

A parcel of land held by the Company with a book value of $332,262 has been
pledged as collateral for a personal borrowing of the Company's President of
$184,000.

4. Line of Credit:
---------------

In April 1992, the Company entered into a line of credit agreement with Merlin
Financial, Inc. set at a maximum amount of $2,000,000, of which $0 and
$972,500 were outstanding at April 30, 1998 and 1997 respectively. Interest is
at Bank of America's prime rate plus 1%, a rate of 9.5% for both April 30,
1998 and 1997.

In January 1998 the Company opened a line of credit set at $1,000,000 with Wells
Fargo Bank. The line of credit bears interest at Wells Fargo Bank's prime rate
plus 1%. Interest is payable monthly. The Company will draw against the Merlin
Financial, Inc. line of credit only after the Wells Fargo Bank line of credit is
fully used. There were no amounts outstanding at April 30, 1998.

Substantially all the assets of the Company are pledged as collateral for the
line of credit, first to Wells Fargo Bank, and secondly to Merlin Financial,
Inc.

-22-

<PAGE> 23

ALFA LEISURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)

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

5. Income Taxes:
-------------

The components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
For the Years Ended April 30,
----------------------------------------
1998 1997 1996
-------- -------- ---------
<S> <C> <C> <C>
Current:
State $ 99,086 $117,906 $ 18,023
Federal 12,701 -0- 1,863

Deferred:
State 1,230 14,736 (52,069)
Federal 52,325 (23,610) (488,201)
-------- -------- ---------
Totals $165,342 $109,032 $(520,384)
======== ======== =========
</TABLE>

The reconciliation of the effective tax rates and U. S. Statutory tax rates are
as follows:

For the Years Ended April 30,
-------------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Tax provision at statutory rate $ 513,390 $ 149,116 $ 49,059
Decrease in the valuation allowance (370,000) (129,996) (546,973)
State taxes, net of federal benefit 66,209 87,544 (22,470)
Other (44,257) 2,368 -0-
--------- --------- ---------
$ 165,342 $ 109,032 $(520,384)
========= ========= =========
</TABLE>

The net operating loss carryforward for federal income tax purposes at April 30,
1998 was approximately $549,000. This carryforward expires in various years from
1999 through 2008. There was no state net operating loss carryforward at April
30, 1998.

As of April 30, 1998, the Company had approximately $49,471 of available tax
credit carryforwards comprised of investment tax credits of $3,022 and
alternative minimum tax credits of $46,449. The investment tax credit
carryforwards expire in fiscal year 1999. The alternative minimum tax credits
have an indefinite carryforward period. In addition, the Company had
approximately $80,413 of federal charitable contribution carryforwards expiring
in fiscal years from 2000 to 2001.

-23-

<PAGE> 24

ALFA LEISURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)

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

The components of the net deferred tax asset are as follows:

For the Years Ended April 30,
-----------------------------
1998 1997
-------- ---------
<S> <C> <C>
Net operating loss carryforwards $186,490 $ 622,447
Depreciation 111,460 118,353
State taxes (16,901) (17,319)
Accrued liabilities 116,430 115,259
Charitable contributions 27,340 29,020
Tax credits 49,471 30,089
Valuation allowance -0- (370,004)
Deferred income 3,551 3,551
-------- ---------
$477,841 $ 531,396
======== =========
</TABLE>

6. Commitments and Contingencies:
------------------------------

Operating Leases:
-----------------

The Company leases its manufacturing facilities and executive offices under
agreements classified as operating leases. The leases require fixed monthly
payments. One of the Company's manufacturing facilities is leased for $12,932
per month from a Corporation owned by the Company's President. The Company
entered into this five year operating lease effective February 1, 1997 and is
obligated under its terms through January 31, 2002. A second lease was renewed,
with an unrelated party, on another of the Company's facilities effective March
1, 1997 at an annual lease rate of $42,000. This lease expires June 1, 2001. A
third lease was entered into, with an unrelated party, on another of the
Company's facilities effective March 1, 1998 at an annual lease rate of $43,500.
This lease expires February 28, 2001. Future minimum lease payments on these
leases at April 30, 1998 are as follows:

Year ended April 30,
--------------------
<S> <C>
1999 $240,684
2000 240,684
2001 233,434
2002 119,888
--------
$834,690
========
</TABLE>

Rent expense for the years ended April 30, 1998, 1997 and 1996 was $207,429,
$195,576 and $185,724 respectively of which $155,184, $156,780 and $143,724
respectively, was paid to the Company's President.

-24-

<PAGE> 25

ALFA LEISURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)

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

Financing Arrangements:
- -----------------------

The Company is contingently liable under the terms of the repurchase agreements
established with financing institutions to provide inventory financing for
dealers of the Company's products. The maximum exposure related to repurchase
agreements was approximately $9.1 million and $8.7 million at April 30, 1998
and 1997, respectively. The risk of loss under these agreements is spread over
many dealers and financing institutions and is reduced by the resale value of
any products that may be repurchased. The Company has historically experienced
no significant losses under these agreements.

Warranty Reserve:
- -----------------

The Company provides a warranty against defects in materials and workmanship for
one year following the date of sale. Estimated costs of product warranties
relating to sales during the year have been accrued and charged to operations
during the year the products were sold. The Company has included $212,678 and
$213,201 of accrued warranty costs in accrued expenses at April 30, 1998 and
1997, respectively.

Litigation:
- -----------

The Company is involved in several routine litigation matters incidental to its
business. Such litigation matters, when ultimately determined, will not, in the
opinion of management, have a material effect on the financial position or the
results of operations of the Company.

Employment Agreement:
- ---------------------

The Company has an annual employment agreement with its President that expires
on December 31, 1998. The agreement automatically extends for additional annual
periods unless canceled by either party before October 31. The agreement
provides for a fixed annual salary subject to an annual cost of living
adjustment. Such salary amounted to $248,428, $253,332 and $226,404 in the
fiscal years ended April 30, 1998, 1997 and 1996, respectively.

In addition, the agreement provides for a bonus in an amount equal to 10 % of
pretax income before accrual for amounts to be paid by the Company under its
management bonus plan. The agreement also provides for the right of the
Company's President to purchase each year up to two travel trailers manufactured
by the Company for an amount equal to the Company's cost. One trailer was
purchased in fiscal 1998, and no trailers were purchased in fiscal 1997 and
1996.

Under a bonus program for salaried employees, which includes the President,
bonus expense was recognized in the amounts of $587,221, $241,459 and $235,315,
in fiscal 1998, 1997 and 1996, respectively.

7. Stock Options:
--------------

A total of 300,000 shares are reserved for issuance under the Company's
incentive stock option plan for employees and directors. No options were issued
or outstanding nor had any been exercised during the fiscal years ended April
30, 1998, 1997 or 1996. In May 1998 115,000 options were issued to employees and
directors. These options vest 20% per year over five years, and expire in May
2008. The options have an exercise price of $.50 per share.

-25-

<PAGE> 26

ALFA LEISURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)

8. Note Receivable from President
------------------------------

At April 30, 1998 and 1997, the Company had a note receivable and additional
advances due from its President and major stockholder amounting to $363,236 and
$439,792 respectively. The note and additional advances bear interest at 9%.
Such advances have been classified as a contra-equity item on the April 30, 1998
and 1997 consolidated balance sheet.

-26-

<PAGE> 27

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

On April 16, 1997, the board of Directors of the Company determined that
the firm of Coopers & Lybrand L.L.P. would be dismissed as the Company's
principal accountant and would not be engaged to conduct the audit of the
company's financial statements for the fiscal year ended April 30, 1997.

Coopers & Lybrand L.L.P.'s report on the financial statements of the
Company for the past two years did not contain any adverse opinion or disclaimer
of opinion, nor was it qualified as to uncertainty, audit scope, or accounting
principals. There were no disagreements between the Company and Coopers &
Lybrand L.L.P. during the past two years and subsequent interim period preceding
such dismissal on any matter of accounting principals or practices, financial
statement disclosure, or audit scope or procedure, which disagreement(s), if not
resolved to the satisfaction of Coopers & Lybrand L.L.P., would have caused it
to make a reference to the subject matter of the disagreement(s) in connection
with its reports.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The Directors and executive officers of the Company as of July 15, 1998 are as
follows:

<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE POSITION(S) HELD
- ---- --- -------------- ----------------
<S> <C> <C> <C>
Johnnie R. Crean 48 1986 Chairman of the Board and President

Carol Smith 58 1986 Secretary and Director

Robert A. Rudolph 65 1986 Director

Timothy P. Igo 50 Vice President Engineering

Mark Schwartz 48 Vice President Finance and
Chief Financial Officer

Stephen Wishek 41 Vice President & General Manager
</TABLE>

JOHNNIE R. CREAN has been Chairman of the Board, President and a
director of the company since December 29, 1986. Mr. Crean founded Alfa Leisure,
Inc., a California Corporation ("Alfa-California") in March 1975 and served as
President and a director of Alfa-California from that time until its merger into
the Company on December 29, 1986. Mr. Crean also served as President and a
director of Alfa Leisure of Louisiana, Inc., a California corporation
("Alfa-Louisiana"), from its organization in October 1985 to the time of its
merger into the Company on December 29, 1986, and as a general partner of
Alfa-Louisiana's predecessor, Alfa Louisiana, Ltd., a California limited
partnership, from September 1983 until October 1985. Prior to their merger into
the Company, Alfa-California and Alfa Louisiana, and its predecessors were
engaged in the manufacture and sale of recreational vehicles.

CAROL SMITH has been the Secretary and a director of the Company since
December 29, 1986. Prior to her association with the Company, Ms. Smith had been
employed by Alfa-California since June 1977. From July 1981 to May 1984, Ms.
Smith served as Sales Manager of Alfa-California and from May 1984 to November
1986, she served as Plant Manager. Ms. Smith currently serves as National
Director of Marketing of the Company, a position she held at Alfa-California
from November 1986 to December 29, 1986, at which time Alfa-California was
merged into the Company.

-27-

<PAGE> 28

ROBERT A. RUDOLPH has served as a director of the Company since December
29, 1986. Mr. Rudolph was the owner and President of Bates Industries, Inc., a
privately-held manufacturer and retailer of custom motorcycle apparel from 1962
through 1996 at which time the company was sold. Prior thereto, Mr. Rudolph was
a certified public accountant with Arthur Andersen & Co. Mr. Rudolph presently
manages several private investment ventures.

TIMOTHY P. IGO has been the Vice President Engineering of the Company
since 1986. Mr. Igo was previously employed in various capacities by Alfa
Leisure, Inc., a California corporation ("Alfa-California") from 1973 until
December 29, 1986, when Alfa California was merged into the Company. From June
1981 to April 1984, Mr. Igo served as Secretary, Treasurer and a director of
Alfa-California, and as Vice President and a director from April 1984 to
December 1986.

MARK SCHWARTZ has been the Vice President Finance of the Company since
October 1997. Mr. Schwartz has over 20 years experience in chief financial
officer positions with various companies. Prior to joining the Company Mr.
Schwartz was Vice President Finance for Brice Manufacturing, an aerospace
manufacturer, from April 1991 to July 1997.

STEPHEN WISHEK has been the Vice President & General Manager of the
Company since August 1997. Mr. Wishek has been in manufacturing management since
1975. Prior to joining the Company Mr. Wishek was Vice President of
Manufacturing for American Kleaner Manufacturing Company, Inc., a division of
Karcher, from April 1979 to August 1997.

Directors of the Company hold office until the next annual meeting of
shareholders and until their successors are elected and qualified. The Board of
Directors has no standing audit, compensation or nominating committees or any
other committees serving similar functions. All officers serve at the discretion
of the Board of Directors.

Mark Schwartz and Stephen Wishek failed to timely file Form 3 and Form 5
following their election as officers of the Company. Each of these persons
subsequently filed the required form.

ITEM 11. EXECUTIVE COMPENSATION

Summary Cash Compensation Table
- -------------------------------

The following table sets forth the compensation (cash and non cash) for
the Chief Executive Officer and all the executive officers who earned in excess
of $100,000 per annum during any of the Company's last three fiscal years.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------- ------ -------
OTHER
ANNUAL SECURITIES ALL
COMPE- RESTRICTED UNDERLYING OTHER
NAME AND FISCAL SALARY BONUS NSATION STOCK STOCK LTIP COMPE-
PRINCIPAL POSITION YEAR ($) ($) AWARDS OPTIONS PAYOUTS NSATION
($) (#) ($)
- ------------------- ------ -------- -------- ------- -------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Johnnie R. Crean 1998 $248,428 $209,719 - - - - -
Chairman of the 1997 $253,332 $110,065 - - - - -
Board and President 1996 $226,404 $ 74,985 - - - - -
</TABLE>

Salary amounts include retroactive cost of living increases.

-28-

<PAGE> 29

1997 Stock Option Plan
- ----------------------

On February 18, 1997, the Board of Directors of the Company adopted, the
Alfa Leisure, Inc. 1997 Stock Option Plan (the "1997 Plan"). The 1997 Plan
reserved 300,000 shares of the Company's common stock for issuance pursuant to
the 1997 Plan.

Option Grants
- -------------

There were no options granted during fiscal 1997 or fiscal 1998. In May
1998 115,000 options were granted to employees and directors.

Option Exercise and Fiscal Year-End Values
- ------------------------------------------

There were no options held or exercised during fiscal 1998.

Compensation of Directors
- -------------------------

Directors, other than Johnnie R. Crean, receive compensation of $500 for
each meeting of the Board of Directors which they attend.

Employment Agreement
- --------------------

Mr. Crean is employed as President of the Company pursuant to an
employment agreement entered into as of December 1,1986 (the "Employment
Agreement"). The Employment Agreement renews automatically for successive
twelve-month periods unless terminated by either party by the prior October 31.
The Employment Agreement provides for a base salary of $180,000 per year,
subject to annual cost of living adjustments. The current adjusted annual base
salary is approximately $237,000. Mr. Crean is also entitled to a quarterly cash
bonus in an amount equal to 10% of pre-tax income of the Company. In addition,
Mr. Crean is entitled under his Employment Agreement to purchase up to two
travel trailers manufactured by the Company each fiscal year for an amount equal
to the Company's manufacturing cost. Mr. Crean did not purchase travel trailers
from the Company during the fiscal years ended April 30, 1997 or 1996. He
purchased one trailer in fiscal year ended April 30, 1998.

Compensation Philosophy
- -----------------------

The executive compensation philosophy of the Company is to (i) attract
and retain qualified management to run the business efficiently and guide the
Company's growth in both existing and new markets throughout the country, (ii)
establish a link between management compensation and the achievement of the
Company's annual and long-term performance goals, and (iii) recognize and reward
individual initiative and achievement.

Base Salaries. Base salaries for new management employees are based
primarily on the responsibilities of the position and the experience of the
individual, with reference to the competitive marketplace for management talent,
which is measured in terms of executive compensation offered by comparable
companies in related businesses.

Stock Options. The Company grants stock options to its management
employees. Because the amount of compensation which will be realized from these
options is directly related to the price of the Company's stock, this form of
compensation should be related to the performance of the Company and the results
of its operations.

-29-

<PAGE> 30

Conclusion. Through the options described above, a portion of the
Company's management compensation will be linked directly to Company
performance. The Company's President receives bonus compensation based on the
Company's pre-tax income. The Board of Directors will continually review all
compensation practices and make changes as appropriate.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information, as of July 15, 1998, with
respect to the ownership of the Company's common stock by: (i) each person known
by the Company to be the beneficial owner of more than 5% of the Company's
common stock; (ii) by each director; (iii) by each nominee for director; and
(iv) by all officers and directors of the Company as a group.

Name and Address of Amount and Nature of Percent
Beneficial Owner (1) Beneficial Ownership (2) of Class (3)
-------------------- ------------------------ -----------
<S> <C> <C>
Johnnie R. Crean 2,325,608 (4) 76.3%

Carol Smith 9,600 (5) 0.3%

Robert A. Rudolph 8,364 0.3%

Timothy J. Igo 2,400 (6) 0.0%

All directors and
officers as a group
(five persons) 2,345,972 76.9%
</TABLE>

(1) The address of each named person, other than Robert A. Rudolph, is 5163
"G" street Chino, California 91710. Mr. Rudolph's address is 303 East
Bixby Road, Long Beach, California 90807.

(2) Unless otherwise indicated, each person has sole voting and investment
power over the common stock shown as beneficially owned, subject to
community property laws where applicable and the information contained
in footnotes to this table.

(3) Based on 3,048,137 shares of common stock issued and outstanding.

(4) Includes 2,282,408 shares held in a living trust, over which Mr. Crean
has sole voting and investment power, and includes 43,200 shares held by
trusts for the benefit of the children of Mr. Crean of which Mr. Crean
is co-trustee.

(5) Ms. Smith shares investment power over 9,600 shares with her adult
daughter.

(6) Mr. Igo shares investment power of 2,400 shares with his former spouse.

-30-

<PAGE> 31

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company leases its manufacturing facilities and executive offices
from Hercules Land Holding, Inc., a California corporation of which Mr. Crean is
the sole shareholder. The Company pays monthly rent of $12,932 pursuant to a
five (5) year lease with three (3) options to extend for three (3) years each.
The lease provides the Company with the option to acquire the property and
facilities at any time during the lease term at the market value as determined
by appraisal by an MAI certified appraiser. Based on an informal market survey,
the Company believes that the monthly rental rate for the property and
facilities is consistent with local market rates. Prior to the acquisition of
the property and facilities by Hercules Land Holding, Inc., Mr. Crean had leased
the property and facilities for $8,324 per month pursuant to a December 19, 1980
lease and subleased the property to the Company. During the fiscal years ended
April 30, 1998 and 1997, the Company paid lease payments of $12,932 and $11,977
per month respectively, to Mr. Crean and his affiliate.

Mr. Crean borrows money from and repays money to the Company from time
to time. During the fiscal years ended April 30, 1998, 1997 and 1996 the largest
amounts of money which Mr. Crean owed to the Company on any one date were
$595,304, $439,792 and $402,390 respectively. Mr. Crean pays interest at the
rate of nine percent (9%) per annum on the amount of money which is owed to the
Company. It is anticipated that the amount of Mr. Crean's indebtedness to the
Company will fluctuate during fiscal year 1999.

The Company has collateralized Mr. Crean's personal indebtedness of
$184,000 to a third party lender with a deed of trust on a 1.4 acre lot which is
used as the parking lot for the Company's Chino, California manufacturing
facility. Mr. Crean transferred this property to the Company in 1989 subject to
the existing debt which was structured on an interest only basis.

Mr. Crean has personally guaranteed the Company's line of credit with
Merlin Financial, Inc.

ITEM 13. EXHIBITS. FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Financial Statements

The following financial statements are being filed as a part of this
Annual Report on Form 10-K:

Independent Auditors' Report

Report of Independent Accountants

Balance Sheets as of April 30, 1998 and 1997

Statements of Operation for the years ended April 30, 1998,
1997 and 1996

Statements of Stockholders' Equity for the years ended April 30,
1998, 1997 and 1996

Statements of Cash Flows for the years ended
April 30, 1998, 1997 and 1996

Notes to Financial Statements

-31-

<PAGE> 32

Financial Statement Schedules
-----------------------------

Not applicable.

Exhibits
--------

3.1 Restated Articles of Incorporation as filed with the
Secretary of State for the State of Texas on July 22,
1976 and amended on January 14, 1997 and March 28, 1978,
incorporated by reference from the Company's Annual
report on Form 10-K for its fiscal year ended April 30,
1997, Exhibit 3.1.

3.3 Third Amendment to the Restated Articles of
Incorporation as filed with the Secretary of State for
the State of Texas on December 22, 1986, incorporated by
reference from the Company's Annual Report on Form 10-K
for its fiscal year ended January 31, 1987, Exhibit 3.3.

3.4 Bylaws of the Company, incorporated by reference from
the Company's Annual Report on Form 10-K for its fiscal
year ended January 31, 1987, Exhibit 3.4.

4.3 Specimen of the Company's Common Stock Certificates,
incorporated by reference from the Company's Annual
Report on Form 10-K for its fiscal year ended January
31, 1987, Exhibit 4.4.

4.4 Incentive Stock Option Plan of 1987, incorporated by
reference from the Company's Annual Report on Form 10-K
for its fiscal year ended April 30, 1988, Exhibit 4.4.

4.5 1997 Stock Option Plan incorporated by reference from
the Company's Definitive Proxy Statement dated March 4,
1997, Appendix I.

10.05 Agreement and Plan of Reorganization dated December 30,
1985 between and among the Company, Alfa Leisure, Inc.,
a California corporation, and Alfa Leisure of Louisiana,
Inc., a California corporation, incorporated by
reference from the Company's Report on Form 8-K dated
December 29, 1986, Exhibit 10.05

10.06 Agreement of Merger dated December 26, 1986 between and
among the Company, Alfa Leisure, Inc., a California
corporation, and Alfa Leisure of Louisiana, Inc., a
California corporation, incorporated by reference from
the Company's Report on Form 8-K dated December 29,
1986, Exhibit 10.06.

10.07 Lease Agreement by and between the Industrial
Development Board of the Parish of Bossier, Louisiana,
Inc., and Alfa Leisure of Louisiana, Ltd., dated
December 1, 1983, incorporated by reference from the
Company's Annual Report on Form 10-K for its fiscal year
ended January 31, 1987, Exhibit 10.07.

-32-

<PAGE> 33

10.08 Mortgage and Indenture of Trust by and between the
Industrial Development Board of the Parish of Bossier,
Louisiana, Inc., and the First National Bank of
Shreveport dated January 1, 1984, incorporated by
reference from the Company's Annual Report on Form 10-K
for its fiscal year ended January 31, 1987, Exhibit
10.08.

10.09 Bond Guaranty Agreement by and between Alfa Leisure,
Inc., a California corporation, Johnnie R. Crean and The
First National bank of Shreveport dated January 1, 1984,
incorporated by reference from the Company's Annual
Report on Form 10-K for its fiscal year ended January
31, 1987, Exhibit 10.09.

10.10 Employment Agreement by and between Alfa Leisure, Inc.,
a California corporation, and Johnnie R. Crean dated as
of December 1, 1986, incorporated by reference from the
Company's Annual Report on Form 10-K for its fiscal year
ended January 31, 1987, Exhibit 10.10.

16.1 Letter from Coopers & Lybrand LL.P to Alfa Leisure, Inc.
concurring in disclosure re: change in certifying
accountant, incorporated by reference from the Company's
current report on Form BSUA dated April 16, 1997,
Exhibit 16.1.

21 Brougham International, Inc. is the Company's only
subsidiary.

27 Financial Data Schedule.

(b) Reports on Form 8-K.
--------------------

Not applicable.

-33-

<PAGE> 34

SIGNATURES

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

Dated: July 17, 1998 ALFA LEISURE, INC.

By: /s/ JOHNNIE R. CREAN
--------------------------------
Johnnie R. Crean, President

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the persons on behalf of the registrant in
the capacities and on the dates indicated.

July 17, 1998

/s/ JOHNNIE R. CREAN July 17, 1998
- ------------------------------------
Johnnie R. Crean, Chairman of the
Board and President

/s/ CAROL SMITH July 17, 1998
- ------------------------------------
Carol Smith, Director

/s/ ROBERT A. RUDOLPH July 17, 1998
- ------------------------------------
Robert A. Rudolph, Director

/s/ MARK SCHWARTZ July 17, 1998
- ------------------------------------
Mark Schwartz, Vice President
Finance
[Principal Financial Officer and
Principal Accounting Officer]

-34-

<PAGE> 35

EXHIBIT INDEX

Exhibit
No. Description
------- -----------

3.4 Bylaws of the Company, incorporated by reference from
the Company's Annual Report on Form 10-K for its fiscal
year ended January 31, 1987, Exhibit 3.4.

4.3 Specimen of the Company's Common Stock Certificates,
incorporated by reference from the Company's Annual
Report on Form 10-K for its fiscal year ended January
31, 1987, Exhibit 4.4.

4.4 Incentive Stock Option Plan of 1987, incorporated by
reference from the Company's Annual Report on Form 10-K
for its fiscal year ended April 30, 1988, Exhibit 4.4.

4.5 1997 Stock Option Plan incorporated by reference from
the Company's Definitive Proxy Statement dated March 4,
1997, Appendix I.

<PAGE> 36

21 Brougham International, Inc. is the Company's only
subsidiary.

27 Financial Data Schedule.

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<CASH> 410,671
<SECURITIES> 0
<RECEIVABLES> 1,614,276
<ALLOWANCES> 0
<INVENTORY> 1,415,794
<CURRENT-ASSETS> 3,738,049
<PP&E> 1,300,407
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,558,923
<CURRENT-LIABILITIES> 2,454,729
<BONDS> 0
0
0
<COMMON> 62,000
<OTHER-SE> 3,033,994
<TOTAL-LIABILITY-AND-EQUITY> 5,558,923
<SALES> 36,025,591
<TOTAL-REVENUES> 36,025,591
<CGS> 31,186,855
<TOTAL-COSTS> 31,186,855
<OTHER-EXPENSES> 3,249,093
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79,672
<INCOME-PRETAX> 1,509,971
<INCOME-TAX> 165,342
<INCOME-CONTINUING> 1,344,629
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,344,629
<EPS-PRIMARY> .44
<EPS-DILUTED> .44

</TABLE>