ALFA LEISURE INC, 10-K, 1999-07-13

ALFA LEISURE INC
10-K, 1999-07-13
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,
1999 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
--- ---

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.
---

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 $1,321,068 as of July 15, 1999 based on the last known sales
price for the registrant's common stock of $2.00 on April 23, 1999.

The number of shares of the registrant's common stock, no par value, outstanding
as of July 15, 1999 was 3,048,137.

DOCUMENTS INCORPORATED BY REFERENCE. None.

<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 60 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, built from
strong, light weight, high density composite materials 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 $61,000 to $73,000.

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 $44,000 to
$59,000.

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 $56,000.

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.

Beginning with the model year 2000 introduction in June 1999 the
Company is providing, at no charge to the retail purchaser, a four (4) year
service agreement covering manufacturing defects in material and workmanship.
Lyndon-DFS Warranty Services, backed by Deutsche Financial Services, will be
administrating and providing processing services for this service agreement. The
service agreement begins when the Alfa warranty expires. The combination of the
one (1) year Alfa warranty and four (4) year Lyndon-DFS service agreement
provide Alfa retail customers with a total of five (5) years protection.

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.

- 4 -

<PAGE> 5

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.

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

<TABLE>
<CAPTION>
1997 1998
Units Units
Towables (thousands) (thousands) % Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Travel Trailers
Conventional 78.8 98.6 25.1%

5th Wheel Trailers 52.8 56.5 7.0%

Folding Trailers 57.6 63.3 9.9%

Truck Campers 10.3 10.8 4.9%
-------------------------------------------------------------
Total 199.5 229.2 14.9%
</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.

- 5 -

<PAGE> 6

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.

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 1999, 1998 and 1997, the Company
spent $349,706, $290,665 and $176,760, respectively, on research and development
activities.

Patents
-------

In May 1998 the Company obtained a U.S. registered patent, No.
5,746,473 for its innovative "step chassis" design and "basement" air
conditioning system. The Company has applied for patent protection relating to
its new "improved travel trailer," "trailer awning assembly" and "travel trailer
with extendable two level bathroom and bedroom" designs.

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. The Company has applied for trademark protection
relating to the "Sun," "See Ya," "Toyhouse" and " Spacemaster" names.

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 June 17, 1999, the Company employed approximately 354 full-time
people.

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

The Company's executive offices and principal manufacturing facilities
are in Chino, California. In January 1999 the Company acquired the premises from
Hercules Land Holding, Inc., a corporation owned by the Company's chairman,
president and principal shareholder. The purchase price was $1,575,000, paid
$1,275,000 in cash and $300,000 in a promissory note due upon demand. The note
bears monthly interest at Wells Fargo Bank's prime interest rate. The purchase
price was based on fair market value as determined by an independent appraisal.

- 6 -

<PAGE> 7

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.

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 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, 1999, there were approximately 384 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, 1999 & 1998 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,

<TABLE>
<CAPTION>
----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 39,147 $ 36,026 $ 28,590 $ 25,750 $ 27,349
Net Income from
Continuing operations $ 890 $ 1,345 $ 330 $ 665 $ 824
Net Income per share
from continuing operations $ .29 $ .44 $ .11 $ .22 $ .27
Weighted number of shares
Outstanding 3,048,137 3,048,137 3,050,000 3,050,000 3,050,000
Research and Development
Expense $ 350 $ 291 $ 177 $ 166 $ 163
</TABLE>

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

As of April 30,
<TABLE>
<CAPTION>
------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets $6,919 $5,559 $5,406 $5,988 $5,703
Current Assets 3,999 3,738 3,767 4,311 4,570
Current Liabilities 3,172 2,455 2,751 2,600 3,241
Net Working Capital 826 1,283 1,016 1,711 1,329
Long-term obligations 8 8 981 2,006 1,706
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, 1999 AND 1998

Revenues. Revenues in 1999 were $39.1 million compared to $36.0 million
in 1998, an increase of 8.6%. This was partially a result of a 2.2% increase in
units shipped in 1999 compared to 1998. Increased service revenues, as well as
price increases for the 1999 models, also effected the 1999 revenues.

Cost of Sales. Cost of Sales in 1999 was $34.1 million compared to
$31.2 million in 1998, an increase of 9.3%. As a percentage of revenue, total
Cost of Sales was 87.1% in 1999 compared to 86.6% in 1998. The increase in Cost
of Sales as a percentage of revenue was primarily due to the one time plant
improvement investment made in the first quarter of fiscal 1999. In July 1998 a
three week plant shutdown was scheduled. During this shutdown a plant
improvement plan was implemented. This included facility maintenance and the
re-tooling of the main production line to improve production efficiency and
increase production capacity. This improvement investment totaled .7% of overall
fiscal 1999 revenue. Cost of Sales as a percentage of revenue, without the
improvement investment, is 86.4% in 1999 compared to 86.6% in 1998.

Operating Expenses. Selling, general and administrative expenses
totaled $3.6 million in 1999, an increase of $.4 million over the prior year
amount of $3.2 million. As a percentage of sales, operating expenses increased
to 9.1% in 1999 from 9.0% for the prior year. As a percentage of sales,
increases in fiscal 1999 over the corresponding period of 1998 occurred in
advertising, professional and research & development costs. Offsetting decreases
in fiscal 1999 over the corresponding period of 1998 occurred in insurance and
donation costs.

- 9 -

<PAGE> 10
Interest Expense. Interest expense was $16,767 for the year ended April
30, 1999 compared to $79,672 in fiscal year 1998, a decrease of approximately
$63,000 attributable primarily to a decrease in borrowed funds.

Tax Provisions. The increase in the effective tax rate from 11% in
fiscal 1998 to 39% in fiscal 1999 was due to the elimination of the valuation
allowance relating to the Company's deferred tax asset in fiscal 1998.

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 26.0%. This was partially a result of a 17.0% increase
in the units shipped in fiscal 1998 compared to fiscal 1997. Price increases for
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 revenues, 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 percentage 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 $79,672 for the year ended April
30, 1998 compared to $197,411 in fiscal year 1997, a decrease of approximately
$118,000 attributed primarily to a decrease in borrowed funds.

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.

LIQUIDITY AND CAPITAL RESOURCES

The Company has accumulated retained earnings of $3,273,289 through
April 30, 1999.

In January 1999 the Company renewed its line of credit with Wells Fargo
Bank for an additional two years. The line was increased from $1,000,000 to
$1,750,000. The interest rate was reduced from Wells Fargo Bank's prime rate
plus 1% to Wells Fargo Bank's prime rate. All other terms and conditions
remained the same. The Merlin Financial, Inc. line of credit remains in place
with no change in terms and conditions, and will be used as a secondary line of
credit only after the Wells Fargo Bank's line of credit is utilized in full.

Net cash provided by operating activities in 1999 was $1,329,161
compared to $1,285,804 in 1998. The increase is due primarily to an increase in
accounts payable.

- 10 -

<PAGE> 11

Net cash used in investing activities was $1,331,187 in 1999 compared
to $372,371 in 1998. In January 1999 the Company acquired the land and buildings
where its executive offices and principal manufacturing facilities in Chino are
located. It was purchased from Hercules Land Holding, Inc., a corporation owned
by the Company's chairman, president and principal shareholder. The purchase
price was $1,575,000, paid $1,275,000 in cash and $300,000 in a promissory note
due upon demand. The note pays monthly interest at Wells Fargo Bank's prime
interest rate. The purchase price was based on fair market value as determined
by an independent appraisal. Cash was also used 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 $327,918 in 1999. In January
1999 when the land and buildings were acquired from Hercules Land Holding, Inc.,
the note receivable from Mr. Crean of $363,236 was paid off and a note payable
to Mr. Crean was created. The note payable to Mr. Crean at April 30th 1999 was
$218,616. In addition $609,770 of the purchase price was treated as a capital
distribution.

Currently there are no major purchase commitments that are expected to
have a significant impact on liquidity.

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

YEAR 2000 PLAN

The Company is working to resolve the potential impact of the year 2000
on its business processes and the ability of the Company's computerized
information systems to accurately process information that may be date
sensitive. The Company began its risk assessment in fiscal 1998. The Company
purchased a new operating and applications computer system in November 1998. The
new system chosen is year 2000 compliant. The Company plans to implement the new
system prior to year 2000. The cost of this implementation should not have a
material impact on the Company's financial position. The total cost of hardware,
software and implementation is estimated to be approximately $250,000, of which
$175,000 has been expended through April 30, 1999. To the extent that the
Company relies on third parties, such as banking institutions and major
suppliers who are unable to address their year 2000 issues in a timely manner,
the Company could be materially impacted.

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

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------

<TABLE>
<CAPTION>
Alfa Leisure, Inc. Index to Consolidated Financial statements:
--------------------------------------------------------------
<S> <C>
Independent Auditor's Report .................................................12
Consolidated Balance Sheets as of
April 30, 1998 and 1997 ...................................................13
Consolidated Statements of Income
for the years ended April 30, 1998, 1997 and 1996 .........................14
Consolidated Statements of Stockholders'
Equity for the years ended April 30, 1998, 1997 and 1996 ..................15
Consolidated Statements of Cash Flows for the
years ended April 30 1998, 1997 and 1996 ..................................16
Notes to Consolidated Financial Statements ...................................18
</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, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended April 30, 1999. 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, 1999 and 1998, and
the results of its operations and its cash flows for each of the three years in
the period ended April 30, 1999 in conformity with generally accepted accounting
principles.

Deloitte & Touche LLP

Los Angeles, California
June 18, 1999

- 12 -

<PAGE> 13
ALFA LEISURE, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS
------
<TABLE>
<CAPTION>
April 30,
--------------------
1999 1998
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 80,727 $ 410,671
Restricted cash 126,260 150,247
Accounts receivable 1,922,919 1,614,276
Inventories 1,626,516 1,415,794
Prepaid expenses and other current assets 98,143 139,623
Deferred income tax asset - current 144,008 7,438
---------- ----------

Total Current Assets 3,998,573 3,738,049

Property, plant and equipment, net 2,308,933 1,300,407
Other assets and deposits 45,000 50,064
Deferred income tax asset 566,832 470,403
---------- ----------

Total Assets $6,919,338 $5,558,923
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current Liabilities:
Accounts payable $1,876,356 $1,271,896
Accrued expenses 521,733 596,805
Accrued compensation 555,428 586,028
Note payable to President 218,616 0
---------- ----------
Total Current Liabilities 3,172,133 2,454,729

Deferred income 8,200 8,200
---------- ----------

Total Liabilities 3,180,333 2,462,929
Commitments and Contingencies (Note 6)
---------- ----------

Stockholders' equity:
Common stock, authorized 30,000,000 shares
of no par value; issued and
outstanding 3,048,137 shares at
April 30, 1999 and April 30, 1998
respectively 62,000 62,000
Note receivable from President 0 (363,236)
Retained earnings 3,677,005 3,397,230
---------- ----------

Total Stockholders' Equity 3,739,005 3,095,994
---------- ----------
Total Liabilities and
Stockholders' Equity $6,919,338 $5,558,923
========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

-13-

<PAGE> 14

ALFA LEISURE, INC.

CONSOLIDATED STATEMENTS OF INCOME

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

<TABLE>
<CAPTION>
For the Years Ended April 30,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Sales $39,146,987 $36,025,591 $28,590,285

Cost of sales 34,100,426 31,186,855 24,951,677
----------- ----------- -----------

Gross profit 5,046,561 4,838,736 3,638,608

Selling, general and administrative 3,571,871 3,249,093 3,002,621
----------- ----------- -----------

Income from operations 1,474,690 1,589,643 635,987

Interest and other expense 16,767 79,672 197,411
----------- ----------- -----------

Income before income taxes 1,457,923 1,509,971 438,576

Provision for income taxes 568,378 165,342 109,032
----------- ----------- -----------

Net income $ 889,545 $ 1,344,629 $ 329,544
=========== =========== ===========
Net income per share - basic
and diluted $ .29 $ .44 $ .11
=========== =========== ===========

Weighted average shares
outstanding - basic
and diluted 3,048,137 3,048,137 3,050,000
=========== =========== ===========

</TABLE>

See accompanying notes to consolidated financial statements.

-14-

<PAGE> 15
ALFA LEISURE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the Years Ended April 30, 1999, 1998 and 1997

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

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

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 (437,792) 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

Net income 889,545

Net advances to president (119,526)

Capital distribution (Note 3) 482,762 (609,770)
---------- ---------- ---------- ----------

Balance, April 30, 1999 3,048,137 $ 62,000 $ 0 $3,677,005
========== ========== ========== ==========

</TABLE>

See accompanying notes to consolidated financial statements.

-15-

<PAGE> 16
ALFA LEISURE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

----------------
<TABLE>
<CAPTION>
For the Years Ended April 30,
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:

Net income $ 889,545 $ 1,344,629 $ 329,544

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

Depreciation and amortization 247,996 174,221 12,887
Changes in operating assets and liabilities:
Deferred income taxes 170,717 53,555 8,874
Accounts receivable (308,643) 154,877 47,500
Inventories (210,722) (116,153) 395,157
Prepaids and other assets 41,480 (29,128) (64,938)
Accounts payable 691,074 (644,715) 115,501
Accrued compensation (30,600) 167,554 31,213
Accrued expenses (161,686) 180,964 4,377
----------- ----------- -----------
Net cash provided by
operating activities 1,329,161 1,285,804 996,115
----------- ----------- -----------
Cash flow from investing activities:

Acquisition of property, plant and equipment (1,360,238) (371,474) (95,350)
Deposits 5,064 0 (10,000)
Restricted cash 23,987 (897) 59,792
----------- ----------- -----------
Net cash used in investing activities (1,331,187) (372,371) (45,558)
----------- ----------- -----------
</TABLE>

(continued)

See accompanying notes to consolidated financial statements.

-16-

<PAGE> 17
ALFA LEISURE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

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

<TABLE>
<CAPTION>
For the Years Ended April 30,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from financing activities:

Net decrease in notes payable $ (81,384) $ 0 $ 0
to President
Net (increase) decrease in note receivable
from President 363,236 76,556 (37,402)
Principal payments on line of credit 0 (972,500) (1,025,000)
Capital distribution (Note 3) (609,770) 0 0
----------- ----------- -----------

Net cash (used in) financing activities (327,918) (895,944) (1,062,402)
----------- ----------- -----------

Net (decrease) increase in cash (329,944) 17,489 (111,845)

Cash and cash equivalents at
beginning of year 410,671 393,182 505,027
----------- ----------- -----------

Cash and cash equivalents at
end of year $ 80,727 $ 410,671 $ 393,182
=========== =========== ===========

Supplemental cash flow disclosures:

Interest paid $ 16,767 $ 79,672 $ 192,482
=========== =========== ===========

Income taxes paid $ 402,000 $ 111,141 $ 111,490
=========== =========== ===========
</TABLE>

Supplemental Investing and Financing Activities - In connection with the
purchase of land and buildings from a corporation owned by the Company's
Chairman, for $1,575,000, $300,000 was paid in the form of a promissory note due
upon demand (see Note 3).

See accompanying notes to consolidated financial statements.

- 17 -

<PAGE> 18

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 1999 ended on April 18, 1999, fiscal 1998 ended April 19,
1998 and fiscal 1997 ended on April 20, 1997. 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 two to twenty six 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.

- 18 -

<PAGE> 19
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:
- ---------------------

Basic earnings per share is computed by dividing income available to
shareholders of beneficial interest by the weighted average number of shares
outstanding for the period. Diluted earnings per common share does not differ
from that presented.

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

Deferred income taxes reflect the tax consequences in future years of
differences between the tax bases of assets and liabilities and the
corresponding bases used for financial reporting purposes.

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

Advertising costs are expensed when incurred. Advertising expense for the years
ended April 30, 1999, 1998 and 1997 were $210,144, $123,788 and $86,762
respectively.

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

Research and development costs are expensed when incurred. Research and
development costs for the years ended April 30, 1999, 1998 and 1997 were
$349,706, $290,655 and $176,760 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.

- 19 -

<PAGE> 20
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. The fair value of the note payable to President cannot be
determined due to the related party nature of the agreement.

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,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
Raw materials $ 951,174 $ 869,762
Work in process 644,589 514,728
Finished products 30,753 31,304
---------- ----------

Total inventories $1,626,516 $1,415,794
========== ==========
</TABLE>

- 20 -

<PAGE> 21
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 April 30,
Lives
------ ----------------------------
1999 1998
----------- -----------
<S> <C> <C> <C>
Land $ 603,282 $ 332,262
Buildings 26 years 1,200,961 895,097
Machinery and equipment 2 to 7 years 1,387,158 1,019,523
Transportation equipment 5 years 292,518 242,608
Furniture and office equipment 5 years 615,047 377,012
Leasehold improvements 5 years 261,520 237,460
----------- -----------

4,360,486 3,103,962
Less: Accumulated depreciation and
amortization (2,051,553) (1,803,555)
----------- -----------

Net property, plant and equipment $ 2,308,933 $ 1,300,407
=========== ===========
</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 $367,219 and
$350,530 at April 30, 1999 and 1998 respectively. This facility was leased to a
tenant beginning April 1, 1995 for five years at $4,100 per month.

In January 1999 the Company acquired the land and buildings where its executive
offices and principal manufacturing facilities in Chino are located. It was
purchased from Hercules Land Holding, Inc. a corporation owned by the Company's
chairman, president and principal shareholder. The purchase price of $1,575,000
was paid $1,275,000 in cash and $300,000 in a promissory note due upon demand.
The note pays monthly interest at Wells Fargo Bank's prime interest rate. The
purchase price was based on fair market value as determined by an independent
appraisal. The net assets were recorded at $561,514, which was the carrying
value of Hercules Land Holding, Inc. The difference between the carrying value
of the property by Hercules and the purchase price was $1,013,486. This amount
less the deferred taxes of $403,716 which relates to the step up in tax basis,
was recorded as a capital distribution and was included as a reduction in
retained earnings on the balance sheet. In conjunction with this transaction the
note receivable from the president, which was classified as a component of
stockholders' equity, was paid off.

- 21 -

<PAGE> 22
ALFA LEISURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)

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

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 no borrowings
were outstanding at April 30, 1999 and 1998, respectively. Interest is at Bank
of America's prime rate plus 1%.

In January 1998 the Company established a $1,000,000 line of credit with Wells
Fargo Bank. The line of credit bears interest at Wells Fargo Bank's prime rate
plus 1%. Interest is payable monthly. In January 1999 the Company renewed its
line of credit with Wells Fargo Bank for an additional two years. The line was
increased from $1,000,000 to $1,750,000. The interest rate was reduced to Wells
Fargo Bank's prime rate. All other terms and conditions remained the same. There
were no amounts outstanding at April 30, 1999 and 1998, respectively. The
Company will draw against the Merlin Financial, Inc. line of credit only after
the Wells Fargo Bank line of credit is fully utilized.

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.

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

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

<TABLE>
<CAPTION>
For the Years Ended April 30,
-------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Current:
State $ 88,333 $ 99,086 $ 117,906
Federal 309,328 12,701 0

Deferred:
State 13,924 1,230 14,736
Federal 156,793 52,325 (23,610)
--------- --------- ---------
Totals $ 568,378 $ 165,342 $ 109,032
========= ========= =========
</TABLE>

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

<TABLE>
<CAPTION>
For the Years Ended April 30,
--------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Tax provision at statutory rate $ 495,694 $ 513,390 $ 149,116
Decrease in the valuation allowance 0 (370,000) (129,996)
State taxes, net of federal benefit 64,753 66,209 87,544
Other 7,931 (44,257) 2,368
--------- --------- ---------
$ 568,378 $ 165,342 $ 109,032
========= ========= =========
</TABLE>

- 22 -

<PAGE> 23

ALFA LEISURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)

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

The net operating loss carryforward for federal income tax purposes was fully
utilized in fiscal 1999.

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

<TABLE>
<CAPTION>
For the Years Ended April 30,
-----------------------------
1999 1998
--------- ---------
<S> <C> <C>
Net operating loss carryforwards $ 0 $ 186,490
Basis difference in fixed assets 490,296 111,460
State taxes 20,698 (16,901)
Accrued liabilities 196,333 116,430
Charitable contributions 0 27,340
Tax credits 0 49,471
Deferred income 3,513 3,551
--------- ---------
$ 710,840 $ 477,841
========= =========
</TABLE>

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

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

In January 1999, the Company acquired the land and buildings where its executive
offices and principal manufacturing facilities in Chino are located (see Note
3). It was purchased from Hercules Land Holding, Inc., a corporation owned by
the Company's chairman, president and principal shareholder. Through January
1999, the Company paid rent to Hercules in the amount of $12,932 per month. The
Company leases additional manufacturing facilities under agreements classified
as operating leases. The leases require fixed monthly payments. One of the
Company's manufacturing facilities is leased at an annual rate of $42,000, from
an unrelated party. This lease expires June 1, 2001. A second 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, 1999 are as
follows:

Year ended April 30,
--------------------

2000 $ 50,500
2001 78,250
2002 3,500
--------
$132,250

- 23 -

<PAGE> 24

ALFA LEISURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)

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

Rent expense for the years ended April 30, 1999, 1998 and 1997 was $212,838,
$207,429 and $195,576 respectively of which $116,388, $155,184 and $156,780
respectively, was paid to the Company's president.

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 $9.6 million and $9.1 million at April 30, 1999 and
1998, 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 $198,856,
$212,678 and $213,201of accrued warranty costs in accrued expenses at April 30,
1999, 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, 1999. The agreement automatically extends for additional annual
periods unless canceled by either party before October 31 of each year. The
agreement provides for a fixed annual salary subject to an annual cost of living
adjustment. Such salary amounted to $225,476, $248,428 and $253,332 in the
fiscal years ended April 30, 1999, 1998 and 1997, 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 1999 and
1997.

Under a bonus program for salaried employees, which includes the President,
bonus expense was recognized in the amounts of $630,105, $587,221 and $241,459,
in fiscal 1999, 1998 and 1997, respectively.

- 24 -

<PAGE> 25

ALFA LEISURE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)

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

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

The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options. Under APB 25, because the exercise
price of employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recorded. The Company has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123 "Accounting for Stock-Based Compensation" (SFAS 123).

A total of 300,000 shares are reserved for issuance under the Company's
incentive stock option plan for employees and directors. In May 1998, 130,000
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.

Weighted
Number Average Total
Of Shares Exercise Price Price
- --------------------------------------------------------------------------------
Shares under option
at April 30, 1998 0 0 0
Granted 130,000 $ .50 $65,000
Exercised 0 0 0
Forfeited 0 0 0
- --------------------------------------------------------------------------------
Shares under option
at April 30, 1999 130,000 $ .50 $65,000
- --------------------------------------------------------------------------------
Shares exercisable
at April 30, 1999 0 0 0
- --------------------------------------------------------------------------------

The fair value of options granted is estimated on the date of grant using the
Black Scholes option pricing model. The following weighted average assumptions
were used: no dividend yield, no volatility as there is seldom trading in the
Company's stock, risk free interest rate of 5.5% and an expected term of 10
years. The weighted average fair value of options granted in fiscal 1999 was
$0.21 per share. Had the Company accounted for stock options in accordance with
SFAS 123, the reduction in net income and net income per share would not have
been material.

8. Note Receivable/Payable President
---------------------------------

At April 30, 1998 and 1997, the Company had a note receivable from its president
and principal stockholder amounting to $ 363,236 and $ 439,792 respectively. In
January 1999 the Company acquired the land and buildings where its executive
offices and principal manufacturing facilities in Chino are located. It was
purchased from Hercules Land Holding, Inc., a corporation owned by the Company's
president and principal shareholder. At that time, the note receivable from its
president was paid off, and a $300,000 note payable to the president was issued.
The note payable is due upon demand and pays monthly interest at Wells Fargo
Bank's prime interest rate. At April 30, 1999, the note payable totaled
$218,616.

- 25 -

<PAGE> 26

9. Business Segments
-----------------

The Company is engaged principally in the business of manufacturing and selling
recreational vehicles. On June 30, 1997, the Financial Accounting Standards
Board issued Statement on Financial Accounting Standards No. 131, "Disclosures
About Segments of an Enterprise and Related Information" (SFAS 131) effective
for fiscal years beginning after December 15, 1997. In accordance with the
selection criteria established by SFAS 131, the Company has determined that it
has one business segment.

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

Not applicable.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
-----------------------------------------------

The Company held four Board of Director meetings in fiscal 1999. All Directors
attended each meeting.

The Directors and executive officers of the Company as of July 15, 1999 are as
follows:

<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE POSITION(S) HELD
- ---- --- -------------- ----------------
<S> <C> <C> <C>
Johnnie R. Crean 50 1986 Chairman of the Board and President

Carol Smith 59 1986 Secretary and Director

Robert A. Rudolph 66 1986 Director

Timothy P. Igo 51 Vice President Engineering

Mark Schwartz 49 Vice President Finance and Chief
Financial Officer

Stephen Wishek 43 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.

- 26 -

<PAGE> 27
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.

ITEM 11. EXECUTIVE COMPENSATION
----------------------

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

The following table sets forth the compensation (cash and non cash) for
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
Compensation Restricted Underlying other
Name and Principal Fiscal Salary Bonus ($) ($) Stock Stock LTIP Compensation
Position Year ($) Awards Options Payouts
($) (#) ($)
- ------------------------ ------- ---------- ---------- --------- ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Johnnie R. Crean 1999 $225,476 $225,015 - - - - -
Chairman of the 1998 $248,428 $209,719 - - - - -
Board and President 1997 $253,332 $110.065 - - - - -
</TABLE>

Salary amounts include retroactive cost of living increases.

- 27 -

<PAGE> 28

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 130,000 options were granted to employees and directors.

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

There were no options held or exercised during fiscal 1999.

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 $240,485. 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, 1999 or 1997. 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.

- 28 -

<PAGE> 29
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, 1999, 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.

<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Beneficial Owner (1) Beneficial Ownership (2) of Class (3)
-------------------- ------------------------- ------------
<S> <C> <C>
Johnnie R. Crean 2,367,239 (4) 77.7%

Carol Smith 9,600 (5) 0.3%

Robert A. Rudolph 8,364 0.3%

All directors and
officers as a group
(six persons) 2,387,603 78.3%
</TABLE>
- ----------------
(1) The address of each named person, other than Robert A. Rudolph, is
13501 5th 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.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------

- 29 -

<PAGE> 30

Mr. Crean borrows money from and repays money to the Company from time
to time. In January 1999 in conjunction with the acquisition of the property
from Hercules Land Holding, Inc. Mr. Crean paid off the note receivable due to
Alfa Leisure, Inc. which amounted to $482,767 at that point in time. On April
30, 1999 the note receivable balance from Mr. Crean was zero and the note
payable balance to Mr. Crean was reduced from the original amount of $300,000 to
the ending balance of $218,616.

Prior to January 1999 the Company had 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. In January 1999 the indebtedness of Mr. Crean
was paid off and the collateral cancelled.

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

Balance Sheets as of April 30, 1999 and 1998

Statements of Operation for the years ended April 30, 1999, 1998 and
1997

Statements of Stockholders' Equity for the years ended April 30, 1999,
1998 and 1997

Statements of Cash Flows for the years ended April 30, 1999, 1998 and
1997

Notes to Financial Statements

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.

- 30 -

<PAGE> 31

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.

4.5 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.

10.10 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.

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

27 Financial Data Schedule.

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

Not applicable.

- 31 -

<PAGE> 32

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 13, 1999 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 13, 1999

/s/ JOHNNIE R. CREAN July 13, 1999
- -------------------------------------------
Johnnie R. Crean, Chairman of the Board
and President

/s/ CAROL SMITH July 13, 1999
- -------------------------------------------
Carol Smith, Director

/s/ ROBERT A. RUDOLPH July 13, 1999
- -------------------------------------------
Robert A. Rudolph, Director

/s/ MARK SCHWARTZ July 13, 1999
- -------------------------------------------
Mark Schwartz, Vice President Finance
[Principal Financial Officer and Principal
Accounting Officer]

- 32 -

<PAGE> 33

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibits
--------
<C> <S>
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.

3.4 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.

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

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

27 Financial Data Schedule.

</TABLE>

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1999
<PERIOD-END> APR-30-1999
<CASH> 80,727
<SECURITIES> 0
<RECEIVABLES> 1,922,919
<ALLOWANCES> 0
<INVENTORY> 1,626,516
<CURRENT-ASSETS> 3,998,573
<PP&E> 2,308,933
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,515,622
<CURRENT-LIABILITIES> 3,172,133
<BONDS> 0
0
0
<COMMON> 62,000
<OTHER-SE> 3,273,289
<TOTAL-LIABILITY-AND-EQUITY> 6,515,622
<SALES> 39,146,987
<TOTAL-REVENUES> 39,146,987
<CGS> 34,100,426
<TOTAL-COSTS> 34,100,426
<OTHER-EXPENSES> 3,571,871
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,767
<INCOME-PRETAX> 1,457,923
<INCOME-TAX> 568,378
<INCOME-CONTINUING> 889,545
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 889,545
<EPS-BASIC> .29
<EPS-DILUTED> .29

</TABLE>